Equity Compensation Plans

12 Months Ended

Apr. 30, 2023

Share-Based Payment Arrangement [Abstract]

Equity Compensation Plans

Note 6 – Equity Compensation Plans

Stock Incentive Plans

The Avid Bioservices, Inc. 2018 Omnibus Incentive Plan (the “2018 Plan”) is a stockholder-approved plan, which provides, among other things, the ability for us to grant stock options, restricted stock units, performance stock units and other forms of stock-based awards. The 2018 Plan replaced our 2009, 2010 and 2011 Stock Incentive Plans (the “Prior Plans”). However, any awards outstanding under the Prior Plans as of the 2018 Plan’s effective date continue to remain subject to and be paid under the applicable Prior Plan, and any shares subject to outstanding awards under the Prior Plans that subsequently expire, terminate, or are surrendered or forfeited for any reason without issuance of shares automatically become available for issuance under the 2018 Plan. In October 2021, our stockholders approved an amendment to the 2018 Plan to increase the number of authorized shares reserved for issuance under the 2018 plan by 3.4 million shares.

The 2018 Plan and the Prior Plans are collectively referred to as the “Stock Plans”. As of April 30, 2023, we had an aggregate of 8,337,807 shares of our common stock reserved for issuance under the Stock Plans, of which 3,926,550 shares were subject to outstanding stock options, restricted stock units and performance stock units and 4,411,257 shares were available for future grants of stock-based awards.

Stock Options

We ceased granting stock options during fiscal 2022. Stock options previously granted under our Stock Plans were granted at an exercise price not less than the fair market value of our common stock on the date of grant. Stock options granted to employees generally vest over a four-year period from the date of grant and stock options granted to non-employee directors generally vest over a period of one to three years from the date of grant. Stock options granted under the 2018 Plan have a contractual term of seven years; however, the maximum contractual term of any stock option granted under the Stock Plans is ten years.

The estimated fair value of stock options is measured at the grant date, using a fair value-based method, such as a Black-Scholes option valuation model, and is amortized as stock-based compensation expense on a straight-line basis over the requisite service period of the award, which is generally the vesting period. The use of a valuation model requires us to make certain estimates and assumptions with respect to selected model inputs. The expected volatility is based on the daily historical volatility of our common stock covering the estimated expected term. The expected term of options granted reflects actual historical exercise activity and assumptions regarding future exercise activity of unexercised, outstanding options. The risk-free interest rate is based on U.S. Treasury notes with terms within the contractual life of the option at the time of grant. The expected dividend yield assumption is based on our expectation of future dividend payouts. We have never declared or paid any cash dividends on our common stock and currently do not anticipate paying such cash dividends.

There were no stock options granted during the fiscal year ended April 30, 2023. The grant date fair value for stock options granted during the fiscal years ended April 30, 2022 and 2021 were based on the following weighted-average assumptions used within the Black-Scholes option valuation model: 

	Fiscal Year Ended April 30,
	2022		2021
Risk-free interest rate		0.86%		0.32%
Expected life (in years)		4.37		4.69
Expected volatility		68.64%		81.42%
Expected dividend yield		–		–

The following summarizes our stock option transaction activity for the fiscal year ended April 30, 2023:

	Stock Options (in thousands)			Grant Date Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value(1) (in thousands)
Outstanding at May 1, 2022		2,505		$	6.88
Granted		–			–
Exercised		(366	)	$	7.06
Canceled or expired		(60	)	$	9.89
Outstanding at April 30, 2023		2,079		$	6.76		3.69	$	23,654
Vested and expected to vest		2,079		$	6.76		3.69	$	23,654
Exercisable at April 30, 2023		1,595		$	6.52		3.59	$	18,447

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⁽¹⁾ Aggregate intrinsic value represents the difference between the exercise price of an option and the closing market price of our common stock on April 28, 2023 (the last trading day of fiscal year 2023), which was $18.05 per share.

The weighted-average grant date fair value of stock options granted during the fiscal years ended April 30, 2022 and 2021 was $13.09 and $4.74 per share, respectively. There were no stock options granted during the fiscal year ended April 30, 2023.

The aggregate intrinsic value of stock options exercised during the fiscal years ended April 30, 2023, 2022 and 2021 was $3.5 million, $8.1 million and $3.9 million, respectively. Cash received from stock options exercised during fiscal years ended April 30, 2023, 2022 and 2021 totaled $2.6 million, $2.7 million and $3.6 million, respectively.

We issue shares of common stock that are reserved for issuance under the Stock Plans upon the exercise of stock options, and we do not expect to repurchase shares of common stock from any source to satisfy our obligations under our compensation plans.

As of April 30, 2023, the total estimated unrecognized compensation cost related to non-vested stock options was $1.3 million. This cost is expected to be recognized over a weighted average vesting period of 0.99 years based on current assumptions.

Restricted Stock

A restricted stock unit (“RSU”) represents the right to receive one share of our common stock upon the vesting of such unit. RSUs granted to employees generally vest over a four-year period from the date of grant and RSUs granted to non-employee directors generally vest over a period of one to three years from the date of grant. The estimated fair value of RSUs is based on the closing market value of our common stock on the date of grant and is amortized as stock-based compensation expense on a straight-line basis over the period of vesting.

