STOCK-BASED COMPENSATION:

The following table summarizes the stock-based compensation expense for the three and six months ended June 30, 2017, and June 30, 2016:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2017		2016		2017		2016
Cost of revenues	$	351	$	293	$	494	$	383
Research and development	2,351		1,940		3,985		3,409
Sales and marketing	1,189		899		2,286		1,926
General and administrative	2,436		1,880		4,531		3,710
Total stock-based compensation expense	$	6,327	$	5,012	$	11,296	$	9,428

Stock-based compensation expense in the three months ended June 30, 2017 was $6.3 million (comprising approximately $2.3 million related to performance-based (PSU) awards and long-term performance-based (PRSU) awards, $3.7 million related to restricted stock unit (RSU) awards and $0.3 million related to the Company’s employee stock purchase plan). In the six months ended June 30, 2017, stock-based compensation expense was $11.3 million (comprising approximately $3.5 million related to PSUs and PRSUs, $7.2 million related to RSUs and $0.6 million related to the Company’s employee stock purchase plan).

Stock-based compensation expense in the three months ended June 30, 2016 was $5.0 million (comprising approximately $0.1 million related to stock options, $1.6 million related to PSUs and PRSUs, $3.0 million related to RSUs and $0.3 million related to the Company’s employee stock purchase plan). In the six months ended June 30, 2016, stock-based compensation expense was $9.4 million (comprising approximately $0.2 million related to stock options, $2.3 million related to PSUs and PRSUs, $6.3 million related to RSUs and $0.6 million related to the Company’s employee stock purchase plan).

Stock Options

A summary of stock options outstanding as of June 30, 2017, and activity during the six months then ended, is presented below:



	Shares (in thousands)		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2017	697		$	28.62
Granted	—		—
Exercised	(84	)	$	31.52
Forfeited or expired	—		—
Outstanding at June 30, 2017	613		$	28.22	2.34	$	27,417
Vested and exercisable at June 30, 2017	613				2.34	$	27,417

PSU Awards

Under the performance-based awards program, the Company grants awards in the performance year in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met. The number of shares that are released at the end of the performance year can range from zero to 200% of the target number depending on the Company’s performance. The performance metrics of this program are annual targets consisting of a combination of net revenue, non-GAAP operating income and strategic goals.

As the net revenue, non-GAAP operating income and strategic goals are considered performance conditions, expense associated with these awards, net of estimated forfeitures, is recognized over the service period based on an assessment of the achievement of the performance targets. The fair value of these PSUs is determined using the fair value of the Company’s common stock on the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest. If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.

In January 2017, it was determined that approximately 99,000 shares of the PSUs granted in 2016, vested in aggregate and were released to the Company’s employees and executives in the first quarter of 2017.

A summary of PSUs outstanding as of June 30, 2017, and activity during the six months then ended, is presented below:



	Shares (in thousands)		Weighted-Average Grant Date Fair Value Per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2017	99		$	46.25
Granted	88		$	63.99
Vested	(99	)	$	46.25
Forfeited	—		—
Outstanding at June 30, 2017	88		$	63.99	0.50	$	6,382
Outstanding and expected to vest at June 30, 2017	80				0.50	$	5,807

PRSU Awards

The Company's PRSU program provides for the issuance of PRSUs which will vest based on the Company's performance measured against the PRSU program's established revenue targets. PRSUs are granted in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met. The actual number of shares the recipient receives is determined at the end of a three-year performance period based on results achieved versus the Company's performance goals, and may range from zero to 200% of the target number. The performance goals for PRSUs granted in fiscal 2015, 2016 and 2017 were based on the Company’s annual revenue growth over the respective three-year performance period.

Expense associated with these awards, net of estimated forfeitures, is recorded throughout the year depending on the number of shares expected to vest based on progress toward the performance target. If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.

A summary of PRSUs outstanding as of June 30, 2017, and activity during the six months then ended, is presented below:



	Shares (in thousands)		Weighted-Average Grant Date Fair Value Per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2017	150		$	47.65
Granted	71		$	63.00
Vested	—		—
Forfeited	(7	)	$	47.89
Outstanding at June 30, 2017	214		$	52.75	1.50	$	15,615
Outstanding and expected to vest at June 30, 2017	186				1.69	$	13,543

RSU Awards

A summary of RSUs outstanding as of June 30, 2017, and activity during the six months then ended, is presented below:



	Shares (in thousands)		Weighted- Average Grant Date Fair Value Per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2017	718		$	47.54
Granted	541		$	60.46
Vested	(266	)	$	46.16
Forfeited	(29	)	$	49.02
Outstanding at June 30, 2017	964		$	55.12	2.44	$	70,284
Outstanding and expected to vest at June 30, 2017	854				2.26	$	62,277