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Note 10 - Common Stock and Stock-based Compensation Plans | 6 Months Ended
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Jun. 30, 2020
Notes to Financial Statements |
Share-based Payment Arrangement [Text Block] | NOTE 10: COMMON STOCK AND STOCK-BASED COMPENSATION PLANS The Company grants stock options and stock appreciation rights (“SARs”) capped with a ceiling to employees and stock options to non-employee directors of the Company and its subsidiaries and provides the right to purchase common stock pursuant to the Company’s 2002 employee stock purchase plan to employees of the Company and its subsidiaries. The SAR unit confers the holder the right to stock appreciation over a preset price of the Company’s common stock during a specified period of time. When the unit is exercised, the appreciation amount is paid through the issuance of shares of the Company’s common stock. The ceiling limits the maximum income for each SAR unit. SARs are considered an equity instrument as it is a net share settled award capped with a ceiling (400% for SAR grants). The options and SARs granted under the Company’s stock incentive plans have been granted at the fair market value of the Company’s common stock on the grant date. Options and SARs granted to employees under stock incentive plans vest at a rate of 25% of the shares underlying the option after one year and the remaining shares vest in equal portions over the following 36 months, such that all shares are vested after four years. Options granted to non-employee directors vest 25% of the shares underlying the option on each anniversary of the option grant. A summary of the Company’s stock option and SAR activities and related information for the six months ended June 30, 2020, are as follows:
|  | Number of options and SAR units (1) |  |  | Weighted average exercise price |  |  | Weighted average remaining contractual term |  |  | Aggregate intrinsic- value |
Outstanding as of December 31, 2019 |  |  | 642,253 |  |  | $ | 20.14 |  |  |  | 3.5 |  |  | $ | 4,718 |
Granted |  |  | — |  |  |  | — |  |  |  |  |  |  |  |  |
Exercised |  |  | (201,066 | ) |  |  | 17.36 |  |  |  |  |  |  |  |  |
Forfeited or expired |  |  | (21 | ) |  |  | 16.20 |  |  |  |  |  |  |  |  |
Outstanding as of June 30, 2020 (2) |  |  | 441,166 |  |  | $ | 21.42 |  |  |  | 3.4 |  |  | $ | 7,061 |
Exercisable as of June 30, 2020 (3) |  |  | 415,166 |  |  | $ | 20.98 |  |  |  | 3.3 |  |  | $ | 6,827 |
| (1) | The SAR units are convertible for a maximum number of shares of the Company’s common stock equal to 75% of the SAR units subject to the grant.
| (2) | Due to the ceiling imposed on the SAR grants, the outstanding amount equals a maximum of 422,500 shares of the Company’s common stock issuable upon exercise.
| (3) | Due to the ceiling imposed on the SAR grants, the exercisable amount equals a maximum of 396,500 shares of the Company’s common stock issuable upon exercise.
