Stock-based Compensation

6 Months Ended

Jun. 30, 2013

Stock-based Compensation

Stock-based Compensation

Summary of stock-based compensation expense

On May 16, 2013, the Stockholders approved an increase of 7,000,000 shares to the 2005 Incentive Plan (as amended) for a total reserve of 23,283,379 shares for issuance, plus up to an aggregate of 5,000,000 shares that would have been returned to our 2001 Stock Incentive Plan as a result of termination of options on or after March 28, 2005.

Stock-based compensation expense is based on the estimated fair value of awards, net of estimated forfeitures, and recognized over the requisite service period. Estimated forfeitures are based on historical experience at the time of grant and may be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The stock-based compensation expense related to all of our stock-based awards and employee stock purchases for the three and six months ended June 30, 2013 and 2012 is as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Cost of net revenues	$	637	$	457	$	1,217	$	920
Sales and marketing	2,012		1,447		3,023		2,618
General and administrative	3,556		2,493		7,483		4,922
Research and development	1,060		882		1,952		1,682
Total stock-based compensation expense	$	7,265	$	5,279	$	13,675	$	10,142

Options

Activity for the six month period ended June 30, 2013 under the stock option plans is set forth below (in thousands, except years and per share amounts):

	Stock Options Number of Shares Underlying Stock Options		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
					(in years )
Outstanding as of December 31, 2012	3,276
Granted	—
Exercised	(1,181	)
Cancelled or expired	(72	)
Outstanding as of June 30, 2013	2,023		$	15.51	3.87	$	43,561
Vested and expected to vest at June 30, 2013	2,023		$	15.51	3.87	$	43,561
Exercisable at June 30, 2013	1,731		$	14.95	3.81	$	38,241

There were no stock options granted during the three and six months ended June 30, 2013 and 2012.

As of June 30, 2013, the total unamortized compensation cost related to stock options, net of estimated forfeitures, is $2.9 million, which we expect to recognize over a weighted average period of 1.1 years.

Restricted Stock Units (“RSU”)

A summary of the RSU activity for the six months ended June 30, 2013 is as follows (in thousands, except years):

	Number of Shares Underlying RSUs		Weighted Remaining Vesting Period	Aggregate Intrinsic Value
			(in years)
Nonvested as of December 31, 2012	1,500
Granted	956
Vested and released	(490	)
Forfeited	(83	)
Nonvested as of June 30, 2013	1,883		1.73	$	69,747

As of June 30, 2013, the total unamortized compensation cost related to RSUs, net of estimated forfeitures, was $42.8 million, which we expect to recognize over a weighted average period of 2.9 years.

On February 20, 2013 and 2012, we granted market-performance based restricted stock units (“MSU”) to our executive officers. Each MSU represents the right to one share of Align’s common stock and will be issued through our amended 2005 Incentive Plan. The actual number of MSUs which will be eligible to vest will be based on the performance of Align’s stock price relative to the performance of the NASDAQ Composite Index over the vesting period, generally two to three years, up to 150% of the MSUs initially granted.

The following table summarizes the MSU activity for the six months ended June 30, 2013 (in thousands, except years):

	Number of Shares Underlying MSUs		Weighted Average Remaining Vesting Period	Aggregate Intrinsic Value
			(in years )
Nonvested as of December 31, 2012	266
Granted	225
Vested and released	(79	)
Forfeited	(43	)
Nonvested as of June 30, 2013	369		2.08	$	13,676

As of June 30, 2013, the total unamortized compensation costs related to the MSUs, net of estimated forfeitures, was $7.7 million, which we expect to recognize over a weighted average period of 2.1 years.

Employee Stock Purchase Plan ("ESPP")

In May 2010, our stockholders approved the 2010 Employee Stock Purchase Plan which will continue until terminated by either the Board of Directors or its administrator. The maximum number of shares available for purchase under the 2010 Purchase Plan is 2,400,000 shares. As of June 30, 2013, there remains 1,738,963 shares available for purchase under the 2010 Purchase Plan.

As of June 30, 2013, the total unamortized compensation cost related to employee purchases we expect to recognize was $2.4 million over a weighted average period of 0.7 year.