In May 2021, the Company’s shareholders approved a special resolution to amend the Company’s articles to authorize up to 7.0 million preferred shares for future issuance. The Company’s Board of Directors is authorized to designate and issue one or more series of preferred shares, fix the rights, preferences and designation, as deemed necessary or advisable, relating to the preferred shares, provided that no shares of any series may be entitled to more than one vote per share. As of December 31, 2022, no preferred shares had been issued and outstanding.

The Company has an unlimited number of non-par value common shares authorized for issuance. Holders of common shares are entitled to one vote per share. Holders of common shares are entitled to receive dividends, if and when declared by the Board of Directors, and to share ratably in the Company’s assets legally available for distribution to shareholders in the event of liquidation. Holders of common shares have no redemption or conversion rights.

The Company’s Board of Directors may approve share repurchase plans from time to time. Under these repurchase plans, shares may be repurchased at the Company’s discretion based on ongoing assessment of the capital needs of the business, market prices of the Company’s common shares, and general market conditions. Shares may also be repurchased through an accelerated share purchase agreement, on the open market or in privately negotiated transactions in accordance with applicable federal securities laws. Repurchases may be made under certain SEC regulations, which would permit common shares to be repurchased when the Company would otherwise be prohibited from doing so under insider trading laws. While the share repurchase plans are generally intended to offset dilution from equity awards granted to the Company’s employees and directors, the plans do not obligate the Company to acquire any particular amount of common shares. No time limit is typically set for the completion of the share repurchase plans, and the plans may be suspended or discontinued at any time. The Company expects to fund share repurchases through cash on hand and cash generated from operations.

In October 2018, the Company’s Board of Directors approved a share repurchase plan (the “2018 Repurchase Plan”) authorizing the repurchase of $25.0 million worth of common shares. Share repurchases have been made under the 2018 Repurchase Plan pursuant to Rule 10b-18 under the Securities Exchange Act of 1934. During 2019, the Company repurchased 119 thousand shares for an aggregate purchase price of $10.0 million at an average price of $83.71 per share under the 2018 Repurchase Plan. During 2020, the Company repurchased 65 thousand shares for an aggregate purchase price of $5.5 million at an average price of $84.55 per share. During 2022, the Company completed the 2018 Repurchase Plan and repurchased 80 thousand shares for an aggregate purchase price of $9.5 million at an average price of $118.97 per share. From the inception of the 2018 Repurchase Plan, the Company repurchased a cumulative total of 264 thousand shares for an aggregate purchase price of $25.0 million at an average price of $94.57 per share.

In February 2020, the Company’s Board of Directors approved a new share repurchase plan (the “2020 Repurchase Plan”) authorizing the repurchase of an additional $50.0 million worth of common shares. During 2022, the Company repurchased 4 thousand shares for an aggregate purchase price of $0.5 million at an average price of $116.95 under the 2020 Repurchase plan. As of December 31, 2022, the Company had $49.5 million available for future share repurchases under the 2020 Repurchase plan.

In November 2010, the Company’s shareholders approved the 2010 Incentive Award Plan under which the Company may grant share-based compensation awards to employees, consultants and directors. In May 2021, the Company’s shareholders approved an amended and restated 2010 Incentive Award Plan (as amended, the “Amended and Restated 2010 Incentive Plan”). The maximum number of shares which can be issued pursuant to the Amended and Restated 2010 Incentive Plan is 6,148,613, subject to adjustment as set forth in the Amended and Restated 2010 Incentive Plan. The Amended and Restated 2010 Incentive Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, deferred stock, deferred stock units, dividend equivalents, performance awards and stock payments (collectively referred to as “Awards”). The Amended and Restated 2010 Incentive Plan provides for specific limits on the number of shares with respect to Awards that may be granted to any person during any calendar year and the amount of cash that can be paid with respect to Awards to any one person during any calendar year. The Amended and Restated 2010 Incentive Plan will expire and no further Awards may be granted after May 13, 2031. As of December 31, 2022, there were 2,063,234 shares available for future Awards under the Amended and Restated 2010 Incentive Plan.

Shares subject to Awards that have expired, forfeited or settled in cash, or repurchased by the Company at the same price paid by the awardee may be added back to the number of shares available for grant under the Amended and Restated 2010 Incentive Plan and may be granted as new Awards. Notwithstanding the foregoing, the following shares will not be added back to the number of shares available for grant: (a) shares that are used to pay the exercise price for an option, (b) shares tendered or withheld to pay taxes with respect to any Award (other than options and stock appreciation rights) to the extent they exceed the number of shares with a fair market value equal to the tax liability based on minimum withholding rates, (c) shares tendered or withheld to pay taxes with respect to options and stock appreciation rights, (d) shares subject to a stock appreciation right that are not issued in connection with the stock settlement of the stock appreciation right on exercise thereof, and (e) shares purchased on the open market with the cash proceeds from the exercise of options. Shares issued to satisfy Awards under the Amended and Restated 2010 Incentive Plan may be previously authorized but unissued shares, treasury shares or shares repurchased on the open market.

