Stockholders' Equity

Summary of Stock-Based Compensation Expense

As of September 30, 2017, the 2005 Incentive Plan (as amended) has a total reserve of 27,783,379 shares of which 6,920,114 shares are available for issuance.

Stock-based compensation 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 related to all of our stock-based awards and employee stock purchases for the three and nine months ended September 30, 2017 and 2016 is as follows (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Cost of net revenues	$	833	$	995	$	2,526	$	2,888
Selling, general and administrative	11,880		10,797		34,814		31,474
Research and development	2,254		1,919		6,684		5,572
Total stock-based compensation	$	14,967	$	13,711	$	44,024	$	39,934

Stock Options

We have not granted options since 2011 and all outstanding options were fully vested and associated stock-based compensation expenses were recognized as of December 31, 2015. Activity for the nine months ended September 30, 2017 under the stock option plans is set forth below (in thousands, except years and per share amounts):



	Number of Shares Underlying Stock Options		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2016	222		$	14.90
Exercised	(110	)	16.19
Cancelled or expired	(4	)	18.16
Outstanding as of September 30, 2017	108		$	13.47	0.90	$	18,711
Vested and expected to vest at September 30, 2017	108		$	13.47	0.90	$	18,711
Exercisable at September 30, 2017	108		$	13.47	0.90	$	18,711

Restricted Stock Units (“RSUs”)

The fair value of nonvested RSUs is based on our closing stock price on the date of grant. A summary for the nine months ended September 30, 2017 is as follows (in thousands, except years and per share amounts):



	Shares Underlying RSUs		Weighted Average Grant Date Fair Value		Weighted Remaining Vesting Period (in years)	Aggregate Intrinsic Value
Nonvested as of December 31, 2016	1,789		$	58.39
Granted	456		110.40
Vested and released	(785	)	53.61
Forfeited	(71	)	67.22
Nonvested as of September 30, 2017	1,389		77.72		1.34	$	258,838

As of September 30, 2017, we expect to recognize $76.6 million of total unamortized compensation cost, net of estimated forfeitures, related to RSUs over a weighted average period of 2.3 years.

Market-performance Based Restricted Stock Units (“MSUs”)

On an annual basis, we grant market-performance based restricted stock units (“MSUs”) to our executive officers. Each MSU represents the right to one share of Align’s common stock. 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 200% of the MSUs initially granted.

The following table summarizes the MSU performance for the nine months ended September 30, 2017 (in thousands, except years):



	Number of Shares Underlying MSUs		Weighted Average Grant Date Fair Value		Weighted Average Remaining Vesting Period (in years)	Aggregate Intrinsic Value
Nonvested as of December 31, 2016	520		$	60.49
Granted	201		88.80
Vested and released	(283	)	53.11
Forfeited	(10	)	64.50
Nonvested as of September 30, 2017	428		78.53		1.22	$	79,742

As of September 30, 2017, we expect to recognize $14.7 million of total unamortized compensation cost, net of estimated forfeitures, related to MSUs over a weighted average period of 1.2 years.

Employee Stock Purchase Plan ("ESPP")

In May 2010, our shareholders approved the 2010 Employee Stock Purchase Plan ("2010 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 September 30, 2017, we have 735,301 shares available for future issuance.

The fair value of the option component of the 2010 Purchase Plan shares was estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Expected term (in years)	1.2			1.2			1.2			1.2
Expected volatility	28.8		%	27.4		%	26.8		%	30.5		%
Risk-free interest rate	1.2		%	0.5		%	1.0		%	0.7		%
Expected dividends	—			—			—			—
Weighted average fair value at grant date	$	47.02		$	24.44		$	31.36		$	22.23

As of September 30, 2017, there was $4.0 million of total unamortized compensation costs related to employee stock purchases which we expect to be recognized over a weighted average period of 0.9 year.