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Note 9 - Stock Transactions and Stock-based Compensation

12 Months Ended

Mar. 31, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

Note 9. Stock Transactions and Stock-Based Compensation

(dollars and shares in thousands, except per share values)

In November 2005, our Board of Directors approved a program to repurchase up to 300,000 shares of our outstanding common stock. Under the program, shares of common stock may be purchased from time to time in the open market at prevailing prices or in negotiated transactions off the market. Shares of common stock repurchased will be cancelled and repurchases of shares of common stock will be funded through existing cash reserves. There were no repurchases of our shares of common stock under this plan during the years ended March 31, 2022, 2021 and 2020. As of March 31, 2022, we have purchased 162 shares under this plan.

Under applicable law, Colorado corporations are not permitted to retain treasury stock. The price paid for repurchased shares is allocated between common stock and retained earnings based on management’s estimate of the original sales price of the underlying shares.

Public Offerings of Common Stock
On June 12, 2020, we completed the sale and issuance of a total of 600 shares of our common stock, and on June 19, 2020, our underwriters exercised in full their option to purchase an additional 90 shares of our common stock. The offering price to the public was $225.00 per share. The total proceeds we received from the offering, net of underwriting discounts and commissions and other offering expenses we paid, was $145,935.

On August 12, 2019, we completed the sale and issuance of a total of 431 shares of our common stock, which includes our underwriters' exercise in full of an option to purchase up to 56 additional shares. The offering price to the public was $210.00 per share. The total proceeds we received from the offering, net of underwriting discounts and commissions and other offering expenses we paid, was $84,995.

Stock-Based Compensation

During fiscal year 2022, our shareholders approved the Mesa Laboratories, Inc. 2021 Equity Incentive Plan (the "2021 Equity Plan"), which authorizes the issuance of 330 shares of common stock to eligible participants. The 2021 Equity Plan is administered by the Compensation Committee of the Board of Directors, which has the authority to grant equity awards, or to delegate its authority under the plan to make grants (subject to certain legal and regulatory restrictions), including the authority to determine the individuals to whom awards will be granted, the type of awards and when the awards are to be granted, the number of shares to be covered by each award, the vesting schedule, and all other terms and conditions of the awards. 203 shares were available for future grants as of March 31, 2022. Our 2021 Equity Plan includes retiree provisions, which result in the acceleration of stock-based compensation expense for retiree-eligible participants.

Pursuant to the Mesa Laboratories, Inc. 2014 Equity Plan and the 2021 Equity Plan (together referred to as "the 2014 and 2021 Equity Plans"), we grant stock options, RSUs and PSUs to employees and non-employee directors. For purposes of counting the shares remaining available under the 2014 Equity Plan, each share issuable pursuant to outstanding full value awards, such as RSUs and PSUs, counts as five shares issued, whereas each share underlying a stock option counts as one share issued. For purposes of counting the shares remaining under the 2021 Equity Plan, each share underlying a stock option or a full value award counts as one share used. We issue new shares of common stock upon the exercise of stock options and the vesting of RSUs and PSUs.

Under the 2014 Plan, 1,100 shares of common stock have been authorized and reserved for eligible participants, all of which have been issued as of March 31, 2022. Shares issued pursuant to awards granted prior to the 2014 Equity Plan were issued subject to previous stock plans, and 3 vested awards are still outstanding under previous plans.

Stock-based compensation expense recognized in the Consolidated Financial Statements was as follows:

		Year Ended March 31,
		2022				2021				2020
Stock-based compensation expense		$	11,391			$	9,268			$	5,525
Amount of income tax (benefit) recognized in earnings			(4,055	)			(1,816	)			(1,576	)
Stock-based compensation expense, net of tax		$	7,336			$	7,452			$	3,949

Stock Options

The weighted average assumptions utilized in the Black-Scholes option-pricing model to estimate the fair value of stock option awards granted each year were as follows:

		*2022*				*2021*				*2020*
Risk-free interest rate			0.46	%			0.27	%			1.80	%
Expected life (years)			3.52				3.86				4.33
Expected dividend yield			0.06	%			0.10	%			0.13	%
Volatility			38.82	%			38.83	%			36.52	%
Weighted-average Black-Scholes fair value per share at date of grant		$	76.02			$	67.66			$	66.02

The expected life of options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules, and expectations of future employee behavior. The substantial majority of options granted during the years ended March 31, 2022 and March 31, 2021 vest equally on the first, second, and third anniversary of the grant date. Expected stock price volatility is based on the historical volatility of our own stock price over the period of time commensurate with the expected life of the award. The risk-free rate is based on the United States Treasury yield curve in effect at the time of grant for the estimated life of the stock option. The dividend yield assumption is based on our anticipated cash dividend payouts. The amounts shown above for the estimated fair value per option granted are before the estimated effect of forfeitures, which reduces the amount of expense recorded in our Consolidated Statements of Income. We base forfeiture rates on company-specific historical experience of similar awards for similar subsets of our employee population.

Stock option activity under the 2021 Equity Plan and legacy plans as of March 31, 2022, and changes for the year then ended are presented below:

		*Stock Options*
		*Shares Subject to Options*				*Weighted- Average Exercise Price per Share*				*Weighted-Average Remaining Contractual Life (Years)*				*Aggregate Intrinsic Value*
Outstanding as of March 31, 2021			253			$	129.55				2.7			$	28,856
Awards granted			37				268.81
Awards forfeited or expired			(4	)			191.52
Awards exercised or distributed			(84	)			96.68
Outstanding as of March 31, 2022			202			$	167.14				2.9			$	18,261
Exercisable as of March, 31, 2022			100			$	128.32				1.9			$	12,636
Exercisable and expected to vest, March 31, 2022			199			$	174.79				3.0			$	18,357

The total intrinsic value of stock options exercised during the years ended March 31, 2022, 2021 and 2020 was $15,209, $9,559, and $9,574, respectively. Unrecognized stock-based compensation expense for stock options as of March 31, 2022 was $3,915 and is expected to be recognized over a weighted average period of 1.8 years. The total fair value of options vested was $2,856, $2,005, and $1,912 during the years ended March 31, 2022, 2021 and 2020, respectively. The weighted-average grant price of awards granted during the years ended March 31, 2021 and 2020 was $226.72 and $206.35, respectively.

Time-Based Restricted Stock Units (RSUs)

RSU activity under the 2014 and 2021 Equity Plans was as follows (shares and dollars in thousands, except per-share data):

		*Time-Based Restricted Stock Units*
		*Number of Shares*				*Weighted- Average Grant Date Fair Value per Share*				*Weighted- average Remaining Contractual Life (Years)*				*Aggregate Intrinsic Value*
Nonvested at March 31, 2021			37			$	206.56				1.1			$	8,948
Awards granted			37				274.55
Awards forfeited or expired			(3	)			250.09
Awards distributed			(20	)			208.52
Nonvested as of March 31, 2022			51			$	252.86				1.0			$	13,019

There were 48 time-based RSUs with a weighted average grant date fair value per share of $251.94 that are expected to vest as of March 31, 2022. For the years ended March 31, 2021 and 2020, the weighted average fair value per RSU granted was $231.61 and $213.31, respectively. Unrecognized stock-based compensation expense for RSUs that we have determined are probable of vesting was $7,942 as of March 31, 2022. The total fair value of RSUs vested was $5,320, $1,819, $959 during the years ended March 31, 2022, 2021 and 2020.

Performance-Based Restricted Stock Units (PSUs)

PSU activity under the 2014 and 2021 Equity Plans was as follows:

		*Performance-Based Restricted Stock Units*
		*Number of Shares*				*Weighted- Average Grant Date Fair Value per Share*				*Weighted- average Remaining Contractual Life (Years)*				*Aggregate Intrinsic Value*
Nonvested at March 31, 2021 at target			20			$	207.88				0.8			$	4,884
Awards granted			48				302.15
Performance adjustment			16
Awards distributed			(29	)			197.81
Nonvested as of March 31, 2022 at target			55			$	288.45				4.3			$	14,093
Expected to vest			53			$	283.88				2.8				13,531

(A) During the quarter ended June 30, 2021, the fiscal year 2019 PSUs vested and were paid at 280% of target, based on actual performance results and completion of service conditions. In addition, the PSUs granted to employees of Gyros Protein Technologies Holding AB vested at 60% of target, following a modification of the performance targets by the Compensation Committee of the Board of Directors during fiscal year 2021.

There were no PSUs granted during the year ended March 31, 2021. For the year ended March 31, 2020, the average fair value per PSU granted was $215.47. Unrecognized stock-based compensation expense for PSUs that we have determined probable of vesting was $11,651 as of March 31, 2022 and is expected to be recognized over a weighted average period of 2.8 years. No PSUs were distributed during the years ended March 31, 2021 and 2020.

During the third quarter of fiscal year 2022, we awarded 7 PSUs to key employees of Agena that are subject to both service and performance conditions ("Agena PSUs"). The Agena PSUs had a grant date fair value of $305.79 per share and vest based on continued service, completion of certain compliance requirements, and achievement of specific financial performance targets for the period from October 20, 2021 through March 31, 2023. The quantity of shares that will be issued upon vesting will range from 50% to 200%; if financial performance is less than 50% of targets, then no shares will vest. Based on actual and projected performance through the year ended March 31, 2022, we decreased our estimate of Agena PSUs expected to vest from 8 to 4 shares, resulting in a release of $295 of expense recorded to selling and administrative expense during the year ended March 31, 2022.

On October 28, 2021, the Compensation Committee of the Board of Directors granted a special long-term equity award consisting of performance stock units covering a target of 40 shares (“PSUs”) that is subject to both performance and service conditions to our Chief Executive Officer. The performance period of the award is the three-year period from April 1, 2021 through March 31, 2024 and the service period commences on October 28, 2021 and ends on October 27, 2024, October 27, 2025, and October 27, 2026, on which dates eligible PSUs will vest and be distributed. The performance metrics are cumulative GAAP revenues over the performance period and cumulative adjusted operating income over the performance period. The quantity of shares that will be issued upon vesting will range from 0 to 40; if financial performance targets are not met, then no shares will vest.

During the year ended March 31, 2022, the Compensation Committee of the Board of Directors modified a time-based restricted stock award granted to our Chief Executive Officer during fiscal year 2017, distributing 3 remaining outstanding shares effective June 8, 2021. The original award required vesting of 1 award on each of March 20, 2022, 2023, and 2024. As a result of the modification, we recognized the previously unrecognized compensation cost of $351 during the year ended March 31, 2022.

Performance-based RSUs vest upon completion of the service period described in the award agreement and based on achievement of the financial targets described in the award agreements. We recognize the expense relating to the performance-based RSUs based on the probable outcome of achievement of the financial targets on a straight-line basis over the service period. During fiscal year 2020, we awarded 8 PSUs (the "FY 20 PSUs") that are subject to both service and performance conditions to eligible employees. The FY 20 PSUs had a grant date fair value of $202.00 per share and vest based on our achievement of specific performance criteria for the three-year period from April 1, 2019 through March 31, 2022 and on a pro-rata basis after 12 months of continued service through June 15, 2022. The quantity of shares that will be issued upon vesting will range from 0% to 200% of the targeted number of shares; if the defined minimum targets are not met, then no shares will vest. Based on actual performance through the year ended March 31, 2022, we increased our estimate of FY 20 PSUs expected to vest from 6 to 9 shares, resulting in a cumulative effect true up of $650 recorded during the year ended March 31 2022. We expect to record $129 of expense related to the FY 20 PSUs in the first quarter of fiscal year 2023.