Stock-based Compensation and Stockholders’ Equity

Share Repurchase Program

In July 2016, the Company’s Board of Directors adopted a program to repurchase from time to time at management’s discretion up to $100,000,000 of the Company’s common stock in the open market or in private transactions during the next twelve months at prevailing market prices. Repurchases will be made under the program using the Company’s own cash resources. This share repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be suspended at any time at the Company’s discretion. During the three months ended March 31, 2017, the Company did not purchase any shares of its common stock in the open market. During the nine months ended March 31, 2017, the Company purchased 888,097 shares of the Company's common stock in the open market at a weighted average price of $20.79 for $18,461,000.

Equity Incentive Plan

In January 2016, the Board of Directors approved the 2016 Equity Incentive Plan (the "2016 Plan") and reserved for issuance 4,700,000 shares of common stock for awards of stock options, stock appreciation rights, restricted stock, RSUs and other share-based awards. The 2016 Plan was approved by the stockholders of the Company and became effective on March 8, 2016. As of such date, 8,696,444 shares of common stock were reserved for outstanding awards under the Company's 2006 Equity Incentive Plan (the "2006" Plan). Such awards remained outstanding under the 2006 Plan following the adoption of the 2016 Plan, although no further awards will be granted under the 2006 Plan. Up to 2,800,000 shares subject to awards that remained outstanding under the 2006 Plan but that are forfeited in the future will become available for use under the 2016 Plan. In addition, 1,153,412 shares of common stock originally reserved for issuance under the 2006 Plan were cancelled upon the adoption of the 2016 Plan. Under the 2016 Plan, the exercise price per share for incentive stock options granted to employees owning shares representing more than 10% of the Company at the time of grant cannot be less than 110% of the fair value of the underlying share on grant date. Nonqualified stock options and incentive stock options granted to all other persons shall be granted at a price not less than 100% of the fair value of the underlying share on grant date. Options generally expire ten years after the date of grant. Stock options and RSUs generally vest over four years; 25% at the end of one year and one sixteenth per quarter thereafter. As of March 31, 2017, the Company had 3,156,856 shares available for future issuance under the 2016 Plan.

Determining Fair Value

The Company's fair value of RSUs is based on the closing market price of the Company's common stock on the date of grant. The Company estimates the fair value of stock options granted using the Black-Scholes-option-pricing formula and a single option award approach. This fair value is then amortized ratably over the requisite service periods of the awards, which is generally the vesting period.

Expected Term—The Company’s expected term represents the period that the Company’s share-based awards are expected to be outstanding and was determined based on a combination of the Company's peer group and the Company's historical experience.

Expected Volatility—Expected volatility is based on a combination of the Company's implied and historical volatility.

Expected Dividend—The Black-Scholes valuation model calls for a single expected dividend yield as an input and the Company has no plans to pay dividends.

Risk-Free Interest Rate—The risk-free interest rate used in the Black-Scholes valuation method is based on the United States Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

Estimated Forfeitures—The estimated forfeiture rate is based on the Company’s historical forfeiture rates and the estimate is revised in subsequent periods if actual forfeitures differ from the estimate.

The fair value of stock option grants for the three and nine months ended March 31, 2017 and 2016 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:



	Three Months Ended March 31,						Nine Months Ended March 31,
	2017			2016			2017			2016
Risk-free interest rate	2.03		%	1.38% - 1.48%			1.12% - 2.03%			1.38% - 1.57%
Expected term	5.31 years			5.31 years			5.31 - 5.38 years			5.31 - 5.33 years
Dividend yield	—		%	—		%	—		%	—		%
Volatility	43.84% - 49.12%			49.09% - 50.89%			43.84% - 49.64%			47.06% - 50.89%
Weighted-average fair value	$	12.72		$	12.99		$	10.90		$	12.04

The following table shows total stock-based compensation expense included in the condensed consolidated statements of operations for the three and nine months ended March 31, 2017 and 2016 (in thousands):



