Stock-based compensation

The following table summarizes the stock-based compensation expense recognized in the three and six months ended June 30, 2019 and 2018 (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Cost of goods sold	$	609	$	629	$	1,210	$	1,279
Research and development	787		829		1,668		1,602
Sales and marketing	599		642		1,277		1,580
General and administrative	1,010		1,039		2,188		2,025
	$	3,005	$	3,139	$	6,343	$	6,486

Determining Fair Value

The Company estimated the fair value of certain stock-based awards using a Black-Scholes-Merton valuation model with the following assumptions:



	Three Months Ended June 30,		Six Months Ended June 30,
Stock options	2019	2018	2019	2018
Weighted-average expected term (years)	6.00	6.02	6.00	6.02
Weighted-average volatility	67%	66%	67%	65%
Risk-free interest rate	2.27%	2.62%	2.27%	2.27% - 2.62%
Expected dividends	—%	—%	—%	—%
Stock appreciation units
Weighted-average expected term (years)	1.55	2.00	1.61	2.04
Weighted-average volatility	62%	67%	63%	67%
Risk-free interest rate	2.27%-2.44%	1.73% - 2.39%	2.27%-2.63%	1.03%-2.39%
Expected dividends	—%	—%	—%	—%
ESPP
Weighted-average expected term (years)	0.69	0.71	0.69	0.71
Weighted-average volatility	60%	61%	60%	61%
Risk-free interest rate	2.36%-2.59%	1.20% - 1.93%	2.36%-2.59%	1.20%-1.93%
Expected dividends	—%	—%	—%	—%

Stock Options and Restricted Stock Units (RSUs)

The following table summarizes the Company’s stock option and RSU activity, excluding market-based RSUs, during the six months ended June 30, 2019:



	Stock Options				Restricted Stock Units
	Number of Shares		Weighted Average Exercise Price		Number of Units		Weighted Average Grant Date Fair Value
Balance as of December 31, 2018	3,202,745		$	5.73	2,486,028		$	7.87
Granted	84,336		4.33		332,034		5.28
Exercised/Converted	(166,071	)	3.45		(423,229	)	7.12
Cancelled/Forfeited	(158,011	)	6.16		(186,353	)	7.73
Balance as of June 30, 2019	2,962,999		5.80		2,208,480		7.63

At June 30, 2019, the Company had $1.2 million of unrecognized stock-based compensation expense for stock options, net of estimated forfeitures, which will be recognized over the remaining weighted-average period of 1.3 years. At June 30, 2019, the Company had $9.8 million of unrecognized stock-based compensation expense for RSUs, excluding market-based RSUs, net of estimated forfeitures, which will be recognized over the remaining weighted-average period of 1.8 years.

Market-based Restricted Stock Units

As of June 30, 2019, the Company has granted 705,000 shares of market-based RSUs to certain employees. These RSUs will vest if the 30-day weighted average closing price of the Company's common stock is equal to or greater than certain price targets per share and the recipients remain in continuous service with the Company through such service period. No market-based RSUs have vested and 58,500 market-based RSUs have been cancelled through June 30, 2019.

The weighted average grant-date fair value per share of market-based RSUs granted during 2018 was approximately $5.82 per share. As of June 30, 2019, the Company had $1.9 million of unrecognized stock-based compensation expense for these RSUs, net of estimated forfeitures, which will be recognized over the remaining weighted-average period of 1.14 years. The fair value of market-based RSUs was measured on the grant date using Monte Carlo simulation model with the following assumptions:



Market-based restricted stock units	Assumptions Used
Weighted-average volatility	66%
Risk-free interest rate	2.79%
Expected dividends	—%

Stock Appreciation Units (SAU)

SAUs are liability classified share-based awards. Outstanding SAUs are re-measured each reporting period at fair value until settlement. The Company did not grant any SAUs during the three and six months ended June 30, 2019 or 2018. As of June 30, 2019 and December 31, 2018, there were 189,739 and 192,872 SAUs outstanding, respectively, and related SAU liabilities were $0.3 million and $0.6 million, respectively.

Employee Stock Purchase Plan (ESPP)

The Company issued 253,718 shares under the ESPP during the six months ended June 30, 2019. As of June 30, 2019, there was $0.2 million of unrecognized stock-based compensation expense for employee stock purchase rights that will be recognized over the remaining offering period through November 2019. In June 2019, the Company adopted an Amendment and Restatement of the ESPP to increase the number of shares authorized for issuance under the ESPP by an additional 1,500,000 shares and to eliminate the annual "'evergreen" automatic increase provisions.