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Note 5 - Stock-based Compensation
12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Share-Based Payment Arrangement [Text Block]

(5) Stock-Based Compensation

 

Stock-based compensation includes expense charges for all stock-based awards to employees and directors. These awards include stock options, restricted stock awards, restricted stock units, and performance restricted stock units.

 

Stock-based compensation expense related to internal labor is capitalized to software and patent costs based on direct labor hours charged to capitalized software and patent costs.

 

Determining Fair Value

 

Stock Options

 

The Company estimates the fair value of stock options on the date of grant (measurement date) using the Black-Scholes option pricing model. The Company recognizes the fair value of stock option awards on a straight-line basis over the vesting period of the award.

 

No stock options were granted during the year ended December 31, 2023. There were 1 stock options granted during the year ended  December 31, 2022 as replacement equity awards for vested stock options held by EVRYTHNG employees.

 

 

 

Restricted Stock Awards

 

The fair value of restricted stock awards (“RSA”) that vest upon meeting a service condition is based on the fair market value of the Company’s common stock on the date of the grant (measurement date) and is recognized on a straight-line basis over the service period of the award, which is generally three to four years for employee grants and one to three years for director grants.

 

Restricted Stock Units

 

The fair value of restricted stock unit (“RSU”) awards that vest upon meeting a service condition is based on the fair market value of the Company’s common stock on the date of the grant (measurement date) and is recognized on a straight-line basis over the service period of the award, which is generally three to four years for employee grants.

 

Performance Restricted Stock Units

 

The fair value of performance restricted stock unit (“PRSU”) awards that vest upon meeting a service condition and a performance condition, such as the Company exceeding a future annual recurring revenue target, is determined based on the probability of achievement of the performance criteria as of each reporting date (measurement date). The probability of achievement is subject to judgment, and could change from period to period, impacting the amount of expense to be recognized. The Company recognizes the fair value of the award, after adjusting for any changes in the probability of achievement, on a straight-line basis over the service period of the award, which is generally three years for employee grants.

 

The fair value of performance restricted stock units awards that vest upon meeting a service condition and a market condition, such as the Company exceeding shareholder returns as compared to an index of peer companies, is determined on the date of grant (measurement date) using the Monte Carlo valuation model. The Company recognizes the fair value of the award on a straight-line basis over the service period of the award, which is generally three years for employee grants.

 

The following inputs are used in the Monte Carlo Simulation model to estimate the fair value:

 

Stock Price. The stock price represents the fair market value of the Company’s common stock on the date of the grant.

 

Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock based on historical prices over the most recent period commensurate with the term of the award.

 

Risk-Free Interest Rate. The Company determines the risk-free interest rate using current U.S. treasury yields for bonds with a maturity commensurate with the term of the award.

 

Monte Carlo Simulation Inputs:

 

  Year Ended December 31, 
  

2023

  

2022

 

Stock price

 $22.37  $32.02 

Expected volatility

  74.7%  82.8%

Risk-free interest rate

  4.3%  1.8%

 

Stock-based Compensation

 

  Year Ended December 31, 
  

2023

  

2022

 

Stock-based compensation:

        

Cost of revenue

 $1,126  $913 

Sales and marketing

  2,640   3,842 

Research, development and engineering

  2,962   2,646 

General and administrative

  4,430   3,888 

Stock-based compensation expense

  11,158   11,289 

Capitalized to software and patent costs

  63   128 

Total stock-based compensation

 $11,221  $11,417 

 

The following table sets forth total unrecognized compensation cost related to non-vested stock-based awards granted under the Company’s equity compensation plans:

 

  December 31,  December 31, 
  

2023

  

2022

 

Total unrecognized compensation costs

 $15,370  $16,051 

 

Total unrecognized compensation costs will be adjusted for any future forfeitures if and when they occur.

 

The Company expects to recognize the total unrecognized compensation costs as of  December 31, 2023 for all non-vested stock-based awards over weighted average periods through December 31, 2027 as follows:

 

            
  

RSAs

  

RSUs

  

PRSUs

 

Weighted average period (in years)

  0.76   1.50   1.64 

 

As of December 31, 2023, under the Company’s stock-based compensation plan, an additional 1,447 shares remained available for future grants. Of this total, 137 shares require re-registration with the SEC. The Company issues new shares upon exercises of stock options, grants of restricted stock awards and vesting of restricted stock units and performance restricted stock units awards.

