Note 10 - Stock-Based Compensation Plans

12 Months Ended

Jan. 02, 2021

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

Employee and Director Stock Options, Restricted Stock, and ESPP Plans

We have two active equity incentive plans, the "2013 Incentive Plan and the "2011 Non-Employee Director Equity Incentive Plan", under which shares remain available for grants to employees and non-employee directors, respectively. In addition, we have made grants of inducement awards to certain executives and employees that are granted outside of, but governed by, the 2013 Incentive Plan. "Incentive stock options" under Section 422 of the U.S. Internal Revenue Code and restricted stock unit ("RSU") grants are part of our equity compensation practices for employees who receive equity grants. Options and RSUs generally vest quarterly over a four-year period beginning on the grant date. The contractual terms of options granted do not exceed ten years.

In May 2012, the Company's stockholders approved the 2012 Employee Stock Purchase Plan ("2012 ESPP"), which authorizes the issuance of 3.0 million shares of common stock to eligible employees to purchase shares of common stock through payroll deductions, which cannot exceed 10% of an employee's compensation. The purchase price of the shares is the lower of 85% of the fair market value of the stock at the beginning of each six-month offering period or 85% of the fair market value at the end of such period. We have treated the 2012 ESPP as a compensatory plan. At January 2, 2021, a total of 1.2 million shares of our common stock were available for future purchases under the 2012 ESPP.

At January 2, 2021, a total of 11.6 million shares of our common stock were available for future grants under the 2013 Incentive Plan, and the 2011 Non-Employee Director Equity Incentive Plan. Following our 2018 Shareholder meeting, a share ratio of 2.2:1 was applied to the 2013 Incentive Plan. This ratio takes two and two-tenths shares out of the 2013 Plan for every one full value share granted. During fiscal 2020, a total of 2.0 million shares were adjusted out of the 2013 Plan. Shares subject to stock option grants that expire or are canceled, without delivery of such shares, generally become available for re-issuance under equity incentive plans.

Stock-Based Compensation Expense

Total stock-based compensation expense included in our Consolidated Statements of Operations is presented in the following table:

	Year Ended
	January 2,		December 28,		December 29,
(In thousands)	2021		2019		2018
Cost of revenue	$	3,179	$	1,422	$	940
Research and development		10,124		5,640		4,357
Selling, general, and administrative		27,069		11,837		8,349
Total stock-based compensation	$	40,372	$	18,899	$	13,646

The stock-based compensation expense included in Selling, general, and administrative expense for fiscal 2018 includes approximately $1.4 million of additional one-time expense for acceleration of stock compensation under the CEO separation agreement executed with our former CEO during the first quarter of fiscal 2018.

Stock Options and ESPP

The fair values of each option award on the date of grant and of the shares expected to be issued under the employee stock purchase plan were estimated using the Black-Scholes valuation model and the assumptions noted in the following table. The expected term is based on historical vested option exercises and includes an estimate of the expected term for options that are fully vested and outstanding. The expected volatility of both stock options and ESPP shares is based on the daily historical volatility of our stock price, measured over the expected term of the option or the ESPP purchase period. The risk-free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term closest to the expected term of the option. Dividend yield has no valuation impact, as we have not paid any cash dividends since inception and do not intend to pay any cash dividends in the foreseeable future.

The following table summarizes the assumptions used in the valuation of stock option and ESPP compensation:

	Year Ended
	January 2, 2021	December 28, 2019	December 29, 2018
Employee and Director Stock Options *
Expected volatility	n/a	n/a	39.87% to 41.11%
Risk-free interest rate	n/a	n/a	2.29% to 2.78%
Expected term (years)	n/a	n/a	4.08 to 4.25
Employee Stock Purchase Plan
Weighted average expected volatility	48.2%	31.6%	36.4%
Weighted average risk-free interest rate	0.89%	2.51%	1.61%
Expected term (in months)	6	6	6

* No stock options granted during fiscal 2020 or 2019

At January 2, 2021, there was $1.0 million of total unrecognized compensation cost related to unvested employee and director stock options, which is expected to be recognized over a weighted average period of 0.7 years. Our current practice is to issue new shares to satisfy option exercises. Compensation expense for all stock-based compensation awards is recognized using the straight-line method. In fiscal 2020, 2019, and 2018, we recorded stock compensation expense of approximately $2.0 million, $2.4 million, and $4.1 million, respectively, related to stock options and approximately $1.0 million, $0.5 million, and $0.6 million, respectively, related to the ESPP.

The following table summarizes our stock option activity and related information for the year ended January 2, 2021:

(Shares and aggregate intrinsic value in thousands)	Shares			Weighted average exercise price		Weighted average remaining contractual term (years)		Aggregate Intrinsic Value
Balance, December 28, 2019		3,332		$	6.16
Granted		—			—
Exercised		(1,057	)		5.70
Forfeited or expired		(75	)		5.69
Balance, January 2, 2021		2,200		$	6.39
Vested and expected to vest at January 2, 2021		2,200		$	6.39		3.86	$	86,739
Exercisable, January 2, 2021		1,589		$	6.40		3.66	$	62,661

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company's closing stock price on the last trading day of the fiscal year and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on that day. This amount changes based on the fair market value of the Company's stock. Total intrinsic value of options exercised for fiscal 2020, 2019, and 2018 was $21.5 million, $17.8 million, and $6.5 million, respectively.