As of June 30, 2020, there was $4 of unrecognized compensation expense related to unvested stock options and SARs. This amount is expected to be recognized over the next 2 quarters of 2020. Starting in the second quarter of 2015, the Company granted to employees, including executive officers, and non-employee directors, restricted stock units (“RSUs”) under the Company’s 2011 Stock Incentive Plan (the “2011 Plan”). A RSU award is an agreement to issue shares of the Company’s common stock at the time the award or a portion thereof vests. RSUs granted to employees generally vest in three equal annual installments starting on the first anniversary of the grant date. Until the end of 2017, RSUs granted to non-employee directors would generally vest in full on the first anniversary of the grant date. Starting in 2018, RSUs granted to non-employee directors would generally vest in two equal annual installments starting on the first anniversary of the grant date. The fair value of each RSU is the market value as determined by the closing price of the common stock on the day of grant. The Company recognizes compensation expenses for the value of its RSU awards, based on the straight-line method over the requisite service period of each of the awards. On May 7, 2019, the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of the Company approved, effective immediately, an amendment to the RSU award granted to the Company’s Chief Executive Officer (the “CEO”) on February 19, 2019, consisting of 30,000 RSUs that vest in a three-year period (the “Prior RSU Award”). The Committee and the CEO mutually agreed to amend the Prior RSU Award. In lieu of the Prior RSU Award, the CEO received (1) 10,000 time-based RSUs with the same original three-year vesting schedule starting with 1/3 on February 19, 2020, and (2) an opportunity to receive up to 24,000 performance-based restricted stock units (“PSUs”) based on the Company’s achievement of the 2019 license and related revenue goal of $41 million that was approved by the Board (the “2019 License Revenue Target”). If the Company’s results equal 100% of the 2019 License Revenue Target, the CEO would receive 20,000 PSUs. If the Company’s results were between 90% to 99% of the 2019 License Revenue Target, the CEO would receive the same proportion of the 20,000 PSUs. If the Company’s results exceeded 100% of the 2019 License Revenue Target, every 1% increase of the 2019 License Revenue Target, up to 120%, would result in an increase of 1% of the 20,000 PSUs to be awarded to the CEO. In 2019, the Company achieved 116% of the 2019 License Revenue Target, so based on the PSU award conditions, the CEO received 23,200 PSUs. The PSUs vest in a three-year period, with 1/3 of the PSUs having vested on February 19, 2020, and thereafter 1/3 of the remaining PSUs will vest on each of February 19, 2021 and February 19, 2022. On July 19, 2019, the Company issued a total of 52,000 RSUs to 22 employees who joined the Company in connection with the Company's acquisition of the Hillcrest Labs business. The RSUs were granted outside of the Company’s existing equity plans and were granted as inducements to employment in accordance with NASDAQ Listing Rule 5635(c)(4). The RSUs were priced at $25.41, the fair market value on the grant date, and vest over three years, with 34% of the RSUs vesting after one year and the remaining RSUs vesting in equal portions over the following 24 months, such that all RSUs vest after three years, subject to the employee's continuous service through each vesting date. On February 20, 2020, the Committee granted 17,045, 5,113, 4,545 and 4,545 PSUs to each of the Company’s CEO, Executive Vice President, Worldwide Sales, Chief Financial Officer and Chief Operating Officer, respectively, pursuant to the 2011 Plan (collectively, the “Short-Term Executive PSUs”). The performance goals for the Short-Term Executive PSUs with specified weighting are as follows:
Weighting | Goals
50% | Vesting of the full 50% of the PSUs occurs if the Company achieves the 2020 license and related revenue amount in the budget approved by the Board (the “2020 License Revenue Target”). The vesting threshold is achievement of 90% of 2020 License Revenue Target. If the Company’s actual result is above 90% but less than 99% of the 2020 License Revenue Target, 91% to 99% of the eligible PSUs would be subject to vesting. If the Company’s actual result exceeds 100% of the 2020 License Revenue Target, every 1% increase of the 2020 License Revenue Target, up to 110%, would result in an increase of 2% of the eligible PSUs.
50% | Vesting of the full 50% of the PSUs occurs if the Company achieves positive total shareholder return whereby the return on the Company’s stock for 2020 is greater than the S&P500 index. The vesting threshold is if the return on the Company’s stock for 2020 is at least 90% of the S&P500 index. If the return on the Company’s stock, in comparison to the S&P500, is above 90% but less than 99% of the S&P500 index, 91% to 99% of the eligible PSUs would be subject to vesting. If the return on the Company’s stock exceeds 100% of the S&P500 index, every 1% increase in comparison to the S&P500 index, up to 110%, would result in an increase of 2% of the eligible PSUs.
