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Note 3 - Stock-based Compensation | 9 Months Ended
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Dec. 28, 2024
Notes to Financial Statements |
Share-Based Payment Arrangement [Text Block] | NOTE 3 – 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 December 28, 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 tax benefits related to share-based compensation and stock option activity during the first nine months of fiscal year 2025 and fiscal year 2024 were $1.3 million and $0.7 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. 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. The following table summarizes the non-vested restricted stock units outstanding as of December 28, 2024 (in thousands, except per unit data):
|  |  |  | Total |  |  | Grant Date |  | Estimated
|  |  |  | Number |  |  | Fair |  | Level of
Date |  | Measurement |  | of Units |  |  | Value |  | Achievement at
Granted |  | Period |  | Outstanding |  |  | Per Unit |  | December 28, 2024
October 2018 |  | October 2018 – September 2028 |  | 4 |  |  | $ | 20.81 |  | Time Vested
March 2022 |  | March 2022 – March 2025 |  | 1 |  |  | $ | 76.31 |  | Time Vested
May 2022 |  | May 2022 – March 2025 |  | 9 |  |  | $ | 63.17 |  | Time Vested
May 2022 |  | May 2022 – March 2025 |  | 8 |  |  | $ | 63.17 |  | 0% of target level
August 2022 |  | August 2022 – August 2025 |  | 1 |  |  | $ | 78.04 |  | Time Vested
May 2023 |  | May 2023 – March 2026 |  | 8 |  |  | $ | 89.70 |  | 150% of target level
May 2023 |  | May 2023 – March 2026 |  | 8 |  |  | $ | 89.70 |  | Time Vested
May 2023 |  | May 2023 – May 2026 |  | 11 |  |  | $ | 89.70 |  | Time Vested
April 2024 |  | April 2024 - April 2027 |  | 2 |  |  | $ | 107.13 |  | Time Vested
April 2024 |  | April 2024 - April 2027 |  | 1 |  |  | $ | 108.04 |  | Time Vested
May 2024 |  | May 2024 - May 2027 |  | 1 |  |  | $ | 119.45 |  | Time Vested
May 2024 |  | May 2024 - May 2027 |  | 1 |  |  | $ | 124.12 |  | Time Vested
May 2024 |  | May 2024 - March 2027 |  | 9 |  |  | $ | 124.12 |  | 100% of target level
May 2024 |  | May 2024 - March 2027 |  | 10 |  |  | $ | 124.12 |  | Time Vested
July 2024 |  | July 2024 - July 2027 |  | 1 |  |  | $ | 116.91 |  | Time Vested
September 2024 |  | September 2024 - September 2025 |  | 6 |  |  | $ | 120.66 |  | Time Vested
September 2024 |  | September 2024 - September 2027 |  | 1 |  |  | $ | 123.33 |  | 100% of target level
September 2024 |  | September 2024 - September 2027 |  | 1 |  |  | $ | 123.33 |  | Time Vested
December 2024 |  | December 2024 - December 2027 |  | 9 |  |  | $ | 103.44 |  | Time Vested
Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $1.5 million and $2.4 million in the first nine months of fiscal year 2025 and fiscal year 2024, respectively. As of December 28, 2024, unearned compensation, to be recognized over the grants’ respective service periods, totaled $5.0 million based on estimated achievement levels as of December 28, 2024. If the maximum performance levels were achieved, the unearned compensation could be a maximum of $6.4 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-line 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 the first nine months of fiscal year 2025 and fiscal year 2024:
|  | Third Quarter Ended |  |  | Nine Months Ended |
|  | December 28, |  |  | December 23, |  |  | December 28, |  |  | December 23, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Risk-Free Interest Rate |  |  | N/A |  |  |  | 4.84 | % |  |  | 4.35 | % |  |  | 4.09 | %
Volatility Factor |  |  | N/A |  |  |  | 37.31 | % |  |  | 40.98 | % |  |  | 37.12 | %
Expected Term (in Years) |  |  | N/A |  |  |  | 6.50 |  |  |  | 4.00 |  |  |  | 6.30 |
Annual Dividend Rate |  |  | N/A |  |  |  | 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 the first nine months of fiscal year 2025, the Company granted options for 10,000 shares of common stock in the aggregate to Company employees that vest over three years. During the first nine months of 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 20,000 shares of common stock (10,000 each) to two Company directors that vest over five years. The expense related to all stock option awards was $0.6 million in the first nine months of fiscal year 2025 and $0.9 million in the first nine months of fiscal year 2024. The following table summarizes the Company’s options as of and for the first nine months ended December 28, 2024 (in thousands, except price per option data and years):
|  |  |  |  |  | Weighted |  |  | Weighted |  |  |  |  |
|  |  |  |  |  | Average |  |  | Average |  |  |  |  |
|  | Number |  |  | Exercise |  |  | Remaining |  |  | Aggregate |
|  | Of |  |  | Price Per |  |  | Contractual |  |  | Intrinsic |
|  | Options |  |  | Option |  |  | Term (in years) |  |  | Value |
Outstanding as of March 30, 2024 |  |  | 234 |  |  | $ | 63.43 |  |  |  |  |  |  |  |  |
Granted |  |  | 10 |  |  | $ | 112.93 |  |  |  |  |  |  |  |  |
Exercised |  |  | (37 | ) |  | $ | 34.21 |  |  |  |  |  |  |  |  |
Forfeited |  |  | (32 | ) |  | $ | 38.07 |  |  |  |  |  |  |  |  |
Outstanding as of December 28, 2024 |  |  | 175 |  |  | $ | 72.42 |  |  |  | 6 |  |  | $ | 5,862 |
Exercisable as of December 28, 2024 |  |  | 64 |  |  | $ | 59.49 |  |  |  | 6 |  |  | $ | 2,954 |
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 the third quarter of fiscal year 2025 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 December 28, 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 December 28, 2024 was $1.7 million, which is expected to be recognized over a period of three years. The aggregate intrinsic value of stock options exercised during the first nine months of fiscal year 2025 was $3.2 million and during the first nine months of fiscal year 2024 was $0.3 million. Cash received from the exercise of options in the first nine months of fiscal year 2025 was $1.3 million and during the first nine months of fiscal year 2024 was $0.1 million.

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