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Note 18 - Share-based Compensation

12 Months Ended

Jun. 30, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

(18)

Share-Based Compensation

We recognized total share-based compensation expense of $1.4 million, $1.3 million and $1.1 million in fiscal 2024, 2023 and 2022, respectively. These amounts have been included in the consolidated statements of comprehensive income within SG&A expenses. At June 30, 2024, $1.5 million of total unrecognized compensation expense related to non-vested equity awards is expected to be recognized over a weighted average period of 1.6 years. There was no share-based compensation capitalized at June 30, 2024 and 2023.

At June 30, 2024, there were 1,262,786 shares of common stock available for future issuance pursuant to the Ethan Allen Interiors Inc. Stock Incentive Plan (the “Plan”). Under this Plan, the initial aggregate number of shares of common stock that may be issued through awards of any form was 6,487,867 shares. The Plan provides for the grant of stock options, restricted stock and stock units. The Plan also provides for the issuance of stock appreciation rights (“SARs”) on issued options, however no SARs have been issued to date. All share-based awards are approved by the Compensation Committee of the Board of Directors after consideration of recommendations proposed by the Chief Executive Officer. Stock options are granted with an exercise price equal to the market price of our common stock at the date of grant, vest ratably over a specified service period and have a contractual term of 10 years. Equity awards can also include performance vesting conditions. Company policy further requires an additional one-year holding period beyond the service vest date for executive officers and Board of Directors.

Stock Option Activity

A summary of stock option activity is presented below.

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic Value
		Options				Price				Term (yrs)				($ in thousands)
Outstanding at June 30, 2021			253,955			$	23.10				5.6			$	1,368
Granted			25,410			$	23.61				n/a				n/a
Exercised			(55,220	)		$	20.23				n/a			$	287
Canceled (forfeited/expired)			(117,105	)		$	23.98				n/a				n/a
Outstanding at June 30, 2022			107,040			$	23.75				4.4			$	120
Granted			23,970			$	25.03				n/a				n/a
Exercised			(2,666	)		$	28.05				n/a			$	4
Canceled (forfeited/expired)			(13,507	)		$	23.64				n/a				n/a
Outstanding at June 30, 2023			114,837			$	23.93				4.8			$	560
Granted			14,330			$	34.89				n/a				n/a
Exercised			(19,998	)		$	25.43				n/a			$	102
Canceled (forfeited/expired)			(5,022	)		$	28.60				n/a				n/a
Outstanding at June 30, 2024			104,147			$	23.93				5.4			$	470
Exercisable at June 30, 2024			73,678			$	24.22				4.2			$	421

The aggregate intrinsic value of stock options exercised during fiscal 2024, 2023 and 2022 was $0.1 million, less than $0.1 million and $0.3 million, respectively. We received proceeds from employee stock option exercises of $0.5 million, $0.1 million, and $1.1 million during fiscal 2024, 2023 and 2022, respectively.

A summary of the nonvested shares at June 30, 2024 and changes during the fiscal year then ended is presented below.

						Weighted Average
		Options				Exercise Price
Nonvested at June 30, 2023			29,733			$	23.09
Granted			14,330			$	34.89
Vested			(13,594	)		$	21.09
Canceled (forfeited)			-			$	-
Nonvested at June 30, 2024			30,469			$	29.54

At June 30, 2024, $0.1 million of total unrecognized compensation expense related to non-vested stock options is expected to be recognized over a weighted average remaining period of 1.8 years.

Employee Stock Option Grants. There were no stock option awards granted to employees during fiscal 2024, 2023 or 2022.

Non-Employee Stock Option Grants. The Plan also provides for the grant of share-based awards to non-employee (independent) directors of the Company. During the first quarter of fiscal 2024, we granted 14,330 stock options at an exercise price of $34.89 to our non-employee directors. These stock options vest in three annual installments beginning on the first anniversary of the date of grant so long as the director continues to serve on our Board. All options granted to directors have an exercise price equal to the fair market value of our common stock on the date of grant and remain exercisable for a period of up to ten years, subject to continuous service on our Board.

Non-employee (independent) directors were granted stock options during the first quarter of each fiscal year presented and valued using the Black-Scholes option pricing model with the following assumptions:

		2024				2023				2022
Volatility			40.5	%			41.6	%			39.3	%
Risk-free rate of return			3.98	%			2.92	%			0.73	%
Dividend yield			4.70	%			4.25	%			3.79	%
Expected average life (years)			5.5				4.9				5.5
Grant date fair value		$	8.65			$	5.98			$	5.04
Fair value as a % of exercise price			24.8	%			23.9	%			21.3	%

There were no other non-employee stock option grants during fiscal 2024, 2023 or 2022.