 

 

Stock Option Activity

 

The following tables present the outstanding stock option activity:

 

      

Weighted

  

Weighted

     
      

Average

  

Average

  

Aggregate

 
  

Number of

  

Exercise

  

Grant Date

  

Intrinsic

 
  

Options

  

Price

  

Fair Value

  

Value

 

Options outstanding, December 31, 2021

  50  $39.54  $22.23     

Granted

  1  $22.15  $     

Exercised

    $  $     

Forfeited or expired

    $  $     

Options outstanding, December 31, 2022

  51  $39.14  $21.72     

Granted

    $  $     

Exercised

    $  $     

Forfeited or expired

  (50) $39.54  $22.23     

Options outstanding, December 31, 2023

  1   22.15  $   16 

Options exercisable, December 31, 2023

  1  $22.15      $16 

Options unvested, December 31, 2023

    $      $ 

 

The aggregate intrinsic value is based on the closing price of $36.12 per share of Digimarc common stock on December 31, 2023, which would have been received by the optionees had all of the options with exercise prices less than $36.12 per share been exercised on that date.

 

The following table summarizes information about stock option awards outstanding December 31, 2023

 

  

Options Outstanding

  

Options Exercisable

 
          

Weighted

          

Weighted

 
      

Remaining

  

Average

      

Remaining

  

Average

 
  

Number

  

Contractual

  

Exercise

  

Number

  

Contractual

  

Exercise

 

Exercise Price

 

Outstanding

  

Life (Years)

  

Price

  

Outstanding

  

Life (Years)

  

Price

 

$21-$24

  1   6.85  $22.15   1   6.85  $22.15 

 

Restricted Stock Awards Activity

 

The following table reconciles the unvested balance of RSAs:

 

      

Weighted

 
      

Average

 
  

Number of

  

Grant Date

 
  

Shares

  

Fair Value

 

Unvested balance, December 31, 2021

  360  $34.90 

Granted

  54  $18.36 

Vested

  (187) $32.72 

Forfeited

  (31) $36.90 

Unvested balance, December 31, 2022

  196  $32.06 

Granted

  45  $22.10 

Vested

  (130) $30.18 

Forfeited

  (6) $34.89 

Unvested balance, December 31, 2023

  105  $29.89 

 

The fair value of RSAs vested is as follows:

 

  

Year Ended December 31,

 
  

2023

  

2022

 

Fair value of RSA vested

 $3,273  $4,445 

 

Restricted Stock Units Activity

 

The following table reconciles the unvested balance of RSU awards:

 

      

Weighted

 
      

Average

 
  

Number of

  

Grant Date

 
  

Units

  

Fair Value

 

Unvested balance, December 31, 2021

    $ 

Granted

  601  $26.31 

Vested

  (144) $30.25 

Forfeited

  (87) $26.31 

Unvested balance, December 31, 2022

  370  $24.77 

Granted

  298  $23.20 

Vested

  (161) $24.46 

Forfeited

  (65) $25.17 

Unvested balance, December 31, 2023

  442  $23.77 

 

The fair value of RSU awards vested is as follows:

 

  

Year Ended December 31,

 
  

2023

  

2022

 

Fair value of RSU awards vested

 $4,893  $2,509 

 

Performance Restricted Stock Units Activity

 

The following table reconciles the unvested balance of PRSU awards: 

 

      

Weighted

 
      

Average

 
  

Number of

  

Grant Date

 
  

Units

  

Fair Value

 

Unvested balance, December 31, 2020

  124  $11.08 

Granted

    $ 

Vested (1)

  (82) $15.54 

Forfeited (1)

  (42) $11.08 

Unvested balance, December 31, 2021

    $ 

Granted

  73  $31.93 

Vested

    $ 

Forfeited

  (6) $32.02 

Unvested balance, December 31, 2022

  67  $31.92 

Change in units based on performance expectations

  (6) $32.02 

Granted

  134  $27.75 

Vested

  (2) $32.02 

Forfeited

  (1) $32.02 

Unvested balance, December 31, 2023

  192  $29.01 

 

(1)Includes the impact of modification of 21 PRSUs which were cancelled and reissued at a grant date fair value of $28.93.

 

 

The fair value of PRSU awards vested is as follows:

 

  

Year Ended December 31,

 
  

2023

  

2022

 

Fair value of PRSU awards vested

 $54  $