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Share-Based Compensation | 3 Months Ended
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Sep. 24, 2022
Share-Based Payment Arrangement [Abstract] |
Share-Based Compensation | 12. Share-Based Compensation Share-based compensation and the related tax benefit recognized in our condensed consolidated statements of income were as follows (in millions):
|  | Three Months Ended |
|  | September |
|  | 2022 |  |  | 2021 |
Cost of revenue |  | $ | 1.1 |  |  | $ | 1.0 |
Research and development |  |  | 14.0 |  |  |  | 20.8 |
Selling, general, and administrative |  |  | 17.5 |  |  |  | 13.8 |
Total |  | $ | 32.6 |  |  | $ | 35.6 |
Income tax benefit on share-based compensation |  | $ | (3.8 | ) |  | $ | (5.3 | )
Included in the preceding table is share-based compensation for our cash-settled phantom stock units, which we granted in October 2019 (see Phantom Stock Units below) (in millions):
|  | Three Months Ended |
|  | September |
|  | 2022 |  |  | 2021 |
Cost of revenue |  | $ | — |  |  | $ | — |
Research and development |  |  | 1.5 |  |  |  | 11.8 |
Selling, general, and administrative |  |  | 0.6 |  |  |  | 2.6 |
Total |  | $ | 2.1 |  |  | $ | 14.4 |
Historically, we have issued new shares in connection with our equity-settled share-based compensation plans, however, treasury shares are also available for issuance. Any additional shares repurchased under our common stock repurchase program will be available for issuance under our share-based compensation plans. Share-Based Compensation Plans On October 29, 2019, our stockholders approved: (i) our 2019 Equity and Incentive Compensation Plan, or the 2019 Incentive Plan, to replace our Amended and Restated 2010 Incentive Compensation Plan, or the 2010 Incentive Plan, and (ii) our 2019 Employee Stock Purchase Plan, or the 2019 ESPP, to replace our Amended and Restated 2010 Employee Stock Purchase Plan. As of October 29, 2019, no new awards may be granted under the 2010 Incentive Plan or the Amended and Restated 2010 Employee Stock Purchase Plan. Awards outstanding at October 29, 2019 under our prior share-based compensation plans were not impacted by the approval of the 2019 Incentive Plan and continue to remain outstanding and vest by their terms under the applicable share-based compensation plan. Shares underlying certain share-based awards forfeited under the 2010 Incentive Plan subsequent to the approval of the 2019 Incentive Plan automatically transfer to and become available for award issuance from the 2019 Incentive Plan. The 2019 Incentive Plan authorizes our Board of Directors to provide equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, RSUs, cash incentive awards, performance shares, PSUs, and other stock-based awards. The 2019 Incentive Plan has been amended and restated, and t he cumulative number of shares approved by stockholders is 5,288,000 as of October 25, 2022. The 2019 ESPP authorizes the Company to provide eligible employees with an opportunity to acquire an equity interest in the Company through the purchase of stock at a discount, with an initial authorization of 1,500,000 shares. Effective August 19, 2019, we adopted the 2019 Inducement Equity Plan, and 650,000 shares of our common stock were reserved for issuance under the 2019 Inducement Equity Plan, subject to adjustment for stock dividends, stock splits, or other changes in our common stock or capital structure. The 2019 Inducement Equity Plan was intended to comply with Rule 5635(c)(4) of the Nasdaq Stock Market Listing Rules, which provide an exception to the Nasdaq Stock Market Listing Rules on the shareholder approval requirement for the issuance of securities with regards to grants to employees of the Company or its subsidiaries as an inducement material to such individuals entering into employment with the Company or its subsidiaries. An individual was eligible to receive an award under the 2019 Inducement Equity Plan only if he or she was not previously an employee or director of our Company (or is returning to work after a bona-fide period of non-employment), and an award under the 2019 Inducement Equity Plan is a material inducement for him or her to accept employment with our Company. N o new awards may be granted under the 2019 Inducement Equity Plan. Stock Options Stock option activity was as follows:
|  | Stock |  |  | Weighted |  |  | Aggregate |
|  | Option |  |  | Average |  |  | Intrinsic |
|  | Awards |  |  | Exercise |  |  | Value |
|  | Outstanding |  |  | Price |  |  | (in millions) |
