SHARE-BASED COMPENSATION

9 Months Ended

Sep. 30, 2023

Share-Based Payment Arrangement [Abstract]

Stock Options

The Company has issued non-qualified and incentive stock options to employees and non-employee directors. The fair value of these options are estimated on the date of grant using the Black-Scholes option pricing model, which requires estimates of the expected term of the option, the risk-free interest rate, the expected volatility of the price of the Company’s common stock, and dividend yield. Options outstanding as of September 30, 2023 generally vested over a period of 3 years and expire 10 years from the date of grant. The exercise price of these options ranges from $26.52 to $66.68. Due to the Company’s lack of option exercise history on the date of grant, the expected term is calculated using the simplified method defined as the midpoint between the vesting period and the contractual term of each option. The risk free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant that most closely corresponds to the expected term of the option. The expected volatility is based on the historical volatility of the Company’s common stock over the period of time equivalent to the expected term for each award. The dividend yield is computed as the annualized dividend rate at the grant date divided by the strike price of the stock option. For the nine months ended September 30, 2023 and 2022, the Company did not grant stock options.

The following table is a summary of our stock option activity (in thousands, except per share data):


	Nine months ended September 30,
	2023			2022
	Awards	Weighted-Average Exercise Price		Awards	Weighted-Average Exercise Price

Outstanding at beginning of period	33	$	54.98	33	$	54.98
Exercised	(4)	27.18		—	—
Outstanding at end of the period	29	$	58.65	33	$	54.98
Exercisable at end of the period	29	$	58.65	28	$	52.76

As of September 30, 2023, the weighted-average remaining contractual life for both the outstanding stock options and exercisable stock options was 3.8 years with an aggregate intrinsic value of $0.5 million. The compensation expense calculated under the fair value method for the nine months ended September 30, 2023 was less than $0.1 million and was fully recognized during the period. For the nine months ended September 30, 2023, the Company received $0.1 million in cash proceeds from the exercise of stock options. The total intrinsic value for stock options exercised during the nine months ended September 30, 2023 was $0.3 million.

Restricted Stock

The Company has issued restricted stock to employees and non-employee directors generally with vesting terms up to 5 years after the date of grant. The fair value of the restricted stock is equal to the market price of the Company’s common stock on the date of grant. Expense for restricted stock is amortized ratably over the vesting period.

The following table summarizes our restricted stock activity (in thousands, except per share data):


	Nine months ended September 30,
	2023			2022
	Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value

Outstanding at beginning of period	60	$	188.11	44	$	183.51
Granted	86	97.96		38	176.60
Vested	(25)	169.46		(19)	156.16
Forfeited	(5)	142.11		(1)	186.53
Outstanding at end of the period	116	$	127.57	62	$	187.83

The Company withheld approximately 10 thousand shares and 8 thousand shares of the Company’s common stock to cover minimum tax liability withholding obligations upon the vesting of shares of restricted stock for the nine months ended September 30, 2023 and 2022, respectively. The total fair value of restricted stock awards vested during the nine months ended September 30, 2023 and 2022 was $2.6 million and $3.4 million, respectively.

Market and Performance-based Share Awards

The Company has issued market and performance-based share awards to certain key executives who were granted deferred shares and may earn between 0% and 250% of the target number depending upon both the Company’s total stockholder return (“TSR”) and the Company’s performance against predetermined performance goals over a three-year performance period. Market and performance-based share awards that are tied to the Company’s TSR are valued using the Monte Carlo method and are recognized ratably as expense over the award’s performance period. The fair value of the performance-based share awards is equal to the market price of the Company’s common stock on the date of grant adjusted by expected level of achievement over the performance period. Expense for performance-based share awards is amortized ratably over the performance period. In the event that management determines that the Company will not reach the lower threshold of the predetermined performance goals established in the grant agreement, any previously recognized expense is reversed in the period in which such a determination is made. Management determined that the market and performance-based share awards granted in 2022 would

not reach the lower threshold of the predetermined performance goal resulting in a $1.4 million decrease in the Company’s share-based compensation expense for the nine months ended September 30, 2023.

The Company withheld approximately 22 thousand shares of the Company’s common stock to cover minimum tax liability withholding obligations upon the issuance of shares of market and performance-based share awards for the nine months ended September 30, 2023. No market and performance-based share awards vested and no shares were withheld to cover minimum tax liability withholding obligations for the nine months ended September 30, 2022. The total fair value of market and performance-based share awards issued during the nine months ended September 30, 2023 and 2022 was $5.7 million and $0, respectively.

Share-based compensation expense for all types of awards granted is recorded in selling, general, and administrative expense in the accompanying Condensed Consolidated Statements of Income. The total expense during the three months ended September 30, 2023 and 2022 as follows (in thousands):


	Three months ended September 30,
	2023			2022
	Shares	Share-Based Compensation Expense		Shares	Share-Based Compensation Expense
Options and restricted stock	145	$	1,558	90	$	1,392
Market and performance-based share awards granted in 2023	47	487		—	—
Market and performance-based share awards granted in 2022	24	—		25	438
Performance-based share awards granted in 2021	14	620		15	654
Performance-based share awards granted in 2020	28	10		26	479
Total share-based compensation	258	$	2,675	156	$	2,963

The total expense during the nine months ended September 30, 2023 and 2022 as follows (in thousands):


	Nine months ended September 30,
	2023			2022
	Shares	Share-Based Compensation Expense		Shares	Share-Based Compensation Expense
Options and restricted stock	145	$	4,426	90	$	3,789
Market and performance-based share awards granted in 2023	47	1,048		—	—
Market and performance-based share awards granted in 2022	24	(1,388)		25	950
Performance-based share awards granted in 2021	14	1,600		15	1,941
Performance-based share awards granted in 2020	28	109		26	1,423
Total share-based compensation	258	$	5,795	156	$	8,103

The total income tax benefit recognized in the accompanying Condensed Consolidated Statements of Income for stock awards was $0.3 million and $0.4 million for the three months ended September 30, 2023 and 2022, respectively, and $0.4 million and $1.2 million for the nine months ended September 30, 2023 and 2022, respectively.

There was $9.3 million of total unrecognized compensation cost related to restricted stock awards as of September 30, 2023, which is expected to be recognized over a weighted-average period of 1.9 years. There was $5.1 million of unrecognized compensation costs related to the 113 thousand market and performance-based shares presented in the table above as of September 30, 2023, which is expected to be recognized over a weighted-average period of 1.8 years.