The table below summarizes share-based compensation expense recorded in operating income (in thousands):


	Year Ended December 31,
	2022		2021		2020
Selling, general and administrative	$	18,182	$	17,255	$	14,550
Research and development and engineering		2,414		2,294		3,301
Cost of revenue		2,512		3,008		4,684
Restructuring and acquisition related costs		—		3,049		584
Total share-based compensation expense	$	23,108	$	25,606	$	23,119

The expense recorded during each of the three years ended December 31, 2022, 2021 and 2020 included $1.1 million, $1.1 million and $1.0 million, respectively, related to restricted stock units and deferred stock units granted to the members of the Company’s Board of Directors.

As of December 31, 2022, the Company’s outstanding equity awards for which compensation expense will be recognized in the future consisted of time-based restricted stock units, performance stock units and stock options granted under the Amended and Restated 2010 Incentive Plan. The Company expects to record an aggregate share-based compensation expense of $33.5 million, net of estimated forfeitures, over a weighted average period of 1.27 years subsequent to December 31, 2022, for all outstanding Awards as of December 31, 2022.

The Company’s restricted stock units (“RSUs”) have generally been issued to employees with vesting periods ranging from zero to five years and vest based solely on service conditions. Accordingly, the Company recognizes compensation expense on a straight-line basis over the requisite service period. The Company reduces the compensation expense by an estimated forfeiture rate which is based on anticipated forfeitures and actual experience.

Deferred stock units (“DSUs”) are granted to the members of the Company’s Board of Directors. The compensation expense associated with the DSUs is recognized in full on the respective date of grant, as DSUs are fully vested and non-forfeitable upon grant. Outstanding DSUs are converted into common shares upon Board members' resignation or retirement from the Board. During the year ended December 31, 2022, 52 thousand shares of outstanding DSUs were converted into common shares upon the retirement or resignation of certain board members. There were 38 thousand and 91 thousand DSUs outstanding as of December 31, 2022 and December 31, 2021, respectively, which were included in the calculation of weighted average basic shares outstanding for the respective period.

The table below summarizes activities during 2022 relating to restricted and deferred stock units issued and outstanding under the Amended and Restated 2010 Incentive Plan:


	Restricted and Deferred Stock Units (In thousands)			Weighted Average Grant Date Fair Value		Weighted Average Remaining Vesting Period (In years)	Aggregate Intrinsic Value (1) (In thousands)
Unvested at December 31, 2021		292		$	115.42
Granted		120		$	136.53
Vested		(156	)	$	110.32
Forfeited		(18	)	$	127.46
Unvested at December 31, 2022		238		$	128.26	1.05 years	$	32,175
Expected to vest as of December 31, 2022		220		$	127.92	1.05 years	$	29,939

The total fair value of restricted stock units and deferred stock units that vested in 2022, based on the market price of the underlying shares as of the date of vesting, was $21.5 million.

The Company typically grants two types of performance-based restricted stock units to certain members of the executive management team: non-GAAP EPS performance-based restricted stock units (“EPS-PSUs”) and relative total shareholder return performance-based restricted stock units (“TSR-PSUs”). Both types of performance-based restricted stock units generally cliff vest on the first day following the end of a three-year performance period.

The number of common shares to be issued upon settlement following vesting of the EPS-PSUs is determined based on the Company’s cumulative non-GAAP EPS over a three-year performance period against the target established by the Company’s Board of Directors at the time of grant and will be in the range of zero to 200% of the target number of shares. The Company recognizes compensation expense ratably over the performance period based on the number of shares that are deemed probable of vesting at the end of the three-year performance cycle. This probability assessment is performed quarterly and the cumulative effect of a change in the estimated compensation expense, if any, is recognized in the consolidated statement of operations in the period in which such determination is made.

The number of common shares to be issued upon settlement following vesting of the TSR-PSUs is determined based on the relative market performance of the Company’s common stock compared to the Russell 2000 Index over a three-year performance period using a payout formula established by the Company’s Board of Directors at the time of grant and will be in the range of zero to 200% of the target number of shares. The Company recognizes the related compensation expense based on the fair value of the TSR-PSUs, determined using the Monte-Carlo valuation model as of the grant date, on a straight-line basis from the grant date to the end of the three-year performance period. Compensation expense will not be affected by the number of TSR-PSUs that will actually vest at the end of the three-year performance period.

