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Note 8 - Equity Incentive Plans and Equity

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Text Block]

Note 8 – Equity Incentive Plans and Equity:

Total compensation cost for share-based payments recognized for the years ended December 31, 2021, 2020, and 2019 was approximately $24,998, $10,925, and $7,834, respectively. Cost of goods sold for the years ended December 31, 2021, 2020, and 2019 included share-based compensation of approximately $4,152, $2,132, and $922, respectively. Selling, general, and administrative expense for the year ended December 31, 2021, 2020, and 2019 included share-based compensation of approximately $20,846, $8,793, and $6,912, respectively. Capital expenditures recorded for the Freshpet Kitchens expansion project included share-based compensation of approximately $71, $232 and $221 during the years ended December 31, 2021, 2020 and 2019, respectively.

The Company maintains the approved 2010 Stock Plan (the "2010 Plan") under which options to purchase shares of the Company’s common stock were granted to employees and affiliates of the Company. These options are either time-based (vest over four years), performance-based (vest when performance targets are met, as defined in the stock option grant agreement), or vest at the occurrence of an exit event which is defined as a Change of Control in the Company, as defined in the stock grant agreement.

The options granted have maximum contractual terms of 10 years. The Board of Directors froze the 2010 Stock Plan such that no further grants may be issued under the 2010 Stock Plan.

The Company maintains the approved 2014 Omnibus Incentive Plan under which shares of common stock may be issued or used for reference purposes as awards granted under the 2014 Plan. These awards may be in the form of stock options, stock appreciation rights, restricted stock, as well as other stock-based and cash-based awards. As of December 31, 2021, the awards granted were either time-based (cliff vest over three years), performance-based (vest when performance targets are met, as defined in the stock option grant agreement), or restricted stock units (employee RSUs cliff vest over three years and non-employee director RSUs cliff vest over one year).

NASDAQ Marketplace Rules Inducement Award—During the year ended December 31, 2016, 500,000 service period stock options and 500,000 performance-based stock options were granted to the Company’s CEO as an inducement under the NASDAQ Marketplace Rules and during the first quarter of 2020, 15,000 service period stock options were granted to the Executive Vice President of Finance, at the time, who is currently Chief Financial Officer as an inducement under the NASDAQ Marketplace Rules, and therefore outside of any Plan. Under the terms of the applicable agreement, each grant is governed as if issued under the 2014 Omnibus Plan. The awards granted are time-based (cliff vest over four years and three years, respectively) and performance-based (vest when performance targets are met, as defined in the stock option grant agreement).

Service Period Stock Options—A summary of service period stock options outstanding and changes under the plans during the year ended December 31, 2021 is presented below:

Options	*Shares*			*Weighted Average Exercise Price*		*Average Remaining Contractual Term*		*Aggregate Intrinsic Value*
Outstanding at December 31, 2020		1,327		$	45.88
Granted		30			155.60
Exercised		(70	)		10.89
Forfeited		-			-
Outstanding at December 31, 2021		1,287		$	50.37		6.24	$	73,719
Exercisable at December 31, 2021		924		$	22.30		5.27	$	71,047

As of December 31, 2021, there was $20,658 of total unrecognized compensation costs related to non-vested service period options, of which $6,203 will be incurred in 2022, $5,346 will be incurred in 2023, $8,948 will be incurred in 2024 and the remaining $161 will be incurred in 2025.

Performance Based Options—Performance based option vesting is contingent upon the Company achieving certain annual Net Sales or Adjusted EBITDA goals. A summary of performance-based stock options outstanding and changes under the plans during the year ended December 31, 2021 is presented below:

Options	*Shares*			*Weighted Average Exercise Price*		*Average Remaining Contractual Term*		*Aggregate Intrinsic Value*
Outstanding at December 31, 2020		2,119		$	66.19
Granted		101			154.83
Exercised		(153	)		9.82
Forfeited		-			-
Outstanding at December 31, 2021		2,067		$	74.71		7.07	$	87,896
Exercisable at December 31, 2021		975		$	14.03		5.10	$	80,020

As of December 31, 2021, unrecognized compensation costs related to the 801 performance-based awards for which the achievement of the vesting criteria is considered probable as of December 31, 2021 have performance target dates ranging from December 31, 2021 through December 31, 2024. The total unrecognized compensation costs for these performance-based awards was $34,988 as of December 31, 2021, of which $12,918 will be incurred in 2022, $11,477 will be incurred in 2023, and the remaining $10,593 will be incurred in 2024.

As of December 31, 2021, there were 305 unvested performance-based options outstanding that were deemed not probable, with an aggregate fair value of $22,501.

Service Period Restricted Stock Units—The following table includes activity related to outstanding restricted stock units during the twelve months ended December 31, 2021.

	*Shares*			*Weighted-Average Grant-Date Fair Value Per Unit*
Outstanding at December 31, 2020		170		$	43.60
Granted		47			152.27
Exercised/Vested		(109	)		38.64
Forfeited		(6	)		92.25
Outstanding at December 31, 2021		103		$	96.18

As of December 31, 2021, there was approximately $6,251 of total unrecognized compensation costs related to restricted stock units, of which $3,442 will be incurred in 2022, $1,974 will be incurred in 2023, $792 will be incurred in 2024, and $44 will be incurred in 2025.

Performance Based Restricted Stock Units—The following table includes activity related to outstanding restricted stock units during the twelve months ended December 31, 2021.

	*Shares*			*Weighted-Average Grant-Date Fair Value Per Unit*
Outstanding at December 31, 2020		23		$	55.54
Granted		-			-
Forfeited		(1	)		111.65
Outstanding at December 31, 2021		22		$	111.65

As of December 31, 2021, unrecognized compensation costs related to the 22 performance-based restricted stock units for which the achievement of the vesting criteria is considered probable as of December 31, 2021 have performance target dates related to the twelve months ended December 31, 2023. The total unrecognized compensation costs for these performance-based awards was $1,487 as of December 31, 2021, of which $744 will be incurred in 2022, and the remaining $743 will be incurred in 2023.

Grant Date Fair Value of Options—The weighted average grant date fair value of options (service period options and performance based options) granted during the years ended December 31, 2021, 2020, and 2019 were $74.90, $68.93 and $24.24 per share, respectively.

Expected Volatility—Expected volatility was based on the historical volatility of the Company’s common stock.

Weighted Average Expected Term—The Company determined the expected term based on the “shortcut method” described in FASB ASC 718, Compensation—Stock Compensation (an expected term based on the midpoint between the vesting date and the end of the contractual term).

Risk-Free Interest Rate—The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant.

Expected Dividend Yield—The Company has not historically declared dividends, and no future dividends are expected to be available to benefit option holders. Accordingly, the Company used an expected dividend yield of zero in the valuation model.

	*Year Ended December 31,*
	*2021*	*2020*	*2019*
Weighted average exercise price of options granted	$ 155.00	$ 135.55	$ 48.64
Expected volatility	50.4%	46.9% - 51.5%	47.6% - 48.5%
Average expected terms in years	6.1	5.8 - 7	6 - 6.6
Risk-free interest rate	1.1%	0.3% - 1.69%	2.27%
Expected dividend yield	0.0%	0.0%	0.0%