Restricted Stock Unit (“RSU”) Activity

A summary of RSU activity is presented below.

		Restricted				Weighted Average
		Stock Units				Fair Value
Outstanding at June 30, 2021			71,000			$	9.38
Granted			51,100			$	20.71
Vested			(29,000	)		$	9.43
Canceled (forfeited)			(17,000	)		$	12.66
Outstanding at June 30, 2022			76,100			$	16.23
Granted			21,257			$	19.48
Vested			(32,150	)		$	13.47
Canceled (forfeited)			(11,344	)		$	18.16
Outstanding at June 30, 2023			53,863			$	18.76
Granted			17,232			$	28.58
Vested			(22,037	)		$	16.98
Canceled (forfeited)			(2,750	)		$	16.18
Outstanding at June 30, 2024			46,308			$	23.42

During fiscal 2024 we granted 17,232 non-performance based RSUs with a weighted average grant date fair value of $28.58. The RSUs granted to employees entitle the holder to receive the underlying shares of common stock as the unit vests over the relevant vesting period. The RSUs do not entitle the holder to receive dividends declared on the underlying shares while the RSUs remain unvested and vest in three equal annual installments on the anniversary of the date of grant. We account for these RSUs as equity-based awards because when they vest, they will be settled in shares of our common stock. The grant date fair value of RSUs is measured by reducing the grant date price of the Company's common stock by the present value of the dividends expected to be paid on the underlying stock during the requisite service period, discounted at the appropriate risk-free interest rate.

As of June 30, 2024, $0.7 million of total unrecognized compensation expense related to non-vested RSUs is expected to be recognized over a weighted average remaining period of 1.6 years. A total of 22,037 RSUs vested with an aggregate fair value of $0.7 million during fiscal 2024 compared to 32,150 RSUs vesting in fiscal 2023 with a total fair value of $0.9 million.

Performance Stock Unit (“PSU”) Activity

The following table summarizes PSU activity at the maximum award amounts:

						Weighted Average
						Grant Date
		Units				Fair Value
Outstanding at June 30, 2021			377,867			$	15.98
Granted			90,367			$	17.15
Vested			(35,124	)		$	18.19
Canceled (forfeited)			(112,975	)		$	11.86
Outstanding at June 30, 2022			320,135			$	17.53
Granted			103,096			$	18.75
Vested			(31,635	)		$	12.53
Canceled (forfeited)			(4,600	)		$	18.75
Outstanding at June 30, 2023			386,996			$	18.25
Granted			73,095			$	27.58
Vested			(81,250	)		$	8.77
Canceled (forfeited)			(13,000	)		$	16.88
Outstanding at June 30, 2024			365,841			$	22.27

Share-based compensation expense related to PSUs recognized in our consolidated statements of comprehensive income are presented in the following table (in thousands).

		Fiscal Year Ended June 30,
		2024				2023				2022
Fiscal 2021 grants		$	-			$	236			$	143
Fiscal 2022 grants			384				317				413
Fiscal 2023 grants			321				280				-
Fiscal 2024 grants			167				-				-
Total expense		$	872			$	833			$	556

As of June 30, 2024, $0.7 million of total unrecognized compensation expense related to non-vested PSUs is expected to be recognized over a weighted average remaining period of 1.5 years.

Under the Plan, the Compensation Committee of the Board of Directors is authorized to award common shares to certain employees based on the attainment of certain financial goals over a given performance period. The awards are offered at no cost to the employees. In the event of an employee's termination during the performance period, the right to earn shares under this program is forfeited.

Payout of PSU grants depend on the attainment of certain financial and shareholder-return goals over a specific performance period, which is generally three fiscal years. The number of awards that will vest, as well as unearned and canceled awards, depend on the achievement of certain financial and shareholder-return goals over the three-year performance periods, and will be settled in shares if service conditions are met, requiring employees to remain employed with us through the end of the three-year performance periods. We account for PSU awards as equity-based awards because upon vesting, they will be settled in common shares. We expense as compensation cost the fair value of the PSUs as of the grant date and amortize expense ratably over the total performance and time vest period, considering the probability that we will satisfy the performance goals.

During fiscal 2024 we granted 73,095 PSUs. The weighted average assumptions used for PSUs granted during fiscal 2024, 2023 and 2022, respectively, are presented below.

		Fiscal Year Ended June 30,
		2024				2023				2022
Volatility			37.9	%			47.7	%			43.3	%
Risk-free rate of return			4.28	%			3.16	%			0.62	%
Dividend yield			4.70	%			4.25	%			3.79	%