EMPLOYEE BENEFIT PLANS

12 Months Ended

Dec. 31, 2022

EMPLOYEE BENEFIT PLANS

EMPLOYEE BENEFIT PLANS

10. EMPLOYEE BENEFIT PLANS

On December 31, 2022, the Company had the following stock-based compensation plans:

Employee Stock Purchase Plans

In July 2001, the Company’s stockholders initially approved the 2001 Employee Stock Purchase Plan, which was subsequently amended and restated in 2010 (as amended, the “2010 Purchase Plan”) to extend the term of the plan through May 17, 2020. Under the 2010 Purchase Plan, eligible employees can contribute up to 10% of their compensation, as defined in the Purchase Plan, towards the purchase of shares of PDF common stock at a price of 85% of the lower of the fair market value at the beginning of the offering period or the end of the purchase period. The 2010 Purchase Plan provided for twenty-four-month offering periods with four six-month purchase periods in each offering period. The 2010 Purchase Plan expired on May 17, 2020. Existing offering periods under the 2010 Plan continued through the applicable expiration date and the final offering period expired on January 31, 2022. On June 15, 2021, the Company’s stockholders approved the 2021 Employee Stock Purchase Plan, which has a ten-year term (the “2021 Purchase Plan” and, together with the 2010 Purchase Plan, the “Employee Purchase Plans”). The terms of 2021 Purchase Plan are substantially similar to those of the 2010 Purchase Plan. A twenty-four-month offering period under the 2021 Purchase Plan commenced on August 1, 2021.

The Company estimated the fair value of purchase rights granted under the Employee Purchase Plans during the period using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions, resulting in the following weighted average fair values:

	2021 Purchase Plan						2010 Purchase Plan
	Year Ended December 31,			Year Ended December 31,			Year Ended December 31,
	2022			2021			2020
Expected life (in years)		1.25			1.25			1.25
Volatility		48.73	%		48.00	%		34.25	%
Risk-free interest rate		2.75	%		0.11	%		1.43	%
Expected dividend		—			—			—
Weighted average fair value of purchase rights granted during the period	$	10.00		$	6.71		$	4.83

During the year ended December 31, 2022, a total of 182,083 shares were issued under the 2021 Purchase Plan, at a weighted-average purchase price of $16.15 per share. During the years ended December 31, 2022, 2021 and 2020, a total of 5,203, 108,623 and 183,078 shares, respectively, were issued under the 2010 Purchase Plan, at a weighted-average purchase price of $13.40 per share, $9.53 per share and $9.12 per share, respectively. As of December 31, 2022, unrecognized compensation cost related to the 2021 Purchase Plan was $1.1 million. This estimated unrecognized cost is expected to be recognized over a weighted average period of 1.0 year. There was no unrecognized compensation cost related to the 2010 Purchase Plan as of December 31, 2022.

As of December 31, 2022, 817,917 shares were available for future issuance under the 2021 Purchase Plan.

Stock Incentive Plans

On November 16, 2011, the Company’s stockholders initially approved the 2011 Stock Incentive Plan, which has been amended and restated and approved by the Company’s stockholders a number of times since then (as amended, the “2011 Plan”). Under the 2011 Plan, the Company may award stock options, stock appreciation rights (“SARs”), stock grants or stock units covering shares of the Company’s common stock to employees, directors, non-employee directors and contractors. The aggregate number of shares reserved for awards under the 2011 Plan is 12,800,000 shares, plus up to 3,500,000 shares previously issued under the 2001 Stock Plan adopted by the Company in 2001, which expired in 2011 (the “2001 Plan”) that are either (i) forfeited or (ii) repurchased by the Company or are shares subject to awards previously issued under the 2001 Plan that expire or that terminate without having been exercised or settled in full on or after November 16, 2011. In case of awards other than options or SARs, the aggregate number of shares reserved under the 2011 Plan will be decreased at a rate of 1.33 shares issued pursuant to such awards. The exercise price for stock options must generally be at prices no less than the fair market value at the date of grant. Stock options generally expire ten years from the date of grant and become vested and exercisable over a four-year period.

As of December 31, 2022, 13.3 million shares of common stock were reserved to cover stock-based awards under the 2011 Plan, of which 3.5 million shares were available for future grant. The number of shares reserved and available under the 2011 Plan includes 0.5 million shares that were subject to awards previously made under the 2001 Plan and were forfeited, expired or repurchased by the Company after the adoption of the 2011 Plan through December 31, 2022. As of December 31, 2022, there were no outstanding awards that had been granted outside of the 2011 or 2001 Plans (collectively, the “Stock Plans”).

The Company has elected to use the Black-Scholes-Merton option-pricing model, which incorporates various assumptions including volatility, expected life, interest rate and expected dividend. The expected volatility is based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options. The expected life of an award is based on historical experience and on the

terms and conditions of the stock awards granted to employees. The interest rate assumption is based upon observed Treasury yield curve rates appropriate for the expected life of the Company’s stock options.

