Stock-based Compensation and Awards

9 Months Ended

Sep. 30, 2012

Stock-based Compensation and Awards [Abstract]

Stock-based compensation and awards

11. Stock-based compensation and awards

2001 Plan. In 2001, our board of directors and stockholders approved the 2001 Stock Plan (2001 Plan) pursuant to which our board of directors was authorized to issue stock purchase rights, incentive stock options and nonqualified stock options. We ceased granting options under the 2001 Plan in March 2011 upon the adoption of our 2011 Equity Incentive Plan (2011 Plan).

2011 Plan: In March 2011 and June 2011, our board of directors and our stockholders, respectively, approved the 2011 Plan, under which our board of directors may issue stock appreciation rights, restricted stock, restricted stock units, incentive stock options and nonqualified stock options to service providers. In June 2012, we began issuing restricted stock units as an element of our compensation plans in addition to incentive stock options and nonqualified stock options.

2011 ESPP: In September 2011 and April 2012, our board of directors and our stockholders, respectively, approved our 2011 Employee Stock Purchase Plan (2011 ESPP), which plan became effective upon the completion of our IPO. The 2011 ESPP permits eligible participants to purchase common stock at a discount through contributions of up to 15% of their eligible compensation, subject to any plan limitations. The 2011 ESPP provides for offering and purchase periods of approximately six months in duration, except for our first offering period which commenced on the completion of our IPO and ends on first trading day on or after November 16, 2012. The purchase price of shares is 85% of the lower of the fair market value of our common stock on the first trading day of each offering period or on the exercise date.

The following is a summary of option activity under the 2001 Plan and 2011 Plan for the nine months ended September 30, 2012:

				Options outstanding
	Shares available for grant			Number of shares			Weighted average exercise price
Balances at December 31, 2011		1,343,978			4,505,153		$	4.25
Options granted		(790,364	)		790,364			15.11
Options exercised		—			(216,035	)		2.36
Options cancelled		197,371			(197,371	)		7.28
Options retired—2001 Plan		(120,874	)		—			—
Balances at September 30, 2012		630,111			4,882,111		$	5.98

The following is a summary of restricted stock unit activity for the nine months ended September 30, 2012:

	Shares outstanding
	Number of shares		Weighted average exercise price
Balances at December 31, 2011		—	$	—
Shares granted		17,500		21.88
Shared vested and paid out		—		—
Shares forfeited		—		—
Balances at September 30, 2012		17,500	$	21.88

At September 30, 2012, we had 2,238,164 options expected to vest at a weighted average exercise price of $9.14 per share. At December 31, 2011, we had 2,303,799 options expected to vest at a weighted average exercise price of $6.08 per share.

We calculated the intrinsic value of options outstanding, exercisable and expected-to-vest options based on the difference between the exercise price and the fair market value of our common stock on the applicable reporting date. The intrinsic value of exercised options was calculated based on the difference between the exercise price and the fair market value of our common stock as of the exercise date. From our inception until March 31, 2012, we generally obtained contemporaneous valuation analyses prepared by an unrelated third party valuation firm in order to assist us in determining the fair market value of our common stock. Our most recent contemporaneous valuation report was as of March 15, 2012. Prior to the completion of our IPO, our board of directors considered these reports when determining the fair market value of our common stock and related exercise prices of option awards on the date such awards were granted. We have also used these contemporaneous third party valuations for purposes of determining the Black-Scholes fair value of our stock option awards and related stock-based compensation expense.