Additionally, PSUs representing an additional 20%, meaning an additional 3,410, 1,023, 909 and 909 PSUs, would be eligible for vesting for each of the Company’s CEO, Executive Vice President, Worldwide Sales, Chief Financial Officer and Chief Operating Officer, respectively, if the performance goals set forth above are exceeded. Subject to achievement of the thresholds for the above performance goals for 2020, the Short-Term Executive PSUs vest 33.4% on February 20, 2021, 33.3% on February 20, 2022 and 33.3% on February 20, 2023. Also, on February 20, 2020, the Committee granted 56,818, 35,511, 28,409 and 28,409 long-term PSUs to each of the Company’s CEO, Executive Vice President, Worldwide Sales, Chief Financial Officer and Chief Operating Officer, respectively, pursuant to the 2011 Plan (collectively, the “Long-Term Executive PSUs”). The Long-Term Executive PSUs shall vest upon the achievement of either of the following performance goals:
| ● | If the Company’s non-GAAP EPS on or before the end of 2022 is tripled from the Company’s non-GAAP EPS in 2018.
| ● | If the Company’s market cap reaches at least $1 billion for at least 30 days of trading based on the market cap information set forth on Yahoo Finance.
Furthermore, on February 20, 2020, the Committee granted an aggregate of 18,500 PSUs to certain key employees of the Company. The PSUs shall vest over three years upon the achievement of the following performance goals, with 34% of the PSUs vesting after one year and the remaining vesting in equal portions over the following 24 months, such that all PSUs shall vest after three years, subject to the employee's continuous service through each vesting date:
Weighting | Goals
50% | Achievement of specified bookings in 2020 (“Specified Bookings”) for licensing and related revenues associated with certain of the Company’s technologies (the “Specified Booking Target”) in specific geographic region. If 90% of the Specified Booking Target is achieved, 90% of the bonus amount under this component would be payable with every 1% increase resulting in a corresponding increase in the bonus amount under this component.
30% | Execution of definitive license agreements for pre-determined software with at least five of seven original equipment manufacturers. If five such agreements are executed, 71% of the bonus amount under this component, which is subject to a 6% weighting, would be payable. If six agreements are executed, 86% of the bonus amount under this component, which is subject to a 6% weighting, would be payable.
20% | Execution of definitive license agreements with at least two customers in a predetermined strategic market.
A summary of the Company’s RSU and PSU activities and related information for the six months ended June 30, 2020, are as follows:
|  | Number of RSUs and PSUs |  |  | Weighted Average Grant-Date Fair Value |
Unvested as of December 31, 2019 |  |  | 732,564 |  |  | $ | 30.11 |
Granted |  |  | 409,437 |  |  |  | 27.65 |
Vested |  |  | (238,614 | ) |  |  | 32.19 |
Forfeited or expired |  |  | (31,600 | ) |  |  | 29.78 |
Unvested as of June 30, 2020 |  |  | 871,787 |  |  | $ | 28.40 |
As of June 30, 2020, there was $17,713 of unrecognized compensation expense related to unvested RSUs and PSUs. This amount is expected to be recognized over a weighted-average period of 1.5 years. The following table shows the total equity-based compensation expense included in the interim condensed consolidated statements of loss:
|  | Six months ended June 30, |  |  | Three months ended June 30, |
|  | 2020 (unaudited) |  |  | 2019 (unaudited) |  |  | 2020 (unaudited) |  |  | 2019 (unaudited) |
Cost of revenue |  | $ | 314 |  |  | $ | 296 |  |  | $ | 156 |  |  | $ | 160 |
Research and development, net |  |  | 3,345 |  |  |  | 2,820 |  |  |  | 1,722 |  |  |  | 1,458 |
Sales and marketing |  |  | 963 |  |  |  | 750 |  |  |  | 512 |  |  |  | 394 |
General and administrative |  |  | 1,902 |  |  |  | 1,229 |  |  |  | 1,027 |  |  |  | 667 |
Total equity-based compensation expense |  | $ | 6,524 |  |  | $ | 5,095 |  |  | $ | 3,417 |  |  | $ | 2,679 |
The fair value for rights to purchase shares of common stock under the Company’s employee stock purchase plan was estimated on the date of grant using the following assumptions:
|  | Six months ended June 30, |
|  | 2020 (unaudited) |  | 2019 (unaudited) |
Expected dividend yield |  |  | 0% |  |  |  | 0 | %
Expected volatility |  | 32% | - | 42% |  |  | 43 | %
Risk-free interest rate |  | 1.5% | - | 1.9% |  |  | 2.5 | %
Contractual term of up to (months) |  |  | 24 |  |  |  | 24 |

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