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Note 6 - Stock-based Compensation

12 Months Ended

Mar. 30, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE 6 – STOCK-BASED COMPENSATION

In September 2021, the Transcat, Inc. 2021 Stock Incentive Plan (the “2021 Plan”) was approved by shareholders and became effective. The 2021 Plan replaced the Transcat, Inc. 2003 Incentive Plan (the “2003 Plan”). Shares available for grant under the 2021 Plan include any shares remaining available for issuance under the 2003 Plan and any shares that are subject to outstanding awards under the 2003 Plan that are subsequently canceled, expired, forfeited, or otherwise not issued or are settled in cash. The 2021 Plan provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant. At March 30, 2024, 0.6 million shares of common stock were available for future grant under the 2021 Plan.

The Company receives an excess tax benefit related to restricted stock vesting and stock options exercised and redeemed. The discrete benefits related to share-based compensation and stock option activity in fiscal years 2024, 2023 and 2022 were $0.7 million, $0.4 million and $1.4 million, respectively.

Restricted Stock Units: The Company grants time-based and performance-based restricted stock units as a component of executive and key employee compensation. Expense for restricted stock unit grants is recognized on a straight-line basis for the service period of the stock award based upon fair value of the award on the date of grant. The fair value of the restricted stock unit grants is the quoted market price for the Company’s common stock on the date of grant. These restricted stock units are either time vested, or vest following the third fiscal year from the date of grant subject to cumulative diluted earnings per share or cumulative Adjusted EBITDA targets over the eligible period.

On the date of each annual meeting of shareholders, the Company’s non-employee directors receive an annual grant of restricted stock units valued at $50,000 that vest after one year.

Compensation cost ultimately recognized for performance-based restricted stock units will equal the grant date fair market value of the unit that coincides with the actual outcome of the performance conditions. On an interim basis, the Company records compensation cost based on the estimated level of achievement of the performance conditions. The expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award.

During fiscal year 2024, 38,000 shares of time-vested restricted stock units were granted and 10,000 shares of performance-based restricted stock units were granted. During fiscal year 2023, 19,000 shares of time-vested restricted stock units were granted and 11,000 shares of performance-based restricted stock units were granted. During fiscal year 2022, 30,000 shares of time-vested restricted stock units were granted and 15,000 shares of performance-based stock units were granted.

The following table summarizes the restricted stock units vested and shares issued during fiscal years 2024, 2023 and 2022 (amounts in thousands, except per unit data):

		*Total*		*Grant Date*					*Number*
		*Number*		*Fair*		*Target*			Of		*Date*
Date	*Measurement*	*of Units*		*Value*		*Level*			*Shares*		*Shares*
Granted	*Period*	*Granted*		*Per Unit*		*Achieved*			*Issued*		*Issued*
April 2018	April 2018 – March 2020		1	$	15.65	Time Vested				1	April 2020
April 2017	April 2017 – March 2020		62	$	12.90		79	%		49	May 2020
July 2020	July 2020		1	$	27.08	Time Vested				1	July 2020
September 2019	September 2019 – September 2020		18	$	22.77	Time Vested				18	September 2020
October 2018	October 2018 – September 2020		1	$	20.81	Time Vested				1	October 2020
January 2021	January 2021		3	$	34.68	Time Vested				3	January 2021
May 2018	April 2018 – March 2021		29	$	15.30	Time Vested				29	March 2021
April 2018	April 2018 – March 2021		1	$	15.65	Time Vested				1	April 2021
May 2018	April 2018 – March 2021		29	$	15.30		64	%		19	May 2021
September 2020	September 2020 – September 2021		14	$	28.52	Time Vested				14	September 2021
October 2018	October 2018 – September 2021		1	$	20.81	Time Vested				1	October 2021
April 2019	April 2019 – March 2022		20	$	23.50	Time Vested				20	March 2022
April 2019	April 2019 – March 2022		20	$	23.50		82	%		16	May 2022
July 2022	July 2022		1	$	59.33	Time Vested				1	July 2022
September 2021	September 2021 – September 2022		7	$	66.09	Time Vested				7	September 2022
September 2022	September 2022		1	$	73.30	Time Vested				1	September 2022
October 2018	October 2018 – September 2022		1	$	20.81	Time Vested				1	October 2022
April 2020	April 2020 - March 2023		2	$	26.25	Time Vested				2	April 2023
July 2020	July 2020 - July 2023		26	$	27.08	Time Vested				26	July 2023
September 2020	September 2020 - July 2023		4	$	28.54	Time Vested				4	July 2023
September 2020	September 2020 - July 2023		5	$	29.76	Time Vested				5	July 2023
September 2022	September 2022 - September 2023		5	$	73.80	Time Vested				5	September 2023
September 2020	September 2020 - September 2023		3	$	29.76	Time Vested				3	September 2023
October 2018	October 2018 – September 2023		1	$	20.81	Time Vested				1	October 2023
June 2021	June 2021 - March 2024		11	$	53.17	Time Vested				11	March 2024

The following table summarizes the non-vested restricted stock units outstanding as of March 30, 2024 (amounts in thousands, except per unit data):