Balance as of June 2022 |  |  | 31,185 |  |  | $ | 61.50 |  |  |  |
Exercised |  |  | (3,808 | ) |  |  | 88.53 |  |  |  |
Balance as of September 2022 |  |  | 27,377 |  |  |  | 57.75 |  |  | $ | 1.2 |
The aggregate intrinsic value was determined using the closing price of our common stock on September 23, 2022 of $100.95. Restricted Stock Units Our 2019 Incentive Plan provides for the grant of RSUs to our employees, consultants, and directors with initial grants occurring in 2019, and previously our 2019 Inducement Equity Plan and our 2010 Incentive Plan provided for the grant of deferred stock units, or DSUs, to our employees, consultants, and directors with initial grants occurring in 2006. An RSU and a DSU are each a promise to deliver shares of our common stock at a future date in accordance with the terms of the grant agreement and the words can be used interchangeably. Accordingly, any reference to RSU is intended to signify both an RSU and a DSU. RSUs granted generally vest ratably over three to four years from the vesting commencement date. RSU activity was as follows:
|  |  |  |  | Aggregate |
|  | RSU |  |  | Intrinsic |
|  | Awards |  |  | Value |
|  | Outstanding |  |  | (in millions) |
Balance as of June 2022 |  |  | 1,220,573 |  |  |  |
Granted |  |  | 627,743 |  |  |  |
Delivered |  |  | (369,306 | ) |  |  |
Forfeited |  |  | (24,178 | ) |  |  |
Balance as of September 2022 |  |  | 1,454,832 |  |  | $ | 146.9 |
The aggregate intrinsic value was determined using the closing price of our common stock on September 23, 2022 of $100.95. On the delivery date, we withhold shares to cover statutory tax withholding requirements and deliver a net quantity of shares to the recipient after such withholding. Until delivery of shares, the grantee has no rights as a stockholder with respect to any shares underlying the RSU award. Of the shares delivered, 106,071 shares valued at $13.8 million were withheld to meet statutory tax withholding requirements. Market Stock Units Our 2019 Incentive Plan, and previously our 2019 Inducement Equity Plan provide for the grant of MSU awards to our employees, consultants, and directors. An MSU is a promise to deliver shares of our common stock at a future date based on the achievement of market-based performance requirements in accordance with the terms of the MSU grant agreement. We have granted MSU awards to our executive officers and other management members under our 2010 Incentive Plan, our 2019 Incentive Plan and our 2019 Inducement Equity Plan, which are designed to vest in three or four tranches with the target quantity for each tranche equal to one-third or one-fourth of the total MSU grant. The first tranche vests based on a one-year performance period; the second tranche vests based on a two-year performance period; the third tranche vests based on a three-year performance period; and the fourth tranche (in the case of four-year vesting) vests based on a four-year performance period. For MSU awards granted in fiscal 2023, performance is measured based on our achievement of a specified level of total stockholder return, or TSR, relative to the TSRs of each company in the Russell 2000 Index. The potential payout ranges from 0% to 300% of the target grant quantity based on our TSR performance relative to the TSRs of each company in the Russell 2000 Index. No payout will occur if our TSR performance falls below the 25th percentile of the TSRs of each company in the Russell 2000 Index, and a 300% payout will occur if our TSR performance exceeds the 80th percentile of the TSRs of each company in the Russell 2000 Index. Performance payouts between the 25th and 80th percentiles will be determined on a linear basis with performance at the 50th percentile equal to 100% of target. For MSU awards granted in fiscal 2023, the first tranche and the second tranche can payout up to 300%, and the payout for the third tranche will be calculated based on the total target quantity for the entire grant multiplied by the payout factor, based on performance for the three-year performance period, less shares issued for the first tranche and the second tranche. For MSU awards granted in fiscal 2022 and 2021, performance is measured based on our achievement of a specified level of total stockholder return, or TSR, relative to the TSRs of each company in the Russell 2000 Index. The potential payout ranges from 0% to 200% of the target grant quantity based on our TSR performance relative to the TSRs of each company in the Russell 2000 Index. No payout will occur if our TSR performance falls below the 25th