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Note 3 - Stock-based Compensation

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Text Block]

3. STOCK-BASED COMPENSATION

2014 Equity Incentive Plan

In April 2013, the Board of Directors (the “Board”) adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which the Company's stockholders approved in June 2013. In October 2014, the Board approved certain amendments to the 2014 Plan. The amended 2014 Plan became effective on November 13, 2014 and provided for the issuance of up to 5.5 million shares. In April 2020, the Board further amended and restated the amended 2014 Plan (the “Amended and Restated 2014 Plan”), which the Company's stockholders approved in June 2020. The Amended and Restated 2014 Plan became effective on June 11, 2020 and provides for the issuance of up to 10.5 million shares. The Amended and Restated 2014 Plan will expire on June 11, 2030. As of September 30, 2020, 6.0 million shares remained available for future issuance under the Amended and Restated 2014 Plan.

Stock-Based Compensation Expense

The Company recognized stock-based compensation expenses as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Cost of revenue	$	707	$	641	$	1,906	$	1,834
Research and development		5,334		4,960		14,666		14,801
Selling, general and administrative		16,934		15,699		46,009		43,384
Total stock-based compensation expense	$	22,975	$	21,300	$	62,581	$	60,019
Tax benefit related to stock-based compensation (1)	$	512	$	595	$	1,450	$	2,139

(1)

Amounts reflect the tax benefit related to stock-based compensation recorded for equity awards that are expected to generate tax deductions when they vest in future periods.

Restricted Stock Units (“RSUs”)

The Company’s RSUs include time-based RSUs, RSUs with performance conditions (“PSUs”), RSUs with market conditions (“MSUs”), and RSUs with both market and performance conditions (“MPSUs”). Vesting of awards with performance conditions or market conditions is subject to the achievement of pre-determined performance goals and the approval of such achievement by the Compensation Committee of the Board (the “Compensation Committee”). All awards include service conditions which require continued employment with the Company.

A summary of RSU activity is presented in the table below (in thousands, except per-share amounts):

	Time-Based RSUs					PSUs and MPSUs					MSUs					Total
	Number of Shares			Weighted- Average Grant Date Fair Value Per Share		Number of Shares			Weighted- Average Grant Date Fair Value Per Share		Number of Shares			Weighted- Average Grant Date Fair Value Per Share		Number of Shares			Weighted- Average Grant Date Fair Value Per Share
Outstanding at January 1, 2020		180		$	115.45		1,987		$	74.50		1,886		$	37.63		4,053		$	59.16
Granted		73		$	184.19		622	(1)	$	172.83		-		$	-		695		$	174.03
Vested		(73	)	$	108.80		(1,136	)	$	58.21		(243	)	$	23.57		(1,452	)	$	54.98
Forfeited		(7	)	$	132.36		(10	)	$	84.95		(8	)	$	68.48		(25	)	$	92.50
Outstanding at September 30, 2020		173		$	146.72		1,463		$	128.96		1,635		$	39.57		3,271		$	85.19

(1)

Amount reflects the number of awards that may ultimately be earned based on management’s probability assessment of the achievement of performance conditions at each reporting period.

The intrinsic value related to vested RSUs was $45.9 million and $26.1 million for the three months ended September 30, 2020 and 2019, respectively. The intrinsic value related to vested RSUs was $267.8 million and $110.1 million for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, the total intrinsic value of all outstanding RSUs was $888.1 million, based on the closing stock price of $279.61. As of September 30, 2020, unamortized compensation expense related to all outstanding RSUs was $157.2 million with a weighted-average remaining recognition period of approximately 2.5 years.

Cash proceeds from vested PSUs with a purchase price requirement totaled $16.5 million and $14.6 million for the nine months ended September 30, 2020 and 2019, respectively.

Time-Based RSUs:

For the nine months ended September 30, 2020, the Compensation Committee granted 73,000 RSUs with service conditions to non-executive employees and non-employee directors. The RSUs generally vest over four years for employees and one year for directors, subject to continued service with the Company.

