Note 13 - Stock-based Compensation

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

Note 13 – Stock-Based Compensation

The Company has two equity incentive plans: the 2000 Stock Option Plan (2000 Plan) and the 2012 Long-Term Incentive Plan (2012 Plan). Upon the adoption of the 2012 Plan on February 12, 2012, all shares that were reserved but not issued under the 2000 Plan were assumed by the 2012 Plan. No additional awards will be issued under the 2000 Plan. Under the 2012 Plan, the Company has the ability to grant stock options, stock appreciation rights (SARs), restricted stock, performance stock, stock units, other stock-based awards and cash incentive awards. Awards under the 2012 Plan have a maximum term of ten years from the date of grant. The compensation committee of the board of directors may provide that the vesting or payment of any award will be subject to the attainment of specified performance measures in addition to the satisfaction of any continued service requirements, and the compensation committee will determine whether such measures have been achieved. The per share exercise price of stock options and SARs granted under the 2012 Plan generally may not be less than the fair market value of a share of our common stock on the date of the grant. Restricted stock is valued at fair market value on the date of grant.

The Company’s 2012 Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase a variable number of shares of the Company’s common stock at a discount through payroll deductions of up to 15 percent of their eligible compensation, subject to plan limitations. The ESPP provides for six-month offering periods with a single purchase period, and at the end of each offering period, employees are able to purchase shares at 85 percent of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last trading day of the offering period. The Company determines the fair value stock-based compensation related to its ESPP in accordance with ASC 718 using the component measurement approach and the Black-Scholes standard option pricing model.

Employees purchased 67,729 and 42,235 shares of common stock under the ESPP at an average exercise price of $61.96 and $85.85 during 2021 and 2020, respectively. As of December 31, 2021, 1,058,866 shares remained available for future issuance under the ESPP.

The Company determines its stock-based compensation in accordance with ASC 718, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and non-employee directors based on fair value.

Determining the appropriate fair value model and calculating the fair value of stock option grants requires the input of subjective assumptions. The Company uses the Black-Scholes option pricing model to value its stock option awards. Stock-based compensation expense is calculated using the Company’s best estimates, which involve inherent uncertainties and the application of management’s judgment. Significant estimates include its expected term and stock price volatility.

The expected term of stock options is estimated from the vesting period of the award and represents the weighted average period that the Company's stock options are expected to be outstanding. The Company estimates the volatility of its stock price based on the historic volatility of its common stock. The Company bases the risk-free interest rate that it uses in the Black-Scholes option pricing model on U.S. Treasury instruments with maturities similar to the expected term of the award being valued. The Company has never paid and does not anticipate paying, any cash dividends in the foreseeable future and, therefore, the Company uses an expected dividend yield of zero in the option pricing model. The Company accounts for forfeitures as they occur. The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period.

The following table summarizes stock-based compensation expense for the years ended December 31, 2021, 2020 and 2019, respectively:

	Year Ended December 31,
(in thousands)	2021		2020		2019
Stock options and other	$	17,553	$	13,327	$	9,591
Employee stock purchase plan		1,542		1,346		1,190
Total stock-based compensation expense	$	19,095	$	14,673	$	10,781
Cost of revenue	$	2,595	$	2,451	$	2,056
Operating expenses:
Marketing and sales		3,736		3,121		2,632
Research and development		2,833		2,440		1,851
General and administrative		9,931		6,661		4,242
Total stock-based compensation expense	$	19,095	$	14,673	$	10,781

Stock Options

The following table provides the assumptions used in the Black-Scholes option pricing model for the years ended December 31, 2021, 2020 and 2019:

	Year Ended December 31,
	2021		2020		2019
Risk-free interest rate		0.80 - 1.12%		0.50 - 1.47%		2.35 - 2.58%
Expected life (years)		6.25		6.25		6.25
Expected volatility		45.28 - 45.53%		42.40 - 43.83%		42.52 - 42.74%
Expected dividend yield		0%		0%		0%
Weighted average grant date fair value		$128.14		$45.32		$47.84

The following table summarizes stock option activity and the weighted average exercise price for the years ended December 31, 2021, 2020 and 2019:

				Weighted-
				Average
	Stock Options			Exercise Price
Options outstanding at January 1, 2019		252,616		$	64.71
Granted		53,708			105.81
Exercised		(16,079	)		48.67
Cancelled		(13,979	)		89.50
Options outstanding at December 31, 2019		276,266			72.38
Granted		60,065			105.79
Exercised		(68,958	)		57.00
Cancelled		(37,842	)		67.92
Options outstanding at December 31, 2020		229,531			86.46
Granted		57,901			128.14
Exercised		(28,991	)		58.78
Cancelled		(25,057	)		109.31
Options outstanding at December 31, 2021		233,384		$	97.78
Exercisable at December 31, 2021		115,700		$	81.30

The outstanding options have a term of 10 years. For employees, options that have been granted become exercisable ratably over the vesting period, which is generally a four- or five-year period, beginning on the first anniversary of the grant date, subject to the employee’s continuing service to the Company. For directors, options generally become exercisable in full on the first anniversary of the grant date.