percentile of the TSRs of each company in the Russell 2000 Index, and a 200% payout will occur if our TSR performance exceeds the 75th percentile of the TSRs of each company in the Russell 2000 Index. Performance payouts between the 25th and 75th percentiles will be determined on a linear basis with performance at the 50th percentile equal to 100% of target. For MSU awards granted in fiscal 2022 and 2021, the first tranche and the second tranche can payout up to 200%, and the payout for the third tranche will be calculated based on the total target quantity for the entire grant multiplied by the payout factor, based on performance for the three-year performance period, less shares issued for the first tranche and the second tranche. For outstanding MSU awards granted prior to fiscal 2021, performance is measured based on our achievement of a specified level of TSR relative to the TSR of the S&P Semiconductor Select Industry Index, or SPSISC Index. The potential payout ranges from 0% to 200% of the target grant quantity and is adjusted on a two-to-one ratio based on our TSR performance relative to SPSISC Index TSR. For MSU awards granted prior to fiscal 2021 and vesting over three years, the payout for the first tranche and the second tranche will not exceed 100% and the payout for the third tranche will be calculated based on the total target quantity for the entire grant multiplied by the payout factor, based on performance for the three-year performance period, less shares issued for the first tranche and the second tranche. For MSUs vesting over four years, the payout for the first tranche, the second tranche and the third tranche will not exceed 100% and the payout for the fourth tranche will be calculated based on the total target quantity for the entire grant multiplied by the payout factor, based on performance for the four-year performance period, less shares issued for the first tranche, the second tranche and the third tranche. Delivery of shares earned, if any, will take place on the dates provided in the applicable MSU grant agreement, assuming the grantee is still an employee, consultant, or director of our company at the end of the applicable performance period. On the delivery date, we withhold shares to cover statutory tax withholding requirements and deliver a net quantity of shares to the recipient after such withholding. Until delivery of shares, the grantee has no rights as a stockholder with respect to any shares underlying the MSU award. MSU activity was as follows:
|  |  |  |  | Aggregate |
|  | MSU |  |  | Intrinsic |
|  | Awards |  |  | Value |
|  | Outstanding |  |  | (in millions) |
Balance as of June 2022 |  |  | 251,974 |  |  |  |
Granted |  |  | 145,526 |  |  |  |
Delivered |  |  | (144,831 | ) |  |  |
Balance as of September 2022 |  |  | 252,669 |  |  | $ | 25.5 |
The aggregate intrinsic value was determined using the closing price of our common stock on September 2022 of $100.95. On the delivery date, we withhold shares to cover statutory tax withholding requirements and deliver a net quantity of shares to the recipient after such withholding. Until delivery of shares, the grantee has no rights as a stockholder with respect to any shares underlying the MSU award. Of the shares delivered, 75,831 shares valued at $10.3 million were withheld to meet statutory tax withholding requirements. We value MSUs using the Monte Carlo simulation model on the date of grant and amortize the compensation expense over the three- or four-year performance and service period on a ratable basis by tranche. The unrecognized share-based compensation cost of our outstanding MSUs was approximately $38.7 million as of September 2022, which will be recognized over a weighted average period of approximately 1.2 years. Performance Stock Units Our 2019 Incentive Plan, our 2010 Incentive Plan and our 2019 Inducement Equity Plan provide for the grant of PSU awards to our employees, consultants, and directors. A PSU is a promise to deliver shares of our common stock at a future date based on the achievement of performance-based requirements in accordance with the terms of the PSU grant agreement. We have granted PSU awards to our executive officers and other key management team members under our 2010 Incentive Plan, our 2019 Incentive Plan and our 2019 Inducement Equity Plan, which, generally, are designed to vest in three tranches with the target quantity for each tranche equal to one-third of the total PSU award. Generally, PSU awards have a specific one-year performance period and vesting occurs over three