Stock-Based Compensation and Stock Options

9 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Stock-Based Compensation and Stock Options

Note 3 — Stock-Based Compensation and Stock Options

Under the Company’s Restated Omnibus Incentive Plan (formerly the Restated 1988 Executive Stock Option Plan) (“the Plan”) as in effect at December 31, 2022, options exercisable for up to 20,615,000 shares of the Company’s common stock may be granted over the life of the Plan to key employees, non-employee directors, and consultants at exercise prices not less than the fair market value of the common stock on the date of grant. Options granted under the Plan are non-statutory stock options and generally vest 25% one year from the date of grant with the remaining 75% vesting ratably each month for the next 36 months. The options granted to employees and the Company’s Board of Directors expire at the end of five years and ten years from the date of grant, respectively. All options granted in the nine months ended December 31, 2022 and 2021 were granted with an exercise price equal to the fair value of the Company’s common stock on the grant date and are non-statutory stock options.

The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model with the assumptions included in the table below. The Company uses historical data, among other factors, to estimate the expected volatility, the expected dividend yield and the expected option life. The Company accounts for forfeitures as they occur, rather than estimating expected forfeitures. The risk-free rate is based on the interest rate paid on a U.S. Treasury issue with a term similar to the estimated life of the option. The following assumptions were used to estimate the fair value of options granted during the three months ended December 31, 2022 and 2021 using the Black-Scholes option-pricing model:

	Three Months Ended
	December 31, 2022	December 31, 2021
Risk-free interest rate	4.36%	1.27%
Expected volatility	36%	36%
Expected dividend yield	0.00%	0.00%
Expected weighted average life of option in years	4.3 years	4.4 years

For the three months ended December 31, 2022 and 2021, the Company recorded share-based compensation expense of $1,698,000 and $1,183,000, respectively. For the nine months ended December 31, 2022 and 2021, the Company recorded share-based compensation expense of $4,027,000 and $3,884,000, respectively. The table below shows the amounts recognized in the unaudited consolidated financial statements for stock compensation expense for time-based options and performance-based options during the three and nine months ended December 31, 2022 and 2021, respectively.

	Three Months Ended
	December 31, 2022			December 31, 2021
Cost of revenues	$	670,000		$	487,000
General and administrative		1,028,000			696,000
Total cost of stock-based compensation included in    income before income tax provision		1,698,000			1,183,000
Amount of income tax benefit recognized		(410,000	)		(256,000	)
Amount charged against net income	$	1,288,000		$	927,000
Effect on basic earnings per share	$	(0.07	)	$	(0.05	)
Effect on diluted earnings per share	$	(0.07	)	$	(0.05	)

	Nine Months Ended
	December 31, 2022			December 31, 2021
Cost of revenues	$	1,879,000		$	1,539,000
General and administrative		2,148,000			2,345,000
Total cost of stock-based compensation included in    income before income tax provision		4,027,000			3,884,000
Amount of income tax benefit recognized		(895,000	)		(765,000	)
Amount charged against net income	$	3,132,000		$	3,119,000
Effect on basic earnings per share	$	(0.18	)	$	(0.17	)
Effect on diluted earnings per share	$	(0.18	)	$	(0.17	)

The following table summarizes information for all stock options for the three and nine months ended December 31, 2022 and 2021:

	Three Months Ended December 31, 2022					Three Months Ended December 31, 2021
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options outstanding, beginning		706,728		$	96.14		778,982		$	72.17
Options granted		69,200			155.99		50,200			197.16
Options exercised		(18,210	)		67.63		(25,917	)		62.78
Options cancelled/forfeited		(1,256	)		126.62		(6,407	)		81.62
Options outstanding, ending		756,462		$	102.25		796,858		$	80.27

	Nine Months Ended December 31, 2022					Nine Months Ended December 31, 2021
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options outstanding, beginning		723,876		$	84.55		937,158		$	64.28
Options granted		149,400			155.69		110,450			163.54
Options exercised		(101,896	)		51.17		(212,588	)		53.27
Options cancelled/forfeited		(14,918	)		128.65		(38,162	)		78.87
Options outstanding, ending		756,462		$	102.25		796,858		$	80.27

The following table summarizes the status of stock options outstanding and exercisable at December 31, 2022:

Range of Exercise Price	Number of Outstanding Options		Weighted Average Remaining Contractual Life		Outstanding Options – Weighted Average Exercise Price		Exercisable Options – Number of Exercisable Options		Exercisable Options – Weighted Average Exercise Price
$33.16 to $70.24		204,302		2.09	$	52.49		187,542	$	52.17
$70.25 to $87.69		248,327		2.92		83.32		111,749		82.64
$87.70 to $155.99		209,534		4.30		138.56		30,938		108.20
$156.00 to $197.16		94,299		4.85		179.20		7,330		174.40
Total		756,462		3.32	$	102.25		337,559	$	70.05

The following table summarizes the status of all outstanding options at December 31, 2022, and changes during the three months then ended:

	Number of Options			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value as of December 31, 2022
Options outstanding at October 1, 2022		706,728		$	96.14
Granted		69,200			155.99
Exercised		(18,210	)		67.63
Cancelled – forfeited		(1,225	)		121.76
Cancelled – expired		(31	)		121.96
Ending outstanding		756,462		$	102.25		3.32	$	36,912,256
Ending vested and expected to vest		662,773		$	99.55		3.34	$	33,500,567
Ending exercisable at December 31, 2022		337,559		$	70.05		2.54	$	25,647,949

The weighted-average grant-date fair value of options granted during the three months ended December 31, 2022 and 2021, was $55.15 and $60.55, respectively.

Included in the above-noted stock option grants and stock compensation expense are performance-based stock options that vest only upon the Company’s achievement of certain earnings per share targets on a calendar year basis, as determined by the Company’s Board of Directors. These options were valued in the same manner as the time-based options. However, the Company only recognizes stock compensation expense to the extent that the targets are determined to be probable of being achieved, which triggers the vesting of the performance options. The Company recognized $749,000 and $481,000 of stock compensation expense for the three months ended December 31, 2022 and 2021, respectively, for performance-based stock options. The Company recognized $1,404,000 and $1,702,000 of stock compensation expense for the nine months ended December 31, 2022 and 2021, respectively, for performance-based stock options.