Employee Benefit Plans and Stock-based Compensation

9 Months Ended

Sep. 25, 2020

Share-based Payment Arrangement [Abstract]

Employee Benefit Plans and Stock-based compensation

EMPLOYEE BENEFIT PLANS AND STOCK-BASED COMPENSATION

Equity Award Plans

The Company’s stock benefit plans include the 2002 Employee Stock Purchase Plan (“ESPP”) and current active stock plans adopted in 1995 and 2002. See Note 13, “Employee Benefit Plans and Stock-based Compensation” of Notes to Consolidated Financial Statements in the 2019 Form 10-K for details pertaining to each plan.

The Company’s stockholders approved an amendment to the ESPP at the Company’s 2020 annual meeting of stockholders (the “2020 Annual Meeting”) to increase the number of shares of common stock reserved for issuance under the ESPP by 1,000,000 shares. The Company’s stockholders also approved an amendment to the 1995 Stock Plan at the 2020 Annual Meeting to increase the number of shares of common stock reserved for issuance thereunder by 4,000,000 shares. As of September 25, 2020, there were 1.2 million and 6.9 million shares of common stock reserved for future grants under the Company’s ESPP and active stock plans, respectively.

Stock Option Activities

The following table summarizes the Company’s stock option activities and related information during the nine months ended September 25, 2020 (in thousands, except per share amounts and terms):

	Stock Options Outstanding
	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Balance at December 31, 2019	1,888		$	5.83
Exercised	(127	)	5.78
Canceled or expired	(208	)	5.82
Balance at September 25, 2020	1,553		5.84		1.44	$	1,004
Vested and exercisable	1,553		$	5.84	1.44	$	1,004

The aggregate intrinsic value disclosed above represents the difference between the exercise price of the options and the fair value of the Company’s common stock. There were no employee stock options granted in the nine months ended September 25, 2020.

There were no realized tax benefits attributable to stock options exercised in jurisdictions where this expense is deductible for tax purposes for the nine months ended September 25, 2020 and September 27, 2019, respectively.

Restricted Stock Units (“RSUs”) Activities

The following table summarizes the Company’s RSUs activities and related information during the nine months ended September 25, 2020 (in thousands, except per share amounts):

	Restricted Stock Units Outstanding
	Number of Shares		Weighted Average Grant Date Fair Value Per Share
Balance at December 31, 2019	3,601		$	5.18
Granted	2,900		5.84
Vested	(2,496	)	5.39
Forfeited	(389	)	4.57
Balance at September 25, 2020	3,616		$	5.63

Performance- and Market-based awards

The Company settled a portion of its incentive bonus payments to eligible employees by issuing performance-based RSU awards (“PRSUs”) from the 1995 Stock Plan. The Company granted 507,555 shares of PRSUs to certain employees for the nine months ended September 25, 2020, all of which were fully vested at the time of grant to settle amounts earned under the Company’s 2019 and 2020 incentive bonus plans. The stock-based compensation recognized for these PRSUs was $3.2 million for the nine months ended September 25, 2020. There were 120,261 PRSUs issued to settle amounts earned under the Company's incentive plans in the nine months ended September 27, 2019.

In the first quarter of 2020, the Company granted 67,910 PRSUs to certain key executives that are expected to vest by the end of fiscal 2020. The vesting condition for these PRSUs include achievement of certain financial operating goals. The stock-based compensation recognized for all PRSUs which vest according to achievement of certain financial operating goals for the three and nine months ended September 25, 2020 was $0.1 million and $0.5 million, respectively. The unrecognized stock-based compensation of the PRSUs as of September 25, 2020 was $0.2 million which includes $0.1 million of unrecognized expense from PRSUs granted in 2019. A total of 85,000 PRSUs were granted in 2019, out of which 40,000 shares have vested as of September 25, 2020.

