Note 15 - Stock-based Compensation

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

15. Stock-based compensation

Stock compensation plans

Our stock-based compensation programs are long-term retention programs that are intended to attract, retain, and provide incentives for talented employees, officers, and directors, and to align stockholder and employee interests. We have the following stock-based compensation plans and programs:

During 2013, we adopted the 2013 Performance Incentive Plan (the “2013 Plan”), which allows us to grant options or restricted stock awards to all employees, including executive officers, outside consultants and non-employee directors. An aggregate of 3.1 million shares of common stock were initially reserved for issuance under the 2013 Plan. In May 2017, July 2020, June 2021, and June 2022, the shareholders approved an increase in the number of shares available for issuance to 4.1 million shares, 5.0 million shares, 6.5 million shares, and 8.5 million shares, respectively. As of December 31, 2022, there were outstanding options to purchase 456,000 shares of Company common stock and 2.2 million unvested restricted stock awards outstanding under the 2013 Plan. 

Issuance of shares

When options and warrants are exercised, it is the Company’s policy to issue new shares.

Stock option activity

Service vesting-based stock options

The following is a summary of service vesting-based stock option activity for the year ended December 31, 2022 and 2021, and the status of service vesting-based stock options outstanding as of December 31, 2022 and 2021:

	2022					2021
	Shares			Wtd. Avg. Exercise Price		Shares			Wtd. Avg. Exercise Price
Outstanding as of beginning of year		624,531		$	2.13		844,455		$	2.00
Exercised		(161,646	)		2.00		(183,064	)		1.61
Forfeited		-			-		(1,146	)		5.69
Expired		(6,592	)		3.22		(35,714	)		1.73
Outstanding at end of year		456,293		$	2.17		624,531		$	2.13
Stock options exercisable at year end		456,293		$	2.17		624,531		$	2.13

We recognized stock compensation expense related to service-based options of zero, $25,000, and $119,000 during the years ended December 31, 2022, 2021, and 2020. As of December 31, 2022, there was $7.3 million of aggregate intrinsic value of outstanding service vesting-based stock options, including $7.3 million of aggregate intrinsic value of exercisable service vesting-based stock options. Intrinsic value is the total pretax intrinsic value for all “in-the-money” options (i.e., the difference between the Company’s closing stock price on the last trading day of the year and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on December 31, 2022. This amount will change based on the fair market value of the Company’s stock. Intrinsic value of service vesting-based awards exercised during the years ended December 31, 2022, 2021, and 2020 was $4.1 million, $6.9 million, and $13.1 million, respectively. There were no service based-vesting options granted during the years ended December 31, 2022, 2021, and 2020. The weighted average remaining contractual life of service vesting-based options outstanding and exercisable as of December 31, 2022 is 3 years. There were no unrecognized compensation costs for service vesting-based stock options as of December 31, 2022.

The following table summarizes information about service vesting-based stock options outstanding as of December 31, 2022:

Range of Exercise Prices			Number Outstanding at December 31, 2022		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price
$1.00	-	1.50		2,000		3.85	$	1.49
$1.51	-	2.00		177,500		3.28		1.90
$2.01	-	2.50		255,938		2.35		2.06
$2.51	-	8.60		20,855		4.92		5.69
				456,293		2.84	$	2.16

Performance-based stock options

The Company’s Board of Directors implemented a Management Performance Bonus Plan for 2017. Based on achieving varying levels of specified revenue for the year ending December 31, 2017, up to 1,000,000 options to purchase shares of the Company’s common stock were available for vesting. The options had an exercise price of $1.64 and vested if revenue levels for 2017 were met. If the minimum performance targets were not achieved, no options would have vested. On February 27, 2018, the Company’s Board of Directors determined that the specified revenue target had been achieved. Accordingly, 999,997 options to purchase shares of the Company’s common stock vested in 2017 and 2018.

