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STOCK-BASED COMPENSATION | 12 Months Ended
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Dec. 31, 2024
Share-Based Payment Arrangement [Abstract] |
STOCK-BASED COMPENSATION | 16. STOCK-BASED COMPENSATION
(in thousands) | 2024 |  | 2023 |  | 2022
Cost of revenue | $ | 27,353 |  |  | $ | 28,994 |  |  | $ | 26,400 |
Selling and marketing | 55,084 |  |  | 57,675 |  |  | 46,769 |
Research and development | 29,838 |  |  | 31,039 |  |  | 29,266 |
General and administrative | 30,443 |  |  | 25,644 |  |  | 19,775 |
| $ | 142,718 |  |  | $ | 143,352 |  |  | $ | 122,210 |
Income tax benefit | $ | (1,799) |  |  | $ | (2,187) |  |  | $ | (1,881) |
The Company periodically grants employees stock options and restricted stock units (“RSUs”) and non-employee Directors common stock and stock options. In 2022, most of the Company’s stock based compensation arrangements vest over five years, with 20% vesting after one year and the remaining 80% vesting quarterly over the remaining four years. Beginning in 2023, most of the Company’s stock based compensation arrangements vest over four years, with 25% vesting after one year and the remaining 75% vesting quarterly over the remaining three years. The Company’s stock options have a term of ten years. In 2024, the Company also granted 0.6 million performance stock options with a total grant date fair value of $13.9 million, which vest over 2 years based on the Company’s achievement of certain financial performance targets. The Company recognizes stock-based compensation using the accelerated attribution method, treating each vesting tranche as an individual grant. The stock-based compensation expense recognized during a period is based on the value of the awards that are expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Ultimately, the Company recognizes the actual expense over the vesting period only for the shares that vest. Employees may elect to receive 50% of the employee’s target incentive compensation under the Company’s Corporate Incentive Compensation Plan (the “CICP”) in the form of RSUs instead of cash. If elected by an employee, the equity amount is equal in value on the grant date to 50% of the employee’s target incentive opportunity, based on the employee’s base salary. The number of RSUs granted is determined by dividing 50% of the employee’s target incentive opportunity by 85% of the closing price of the Company’s common stock on the grant date, less the present value of expected dividends during the vesting period. If elected, the award vests 100% on the following year’s CICP payout date. Vesting is conditioned upon the performance conditions of the CICP and on continued employment; if threshold funding does not occur, the RSUs will not vest. The Company considers vesting probable on the grant date and recognizes the associated stock-based compensation expense over the requisite service period beginning on the grant date and ending on the vesting date. Historically, the Company has granted awards that allow for the settlement of vested stock options and RSUs on a net share basis (“net settled awards”). With net settled awards, the Company withholds shares to cover the exercise price (for stock options) and the minimum statutory tax withholding obligations (for stock options and RSUs) from the shares that would otherwise be issued upon exercise or settlement. In 2023, the Company moved to cashless settlement for most of its awards. Under cashless settlement, shares are automatically sold in the market at exercise (for stock options) or vest (for RSUs) to cover the exercise price (for stock options) and the minimum statutory tax withholding obligations (for stock options and RSUs). Stock-based compensation plans 2004 Long-Term Incentive Plan (as amended and restated) In 2004, the Company adopted the 2004 Long-Term Incentive Plan (as amended and restated, the “2004 Plan”) to provide employees, non-employee Directors, and consultants with opportunities to purchase stock through incentive and non-qualified stock options. Subsequent amendments to the plan increased the number of shares authorized for issuance under the plan to 42 million, extended the term of the plan to 2030, and limited annual compensation to any non-employee Director to $0.5 million. As of December 31, 2024, 17.0 million shares were subject to outstanding options and stock-based awards under the 2004 Plan. 2006 Employee Stock Purchase Plan In 2006, the Company adopted the 2006 Employee Stock Purchase Plan (the “2006 ESPP”) under which employees may purchase common stock, at a price equal to at least 85% of the fair market value of the Company’s common stock on the lesser of the commencement date or completion date for offerings under the plan, or such higher price as the Company’s Board of Directors may establish from time to time. In October 2012, the Company’s Board of Directors amended the 2006 ESPP to continue until no shares remain. In 2023, the number of shares authorized for purchase under the 2006 ESPP was increased to 2 million. For 2024, 2023, and 2022, the Company’s Board of Directors set the purchase price at 85% of the fair market value on the completion date of the offering period.
