Stock-Based Compensation

2008 Stock Option Plan and 2018 Equity Incentive Plan

In April 2008, the Company adopted the 2008 Stock Option Plan (the "2008 SOP"), as amended, under which the Board of Directors may issue incentive and non-qualified stock options to employees, directors and consultants. In October 2018, the Company adopted the 2018 Equity Incentive Plan (the "2018 EIP"), which serves as the successor to the 2008 SOP, under which the Board of Directors may issue incentive and non-qualified stock options and RSUs to employees, directors and consultants. No new options have been granted under the 2008 SOP since August 2018. Outstanding options under the 2008 SOP continue to be subject to the terms and conditions of that plan.

The number of shares of common stock reserved for issuance under the 2018 EIP will automatically increase on January 1 of each year, beginning January 1, 2019, and continuing through and including January 1, 2028, by 5% of the total number of shares of the Company's capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the Company's Board of Directors. On January 1, 2019, the total number of shares of common stock reserved for issuance increased by 1,222,538 shares. The Company filed a Registration Statement on Form S-8 on March 22, 2019 to register these additional shares reserved for issuance under the 2018 EIP. As of December 31, 2019, a total of 2,567,295 shares of common stock are available for future grants under the 2018 EIP. On January 1, 2020, the total number of shares of common stock reserved for issuance under the 2018 EIP automatically increased by 1,258,190 shares.

The Board of Directors has the authority to determine to whom options will be granted, the number of shares, the term and the exercise price. If an individual owns stock representing more than 10% of the outstanding shares, the price of each share shall be at least 110% of the fair market value, as determined by the Board of Directors. The exercise price of an incentive stock option and a non-qualified stock option shall not be less than 100% and 85%, respectively, of the fair market value on the date of grant.

Options granted have a term of 10 years, except, options granted to individuals holding more than 10% of the outstanding shares have a term of five years. Options generally vest over a four-year period. Certain shares issued under the Plan are exercisable immediately, but subject to a right of repurchase by the Company of any unvested shares. RSUs granted under the 2018 Equity Incentive Plan generally vest over two to four years based upon continued services and are settled at vesting in shares of the Company's common stock.

Stock Options

The following table summarizes stock option activity for the years ended December 31, 2019 and 2018:



	Options Outstanding
	Number of Shares		Weighted-Average Exercise Price	Weighted-Average Contractual Remaining Life (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2017	3,001,929		$4.15
Granted	100,080		$8.88
Exercised	(395,117	)	$4.08
Canceled and forfeited	(65,694	)	$4.81
Outstanding as of December 31, 2018	2,641,198		$4.27
Granted	638,983		$20.89
Exercised	(444,924	)	$3.36
Canceled and forfeited	(116,286	)	$11.30
Outstanding as of December 31, 2019	2,718,971		$8.02	6.83	$	36,872
Options vested and exercisable as of December 31, 2019	2,126,781		$5.32	6.27	$	34,463
Options vested and expected to vest as of December 31, 2019	2,652,883		$7.80	6.76	$	36,540

The aggregate intrinsic value of options exercised during the years ended December 31, 2019 and 2018 amounted to $6.8 million and $3.6 million, respectively, representing the difference between the fair value of the Company's common stock at the date of exercise and the exercise price paid. The fair value of the Company's common stock prior to the IPO was based on the third-party valuations as determined by the Company's Board of Directors. Subsequent to IPO, the Company uses market price at for its common stock as reported on the Nasdaq Global Market. The aggregate intrinsic values of options outstanding, options vested and exercisable, and options vested and expected to vest as of December 31, 2019 represents the difference between the weighted average exercise price and the closing price of the Company’s common stock on the last trading day of the year.

Outstanding options and exercisable options information by range of exercise prices as of December 31, 2019 was as follows:



Exercise Price			Options Outstanding			Options Vested and Exercisable
Exercise Price			Number of Shares	Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price	Number of Shares	Weighted- Average Exercise Price
$0.84	-	$2.11	87,394	1.52	$1.56	87,394	$1.52
$3.24	-	$3.98	564,938	4.35	$3.47	564,938	$3.50
$4.32	-	$5.94	1,409,650	7.11	$4.63	1,306,033	$4.61
$6.84	-	$7.92	39,844	7.96	$7.32	20,298	$7.20
$17.72	-	$18.96	154,189	9.37	$17.85	51,110	$17.82
$19.02	-	$22.00	462,956	9.05	$21.91	97,008	$21.94
			2,718,971	6.83	$8.02	2,126,781	$5.32

