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Note 14 - Stock-based Compensation

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE 14 — STOCK-BASED COMPENSATION

The Company makes an estimate of expected forfeitures and recognizes compensation costs only for those stock-based awards expected to vest. As of December 31, 2023, the total future compensation cost related to unvested stock-based awards that are expected to vest is $15.8 million, which will be recognized over a weighted average period of 1.25 years.

During the years ended December 31, 2023, 2022 and 2021, the Company recorded compensation related to stock-based awards as follows:

		Year Ended December 31,
		2023				2022				2021
		(Dollars in thousands)
Cost of revenues		$	6,899			$	6,382			$	4,656
Selling and marketing expenses			866				1,230				766
Research and development expenses			94				—				—
General and administrative expenses			7,620				4,034				3,746
Total stock-based compensation expense			15,479				11,646				9,168
Tax effect on stock-based compensation expense			1,598				1,270				872
Net effect of stock-based compensation expense		$	13,881			$	10,376			$	8,296

During the fourth quarter of 2023, 2022 and 2021, the Company evaluated the trends the employees stock-based award forfeiture rate and determined that the actual rates are 11.6%, 11.5% and 11.1%, respectively. This represents an increase of 0.9%, 3.6%, and 2.8%, respectively, from prior estimates. As a result of the change in the estimated forfeiture rate, there was an immaterial impact on stock-based compensation expense for each of the respective periods.

Valuation assumptions

The Company estimates the fair value of the stock-based awards using the Complex Lattice, Tree-based option-pricing model. The dividend yield forecast is expected to be at least 20% of the Company’s yearly net profit, which is equivalent to a 0.6% yearly weighted average dividend rate in the year ended December 31, 2023. The risk-free interest rate was based on the yield from U.S. constant treasury maturities bonds with an equivalent term. The forfeiture rate is based on trends in actual stock-based awards forfeitures.

The Company calculated the fair value of each stock-based award on the date of grant based on the following assumptions:

		Year Ended December 31,
		2023				2022				2021
For stock based awards issued by the Company:
Risk-free interest rates			4.2	%			1.7	%			0.7	%
Expected lives (in weighted average years)			2.5				5.3				3.8
Dividend yield			0.6	%			0.7	%			0.6	%
Expected volatility (weighted average)			38.2	%			34.6	%			36.7	%

The Company estimated the forfeiture rate (on a weighted average basis) as follows:

		Year Ended December 31,
		2023				2022				2021
Weighted average forfeiture rate			8.0	%			10.2	%			6.1	%

Stock-based awards

The 2012 Incentive Compensation Plan

In May 2012, the Company’s shareholders adopted the 2012 Incentive Plan, which provides for the grant of the following types of awards: incentive stock options, non-qualified stock options, restricted stock units ("RSUs"), stock appreciation rights ("SARs”), stock units, performance awards, phantom stock, incentive bonuses, and other possible related dividend equivalents to employees of the Company, directors and independent contractors. Under the 2012 Incentive Plan, a total of 4,000,000 shares of the Company’s common stock were reserved for issuance, all of which could be issued as options or as other forms of awards. Options and SARs granted to employees under the 2012 Incentive Plan typically vest and become exercisable as follows: 50% on the two year anniversary of the grant date and 25% on each of the three year and four year anniversaries of the grant date. Options granted to non-employee directors under the 2012 Incentive Plan will vest and become exercisable one year after the grant date. Restricted stock units granted to directors and members of senior management vest according to a vesting schedule as follows: for the directors, 100% on the one year anniversary of the grant date and for members of senior management, 25% on each of the first, second, third and fourth anniversaries of the grant date. The term of stock-based awards typically ranges from six to ten years from the grant date. The shares of common stock issued in respect of awards under the 2012 Incentive Plan are issued from the Company’s authorized share capital upon exercise of options or SARs. The 2012 Incentive Plan expired in May 2018 upon adoption of the 2018 Incentive Compensation Plan (“2018 Incentive Plan”), except as to stock-based awards outstanding under the 2012 Incentive Plan on that date.

