Stock-Based Compensation | 7. Stock-Based Compensation The condensed consolidated statements of operations include $1.0 million and $1.4 million of stock compensation expense for the three months ended June 30, 2020 and 2019, respectively. The condensed consolidated statements of operations include $1.6 million and $2.3 million of stock compensation expense for the six months ended June 30, 2020 and 2019, respectively. T The stock-based compensation expense by type is as follows: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Service-based awards $ 865 $ 890 $ 1,287 $ 1,470 Performance-based awards - short-term incentive plan 0 440 0 629 Performance-based awards - long-term incentive plan 77 57 155 114 Employee stock purchase plan 59 59 121 114 Stock options 0 0 0 1 Total $ 1,001 $ 1,446 $ 1,563 $ 2,328 Total stock-based compensation is reflected in the condensed consolidated statements of operations as follows: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Cost of revenues $ 74 $ 102 $ 146 $ 205 Research and development 145 177 282 349 Sales and marketing 164 183 314 363 General and administrative 618 984 821 1,411 Total $ 1,001 $ 1,446 $ 1,563 $ 2,328 The following table presents a summary of the remaining unrecognized share-based compensation expense related to outstanding share-based awards as of June 30, 2020: Award Type Remaining Unrecognized Compensation Expense Weighted Average Life (Years) Service-based awards $ 2,237 1.6 Performance-based awards $ 1,051 2.5 Stock options $ 1 0.6 Service-Based Awards Restricted Stock The Company grants service-based stock awards to employees under its long-term incentive plan, the PCTEL, Inc. 2019 Stock Incentive Plan (“LTIP”). For the annual awards granted to executives and key managers in the three months ended March 31, 2020 and 2019, respectively, the awards were comprised one-third of service-based restricted awards and two-thirds of performance-based awards. When service-based restricted stock is granted, the Company records deferred stock compensation within additional paid-in capital, representing the fair value of the common stock on the date the restricted shares are granted. The Company records stock compensation expense on a straight-line basis over the vesting period of the applicable service-based restricted shares. The following table summarizes service-based restricted stock activity for the six months ended June 30, 2020: Shares Weighted Average Fair Value Unvested Restricted Stock Awards - December 31, 2019 477,187 $ 6.11 Shares awarded 201,233 7.91 Shares vested (233,573 ) 6.21 Shares cancelled (3,000 ) 5.92 Unvested Restricted Stock Awards - June 30, 2020 441,847 $ 6.88 In February 2020, the Company issued to employees 153,694 service-based restricted stock awards under the LTIP that vest in three substantially equal annual increments commencing in 2021. At the beginning of the second quarter 2020, as part of our efforts to reduce expenses and conserve cash, the Company reduced the salary of each executive and key manager by 10% and in connection therewith issued restricted stock to such employee equal to 5% of his/her salary. In April 2020, the Company issued to executive employees 47,539 service-based restricted stock awards. The restricted stock was granted under the LTIP and has a one-year vesting period. The intrinsic value of service-based restricted shares that vested during the six months ended June 30, 2020 and 2019 was $1.9 million and $2.1 million, respectively. Restricted Stock Units The Company grants service-based restricted stock units as employee incentives. Restricted stock units are primarily granted to foreign employees for long-term incentive purposes. Employee restricted stock units are service-based awards and are amortized over the vesting period. At the vesting date, these units are converted to shares of common stock. The Company records expense on a straight-line basis for restricted stock units. The following table summarizes the restricted stock unit activity during the six months ended June 30, 2020: Shares Weighted Average Fair Value Unvested Restricted Stock Units - December 31, 2019 8,117 $ 5.83 Units awarded 6,448 7.48 Units vested/Shares awarded (5,482 ) 5.80 Unvested Restricted Stock Units - June 30, 2020 9,083 $ 7.02 The intrinsic value of service-based restricted stock units that vested and were issued as shares during the six months ended June 30, 2020 and 2019 was $44 and $30, respectively. Stock Options The Company may grant new employees stock options to purchase common stock. The Company issues stock options with exercise prices no less than the fair value of the Company’s stock on the grant date. Employee stock options are subject to installment vesting typically over a period