In the first quarter of 2020, the Company granted 182,830 market-based RSUs (“MRSUs”) under the 1995 Stock Plan to a key executive that is expected to vest during a three-year period. The vesting condition for the MRSUs include performance of the Company’s total shareholder return (“TSR”) relative to the TSR of the NASDAQ Telecommunication Index. The aggregate grant-date fair value of these shares was estimated to be $1.1 million using a Monte-Carlo simulation valuation method. The stock-based compensation recognized for all MRSUs for the three and nine months ended September 25, 2020 was $0.2 million and $0.5 million, respectively. The unrecognized stock-based compensation of the MRSUs as of September 25, 2020 was $1.4 million which includes $0.6 million of unrecognized expense from MRSUs granted in 2019. None of these MRSUs have vested as of September 25, 2020. The stock-based compensation recognized for the MRSUs for the three and nine months ended September 27, 2019 was $0.1 million and $0.2 million respectively. The unrecognized stock-based compensation of the MRSUs as of September 27, 2019 was $0.9 million.

French Retirement Benefit Plan

The Company assumed obligations under a defined benefit pension plan in connection with the acquisition of its French subsidiary in 2016. The plan is unfunded and there are no contributions required by laws or funding regulations, discretionary contributions or non-cash contributions expected to be made. The table below presents the components of net periodic benefit costs (in thousands):

	Three months ended				Nine months ended
	September 25, 2020		September 27, 2019		September 25, 2020		September 27, 2019
Service cost	$	65	$	57	$	187	$	171
Interest cost	9		20		27		59
Net periodic benefit cost	$	74	$	77	$	214	$	230

The present value of the Company’s pension obligation as of September 25, 2020 was $5.7 million, of which $0.1 million was reported as a component of “Accrued and other current liabilities” and $5.6 million was reported as a component of “Other non-current liabilities” on the Company’s Condensed Consolidated Balance Sheets. The present value of the Company’s pension obligation as of December 31, 2019 was $5.3 million.

401(k) Plan

The Company has a retirement/savings plan for its U.S. employees, which qualifies as a thrift plan under Section 401(k) of the Internal Revenue Code. This plan allows participants to contribute up to the applicable Internal Revenue Code limitations under the plan. The Company has made discretionary contributions to the plan of 25% of the first 4% contributed by eligible participants, up to a maximum contribution per participant of $1,000 per year. The contributions for the nine months ended September 25, 2020 and September 27, 2019 were $243,000 and $245,000, respectively.

Stock-based Compensation

The following table summarizes stock-based compensation for all plans (in thousands):

	Three months ended				Nine months ended
	September 25, 2020		September 27, 2019		September 25, 2020		September 27, 2019
Stock-based compensation in:
Cost of revenue	$	284	$	410	$	1,366	$	830
Research and development expense	1,110		1,120		3,720		2,318
Selling, general and administrative expense	2,536		2,566		8,651		5,571
Total stock-based compensation in operating expense	3,646		3,686		12,371		7,889
Total stock-based compensation	$	3,930	$	4,096	$	13,737	$	8,719

As of September 25, 2020, total unrecognized stock-based compensation cost related to unvested RSUs was $16.1 million and is expected to be recognized over a weighted-average period of approximately 1.75 years.

Valuation Assumptions

The Company estimates the fair value of employee stock options and stock purchase rights under the ESPP using a Black-Scholes option valuation model. The value of the stock purchase rights under the ESPP consists of: (1) the 15% discount on the purchase of the stock; (2) 85% of the fair value of the call option; and (3) 15% of the fair value of the put option. The call option and put option were valued using the Black-Scholes option pricing model.

	ESPP Purchase Period Ending
	December 31, 2020			July 1, 2020			December 31, 2019			July 1, 2019
Expected term (years)	0.5			0.5			0.5			0.5
Volatility	62		%	50		%	33		%	43		%
Risk-free interest rate	0.2		%	1.6		%	2.1		%	2.5		%
Expected dividends	0.0		%	0.0		%	0.0		%	0.0		%
Estimated weighted average fair value per share at purchase date	$	1.54		$	2.26		$	1.36		$	1.31

The expected term of the stock purchase rights under the ESPP represents the period of time from the beginning of the offering period to the purchase date. The Company uses its historical volatility for a period equivalent to the expected term of the options to estimate the expected volatility. The risk-free interest rate assumption is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term. The Company has not paid and does not plan to pay any cash dividends in the foreseeable future.