Share-based Compensation

9 Months Ended

Mar. 31, 2023

Share-based Compensation

Share-based Compensation

Note 15. Share-based Compensation

At March 31, 2023, the Company had two share-based employee compensation plans (the 2014 Long-Term Incentive Plan (“LTIP”) and the 2021 LTIP). Together these plans authorized an aggregate total of 2.0 million shares to be issued. As of March 31, 2023, the plans have a total of 393 thousand shares available for future issuances.

Historically, the Company has issued share-based compensation awards with a vesting period ranging up to 3 years and a maximum contractual term of 10 years. The Company issues new shares of stock when stock options are exercised. As of March 31, 2023, there was $3.8 million of total unrecognized compensation cost related to non-vested share-based compensation awards. That cost is expected to be recognized over a weighted average period of 1 year.

The target award value mix in Fiscal 2022 for Named Executive Officers (“NEOs”) was 50% performance shares, 30% restricted stock, and 20% provided in the form of a cash-based incentive where the value varies based on changes in our stock price over the three-year period ending June 30, 2024. In the first quarter of Fiscal 2023, the Compensation Committee approved the granting of 50% of the target long-term incentive for Fiscal 2023 (calculated based on the NEO’s Fiscal 2022 salary) in the form of a cash-based retention award, which was paid in September 2022. In the second quarter of Fiscal 2023, certain other employees were granted a cash-based incentive award, which totaled $1.3 million and was paid in October 2022. The cash-based retention award was paid as a result of the potential dilution associated with granting equity incentives; however, the awards are subject to a 36-month service-based clawback. The clawback on one-third of the retention awards will expire annually based on continued service. The Company will recognize the expense on the awards across the three-year clawback period and prepaid expense of approximately $1.4 million and $2.2 million is included in other current assets and other assets on the Consolidated Balance Sheet at March 31, 2023, respectively. The remaining 50% of the target long-term incentive for Fiscal 2023 was re-allocated to the target of each NEO’s performance-based short-term incentive plan.

Stock Options

The Company measures share-based compensation costs for options using the Black-Scholes option pricing model, which includes the use of various weighted average assumptions to estimate the fair values of stock options granted. Expected volatility is based on the historical volatility of the price of our common shares during the historical period equal to the expected term of the option. The Company uses historical information to estimate the expected term, which represents the period of time that options granted are expected to be outstanding. The risk-free rate for the period equal to the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The forfeiture rate assumption is the estimated annual rate at which unvested awards are expected to be forfeited during the vesting period. This assumption is based on our actual forfeiture rate on historical awards. Periodically, management will assess whether it is necessary to adjust the estimated rate to reflect changes in actual forfeitures or changes in expectations. Additionally, the expected dividend yield is typically equal to zero, as the Company has not historically issued a dividend.

There were no stock options granted during the nine months ended March 31, 2023 and 2022. A stock option summary as of March 31, 2023 and changes during the nine months then ended is presented below:

						Weighted
		Weighted-				Average
		Average		Aggregate		Remaining
		Exercise		Intrinsic		Contractual
(In thousands, except for weighted average price and life data)	Awards	Price		Value		Life (yrs.)
Outstanding at June 30, 2022	234	$	35.76	$	—	6.5
Forfeited, expired or repurchased	(6)	$	32.54
Outstanding at March 31, 2023	228	$	35.85	$	—	5.9
Vested and expected to vest at March 31, 2023	228	$	35.85	$	—	5.9
Exercisable at March 31, 2023	177	$	38.92	$	—	5.6

Restricted Stock

The Company measures restricted stock compensation costs based on the stock price at the grant date less an estimate for expected forfeitures. The annual forfeiture rate used to calculate compensation expense was 6.5% for the nine months ended March 31, 2023 and 2022.

A summary of restricted stock awards as of March 31, 2023 and changes during the nine months then ended, is presented below:

		Weighted
		Average Grant-date		Aggregate
(In thousands, except for weighted average price data)	Awards	Fair Value		Intrinsic Value
Non-vested at June 30, 2022	339	$	21.19
Vested	(139)		21.87	$	320
Forfeited	(12)		19.60
Non-vested at March 31, 2023	188	$	20.70

Performance-Based Shares

The Company grants performance-based awards to certain key executives. The stock-settled awards will cliff vest based on a three-year performance measurement period. Awards issued prior to July 2021 are based on relative Total Shareholder Return (“TSR”) over a three-year period, which, in accordance with ASC 718, Compensation – Stock Compensation, are considered awards tied to market conditions. Half of the performance shares granted in July 2021 will be tied to our relative TSR, consistent with awards granted in prior years, with the other half tied to a variety of strategic portfolio goals, which, in accordance with ASC 718, Compensation – Stock Compensation, are considered awards tied to performance conditions. The Company measures share-based compensation cost for TSR awards using a Monte-Carlo simulation model. Compensation cost for awards tied to strategic portfolio goals is measured using the stock price at the grant date and is recognized based on performance at target award levels. However, in accordance with ASC 718, Compensation – Stock Compensation, the Company will assess the probability that the strategic portfolio goals will be met and adjust the cumulative compensation cost recognized accordingly at each reporting period.

As of June 30, 2022, there were 262 thousand performance-based share awards outstanding, with a weighted average grant-date fair value of $30.60 per share. There were no changes to the outstanding performance-based share awards during the nine months ended March 31, 2023.

Employee Stock Purchase Plan

In February 2003, the Company’s stockholders approved an Employee Stock Purchase Plan (“2003 ESPP”), under which the Company is authorized to issue 281 thousand shares of the Company’s common stock. The 2003 ESPP was implemented on April 1, 2003 and is qualified under Section 423 of the Internal Revenue Code. In January 2022, the stockholders of the Company approved a new ESPP (“2022 ESPP” and, together with the 2003 ESPP, “ESPPs”). The Company is authorized to issue an additional 375 thousand shares of the Company’s common stock under the 2022 ESPP, which is qualified under Section 423 of the Internal Revenue Code. During the nine months ended March 31, 2023 and 2022, 62 thousand shares and 52 thousand shares were issued under the ESPPs, respectively. As of March 31, 2023, 390 thousand total cumulative shares have been issued under the ESPPs. Employees eligible to participate in the ESPP may purchase shares of the Company’s stock at 85% of the lower of the fair market value of the common stock on the first day of the calendar quarter, or the last day of the calendar quarter. Under the ESPP, employees can authorize the Company to withhold up to 10% of their compensation during any quarterly offering period, subject to certain limitations.

The following table presents the allocation of share-based compensation costs recognized in the Consolidated Statements of Operations by financial statement line item:

	Three Months Ended				Nine Months Ended
	March 31,				March 31,
(In thousands)	2023		2022		2023		2022
Selling, general and administrative expenses	$	1,367	$	1,501	$	4,203	$	6,313
Research and development expenses		15		29		71		151
Cost of sales		93		169		312		562
Total	$	1,475	$	1,699	$	4,586	$	7,026
Tax benefit at statutory rate	$	332	$	382	$	1,032	$	1,581