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Stock-Based Compensation
3 Months Ended
Mar. 31, 2021
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-Based Compensation

5. Stock-Based Compensation

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

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.

The following inputs are used in the Black-Scholes option pricing model to estimate the fair value of stock options:

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

Expected Life. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms and vesting schedules of the awards. Stock options granted generally vest over a service period of three years and have a contractual term of ten years.

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 expected life 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 expected life of the award.

Expected Dividend Yield. The expected dividend yield is derived by dividing the Company’s expected annual dividend rate over the expected term by the fair value of the Company’s common stock at the grant date.

 There were no stock options granted during the three months ended March 31, 2021 and 2020.

Restricted Stock

The fair value of restricted stock awards 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 vesting period of the award. Restricted stock awards granted generally vest over a service period of 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, which 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 years.

There were no RSUs granted during the three months ended March 31, 2021 and 2020.

Performance Restricted Stock Units

The fair value of performance restricted stock unit (“PRSU”) awards, which vest upon meeting a market condition, such as exceeding a target stock price in the future, and a service condition, 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.

The following inputs are used in the Monte Carlo valuation model to estimate the fair value of PRSUs:

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.

There were no PRSUs granted during the three months ended March 31, 2021 and 2020.

 

Stock-Based Compensation

 

 

 

Three

 

 

Three

 

 

 

Months

 

 

Months

 

 

 

Ended

 

 

Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2021

 

 

2020

 

Stock-based compensation:

 

 

 

 

 

 

 

 

Cost of revenue

 

$

173

 

 

$

190

 

Sales and marketing

 

 

440

 

 

 

479

 

Research, development and engineering

 

 

396

 

 

 

399

 

General and administrative

 

 

1,001

 

 

 

1,127

 

Stock-based compensation expense

 

 

2,010

 

 

 

2,195

 

Capitalized to software and patent costs

 

 

36

 

 

 

35

 

Total stock-based compensation

 

$

2,046

 

 

$

2,230

 

 

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

 

 

 

As of

 

 

As of

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Total unrecognized compensation costs

 

$

18,699

 

 

$

14,416

 

 

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 March 31, 2021, for stock option, restricted stock, RSU, and PRSU awards over weighted average periods through March 31, 2025, as follows:

 

 

 

 

Stock

 

Restricted

 

 

 

 

 

 

Options

 

Stock

 

RSUs

 

PRSUs

Weighted average period

 

1.21 years

 

1.51 years

 

1.50 years

 

1.75 years

 

As of March 31, 2021, under the Company’s stock-based compensation plan, an additional 684 shares remained available for future grants. The Company issues new shares upon exercises of stock options, grants of restricted stock awards and vesting of RSU and PRSU awards.

Stock Option Activity

The following table reconciles the outstanding balance of stock option awards:

 

 

 

 

 

 

 

 

Weighted

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Average

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Grant Date

 

 

Intrinsic

 

Three months ended March 31, 2021:

 

Options

 

 

Price

 

 

Fair Value

 

 

Value

 

Outstanding at December 31, 2020

 

 

305

 

 

$

27.94

 

 

$

12.65

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited or expired

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2021

 

 

305

 

 

$

27.94

 

 

$

12.65

 

 

$

1,513

 

Exercisable at March 31, 2021

 

 

133

 

 

$

33.30

 

 

 

 

 

 

$

10

 

Unvested at March 31, 2021

 

 

172

 

 

$

23.78

 

 

 

 

 

 

$

1,503

 

 

The aggregate intrinsic value is based on the closing price of $29.66 per share of Digimarc common stock on March 31, 2021, which would have been received by the optionees had all of the options with exercise prices less than $29.66 per share been exercised on that date.

Restricted Stock Activity

The following table reconciles the unvested balance of restricted stock awards:

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

 

Number of

 

 

Grant Date

 

Three months ended March 31, 2021:

 

Shares

 

 

Fair Value

 

Unvested balance, December 31, 2020

 

 

416

 

 

$

28.20

 

Granted

 

 

154

 

 

$

43.99

 

Vested

 

 

(50

)

 

$

28.13

 

Forfeited

 

 

(19

)

 

$

22.63

 

Unvested balance, March 31, 2021

 

 

501

 

 

$

33.25

 

 

The following table indicates the fair value of all restricted stock awards that vested:

 

 

 

Three

 

 

Three

 

 

 

Months

 

 

Months

 

 

 

Ended

 

 

Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2021

 

 

2020

 

Fair value of restricted stock awards vested

 

$

2,175

 

 

$

1,811

 

Restricted Stock Units Activity

The following table reconciles the unvested balance of restricted stock unit awards:

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

 

Number of

 

 

Grant Date

 

 

 

Units

 

 

Fair Value

 

Unvested balance, December 31, 2020

 

 

45

 

 

$

15.36

 

Granted

 

 

 

 

$

 

Vested

 

 

 

 

$

 

Forfeited

 

 

 

 

$

 

Unvested balance, March 31, 2021

 

 

45

 

 

$

15.36

 

Performance Restricted Stock Units Activity

The following table reconciles the unvested balance of performance restricted stock unit awards:

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

 

Number of

 

 

Grant Date

 

 

 

Units

 

 

Fair Value

 

Unvested balance, December 31, 2020

 

 

124

 

 

$

11.08

 

Granted

 

 

 

 

$

 

Vested

 

 

 

 

$

 

Forfeited

 

 

 

 

$

 

Unvested balance, March 31, 2021

 

 

124

 

 

$

11.08