of four years. Stock options may be exercised at any time prior to their expiration date or within 180 days of termination of employment, or such shorter time as may be provided in the related stock option agreement. Under the LTIP, new options can have a ten-year life. The stock options outstanding at June 30, 2020 have a seven-year A summary of the Company’s stock option activity for the six months ended June 30, 2020 is as follows: Options Outstanding Weighted Average Exercise Price Outstanding at December 31, 2019 150,246 $ 7.11 Options exercised (61,767 ) 7.13 Options forfeited (188 ) 5.00 Options cancelled/expired (72,041 ) 7.23 Outstanding at June 30, 2020 16,250 $ 6.54 Exercisable at June 30, 2020 14,867 $ 6.57 During the six months ended June 30, 2020, the Company received proceeds of $0.1 million from the exercise of options for 9,412 shares and issued 10,194 shares for the exercise of 52,355 options. The intrinsic value of the options exercised was $0.1 million. There were no exercises for the six months ended June 30, 2019. The Company did not grant stock options during the six months ended June 30, 2020 or 2019. The range of exercise prices for options outstanding and exercisable at June 30, 2020, was $5.06 to $8.21. The following table summarizes information about stock options outstanding under all stock option plans: Options Outstanding Options Exercisable Range of Exercise Prices Number Outstanding Weighted Average Contractual Life (Years) Weighted- Average Exercise Price Number Exercisable Weighted Average Exercise Price $ 5.06 7,000 3.21 $5.06 6,457 $5.06 $ 6.98 - $ 7.55 4,750 2.67 7.22 3,910 7.27 $ 8.09 - $ 8.21 4,500 1.42 8.12 4,500 8.12 $ 5.06 - $ 8.21 16,250 2.56 $6.54 14,867 $6.57 The weighted average contractual life and intrinsic value of options outstanding and options exercisable at June 30, 2020, was the following: Weighted Average Contractual Life (years) Intrinsic Value Options Outstanding 2.56 $ 11 Options Exercisable 2.42 $ 10 The intrinsic value is based on the share price of $6.68 at June 30, 2020. There were no stock options granted during the six months ended June 30, 2020. For outstanding stock options, the Company calculated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models may not necessarily provide a reliable single measure of the fair value of the employee stock options. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility and expected option life. The dividend yield rate is calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate is based on the U.S. Treasury yields with a remaining term that approximates the expected life of the options granted. The expected volatility is based on a five-year Performance-Based Equity Awards Short-Term Incentive Plan Incentive compensation earned by executives and key managers under the Company’s 2020 Short-Term Incentive Plan (“STIP”) will be settled 50% in cash and 50% in shares of the Company’s stock as was the case with the 2019 STIP. Shares valued at $1.2 million earned pursuant to the 2019 STIP were issued to executives and key managers during the first quarter 2020. For the 2019 STIP, the Company issued 129,285 shares net of shares withheld for taxes. Long-Term Incentive Plan The Company grants performance-based awards to executives and key managers to encourage sustainable growth, consistent earnings and management retention. Based on the fair value of the shares on the grant date, the Company records stock compensation expense over the performance period based on the estimated achievement of the award. The following table summarizes the performance award activity: At Target Awards Weighted Average Fair Value Unvested Performance Awards - December 31, 2019 171,437 $ 5.27 Awards granted 145,289 8.70 Unvested Performance Awards - June 30, 2020 316,726 $ 6.84 The Company granted performance awards under its long-term incentive plan to executives and key managers in February 2020 (“2020 LTIP”) and in February 2019 (“2019 LTIP”). Under both the 2020 LTIP and 2019 LTIP, shares of the Company’s stock can be earned based on achievement of a three-year revenue growth target with a penalty if a certain adjusted EBITDA level is not maintained. If the Company achieves less than the target growth over the performance period, the participant will receive fewer shares than the target award, determined on a straight-line basis. If the Company achieves greater than the target growth, the participant will receive more shares than the target award on an accelerated basis. Participants are required to be in service at the determination date of the award following the end of the performance period in order to receive the award. Shares earned under the 2020 LTIP and 2019 LTIP will be fully vested shares. The