Note 13 - Equity Incentive Plan

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

13. Equity Incentive Plan

Equity Incentive Plan

The Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”) was approved by the Company’s stockholders on June 13, 2017 and subsequently amended on June 18, 2019, June 16, 2020 and June 16, 2021 and June 14, 2023. The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), performance restricted stock units (“PSUs”), restricted stock units (“RSUs”), total shareholder return options (“TSRs”) and performance options that may be settled in cash, stock, or other property. In accordance with the 2017 Plan approved by the Company’s stockholders, including the amendments thereto, each share award other than stock options or SAR’s will reduce the number of total shares available for grant by two shares. Subject to adjustment for specified types of changes in the Company’s capitalization, no more than 4.6 million shares of common stock may be issued under the 2017 Plan. There are 1.0 million shares available for future grant at December 31, 2023 under the 2017 Plan.

The Anika Therapeutics, Inc. 2021 Inducement Plan (the “Inducement Plan”) was adopted by the Company’s board of directors on November 4, 2021in which the Company reserved 125,000 shares of common stock for issuance pursuant to equity-based awards granted under the Inducement Plan. Such awards may be granted only to an individual who was not previously the Company’s employee or director with the Company. The Inducement Plan provides for the grant of awards under terms substantially similar to the 2017 Plan (as amended). The Inducement Plan was amended in December 2023 to add 125,000 shares. There are 0.1 million shares available for future grant at December 31, 2023 under the Inducement Plan.

The Company may satisfy the awards upon exercise, or upon fulfillment of the vesting requirements for other equity-based awards, with either newly issued shares or shares reacquired by the Company. Stock-based awards are granted with an exercise price equal to or greater than the market price of the Company’s stock on the date of grant. Awards contain service conditions or service and performance conditions, and they generally become exercisable ratably over one to four years with a maximum contractual term of ten years.

For the years ended December 31, 2023, and 2022, the tax benefit associated with stock-based compensation was $2.6 million and $1.1 million, respectively. A summary of the stock-based compensation in the Company’s statements of operations is as follows (in thousands):

	Years Ended December 31,
	2023		2022		2021
Cost of revenue	$	646	$	820	$	716
Research and development		2,189		1,646		1,233
Selling, general and administrative		12,408		11,849		9,136
Total stock-based compensation expense	$	15,243	$	14,315	$	11,085

For the years ended December 31, 2023, 2022 and 2021, windfall tax benefits (expense) of ($0.1) million, ($0.5) million and $0.1 million, respectively, are associated with the stock-based compensation expense above.

Stock Options

Stock options are granted to purchase common shares at prices that are equal to the fair market value of the shares on the date the options are granted or, in the case of premium options, are granted with an exercise price at 110% of the market price of the Company’s common stock on the date of grant. Options generally vest in equal annual installments over a period of three to four years and expire 10 years after the date of grant. The grant-date fair value of options is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.

The following summarizes the activity under the Company’s stock option plans:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2022		1,530,703		$	34.93
Granted		404,903		$	28.58
Exercised		(2,034	)	$	18.30			$	20
Forfeited and canceled		(120,843	)	$	36.59
Outstanding as of December 31, 2023		1,812,729		$	33.42		7.5	$	127
Vested, December 31, 2023		983,834		$	36.66		6.7	$	5
Vested or expected to vest, December 31, 2023		1,812,729		$	33.42		7.5	$	127

The aggregate intrinsic value of options exercised was immaterial for the years ended December 31, 2023 and 2022, respectively and was $0.3 million for the year ended December 31, 2021.

The Company granted 404,903 stock options during the year ended December 31, 2023, of which 323,993 shares were premium-priced options.

The Company uses the Black-Scholes pricing model to determine the fair value of options granted. The calculation of the fair value of stock options is affected by the stock price on the grant date, the expected volatility of the Company’s common stock over the expected term of the award, the expected life of the award, the risk-free interest rate and the dividend yield.

The assumptions used in the Black-Scholes pricing model for options granted during the years ended December 31, 2023, 2022 and 2021, along with the weighted-average grant-date fair values, were as follows:

	2023			2022			2021
Risk-free interest rate	3.52%	-	4.64%	1.28%	-	4.28%	0.29%	-	1.00%
Expected stock price volatility	48.19%	-	49.44%	53.80%	-	55.55%	54.80%	-	56.35%
Expected life of options (in years)		4.5			4.5			4.0
Expected dividend yield		0.0%			0.0%			0.0%
Fair value per option		11.45			11.45			14.80

As of December 31, 2023, there was $5.9 million of unrecognized compensation cost related to unvested stock options. This expense is expected to be recognized over a weighted average period of 1.7 years.

Restricted Stock Units

RSUs generally vest in equal annual installments over a three- or four-year periods. The grant-date fair value of RSUs is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The Company determines the fair value of restricted stock units based on the closing price of its common stock on the date of grant.

RSU activity for the year ended December 31, 2023 is as follows:

	Number of Shares			Weighted Average Fair Value
Outstanding as of December 31, 2022	$	675,405		$	28.40
Granted		442,762		$	26.66
Vested		(261,939	)	$	29.44
Forfeited and cancelled		(84,870	)	$	27.11
Outstanding as of December 31, 2023	$	771,358		$	27.19

The weighted-average grant-date fair value per share of RSUs granted was $26.66, $25.14 and $35.88 for the years ended December 31, 2023, 2022 and 2021, respectively. The total fair value of RSUs vested was $6.9 million, $6.0 million and $3.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.

As of December 31, 2023, there was $11.9 million of unrecognized compensation cost related to time-based RSUs, which is expected to be recognized over a weighted-average period of 1.7 years.

Performance Stock Units

The Company granted performance stock units (“PSUs”) to employees in 2019 and 2020 which contained performance conditions with business and financial targets. The business target, amounting to 30% of the total performance condition awards, was measured and achieved in the 2019 fiscal year. One of the financial targets, amounting to 55% of the total performance condition awards, was measured and achieved in the 2022 fiscal year, while the remaining financial target, amounting to 15% of the total performance condition awards, was not achieved. The PSUs granted to employees in 2020 contained performance conditions with business and financial targets. One of the business targets, amounting to 20% of the total performance condition awards, was not achieved in the 2021 fiscal year, while the remaining business target related to a certain timely regulatory approval, amounting to 20% of the total performance condition awards, was not achieved in the 2022 fiscal year. The financial targets, amounting to 60% of the total performance condition awards, were not achieved in the 2022 fiscal year. The Company has no PSUs outstanding at December 31, 2023.

PSU activity for the year ended December 31, 2023 is as follows:

	Number of Shares			Weighted Average Fair Value
Outstanding as of December 31, 2022		117,897		$	34,98
Granted		-		$	-
Vested		-		$	-
Forfeited and cancelled		(117,897	)	$	34.98
Outstanding as of December 31, 2023		-		$	-

The weighted-average grant-date fair value per share of PSUs granted was $32.53 for the year ended December 31, 2022. The total fair value of PSUs vested was $0.6 million for the year ended December 31, 2022. There were no PSUs granted or vested during the years ended December 31, 2023 and 2021, respectively. There are no PSUs outstanding as of December 31, 2023.