Note 3 - Stock-based Compensation

6 Months Ended

Jun. 30, 2024

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 Company’s 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 cease being available for new awards on June 11, 2030. As of June 30, 2024, 3.9 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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Cost of revenue	$	1,611	$	1,150	$	3,009	$	2,297
Research and development		11,682		9,313		22,129		17,927
Selling, general and administrative (“SG&A”)		39,013		27,529		73,094		54,777
Total stock-based compensation expense	$	52,306	$	37,992	$	98,232	$	75,001
Tax benefit related to stock-based compensation (1)	$	798	$	663	$	1,506	$	1,086

(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 or 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 or services to 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, 2024		102		$	411.11		482			$	397.77		1,502		$	152.89		2,086		$	222.04
Granted		30		$	635.67		344		(1)	$	593.33		-		$	-		374		$	596.68
Vested		(31	)	$	363.82		(77	)		$	307.93		(563	)	$	68.48		(671	)	$	109.62
Forfeited		(3	)	$	465.22		(1	)		$	396.40		(1	)	$	270.15		(5	)	$	412.40
Outstanding at June 30, 2024		98		$	493.16		748			$	496.84		938		$	203.33		1,784		$	342.19

(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 $25.5 million and $98.1 million for the three months ended June 30, 2024 and 2023, respectively. The intrinsic value related to vested RSUs was $428.6 million and $239.7 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, the total intrinsic value of all outstanding RSUs was $1.4 billion, based on the closing stock price of $821.68. As of June 30, 2024, unamortized compensation expense related to all outstanding RSUs was $350.8 million with a weighted-average remaining recognition period of approximately two years.

Time-Based RSUs:

For the six months ended June 30, 2024, the Compensation Committee granted 30,000 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.

2024 PSUs:

In February 2024, the Compensation Committee granted 50,000 PSUs to the executive officers, which represent a target number of shares that can be earned based on the degree of achievement of three sets of performance goals (“2024 Executive PSUs”). For the first goal, the executive officers can earn up to 300% of the target number of the 2024 Executive PSUs based on the achievement of the Company’s average three-year (2024 through 2026) 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 an additional 100% of the target number of the 2024 Executive PSUs if the Company achieves a reduction in 2026 of 25% global combined Scope 1 and Scope 2 greenhouse gas emissions against the 2022 baseline. For the third goal, the executive officers can earn 50% of the target number of the 2024 Executive PSUs if more than one-third of the Company’s total 2026 revenue in the automotive market is generated from Electronic Vehicle (“EV”) automakers. In addition, for the third goal, the executive officers can earn 50% of the target number of the 2024 Executive PSUs if total 2026 revenue from products enabling EV powertrains and EV 48V systems grows to 200% of the 2023 baseline. For the first goal, a percentage of the 2024 Executive PSUs will fully vest on December 31, 2026, depending on the degree to which the pre-determined goal is met during the performance period. The 2024 Executive PSUs related to the second and the third goal will fully vest on December 31, 2026 if the pre-determined goals are met during the performance period. Assuming the achievement of the highest level of the performance goals, the total stock-based compensation cost for the 2024 Executive PSUs will be $154.3 million. 
 

In February 2024, the Compensation Committee granted 11,000 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 2025 revenue goals for certain regions or product line divisions, or based on the degree of achievement of the Company’s average two-year (2024 and 2025) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the SIA (“2024 Non-Executive PSUs”). The maximum number of shares that an employee can earn is either 200% or 300% of the target number of the 2024 Non-Executive PSUs, depending on the job classification of the employee. 50% of the 2024 Non-Executive PSUs will vest in the first quarter of 2026 depending on the degree to which the pre-determined goals are met during the performance period. The remaining 2024 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 2024 Non-Executive PSUs will be $17.7 million. 

The 2024 Executive PSUs and the 2024 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 $632.98. The Company determined the grant date fair value of the 2024 Executive PSUs and the 2024 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $632.98, simulation term of three years, expected volatility of 49.4%, risk-free interest rate of 4.1%, and expected dividend yield of 0.8%. 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.

No shares were issued under the 2004 ESPP for the three months ended June 30, 2024 and 2023. For the six months ended June 30, 2024 and 2023, 11,000 and 9,000 shares were issued under the 2004 ESPP, respectively. As of June 30, 2024, 4.4 million shares were available for future issuance under the 2004 ESPP.

The intrinsic value of the shares issued was $3.5 million and $0.7 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, the unamortized expense was $0.4 million, which will be recognized through the third quarter of 2024. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions:

	Six Months Ended June 30,
	2024			2023
Expected term (in years)		0.5			0.5
Expected volatility		42.4	%		55.8	%
Risk-free interest rate		5.3	%		5.0	%
Dividend yield		0.7	%		0.8	%

Cash proceeds from the shares issued under the 2004 ESPP were $4.6 million and $3.7 million for the six months ended June 30, 2024 and 2023, respectively.