Note 14 - Share-based Compensation

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

14. Share-based compensation  

Service vesting-based stock options

The following is a summary of service vesting-based stock option activity for the September 30, 2022, and the status of service vesting-based stock options outstanding as of September 30, 2022:

	Nine Months Ended
	September 30, 2022
	Shares			Wtd. Avg. Exercise Price
Outstanding as of beginning of year		624,531		$	2.13
Exercised		(158,075	)		1.94
Forfeited		(10,000	)		1.82
Outstanding as of September 30, 2022		456,456		$	2.20
Stock options exercisable as of September 30, 2022		456,456		$	2.20

We recognized stock compensation expense related to service-based options of zero during the three and nine months ended September 30, 2022 and $6,000 and $21,000 during the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, there was $9.4 million of aggregate intrinsic value of outstanding and exercisable service vesting-based stock options. Intrinsic value is the total pretax intrinsic value for all “in-the-money” options (i.e., the difference between the Company’s closing stock price on the last trading day of the reporting period and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on September 30, 2022. This amount will change based on the fair market value of the Company’s stock. Intrinsic value of service vesting-based awards exercised was $60,000 and $4.0 million during the three and nine months ended September 30, 2022, respectively, and $1.4 million and $5.2 million during the three and nine months ended September 30, 2021, respectively. There were no service based-vesting options granted during the three and nine months ended September 30, 2022. The weighted average remaining contractual life of service vesting-based options outstanding and exercisable as of September 30, 2022 is 3.0 years. There were no unrecognized compensation costs for service vesting-based stock options as of September 30, 2022.

Performance-based stock options

No stock compensation expense was recognized during the three and nine months ended September 30, 2022 and 2021 related to performance-based options. There were no performance-based stock options exercised in the three and nine months ended September 30, 2022. The intrinsic value of performance-based awards exercised was $9.7 million and $19.5 million during the three and nine months ended 2021, respectively. There were no performance-based stock options granted to employees and non-employee directors in the three and nine months ended September 30, 2022 and 2021.

Restricted stock

Service vesting-based restricted stock

The following is a summary of service vesting-based restricted stock activity for the nine months ended September 30, 2022, and the status of unvested service vesting-based restricted stock outstanding as of September 30, 2022:

	Nine Months Ended
	September 30, 2022
	Shares			Wtd. Avg. Grant Date Fair Value
Outstanding as of beginning of year		1,212,783		$	37.48
Granted		1,255,449			25.55
Vested		(448,056	)		35.60
Forfeited		(83,922	)		46.29
Non-vested as of September 30, 2022		1,936,254		$	29.79

The aggregate fair value of the service vesting-based awards granted was $23.3 million and $32.1 million during the three and nine months ended September 30, 2022, respectively, and $31.1 million and $35.7 million during the three and nine months ended September 30, 2021, respectively. The aggregate fair value of the service vesting-based awards that vested was $3.1 million and $10.2 million during the three and nine months ended September 30, 2022, respectively, and $5.1 million and $10.3 million during the three and nine months ended September 30, 2021, respectively.

We recognized stock compensation expense related to service vesting-based awards of $5.1 million and $14.6 million during the three and nine months ended September 30, 2022, respectively, and $4.4 million and $8.0 million during the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, there was $52.4 million in unrecognized compensation costs related to service vesting-based awards. We expect to recognize those costs over 3.0 years.

Market-based restricted stock

The following is a summary of market-based restricted stock activity under our stock option plan for the nine months ended September 30, 2022 and the status of market-based restricted stock outstanding as of September 30, 2022:

	Nine Months Ended
	September 30, 2022
	Shares			Wtd. Avg. Grant Date Fair Value
Outstanding as of beginning of year		139,756		$	19.86
Granted		349,568			21.26
Vested		(218,280	)		10.95
Non-vested as of September 30, 2022		271,044		$	30.64

On March 25, 2020, the Company granted 109,140 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on Total Shareholder Return (“TSR”). The TSR market condition measures the Company’s performance against a peer group. On February 24, 2022, the Company’s Compensation Committee determined the TSR attainment was 200% of the targeted shares and 218,280 shares were granted and immediately vested to the executives of the Company based on our total shareholder return during the period beginning on January 1, 2020 through December 31, 2021 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined at the grant date using a Monte Carlo simulation with the following assumptions: a historical volatility of 78%, 0% dividend yield and a risk-free interest rate of 0.3%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award of $1.2 million was expensed on a straight-line basis over the grant date to the vesting date of December 31, 2021.

On February 8, 2021, the Company granted 30,616 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to each recipient based on our total shareholder return during the period beginning on January 1, 2021 through December 31, 2022 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 68%, 0% dividend yield and a risk-free interest rate of 0.1%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest rate is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award of $1.3 million is being expensed on a straight-line basis over the grant date to the vesting date of December 31, 2022.

On February 24, 2022, the Company granted 240,428 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to each recipient based on our total shareholder return during the period beginning on January 1, 2022 through December 31, 2023 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 63%, 0% dividend yield and a risk-free interest rate of 1.5%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest rate is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award of $6.7 million is being expensed on a straight-line basis over the grant date to the vesting date of December 31, 2023.

We recognized stock compensation expense of $1.2 million and $3.1 million related to market-based restricted stock awards for the three and nine months ended September 30, 2022, respectively, and $413,000 and $1.1 million during the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, there was $4.5 million in unrecognized non-cash compensation costs related to market-based restricted stock awards expected to vest. We expect to recognize those costs over 1.2 years.

The aggregate fair value of the market-based awards granted was zero and $6.7 million during the three and nine months ended September 30, 2022, respectively, and zero and $1.8 million during the three and nine months ended September 30, 2021, respectively. The aggregate fair value of the market-based awards that vested was zero and $5.0 million during the three and nine months ended September 30, 2022, respectively, and zero and $10.2 million during the three and nine months ended September 30, 2021, respectively.

Total stock compensation expense

We recorded total stock compensation expense for the three and nine months ended September 30, 2022 and 2021, as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Cost of revenue	$	809	$	742	$	2,619	$	1,047
General and administrative costs		3,959		3,015		10,687		5,662
Sales and marketing costs		829		560		2,272		1,012
Research and development costs		702		551		2,093		1,171
Total	$	6,299	$	4,868	$	17,671	$	8,892