2020 PSUs:

In February 2020, the Compensation Committee granted 100,000 PSUs to the executive officers, which represent a target number of shares to be earned based on the Company’s average two-year (2020 and 2021) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2020 Executive PSUs”). The maximum number of shares that an executive officer can earn is 300% of the target number of the 2020 Executive PSUs. 50% of the 2020 Executive PSUs will vest in the first quarter of 2022 if the pre-determined performance goals are met during the performance period. The remaining 2020 Executive PSUs will vest over the following two years on a quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2020 Executive PSUs is $51.1 million.

In February 2020, the Compensation Committee granted 30,000 PSUs to certain non-executive employees, which represent a target number of shares to be earned based on the Company’s 2021 revenue goals for certain regions or product line divisions, or based on the Company’s average two-year (2020 and 2021) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2020 Non-Executive PSUs”). The maximum number of shares that an employee can earn is either 200% or 300% of the target number of the 2020 Non-Executive PSUs, depending on the job classification of the employee. 50% of the 2020 Non-Executive PSUs will vest in the first quarter of 2022 if the pre-determined performance goals are met during the performance period. The remaining 2020 Non-Executive PSUs will vest over the following two years on an annual or quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2020 Non-Executive PSUs is $12.8 million.

The 2020 Executive PSUs and the 2020 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. The $30 purchase price requirement is deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time during the performance period is $30 higher than the grant date stock price of $182.62. This market condition was achieved in the second quarter of 2020. The Company determined the grant date fair value using a Monte Carlo simulation model with the following assumptions: stock price of $182.62, simulation term of 2.0 years, expected volatility of 33.6%, risk-free interest rate of 1.4%, and expected dividend yield of 1.1%.

2020 MPSUs:

In July 2020, the Compensation Committee granted 43,000 MPSUs to the executive officers and 2,000 MPSUs to certain key employees, which represent a target number of shares that can be earned based on the achievement of both market and performance conditions (“2020 MPSUs”). The maximum number of shares that an employee can earn is 500% of the target number of the 2020 MPSUs. The market conditions consist of five stock price targets ranging from $260 to $300 with a performance period through July 20, 2023, and the performance condition consists of one business operating goal related to a revenue target for certain customers with a performance period through December 31, 2021. Upon achievement of the market and performance conditions, 75% of the 2020 MPSUs will vest on July 20, 2023 and 25% of the 2020 MPSUs will vest on July 20, 2024. All vested shares will be subject to a post-vesting sales restriction period of one year. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2020 MPSUs is $42.1 million.

The Company determined the grant date fair value of the 2020 MPSUs using a Monte Carlo simulation model with the following assumptions: stock price of $248.71, simulation term of 4.0 years, expected volatility of 38.8%, risk-free interest rate of 0.2%, and expected dividend yield of 0.8%. In addition, the grant date fair value included an illiquidity discount of 8.9% to account for the post-vesting sales restrictions.

2004 Employee Stock Purchase Plan (“ESPP”)

For the three months ended September 30, 2020 and 2019, 12,000 and 14,000 shares, respectively, were issued under the ESPP. For both the nine months ended September 30, 2020 and 2019, 28,000 shares were issued under the ESPP. As of September 30, 2020, 4.5 million shares were available for future issuance under the ESPP.

The intrinsic value of the shares issued was $1.5 million and $0.4 million for the three months ended September 30, 2020 and 2019, respectively. The intrinsic value of the shares issued was $2.5 million and $0.7 million for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, the unamortized expense was $0.6 million, which will be recognized through the first quarter of 2021. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Expected term (in years)		0.5			0.5			0.5			0.5
Expected volatility		66.4	%		36.7	%		48.9	%		37.0	%
Risk-free interest rate		0.1	%		1.9	%		0.8	%		2.2	%
Dividend yield		0.7	%		1.1	%		0.9	%		1.1	%

Cash proceeds from the shares issued under the ESPP were $3.8 million and $3.3 million for the nine months ended September 30, 2020 and 2019, respectively.