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Stock-Based Compensation

9 Months Ended

Sep. 30, 2019

Note 8. Stock-Based Compensation

The Company has four stock-based compensation plans (collectively, the Stock Plans)—the 2001 Stock Option Plan (the 2001 Stock Plan), the 2011 Stock Plan (the 2011 Stock Plan), the 2015 Omnibus Incentive Compensation Plan (the 2015 Stock Plan) and the ESPP. The 2015 Stock Plan permits grants of RSU awards.

The purpose of these plans is to provide incentives to employees, directors and nonemployee consultants. The Company no longer grants any awards under the 2001 Stock Plan or the 2011 Stock Plan. The maximum term of any stock options granted under the Stock Plans is 10 years. For employees and nonemployees, stock options generally vest 25% on the first anniversary of the original vesting date, with the balance vesting monthly or annually over the remaining three years. Stock options are granted at exercise prices at least equal to the fair value of the underlying stock at the date of the grant. For employees and nonemployees, generally, RSU awards vest 25% on each of the first, second, third and fourth anniversaries of the grant date and in certain cases, vest one year after grant date.

In 2019, the Compensation Committee approved the grant of performance-based equity awards (PBEAs) to the Company’s named executive officers and certain other employees pursuant to the 2015 Stock Plan. These PBEAs will only vest upon the Compensation Committee’s confirmation of the satisfaction of a pre-determined Company operational goal. The goal must be reached within three years of the grant date or the PBEA grants will lapse and be forfeited for no consideration.

The ESPP permits eligible employees to purchase shares of the Company’s common stock, using contributions via payroll deductions of up to 15% of their earnings, at a price per share equal to 85% of the lower of the stock’s fair market value on the offering date or purchase date. The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.

Stock Options

The following table summarizes stock option activity under the 2001 Stock Plan, 2011 Stock Plan and 2015 Stock Plan during the nine months ended September 30, 2019 (in thousands except option exercise price):



				Weighted-
	Number of			Average
	Shares		Weighted-	Remaining
	Underlying	Average		Contractual		Aggregate
	Options	Exercise Price		Life (in years)		Intrinsic Value
Outstanding at December 31, 2018	6,307	$	23.69	6.7	$	204,896
Granted	186		68.10
Exercised	(583)		24.08		$	27,515
Canceled/forfeited/expired	(13)		38.57
Outstanding at September 30, 2019	5,897	$	25.04	6.2	$	222,005
Vested and expected to vest at September 30, 2019	5,834	$	24.85	6.1	$	220,714
Exercisable at September 30, 2019	4,352	$	19.79	5.5	$	185,936

Intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the common stock for the options that had exercise prices that were lower than the fair value per share of the common stock on the date of exercise.

The weighted average estimated grant date fair value per share of stock options granted during the three months ended September 30, 2019 was $30.71. There were not any stock options granted during the three months ended September 30, 2018. The weighted average estimated grant date fair value per share of stock options granted during the nine months ended September 30, 2019 and September 30, 2018 was $33.02 and $15.19, respectively.

The total fair value of stock options that vested during the three months ended September 30, 2019 and September 30, 2018 was $4.3 million and $4.7 million, respectively. The total fair value of stock options that vested during the nine months ended September 30, 2019 and September 30, 2018 was $15.3 million and $20.4 million, respectively.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model applying the assumptions noted in the following table. The weighted average assumptions used to estimate the fair value of options granted to employees and non-employees were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Risk-free interest rate	1.61	%	**	%	2.17	%	2.67	%
Expected dividend yield	0.00	%	**	%	0.00	%	0.0	%
Expected volatility	47.0	%	**	%	46.8	%	44.9	%
Expected term (in years)	6.01		**		6.01		6.10

**There were no stock options granted in the period.

Restricted Stock Units

The following table summarizes the activity of unvested RSUs (including PBEAs) under the Stock Plans during the nine months ended September 30, 2019:


			Weighted-
	Number of		average
	shares		grant date
	(in thousands)		fair value
Unvested at December 31, 2018	532	$	35.17
Granted	301		70.42
Vested	(210)		34.93
Canceled/forfeited	(17)		42.14
Unvested at September 30, 2019	606	$	52.39

The total fair value of RSUs made to employees and nonemployees is equal to the closing market price of the Company’s common stock on the grant date. The total fair value of RSUs that vested during the three and nine months ended September 30, 2019 was $1.4 million and $7.3 million, respectively. The total fair value of RSUs that vested during the three and nine months ended September 30, 2018 was $0.1 million and $1.2 million, respectively.

All share-based compensation arrangements

The following table summarizes the allocation of stock-based compensation related to stock options and RSUs in the accompanying condensed consolidated statements of operations (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Cost of sales	$	259	$	175	$	752	$	526
Selling, general and administrative		6,727		5,538		18,555		14,418
Research and development		1,561		1,460		4,616		4,092
Total	$	8,547	$	7,173	$	23,923	$	19,036

At September 30, 2019, the total unamortized stock-based compensation expense was approximately $54.4 million. Of the approximately $54.4 million in unamortized stock-based compensation expense, $28.9 million was attributable to stock options and is to be recognized over the stock options’ remaining vesting terms of approximately 4.0 years (2.1 years on a weighted average basis). The remaining $25.5 million was attributable to RSUs and is to be recognized over the restricted stock units’ vesting terms of approximately 4.0 years (1.6 years on a weighted-average basis).

The total stock-based compensation cost capitalized in inventory was not material for the three and nine month periods ended September 30, 2019 and September 30, 2018.