performance period for the 2020 LTIP is from January 1, 2020 through December 31, 2022. At target, the total fair market value of the award was $1.3 million based on the share price of $8.70 on the grant date. On the award date, the aggregate number of shares that could be earned at target was 145,289 and the maximum number of aggregate shares that could be earned was 254,256. The performance period for the 2019 LTIP is from January 1, 2019 through December 31, 2021. At target, the total fair market value of the award was $0.9 million based on the share price of $5.27 on the grant date. On the award date, the aggregate number of shares that could be earned at target was 174,117 and the maximum number of aggregate shares that could be earned was 300,015. During the year ended December 31, 2019, the target and maximum shares that can be earned declined by 2,680 and 4,690, respectively due to employee terminations. Employee Stock Purchase Plan (“ESPP”) The ESPP enables eligible employees to purchase common stock at the lower of 85% of the fair market value of the common stock on the first or last day of each offering period. Each offering period is approximately six months. In May 2019, the stockholders approved the PCTEL, Inc. 2019 Employee Stock Purchase Plan. The 2019 ESPP changed the start of the six-month offering periods to April and October from February and August. Accordingly, no shares were issued during the three months ended March 31, 2020. During the three months ended June 30, 2020, the Company received proceeds of $0.4 million from the issuance of 77,297 shares under the ESPP. The Company received proceeds of $0.3 million from the issuance of 95,376 shares under the ESPP in February 2019. Based on the 15% discount and the fair value of the option feature of the ESPP, it is considered compensatory. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model. The Company calculated the fair value of each employee stock purchase grant on the date of grant using the Black-Scholes option-pricing model using the following assumptions: Employee Stock Purchase Plan 2020 2019 Dividend yield 4.1 % 4.1 % Risk-free interest rate 0.1 % 2.5 % Expected volatility 44 % 34 % Expected life (in years) 0.5 0.5 The dividend yield rate was calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate was based on the U.S. Treasury yields with a remaining term that approximates the expected life of the options granted. The volatility was based on a five-year Board of Director Equity Awards The Company grants equity awards to members of its Board of Directors as an annual retainer and for committee service. These awards are shares of the Company’s stock that vest upon issuance. In addition, new directors receive a one-time grant that vests over three years. In the second quarter 2020, the Company issued 60,998 shares with a fair value of $0.4 million to directors for their annual retainer and committee service. The shares vest immediately upon issuance. The following table summarizes the director awards activity: Shares Weighted Average Fair Value Outstanding - December 31, 2019 4,831 $ 6.90 Shares awarded 60,998 6.59 Shares vested (63,413 ) 6.60 Outstanding - June 30, 2020 2,416 $ 6.90 Employee Withholding Taxes on Stock Awards For ease in administering the issuance of stock awards, the Company holds back shares of vested restricted stock awards, stock option exercises and short-term and long-term incentive plan stock awards for the value of the statutory withholding taxes. For everyone receiving a share award, the Company redeems the shares it computes as the value for the withholding tax and remits this amount to the appropriate tax authority. For withholding taxes related to stock awards, the Company paid $1.1 million and $0.7 million during the six months ended June 30, 2020 and 2019, respectively. Stock Repurchases On November 6, 2019, the Board of Directors approved a share repurchase program, which was reauthorized on March 10, 2020 pursuant to which the Company was authorized to repurchase up to $7.0 million of its common stock through the end of 2020. The Company spent $2.0 million to repurchase 375,046 shares at an average price of $5.36 during the three months ended March 31, 2020. The Company cancelled the repurchased shares. Due to uncertainties related to the COVID-19 pandemic and to protect the Company’s cash position, on April 1, 2020 the Board of Directors approved the termination of the stock repurchase program. Authorized Shares On May 29, 2020, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation (i) changing the Company’s name from “PC-Tel, Inc.” to “PCTEL, Inc.” and (ii) decreasing the number of authorized shares of common stock from 100,000,000 shares to 50,000,000 shares. |