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Stock-Based Compensation | 12 Months Ended
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Dec. 31, 2022
Share-Based Payment Arrangement [Abstract] |
Stock-Based Compensation | Stock-Based Compensation Stock Plans The Company’s stock-based awards that result in compensation expense consist of stock options, restricted stock units ("RSUs"), and performance restricted stock units ("PRSUs"). As of December 31, 2022, the Company had 13,746,000 shares available for grant under its stock plans. Stock options are granted with an exercise price equal to the market value of the Company’s common stock at the grant date and generally vest over four or five years based on continuous employment and expire ten years from the grant date. RSUs generally vest upon three or four years of continuous employment or incrementally over such three or four year periods. PRSUs generally vest upon three years of continuous employment and achievement of performance criteria established by the Compensation Committee of our Board of Directors on or prior to the grant date. Participants are not entitled to dividends on stock options, RSUs, or PRSUs. Stock Options The following table summarizes the Company’s stock option activity:
| Shares (in thousands) |  | Weighted- Average Exercise Price |  | Weighted- Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2021 | 7,610 |  |  | $ | 49.38 |  |  |  |  |
Granted | 1,418 |  |  | 59.63 |  |  |  |  |
Exercised | (365) |  |  | 33.58 |  |  |  |  |
Forfeited or expired | (196) |  |  | 58.90 |  |  |  |  |
Outstanding as of December 31, 2022 | 8,467 |  |  | $ | 51.56 |  |  | 6.13 |  | $ | 31,327 |
Exercisable as of December 31, 2022 | 4,596 |  |  | $ | 44.71 |  |  | 4.94 |  | $ | 31,025 |
Options vested or expected to vest as of December 31, 2022 (1) | 8,038 |  |  | $ | 51.10 |  |  | 6.01 |  | $ | 31,224 |
(1) In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest are calculated by applying an estimated forfeiture rate to the unvested options. The fair values of stock options granted in each period presented were estimated using the following weighted-average assumptions:
| Year Ended December 31,
| 2022 |  | 2021 |  | 2020
Risk-free rate | 2.2 | % |  | 1.3 | % |  | 1.4 | %
Expected dividend yield | 0.44 | % |  | 0.27 | % |  | 0.41 | %
Expected volatility | 37 | % |  | 39 | % |  | 37 | %
Expected term (in years) | 5.5 |  | 6.0 |  | 6.0
Risk-free rate The risk-free rate was based on a treasury instrument whose term was consistent with the contractual term of the option. Expected dividend yield Generally, the current dividend yield is calculated by annualizing the cash dividend declared by the Company’s Board of Directors and dividing that result by the closing stock price on the grant date. Expected volatility The expected volatility was based on a combination of historical volatility of the Company’s common stock over the contractual term of the option and implied volatility for traded options of the Company’s stock. Expected term The expected term was derived from the binomial lattice model from the impact of events that trigger exercises over time. The weighted-average grant-date fair value of stock options granted was $21.39 in 2022, $33.79 in 2021, and $19.62 in 2020. The total intrinsic value of stock options exercised was $8,424,000 in 2022, $80,369,000 in 2021, and $166,796,000 in 2020. The total fair value of stock options vested was $41,497,000 in 2022, $45,328,000 in 2021, and $45,998,000 in 2020. Restricted Stock Units (RSUs) The following table summarizes the Company's RSUs activity:
| Shares (in thousands) |  | Weighted-Average Grant Date Fair Value
Nonvested as of December 31, 2021 | 823 |  |  | $ | 65.26 |
Granted | 715 |  |  | 58.06 |
Vested | (192) |  |  | 61.96 |
Forfeited or expired | (77) |  |  | 64.65 |
Nonvested as of December 31, 2022 | 1,269 |  |  | $ | 61.74 |
The fair value of RSUs is determined based on the observable market price of the Company's stock on the grant date less the present value of expected future dividends. The weighted-average grant-date fair value of RSUs granted was $58.06 in 2022, $87.03 in 2021, and $52.09 in 2020. There were 192,000 RSUs that vested in 2022, 16,000 RSUs that vested in 2021, and no RSUs that vested in 2020. Performance Restricted Stock Units (PRSUs) The following table summarizes the Company's PRSUs activity:
| Shares (in thousands) |  | Weighted-Average Grant Date Fair Value
Nonvested as of December 31, 2021 | — |  |  | $ | — |
Granted | 33 |  |  | 62.49 |
Vested | — |  |  | — |
Forfeited or expired | — |  |  | — |
Nonvested as of December 31, 2022 | 33 |  |  | $ | 62.49 |
No PRSUs were granted or vested during the years ended December 31, 2021 and December 31, 2020. The fair value of PRSUs is calculated using a Monte Carlo simulation model to estimate the probability of satisfying the service and market conditions stipulated in the award grant. Stock-Based Compensation Expense The Company stratifies its employee population into two groups: one consisting of senior management and another consisting of all other employees. The Company currently applies an estimated annual forfeiture rate of 7% to stock-based awards for senior management and a rate of 12% for all other employees. Each year during the first quarter, the Company revises its forfeiture rate based on updated estimates of employee turnover. This resulted in an increase to compensation expense of $1,536,000 in 2022, a decrease to compensation expense of $255,000 in 2021, and an increase to compensation expense of $1,787,000 in 2020. As of December 31, 2022, total unrecognized compensation expense, net of estimated forfeitures, related to non-vested stock-based awards, including stock options, RSUs, and PRSUs, was $56,694,000, which is expected to be recognized over a weighted-average period of 1.51 years. The total stock-based compensation expense and the related income tax benefit recognized was $54,505,000 and $9,540,000, respectively, in 2022, $43,774,000 and $6,764,000, respectively, in 2021, and $42,661,000 and $6,569,000, respectively, in 2020. Stock-based compensation expense recognized in 2020 included credits of $1,401,000 relating to grants cancelled as a result of the Company's workforce reduction in the second quarter of 2020. No compensation expense was capitalized in 2022, 2021, or 2020. The following table presents the stock-based compensation expense by caption for each period presented on the Consolidated Statements of Operations (in thousands):
| Year Ended December 31,
| 2022 |  | 2021 |  | 2020
Cost of revenue | $ | 2,016 |  |  | $ | 1,345 |  |  | $ | 1,365 |
Research, development, and engineering | 17,693 |  |  | 13,535 |  |  | 13,387 |
Selling, general, and administrative | 34,796 |  |  | 28,894 |  |  | 27,909 |
| $ | 54,505 |  |  | $ | 43,774 |  |  | $ | 42,661 |

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