In January 2022, the Company granted performance-based restricted stock units to ATI employees ("ATI-PSUs"). The number of common shares to be issued upon settlement following vesting is determined based on cumulative Adjusted EBITDA performance over a four-year performance period compared to specified targets and will be in the range of zero to 100% of the target number of shares. The Company recognizes the related compensation expense ratably over the performance period based on the number of shares that are deemed probable of vesting at the end of the four-year performance period. This probability assessment is performed quarterly and the cumulative effect of a change in the estimated compensation expense, if any, is recognized in the consolidated statement of operations in the period in which such determination is made.

In February 2021, the Company granted operating cash flow performance-based restricted stock units (“OCF-PSUs”) to certain members of the executive management team. Upon completion of the requisite service periods, the OCF-PSUs will vest in two tranches if the Company achieves the cumulative operating cash flow performance target for fiscal years 2021 through 2023 as approved by the Company’s Board of Directors as of the date of grant. The first fifty percent of the OCF-PSU grant will vest at the end of the four-year service period from the date of grant and the remaining fifty percent of the OCF-PSU grant will vest at the end of the five-year service period from the date of grant. The Company recognizes the related compensation expense ratably over the requisite service period based on the expectation that 100 percent of the OCF-PSUs are deemed probable of vesting. This probability assessment is performed quarterly and the cumulative effect of a change in the estimated compensation expense, if any, is recognized in the consolidated statement of operations in the period in which such determination is made.

The table below summarizes activities during 2022 relating to performance-based restricted stock units issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan:


	Performance Stock Units (1) (In thousands)			Weighted Average Grant Date Fair Value		Weighted Average Remaining Vesting Period (In years)	Aggregate Intrinsic Value (2) (In thousands)
Unvested at December 31, 2021		162		$	122.26
Granted		107		$	159.00
Vested		(41	)	$	108.58
Forfeited		(12	)	$	159.44
Unvested at December 31, 2022		216		$	144.16	1.78 years	$	29,356
Expected to vest as of December 31, 2022		244		$	143.32	1.78 years	$	33,090

(1)

The unvested PSUs are shown in this table at target. The number of shares vested reflects the number of shares earned and issued during the year. As of December 31, 2022, the maximum number of PSUs available to be earned was approximately 341 thousand.

(2)

The aggregate intrinsic value is calculated based on the fair value of $135.87 per share of the Company’s common stock as of December 31, 2022 due to the fact that the performance stock units carry a $0 purchase price.

The total fair value of PSUs that vested in 2022, based on the market price of the underlying shares on the date of vesting, was $7.2 million.

The fair value of the TSR-PSUs at the date of grant was estimated using the Monte-Carlo valuation model with the following assumptions:


	Year Ended
	December 31, 2022
Grant-date stock price	$	137.29
Expected volatility		40.33	%
Risk-free interest rate		1.81	%
Expected annual dividend yield		—
Weighted average fair value	$	144.38

In February 2022, the Company granted 40 thousand stock options to certain members of the executive management team to purchase common shares of the Company at a strike price equal to the closing market price of the Company’s common shares on the date of grant. The stock options vest ratably over a three-year period from the date of grant and expire on the seventh anniversary of the date of grant. The Company estimates the fair value of stock options using the Black-Scholes valuation model. The Company recognizes compensation expense related to the stock options on a straight-line basis over the vesting period in the consolidated statement of operations.

The following table shows stock options that were outstanding and exercisable as of December 31, 2022 and the related weighted average exercise price, weighted average remaining contractual term and aggregate intrinsic value:


	Stock Options (In thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (1) (In thousands)
Outstanding as of December 31, 2021		60		$	14.13
Granted		40		$	135.86
Exercised		(16	)	$	14.13
Forfeited or expired		—		$	—
Outstanding as of December 31, 2022		84		$	72.18	4.63 years	$	5,346.13
Exercisable as of December 31, 2022		44		$	14.13	3.25 years	$	5,345.73
Expected to vest as of December 31, 2022		40		$	135.86	6.16 years	$	—

(1)

The aggregate intrinsic value is calculated as the difference between the closing market price of $135.87 per share of the Company’s common stock as of December 31, 2022 and the exercise price of the stock options.

The aggregate Black-Scholes fair value of $1.9 million for the stock options granted during 2022 was estimated using the following assumptions as of the grant date:


	Year Ended December 31, 2022
Expected option term in years		4.5
Expected volatility		39.3	%
Risk-free interest rate		1.83	%
Expected annual dividend yield		—

The expected option term was calculated using the simplified method permitted under Codification of Staff Accounting Bulletins Topic 14, “Share-Based Payment”. The expected volatility was determined based on the historical volatility of the Company’s common shares over the expected option term. Risk-free interest rate was based upon treasury instrument whose term was six months longer than the expected option term. The expected annual dividend yield is zero as the Company does not have plans to issue dividends.