Information regarding our options as of September 30, 2012 and December 31, 2011 is summarized below:

Options outstanding at September 30, 2012									Options exercisable at September 30, 2012
Range of exercise price	Number outstanding		Weighted average remaining contractual life (years)		Weighted average exercise price		Aggregate intrinsic value ($’000s)		Number exercisable		Weighted average remaining contractual life (years)		Weighted average exercise price		Aggregate intrinsic value ($’000s)
$ 0.60 - $ 0.90		711,648		3.5	$	0.72				711,648		3.5	$	0.72
$ 2.40 - $ 3.00		2,054,633		7.2	$	2.57				1,356,049		7.0	$	2.52
$ 3.30 - $ 5.10		497,361		8.3	$	4.27				189,148		8.3	$	4.28
$ 7.17 - $13.80		1,290,813		9.2	$	11.65				173,539		9.1	$	11.65
$15.30 - $21.88		327,656		9.7	$	19.04				2,514		9.6	$	16.55
		4,882,111		7.5	$	5.98	$	12,323		2,432,898		6.2	$	2.79	$	9,257

Options outstanding at December 31, 2011									Options exercisable at December 31, 2011
Range of exercise price	Number outstanding		Weighted average remaining contractual life (years)		Weighted average exercise price		Aggregate intrinsic value ($’000s)		Number exercisable		Weighted average remaining contractual life (years)		Weighted average exercise price		Aggregate intrinsic value ($’000s)
$0.60 - $ 0.90		755,519		4.2	$	0.72				753,126		4.2	$	0.72
$2.40 - $ 3.00		2,285,729		8.0	$	2.54				1,107,324		7.7	$	2.48
$3.30 - $ 5.10		556,829		9.0	$	4.24				87,068		9.0	$	3.69
$9.30 - $11.70		907,076		9.8	$	11.53				198,228		9.8	$	11.67
		4,505,153		7.8	$	4.25	$	43,005		2,145,746		6.7	$	2.76	$	23,689

Options to nonemployees. As of September 30, 2012, we had granted options to purchase 8,866 shares of common stock to nonemployees, which options had a weighted average exercise price of $2.04 per share. These options were valued on the date of grant using the Black-Scholes option pricing model with the following assumptions: volatility between 43% and 60%, risk-free interest rates between 2.07% and 5.13%, zero percent expected dividend yield and the contractual life of 10 years.

At each reporting date, we revalue any unvested options using the Black-Scholes option pricing model. As a result, the stock-based compensation expense will fluctuate as the fair market value of our common stock fluctuates. Changes in the estimated fair value of these options will be recognized as stock-based compensation in the period of the change.

Stock-based compensation expense. The following table summarizes the components of stock-based compensation expense for the three and nine months ended September 30, 2012 and 2011. We realized no tax benefits as we are using the net operating loss to reduce our current income tax liability and did not capitalize any amounts as part of inventory as such amounts were insignificant.

	Three months  ended September 30,				Nine months  ended September 30,
	2012		2011		2012		2011
	(in thousands)
Cost of revenue	$	50	$	18	$	104	$	66
Research and development		346		117		695		285
Selling, general and administrative		666		248		1,391		433
	$	1,062	$	383	$	2,190	$	784

Valuation assumptions. We estimate the fair value of each stock-based award on the date of grant using the Black-Scholes option pricing model. Expected volatility is based on the historical volatility of a selected guideline group of publicly traded companies. The expected term of stock-based awards is based upon the simplified method for estimating expected term. The risk-free rate for the expected term of the stock-based awards is based on the U.S. Treasury Constant Maturity rate.

The assumptions used to value stock option awards granted during the three and nine months ended September 30, 2012 and 2011 were as follows:

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Expected term (years)		6.25			—			6.25			6.25
Volatility		37	%		—	%		37	%		39	%
Risk-free rate		0.79-1.03	%		—	%		0.79-1.26	%		2.30-2.79	%
Dividend yield		—	%		—	%		—	%		—	%

The assumptions used to value shares issued under our 2011 ESPP during the three and nine months ended September 30, 2012 were as follows:

	Three months ended September 30, 2012			Nine months  ended September 30, 2012
Expected term (years)		—			0.50
Volatility		—	%		30.8	%
Risk-free rate		—	%		0.15	%
Dividend yield		—	%		—	%

At September 30, 2012 and December 31, 2011, we had $8.5 million and $5.2 million, respectively, of total unrecognized compensation expense, net of estimated forfeitures, related to stock-based awards that we expect to recognize over a weighted average period of 2.2 years and 2.5 years, respectively.