Note 7 - EMPLOYEE BENEFIT PLANS

9 Months Ended

Sep. 30, 2022

EMPLOYEE BENEFIT PLANS

7. EMPLOYEE BENEFIT PLANS

7. EMPLOYEE BENEFIT PLANS

On September 30, 2022, the Company had the following stock-based compensation plans:

Employee Stock Purchase Plan

In July 2001, the Company’s stockholders initially approved the 2001 Employee Stock Purchase Plan, which was subsequently amended and restated in 2010 (as amended, the “2010 Purchase Plan”) to extend the term of the plan through May 17, 2020. Under the 2010 Purchase Plan, eligible employees could contribute up to 10% of their compensation, as defined in the 2010 Purchase Plan, towards the purchase of shares of PDF common stock at a price of 85% of the lower of the fair market value at the beginning of the offering period or the end of the purchase period. The 2010 Purchase Plan provided for twenty-four-month offering periods with four six-month purchase periods in each offering period. The 2010 Purchase Plan expired on May 17, 2020. Existing offering periods under the 2010 Plan continued through the applicable expiration date and the final offering period expired on January 31, 2022. On June 15, 2021, the Company’s stockholders approved the 2021 Employee Stock Purchase Plan, which has a ten-year term (the “2021 Purchase Plan” and, together with the 2010 Purchase Plan, the “Employee Purchase Plans”). The terms of 2021 Purchase Plan are substantially similar to those of the 2010 Purchase Plan. A twenty-four-month offering period under the 2021 Purchase Plan commenced on August 1, 2021.

The Company estimated the fair value of purchase rights granted under the 2021 Purchase Plan during the period using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions, resulting in the following weighted average fair values:

	Nine Months Ended September 30,
	2022			2021
Expected life (in years)		1.25			1.25
Volatility		48.73	%		48.00	%
Risk-free interest rate		2.75	%		0.11	%
Expected dividend		—			—
Weighted average fair value of purchase rights granted during the period	$	10.00		$	6.71

During the three months ended September 30, 2022, a total of 92,043 shares were issued under the 2021 Purchase Plan, at a weighted-average purchase price of $16.40 per share. During the nine months ended September 30, 2022, a total of 182,083 shares were issued under the 2021 Purchase Plan, at a weighted-average purchase price of $16.15 per share. During the nine months ended September 30, 2022 and 2021, a total of 5,203 and 108,623 shares, respectively, were issued under the 2010 Purchase Plan, at a weighted-average purchase price of $13.40 per share and $9.53 per share, respectively. As of September 30, 2022, unrecognized compensation cost related to the 2021 Purchase Plan was $1.6 million. This estimated unrecognized cost is expected to be recognized over a weighted average period of 1.2 years. There was no unrecognized compensation cost related to the 2010 Purchase Plan as of September 30, 2022.

As of September 30, 2022, 817,917 shares were available for future issuance under the 2021 Purchase Plan.

Stock Incentive Plans

On November 16, 2011, the Company’s stockholders initially approved the 2011 Stock Incentive Plan, which has been amended and restated and approved by the Company’s stockholders a number of times since then (as amended, the “2011 Plan”). Under the 2011 Plan, the Company may award stock options, stock appreciation rights (“SARs”), stock grants or stock units covering shares of the Company’s common stock to employees, directors, non-employee directors and contractors. The aggregate number of shares reserved for awards under the 2011 Plan is 12,800,000 shares, plus up to 3,500,000 shares previously issued under the 2001 Stock Plan adopted by the Company in 2001, which expired in 2011 (the “2001 Plan”) that are either (i) forfeited or (ii) repurchased by the Company or are shares subject to awards previously issued under the 2001 Plan that expire or that terminate without having been exercised or settled in full on or after November 16, 2011. In case of awards other than options or SARs, the aggregate number of shares reserved under the 2011 Plan will be decreased at a rate of 1.33 shares issued pursuant to such awards. The exercise price for stock options must generally be at prices no less than the fair market value at the date of grant. Stock options generally expire ten years from the date of grant and become vested and exercisable over a four-year period.

As of September 30, 2022, 13.3 million shares of common stock were reserved to cover stock-based awards under the 2011 Plan, of which 3.5 million shares were available for future grant. The number of shares reserved and available under the 2011 Plan includes 0.5 million shares that were subject to awards previously made under the 2001 Plan and were forfeited, expired or repurchased by the Company after the adoption of the 2011 Plan through September 30, 2022. As of September 30, 2022, there were no outstanding awards that had been granted outside of the 2011 or 2001 Plans (collectively, the “Stock Plans”).

The Company estimated the fair value of share-based awards granted under the 2011 Stock Plan during the period using the Black-Scholes-Merton option-pricing model. There were no stock options granted during the three and nine months ended September 30, 2022 and 2021.

Stock-Based Compensation

Stock-based compensation is estimated at the grant date based on the award’s fair value and is recognized on a straight-line basis over the vesting periods, generally four years. Stock-based compensation expense before taxes related to the Company’s stock plans and employee stock purchase plans was allocated as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Costs of revenues	$	854	$	670	$	2,237	$	1,860
Research and development		2,180		1,299		7,158		4,013
Selling, general and administrative		2,102		1,394		5,166		3,601
Stock-based compensation expenses	$	5,136	$	3,363	$	14,561	$	9,474

Additional information with respect to options under the Stock Plans during the nine months ended September 30, 2022, is as follows:

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Options	Price		Term	Value
	(in thousands)	per Share		(Years)	(in thousands)
Outstanding, January 1, 2022	226	$	12.78
Granted	—		—
Exercised	(109)		9.79
Canceled	(6)		13.35
Expired	(2)		8.79
Outstanding, September 30, 2022	109	$	15.77	3.93	$	960
Vested and expected to vest, September 30, 2022	109	$	15.77	3.91	$	955
Exercisable, September 30, 2022	94	$	15.75	3.42	$	825

The aggregate intrinsic value in the table above represents the total intrinsic value based on the Company’s closing stock price of $24.53 per share as of September 30, 2022. The total intrinsic value of options exercised was $1.8 million during the nine months ended September 30, 2022.

As of September 30, 2022, there was $0.1 million of total unrecognized compensation cost, net of forfeiture, related to unvested stock options, which is expected to be recognized over a weighted average period of 1.2 years. The total fair value of shares vested was immaterial during the nine months ended September 30, 2022.

Nonvested restricted stock unit activity during the nine months ended September 30, 2022, was as follows:

		Weighted
		Average Grant
	Shares	Date Fair Value
	(in thousands)	Per Share
Nonvested, January 1, 2022	1,872	$	18.24
Granted	1,144	$	22.74
Vested	(738)	$	18.13
Forfeited	(75)	$	19.41
Nonvested, September 30, 2022	2,203	$	20.57

As of September 30, 2022, there was $35.0 million of total unrecognized compensation cost related to restricted stock units. That cost is expected to be recognized over a weighted average period of 2.7 years. Restricted stock units do not have rights to dividends prior to vesting.