Stock-Based Compensation Expense

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation Expense

3.   Stock-Based Compensation Expense. Stock-based compensation expense before income tax expense for three and nine months ended September 30, 2019 and 2018 consisted of the following (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Cost of sales	$	346	$	241	$	953	$	657
Research and development		277		141		750		412
Selling, general and administrative		2,003		1,291		5,212		3,425
Stock-based compensation expense before taxes	$	2,626	$	1,673	$	6,915	$	4,494

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 September 30, 2019, the total remaining unrecognized compensation cost related to non-vested stock options, net of expected forfeitures, was approximately $30.8 million and was expected to be recognized over a weighted average period of 3.13 years.

During the three and nine months ended September 30, 2019, we granted stock-based awards representing approximately 107,000 and 1.2 million shares of our common stock, respectively. During the three and nine-month periods ended September 30, 2018, we granted stock-based awards representing 0 and 692,002 shares of our common stock, respectively. We use the Black-Scholes methodology to value the stock-based compensation expense for options. In applying the

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

	Nine Months Ended
	September 30,
	2019	2018
Risk-free interest rate	1.39% - 2.56%	2.63% - 2.77%
Expected option term	3 - 5 years	5.0 years
Expected dividend yield	—	—
Expected price volatility	28.66% - 35.79%	34.06% - 34.32%

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 options. 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 term 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.