Stock-based compensation includes expense charges for all stock-based awards to employees and directors. These awards include stock options, restricted stock, restricted stock units and performance stock units.

Stock-based compensation expense related to internal labor is capitalized to software and patent costs based on direct labor hours charged to capitalized software and patent costs.

The Company estimates the fair value of stock options on the date of grant (measurement date) using the Black-Scholes option pricing model. The Company recognizes the fair value of stock option awards on a straight-line basis over the service period of the award.

There were 1 stock options granted during the three months ended March 31, 2022, as replacement equity awards for vested stock options held by EVRYTHNG employees. No stock options were granted during the three months ended March 31, 2021.

The fair value of restricted stock awards, that vest upon meeting a service condition, is based on the fair market value of the Company’s common stock on the date of the grant (measurement date) and is recognized on a straight-line basis over the service period of the award, which is generally three to four years for employee grants and one to three years for director grants.

The fair value of restricted stock unit (“RSU”) awards, that vest upon meeting a service condition, is based on the fair market value of the Company’s common stock on the date of the grant (measurement date) and is recognized on a straight-line basis over the service period of the award, which is generally three to four years for employee grants.

The fair value of performance stock unit (“PSU”) awards, that vest upon meeting a performance condition, such as the Company exceeding a future annual recurring revenue target, and a service condition, is determined based on the probability of achievement of the performance criteria as of each reporting date (measurement date). The probability of achievement is subject to judgment, and could change from period to period, impacting the fair value of the award. The Company recognizes the fair value of the award on a straight-line basis over the service period of the award, which is generally three years for employee grants.

The fair value of PSU awards, that vest upon meeting a market condition, such as the Company exceeding shareholder returns as compared to an index of peer companies, and a service condition, is determined on the date of grant (measurement date) using the Monte Carlo valuation model. The Company recognizes the fair value of the award on a straight-line basis over the service period of the award, which is generally three years for employee grants.

The following inputs are used in the Monte Carlo valuation model to estimate the fair value:

Stock Price. The stock price represents the fair market value of the Company’s common stock on the date of the grant.

Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock based on historical prices over the most recent period commensurate with the term of the award.

Risk-Free Interest Rate. The Company determines the risk-free interest rate using current U.S. treasury yields for bonds with a maturity commensurate with the term of the award.

	Three			Three
	Months			Months
	Ended			Ended
	March 31,			March 31,
	2022			2021
Stock price	$	32.02		$	—
Expected volatility		82.8	%		—
Risk-free interest rate		1.8	%		—

	Three		Three
	Months		Months
	Ended		Ended
	March 31,		March 31,
	2022		2021
Stock-based compensation:
Cost of revenue	$	201	$	173
Sales and marketing		744		440
Research, development and engineering		507		396
General and administrative		1,016		1,001
Stock-based compensation expense		2,468		2,010
Capitalized to software and patent costs		36		36
Total stock-based compensation	$	2,504	$	2,046

The following table sets forth total unrecognized compensation costs related to non-vested stock-based awards granted under the Company’s equity compensation plan:

Total unrecognized compensation costs will be adjusted for any future forfeitures if and when they occur.

The Company expects to recognize the total unrecognized compensation costs as of March 31, 2022, for all non-vested stock-based awards over weighted average periods through March 31, 2026, as follows:

As of March 31, 2022, under the Company’s stock-based compensation plan, an additional 585 shares remained available for future grants. The Company issues new shares upon exercises of stock options, grants of restricted stock awards and vesting of RSU and PSU awards.

			Weighted		Weighted
			Average		Average		Aggregate
	Number of		Exercise		Grant Date		Intrinsic
Three months ended March 31, 2022:	Options		Price		Fair Value		Value
Outstanding at December 31, 2021		50	$	39.54	$	22.23
Granted		1	$	22.15	$	—
Exercised		—	$	—	$	—
Forfeited or expired		—	$	—	$	—
Outstanding at March 31, 2022		51	$	39.14	$	21.72	$	5
Exercisable at March 31, 2022		51	$	39.14			$	5

The aggregate intrinsic value is based on the closing price of $26.37 per share of Digimarc common stock on March 31, 2022, which would have been received by the optionees had all of the options with exercise prices less than $26.37 per share been exercised on that date.

				Weighted
				Average
	Number of			Grant Date
Three months ended March 31, 2022:	Shares			Fair Value
Unvested balance, December 31, 2021		360		$	34.90
Granted		—		$	—
Vested		(50	)	$	32.21
Forfeited		(8	)	$	36.82
Unvested balance, March 31, 2022		302		$	35.29

	Three		Three
	Months		Months
	Ended		Ended
	March 31,		March 31,
	2022		2021
Fair value of restricted stock awards vested	$	1,603	$	2,175

				Weighted
				Average
	Number of			Grant Date
Three months ended March 31, 2022:	Shares			Fair Value
Unvested balance, December 31, 2021		—		$	—
Granted		309		$	32.35
Vested		(1	)	$	40.84
Forfeited		—		$	—
Unvested balance, March 31, 2022		308		$	32.31

	Three		Three
	Months		Months
	Ended		Ended
	March 31,		March 31,
	2022		2021
Fair value of RSU awards vested	$	47	$	—

			Weighted
			Average
	Number of		Grant Date
Three months ended March 31, 2022:	Shares		Fair Value
Unvested balance, December 31, 2021		—	$	—
Granted		144	$	32.02
Vested		—	$	—
Forfeited		—	$	—
Unvested balance, March 31, 2022		144	$	—

	Three		Three
	Months		Months
	Ended		Ended
	March 31,		March 31,
	2022		2021
Fair value of PSU awards vested	$	—	$	—