The following summarizes our RSUs transaction activity for the fiscal year ended April 30, 2023: 

	Shares (in thousands)			Weighted Average Grant Date Fair Value
Outstanding at May 1, 2022		642		$	14.89
Granted		780		$	17.63
Vested		(366	)	$	15.09
Forfeited		(50	)	$	17.32
Outstanding at April 30, 2023		1,006		$	16.83

The weighted-average grant date fair value of RSUs granted during the fiscal years ended April 30, 2023, 2022 and 2021 was $17.63, $25.20 and $7.29 per share, respectively.

The total fair value of RSUs vested during the fiscal years ended April 30, 2023, 2022 and 2021 was $6.3 million, $5.5 million and $0.7 million, respectively.

As of April 30, 2023, the total estimated unrecognized compensation cost related to non-vested RSUs was $15.4 million. This cost is expected to be recognized over a weighted average vesting period of 2.53 years.

Performance Stock Units

The Compensation Committee of the Board of Directors grants PSUs to our executives. The PSUs are subject to annual vesting over three consecutive fiscal year performance periods with the first one-third vesting on April 30 of the year following the grant date, and each successive one-third vesting on April 30 of the following two years respectively (each a “Performance Period”). Each PSU that vests represent the right to receive one share of our common stock. The number of shares that will vest for each Performance Period, if any, is based upon the attainment of certain predetermined financial metrics for each such Performance Period. Depending on the actual financial metrics achieved relative to the target financial metrics for such Performance Periods, the number of PSUs issued could range from 0% to 200% of the target amount. The number of granted shares included in the table below is based on a maximum 200% achievement of each financial metric during each Performance Period (the “Maximum Performance Target”). If a financial metric is achieved at a rate below the Maximum Performance Target, or is not achieved, the corresponding portion of the PSUs that do not vest are forfeited.

The following summarizes our PSUs transaction activity for the fiscal year ended April 30, 2023: 

	Shares (in thousands)			Weighted Average Grant Date Fair Value
Outstanding at May 1, 2022		233		$	25.31
Granted		608		$	18.09
Vested		(161	)	$	20.75
Forfeited		(158	)	$	20.69
Outstanding at April 30, 2023		522		$	19.70

The weighted-average grant date fair value of PSUs granted during the fiscal years ended April 30, 2023 and 2022, was $18.09 and $25.36 per share, respectively. There were no PSUs granted during the fiscal year ended April 30, 2021.

The total fair value of PSUs vested during the fiscal years ended April 30, 2023 and 2022 was $3.3 million and $2.1 million, respectively. No PSUs vested during the fiscal year ended April 30, 2021.

As of April 30, 2023, there was $10.3 million of total estimated unrecognized compensation cost related to non-vested PSUs associated with the Performance Periods ending April 30, 2024 and 2025 based on the Maximum Performance Target achievement of each financial metric during such Performance Periods. This cost is expected to be recognized over a weighted average vesting period of 1.39 years, however, we will assess the likelihood of achieving the predetermined financial metrics associated with each Performance Period on a quarterly basis and the expense recognized, if any, will be adjusted accordingly.

Employee Stock Purchase Plan

The Avid Bioservices, Inc. 2010 Employee Stock Purchase Plan (the “ESPP”) is a stockholder-approved plan under which employees can purchase shares of our common stock, based on a percentage of their compensation, subject to certain limits. The purchase price per share is equal to the lower of 85% of the fair market value of our common stock on the first trading day of the six-month offering period or on the last trading day of the six-month offering period. Offering Periods commence on or about the first day of January and July of each year.

During the fiscal years ended April 30, 2023, 2022 and 2021, a total of 68,646, 44,364 and 72,409 shares of our common stock were purchased, respectively, under the ESPP at a weighted average purchase price per share of $12.22, $14.50 and $5.84, respectively. As of April 30, 2023, we had 963,316 shares of our common stock reserved for issuance under the ESPP.

The fair value of the shares purchased under the ESPP was determined using a Black-Scholes option valuation model (see explanation of valuation model inputs above under “Stock Options”) and is recognized as expense on a straight-line basis over the requisite service period (or six-month offering period).

The weighted average grant date fair value of purchase rights under the ESPP during fiscal years ended April 30, 2023, 2022 and 2021 was $4.93, $8.62 and $3.17, respectively, based on the following weighted-average Black-Scholes option valuation model inputs: 

	Fiscal Year Ended April 30,
	2023		2022		2021
Risk-free interest rate		3.76%		0.15%		0.14%
Expected life (in years)		0.50		0.50		0.50
Expected volatility		68.60%		59.91%		75.50%
Expected dividend yield		–		–		–

Stock-based Compensation Expense

Stock-based compensation expense included in our consolidated statements of income and comprehensive income was comprised of the following (in thousands): 

	Fiscal Year Ended April 30,
	2023		2022		2021
Cost of revenues	$	3,876	$	2,540	$	1,404
Selling, general and administrative expense		7,102		4,840		2,450
Total	$	10,978	$	7,380	$	3,854