Note 9 - Stock-based Compensation

9 Months Ended

Sep. 28, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

Note 9 - Stock-Based Compensation

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

	Three Months Ended					Nine Months Ended
	September 28,			September 30,		September 28,		September 30,
(In thousands)	2024			2023		2024		2023
Cost of revenue	$	(62	)	$	1,035	$	1,593	$	3,402
Research and development		7,995			7,020		21,958		20,006
Selling, general, and administrative		8,665			8,609		14,760		29,000
Total stock-based compensation	$	16,598		$	16,664	$	38,311	$	52,408

Market-Based and Performance-Based Stock Compensation

In the first and third quarters of fiscal 2024, 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 after a three-year period based on the Company’s total shareholder return ("TSR") relative to the Russell 3000 index, which condition is measured for the grants on either the third anniversary of the grant date, or equally on the first, second, and third anniversary of the grant date, depending on the executive. The awards may vest at 250% or 200%, depending on 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 the second and third quarters of fiscal 2024, we also granted awards of RSUs with a performance condition to certain executives. Under the terms of these grants, the RSUs with a performance condition will vest if the Company achieves year-over-year revenue growth in excess of an industry benchmark, and the number of shares vested will scale for achievement of year-over-year revenue growth compared to certain targets, with maximum vesting up to 250%. The performance condition will be measured annually after each fiscal year-end for one-fourth of the grants beginning in fiscal 2025 through the end of fiscal 2028. Vesting of these awards occurs 13 months after the end of each measurement period and the entire award cannot be fully earned until five and a half years from grant date.

In the third quarter of fiscal 2024, we also granted awards of RSUs with a market condition to our new chief executive officer with vesting tied to the Company's stock price appreciation. The number of shares that become eligible to vest can range from 25% to 250% of the target number of shares, based on the Company's stock price growth over the 6-year service period, which ranges from 25% to 200% stock price growth calculated based on the simple average of the closing Company share price for the trailing 60 trading days up to and including the measurement date. No vesting occurs for stock price growth below 25%. Vesting will occur annually after 3 years for a portion of the vesting eligible RSUs.

In the first nine months of fiscal 2024, certain awards with a market condition or performance condition granted in prior fiscal years vested. During the first quarter of fiscal 2024, the market condition for awards granted to certain executives in the first quarter of fiscal 2021 exceeded the 75th percentile of their TSR condition, and these awards vested at 250% or 200%, as applicable for the respective executive. Also during the first quarter of fiscal 2024, the second tranche of awards granted in fiscal 2021 and 2022 with a performance condition vested. Under the terms of these grants, the RSUs with a performance condition will vest based on the Company generating specified levels of year-over-year revenue growth, which are measured annually for one-fourth of the grants after each fiscal year-end through the end of fiscal 2024, with vesting of each tranche occurring 13 months after the performance condition is met. Vesting of these awards scales for achievement of year-over-year revenue growth compared to certain targets, with maximum vesting up to 200%. The second tranche of these awards vested at the 200% level of achievement, as the Company met the maximum year-over-year revenue growth performance criteria as of December 31, 2022. For the third tranche of these awards, the Company met the year-over-year revenue growth performance criteria at the 116.3% level of achievement as of December 30, 2023.

For our awards with a market condition or performance condition, we incurred stock compensation expense of approximately $4.5 million, partially offset by benefits from forfeitures of approximately $2.9 million due to executive departures, in the third quarter of fiscal 2024. In the first nine months of fiscal 2024, we recorded benefits from forfeitures of approximately $18.0 million due to executive departures, which was partially offset by stock compensation expense of approximately $16.5 million. We incurred stock compensation expense of approximately $5.1 million and $21.0 million in the third quarter and first nine months of fiscal 2023, respectively. These amounts are recorded as components of total stock-based compensation.

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

 

(Shares in thousands)	Total
Balance, December 30, 2023		852
Granted		1,641
Effect of vesting multiplier		284
Vested		(541	)
Canceled		(391	)
Balance, September 28, 2024		1,845