Stock-Based Compensation

Equity Incentive Plans

As of December 31, 2017, the Company’s approved equity incentive plans included the 2015 Equity Incentive Plan (“2015 Plan”), the 2013 Equity Incentive Plan (“2013 Plan”), and the 2008 Equity Incentive Plan (“2008 Plan”). These plans are administered by the Board of Directors and permit the granting of stock options, stock appreciation rights, restricted stock, restricted stock units and dividend equivalent rights (“DERs”) to employees, officers, directors and consultants of the Company. The Board of Directors may, at its sole discretion, grant DERs with respect to any award and such DER is treated as a separate award.

The Company has certain stock option and restricted stock awards outstanding under each of its equity incentive plans but, upon adoption of the 2015 Plan, no longer grants new equity awards under its 2008 and 2013 Plans. The Company adopted its 2015 Plan in June 2015 and subsequently amended the plan in April 2017 to increase the common stock reserved for issuance under the plan to an aggregate 5,755,277 shares.

Stock-based compensation expense recognized in the consolidated statements of operations is summarized below:



	Year Ended December 31,
(in thousands)	2017		2016		2015
Cost of goods sold	$	1,692	$	359	$	192
Sales and marketing	640		339		254
General and administrative	2,964		1,438		1,330
Research and development	632		388		226
Total stock-based compensation expense	$	5,928	$	2,524	$	2,002

Stock Options

Stock option awards under the 2015 Plan are granted with an exercise price equal to the fair value of the Company’s common stock at the date of grant. Time based option awards vest based on time, typically four years, and performance based option awards vest based on the performance criteria specified in the grant. All option awards have a ten-year contractual term. The Company recognizes compensation costs for its time based awards on a straight-line basis equal to the vesting period. The compensation cost for performance based awards is recognized on a graded vesting basis, based on the probability of achieving the performance targets over the requisite service period for the entire award. The fair value of each option award is estimated on the date of grant using a Black-Scholes valuation model that uses the assumptions noted in the following table. Expected volatilities are based on the historic volatility of a selected peer group. Expected dividends represent the dividends expected to be issued at the date of grant. The expected term of options represents the period of time that options granted are expected to be outstanding. The risk-free interest rate assumption is the U.S. Treasury rate at the date of the grant which most closely resembles the expected life of the options.

The table below summarizes the key assumptions used in valuing stock options granted:



		Year Ended December 31, 2015
Expected volatility		26.0% - 30.0%
Expected dividends		—
Expected life (in years)		4.1 - 6.3
Risk-free interest rate		1.3% - 1.9%

There were no stock options granted during the years ended December 31, 2017 and 2016.

A summary of option activity for 2017 is presented below:



	Time Based		Performance Based		Total Stock Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Balance at January 1, 2017	818,331		219,006		1,037,337		$	10.63
Options granted	—		—		—		$	—
Options exercised	(338,133	)	(127,099	)	(465,232	)	$	6.98
Options forfeited and expired	(2,565	)	(4,115	)	(6,680	)	$	9.47
Outstanding at December 31, 2017	477,633		87,792		565,425		$	13.65	3.9	$	4,150,751
Vested and expected to vest at December 31, 2017	477,633		87,792		565,425		$	13.65	3.9	$	4,150,751
Exercisable at December 31, 2017	371,861		87,792		459,653		$	14.94	4.4	$	2,774,300

The weighted-average grant-date fair values of options granted during the year ended December 31, 2015 was $1.44. During the years ended December 31, 2017 and 2016, 465,232 and 40,976 options were exercised having aggregate intrinsic values of $5.1 million and $0.2 million, respectively. No stock options were exercised during the year ended December 31, 2015.

As of December 31, 2017, there was no remaining unrecognized compensation expense related to outstanding stock options. In addition, performance based options contain certain contingent features, such as change in control provisions, which allow for the vesting of previously forfeited and unvested awards.

Restricted Stock

A summary of restricted stock awards activity for 2017 is presented below:



	Shares		Weighted- Average Grant Date Fair Value Per Share
Nonvested restricted stock, January 1, 2017	2,156,372		$	3.71
Granted	395,146		$	12.94
Vested	(744,244	)	$	3.86
Cancelled	(42,012	)	$	3.78
Nonvested restricted stock, December 31, 2017	1,765,262		$	5.72

As of December 31, 2017, there was $6.2 million of unrecognized compensation expense related to outstanding restricted stock, which is expected to be recognized over a weighted-average period of 1.9 years.

Performance Restricted Stock Awards

Performance awards vest based on the requisite service period subject to the achievement of specific financial performance targets. The Company monitors the probability of achieving the performance targets on a quarterly basis and may adjust periodic stock compensation expense accordingly. The performance targets include the achievement of internal performance targets only.

A summary of performance restricted stock award activity for 2017 is presented below:



	Shares		Weighted- Average Grant Date Fair Value Per Share
Nonvested performance restricted stock, January 1, 2017	—		$	—
Granted	303,495		$	16.69
Vested	—		$	—
Cancelled	(12,323	)	$	16.62
Nonvested performance restricted stock, December 31, 2017	291,172		$	16.70

As of December 31, 2017, there was $3.9 million of unrecognized compensation expense related to outstanding performance restricted stock which is expected to be recognized over a weighted-average period of 2.1 years.

Modifications

During the year ended December 31, 2017, the Company recognized approximately $1.3 million of stock-based compensation expense associated with the modification of awards held by two individuals, one of which was effectuated in the third quarter of 2017 and one of which was effectuated in the fourth quarter of 2017. The modification of these awards affected the vesting terms of the awards.

Employee Stock Purchase Plan

In April 2017, the Company’s stockholders approved the 2017 Employee Stock Purchase Plan (“2017 ESPP”), which authorized the issuance of up to 250,000 shares of common stock thereunder. Under the terms of the 2017 ESPP, eligible U.S. employees can elect to acquire shares of the Company’s common stock through periodic payroll deductions during a series of six month offering periods, which will generally begin in March and September of each year. Purchases under the 2017 ESPP are effected on the last business day of each offering period at a 15% discount to the closing price on that day. The 2017 ESPP was implemented, subject to stockholder approval, on March 10, 2017, and the first purchases thereunder were made on September 13, 2017.