	Three Months Ended March 31,						Nine Months Ended March 31,
	2017			2016			2017			2016
Cost of sales	$	334		$	294		$	968		$	792
Research and development	3,069			2,549			8,989			7,423
Sales and marketing	541			491			1,539			1,330
General and administrative	889			552			2,550			2,223
Stock-based compensation expense before taxes	4,833			3,886			14,046			11,768
Income tax impact	(1,549		)	(1,191		)	(4,270		)	(3,290		)
Stock-based compensation expense, net	$	3,284		$	2,695		$	9,776		$	8,478

The cash flows resulting from the tax benefits for tax deductions resulting from the exercise of stock options and vesting of RSUs in excess of the compensation expense recorded for those share-based awards (excess tax benefits) issued or modified since July 1, 2006 are classified as cash from financing activities. The Company had $1,224,000 and $3,548,000 of excess tax benefits recorded in additional paid-in capital in the nine months ended March 31, 2017 and March 31, 2016, respectively. The Company had excess tax benefits classified as cash provided by financing activities of $1,893,000 and $2,506,000 in the nine months ended March 31, 2017 and 2016, respectively, for share-based awards issued since July 1, 2006.

As of March 31, 2017, the Company’s total unrecognized compensation cost related to non-vested share-based awards granted to employees and non-employee directors was $39,249,000, which will be recognized over a weighted-average vesting period of approximately 2.40 years.

Stock Option Activity

The following table summarizes stock option activity during the nine months ended March 31, 2017 under all plans:



	Options Outstanding		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (in thousands)
Balance as of June 30, 2016 (7,495,131 shares exercisable at weighted average exercise price of $13.35 per share)	8,960,867		$	14.88
Granted (weighted average fair value of $10.90)	341,400		$	24.11
Exercised	(827,875	)	$	11.02
Forfeited	(24,011	)	$	20.76
Balance as of March 31, 2017	8,450,381		$	15.62	4.90	$	86,351
Options vested and expected to vest at March 31, 2017	8,378,933		$	15.53	4.86	$	86,238
Options vested and exercisable at March 31, 2017	7,364,413		$	14.29	4.41	$	83,637

The total pretax intrinsic value of options exercised was $5,237,000 and $11,312,000 during the three and nine months ended March 31, 2017, respectively, and $11,637,000 and $16,491,000 during the three and nine months ended March 31, 2016, respectively.

RSU Activity

The Company grants RSUs to certain employees as part of its regular employee equity compensation review program as well as to selected new hires. RSUs are share awards that entitle the holder to receive freely tradable shares of the Company's common stock upon vesting and settlement.

The following table summarizes RSUs activity during the nine months ended March 31, 2017 under all plans:



	RSUs Outstanding		Weighted Average Grant-Date Fair Value per Share		Aggregate Intrinsic Value (in thousands)
Balance as of June 30, 2016	926,983		$	30.23
Granted	613,310		$	23.42
Released	(285,037	)	$	27.45
Forfeited	(81,869	)	$	26.67
Balance as of March 31, 2017	1,173,387		$	27.59	$	29,745

The total pretax intrinsic value of RSUs vested was $2,620,000 and $7,015,000 during the three and nine months ended March 31, 2017, respectively, and $1,579,000 and $2,937,000 during the three and nine months ended March 31, 2016, respectively. In the three and nine months ended March 31, 2017, upon vesting, 97,392 and 285,037 shares of RSUs were partially net share-settled such that the Company withheld 34,727 and 100,609 shares with value equivalent to the employees' minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities, respectively. In the three and nine months ended March 31, 2016, upon vesting, 50,912 and 102,918 shares of RSUs were partially net share-settled such that the Company withheld 19,480 and 38,801 shares with value equivalent to the employees' minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities, respectively. The total shares withheld were based on the value of the RSUs on their respective vesting dates as determined by the Company's closing stock price. Total payments for the employees' tax obligations to taxing authorities were $934,000 and $2,476,000 during the three and nine months ended March 31, 2017, respectively, and $604,000 and $1,108,000 during the three and nine months ended March 31, 2016, respectively, and are reflected as a financing activity within the condensed consolidated statements of cash flows. These net-share settlements had the effect of share repurchases by the Company as they reduced and retired the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company. Pursuant to the terms of the 2016 Plan, shares withheld in connection with net-share settlements are returned to the 2016 Plan and are available for future grants under the 2016 Plan.