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SHARE-BASED COMPENSATION | 6 Months Ended
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Jun. 30, 2025
Share-Based Payment Arrangement [Abstract] |
SHARE-BASED COMPENSATION | SHARE-BASED COMPENSATION In May 2025, the Company’s shareholders approved an amended and restated 2010 Incentive Award Plan to provide for an increase in the number of shares of common stock reserved for issuance thereunder from 115,350,000 to 120,350,000. As of June 30, 2025, approximately 22.1 million shares were reserved for future issuance under the Company’s stock plans, and a maximum of approximately 9.6 million of these shares can be awarded as restricted stock units (“RSUs”). Restricted Stock Units RSU activity under all stock plans for the six months ended June 30, 2025, was as follows (in millions, except per share amounts):
| Shares |  | Weighted-Average Grant-Date Fair Value
Unvested balance as of December 31, 2024 | 5.2 |  |  | $ | 314.39 |
RSUs granted | 1.6 |  |  | $ | 577.16 |
RSUs vested | (1.7) |  |  | $ | 295.39 |
RSUs forfeited | (0.2) |  |  | $ | 354.07 |
Unvested balance as of June 30, 2025 | 4.9 |  |  | $ | 405.57 |
Stock Options Stock option activity under all stock plans for the six months ended June 30, 2025, was as follows (in millions, except per share amounts):
|  | Stock Options Outstanding
|  | Number Outstanding |  | Weighted-Average Exercise Price Per Share
Balance as of December 31, 2024 |  | 7.1 |  |  | $ | 192.90 |
Options granted |  | — |  |  | $ | — |
Options exercised |  | (0.9) |  |  | $ | 135.30 |
Options forfeited or expired |  | — |  |  | $ | 241.29 |
Balance as of June 30, 2025 |  | 6.2 |  |  | $ | 200.19 |
As of June 30, 2025, options to purchase an aggregate of 5.5 million shares of common stock were exercisable at a weighted-average price of $192.54 per share. Performance Stock Units In 2022, the Company began granting performance stock units (“PSUs”) to officers and other key employees subject to three-year cliff vesting and pre-established, quantitative goals. Whether any PSUs vest, and the amount that do vest, is tied to completion of service over three years and the achievement of three equally-weighted, quantitative goals that directly align with or help drive the Company’s strategy and long-term total shareholder return. For the six months ended June 30, 2025, the Company had four types of PSU awards: the 2022 PSU awards, the 2023 PSU awards, the 2024 PSU awards, and the 2025 PSU awards. The 2022 PSU grant metrics were focused on relative total shareholder return (“TSR”), year-over-year da Vinci procedure growth for 2023, and two-year compound annual da Vinci procedure growth for 2024. The 2022 PSU awards vested in the first quarter of 2025. The 2023 PSU grant metrics are focused on relative TSR, da Vinci and Ion procedure growth in 2024 compared to 2022, and da Vinci and Ion procedure growth in 2025 compared to 2022. The 2024 PSU grant metrics are focused on relative TSR, da Vinci and Ion procedure growth in 2025 compared to 2023, and da Vinci and Ion procedure growth in 2026 compared to 2023. The 2025 PSU grant metrics are focused on relative adjusted operating margin as compared to selected peers, da Vinci and Ion procedure growth in 2026 compared to 2024, and da Vinci and Ion procedure growth in 2027 compared to 2024. The TSR metric used in the 2022, 2023, and 2024 PSU awards is considered a market condition, and the expense is determined at the grant date. The procedure growth and relative adjusted operating margin metrics are considered performance conditions, and the expense is recorded based on the forecasted performance, which is reassessed each reporting period based on the probability of achieving the performance conditions. The number of shares earned at the end of the three-year period will vary, based on actual performance, from 0% to 125% of the target number of PSUs granted. PSUs are subject to forfeiture if employment terminates prior to the vesting date. PSUs are not considered issued or outstanding shares of the Company. The Company calculates the fair value for each component of the PSUs individually. The fair value for the component with the TSR metric was determined using Monte Carlo simulation. The fair value per share for the components with the procedure growth metrics is equal to the closing stock price on the grant date. PSU activity for the six months ended June 30, 2025, was as follows (in millions, except per share amounts):
|  | Shares |  | Weighted-Average Grant Date Fair Value Per Share
Unvested balance as of December 31, 2024 |  | 0.3 |  |  | $ | 306.94 |
Granted |  | 0.1 |  |  | $ | 580.93 |
Vested |  | (0.1) |  |  | $ | 299.32 |
Performance change |  | — |  |  | $ | 267.23 |
Forfeited |  | — |  |  | $ | — |
Unvested balance as of June 30, 2025 |  | 0.3 |  |  | $ | 367.92 |
Employee Stock Purchase Plan Under the Employee Stock Purchase Plan (“ESPP”), employees purchased approximately 0.2 million shares for $75.5 million and approximately 0.3 million shares for $68.4 million during the six months ended June 30, 2025, and 2024, respectively. Share-Based Compensation Expense The following table summarizes share-based compensation expense (in millions):
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2025 |  | 2024 |  | 2025 |  | 2024
Cost of revenue – product (before capitalization) | $ | 33.1 |  |  | $ | 25.4 |  |  | $ | 64.0 |  |  | $ | 48.2 |
Amounts capitalized into inventory | (31.3) |  |  | (23.7) |  |  | (59.8) |  |  | (45.1) |
Amounts recognized in income for amounts previously capitalized in inventory | 28.5 |  |  | 21.9 |  |  | 56.3 |  |  | 43.2 |
Cost of revenue – product | $ | 30.3 |  |  | $ | 23.6 |  |  | $ | 60.5 |  |  | $ | 46.3 |
Cost of revenue – service | 8.6 |  |  | 7.6 |  |  | 16.8 |  |  | 14.6 |
Total cost of revenue | 38.9 |  |  | 31.2 |  |  | 77.3 |  |  | 60.9 |
Selling, general, and administrative | 86.3 |  |  | 79.6 |  |  | 168.6 |  |  | 147.8 |
Research and development | 74.7 |  |  | 65.6 |  |  | 143.7 |  |  | 123.3 |
Share-based compensation expense before income taxes | 199.9 |  |  | 176.4 |  |  | 389.6 |  |  | 332.0 |
Income tax benefit | 39.3 |  |  | 36.1 |  |  | 76.3 |  |  | 68.5 |
Share-based compensation expense after income taxes | $ | 160.6 |  |  | $ | 140.3 |  |  | $ | 313.3 |  |  | $ | 263.5 |
The fair value of each right to acquire stock granted under the ESPP was estimated using the Black-Scholes-Merton option-pricing model with the following weighted-average assumptions:
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2025 |  | 2024 |  | 2025 |  | 2024
ESPP |  |  |  |  |  |  |
Risk-free interest rate | —% |  | —% |  | 4.2% |  | 4.6%
Expected term (in years) | 0.0 |  | 0.0 |  | 1.2 |  | 1.2
Expected volatility | —% |  | —% |  | 30% |  | 32%
Fair value at grant date | $— |  | $— |  | $170.50 |  | $115.48

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