Stockholders' Equity

9 Months Ended

Sep. 30, 2020

Stockholders' Equity Note [Abstract]

Stockholders’ Equity

Summary of Stock-Based Compensation Expense

As of September 30, 2020, the 2005 Incentive Plan (as amended) has a total reserve of 27,783,379 shares of which 4,617,148 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 our stock-based awards and employee stock purchase plans for the three and nine months ended September 30, 2020 and 2019 is as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Cost of net revenues	$	1,247	$	1,354	$	3,485	$	3,744
Selling, general and administrative	19,951		19,394		58,284		54,321

Research and development	4,031		3,428		11,394		9,622
Total stock-based compensation	$	25,229	$	24,176	$	73,163	$	67,687

Restricted Stock Units (“RSUs”)

The fair value of RSUs is based on our closing stock price on the date of grant. A summary for the nine months ended September 30, 2020 is as follows:


	Number of Shares Underlying RSUs (in thousands)	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Unvested as of December 31, 2019	696	$	190.60
Granted	298	266.07
Vested and released	(308)	150.22
Forfeited	(34)	233.59
Unvested as of September 30, 2020	652	$	241.90	1.4	$	213,410

As of September 30, 2020, we expect to recognize $113.4 million of total unamortized compensation cost, net of estimated forfeitures, related to RSUs over a weighted average period of 2.4 years.

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

We grant 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 a stock market index over the vesting period, and certain MSU grants are also based on Align’s stock price at the end of the performance period. The maximum number of MSUs which will be eligible to vest range from 250% to 300% of the MSUs initially granted and the vesting period is three years.

A summary for the nine months ended September 30, 2020 is as follows:


	Number of Shares Underlying MSUs (in thousands)	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Unvested as of December 31, 2019	244	$	331.35
Granted	156	242.04
Vested and released	(173)	120.39

Unvested as of September 30, 2020	227	$	430.50	1.4	$	74,391

As of September 30, 2020, we expect to recognize $39.0 million of total unamortized compensation cost, net of estimated forfeitures, related to MSUs over a weighted average period of 1.4 years.

Employee Stock Purchase Plan (“ESPP”)

In May 2010, our stockholders approved the 2010 Employee Stock Purchase Plan (the “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, 2020, we have 325,665 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,
	2020			2019			2020			2019
Expected term (in years)	1.0			1.5			1.0			1.4
Expected volatility	71.7		%	52.0		%	55.0		%	50.1		%
Risk-free interest rate	0.1		%	1.8		%	0.9		%	2.2		%
Expected dividends	—			—			—			—
Weighted average fair value at grant date	$	117.32		$	80.42		$	96.94		$	86.02

As of September 30, 2020, there was $4.9 million of total unamortized compensation costs related to employee stock purchases which we expect to be recognized over a weighted average period of 0.5 year.