The weighted average grant date fair value of all options granted were $9.78 per share and $3.98 per share for the years ended December 31, 2019 and 2018, respectively. The table below summarizes the assumptions used to estimate the grant date fair value of the stock options granted during the respective periods using the Black-Scholes option-pricing model:



	Year ended December 31,
	2019			2018
Expected term (years)	5.0	to	7.0	5.0	to	7.0
Expected volatility	41.7%	to	47.3%	42.0%	to	47.0%
Risk-free interest rate	1.3%	to	2.6%	2.4%	to	3.0%
Dividend yield	—%			—%

As of December 31, 2019, there was $5.5 million of unrecognized compensation cost related to stock options granted. These costs are expected to be recognized over a period of approximately 2.6 years.

Early Exercise of Unvested Stock Options

Early exercises of stock options are subject to a right of repurchase by the Company of any unvested shares. The repurchase rights lapse over the original vesting period of the options. The Company accounts for the cash received in consideration for the early exercised options as a liability included in accrued liabilities, which is then reclassified to stockholders’ equity (deficit) as the options vest. As of December 31, 2019 and 2018, the Company had a total of 21,404 and 74,019 shares of common stock, respectively, subject to repurchase under the Plan and $0.1 million and $0.3 million, respectively, of associated liabilities for the repurchase.

Restricted Stock Units

The following table summarizes restricted stock units activity for the years ended December 31, 2019 and 2018:



	Number of Shares		Weighted- Average Grant Date Fair Value
Outstanding as of December 31, 2017	—		$—
Granted	54,036		$11.79
Canceled and forfeited	(600	)	$20.60
Outstanding as of December 31, 2018	53,436		$11.69
Granted	639,726		$20.14
Vested	(108,631	)	$19.10
Canceled and forfeited	(41,490	)	$18.48
Outstanding as of December 31, 2019	543,041		$19.72

As of December 31, 2019, there was a total unrecognized compensation cost of $8.6 million. These costs are expected to be recognized over a period of approximately 3.1 years.

Employee Stock Purchase Plan

Under the Company's 2018 Employee Stock Purchase Plan (the "ESPP") adopted in October 2018, the Company allows eligible employees to purchase shares of the Company's common stock through payroll deductions at the price equal to 85% of the lesser of the fair market value of the stock as of the first date or the ending date of each six month offering period. There were 515,307 shares of common stock originally reserved for issuance under the ESPP. Under the ESPP, the number of shares reserved for issuance under the ESPP automatically increases on January 1st of each year, starting on January 1, 2019, and continuing through January 1, 2029, by an amount equal to (i) the lesser of 1% of the total number of shares of the Registrant’s common stock outstanding on December 31st of the preceding calendar year, and (ii) 555,555 shares of common stock. On March 22, 2019, the Company filed a Registration Statement on Form S-8 to register 244,507 additional shares of common stock for issuance under the ESPP. As of December 31, 2019, a total of 591,357 shares of common stock are available for future grants under the 2018 EIP. On January 1, 2020, the total number of shares of common stock reserved for issuance under the ESPP Plan increased by 251,638 shares.

As of December 31, 2019 and 2018, total accumulated ESPP related employee payroll deductions amounted to $0.2 million and $0.4 million, respectively, which were included within accrued compensation and related expenses in the consolidated balance sheets. For the year ended December 31, 2019 and 2018, the Company recognized $0.8 million and $0.2 million, respectively, of stock-based compensation expense related to ESPP. As of December 31, 2019, the unrecognized compensation cost for the ESPP was $0.3 million.

The Company estimated the fair value of ESPP purchase rights during the offer period using a Black-Scholes option pricing model with the following assumptions:



	Year ended December 31,
	2019			2018
Expected term (years)	0.5			0.5
Expected volatility	38.3%	to	58.4%	44.0%
Risk-free interest rate	1.6%	to	2.4%	2.5%
Dividend yield	—%			—%

Stock-Based Compensation

The following table sets forth stock-based compensation expense recognized for the periods presented:



	Year ended December 31,
	2019		2018
	(in thousands)
Cost of goods sold	$	185	$	34
Sales and marketing	3,335		651
Research and development	516		156
General and administrative	3,428		1,471
	$	7,464	$	2,312