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Employee Benefit Plans (Tables)

9 Months Ended

Sep. 29, 2019

Employee Benefit and Share-based Payment Arrangement, Noncash Expense [Abstract]

The following table sets forth the available shares for grant under the 2018 Plan as of September 29, 2019 and December 31, 2018:



	Number of Shares
	(In thousands)
Shares available for grant as of December 31, 2018⁽¹⁾	3,969
Additional authorized shares	2,970
Granted ⁽³⁾	(6,303	)
Forfeited / cancelled ⁽²⁾	1,464
Expired	1
Shares traded for taxes	349
Shares available for grant as of September 29, 2019	2,450

_________________________

⁽¹⁾

Includes Arlo IPO Options of 2.8 million shares granted to the Company’s NEOs with performance-based vesting criteria (in addition to service-based vesting criteria for any of such IPO Options that are deemed to have been earned). As of September 29, 2019, it had not yet been determined the extent to which (if at all) the performance-based vesting criteria had been satisfied except for Tranche 4 Performance Option. Therefore, this line item includes all such performance-based IPO Options granted during the year ended December 31, 2018, reported at the maximum possible number of shares that may ultimately be issuable if all applicable performance-based criteria are achieved at their maximum levels and all applicable service-based criteria are fully satisfied. Tranche 4 Performance Option’s measurement period was completed and none of the shares vested.


⁽²⁾	Includes 0.3 million shares subject to awards that were cancelled in connection with Mr. Collins’ separation from the Company. In addition, also includes 0.5 million shares subject to the IPO Options that were voluntarily forfeited by the Chief Executive Officer as the performance metrics for Tranches 4 and 5 of the IPO Options were not expected to be achieved.

⁽³⁾

Includes 0.8 million shares consisting of RSUs (50% of the grant), PSUs (25% of the grant) and MPSUs (25% of the grant) granted to the Company's NEOs during the fiscal quarter ended September 29, 2019. The RSUs will vest in three equal annual installments during the period that begins on the RSU grant date. The PSUs will vest in three equal annual installments during the period that begins on the PSU grant date based on the extent to which a revenue milestone for the fiscal year ending December 31, 2019 is achieved. The MPSUs will vest at the end of the three-year period that begins on the MPSU grant date based on performance of the Company's common stock relative to the Russell 2000 Index (“the Benchmark”) during the three-year period from the grant date.

Schedule of Stock Option Activity

NETGEAR’s stock option activity for Arlo employees during the nine months ended September 29, 2019 was as follows:



	Number of shares		Weighted Average Exercise Price Per Share
	(In thousands)		(In dollars)
Outstanding as of December 31, 2018	283		$	26.53
Exercised	(48	)	$	21.35
Forfeited / cancelled	(16	)	$	36.27
Expired	(14	)	$	41.67
Outstanding as of September 29, 2019	205		$	25.94

Arlo’s stock option activity during the nine months ended September 29, 2019 was as follows:



	Number of shares		Weighted Average Exercise Price Per Share
	(In thousands)		(In dollars)
Outstanding as of December 31, 2018 ⁽¹⁾	7,209		$	12.08
Granted	10		$	3.90
Exercised	(4	)	$	3.03
Forfeited / cancelled ⁽²⁾	(938	)	$	15.88
Expired	(159	)	$	12.00
Outstanding as of September 29, 2019	6,118		$	11.49

Schedule of RSU Activity

NETGEAR’s RSU activity for Arlo employees during the nine months ended September 29, 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	522		$	34.89
Vested	(155	)	$	32.44
Forfeited	(40	)	$	36.47
Outstanding as of September 29, 2019	327		$	35.85

Arlo’s RSU activity during the nine months ended September 29, 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	3,141		$	12.22
Granted ⁽³⁾	6,293		$	4.83
Vested	(1,033	)	$	11.30
Forfeited	(368	)	$	8.55
Outstanding as of September 29, 2019	8,033		$	6.71

⁽³⁾

Includes 0.8 million shares consisting of RSUs (50% of the grant), PSUs (25% of the grant) and MPSUs (25% of the grant) granted to a group of NEOs during the fiscal quarter ended September 29, 2019. The RSUs will vest in three equal annual installments during the period that begins on the RSU grant date. The PSUs will vest in three equal annual installments during the period that begins on the PSU grant date based on the extent to which a revenue milestone for the fiscal year ending December 31, 2019 is achieved.

The MPSUs will vest at the end of the three-year period that begins on the MPSU grant date based on performance of the Company's common stock relative to the Benchmark during the three-year period from the grant date. A positive 3.3x or negative 2.5x multiplier will be applied to the total shareholder returns (“TSR”), such that the number of shares vested will increase by 3.3% or decrease by 2.5% of the target numbers, for each 1% of positive or negative TSR relative to the Benchmark. In the event the Company's common stock performance is below negative 30% relative to the Benchmark, no shares will be vested. In no event will the number of shares vested exceed 200% of the target for that tranche.

Schedule of Weighted Average Assumptions

The assumptions used in this model to estimate fair value at the grant date are as follows:



	Three Months Ended			Nine Months Ended
	September 29, 2019		September 30, 2018	September 29, 2019		September 30, 2018
Expected life	3.0		N/A	3.0		N/A
Risk-free interest rate	1.52	%	N/A	1.52	%	N/A
Expected volatility	65.1	%	N/A	65.1	%	N/A
Dividend yield	—		N/A	—		N/A
Stock Beta	0.30		N/A	0.30		N/A

The following table sets forth the weighted average assumptions used to estimate the fair value of Arlo’s purchase rights granted under Arlo’s ESPP for the three and nine months ended September 29, 2019 and NETGEAR’s options granted and purchase rights granted under NETGEAR’s ESPP to Arlo employees during the three and nine months ended September 30, 2018.



	Three Months Ended						Nine Months Ended
	Stock Options			ESPP			Stock Options				ESPP
	September 29, 2019	September 30, 2018		September 29, 2019		September 30, 2018	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Expected life (in years)	NA	4.4		0.5		NA	6.3		4.4		0.5		0.5
Risk-free interest rate	NA	2.79	%	2.49	%	NA	2.28	%	2.32	%	2.49	%	1.81	%
Expected volatility	NA	33.5	%	97.6	%	NA	73.0	%	30.9	%	97.6	%	37.1	%
Dividend yield	—	—		—		—	—		—		—		—

Schedule of Total Stock-Based Compensation Expense Resulting from Stock Options, Restricted Stock Awards, and the Employee Stock Purchase Plan

The following tables set forth stock-based compensation expense for Arlo employees and allocated charges deemed attributable to Arlo operations resulting from NETGEAR’s and Arlo’s RSUs, PSUs, MPSUs and stock options, and the purchase rights under the NETGEAR’s ESPP included in the Company’s unaudited condensed consolidated statements of operations during the periods indicated:



	Three Months Ended								Nine Months Ended
	September 29, 2019		September 30, 2018						September 29, 2019		September 30, 2018
	Total		Direct		Indirect		Total		Total		Direct		Indirect		Total
	(In thousands)
Cost of revenue	$	467	$	236	$	—	$	236	$	1,286	$	336	$	583	$	919
Research and development	1,569		872		—		872		4,501		2,186		396		2,582
Sales and marketing	791		754		—		754		2,722		1,239		969		2,208
General and administrative	2,392		1,575		—		1,575		6,752		1,575		2,100		3,675
Total stock-based compensation	$	5,219	$	3,437	$	—	$	3,437	$	15,261	$	5,336	$	4,048	$	9,384