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Note 5 - Stockholders' Equity
 9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Equity [Text Block]

5. Stockholders’ Equity

 

Common stock reserved for future issuance

 

Common stock reserved for future issuance consists of the following as of September 30, 2023:

 

Stock options outstanding under 2019 Equity Incentive Plan

  838,706 

Restricted stock units outstanding under 2019 Equity Incentive Plan

  339,505 

Performance stock units outstanding under 2019 Equity Incentive Plan, at target

  424,393 

Shares authorized for future issuance under 2019 Equity Incentive Plan

  3,134,739 

Shares authorized for future issuance under 2019 Employee Stock Purchase Plan

  1,130,770 

Total

  5,868,113 

 

Stock based compensation

 

The below table summarizes the Company’s stock-based compensation expense for each period presented:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 
  

(in thousands)

  

(in thousands)

 

Stock-Based Compensation

 $3,589  $3,092  $10,737  $8,556 

 

Stock-based compensation expense is recognized on a straight-line basis over the vesting period of equity-based awards. For performance stock units (“PSUs”), any changes to expense resulting from differences in actual performance versus target are recognized over the remaining vesting period of the awards. The Company does not apply a forfeiture rate to unvested awards and accounts for forfeitures as they occur. All stock-based compensation is included in other underwriting expenses in the Company’s unaudited condensed consolidated statement of income and comprehensive income.

 

2019 Equity Incentive Plan

 

On April 16, 2019, the Company's 2019 Equity Incentive Plan (the “2019 Plan”) became effective. The 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance shares and units, and other cash-based or share-based awards. In addition, the 2019 Plan contains a mechanism through which the Company may adopt a deferred compensation arrangement in the future.

 

A total of 2,400,000 shares of common stock were initially authorized and reserved for issuance under the 2019 Plan. This reserve increases on January 1 of each year through 2029 by an amount equal to the smaller of: 3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or an amount determined by the board of directors.

 

Stock Options

 

Recipients of stock options can purchase shares of the Company’s common stock at a price equal to the stock's fair market value on the grant date, determined by the closing price of the Company's common stock on the grant date. Stock options vest over a two to four-year period with a portion vesting on the first anniversary of the grant date and the remainder vesting monthly over the remaining period, subject to continued service. Stock options expire ten years after the grant date.

 

The following table summarizes stock option transactions for the nine months ended September 30, 2023:

 

  

Number of shares

  

Weighted-average exercise price

  

Weighted-average remaining contractual term (in years)

  

Aggregate intrinsic value (in thousands)

 

Outstanding at January 1, 2023

  882,892  $33.85   —  $— 

Options granted

  —   —         

Options exercised

  (32,882)  17.61         

Options canceled

  (11,304)  66.08         

Outstanding at September 30, 2023

  838,706  $34.05   6.0  $19,368 

Vested and Exercisable at September 30, 2023

  753,678  $30.74   5.8  $19,308 

 

As of September 30, 2023, the Company had approximately $1.8 million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 1.2 years.

 

Restricted Stock Units

 

RSUs are valued using the closing price of the Company’s common stock on their grant date. The Company has issued RSUs with vesting periods of one to five years. All vesting is subject to continued service.

 

The following table summarizes RSU transactions for the nine months ended September 30, 2023:

 

  

Number of shares

  

Weighted-average grant date fair value

 

Outstanding at January 1, 2023

  271,951  $68.90 

Granted

  157,972   51.34 

Released

  (72,357)  66.37 

Forfeited

  (18,061)  52.27 

Non-vested outstanding at September 30, 2023

  339,505  $62.15 

 

As of September 30, 2023, the Company had approximately $16.8 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 2.3 years.

 

Performance Stock Units

 

The Company issues PSUs with a combination of service, performance, and market conditions.

 

The majority of PSUs were issued via grants made to certain executives during 2021. These PSUs are earned based on the achievement of stock price milestones. If the Company’s stock price reaches and remains at certain milestones for 30 days, the PSUs shall become earned units and will vest upon completion of a requisite service period of approximately five years from the date of grant. As of September 30, 2023, none of the stock price milestones have been achieved.

 

For other PSUs outstanding, vesting of PSUs requires a period of future service and the number of shares that vest depends on performance relative to predetermined targets of the Company’s Gross Written Premiums and Adjusted Return on Equity as set by the Compensation Committee. Prior to 2023, the PSU’s performance period was the fiscal year of the grant. Beginning in 2023, the PSU’s performance period is primarily a three-year period beginning with the grant date. At the end of the performance period, the actual results are measured against the predetermined targets to determine the number of PSUs to be earned as compensation. The earned PSUs are then subject to a required service period of approximately three years from the grant date before vesting and being issued as common stock.

 

The following table summarizes PSU transactions for the three months ended September 30, 2023:

 

  

Number of shares

  

Weighted-average grant date fair value

 

Outstanding at January 1, 2023

  383,103  $37.62 

Granted

  46,029   51.36 

Vested

  —   — 

Forfeited

  (4,739)  54.30 

Non-vested outstanding at September 30, 2023

  424,393  $38.93 

 

The PSU grants above represent the number of shares that would vest based on achievement of all stock price milestones in the 2021 executive stock grants and the 100% achievement of the predetermined performance conditions for the other PSU grants. The actual number of PSUs which will vest is subject to adjustment based on the Company’s actual stock price performance and financial performance relative to the predetermined targets. As of September 30, 2023, the Company had approximately $10.2 million of total unrecognized stock-based compensation expense related to PSUs expected to be recognized over a weighted-average period of 2.7 years.

 

2019 Employee Stock Purchase Plan

 

On April 16, 2019, the Company's 2019 Employee Stock Purchase Plan (the “2019 ESPP”) became effective. A total of 240,000 shares of common stock are initially authorized and reserved for issuance under the 2019 ESPP. In addition, the 2019 ESPP provides for annual increases in the number of shares available for issuance on January 1 of each year through 2029, equal to the smaller of 240,000 shares of the Company’s common stock or such other amount as may be determined by the board of directors.

 

Under the 2019 ESPP, employees can purchase Company stock at a discount via payroll withholdings. The 2019 ESPP is administered through employee participation in discrete offering periods. During each discrete offering period employee funds are withheld, and the stock purchase occurs upon the conclusion of the offering period. The Company issued 17,080 shares pursuant to the ESPP during the nine months ended September 30, 2023.

 

Share repurchases

 

In January 2022, Company's the Board of Directors approved a share repurchase program which replaced the existing program and authorized the repurchase of up to $100 million of outstanding shares of common stock over the period ending on March 31, 2024.

 

The Company purchased 418,901 shares for $22.1 million at an average price of $54.4 per share under this program during the nine months ended September 30, 2023. Approximately $43.5 million remains available for future repurchases. The Company accounts for share repurchases by charging the excess of repurchase price over the common stock’s par value entirely to retained earnings. All repurchased shares are retired and become authorized but unissued shares.