Stock-Based Compensation | 8. Stock-Based Compensation The condensed consolidated statements of operations include $0.4 million of stock compensation expense for the three months ended September 30, 2021 and 2020, respectively. The condensed consolidated statements of operations include $2.0 million of stock compensation expense for the nine months ended September 30, 2021 and 2020, respectively. T The stock-based compensation expense by type is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Service-based awards $ 341 $ 462 $ 1,435 $ 1,749 Performance-based awards (short-term incentive plan) (196 ) 0 0 0 Performance-based awards (long-term incentive plan) 160 (88 ) 394 67 Employee stock purchase plan 67 59 200 180 Total $ 372 $ 433 $ 2,029 $ 1,996 Total stock-based compensation is reflected in the condensed consolidated statements of operations as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Cost of revenues $ 51 $ 61 $ 185 $ 207 Research and development 102 121 384 403 Sales and marketing 73 115 458 429 General and administrative 146 136 1,002 957 Total $ 372 $ 433 $ 2,029 $ 1,996 The following table presents a summary of the remaining unrecognized share-based compensation expense related to outstanding share-based awards as of September 30, 2021: Award Type Remaining Unrecognized Compensation Expense Weighted Average Life (Years) Service-based awards $ 1,816 1.4 Performance-based awards $ 2,096 2.2 Service-Based Awards Restricted Stock The Company grants service-based stock awards to employees under its long-term incentive plan (“LTIP”). All stock awards to employees are issued under the PCTEL, Inc. 2019 Stock Incentive Plan. For the annual awards granted to executives and key managers in the nine months ended September 30 , 2021 and 2020, 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 nine months ended September 30, 2021: Shares Weighted Average Fair Value Unvested Restricted Stock Awards - December 31, 2020 432,422 $ 6.90 Shares awarded 170,158 8.04 Shares vested (270,607 ) 6.60 Shares cancelled (3,102 ) 7.76 Unvested Restricted Stock Awards - September 30, 2021 328,871 $ 7.75 In March 2021, the Company issued to employees 170,158 service-based restricted stock awards that vest in three substantially equal annual increments commencing in 2022. 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. In April 2020, the Company reduced the salary of each executive and key manager by 10% and in connection therewith issued shares of restricted stock with one-year The intrinsic value of service-based restricted shares that vested during the nine months ended September 30, 2021 and 2020 was $2.2 million and $1.9 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 nine months ended September 30, 2021: Shares Weighted Average Fair Value Unvested Restricted Stock Units - December 31, 2020 9,083 $ 7.02 Units awarded 17,800 7.11 Units vested/Shares awarded (5,446 ) 6.47 Unvested Restricted Stock Units - September 30, 2021 21,437 $ 7.23 The intrinsic value of service-based restricted stock units that vested and were issued as shares during the nine months ended September 30, 2021 and 2020 was $42 and $44, respectively. In March 2021, the Company issues 2,800 service-based restricted stock units to foreign employees. In June 2021, the Company issued 15,000 service-based restricted stock units to employees of the Swedish subsidiary, Smarteq, with a four-year Stock Options The Company may grant employees options to purchase the Company’s 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 not less than three 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. The stock options outstanding at September 30, 2021 have a seven-year The following tables summarizes the stock option activity for the nine months ended September 30, 2021: Options Outstanding Weighted Average Exercise Price Outstanding at December 31, 2020 16,250 $ 6.54 Options exercised (6,000 ) 5.48 Options cancelled/expired (6,250 ) 7.89 Outstanding at September 30, 2021 4,000 $ 6.02 Exercisable at September 30, 2021 3,790 $ 5.97 During the nine months ended September 30, 2021, the Company received proceeds of $8 and issued 1,420 shares for the exercise of 6,000 options. The intrinsic value of the options exercised was $53. During the nine months ended 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. 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) Intrinsic Value Weighted- Average Exercise Price Number Exercisable Weighted Average Contractual Life (Years) Intrinsic Value Weighted Average Exercise Price $ 5.06 - $ 6.98 4,000 2.67 $ 2 $ 6.02 3,790 2.63 $ 2 $ 5.97 Weighted Average Contractual Life (years) Intrinsic Value Options Outstanding 2.67 $ 2 Options Exercisable 2.63 $ 2 The intrinsic value is based on the share price of $6.22 at September 30, 2021. 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 2021 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 2020 STIP. Under both the 2021 STIP and 2020 STIP, payouts could be earned based on annual revenue and adjusted EBITDA targets. No shares were earned under the 2020 STIP because the Company did not exceed the revenue or EBITDA thresholds. 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: Awards at Target Weighted Average Fair Value Unvested Performance Awards - December 31, 2020 316,726 $ 6.84 Awards granted 187,864 8.15 Unvested Performance Awards - September 30, 2021 504,590 $ 7.33 The Company granted performance awards under its long-term incentive plan to executives and key managers in February 2021 (“2021 LTIP”). The performance period for the 2021 LTIP is from January 1, 2021 through December 31, 2023. At target, the total fair market value of the award was $1.5 million based on the average share price of $8.15 on the grant date. On the award date, the aggregate number of shares that could be earned at target was 187,864 and the maximum number of aggregate shares that could be earned was 328,762. Under the 2021 LTIP and similar plans from 2019 and 2020, 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 will be fully vested shares. The Company records stock compensation expense over the performance period based on the Company’s estimate of the aggregate number of shares that will be earned under the incentive plan. The following table summarizes the active performance-based long-term incentive plans at September 30, 2021: Number of Shares Share Price That Could Be Earned: LTIP award on Grant Date Target Maximum Performance Period 2019 LTIP $ 5.27 171,437 295,325 January 1, 2019 through December 31, 2021 2020 LTIP $ 8.70 145,289 254,256 January 1, 2020 through December 31, 2022 2021 LTIP $ 8.15 187,864 328,762 January 1, 2021 through December 31, 2023 504,590 878,343 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. 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 2021 2020 Dividend yield 3.1 % 4.1 % Risk-free interest rate 0.1 % 0.1 % Expected volatility 48 % 44 % 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 historical period of the Company’s stock price . The expected life was based on the offering period. 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 common stock that vest upon issuance or, in some cases, one year after issuance. In addition, new directors receive a one-time grant that vests over three years. In May 2021, the Company issued 61,186 shares, in the aggregate, to directors for their annual retainer and committee services, of which 49,652 shares vested immediately upon issuance, with the remainder vesting one year after issuance. The fair value of the service based restricted shares for directors that vested during the nine months ended September 30, 2021 was $0.3 million. The following table summarizes the director awards activity: Shares Weighted Average Fair Value Outstanding - December 31, 2020 2,416 $ 6.90 Shares awarded 61,186 6.57 Shares vested (52,068 ) 6.65 Outstanding - September 30, 2021 11,534 $ 6.57 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 $0.8 million and $1.1 million during the nine months ended September 30, 2021 and 2020, respectively. Stock Repurchases On November 6, 2019, the Board of Directors approved a share repurchase program (“2019 Repurchase Plan”), which was reauthorized on March 10, 2020. Under the 2019 Repurchase Plan, 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. 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 2019 Repurchase Plan. On November 4, 2020, the Board of Directors approved a $5.0 million share repurchase program (“2020 Repurchase Plan”). The Company spent $1.8 million to repurchase 288,573 shares at an average price of $6.30 during the three months ended December 31, 2020 and the Company spent $3.2 million during the nine months ended September 30, 2021 to repurchase 495,144 shares at an average price of $6.45. The Company retired all repurchased shares. The 2020 Repurchase Plan ended in September 2021 with the completion of $5.0 million of share repurchases. 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. |