Note 9 - Equity Incentive Plans and Equity

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

Note 9 – Equity Incentive Plans and Equity: 

Total compensation cost for share-based payments recognized in 2022, 2021 and 2020 was approximately $23,505, $24,998 and $10,925, respectively. Cost of goods sold in 2022, 2021 and 2020 included share-based compensation of approximately $4,706, $4,152 and $2,132, respectively. Selling, general, and administrative expense in 2022, 2021 and 2020 included share-based compensation of approximately $18,799, $20,846 and $8,793, respectively. Capital expenditures recorded for the Freshpet Kitchens expansion project included no share-based compensation during 2022 and approximately $71 and $232 during 2021 and 2020, 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, 2022, 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 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.

During 2020, as an inducement under the NASDAQ Marketplace Rules, and therefore outside of any Plan, 15,000 service period stock options were granted to the Executive Vice President of Finance who later served as the Company's Chief Financial Officer until September 2022. Upon her departure 5,000 of the service period stock awards were forfeited.

During 2022, as an inducement under the NASDAQ Marketplace Rules, and therefore outside of any Plan, 40,120 service period stock options and 22,381 restricted stock units were granted to the Company's CFO.

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 or three years) 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, 2022 is presented below:

Options	Shares			Weighted Average Exercise Price		Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2021		1,287		$	50.37
Granted		40			67.02
Exercised		(9	)		76.07
Forfeited		(27	)		62.08
Outstanding at December 31, 2022		1,291		$	51.63		5.41	$	33,958
Exercisable at December 31, 2022		1,040		$	32.61		4.69	$	33,958

As of December 31, 2022, there was $14,411 of total unrecognized compensation costs related to non-vested service period options, of which $5,321 will be incurred in 2023, $8,470 will be incurred in 2024 and the remaining $620 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 in 2022 is presented below:

Options	Shares			Weighted Average Exercise Price		Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2021		2,067		$	74.71
Granted		-			-
Exercised		(35	)		84.45
Forfeited		(107	)		73.80
Outstanding at December 31, 2022		1,925		$	75.50		6.00	$	36,989
Exercisable at December 31, 2022		1,107		$	19.53		4.69	$	36,989

As of December 31, 2022, there was approximately $19,779 of total unrecognized compensation costs related to performance-based awards for which the achievement of the vesting criteria is considered probable, of which $9,926 will be incurred in 2023 and the remaining $9,853 will be incurred in 2024. 

As of December 31, 2022, there were 311 unvested performance-based options outstanding that were deemed not probable, with an aggregate fair value of $22,775.

Service Period Restricted Stock Units—The following table includes activity related to outstanding restricted stock units in 2022.

	Shares			Weighted-Average Grant-Date Fair Value Per Unit
Outstanding at December 31, 2021		103		$	96.18
Granted		230			67.99
Exercised/Vested		(47	)		112.57
Forfeited		(8	)		105.62
Outstanding at December 31, 2022		278		$	74.52

As of December 31, 2022, there was approximately $13,108 of total unrecognized compensation costs related to restricted stock units, of which $6,537 will be incurred in 2023, $4,276 will be incurred in 2024, $2,295 will be incurred in 2025, and $1,328 will be incurred in 2026.  

Performance Based Restricted Stock Units—The following table includes activity related to outstanding restricted stock units in 2022.

	Shares			Weighted-Average Grant-Date Fair Value Per Unit
Outstanding at December 31, 2021		22		$	111.65
Granted		158			57.52
Forfeited		(4	)		113.33
Outstanding at December 31, 2022		176		$	63.01

As of December 31, 2022, there was approximately $9,459 of total unrecognized compensation costs related to performance-based restricted stock units for which the achievement of the vesting criteria is considered probable, of which $3,456 will be incurred in 2023, $3,402 will be incurred in 2024 and the remaining $2,600 will be incurred in 2025.

Grant Date Fair Value of Options—The weighted average grant date fair value of options (service period options and performance based options) granted during in 2022, 2021 and 2020 were $37.39, $74.90 and $68.93 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,
	2022	2021	2020
Weighted average exercise price of options granted	$ 67.02	$ 155.00	$ 135.55
Expected volatility	52.5%	50.4%	46.9% - 51.5%
Average expected terms in years	6.5	6.1	5.8 - 7
Risk-free interest rate	3.8%	1.1%	0.3% - 1.69%
Expected dividend yield	0.0%	0.0%	0.0%