No stock options were granted during fiscal 2020 or 2019. For fiscal 2018, the grant date weighted-average fair value for stock options granted, calculated using the Black-Scholes option pricing model with the noted assumptions for stock options, was $2.73. The weighted average fair values for the ESPP, calculated using the Black-Scholes option pricing model with the noted assumptions for the ESPP, were $6.62, $1.69, and $1.50 for fiscal years 2020, 2019, and 2018, respectively.

Time-Based Restricted Stock Unit Awards

The following table summarizes the activity for our time-based RSUs for the year ended January 2, 2021:

(Shares in thousands)	Shares			Weighted average grant date fair value
Balance, December 28, 2019		3,611		$	11.50
Granted		984			26.48
Vested		(1,424	)		10.72
Forfeited or expired		(173	)		12.03
Balance, January 2, 2021		2,998		$	16.76

At January 2, 2021, there was $44.3 million of unrecognized compensation expense related to unvested time-based RSUs. Our current practice is to issue new shares when RSUs vest. Compensation expense for RSUs is recognized using the straight-line method over the related vesting period. In fiscal 2020, 2019, and 2018, we recorded stock compensation expense related to time-based RSUs of approximately $16.6 million, $10.3 million, and $8.0 million, respectively.

Market-Based and Performance-Based Awards

In 2018 through 2020, we granted awards of RSUs with either a market condition or a performance condition to certain executives.

In the first quarter of fiscal 2020, we granted awards of RSUs with a market condition to certain executives. Under the terms of these grants, the RSUs with a market condition vest and become payable over a three-year period based on the Company’s total shareholder return ("TSR") relative to the Russell 2000 index, which condition is tested for one-half of the grants on the second and third anniversary of the grant date. The awards may vest at 250% or 200%, depending upon the executive, if the 75th percentile of the market condition is achieved, with 100% of the units vesting at the 55th percentile, zero vesting if relative TSR is below the 25th percentile, and vesting scaling for achievement between the 25th and 75th percentile.

In fiscal years 2018 and 2019, we granted inducement awards outside of, but subject to the terms and conditions of the 2013 Incentive Plan to certain executives. These awards consisted of RSUs with either a market condition or a performance condition that vest and become payable upon achievement of TSR or Adjusted EBITDA targets, respectively. These TSR-based awards vest and become payable over a three-year period based on the Company’s TSR relative to the PHLX Semiconductor Sector Index, with either 250% or 200% of the units vesting at the 75th percentile, depending upon the executive, 100% of the units vesting at the 50th percentile and zero vesting if relative TSR is below the 25th percentile, and vesting scaling linearly for achievement between the 25th and 75th percentile. The Adjusted EBITDA-based awards will vest and become payable based upon the Company’s generating specified “adjusted” EBITDA levels on a trailing four quarter basis in any two consecutive trailing four-quarter periods. During the first quarter of fiscal 2020, the Board of Directors approved a modification to the market condition measurement periods associated with the unvested portions of certain of the Company’s awards with a market condition that were granted prior to fiscal 2020. The modification extended the duration of the measurement period by adjusting the beginning date of each measurement period to the original grant date, resulting in approximately $1.8 million additional stock compensation expense during the first quarter of fiscal 2020.

During the first quarter of fiscal 2020, the market condition for awards granted to certain executives in the first quarter of fiscal 2019 exceeded the 75th percentile of the condition, and the first tranche of these awards vested at 200%. During the second quarter of fiscal 2020, the first tranche of 33.3% of the base number of the awards with an EBITDA performance condition vested, as the Company had generated the specified "adjusted" EBITDA levels on a trailing four quarter basis for two consecutive trailing four-quarter periods as of the end of the first quarter of fiscal 2020. During the third and fourth quarters of fiscal 2020, the market condition for awards granted in previous years exceeded the 75th percentile of the condition, and one-third of these awards vested at 250% or 200%, as applicable for the respective executive.

For our awards with a market condition or a performance condition, we incurred stock compensation expense, including the effect of the modification in the first quarter of fiscal 2020, of approximately $20.8 million, $5.7 million, and $0.9 million in fiscal years 2020, 2019, and 2018, respectively. At January 2, 2021, there was $14.8 million of unrecognized compensation expense related to unvested RSUs with a market condition or a performance condition.

The following table summarizes the assumptions used at the grant date in the valuation of RSUs with a market or performance condition:

	Year Ended
	January 2, 2021	December 28, 2019	December 29, 2018
Executive RSUs with a market condition or performance condition
Weighted average expected volatility	42.38%	40.15% to 41.10%	41.06% to 41.74%
Weighted average risk-free interest rate	1.40%	1.66% to 2.55%	2.71% to 2.87%
Expected term (years)	3.00	3.00	3.00 to 3.16

The following table summarizes the activity for our awards with a market condition or performance condition:

(Shares in thousands)	Shares			Weighted average grant date fair value
Balance, December 28, 2019		1,163		$	14.49
Granted		349			32.23
Effect of vesting multiplier		472			—
Vested		(963	)		15.63
Canceled		—			—
Balance, January 2, 2021		1,021		$	20.42