Stock-Based Compensation

12 Months Ended

Oct. 03, 2020

Share-based Payment Arrangement [Abstract]

2018 Equity Incentive Plan

In 2003, the Board established the 2003 Stock Plan (as amended, the “2003 Plan”). In July 2018, the Board adopted the 2018 Equity Incentive Plan (the “2018 Plan”) and ceased granting awards under the 2003 Plan. The 2018 Plan became effective in connection with the Company's initial public offering ("IPO"). Remaining shares of common stock available for issuance under the 2003 Plan on the effective date of the 2018 Plan were added to the shares of common stock reserved for issuance under the 2018 Plan as of such date, and additional shares of common stock that would become available for issuance under the 2003 Plan in the future will instead become available for issuance under the 2018 Plan, as further discussed in the Annual Report. The number of shares reserved for issuance under the 2018 Plan will increase automatically on January 1 of each year beginning in 2019 and continuing through 2028 by a number of shares of common stock equal to the lesser of (x) 5% of the total outstanding shares of the Company’s common stock and common stock equivalents as of the immediately preceding December 31 (rounded to the nearest whole share) and (y) a number of shares determined by the Board. As of October 3, 2020, there were 28,056,633 shares reserved for future issuance under the 2018 Plan.

Stock Options

Pursuant to the 2018 Plan, the Company issues stock options to employees and directors. The fair value of the stock options is based on the Company’s closing stock price on the trading day immediately prior to the date of grant. The option price, number of shares and grant date are determined at the discretion of the Board. For so long as the option holder performs services for the Company, the options generally vest over 48 months, on a monthly or quarterly basis, with certain options subject to an initial annual cliff vest, and are exercisable for a period not to exceed ten years from the date of grant.

The summary of the Company’s stock option activity is as follows:


	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
				(in years)	(in thousands)
Outstanding at September 28, 2019	37,155,568	$	11.39	6.3	$	94,288
Exercised	(5,985,471)	7.06
Forfeited	(2,747,157)	14.16
Outstanding at October 3, 2020	28,422,940	$	12.03	5.6	$	99,053
At October 3, 2020
Options exercisable	24,230,278	$	11.60	5.2	$	94,768
Options vested and expected to vest	27,877,806	$	11.98	5.6	$	98,495

The Company granted no options in fiscal 2020. During fiscal 2019 and fiscal 2018, the Company granted options with a fair value of $8.4 million and $50.2 million, respectively, with a weighted-average grant date fair value of $4.91 and $5.39 per share, respectively. Options vested in 2020, 2019 and 2018, respectively, have a fair value of $27.4 million, $34.3 million, and $38.3 million.

The total intrinsic value of stock options exercised was $40.1 million, $61.1 million and $31.3 million for fiscal 2020, 2019 and 2018, respectively.

As of October 3, 2020 and September 28, 2019, the Company had $16.9 million and $43.9 million, respectively, of unrecognized stock-based compensation cost, which is expected to be recognized over a weighted-average period of 1.5 years and 2.0 years, respectively.

The Company’s policy for issuing stock upon stock option exercise is to issue new common stock.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options. This model requires the input of highly subjective assumptions including the expected term of the option, expected stock price volatility and expected dividends. If any of the assumptions used in the Black-Scholes model changes significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. The fair value of options at the date of grant was estimated with the following weighted-average assumptions:


	September 28, 2019		September 29, 2018
Expected term (years)	6.51		6.25
Risk-free interest rate	2.67	%	2.73	%
Expected volatility	30.7	%	30.19	%
Expected dividend yield	—	%	—	%

Expected Term

The expected term represents the period over which the Company anticipates stock-based awards to be outstanding. The Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. As a result, the Company elected the simplified method, which is the average of the options’ vesting and contractual terms.

Risk-Free Interest Rate

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option.

Expected Share Price Volatility

The Company’s computation of expected volatility is based on the historical volatility of selected comparable publicly traded companies over a period equal to the expected term of the option.

Expected Dividend Yield

The Company used a zero-dividend yield, as the Company has never paid dividends and does not plan to pay dividends in the near future.

Fair Value of Common Stock

The Company uses the market closing price for its common stock as reported on The Nasdaq Global Select Market.

Restricted Stock Units

Pursuant to the 2018 Plan, the Company issues RSUs to employees and directors. The fair value of RSUs is based on the Company's closing stock price on the trading day immediately preceding the date of grant. RSUs vest quarterly over the service period, which is generally four years with certain awards subject to an initial annual cliff vest. The summary of the Company’s unvested RSU activity is as follows:


	Number of Units	Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value
				(in thousands)
Outstanding at September 28, 2019	6,716,786	$	11.40	$	90,744
Granted	9,030,809
Exercised	(2,406,900)
Forfeited	(1,692,744)
Expired	—
Outstanding at October 3, 2020	11,647,951	$	10.50	$	180,543
At October 3, 2020
Units expected to vest	9,530,614	$	10.53	$	147,725

As of October 3, 2020, the Company had $92.4 million of unrecognized stock-based compensation expense related to their RSUs, which is expected to be recognized over a weighted-average period of 3.0 years.

Total stock-based compensation expense by function category was as follows:


	October 3, 2020		September 28, 2019		September 29, 2018
(In thousands)
Cost of revenue	$	1,106	$	985	$	198
Research and development	23,439		17,643		13,960
Sales and marketing	14,359		12,965		15,885
General and administrative	18,706		14,982		8,602
Total stock-based compensation expense	$	57,610	$	46,575	$	38,645