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Note 9 - Stock Transactions and Stock-based Compensation

12 Months Ended

Mar. 31, 2023

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 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, 2023, 2022 and 2021. As of March 31, 2023, we have repurchased 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.

Stock-Based Compensation

We issue shares in the form of stock options, RSUs and PSUs to employees and non-employee directors pursuant to the 2014 and 2021 Equity Plans. Our shareholders approved the 2021 Equity Plan during fiscal year 2022. The plan authorizes the issuance of 330 shares of common stock to eligible participants. 145 shares were available for future grants as of March 31, 2023. Under the 2014 Equity Plan, 1,100 shares of common stock have been authorized and reserved for eligible participants, all of which have been issued and 95 of which remain outstanding as of March 31, 2023.

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

		*Year Ended March 31,*
		*2023*				*2022*				*2021*
Stock-based compensation expense		$	12,538			$	11,391			$	9,268
Amount of income tax (benefit) recognized in earnings			(1,169	)			(4,055	)			(1,816	)
Stock-based compensation expense, net of tax		$	11,369			$	7,336			$	7,452

Stock Options

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

		*2023*				*2022*				*2021*
Risk-free interest rate			3.55	%			0.46	%			0.27	%
Expected life (years)			3.52				3.52				3.86
Expected dividend yield			0.07	%			0.06	%			0.10	%
Volatility			37.29	%			38.82	%			38.83	%
Weighted-average Black-Scholes fair value per share at date of grant		$	58.94			$	76.02			$	67.66

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.

Stock option activity under the 2021 Equity Plan and legacy plans as of March 31, 2023, and changes for the year then ended are presented below (shares and dollars in thousands, except per-share data):

		*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, 2022			202			$	167.14				2.9			$	18,261
Awards granted			43				185.60
Awards forfeited or expired			(9	)			218.13
Awards exercised or distributed			(73	)			97.34
Outstanding as of March 31, 2023			163			$	200.62				3.3			$	1,643
Exercisable as of March, 31, 2023			83			$	193.05				2.3			$	1,405
Exercisable and expected to vest, March 31, 2023			160			$	200.62				3.2			$	1,641

The total intrinsic value of stock options exercised during the years ended March 31, 2023, 2022 and 2021 was $6,902, $15,209, and $9,559, respectively. Unrecognized stock-based compensation expense for stock options expected to vest as of March 31, 2023 was $2,835 and is expected to be recognized over a weighted average period of 1.7 years. The total fair value of options vested was $2,763, $2,856, and $2,005 during the years ended March 31, 2023, 2022 and 2021, respectively. The weighted-average grant price of awards granted during the years ended March 31, 2022 and 2021 was $268.81 and $226.72, 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, 2022			51			$	252.86				1.0			$	13,019
Awards granted			43				187.21
Awards forfeited or expired			(10	)			229.52
Awards distributed			(27	)			250.85
Nonvested as of March 31, 2023			57			$	209.27				1.0			$	9,993
Expected to vest			53			$	209.43				1.8			$	9,254

For the years ended March 31, 2022 and 2021, the weighted average fair value per RSU granted was $274.55 and $231.61, respectively. Unrecognized stock-based compensation expense for RSUs that we have determined are probable of vesting was $6,893 as of March 31, 2023 and is expected to be recognized over a weighted average period of 1.8 years. The total fair value of RSUs vested was $6,751, $5,320, $1,819 during the years ended March 31, 2023, 2022 and 2021, respectively. The total intrinsic value of time-based RSUs distributed during the years ended March 31, 2023, 2022 and 2021 was $5,004, $5,320, and $2,429, respectively.

Performance-Based Restricted Stock Units (PSUs)

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.

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

		*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, 2022 at target			55			$	288.45				4.3			$	14,093
Awards granted			19				182.14
Performance adjustment			(20	)
Awards distributed			(10	)			202.00
Nonvested as of March 31, 2023 at target			44			$	286.02				3.5			$	7,958
Expected to vest			42			$	287.48				3.4				7,306

For the year ended March 31, 2022, the average fair value per PSU granted was $302.15. Unrecognized stock-based compensation expense for PSUs that we have determined probable of vesting was $7,642 as of March 31, 2023 and is expected to be recognized over a weighted average period of 3.4 years. Total fair value of PSUs vested was $1,926 and $5,671 during the years ended March 31, 2023 and 2022, respectively. The total intrinsic value of PSUs distributed during the years ended March 31, 2023, 2022 and 2021 was $1,776, $7,549, and $0, respectively. There were no PSUs granted or distributed during the year ended March 31, 2021.

During the year ended March 31, 2023, the Compensation Committee of the Board of Directors created a plan to award 19 PSUs at target (the "FY23 PSUs") that are subject to both service and performance conditions to eligible employees. The performance period for the FY23 PSUs is from April 1, 2022 until March 31, 2023 and the service period is from April 1, 2022 until March 31, 2025. Of the total FY23 PSUs granted, 13 vest based on our achievement of specific performance criteria during fiscal year 2023 and they have a grant date fair value of $185.57. Based on actual performance during the performance period, we reduced the number of awards expected to vest to 0. The remaining awards will be settled in shares of our common stock, but they are subject to performance criteria that are subjective and as such their grant date was assigned as of March 31, 2023 when the criteria were defined and the number of awards was decided. Five shares are expected to be issued upon vesting based on determinations made by the Board of Directors.

During fiscal year 2022, we awarded 7 PSUs to key employees of Agena subject to both service and performance conditions. Based on actual performance through the period ended March 31, 2023, the awards did not vest.

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 periods commence 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. Based on actual performance through the period ended March 31, 2023, the award is estimated to vest at 93%.

During the year ended March 31, 2023, we adjusted our estimate of PSUs expected to vest under all outstanding plans based on actual results achieved through the performance period. We recorded a cumulative effect release of ($1,787) during the period ($1,322, net of tax as well as $0.25 per basic and diluted share), which is recorded in general and administrative and selling expense on our Condensed Consolidated Statements of Income.

In the future, we expect non-cash stock-based compensation expense to decrease approximately $402 per quarter as a result of our new estimate of performance share units expected to vest.