Note 5 - Share-based Compensation

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

(5) SHARE-BASED COMPENSATION

We measure and recognize compensation expense for all share-based payments based on the grant-date fair value of those awards. All of our existing stock option awards and unvested stock awards have been determined to be equity-classified awards. We account for forfeitures as they occur. We refer to our restricted stock awards as “non-vested” stock in these condensed consolidated financial statements.

Our 2004 Non-Employee Director Stock Plan, as amended (the “2004 Director Plan”), is a nonqualified plan that provides for the granting of options with respect to 3,000,000 shares of our common stock. The 2004 Director Plan provides for grants of nonqualified stock options to each of our directors who we do not employ. On the date of each annual meeting of shareholders, options to purchase shares of common stock equal to an aggregate grant date fair value of $100,000 are granted to each non-employee director that is elected or retained as a director at each such meeting. Stock options vest approximately one year following the date of grant and option terms are generally the earlier of ten years following the date of grant, or three years from the termination of the non-employee director’s service.

Our 2006 Equity Incentive Plan (the “2006 Equity Incentive Plan”), as amended, provides for the granting of stock options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of 1,800,000 shares of our common stock. Stock options granted may be either incentive stock options or nonqualified stock options. Options to purchase shares of common stock are typically granted with exercise prices equal to the fair value of the common stock on the date of grant. We do, in certain limited situations, grant options with exercise prices that exceed the fair value of the common stock on the date of grant.

Performance-Based Stock Option Awards

We grant stock options to selected executives with vesting contingent upon meeting certain Company-wide performance goals. The performance goals for options issued in 2024 are based on reaching a total recurring contract value target, measured at the end of the performance period, December 31, 2026. Vesting is also dependent upon remaining in our employment through the performance period. The performance awards issued in 2024 have a six-year contractual term. We recognize compensation expense prospectively from the date it is deemed probable that the performance goal will be met through the end of the performance period. We granted 404,833 performance-based stock option awards during the three-month period ended March 31, 2024. No performance-based stock options were awarded in 2023.

The fair value of performance-based stock options granted was estimated using a Black-Scholes valuation model with the following weighted average assumptions:

	2024
Expected dividend yield at date of grant		1.44	%
Expected stock price volatility		33.83	%
Risk-free interest rate		4.13	%
Expected life of options (in years)		4.0

The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was based on historical monthly price changes of our stock based on the expected life of the options at the date of grant. The expected life of options is the average number of years we estimate that options will be outstanding. We consider groups of associates that have similar historical exercise behavior separately for valuation purposes.

The following table summarizes performance-based stock option activity under the 2006 Equity Incentive Plan for the three-month period ended March 31, 2024:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2023		-	$	-
Granted		404,833	$	39.54
Exercised		-	$	-
Forfeited		-	$	-
Outstanding at March 31, 2024		404,833	$	39.54		5.80	$	28
Exercisable at March 31, 2024		-	$	-		-	$	-

Service-Based Stock Option Awards

We also grant stock options to directors and selected executives with vesting based on specified service periods. Vesting terms vary with each grant and option awards are generally five to ten years following the date of grant. We recognize compensation expense on a straight-line basis over the service period specified in the award. We granted 59,429 service-based stock option awards during the three-month period ended March 31, 2023. No service-based stock options were awarded in three-month period ended March 31, 2024.

The following table summarizes service-based stock option activity under the 2006 Equity Incentive Plan and the 2004 Director Plan for the three-month period ended March 31, 2024:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2023		569,168	$	35.72
Granted		-	$	-
Exercised		75,283	$	23.27
Forfeited		37,556	$	45.53
Outstanding at March 31, 2024		456,329	$	36.96		5.57	$	2,750
Exercisable at March 31, 2024		307,070	$	33.45		4.41	$	2,725

As of March 31, 2024, the total unrecognized compensation cost related to non-vested performance-based and service-based stock option awards was approximately $5.4 million which was expected to be recognized over a weighted average period of 2.8 years.

There was $301,000 of cash received from stock options exercised for the three-month period ended March 31, 2023. No cash was received from stock options exercised in the three-month period ended March 31, 2024. We recognized ($49,000) and $276,000 of non-cash compensation expense (benefit) for three-month periods ended March 31, 2024 and 2023, respectively, which is included in selling, general and administrative expenses.

Non-vested Stock Awards

No non-vested shares of common stock were granted under the 2006 Equity Incentive Plan during the three-month periods ended March 31, 2024 and 2023. As of March 31, 2024, we had 6,058 non-vested shares of common stock outstanding under the 2006 Equity Incentive Plan. These shares vest over five years following the date of grant and holders thereof are entitled to receive dividends from the date of grant, whether or not vested. The fair value of the awards is calculated as the fair market value of the shares on the date of grant. We recognized non-cash compensation expense of $13,000 and $27,000 for the three-month periods ended March 31, 2024 and 2023, respectively, related to this non-vested stock, which is included in selling, general and administrative expenses. The following table summarizes information regarding non-vested stock granted to associates under the 2006 Equity Incentive Plan for the three-month period ended March 31, 2024:

	Common Stock Outstanding		Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2023		6,058	$	42.92
Granted		-		-
Vested		-		-
Forfeited		-		-
Outstanding at March 31, 2024		6,058	$	42.92

As of March 31, 2024, the total unrecognized compensation cost related to non-vested stock awards was approximately $91,000 and is expected to be recognized over a weighted average period of 1.75 years.