			*Total*			*Grant Date*			*Estimated*
			*Number*			*Fair*			*Level of*
Date	*Measurement*		*of Units*			*Value*			*Achievement at*
Granted	*Period*		*Granted*			*Per Unit*			*March 30, 2024*
October 2018	October 2018 – September 2027		5			$	20.81		Time Vested
May 2021	May 2021 – May 2024		1			$	54.21		Time Vested
June 2021	June 2021 – March 2024		10			$	53.17		136% of target level
September 2021	September 2021 – September 2024		4			$	67.76		Time Vested
January 2022	January 2022 – March 2024		1			$	90.92		136% of target level
January 2022	January 2022 – January 2025		1			$	90.41		Time Vested
March 2022	March 2022 – March 2025		1			$	76.31		Time Vested
May 2022	May 2022 - March 2025		11			$	63.17		55% of target level
May 2022	May 2022 - March 2025		12			$	63.17		Time Vested
August 2022	August 2022 - August 2025		1			$	78.04		Time Vested
September 2022	September 2022 – September 2023		5			$	73.80		Time Vested
December 2022	December 2022 - December 2025		1			$	81.26		Time Vested
December 2022	December 2022 - December 2025		1			$	67.48		Time Vested
May 2023	May 2023 – March 2026		10			$	89.70		150% of target level
May 2023	May 2023 – March 2026		11			$	89.70		Time Vested
May 2023	May 2023 – May 2026		19			$	89.70		Time Vested
August 2023	August 2023 – August 2024		6			$	90.56		Time Vested
September 2023	September 2023 – September 2024		4			$	109.55		Time Vested

Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $3.2 million, $2.0 million and $1.6 million in fiscal years 2024, 2023 and 2022, respectively. As of March 30, 2024, unearned compensation, to be recognized over the grants’ respective service periods, totaled $3.5 million based on estimated achievement levels as of March 30, 2024. If the maximum performance levels were achieved, the unearned compensation could be a maximum of $3.7 million.

Stock Options: The Company grants stock options to employees and directors with an exercise price equal to the quoted market price of the Company’s stock at the date of the grant. The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option. Expense for stock options is recognized on a straight-lined basis over the requisite service period for each award. Options vest either immediately or over a period of up to five years using a straight-line basis and expire either five years or ten years from the date of grant.

We calculate the fair value of the stock options granted using the Black-Scholes model. The following weighted-average assumptions were used to value options granted during fiscal years 2024, 2023 and 2022:

		*FY 2024*				*FY 2023*				*FY 2022*
Risk-Free Interest Rate			4.08	%			2.65	%			1.01	%
Volatility Factor			37.27	%			37.62	%			30.22	%
Expected Term (in Years)			6.34				4.58				6.25
Annual Dividend Rate			0.00	%			0.00	%			0.00	%

We calculate expected volatility for stock options by taking an average of historical volatility over the expected term. The computation of expected term was determined based on safe harbor rules, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield in effect at the time of grant. We assume no expected dividends. Under FASB ASC Topic 718, “Compensation – Stock Compensation”, the Company has elected to account for forfeitures as they occur.

During fiscal year 2024, the Company granted options for 7,000 shares of common stock in the aggregate to Company employees that vest over three years, an option for 10,000 shares of common stock to a Company employee that vests over five years and options for 30,000 shares of common stock (10,000 each) to three Company directors that vest over five years.

During fiscal year 2023, the Company granted options for 46,000 shares of common stock in the aggregate to Company employees that vest over three years and an option for 10,000 shares of common stock to a Company director that vests over five years.

During fiscal year 2022, the Company granted an option for 10,000 shares of common stock each to two Company directors (20,000 shares in the aggregate) that vest over five years, an option for 2,000 shares of common stock each to five employees (10,000 shares in the aggregate) that vests over three years, and an option for 90,000 shares of common stock in the aggregate to employees during an acquisition that vests over five years and an option for 6,000 shares of common stock to a Company employee that vests over three years.

The expense related to all stock option awards was $1.3 million in fiscal year 2024, $1.4 million in fiscal year 2023 and $0.7 million in fiscal year 2022.

The following table summarizes the Company’s options for fiscal years 2024, 2023 and 2022 (amounts in thousands, except per option data):

										*Weighted*
						*Weighted*				*Average*
						*Average*				*Remaining*
		*Number*				*Exercise*				*Contractual*				*Aggregate*
		Of				*Price Per*				*Term*				*Intrinsic*
		*Options*				*Option*				*(in Years)*				*Value*
Outstanding as of March 27, 2021			125			$	15.47
Granted			131				61.29
Exercised			(85	)			12.00
Forfeited			(6	)			24.10
Outstanding as of March 26, 2022			165				53.27
Granted			56				62.46
Exercised			(4	)			6.19
Forfeited			-				-
Outstanding as of March 25, 2023			217				56.25
Granted			47				94.39
Exercised			(25	)			58.44
Forfeited			(5	)			68.13
Outstanding as of March 30, 2024			234				63.43				5			$	11,095
Exercisable as of March 30, 2024			61			$	32.96				5			$	4,276

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of fiscal year 2024 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all holders exercised their options on March 30, 2024. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.

Total unrecognized compensation cost related to non-vested stock options as of March 30, 2024 was $2.4 million, which is expected to be recognized over a period of three years. The aggregate intrinsic value of stock options exercised in fiscal years 2024, 2023 and 2022 was $1.3 million, $0.3 million and $5.3 million, respectively. Cash received from the exercise of options in fiscal years 2024, 2023 and 2022 was $1.5 million, $0.1 million and $1.0 million, respectively.