The total intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019, was $3.8 million, $5.4 million and $0.9 million, respectively. The aggregate intrinsic value represents the cumulative difference between the fair market value of the underlying common stock and the option exercise prices.

For options outstanding at December 31, 2021, the weighted-average remaining contractual term was 6.7 years and the aggregate intrinsic value was $0.1 million. For options exercisable at December 31, 2021, the weighted-average remaining contractual term was 5.0 years and the aggregate intrinsic value was $0.1 million. Refer to the table below for additional information.

The following table summarizes information about stock options outstanding at December 31, 2021:

	Options Outstanding, Vested and Expected to Vest			Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price ($)	Number Exercisable	Weighted Average Exercise Price ($)
$7.76 to $31.43	4,624	0.35	30.58	4,624	30.58
$31.44 to $66.87	50,159	3.58	57.13	45,986	57.02
$66.88 to $96.20	41,586	7.82	89.95	9,570	71.68
$96.21 to $180.46	137,015	7.67	117.31	55,520	107.28

The fair value of share-based payment transactions is recognized in the Consolidated Statements of Comprehensive Income. As of December 31, 2021, there was $4.3 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of 2.6 years. The total fair value of options vested was $2.1 million, $1.8 million and $1.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Restricted Stock

The 2012 Plan provides for the award of restricted stock or restricted stock units. Restricted stock awards are share settled and restrictions lapse ratably over the vesting period, which is generally a three- to five-year period, beginning on the first anniversary of the grant date, subject to the employee’s continuing service to the Company. For directors, restrictions generally lapse in full on the first anniversary of the grant date.

The following table summarizes restricted stock activity for the years ended December 31, 2021, 2020 and 2019: 

				Weighted-
				Average
				Grant Date
	Restricted			Fair Value
	Stock Awards			Per Share
Restricted stock at January 1, 2019		323,921		$	79.85
Granted		115,471			106.35
Restrictions lapsed		(92,597	)		77.25
Forfeited		(31,822	)		87.58
Restricted stock at December 31, 2019		314,973			89.55
Granted		108,179			111.76
Restrictions lapsed		(101,941	)		84.70
Forfeited		(14,012	)		94.24
Restricted stock at December 31, 2020		307,199			98.87
Granted		205,996			123.61
Restrictions lapsed		(115,908	)		91.26
Forfeited		(53,505	)		128.05
Restricted stock at December 31, 2021		343,782		$	111.79

As of December 31, 2021, there was $26.0 million of unrecognized compensation expense related to non-vested restricted stock, which is expected to be recognized over a weighted-average period of 2.4 years.

Performance Stock

Performance stock units (PSUs) are expressed in terms of a target number of PSUs, with anywhere between 0 percent and 150 percent of that target number capable of being earned and vesting at the end of a three-year performance period depending on the Company’s performance in the final year of the performance period and the award recipient’s continued employment. The Company’s PSUs granted from 2017 to 2019 and certain PSUs granted in 2021 are based on performance conditions and the related compensation cost is based on the probability that the performance conditions will be achieved. The Company’s PSUs granted in 2020 and certain PSUs granted in 2021 are based on market conditions and the related compensation cost is based on the fair value at grant date calculated using a Monte Carlo pricing model.

The following table summarizes performance stock activity for the years ended December 31, 2021, 2020 and 2019: 

				Weighted-
				Average
				Grant Date
	Performance			Fair Value
	Stock Awards			Per Share
Performance stock at January 1, 2019		52,140		$	76.54
Granted		21,434			104.99
Restrictions lapsed		-			-
Performance change		(61,816	)		88.06
Forfeited		(2,375	)		105.37
Performance stock at December 31, 2019		9,383			58.35
Granted		19,956			118.66
Restrictions lapsed		(7,113	)		58.35
Performance change		-			-
Forfeited		(2,270	)		58.35
Performance stock at December 31, 2020		19,956			118.66
Granted		15,078			203.64
Restrictions lapsed		-			-
Performance change		(10,366	)		192.95
Forfeited		(7,829	)		113.91
Performance stock at December 31, 2021		16,839		$	115.56

As of December 31, 2021, there was $0.8 million of unrecognized compensation expense related to non-vested performance stock, which is expected to be recognized over a weighted-average period of 1.8 years.

Employee Stock Purchase Plan

The following table presents the assumptions used to estimate the fair value of the ESPP during the years ended December 31, 2021, 2020 and 2019:

	Year Ended December 31,
	2021	2020	2019
Risk-free interest rate	0.06 - 0.17%	0.12 - 0.17%	1.59 - 2.35%
Expected life (months)	6.00	6.00	6.00
Expected volatility	53.44 - 65.53%	50.85 - 59.99%	42.63 - 53.57%
Expected dividend yield	0%	0%	0%