The following is a summary of performance-based stock option activity under our stock option plans for the years ended December 31, 2021 and the status of performance-based stock options outstanding as of December 31, 2021:

	2021
	Shares			Wtd. Avg. Exercise Price
Outstanding as of beginning of year		686,001		$	1.64
Exercised		(686,001	)		1.64
Outstanding at end of year		-		$	1.64
Stock options exercisable at year end		-		$	-

There was no performance-based stock option grant activity during the year ended December 31, 2022.

No stock compensation expense was recognized during the years ended December 31, 2022, 2021, and 2020 related to performance-based options. The intrinsic value of performance-based awards exercised during the years ending December 31, 2022, 2021, and 2020 was zero, $27.4 million, and $1.3 million, respectively. There were no stock options granted to employees and non-employee directors in the years ending December 31, 2022, 2021, and 2020.

Restricted stock

Service vesting-based restricted stock

The following is a summary of service vesting-based restricted stock activity for the years ended December 31, 2022 and 2021, and the status of unvested service vesting-based restricted stock outstanding as of December 31, 2022 and 2021:

	2022					2021
	Shares			Wtd. Avg. Grant Date Fair Value		Shares			Wtd. Avg. Grant Date Fair Value
Outstanding as of beginning of year		1,212,783		$	37.48		930,854		$	19.31
Granted		1,373,909			25.26		801,484			47.20
Vested		(569,535	)		35.51		(378,502	)		19.31
Forfeited		(137,942	)		40.19		(141,053	)		36.95
Non-vested at year end		1,879,215		$	28.94		1,212,783		$	37.48

On November 4, 2021, the Board of Directors approved to modify certain restricted stock awards that were awarded to one executive that otherwise would have expired upon the executive’s intended retirement in early 2023. The modification accelerated the vesting of the awards to vest equally over four quarters in the year ended December 31, 2022. We recorded incremental stock-based compensation expense of $666,000 in the year ended December 31, 2021 for this stock option modification.

The aggregate fair value of the service vesting-based awards granted during the years ended December 31, 2022, 2021, and 2020 was $34.7 million, $37.8 million, and $15.3 million, respectively. The aggregate fair value of the service vesting-based awards that vested during the years ended December 31, 2022, 2021, and 2020 was $12.6 million, $15.9 million, and $4.5 million, respectively.

During the months of May through August 2022, our board of directors granted 21,566 restricted stock awards in lieu of salary for executive leadership. The awards vested in full on the date of grant, regardless of employment status on that date. All expenses related to these awards were incurred in the year ended December 31, 2022. For all specific grant information related to these awards, refer to the Equity Incentive Compensation discussion of Part III within this filing.

We recognized stock compensation expense of $21.0 million, $12.7 million, and $3.0 million related to service vesting-based awards during the years ended December 31, 2022, 2021, and 2020, respectively. As of December 31, 2022, there was $47.0 million in unrecognized compensation costs related to service vesting-based awards. We expect to recognize those costs over 3 years.

Performance-based restricted stock

On March 25, 2020, the Company granted 82,805 shares of performance-based stock to its executives in the form of restricted stock. The shares granted contain a performance condition based on several Company metrics related to 2020 performance. The grant date fair value of this award was $9.18 per share. The fair value of this award was expensed on a straight-line basis over the requisite service period ending on December 31, 2020.

We recognized stock compensation expense of zero, zero, and $760,000 related to performance-based restricted stock awards for the years ended December 31, 2022, 2021, and 2020, respectively. As of December 31, 2022, there were no unrecognized non-cash compensation costs related to performance-based restricted stock awards. Non-cash compensation costs were expensed over the period for which performance was measured.

The aggregate fair value of the performance-based awards granted during the years ended December 31, 2022, 2021, and 2020 was zero, zero, and $760,000, respectively. The aggregate fair value of the performance-based awards that vested during the years ended December 31, 2022, 2021, and 2020 was zero, zero, and $2.3 million, respectively.