	Year Ended December 31,
	2022			2021			2020
Expected life (in years)		—			—			4.45
Volatility		—	%		—	%		40.90	%
Risk-free interest rate		—	%		—	%		0.60	%
Expected dividend		—			—			—
Weighted average fair value per share of options granted during the period	$	—		$	—		$	5.75

No stock options were granted during the years ended December 31, 2022 and 2021.

Stock-based compensation is estimated at the grant date based on the award’s fair value and is recognized on a straight-line basis over the vesting periods, generally four years. As stock-based compensation expense recognized is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Stock-based compensation expenses related to the Company’s stock plans and employee stock purchase plans were allocated as follows (in thousands):

	Year Ended December 31,
	2022		2021		2020
Costs of revenues	$	2,974	$	2,563	$	3,454
Research and development		9,391		5,515		4,800
Selling, general and administrative		7,284		4,853		4,209
Stock-based compensation expenses	$	19,649	$	12,931	$	12,463

The stock-based compensation expense in the table above includes immaterial expense or credit adjustments related to cash-settled SARs granted to certain employees. The Company accounted for these awards as liability awards and the amount was included in accrued compensation and related benefits. SARs were fully exercised in the third quarter of 2020. Stock-based compensation capitalized in the capitalized software development costs included in property and equipment, net, was nil, nil and approximately $0.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Additional information with respect to options under the Plans is as follows:

	Outstanding Options
				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Options	Price		Term	Value
	(in thousands)	per Share		(Years)	(in thousands)
Outstanding, January 1, 2020	745	$	10.64
Granted (weighted average fair value of $5.75 per share)	24	$	16.72
Exercised	(246)	$	10.46
Canceled	(57)	$	11.65
Expired	(10)	$	10.06
Outstanding, December 31, 2020	456	$	10.95
Granted	—	$	—
Exercised	(216)	$	8.90
Canceled	(10)	$	15.56
Expired	(4)	$	6.90
Outstanding, December 31, 2021	226	$	12.78
Granted	—		—
Exercised	(150)		11.27
Canceled	(6)		13.52
Expired	(2)		8.79
Outstanding, December 31, 2022	68	$	16.11	4.89	$	847
Vested and expected to vest, December 31, 2022	68	$	16.11	4.87	$	842
Exercisable, December 31, 2022	57	$	16.07	4.46	$	706

The aggregate intrinsic value in the table above represents the total intrinsic value based on the Company’s closing stock price of $28.52 as of December 31, 2022, which would have been received by the option holders had all option holders exercised their options as of that date. The total intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020 was $2.3 million, $3.0 million and $2.2 million, respectively.

As of December 31, 2022, there was $0.1 million of total unrecognized compensation cost, net of forfeitures, related to unvested stock options. That cost is expected to be recognized over a weighted average period of 1.0 years. The total fair value of options vested during the year ended December 31, 2022, was $0.1 million.

Nonvested shares (restricted stock units) were as follows:

		Weighted
		Average Grant
	Shares	Date Fair Value
	(in thousands)	Per Share
Nonvested, January 1, 2020	1,887	$	12.30
Granted	890	$	21.31
Vested	(867)	$	13.25
Forfeited	(163)	$	13.23
Nonvested, December 31, 2020	1,747	$	16.33
Granted	977	$	19.43
Vested	(689)	$	15.23
Forfeited	(163)	$	17.63
Nonvested, December 31, 2021	1,872	$	18.24
Granted	1,210	$	23.23
Vested	(862)	$	17.57
Forfeited	(96)	$	19.71
Nonvested, December 31, 2022	2,124	$	21.29

As of December 31, 2022, there was $32.7 million of total unrecognized compensation cost related to restricted stock units. That cost is expected to be recognized over a weighted average period of 2.6 years. Restricted stock units do not have rights to dividends prior to vesting.

401(k) Savings Plan

The Company sponsors a 401(k) Retirement Savings Plan (the “401(k) Plan”) covering substantially all of its US employees. The Company’s 401(k) Plan is a defined contribution plan with a 401(k) salary deferral arrangement qualified under appropriate provisions of the Internal Revenue Code (the “Code”) and applicable state laws.  Under the 401(k) Plan, eligible employees may make pre-tax salary or after-tax contributions up to 60% of annual compensation, as defined by the 401(k) Plan. In addition, participants who have reached the age of 50 can elect to withhold additional catch-up contributions subject to the Code and the 401(k) Plan limits. Participants may also contribute amounts representing distributions from other qualified plans (rollovers). The Company may make discretionary matching contributions. In fiscal 2022, the Company matches from 50% to 100% of each employee’s contribution up to a maximum of 4% of the employee’s total eligible earnings. The Company’s matching contributions to the 401(k) Plan aggregated $1.6 million for the year ended December 31, 2022. No discretionary Company contributions have been made to the Plan through December 31, 2021.