Note 3 - Stock-based Compensation

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

3. STOCK-BASED COMPENSATION

2014 Equity Incentive Plan

In  April 2013, the Board of Directors adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which the Company’s stockholders approved in  June 2013. In  October 2014, the Board of Directors 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 of Directors 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  March 31, 2023, 4.2 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 March 31,
	2023		2022
Cost of revenue	$	1,147	$	1,307
Research and development		8,614		8,401
Selling, general and administrative		27,248		30,103
Total stock-based compensation expense	$	37,009	$	39,811
Tax benefit related to stock-based compensation (1)	$	423	$	573

(1) Amount reflects 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. Equity awards granted to the Company’s executive officers are subject to the tax deduction limitations set by Section 162(m) of the Internal Revenue Code.

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/market goals and the approval of such achievement by the Compensation Committee of the Board of Directors (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, 2023		106		$	327.13		748		$	275.70		1,805		$	126.57		2,659		$	176.50
Granted		27		$	467.62		246	(1)	$	449.22		-		$	-		273		$	450.13
Vested		(16	)	$	279.89		(198	)	$	291.65		(81	)	$	23.57		(295	)	$	217.47
Forfeited		(2	)	$	361.26		(2	)	$	285.23		(5	)	$	139.15		(9	)	$	225.18
Outstanding at March 31, 2023		115		$	365.93		794		$	326.02		1,719		$	131.39		2,628		$	200.37

(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 $141.6 million and $151.7 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, the total intrinsic value of all outstanding RSUs was $1.3 billion, based on the closing stock price of $500.54. As of March 31, 2023, unamortized compensation expense related to all outstanding RSUs was $308.0 million with a weighted-average remaining recognition period of approximately three years.

Cash proceeds from vested PSUs with a purchase price requirement totaled $1.1 million and $2.3 million for the three months ended March 31, 2023 and 2022, respectively.

Time-Based RSUs:

For the three months ended March 31, 2023, the Compensation Committee granted 27,000 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.

2023 PSUs:

In February 2023, the Compensation Committee granted 69,000 PSUs to the executive officers, which represent a target number of shares that can be earned based on the degree of achievement of two sets of performance goals (“2023 Executive PSUs”). For the first goal, the executive officers can earn up to 300% of the target number of the 2023 Executive PSUs based on the achievement of the Company’s average three-year (2023 through 2025) revenue growth rate in excess of the analog industry’s average three-year revenue growth rate as published by the Semiconductor Industry Association (the “SIA”). For the second goal, the executive officers can earn up to an additional 200% of the target number of the 2023 Executive PSUs if the Company secures additional manufacturing capacity outside of Mainland China during a three-year performance period. For both goals, a percentage of the 2023 Executive PSUs will fully vest on December 31, 2025 depending on the degree to which the pre-determined goals are met during the performance periods. Assuming the achievement of the highest level of the performance goals, the total stock-based compensation cost for the 2023 Executive PSUs is $156.2 million.

In February 2023, the Compensation Committee granted 13,000 PSUs to certain non-executive employees, which represent a target number of shares that can be earned based on the degree of achievement of the Company’s 2024 revenue goals for certain regions or product line divisions, or based on the degree of achievement of the Company’s average two-year (2023 and 2024) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the SIA (“2023 Non-Executive PSUs”). The maximum number of shares that an employee can earn is either 200% or 300% of the target number of the 2023 Non-Executive PSUs, depending on the job classification of the employee. 50% of the 2023 Non-Executive PSUs will vest in the first quarter of 2025 depending on the degree to which the pre-determined goals are met during the performance period. The remaining 2023 Non-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 2023 Non-Executive PSUs is $14.2 million.

The 2023 Executive PSUs and the 2023 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 Company's stock price on the last trading day of the performance period is $30 higher than the grant date stock price of $467.62. The Company determined the grant date fair value of the 2023 Executive PSUs and the 2023 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $467.62, simulation term of four years, expected volatility of 51.0%, risk-free interest rate of 3.9%, and expected dividend yield of 0.9%. There is no illiquidity discount because the awards do not contain any post-vesting sales restrictions.

2004 Employee Stock Purchase Plan (“ESPP”)

For the three months ended March 31, 2023 and 2022, 9,000 and 7,000 shares, respectively, were issued under the ESPP. As of March 31, 2023, 4.5 million shares were available for future issuance under the ESPP.

The intrinsic value of the shares issued was $0.7 million for both the three months ended March 31, 2023 and 2022. As of March 31, 2023, the unamortized expense was $1.1 million, which will be recognized through the third quarter of 2023. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions:

	Three Months Ended March 31,
	2023			2022
Expected term (in years)		0.5			0.5
Expected volatility		55.8	%		38.1	%
Risk-free interest rate		5.0	%		0.7	%
Dividend yield		0.8	%		0.6	%

Cash proceeds from the shares issued under the ESPP were $3.7 million and $2.8 million for the three months ended March 31, 2023 and 2022, respectively.