Market-based restricted stock

The following is a summary of market-based restricted stock activity under our stock option plan for the years ended December 31, 2022 and 2021 and the status of market-based restricted stock outstanding as of December 31, 2022 and 2021:

	2022					2021
	Shares			Wtd. Avg. Grant Date Fair Value		Shares			Wtd. Avg. Grant Date Fair Value
Outstanding as of beginning of year		139,756		$	19.86		224,774		$	19.20
Granted		349,568			22.66		152,665			32.50
Vested		(218,280	)		10.95		(231,268	)		26.98
Forfeited		-			-		(6,415	)		40.65
Non-vested at year end		271,044		$	30.64		139,756		$	19.86

On February 25, 2019 the Company granted 94,247 shares and on April 1, 2019 granted 29,604 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on Total Shareholder Return (“TSR”). The TSR market condition measures the Company’s performance against a peer group. On February 8, 2021, the Company determined the TSR attainment was 200% of the targeted shares, resulting in 115,634 shares being granted and 231,268 shares vesting to current employees of the Company based on our total shareholder return during the period beginning on January 1, 2019 through December 31, 2020 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined at the grant date using a Monte Carlo simulation with the following assumptions: a historical volatility of 69%, 0% dividend yield and a risk-free interest rate of 2.5%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award of $3.1 million was expensed on a straight-line basis over the grant date to the vesting date of December 31, 2020.

On March 25, 2020, the Company granted 109,140 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. On February 24, 2022, the Company determined the TSR attainment was 200% of the targeted shares, resulting in 109,140 shares being granted and 218,280 shares vesting to current employees of the Company based on our total shareholder return during the period beginning on January 1, 2020 through December 31, 2022 as compared to the total shareholder return of 20 of our peers. The market-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to each recipient based on our total shareholder return during the period beginning on January 1, 2020 through December 31, 2021 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined at the grant date using a Monte Carlo simulation with the following assumptions: a historical volatility of 78%, 0% dividend yield and a risk-free interest rate of 0.3%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award of $1.2 million was expensed on a straight-line basis over the grant date to the vesting date of December 31, 2021.

On February 8, 2021, the Company granted 30,616 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to each recipient based on our total shareholder return during the period beginning on January 1, 2021 through December 31, 2022 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 68%, 0% dividend yield, and a risk-free interest rate of 0.1%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest rate is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award of $1.3 million is being expensed on a straight-line basis over the grant date to the vesting date of December 31, 2022.

On May 3, 2021, the Company granted 6,415 shares of market-based stock to one executive in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to the recipient based on our total shareholder return during the period beginning on January 1, 2021 through December 31, 2022 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 68%, 0% dividend yield, and a risk-free interest rate of 0.2%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest rate is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. In November 2021, the executive departed the company and, as a result, forfeited these shares, resulting in no expense being recognized in the year ended December 31, 2021 for this award.

On February 24, 2022, the Company granted 240,428 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to each recipient based on our total shareholder return during the period beginning on January 1, 2022 through December 31, 2023 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 63%, 0% dividend yield, and a risk-free interest rate of 1.5%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest rate is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award of $6.7 million is being expensed on a straight-line basis over the grant date to the vesting date of December 31, 2023.

We recognized stock compensation expense of $4.3 million, $1.4 million, and $2.1 million related to market-based restricted stock awards for the years ended December 31, 2022, 2021, and 2020. As of December 31, 2022, there was $3.3 million in unrecognized non-cash compensation costs related to market-based restricted stock awards expected to vest. We expect to recognize those costs over 1 year.

The aggregate fair value of the market-based awards granted during the years ended December 31, 2022, 2021, and 2020 was $6.7 million, $1.8 million, and $1.2 million, respectively. The aggregate fair value of the market-based awards that vested during the years ended December 31, 2022, 2021, and 2020 was $5.0 million, $10.2 million, and zero, respectively.

Total stock compensation expense

We recorded total stock compensation expense for the years ended December 31, 2022, 2021, and 2020, as follows:

	2022		2021		2020
Research and development costs	$	3,176	$	1,906	$	1,012
Sales and marketing costs		3,649		1,788		852
General and administrative costs		14,066		8,061		3,518
Cost of revenue		4,443		2,201		599
Total	$	25,334	$	13,956	$	5,981