Stock-Based Compensation | 8. Stock-Based Compensation The condensed consolidated statements of operations include $1.1 million and $1.0 million of stock compensation expense for the three months ended June 30, 2022 and 2021, respectively. The condensed consolidated statements of operations include $1.9 million and $1.7 million of stock compensation expense for the six months ended June 30, 2022 and 2021, respectively. T The stock-based compensation expense by type is as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Service-based awards $ 383 $ 640 $ 703 $ 1,095 Performance-based awards (short-term incentive plan) 263 138 343 196 Performance-based awards (long-term incentive plan) 364 194 671 233 Employee stock purchase plan 76 67 143 133 Total $ 1,086 $ 1,039 $ 1,860 $ 1,657 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, 2022 2021 2022 2021 Cost of revenues $ 31 $ 65 $ 96 $ 134 Research and development 172 140 308 282 Sales and marketing 255 226 452 386 General and administrative 628 608 1,004 855 Total $ 1,086 $ 1,039 $ 1,860 $ 1,657 The following table presents a summary of the remaining unrecognized share-based compensation expense related to outstanding share-based awards as of June 30, 2022: Award Type Remaining Unrecognized Compensation Expense Weighted Average Life (Years) Service-based awards $ 2,378 1.4 Performance-based awards $ 2,490 1.9 Service-Based Awards Restricted Stock The Company grants both service-based and performance-based stock awards to employees pursuant to the PCTEL, Inc. 2019 Stock Incentive Plan. 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. During the second quarter of 2022, the Company awarded executives and key managers long-term incentives comprised one-third of service-based restricted stock and two-thirds of performance-based restricted stock. During the second quarter of 2022, the Company awarded executives and key managers long-term incentives comprised one-third of service-based restricted stock and two-thirds of performance-based restricted stock. The Company awarded service-based restricted stock to all other participating employees. The following table summarizes service-based restricted stock activity for the six months ended June 30, 2022: Shares Weighted Average Fair Value Unvested Restricted Stock Awards - December 31, 2021 326,336 $ 7.76 Shares awarded 233,744 4.66 Shares vested (166,473 ) 7.30 Shares cancelled (2,135 ) 5.70 Unvested Restricted Stock Awards - June 30, 2022 391,472 $ 6.12 The intrinsic value of service-based restricted shares that vested during the six months ended June 30, 2022 and 2021 was $0.8 million and $2.2 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, 2022: Shares Weighted Average Fair Value Unvested Restricted Stock Units - December 31, 2021 21,437 $ 7.23 Units awarded 26,667 4.40 Units vested/Shares awarded (4,501 ) 7.33 Units cancelled (2,000 ) 6.98 Unvested Restricted Stock Units - June 30, 2022 41,603 $ 5.42 The intrinsic value of service-based restricted stock units that vested and were issued as shares during the six months ended June 30, 2022 and 2021 was $21 and $42, respectively. Stock Options The Company may grant 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. 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 June 30, 2022 have a seven-year The following table summarizes information about stock options outstanding under all stock option plans at June 30, 2022: 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 1.92 $ 0 $ 6.02 4,000 1.92 $ 0 $ 6.02 The intrinsic value is based on the share price of $4.09 at June 30, 2022. For outstanding employee stock options, the Company calculated the fair value of each stock option 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 The Company granted short-term inventive awards to executives, key managers, and non-sales employees under the Company’s 2022 Short-Term Incentive Plan (“STIP”) based on upon achievement of specifically identified corporate annual 2022 adjusted EBITDA and revenue goals. The 2022 STIP awards, like the 2021 STIP awards, will be paid 50% in cash and 50% in the Company’s stock. In the first quarter 2022, the Board of Directors exercised its discretion to approve bonus awards. The first quarter 2022 bonus was equal to those payable for achievement of the 2021 STIP adjusted EBITDA goal at the threshold level. No awards were received by 2021 STIP participants with respect to the revenue goal. These payments were made during the first quarter 2022, 50% in the Company’s common stock for a total of $0.3 million and 50% in cash for executives and key managers and 100% in cash for all other participants. 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, 2021 333,153 $ 8.44 Awards granted 269,618 4.84 Awards cancelled (18,800 ) 8.01 Unvested Performance Awards - June 30, 2022 583,971 $ 6.79 The Company granted performance awards under its long-term incentive plan to executives and key managers in February 2022 (“2022 LTIP”). The performance period for the 2022 LTIP is from January 1, 2022 through December 31, 2024. At target, the total fair market value of the award was $1.3 million based on the average share price of $4.84 on the grant date. On the award date, the aggregate number of shares that could be earned at target was 269,618 and the maximum number of aggregate shares that could be earned was 471,832. Under the 2022 LTIP and similar plans from 2021 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 June 30, 2022: Number of Shares Share Price That Could Be Earned: LTIP award on Grant Date Target Maximum Performance Period 2020 LTIP $ 8.70 135,889 237,806 January 1, 2020 through December 31, 2022 2021 LTIP $ 8.25 179,797 314,645 January 1, 2021 through December 31, 2023 2022 LTIP $ 4.84 268,285 469,499 January 1, 2022 through December 31, 2024 583,971 1,021,949 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 2022 2021 Dividend yield 4.7 % 3.1 % Risk-free interest rate 1.7 % 0.1 % Expected volatility 48 % 48 % 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 stock that vest one year after issuance. In addition, new directors receive a one-time grant that vests over three years. In May 2022, the Company issued 120,768 shares to directors for their annual retainer and committee services. The fair value of the service-based restricted shares for directors that vested during the six months ended June 30, 2022 was $47. The following table summarizes the director awards activity: Shares Weighted Average Fair Value Outstanding - December 31, 2021 11,534 $ 6.57 Shares awarded 120,768 4.02 Shares vested (11,534 ) 6.57 Outstanding - June 30, 2022 120,768 $ 4.02 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 $0.4 million and $0.8 million during the six months ended June 30, 2022 and 2021, respectively. |