service periods with the final service period ending approximately three years from the grant date. Performance is measured based on the achievement of a specified level of performance relative to predefined performance criteria (for PSU awards granted in fiscal 2023 and prior to fiscal 2022 the performance criteria is based on non-GAAP earnings per share, for PSU awards granted in fiscal 2021 the performance criteria is based on a combination of our design win revenue, non-GAAP gross margin percentage and non-GAAP operating expenses). For our fiscal 2023 PSU awards, the potential payout ranges from 0% to 200% of the target grant quantity and is adjusted on a linear basis with a payout triggering if our measurement results equals greater than 65% of the target with a maximum payout achieved at 135% of target. Delivery of shares earned, if any, will take place on the dates provided in the applicable PSU grant agreement, assuming the grantee is still an employee, consultant, or director of our company at the end of the applicable service period. On the delivery date, we withhold shares to cover statutory tax withholding requirements and deliver a net quantity of shares to the recipient after such withholding. Until delivery of shares, the grantee has no rights as a stockholder with respect to any shares underlying the PSU award. PSU activity was as follows:
|  |  |  |  | Aggregate |
|  | PSU |  |  | Intrinsic |
|  | Awards |  |  | Value |
|  | Outstanding |  |  | (in millions) |
Balance as of June 2022 |  |  | 257,903 |  |  |  |
Awarded |  |  | 192,964 |  |  |  |
Released |  |  | (112,070 | ) |  |  |
Forfeited |  |  | (3,904 | ) |  |  |
Balance as of September 2022 |  |  | 334,893 |  |  | $ | 33.8 |
The aggregate intrinsic value was determined using the closing price of our common stock on September 23, 2022 of $100.95. On the delivery date, we withhold shares to cover statutory tax withholding requirements and deliver a net quantity of shares to the recipient after such withholding. Until delivery of shares, the grantee has no rights as a stockholder with respect to any shares underlying the PSU award. Of the shares delivered, 52,678 shares valued at $7.3 million were withheld to meet statutory tax withholding requirements. We value PSUs using the aggregate intrinsic value on the date of grant adjusted for estimated performance achievement during the performance period and amortize the compensation expense over the three-year service period on a ratable basis. The unrecognized share-based compensation cost of our outstanding PSUs was approximately $30.0 million as of September 2022, which will be recognized over a weighted average period of approximately 1.1 years. Phantom Stock Units The 2019 Incentive Plan authorizes the grant of phantom stock units to non-employee directors, officers and employees. We initially granted phantom stock units to certain non-officer employees in October 2019 and there have been no subsequent phantom stock unit grants. Phantom stock units are cash-settled and entitle the recipient to receive a cash payment equal to the value of a single share for each unit based on the average closing share price of our stock over the thirty calendar days prior to the vesting date. Grants of phantom stock units vest over three years, with an annual vesting date of October 31 each year subsequent to the grant date, with the final vesting occurring on October 31, 2022. We recognize compensation expense for phantom stock units on a straight-line basis for each tranche of each award based on the average closing price of our common stock over the thirty calendar days ended prior to each balance sheet date. The outstanding phantom stock units had a fair value of $112.12 per unit at September 2022 and our accrued liability for such units was $17.5 million. Phantom stock activity was as follows:
|  | Phantom |  |
|  | Stock Units |  |
|  | Outstanding |  |
Balance as of June 2022 |  |  | 176,097 |  |
Paid |  |  | - |  |
Forfeited |  |  | (2,178 | ) |
Balance as of September 2022 |  |  | 173,919 |  |
Employee Stock Purchase Plan Shares purchased, weighted average purchase price, cash received, and the aggregate intrinsic value for employee stock purchase plan purchases during the three months ended September 2022 were as follows (in millions, except for shares purchased and weighted average price):
Shares purchased |  |  | 88,210 |
Weighted average purchase price |  | $ | 92.52 |
Cash received |  | $ | 9.6 |
Aggregate intrinsic value |  | $ | 1.4 |

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