(in thousands) | 2024 |  | 2023 |  | 2022
Compensation expense from 2006 ESPP | $ | 1,184 |  |  | $ | 1,367 |  |  | $ | 1,614 |
As of December 31, 2024, 1.1 million shares had been issued under the plan. Shares issued and available for issuance In 2024, the Company issued 3.0 million shares to its employees and directors under the Company’s stock-based compensation plans. As of December 31, 2024, there were 3.9 million shares available for issuance for future equity grants under the Company’s stock plans, consisting of 3.0 million shares under the 2004 Plan and 0.9 million shares under the 2006 ESPP. Grant activity Stock options The Company estimates the fair value of stock options using a Black-Scholes option-pricing model. Key inputs used to estimate the fair value of stock options include the exercise price of the award, expected term of the option, expected volatility of the Company’s common stock over the option’s expected term, risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield. The exercise price for stock options is equal to the shares’ fair market value at the grant date. The following table summarizes the Company’s fair value assumptions for stock options:
| 2024 |  | 2023 |  | 2022
Weighted-average grant-date fair value | $ | 25.82 |  |  | $ | 20.55 |  |  | $ | 17.49 |
Assumptions used in the Black-Scholes option-pricing model: |  |  |  |  |
Expected annual volatility (1) | 49 | % |  | 48 | % |  | 42 | %
Expected term in years (2) | 3.9 |  | 3.5 |  | 3.9
Risk-free interest rate (3) | 4.2 | % |  | 4.2 | % |  | 3.4 | %
Expected annual dividend yield (4) | 0.2 | % |  | 0.1 | % |  | 0.1 | %
(1) The expected annual volatility for each grant is determined based on the average of historic daily price changes of the Company’s common stock over a period, which approximates the expected option term. (2) The expected option term for each grant is determined based on the historical exercise behavior of employees and post-vesting employment termination behavior. (3) The risk-free interest rate is based on the yield of U.S. Treasury securities with a commensurate maturity with the expected option term at the time of grant. (4) The expected annual dividend yield is based on the weighted-average dividend yield assumptions used for options granted during the applicable period. The following table summarizes the time-based vesting stock option activity under the Company’s stock option plans for 2024:
| Shares (in thousands) |  | Weighted-average Exercise Price |  | Weighted-average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value (in thousands) (1)
Options outstanding as of January 1, 2024 | 13,853 |  |  | $ | 59.32 |  |  |  |  |
Granted | 1,857 |  |  | 62.90 |  |  |  |  |
Exercised | (1,937) |  |  | 43.94 |  |  |  |  |
Forfeited | (515) |  |  | 54.91 |  |  |  |  |
Expired | (284) |  |  | 90.16 |  |  |  |  |
Options outstanding as of December 31, 2024 | 12,974 |  |  | $ | 61.63 |  |  |  |  |
Vested and expected to vest as of December 31, 2024 | 11,477 |  |  | $ | 62.04 |  |  | 6.7 |  | $ | 391,228 |
Exercisable as of December 31, 2024 | 7,351 |  |  | $ | 65.37 |  |  | 5.8 |  | $ | 232,270 |
(1) The aggregate intrinsic value of stock options as of December 31, 2024 is based on the difference between the closing price of the Company’s stock of $93.20 and the exercise price of the applicable stock options. The aggregate intrinsic value of stock options exercised (i.e., the difference between the market price at exercise and the price paid by the employee at exercise) in 2024, 2023, and 2022 was $58.7 million, $6.2 million, and $15.6 million, respectively. As of December 31, 2024, the Company had unrecognized stock-based compensation expense related to the unvested portion of stock options of $35.2 million that is expected to be recognized as expense over a weighted-average period of 1.6 years. Performance stock options In 2023, the Company began awarding performance stock options. These performance stock options allow the holder