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Stock-Based Compensation
 3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation STOCK-BASED COMPENSATION
Stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date. For awards with only a service condition, we expense stock-based compensation using the straight-line method over the requisite service period for the entire award. For awards with both performance and service conditions, we expense the stock-based compensation on a straight-line basis over the requisite service period taking into account the probability that we will satisfy the performance condition.
We have two compensation plans that provide for the granting of stock options and other share-based awards to key employees and non-employee members of the Board of Directors (the “Board”). The 2009 Equity Incentive Plan (the “2009 Plan”) and the 2014 Equity Incentive Plan (the “2014 Plan”) provide for granting options, restricted stock, restricted stock units or stock appreciation rights to employees and non-employee directors. In May 2018, our shareholders approved an amendment to the 2014 Plan, which increased the number of shares available for issuance under the 2014 Plan by 1,000,000 shares. A maximum of 2,974,543 shares are available for issuance under the 2014 Plan, as amended, plus the number of shares (not to exceed 891,960) that were underlying awards outstanding under the 2004 Equity Incentive Plan (the “2004 Plan”) and the 2009 Plan as of May 29, 2014 that thereafter terminate or expire unexercised or are canceled, forfeited or lapse for any reason. No awards were outstanding under the 2004 Plan as of March 31, 2020, and no further grants will be made under the 2004 Plan or the 2009 Plan.
Upon election to the Board, each non-employee director receives an initial equity grant of shares of restricted common stock with a value equal to $100,000, calculated using the closing price of our common stock on the date of the non-employee director’s election to the Board. The initial restricted stock grant vests on the third anniversary of the grant date, subject to the non-employee director’s continued membership on the Board. Annually, the non-employee directors are granted restricted shares with a value equal to $100,000 on the first business day following the annual meeting of shareholders, calculated using the closing price of our common stock on that day. In addition, the independent Chairman of the Board is annually granted restricted shares with a value equal to $50,000, and the Lead Director, if one has been appointed, would be annually granted restricted shares with a value of $40,000, on the first business day following the annual meeting of shareholders, calculated using the closing price of our common stock on that day. The shares of restricted stock granted annually to our non-employee directors, our independent Chairman of the Board and, if applicable, our Lead Director vest on the day prior to the following year’s annual meeting date, subject to the non-employee director’s continued membership on the Board. We record compensation expense associated with our restricted stock grants on a straight-line basis over the vesting term. Also, beginning in October 2018, our non-employee directors may elect to have their annual cash retainers and annual equity retainers paid in the form of deferred stock units pursuant to the 2014 Plan and the 2018 Non-Employee Director Deferred Compensation Plan. Each deferred stock unit represents the right to receive one share of our common stock upon the non-employee director’s separation of service from the Company. We record compensation expense associated with our deferred stock units over the period of service.
Annually, upon approval by our Compensation Committee, we grant stock-based awards, which historically have been in the form of stock options and/or restricted stock units, to certain employees. We also grant stock-based awards, which historically have been in the form of stock options and/or restricted stock units, to certain new employees throughout the year. The fair value of these stock-based awards is determined by using (a) the current market price of our common stock on the grant date in the case of restricted stock units without a market condition, (b) the Monte Carlo Simulation valuation model in the case of performance-based restricted stock units with a market condition, or (c) the Black-Scholes option valuation model in the case of stock options.
Our annual grants in both February 2020 and 2019 consisted of performance-based restricted stock units and time-based restricted stock units. The number of restricted stock units granted was based on the employee’s individual objectives, performance against operational metrics assigned to the employee and overall contribution to the Company over the last year.
For the stock-based awards granted in 2020 and 2019, the time-based restricted stock units vest in three equal annual installments beginning one year after the grant date. The performance-based restricted stock unit awards vest at the end of the 3-year performance period if the applicable performance measure is achieved. The related stock-based compensation expense will be recognized over the requisite service period, taking into account the probability that we will satisfy the performance measure. The performance-based restricted stock units granted in 2020 and 2019 will be earned and will vest based upon our total shareholder return (“TSR”) relative to the TSR attained by companies within our defined benchmark group, the Russell 2000 Growth Index. Due to the TSR presence in these performance-based restricted stock units, the fair value of these awards was determined using the Monte Carlo Simulation valuation model. We expense these market condition awards over the three-year vesting period regardless of the value the award recipients ultimately receive.
The Monte Carlo Simulation valuation models incorporate assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. The weighted-average grant-date fair value of the performance-based restricted stock units that were granted during the three months ended March 31, 2020 and valued using the Monte Carlo Simulation valuation model was $80.38. The weighted-average grant-date fair value of the performance-based restricted stock units that were granted during the three months ended March 31, 2019 and valued using the Monte Carlo Simulation valuation model was $62.74. For performance-based restricted stock units granted during the three months ended March 31, 2020 valued using the Monte Carlo Simulation valuation model, we used the following assumptions:
 Three Months EndedThree Months Ended
 March 31, 2020March 31, 2019
Risk-free interest rate1.16 %2.48 %
Expected dividend yield— %— %
Term3 years3 years
Expected volatility40.0 %45.0 %
Weighted-average expected volatility40.0 %45.0 %
The following table summarizes stock option activity and weighted-average exercise prices during the three months ended March 31, 2020:
OptionsWeighted-
Average
Exercise Price		Weighted-Average
Remaining
Contractual Term
(Years)		Aggregate Intrinsic
Value as of
March 31, 2020
Outstanding at January 1, 2020486,682  $52.37  
Granted—  —  
Forfeited or expired(9,740) 50.74  
Exercised(57,180) 39.18  
Outstanding at March 31, 2020419,762  $54.20  3.2$1,000  
Options exercisable at March 31, 2020408,489  $54.00  2.0$1,000  

The total intrinsic value of stock options exercised during the three months ended March 31, 2020 and March 31, 2019 was $1.0 million and $0.1 million, respectively. The fair value of stock options vested during the three months ended March 31, 2020 and March 31, 2019 was $0.8 million and $2.7 million, respectively.
The following table summarizes the restricted stock and restricted stock unit activity and weighted average grant-date fair values for the three months ended March 31, 2020:
SharesWeighted-Average
Grant Date
Fair Value
Non-vested at January 1, 2020398,318  $49.53  
Granted167,161  66.77  
Forfeited(16,449) 48.67  
Vested(125,399) 39.16  
Non-vested at March 31, 2020423,631  $59.44  

We recorded total stock-based compensation expense of $2.2 million and $2.6 million for the three months ended March 31, 2020 and March 31, 2019, respectively.
As of March 31, 2020, there was $20.2 million of total unrecognized stock-based compensation expense related to non-vested stock-based compensation arrangements. The expense is expected to be recognized over a weighted average period of 2.5 years.
The following table summarizes total stock-based compensation expense for each of the line items on our condensed consolidated statement of operations:
Three Months Ended
March 31, 2020March 31, 2019
Cost of Sales
Product$154  $153  
Service117  80  
Total cost of sales$271  $233  
Operating Expenses
Selling, general and administrative$1,523  $2,134  
Research and development382  197  
Total operating expenses$1,905  $2,331