Note 3 - Stock-based Compensation

9 Months Ended

Sep. 30, 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 September 30, 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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cost of revenue	$	1,020	$	1,186	$	3,317	$	3,691
Research and development (“R&D”)		8,479		9,287		26,406		26,875
Selling, general and administrative (“SG&A”)		24,103		32,524		78,880		95,157
Total stock-based compensation expense	$	33,602	$	42,997	$	108,603	$	125,723
Tax benefit related to stock-based compensation (1)	$	667	$	654	$	1,753	$	1,879

(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
				Weighted-						Weighted-					Weighted-					Weighted-
				Average						Average					Average					Average
				Grant Date						Grant Date					Grant Date					Grant Date
	Number of			Fair Value		Number of				Fair Value		Number of			Fair Value		Number of			Fair Value
	Shares			Per Share		Shares				Per Share		Shares			Per Share		Shares			Per Share
Outstanding at January 1, 2023		106		$	327.13		748			$	275.70		1,805		$	126.57		2,659		$	176.50
Granted		45		$	479.76		226		(1)	$	449.34		31		$	330.95		302		$	445.50
Vested		(42	)	$	288.51		(504	)		$	257.41		(240	)	$	23.57		(786	)	$	187.56
Forfeited		(5	)	$	376.82		(4	)		$	312.12		(14	)	$	104.16		(23	)	$	192.23
Outstanding at September 30, 2023		104		$	406.52		466			$	380.12		1,582		$	146.51		2,152		$	209.67

(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 $148.9 million and $62.3 million for the three months ended September 30, 2023 and 2022, respectively. The intrinsic value related to vested RSUs was $388.6 million and $277.9 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, the total intrinsic value of all outstanding RSUs was $987.4 million, based on the closing stock price of $462.00. As of September 30, 2023, unamortized compensation expense related to all outstanding RSUs was $236.5 million with a weighted-average remaining recognition period of approximately two years.

Cash proceeds from vested PSUs with a purchase price requirement totaled $1.1 million and $4.3 million for the nine months ended September 30, 2023 and 2022, respectively.

Time-Based RSUs:

For the nine months ended September 30, 2023, the Compensation Committee granted 45,000 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 $13.9 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 (as amended and restated, the “2004 ESPP”)

On August 16, 2023, the 2004 ESPP was amended and restated to, among other changes, provide for the issuance of up to 4.4 million shares of the Company’s common stock. The 2004 ESPP will expire on  August 16, 2038.

For the three months ended  September 30, 2023 and 2022, 9,000 and 7,000 shares were issued under the 2004 ESPP, respectively. For the nine months ended September 30, 2023 and 2022, 18,000 and 14,000 shares were issued under the 2004 ESPP, respectively. As of September 30, 2023, 4.4 million shares were available for future issuance under the 2004 ESPP.

The intrinsic value of the shares issued was $0.7 million and $0.9 million for the three months ended  September 30, 2023 and 2022, respectively. The intrinsic value of the shares issued was $1.4 million and $1.6 million for the nine months ended  September 30, 2023 and 2022, respectively. As of September 30, 2023, the unamortized expense was $1.2 million, which will be recognized through the first quarter of 2024. 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,
	2023			2022			2023			2022
Expected term (in years)		0.5			0.5			0.5			0.5
Expected volatility		50.8	%		63.2	%		53.3	%		50.6	%
Risk-free interest rate		5.5	%		3.1	%		5.3	%		1.9	%
Dividend yield		0.8	%		0.6	%		0.8	%		0.6	%

Cash proceeds from the shares issued under the 2004 ESPP were $7.6 million and $5.9 million for the nine months ended September 30, 2023 and 2022, respectively.