The 2018 Incentive Compensation Plan

In May 2018, the Company held its 2018 Annual Meeting of Stockholders at which the Company's stockholders approved the 2018 Incentive Plan. The 2018 Incentive Plan provides for the grant of the following types of awards: incentive stock options, RSUs, SARs, Performance Stock Units ("PSUs"), stock units, performance awards, phantom stock, incentive bonuses and other possible related dividend equivalents to employees of the Company, directors and independent contractors. Under the 2018 Incentive Plan, a total of 5,000,000 shares of the Company’s common stock were authorized and reserved for issuance, all of which could be issued as options or as other forms of awards. SARs, RSUs and PSUs granted to employees under the 2018 Incentive Plan typically vest and become exercisable as follows: 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversaries of the grant date. SARs, RSUs and PSUs granted to directors under the 2018 Incentive Plan typically vest and become exercisable (100%) on the first anniversary of the grant date. The term of stock-based awards typically ranges from six to ten years from the grant date. The shares of common stock issued in respect of awards under the 2018 Incentive Plan are issued from the Company’s authorized share capital upon exercise of options or SARs. In June 2022, the 2018 Incentive Compensation Plan was amended and restated to increase the number of shares authorized for issuance by 1,700,000 shares, to change the fungible ratio, and to implement a one year mandatory minimum vesting period.

As of December 31, 2023, 3,313,670 shares of the Company’s common stock are available for future grants under the 2018 Incentive Plan.

In March 2023, the Company granted certain members of its management and employees an aggregate of 174,422 RSUs and 35,081 PSUs under the Company’s 2018 Incentive Compensation Plan. The RSUs and PSUs have vesting periods of between 1 to 4 years from the grant date. The fair value of each RSU and PSU on the grant date was $79.9 and $79.6, respectively. The Company calculated the fair value of each RSU and PSU on the grant date using the Complex Lattice, Tree-based option-pricing model based on the following assumptions:

Risk-free interest rates	3.86%	—	4.68%
Expected life (in years)	2	—	5.75
Dividend yield	0.59%
Expected volatility (weighted average)	36.0%	—	42.2%

In May 2023, the Company granted its directors an aggregate of 10,852 RSUs under the Company’s 2018 Incentive Compensation Plan. The RSUs have vesting periods 1 year from the grant date. The fair value of each RSU on the grant date was $82.9. The Company calculated the fair value of each RSU and PSU on the grant date using the complex lattice, tree-based option-pricing model based on the following assumptions:

Risk-free interest rates			4.70%
Expected life (in years)			1%
Dividend yield			0.56%
Expected volatility (weighted average)			34.80%

On November 30, 2022, the Company granted certain employees an aggregate of 19,750 RSUs under the Company’s 2018 Incentive Plan. The RSUs have a vesting period of between 2 to 3 years from the grant date. The fair value of each RSU on the grant date was $89. The Company calculated the fair value of each RSU on the grant date using the Complex Lattice, Tree-based option-pricing model based on the following assumptions:

Risk-free interest rates	4.13%	—	(4.38)%
Expected life (in years)	2	—	3
Dividend yield	0.56%
Expected volatility (weighted average)	43.17%	—	40.57%

On March 1, 2022, the Company granted certain directors, members of its management and employees an aggregate of 513,385 SARs, 72,303 RSUs and 19,581 PSUs under the Company’s 2018 Incentive Plan. The exercise price of each SAR was $71.15 which represented the fair market value of the Company’s common stock on the grant date. The SARs will expire in six years from date of the grant and the SARs, RSUs and PSUs have a vesting period of between 2 to 4 years from grant date. The average fair value of each SAR, RSU and PSU on the grant date was $22.3, $69.6 and $75.3, respectively. The Company calculated the fair value of each SAR on the grant date using the Complex Lattice, Tree-based option-pricing model based on the following assumptions:

Risk-free interest rates	1.31%	—	1.62%
Expected life (in years)	2	—	6
Dividend yield	0.67%
Expected volatility (weighted average)	32.85%	—	46.07%

On November 2021, the Company granted its directors an aggregate of 11,804 RSUs under the Company’s 2018 Incentive Plan. The RSUs have a vesting period of one year from the grant date. The average fair value of each RSU on the grant date was $76.2. The Company calculated the fair value of each RSU on the grant date using the Complex Lattice, Tree-based option-pricing model based on the following assumptions:

Risk-free interest rates		0.14%	—	(0.16)%
Expected life (in years)			1
Dividend yield			0.65%
Expected volatility (weighted average)			43.26%

Information on the awards outstanding and the related weighted average exercise price as of and for the years ended December 31, 2023, 2022 and 2021 are presented in the table below:

		Year Ended December 31,
		2023								2022								2021
		Awards (In thousands)				Weighted Average Exercise Price				Awards (In thousands)				Weighted Average Exercise Price				Awards (In thousands)				Weighted Average Exercise Price
Outstanding at beginning of year			1,810			$	60.08				2,025			$	58.70				2,240			$	57.68
Granted:
SARs ⁽¹⁾			—				—				513				71.15				15				77.22
RSUs ⁽²⁾			189				—				109				—				12				—
PSUs ⁽³⁾			35				—				20				—				—				—
Exercised			(492	)			56.00				(728	)			52.73				(159	)			40.47
Forfeited			(59	)			54.09				(129	)			62.27				(83	)			64.34
Expired			—				—				—				—				—				—
Outstanding at end of year			1,483				52.57				1,810				60.08				2,025				58.70
Options and SARs exercisable at end of year			606				66.81				749				58.30				881				53.20
Weighted-average fair value of awards granted during the year						$	79.98							$	33.02							$	46.23

⁽¹⁾	Upon exercise, SARs entitle the recipient to receive shares of common stock equal to the increase in value of the award between the grant date and the exercise date.

⁽²⁾	An RSU represents the right to receive one share of common stock once certain vesting conditions are met. The value of an RSU approximates the value of the underlying stock.

⁽³⁾	The Performance shares units shall be paid out based on achievement of three-year relative total stockholder return compared to other companies in the S&P 500 index or based on achievement of three-year megawatt COD production targets.

The following table summarizes information about stock-based awards outstanding at December 31, 2023 (shares in thousands):

					Awards Outstanding												Awards Exercisable
	*Exercise Price*				Number of Stock-based Awards Outstanding				Weighted Average Remaining Contractual Life in Years				Aggregate Intrinsic Value				Number of Stock-based Awards Exercisable				Weighted Average Remaining Contractual Life in Years				Aggregate Intrinsic Value

	$	—				345				1.6			$	26,127											$	—
		51.71				8				1.0				193				8				1.0				193
		53.16				3				0.9				73				3				0.9				73
		53.44				78				0.5				1,736				78				0.5				1,736
		57.97				8				0.6				134				8				0.6				134
		63.40				45				2.5				562				34				2.5				422
		67.54				7				2.9				54				7				2.9				54
		68.34				47				2.4				349				35				2.4				261
		69.14				470				2.4				3,128				316				2.4				2,101
		71.15				448				4.2				2,077				101				4.2				468
		71.71				4				1.6				16				4				1.6				16
		76.43				5				1.9				—				5				1.9				—
		76.54				9				3.9				—				4				3.9				—
		78.53				6				3.3				—				3				3.3				—
		90.28				1				3.0				—				—				3.0				—
						1,483				2.6			$	34,449				606				2.4			$	5,458

The following table summarizes information about stock-based awards outstanding at December 31, 2022 (shares in thousands):

					Awards Outstanding												Awards Exercisable
	Exercise Price				Number of Stock-based Awards Outstanding				Weighted Average Remaining Contractual Life in Years				Aggregate Intrinsic Value				Number of Stock-based Awards Exercisable				Weighted Average Remaining Contractual Life in Years				Aggregate Intrinsic Value

	$	—				157				2.1			$	13,536				—				—			$	—
		51.71				8				2.0				278				6				2.0				209
		53.16				3				1.9				108				3				1.9				108
		53.44				103				1.5				3,405				103				1.5				3,405
		55.16				295				0.9				9,236				295				0.9				9,236
		57.97				8				1.6				214				8				1.6				214
		63.35				74				0.9				1,719				74				0.9				1,719
		63.40				45				3.5				1,047				23				3.5				524
		67.54				7				3.9				125				7				3.9				125
		68.34				47				3.4				849				23				3.4				424
		69.14				539				3.4				9,357				199				3.4				3,456
		71.15				499				5.2				7,644				—				5.2				—
		71.71				4				2.6				59				3				2.6				44
		76.43				5				2.9				49				5				2.9				49
		76.54				9				4.9				85				—				4.9				—
		78.53				6				4.3				51				—				4.3				—
		90.28				1				4.0				—				—				4				—
						1,810				3.1			$	47,762				749				1.8			$	19,513

The aggregate intrinsic value in the above tables represents the total pretax intrinsic value, based on the Company’s stock price of $75.79 and $86.48 as of December 31, 2023 and 2022, respectively, which would have potentially been received by the stock-based award holders had all stock-based award holders exercised their stock-based award as of those dates. The total number of in-the-money stock-based awards exercisable as of December 31, 2023 and 2022 was 605,753 and 749,101, respectively.

The total pretax intrinsic value of options exercised during the year ended December 31, 2023 and 2022 was $11.5 million and $21.9 million, respectively, based on the average stock price of $79.4 and $82.8 during the years ended December 31, 2023 and 2022, respectively.