Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation and Employee Benefit Plans

v3.10.0.1
Stock-Based Compensation and Employee Benefit Plans
 9 Months Ended
Sep. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation and Employee Benefit Plans
Stock-Based Compensation and Employee Benefit Plans
Employee Stock-Based Benefit Plans
At September 30, 2018, the Company had stock-based compensation awards outstanding under the following plans: the 2004 Stock Plan, the 2010 Equity Incentive Plan, as amended, or 2010 Plan, the 2010 Employee Stock Purchase Plan, or ESPP, and plans under which equity incentive awards were assumed in connection with the acquisitions of Entropic in 2015 and Exar Corporation in 2017. Refer to the Company’s Annual Report for a summary of the Company's stock-based compensation and equity plans as of December 31, 2017. There have been no material changes to the terms of the Company's equity incentive plans during the nine months ended September 30, 2018. All current stock awards are issued under the 2010 Plan and ESPP.
As of September 30, 2018, the number of shares of common stock available for future issuance under the 2010 Plan was 13,287,501 shares. As of September 30, 2018, the number of shares of common stock available for future issuance under the ESPP was 2,254,806 shares.
Stock-Based Compensation
The Company recognizes stock-based compensation in the consolidated statements of operations, based on the department to which the related employee reports, as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
 
(in thousands)
Cost of net revenue
$
131

 
$
93

 
$
357

 
$
231

Research and development
4,726

 
4,337

 
13,554

 
11,841

Selling, general and administrative
3,070

 
2,965

 
9,798

 
7,911

Restructuring
—

 
401

 
—

 
4,915

 
$
7,927

 
$
7,796

 
$
23,709

 
$
24,898


The total unrecognized compensation cost related to unvested restricted stock units and restricted stock awards as of September 30, 2018 was $60.6 million, and the weighted average period over which these equity awards are expected to vest is 2.76 years. The total unrecognized compensation cost related to unvested stock options as of September 30, 2018 was $5.5 million, and the weighted average period over which these equity awards are expected to vest is 2.92 years.
Restricted Stock Units and Restricted Stock Awards
The Company calculates the fair value of restricted stock units based on the fair market value of the Company's common stock on the grant date. Stock based compensation is recognized over the vesting period using the straight-line method.
A summary of the Company’s restricted stock unit and restricted stock award activity is as follows:
 
Number of Shares
(in thousands)
 
Weighted-Average Grant-Date Fair Value per Share
Outstanding at December 31, 2017
3,183

 
$
20.13

Granted
2,362

 
19.42

Vested
(1,342
)
 
18.57

Canceled
(488
)
 
20.71

Outstanding at September 30, 2018
3,715

 
20.18


Employee Stock Purchase Rights and Stock Options
The Company uses the Black-Scholes valuation model to calculate the grant-date fair value of employee stock purchase rights and stock options. Stock based compensation expense is recognized over the vesting period using the straight-line method.
Employee Stock Purchase Rights
During the nine months ended September 30, 2018, there were 151,840 shares of common stock purchased under the ESPP at a weighted average price of $16.14.
The fair values of employee stock purchase rights were estimated using the Black-Scholes option pricing model at their respective grant date using the following assumptions:
 
Nine Months Ended
 
September 30, 2018
Weighted-average grant date fair value per share
$
5.37

Risk-free interest rate
2.09
%
Dividend yield
—
%
Expected life (in years)
0.50

Volatility
46.00
%

The risk-free interest rate assumption was based on the United States Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The expected term is the duration of the offering period for each grant date. In addition, the estimated volatility incorporates the historical volatility over the expected term based on the Company's daily closing stock prices.
Stock Options
A summary of the Company’s stock options activity is as follows:
 
Number of Options
(in thousands)
 
Weighted-Average Exercise Price
 
Weighted-Average Contractual Term (in years)
 
Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2017
3,069

 
$
8.95

 
 
 
 
Granted
335

 
18.40

 
 
 
 
Exercised
(285
)
 
7.76

 
 
 
 
Canceled
(83
)
 
16.69

 
 
 
 
Outstanding at September 30, 2018
3,036

 
$
9.90

 
2.30
 
$
30,982

Vested and expected to vest at September 30, 2018
2,998

 
$
9.79

 
2.26
 
$
30,896

Exercisable at September 30, 2018
2,506

 
$
8.32

 
1.52
 
$
29,502


The fair values of stock options were estimated using the Black-Scholes option pricing model on the grant date using the following assumptions:
 
Nine Months Ended
 
September 30, 2018
Weighted-average grant date fair value per share
$
8.14

Risk-free interest rate
2.76
%
Dividend yield
—
%
Expected life (in years)
5.51

Volatility
44.30
%

The risk-free interest rate assumption was based on the United States Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The weighted-average expected life of options was calculated using the simplified method as prescribed by guidance provided by the SEC. This decision was based on the lack of historical data due to the Company’s limited number of stock option exercises under the 2010 Equity Incentive Plan. In addition, the estimated volatility incorporates the historical volatility of the Company.

The intrinsic value of stock options exercised was $0.1 million and $0.9 million in the three months ended September 30, 2018 and 2017, respectively. The intrinsic value of stock options exercised was $4.0 million and $15.2 million in the nine months ended September 30, 2018 and 2017, respectively.

Cash received from exercise of stock options was $0.1 million and $1.1 million during the three months ended September 30, 2018 and 2017, respectively. Cash received from exercise of stock options was $1.3 million and $7.1 million during the nine months ended September 30, 2018 and 2017, respectively.

The tax benefit from stock options exercised was $1.2 million and $0.9 million during the three months ended September 30, 2018 and 2017, respectively. The tax benefit from stock options exercised was $3.7 million and $11.2 million during the nine months ended September 30, 2018 and 2017, respectively.
Employee Incentive Bonus
The Company settles a majority of bonus awards for its employees, including executives, in shares of common stock under the 2010 Equity Incentive Plan. When bonus awards are settled in common stock issued under the 2010 Equity Incentive Plan, the number of shares issuable to plan participants is determined based on the closing price of the Company's common stock as determined in trading on the New York Stock Exchange on a date approved by the Board of Directors. In connection with the Company's bonus programs, in February 2018, the Company issued 0.3 million freely-tradable shares of the Company's common stock in settlement of bonus awards to employees, including executives, for the 2017 performance period. At September 30, 2018, the Company has an accrual of $6.5 million for bonus awards for employees for year-to-date achievement in the 2018 performance period. The Company's compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock.