Employee Benefit Plans

6 Months Ended

Jun. 30, 2019

Employee Benefits and Share-based Compensation, Noncash [Abstract]

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 January 2019, the Company received the approval from its Compensation Committee to increase the number of shares that the Company may issue under the 2016

plan to a new total of 3.1 million shares, pursuant to the adjustment provisions of the 2016 Plan as a result of the Distribution. As of June 30, 2019, approximately 2.3 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 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 June 30, 2019, approximately 0.7 million shares were available for issuance under the ESPP.

Option Activity

Stock option activity during the six months ended June 30, 2019 was as follows:



	Number of shares		Weighted Average Exercise Price Per Share
	(In thousands)		(In dollars)
Outstanding as of December 31, 2018	1,969		$	25.30
Exercised	(144	)	$	20.50
Cancelled	(16	)	$	36.27
Outstanding as of June 30, 2019	1,809		$	25.59

RSU Activity

RSU activity during the six months ended June 30, 2019 was as follows:



	Number of shares		Weighted Average Grant Date Fair Value Per Share
	(In thousands)		(In dollars)
Outstanding as of December 31, 2018	1,627		$	34.31
Granted	489		$	33.36
Vested	(502	)	$	31.29
Cancelled	(53	)	$	35.59
Outstanding as of March June 30, 2019	1,561		$	34.94

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 under the 2016 Plan 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 under the 2016 Plan and the purchase rights granted under the ESPP is based on historical volatility over the most recent period commensurate with the estimated expected term.

There were no option grants or purchase rights granted during the three months ended June 30, 2019 and July 1, 2018. The table below sets forth the weighted average assumptions used to estimate the fair value of option grants and purchase rights granted during the six months ended June 30, 2019 and July 1, 2018.



	Six Months Ended
	Stock Options			ESPP
	June 30, 2019	July 1, 2018		June 30, 2019		July 1, 2018
Expected life (in years)	N/A	4.4		0.5		0.5
Risk-free interest rate	N/A	2.32	%	2.49	%	1.81	%
Expected volatility	N/A	30.9	%	42.6	%	37.1	%
Dividend yield	N/A	—		—		—

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
	June 30, 2019		July 1, 2018		June 30, 2019		July 1, 2018
	(In thousands)
Cost of revenue	$	755	$	572	$	1,423	$	1,135
Research and development	1,288		1,122		2,480		2,134
Sales and marketing	2,085		2,188		4,126		4,393
General and administrative	2,611		3,364		5,168		6,448
Total stock-based compensation	$	6,739	$	7,246	$	13,197	$	14,110

As of June 30, 2019, $6.5 million of unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.9 years. $50.1 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of 2.6 years.