Note 7 - Share-based Compensation

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

(7) Share-Based Compensation

Share-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant).

The Company issues share-based awards through several plans that are described in detail in the notes to the consolidated financial statements for the year ended December 31, 2022. The compensation cost charged against income for those plans is included in selling, general & administrative expenses as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Share-based compensation related to:	2023		2022		2023		2022
Common stock grants	$	100	$	100	$	300	$	300
Stock option grants		112		75		320		188
Restricted Stock Unit Awards ("RSUs")		985		722		2,830		1,882
Total share-based compensation	$	1,197	$	897	$	3,450	$	2,370

The total income tax benefit recognized in the condensed consolidated statements of comprehensive income for share-based compensation arrangements was approximately $310 thousand and $485 thousand for the three-month periods ended September 30, 2023 and 2022, respectively, and approximately $1.9 million and $608 thousand for the nine-month periods ended September 30, 2023 and 2022, respectively.

Common stock grants

The compensation expense for common stock grants during the nine-month period ended September 30, 2023, was determined based on an approved fixed dollar amount with the number of shares to be determined on the date of issuance.

Stock Option grants

The following is a summary of stock option activity under all plans for the nine-month period ended September 30, 2023:

	Shares Under Options			Weighted Average Exercise Price (per share)		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022		92,075		$	39.98
Granted		12,153			131.13
Exercised		(25,740	)		30.67
Outstanding at September 30, 2023		78,488		$	57.14		5.81	$	8,214
Exercisable at September 30, 2023		66,335		$	43.59		5.73	$	7,818
Vested and expected to vest at September 30, 2023		78,488		$	57.14	$	5.81	$	8,214

On June 7, 2023, the Company granted options to its directors for the purchase of 4,215 shares of the Company’s common stock at that day’s closing price of $167.98. On February 14, 2023, the Company granted options to its President and Chief Executive Officer for the purchase of 7,935 shares of common stock at that day’s closing price of $111.54. The compensation expense related to these grants was determined as the fair value of the options using the Black-Scholes option pricing model based on the following assumptions:

Expected volatility	36.6% / 40.6%
Expected dividends	None
Risk-free interest rate	3.6% / 3.9%
Exercise price	$111.54 / $167.98
Expected term	6.2 / 6.8 years
Weighted-average grant date fair value	$37.81 / $71.17

The stock volatility for each grant is determined based on a review of the experience of the weighted average of historical daily price changes of the Company’s common stock over the expected option term, and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the option. The expected term is estimated based on historical option exercise activity.

During the nine-month period ended September 30, 2023 and 2022, the total intrinsic value of all options exercised was approximately $3.0 million and $1.1 million, respectively, and the total amount of consideration received by the Company from the exercised options was approximately $789 thousand and $367 thousand, respectively. At its discretion, the Company allows option holders to surrender previously owned common stock in lieu of paying the exercise price and withholding taxes. During the nine-month period ended September 30, 2023, 861 shares were surrendered at an average market price of $127.05. During the nine-month period ended September 30, 2022, 1,876 shares were surrendered at an average market price of $95.82.

RSUs

The following table summarizes information about RSU activity during the nine-month period ended September 30, 2023:

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Non-vested RSUs outstanding at December 31, 2022		102,048		$	56.02
Awarded		46,050			113.91
Shares vested		(52,126	)		55.17
Shares forfeited		(99	)		97.61
Non-vested RSUs outstanding at September 30, 2023		95,873		$	55.90

At the Company’s discretion, upon vesting, RSU holders are given the option to net-share settle to cover the required minimum withholding tax, and the remaining amount is converted into the equivalent number of common shares and issued to the RSU holder. During the nine-month period ended September 30, 2023 and 2022, 20,457 and 19,425 shares were surrendered at an average market price of $117.95 and $67.05, respectively.

As of September 30, 2023, the Company had approximately $6.4 million of unrecognized compensation expense that is expected to be recognized over a period of approximately 2.5 years.