Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation and Employee Benefit Plans

v3.20.1
Stock-Based Compensation and Employee Benefit Plans
 3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation and Employee Benefit Plans Stock-Based Compensation and Employee Benefit Plans
Employee Stock-Based Benefit Plans
At March 31, 2020, 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, and the 2010 Employee Stock Purchase Plan, or ESPP. Refer to the Company’s Annual Report for a summary of the Company's stock-based compensation and equity plans as of December 31, 2019. There have been no material changes to the terms of the Company's equity incentive plans during the three months ended March 31, 2020. All current stock awards are issued under the 2010 Plan and ESPP.
As of March 31, 2020, the number of shares of common stock available for future issuance under the 2010 Plan and awards outstanding under the 2004 Plan was 15,895,366 shares and zero shares, respectively. As of March 31, 2020, the number of shares of common stock available for future issuance under the ESPP was 3,651,326 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 March 31,
2020 2019
(in thousands)
Cost of net revenue $ 148    $ 130   
Research and development 3,746    4,213   
Selling, general and administrative 2,933    3,404   
$ 6,827    $ 7,747   
The total unrecognized compensation cost related to unvested restricted stock units and restricted stock awards as of March 31, 2020 was $58.0 million, and the weighted average period over which these equity awards are expected to vest is 3.07 years. The total unrecognized compensation cost related to unvested performance-based restricted stock units as of March 31, 2020 was $17.6 million, and the weighted average period over which these equity awards are expected to vest is 2.15 years. The total unrecognized compensation cost related to unvested stock options as of March 31, 2020 was $1.7 million, and the weighted average period over which these equity awards are expected to vest is 2.14 years.
Restricted Stock Units
A summary of the Company’s restricted stock unit activity is as follows:
Number of Shares
(in thousands)		 Weighted-Average Grant-Date Fair Value per Share
Outstanding at December 31, 2019 2,924    $ 21.72   
  Granted 2,069    11.77   
  Vested (418)   16.72   
  Canceled (45)   21.29   
Outstanding at March 31, 2020 4,530    $ 17.64   
Performance-Based Restricted Stock Units
Performance-based restricted stock units are eligible to vest at the end of each fiscal year in a three-year performance period based on the Company’s annual growth rate in net sales and non-GAAP diluted earnings per share (subject to certain adjustments) over baseline results relative to the growth rates for a peer group of companies for the same metrics and periods.
For the performance-based restricted stock units granted to date, 60% of each performance-based award is subject to the net sales metric for the performance period and 40% is subject to the non-GAAP diluted earnings per share metric for the performance period. The maximum percentage for a particular metric is 250% of the target number of units subject to the award related to that metric, however, vesting of the performance stock units is capped at 30% and 100%, respectively, of the target number of units subject to the award in years one and two, respectively, of the three-year performance period.
As of March 31, 2020, the Company believes that it is probable that the Company will achieve certain performance metrics specified in the respective award agreements based on its expected revenue and non-GAAP diluted EPS results over the performance period and calculated growth rates relative to its peers’ expected results based on data available, as defined in the respective award agreements.
A summary of the Company’s performance-based restricted stock unit activity is as follows:
Number of Shares
(in thousands)		 Weighted-Average Grant-Date Fair Value per Share
Outstanding at December 31, 2019 445    $ 22.21   
  Granted(1)
1,416    11.67   
  Vested (21)   22.21   
  Canceled (32)   22.21   
Outstanding at March 31, 2020 1,808    $ 13.95   
________________
(1) Number of shares granted is based on the maximum percentage achievable in the performance-based restricted stock unit award.

Employee Stock Purchase Rights and Stock Options
Employee Stock Purchase Rights
During the three months ended March 31, 2020, there were no shares of common stock purchased under the ESPP.
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:
Three Months Ended March 31,
2020 2019
Weighted-average grant date fair value per share $ 5.48    $ 5.01   
Risk-free interest rate 1.59  % 2.51  %
Dividend yield —  % —  %
Expected life (in years) 0.50 0.50
Volatility 43.14  % 38.82  %
The risk-free interest rate assumption was based on rates for United States (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, 2019 1,337    $ 13.05   
Exercised (52)   9.50   
Canceled (22)   14.23   
Outstanding at March 31, 2020 1,263    $ 13.18    2.44 $ 2,207   
Vested and expected to vest at March 31, 2020 1,258    $ 13.15    2.42 $ 2,207   
Exercisable at March 31, 2020 1,053    $ 12.12    1.88 $ 2,207   
No stock options were granted by the Company during the three months ended March 31, 2020.

The intrinsic value of stock options exercised was $0.3 million and $9.8 million in the three months ended March 31, 2020 and 2019, respectively.

Cash received from exercise of stock options was $0.5 million and $2.6 million during the three months ended March 31, 2020 and 2019, respectively.

The tax benefit from stock options exercised was $0.3 million and $9.0 million during the three months ended March 31, 2020 and 2019, 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 March 2020, the Company issued 0.2 million freely-tradable shares of the Company’s common stock in settlement of bonus awards to employees, including executives, for the 2019 performance period. At March 31, 2020, the Company has an accrual of $3.1 million for bonus awards for employees for year-to-date achievement in the 2020 performance period. The Company’s compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock.