Employee Benefit Plans

The Company grants options and RSUs under the 2016 Incentive Plan (the "2016 Plan"), under which awards may be granted to all employees. Award vesting periods for this plan are generally four years. In May 2018, the Company adopted amendments to the 2016 Plan which increased the number of shares of the Company’s common stock that may be issued under the 2016 plan by an additional 1.7 million shares. As of July 1, 2018, approximately 1.9 million shares were reserved for future grants under the 2016 Plan.

Additionally, the Company sponsors an Employee Stock Purchase Plan (the “ESPP”), pursuant to which eligible employees may contribute up to 10% of compensation, subject to certain income limits, to purchase shares of the Company’s common stock. The terms of the plan include a look-back feature that enables employees to purchase stock semi-annually at a price equal to 85% of the lesser of the fair market value at the beginning of the offering period or the purchase date. The duration of each offering period is generally six-months. As of July 1, 2018, approximately 0.8 million shares were available for issuance under the ESPP.

Option Activity

Stock option activity during the six months ended July 1, 2018 was as follows:



	Number of shares		Weighted Average Exercise Price Per Share
	(In thousands)		(In dollars)
Outstanding as of December 31, 2017	1,879		$	34.08
Granted	348		70.15
Exercised	(123	)	23.58
Cancelled	—		—
Expired	(5	)	20.07
Outstanding as of July 1, 2018	2,099		$	40.71

RSU Activity

RSU activity during the six months ended July 1, 2018 was as follows:



	Number of shares		Weighted Average Grant Date Fair Value Per Share
	(In thousands)		(In dollars)
Outstanding as of December 31, 2017	1,130		$	43.22
Granted	855		67.60
Vested	(392	)	40.77
Cancelled	(23	)	51.53
Outstanding as of July 1, 2018	1,570		$	56.99

Valuation and Expense Information

The Company measures stock-based compensation at the grant date based on the estimated fair value of the award. Estimated compensation cost relating to RSUs is based on the closing fair market value of the Company’s common stock on the date of grant. The fair value of options granted and the purchase rights granted under the ESPP is estimated on the date of grant using a Black-Scholes-Merton option valuation model that uses the assumptions noted in the following table. The estimated expected term of options granted is derived from historical data on employee exercise and post-vesting employment termination behavior. The risk free interest rate of options granted and the purchase rights granted under the ESPP is based on the implied yield currently available on U.S. Treasury securities with a remaining term commensurate with the estimated expected term. Expected volatility of options granted and the purchase rights granted under the ESPP is based on historical volatility over the most recent period commensurate with the estimated expected term.

The table below sets forth the weighted average assumptions used to estimate the fair value of option grants and purchase rights granted under the ESPP during the three and six months ended July 1, 2018 and July 2, 2017.



	Three Months Ended					Six Months Ended
	Stock Options			ESPP		Stock Options				ESPP
	July 1, 2018	July 2, 2017		July 1, 2018	July 2, 2017	July 1, 2018		July 2, 2017		July 1, 2018		July 2, 2017
Expected life (in years)	NA	4.4		NA	NA	4.4		4.4		0.5		0.5
Risk-free interest rate	NA	1.65	%	NA	NA	2.32	%	1.65	%	1.81	%	0.66	%
Expected volatility	NA	31.6	%	NA	NA	30.9	%	31.6	%	37.1	%	27.6	%
Dividend yield	NA	—		NA	NA	—		—		—		—

The following table sets forth the stock-based compensation expense resulting from stock options, RSUs and the ESPP included in the Company’s unaudited condensed consolidated statements of operations:



	Three Months Ended				Six Months Ended
	July 1, 2018		July 2, 2017		July 1, 2018		July 2, 2017
	(In thousands)
Cost of revenue	$	866	$	542	$	1,718	$	978
Research and development	1,949		1,373		3,524		2,692
Sales and marketing	2,588		1,438		5,119		2,685
General and administrative	3,567		2,348		6,759		4,474
Total stock-based compensation	$	8,970	$	5,701	$	17,120	$	10,829

As of July 1, 2018, $12.0 million of unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.6 years. $80.1 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of 2.9 years.