to purchase a specified number of common stock shares at an exercise price equal to the shares' fair market value at the grant date. For the performance stock options granted in 2024, 25% can vest on the first anniversary of the grant date, and 75% can vest on the second anniversary of the grant date, based on the achievement of specific performance conditions for 2024 and 2025, respectively, including year over year growth in Annual Contract Value and Free Cash Flow Margin. The options expire ten years from the grant date. The following table summarizes the Company’s performance stock option activity for 2024:
| Shares (in thousands) |  | Weighted-average Exercise Price |  | Weighted-average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value (in thousands) (1)
Performance options outstanding as of January 1, 2024 | 886 |  |  | $ | 47.27 |  |  |  |  |
Granted | 566 |  |  | 62.10 |  |  |  |  |
Exercised | (39) |  |  | 47.27 |  |  |  |  |
Forfeited | (23) |  |  | 53.86 |  |  |  |  |
Performance options outstanding as of December 31, 2024 | 1,390 |  |  | $ | 53.20 |  |  |  |  |
Vested and expected to vest as of December 31, 2024 | 1,173 |  |  | $ | 53.12 |  |  | 8.6 |  | $ | 47,001 |
Exercisable as of December 31, 2024 | 181 |  |  | $ | 47.27 |  |  | 8.2 |  | $ | 8,304 |
(1) The aggregate intrinsic value of stock options as of December 31, 2024 is based on the difference between the closing price of the Company’s stock of $93.20 and the exercise price of the applicable stock options. The aggregate intrinsic value of performance stock options exercised in 2024 and 2023 was $1.5 million and none, respectively. As of December 31, 2024, the Company had unrecognized stock-based compensation expense related to the unvested portion of performance stock options of $11.0 million that is expected to be recognized as expense over a weighted-average period of 1 year. RSUs RSUs provide the recipient a right to receive a specified number of shares of the Company’s common stock upon vesting. The Company values its RSUs at the fair value of its common stock on the grant date, which is the closing price of its common stock on the grant date less the present value of expected dividends during the vesting period, as the recipient is not entitled to dividends during the requisite service period. RSU grants include units issued when employees elect to receive 50% of the employee’s target incentive compensation under the Company’s Corporate Incentive Compensation Plan (the “CICP”) in the form of RSUs instead of cash. The weighted-average grant-date fair value for RSUs granted in 2024, 2023, and 2022 was $62.57, $46.57, and $74.50, respectively. The following table summarizes the combined RSU activity for all grants, including the CICP, under the 2004 Plan for 2024:
| Shares (in thousands) |  | Weighted- Average Grant-Date Fair Value |  | Aggregate Intrinsic Value (in thousands)
Nonvested as of January 1, 2024 | 2,616 |  |  | $ | 64.85 |  |  |
Granted | 1,366 |  |  | 62.57 |  |  |
Vested | (1,160) |  |  | 67.39 |  |  |
Forfeited | (209) |  |  | 63.78 |  |  |
Nonvested as of December 31, 2024 | 2,613 |  |  | $ | 64.21 |  |  | $ | 243,516 |
Expected to vest as of December 31, 2024 | 1,962 |  |  | $ | 63.39 |  |  | $ | 182,854 |
The fair value of RSUs vested in 2024, 2023, and 2022 was $78.2 million, $42.8 million, and $50.3 million, respectively. The aggregate intrinsic value of RSUs outstanding and expected to vest as of December 31, 2024 is based on the closing price of the Company’s stock of $93.20 as of December 31, 2024. As of December 31, 2024, the Company had $48.7 million of unrecognized stock-based compensation expense related to all unvested RSUs that is expected to be recognized as expense over a weighted-average period of 1.6 years. Common stock In 2024, the Company granted 0.01 million shares of common stock to Directors with a weighted-average grant-date fair value of $69.19 per share.

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