Employee Stock Purchase Plan, Stock Options and Warrants

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Employee Stock Purchase Plan Stock Options and Warrants

EMPLOYEE STOCK PURCHASE PLAN, STOCK OPTIONS AND WARRANTS.

Our stock-based compensation primarily consists of the following plans:

2018 Long-Term Incentive Plan. In June 2018, our Board of Directors adopted and our shareholders approved, the Merit Medical Systems, Inc. 2018 Long-Term Incentive Plan, which was subsequently amended effective December 14, 2018 (the “2018 Incentive Plan”) to supplement the Merit Medical Systems, Inc. 2006 Long-Term Incentive plan (the "2006 Incentive Plan"). The 2018 Incentive Plan provides for the granting of stock options, stock appreciation rights, restricted stock, stock units (including restricted stock units) and performance awards. Options may be granted to directors, officers, outside consultants and key employees and may be granted upon such terms and such conditions as the Compensation Committee of our Board of Directors determines. Options will typically vest on an annual basis over a three to five-year life with a contractual life of 7 years. As of December 31, 2018, a total of 2,900,000 shares remained available to be issued under the 2018 Incentive Plan.

2006 Long-Term Incentive Plan. In May 2006, our Board of Directors adopted and our shareholders approved, the 2006 Incentive Plan. As of December 31, 2018, the 2006 Incentive Plan was no longer being used for the granting of equity awards. However, as of December 31, 2018, options granted under this plan were still outstanding, vesting, and being exercised and will continue to be outstanding until the vesting periods end and the terms of the equity awards expire.

Employee Stock Purchase Plan. We have a non-qualified Employee Stock Purchase Plan (“ESPP”), which has an expiration date of June 30, 2026. As of December 31, 2018, the total number of shares of common stock that remained available to be issued under our non-qualified plan was 105,207 shares. ESPP participants purchase shares on a quarterly basis at a price equal to 95% of the market price of the common stock at the end of the applicable offering period.

Stock-Based Compensation Expense. The stock-based compensation expense before income tax expense for the years ended December 31, 2018, 2017 and 2016, consisted of the following (in thousands):

	2018		2017		2016
Cost of goods sold	$	870	$	632	$	472
Research and development	553		376		184
Selling, general, and administrative	4,694		3,067		1,850
Stock-based compensation expense before taxes	$	6,117	$	4,075	$	2,506

We recognize stock-based compensation expense (net of a forfeiture rate) for those awards which are expected to vest on a straight-line basis over the requisite service period. We estimate the forfeiture rate based on our historical experience and expectations about future forfeitures. As of December 31, 2018, the total remaining unrecognized compensation cost related to non-vested stock options, net of expected forfeitures, was approximately $19.0 million and is expected to be recognized over a weighted average period of 3.09 years.

In applying the Black-Scholes methodology to the option grants, the fair value of our stock-based awards granted were estimated using the following assumptions for the periods indicated below:

	2018			2017			2016
Risk-free interest rate	2.63%	-	2.77%	1.77%	-	1.83%	1.15%	-	1.40%
Expected option life	5.0 years			5.0 years			5.0 years
Expected dividend yield	—%			—%			—%
Expected price volatility	34.06%	-	34.32%	33.81%	-	34.07%	34.28%	-	37.06%

The average risk-free interest rate is determined using the U.S. Treasury rate in effect as of the date of grant, based on the expected term of the stock option. We determine the expected term of the stock options using the historical exercise behavior of employees. The expected price volatility was determined using a weighted average of daily historical volatility of our stock price over the corresponding expected option life and implied volatility based on recent trends of the daily historical volatility. For options with a vesting period, compensation expense is recognized on a straight-line basis over the service period, which corresponds to the vesting period. During the years ended December 31, 2018, 2017 and 2016, approximately 692,000, 1.3 million and 880,000 stock-based compensation grants were made, respectively, for a total fair value of approximately $11.1 million, $12.4 million and $5.2 million, net of estimated forfeitures, respectively.

The table below presents information related to stock option activity for the years ended December 31, 2018, 2017 and 2016 (in thousands):

	2018		2017		2016
Total intrinsic value of stock options exercised	$	25,692	$	9,264	$	3,648
Cash received from stock option exercises	8,510		5,552		4,577
Excess tax benefit from the exercise of stock options	4,278		2,264		669

Changes in stock options for the year ended December 31, 2018, consisted of the following (shares and intrinsic value in thousands):

	Number of Shares		Weighted Average Exercise Price		Remaining Contractual Term (in years)	Intrinsic Value
Beginning balance	3,623		$	20.40
Granted	692		46.45
Exercised	(690	)	15.41
Forfeited/expired	(118	)	26.90
Outstanding at December 31	3,507		26.30		4.54	$	103,483
Exercisable	1,101		17.71		3.33	41,963
Ending vested and expected to vest	3,388		26.05		4.51	100,820

The weighted average grant-date fair value of options granted during the years ended December 31, 2018, 2017 and 2016 was $16.05, $9.57 and $5.94, respectively.

The following table summarizes information about stock options outstanding at December 31, 2018 (shares in thousands):

 

			Options Outstanding				Options Exercisable
Range of Exercise			Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$9.95	-	$16.05	982	3.02	$	13.99	585	$	13.16
$16.41	-	$22.00	683	3.73	$	18.93	319	$	18.76
$28.20	-	$28.20	961	5.27	$	28.20	159	$	28.20
$34.40	-	$50.50	881	6.04	$	43.65	38	$	34.74
$9.95	-	$50.50	3,507				1,101