Stockholders’ Equity

Stock-Based Compensation

The following table summarizes stock-based compensation in our accompanying condensed consolidated statements of operations (in thousands):



	Three Months Ended				Nine Months Ended
	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017

Cost of revenue	$	87	$	117	$	219	$	314
Selling and marketing	631		287		1,827		828
Research and development	1,105		487		3,134		1,138
General and administrative	2,458		2,144		7,801		4,306
Total stock-based compensation	$	4,281	$	3,035	$	12,981	$	6,586

Pursuant to our 2014 Incentive Award Plan (the “2014 Plan”), during the nine months ended September 29, 2018, we granted 0.6 million time-based restricted stock units (RSUs) to certain employees, advisors and directors, 0.3 million performance-based RSUs (“PSUs”) to certain members of management, and 0.5 million market-based RSUs (“MSUs”) to senior management.

In the first quarter of fiscal 2018, we issued 0.3 million PSUs. The number of PSUs that become eligible to vest for each recipient will be determined in the first quarter of 2019 based upon our level of achievement of certain financial targets for fiscal 2018. To the extent any PSUs become eligible to vest, they generally will vest over a two-year period, retroactive to March 2018, as continued services are performed. PSUs granted in 2017 and 2016 are vesting over a three-year and four-year period, respectively, retroactive to the grant date of the applicable award. We are recognizing expense using the graded-vesting method based on our estimate of the number of PSUs that will vest. If there is a change in the estimate of the number of PSUs that are probable of vesting, we will cumulatively adjust compensation expense in the period that the change in estimate is made.

Additionally, in the first quarter of fiscal 2018, we issued 0.5 million MSUs to senior management. The MSUs awarded will vest at any point during a five-year performance period, from 2018 through 2023, based on the achievement of a specified 120-day volume-weighted average closing share price targets, which is a market condition, or a change-in-control event above a certain share price, and if vested, will be issued in the form of common stock. The MSUs were valued at $13.99 - $16.34 per share using the Monte Carlo simulation model for the specified price targets. The stock-based compensation expense associated with the MSUs will be recognized over a weighted average derived service period of 0.88 - 1.60 years. If the market condition or the performance condition is not achieved during the five-year performance period, then the shares will be forfeited.

RSUs, PSUs, and MSUs are not included in issued and outstanding common stock until the shares are vested and released. With the exception of MSUs, the fair value of an RSU and PSU is measured based on the market price of the underlying common stock as of the date of grant, reduced by the purchase price of $0.001 per share. The weighted-average grant-date fair value per vested RSU and PSU share and the total fair value of vested shares from RSU and PSU grants was $10.76 and $6.2 million, respectively, for the nine months ended September 29, 2018. The weighted-average grant-date fair value of vested RSU and PSU shares and total fair value of vested shares from RSU and PSU grants were $7.59 and $3.2 million, respectively, for the nine months ended September 30, 2017.

During the nine months ended September 29, 2018, we granted 0.1 million stock options to certain employees and directors with a weighted average exercise price per share of $17.44. During the nine months ended September 30, 2017, we granted 1.0 million stock options to certain employees and directors with a weighted average exercise price per share of $12.82.

The following table presents the assumptions used to estimate the fair value of options granted during the periods presented:



	Nine Months Ended
	September 29, 2018	September 30, 2017
Risk-free interest rate	2.30% - 2.72%	1.86 - 2.18%
Expected term (years)	6.25	6.25
Volatility	42.1% - 42.1%	32.0% - 33.4%
Expected dividend yield	—	—

A summary of stock option, RSU, PSU, and MSU activity for the nine months ended September 29, 2018 was as follows (in thousands for shares and intrinsic value):



								Restricted Stock Units
	Shares		Weighted-Average Remaining Contractual Term (Years)	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Shares		Weighted-Average Grant Date Fair Value

Outstanding as of December 30, 2017	4,486		6.68	$	8.65	$	42,892	1,850		$	10.58
Granted⁽¹⁾	108			$	17.44			1,384		$	17.70
Settled (RSUs and PSUs)	—			—				(580	)	$	10.76
Exercised	(668	)		$	7.13			—		—
Canceled and forfeited	(197	)		$	11.36			(309	)	$	11.99
Outstanding as of September 29, 2018	3,729		6.08	$	9.04	$	48,740	2,345		$	14.88
Vested and exercisable as of September 29, 2018	2,433		4.86	$	7.49	$	35,554	N/A		N/A

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(1) For RSUs, includes time-based, performance-based, and market-based restricted stock units

Aggregate intrinsic value represents the difference between the closing stock price of our common stock and the exercise price of outstanding, in-the-money options. Our closing stock price as reported on the New York Stock Exchange as of September 28, 2018, the final trading day of the nine months ended September 29, 2018, was $22.11. The total intrinsic value of options exercised and RSUs and PSUs vested was approximately $19.3 million and $10.4 million for the nine months ended September 29, 2018 and September 30, 2017, respectively. The aggregate fair value of the options that vested during the nine months ended September 29, 2018 and September 30, 2017 was $1.9 million and $1.7 million, respectively.

As of September 29, 2018, total unrecognized compensation cost related to non-vested stock options and RSUs, including PSUs and MSUs, was approximately $5.2 million and $22.2 million, respectively, which is expected to be recognized over a weighted-average period of 2.3 years and 2.7 years, respectively, to the extent they are probable of vesting. As of September 29, 2018, we had 2.6 million shares available for grant under the 2014 Plan.

Common Stock

As of September 29, 2018, we had reserved the following shares of common stock for future issuance in connection with the following (in thousands):



	September 29, 2018
Options issued and outstanding	3,729
Restricted stock units issued and outstanding	2,345
Common stock available for stock-based award grants under incentive award plans	2,576
Common stock available for conversion of Series A Redeemable Convertible Preferred Stock	4,983
Total	13,633