MaxLinear, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

Stock-Based Compensation

9 Months Ended

Sep. 30, 2024

Share-Based Payment Arrangement [Abstract]

Employee Stock-Based Compensation Plans

At September 30, 2024, the Company had stock-based compensation awards outstanding under the following plans: the 2010 Equity Incentive Plan, as amended, or 2010 Plan, and the 2010 Employee Stock Purchase Plan, or ESPP, and the 2024 Inducement Equity Incentive Plan, or the Inducement Plan. Refer to the Company’s Annual Report for a summary of the 2010 Plan and the ESPP.

On May 22, 2024, the Board of Directors adopted the Inducement Plan pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules, and, subject to the adjustment provisions of the Inducement Plan, reserved 4,000,000 shares of the Company's common stock for issuance under equity awards granted under the Inducement Plan. The Inducement Plan provides for the grant of equity-based awards, including non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares, and its terms are substantially similar to the 2010 Plan, including with respect to treatment of equity awards in the event of a merger or “change in control” as defined under the Inducement Plan, but with such other terms and conditions intended to comply with the Nasdaq inducement award exception. Awards under the Inducement Plan may only be made to individuals not previously employees or non-employee directors of the Company as an inducement material to the individuals’ entry into employment with the Company.

As of September 30, 2024, the number of shares of common stock available for future issuance under the 2010 Plan was 15,417,601 shares. As of September 30, 2024, the number of shares of common stock available for future issuance under the ESPP was 6,451,538 shares. As of September 30, 2024, the number of shares of common stock available for future issuance under the Inducement Plan was 4,000,000 shares.

Employee Incentive Bonus

The Company’s Executive Incentive Bonus Plan permits the settlement of awards under the plan in any combination of cash or shares of its common stock. 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 applicable stock exchange, on a date approved by the Board of Directors. In connection with the Company’s bonus programs, in February 2024, the Company issued 0.4 million freely-tradable (subject to certain restrictions for affiliates) shares of the Company’s common stock in settlement of bonus awards to employees, including executives, for the 2023 performance period. At September 30, 2024, the Company has an accrual of $3.5 million for bonus awards for employees for year-to-date achievement in the 2024 performance period, which the Company intends to settle primarily in shares of its common stock, unless otherwise required to be settled in cash due to local laws or agreements. The Company’s compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock.

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,
	2024		2023		2024		2023
	(in thousands)				(in thousands)
Cost of net revenue	$	81	$	170	$	436	$	626
Research and development	7,423		9,436		27,952		33,128
Selling, general and administrative	5,284		(4,488)		18,820		5,009

	$	12,788	$	5,118	$	47,208	$	38,763

The total unrecognized compensation cost related to unvested restricted stock units as of September 30, 2024 was $112.0 million, and the weighted average period over which these equity awards are expected to vest is 2.39 years.

The total unrecognized compensation cost related to unvested performance-based restricted stock units as of September 30, 2024 was $1.4 million, and the weighted average period over which these equity awards are expected to vest is 1.40 years. Actual levels of future performance for the unvested periods may differ from current estimates.

The total unrecognized compensation cost related to unvested stock options as of September 30, 2024 was $28.0 million, and the weighted average period over which these equity awards are expected to vest is 3.39 years.

Restricted Stock Units

A summary of the Company’s restricted stock unit activity for all equity plans is as follows:


	Number of Shares (in thousands)	Weighted-Average Grant-Date Fair Value per Share
Outstanding at December 31, 2023	5,632	$	36.72
Granted1	2,945	18.24

Vested	(2,461)	29.44
Canceled2	(1,007)	38.32
Outstanding at September 30, 2024	5,109	$	29.25

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(1) Includes approximately 227 thousand shares granted under the Inducement Plan at a weighted-average grant-date fair value per share of $13.64.

(2) Includes approximately 24 thousand shares canceled under the Inducement Plan at a weighted-average grant-date fair value per share of $12.46.

Performance-Based Restricted Stock Units

Performance-based restricted stock units are eligible to vest at the end of each year-long performance period, as defined in the underlying agreement, 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 September 30, 2024, achievement to date under the performance metrics specified in the respective award agreements are based on its expected revenue and non-GAAP diluted EPS results over the performance periods and calculated growth rates relative to its peers’ expected results based on data available, as defined in the respective award agreements. To the extent any prior achievement levels are no longer probable, any compensation expense recorded is adjusted to the revised achievement levels.

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, 2023	2,653	$	34.38
Granted1	1,472	17.78

Vested	(58)	24.43
Canceled	(665)	41.74
Outstanding at September 30, 2024	3,402	$	25.93

________________

(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 nine months ended September 30, 2024 and 2023, there were 175,764 and 140,631 shares of common stock purchased under the ESPP at a weighted average price of $15.26 and $21.25, respectively.

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,
		2024		2023
Weighted-average grant date fair value per share		$5.78 - $6.35		$7.56 - $11.97
Risk-free interest rate		5.40% - 5.41%		4.54% - 5.24%
Dividend yield		—	%	—	%
Expected life (in years)		0.50		0.50
Volatility		49.76% - 70.46%		51.73% - 59.78%

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, 2023	375	$	17.29
Granted	2,688	19.45

Exercised	(39)	7.68
Canceled	(1)	23.75
Outstanding at September 30, 2024	3,023	$	19.33	8.45	$	—
Vested and expected to vest at September 30, 2024	2,807	$	19.32	8.38	$	—
Exercisable at September 30, 2024	335	$	18.40	0.86	$	—

The fair values of stock options were estimated using the Black-Scholes option pricing model at their respective grant date using the following assumptions:


	Nine Months Ended September 30,
		2024		2023(1)
Weighted-average grant date fair value per share		$10.84 - $11.24		N/A
Risk-free interest rate		4.33	%	N/A
Dividend yield		—	%	N/A
Expected life (in years)		6.50		N/A
Volatility		57.50	%	N/A

__________________

(1) No options were granted during the nine months ended September 30, 2023.

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 of the 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. Estimated volatility incorporates historical volatility of the Company over the expected term based on the Company's daily closing stock prices.

The intrinsic value of stock options exercised was $0 and $47.0 thousand in the three months ended September 30, 2024 and 2023, respectively. The intrinsic value of stock options exercised was $0.5 million and $0.2 million in the nine months ended September 30, 2024 and 2023, respectively.

Cash received from exercise of stock options was negligible during the three and nine months ended September 30, 2024. Cash received from exercise of stock options was $0.1 million and $0.2 million during the three and nine months ended September 30, 2023, respectively.

The tax benefit from stock options exercised was $0 and $0.1 million during the three months ended September 30, 2024 and 2023, respectively. The tax benefit from stock options exercised was $0.8 million and $0.4 million during the nine months ended September 30, 2024 and 2023, respectively.