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Note 5 - Share-based Compensation | 6 Months Ended
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Jun. 30, 2025
Notes to Financial Statements |
Share-Based Payment Arrangement [Text Block] |
(5) | SHARE-BASED COMPENSATION
We measure and recognize compensation expense for all share-based payments based on the grant-date fair value of those awards. All of our existing stock option awards and unvested stock awards have been determined to be equity-classified awards. We account for forfeitures as they occur. Our 2004 Non-Employee Director Stock Plan, as amended (the “2004 Director Plan”), was a nonqualified plan that provided for the granting of options with respect to 3.0 million shares of our common stock. The 2004 Director Plan provided for grants of nonqualified stock options to each of our directors who we do not employ. On the date of each annual meeting of shareholders, options to purchase shares of common stock equal to an aggregate grant date fair value of $100,000 were granted to each non-employee director that was elected or retained as a director at each such meeting. Stock options vest approximately one year following the date of grant and option terms are generally the earlier of ten years following the date of grant, or three years from the termination of the outside director’s service. Our 2006 Equity Incentive Plan (the “2006 Equity Incentive Plan”), as amended, provided for the granting of stock options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of 1.8 million shares of our common stock. Stock options granted could be either incentive stock options or nonqualified stock options. Options to purchase shares of common stock were typically granted with exercise prices equal to the fair value of the common stock on the date of grant. In May 2025, our shareholders approved the National Research Corporation 2025 Omnibus Incentive Plan (the “2025 Omnibus Incentive Plan”), which became effective on May 7, 2025, and replaced the 2004 Director Plan and the 2006 Equity Incentive Plan. The 2025 Omnibus Incentive Plan provides for the granting of performance awards, stock options, stock appreciation rights, stock awards, restricted stock and other share-based awards and benefits up to an aggregate of 5.0 million shares of our common stock. The exercise prices of options to purchase shares of common stock are typically equal to the fair value of the common stock on the date of grant. Options granted may be either incentive stock options or nonqualified stock options. Vesting terms and option terms vary with each grant. At June 30, 2025, 500,000 restricted stock awards had been granted and 4.5 million shares of common stock were available for issuance pursuant to future grants under the 2025 Omnibus Incentive Plan. Service-Based Stock Option Awards We grant stock options to directors and selected executives with vesting based on specified service periods. Vesting terms vary with each grant and option terms are generally five to ten years following the date of grant. We recognize compensation expense on a straight-line basis over the service period specified in the award. We granted 11,021 and 54,530 service-based stock option awards during the six-month periods ended June 30, 2025 and 2024, respectively. The fair value of service-based stock options granted in 2025 was estimated using a Black-Scholes valuation model with the following weighted average assumptions:
|  | 2025 |
Expected dividend yield at date of grant |  |  | 3.86 | %
Expected stock price volatility |  |  | 33.75 | %
Risk-free interest rate |  |  | 4.72 | %
Expected life of options (in years) |  |  | 8.0 |
The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was based on historical monthly price changes of our stock based on the expected life of the options at the date of grant. The expected life of options is the average number of years we estimate that options will be outstanding. We consider groups of associates that have similar historical exercise behavior separately for valuation purposes. The following table summarizes service-based stock option activity under the 2006 Equity Incentive Plan and the 2004 Director Plan for the six-month period ended June 30, 2025:
|  | Number of Options |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Terms (Years) |  |  | Aggregate Intrinsic Value (In thousands) |
Outstanding at December 31, 2024 |  |  | 470,321 |  |  | $ | 35.38 |  |  |  |  |  |  |  |  |
Granted |  |  | 11,021 |  |  | $ | 17.34 |  |  |  |  |  |  |  |  |
Exercised |  |  | 10,014 |  |  | $ | 13.17 |  |  |  |  |  |  |  |  |
Expired |  |  | 59,965 |  |  | $ | 24.70 |  |  |  |  |  |  |  |  |
Forfeited |  |  | 32,695 |  |  | $ | 41.29 |  |  |  |  |  |  |  |  |
Outstanding at June 30, 2025 |  |  | 378,668 |  |  | $ | 36.62 |  |  |  | 5.87 |  |  | $ | 34 |
Exercisable at June 30, 2025 |  |  | 322,704 |  |  | $ | 36.63 |  |  |  | 5.65 |  |  | $ | 34 |
Performance-Based Stock Option Awards We also grant stock options to selected executives with vesting contingent upon meeting certain Company-wide performance goals. The performance goals for options issued in 2024 are based on reaching a total recurring contract value target, measured at the end of the performance period, December 31, 2026. Vesting is also dependent upon remaining in our employment through the performance period. The performance awards issued in 2024 have a six-year contractual term. We recognize compensation expense prospectively from the date it is deemed probable that the performance goal will be met through the end of the performance period. We did not recognize compensation expense related to performance-based awards in 2025 or 2024 since achieving the performance goals was not deemed probable. We granted 404,833 performance-based stock option awards during the six-month period ended June 30, 2024. No performance-based stock options were awarded in 2025. The following table summarizes performance-based stock option activity for the six-month period ended June 30, 2025:
|  | Number of Options |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Terms (Years) |  |  | Aggregate Intrinsic Value (In thousands) |
Outstanding at December 31, 2024 |  |  | 404,833 |  |  | $ | 39.54 |  |  |  |  |  |  |  |  |
Granted |  |  | - |  |  |  |  |  |  |  |  |  |  |  |  |
Exercised |  |  | - |  |  |  |  |  |  |  |  |  |  |  |  |
Forfeited |  |  | 300,000 |  |  | $ | 39.54 |  |  |  |  |  |  |  |  |
Outstanding at June 30, 2025 |  |  | 104,833 |  |  | $ | 39.54 |  |  |  | 4.56 |  |  | $ | - |
Exercisable at June 30, 2025 |  |  | - |  |  |  |  |  |  |  |  |  |  |  |  |
As of June 30, 2025, the total unrecognized compensation cost related to non-vested performance-based and service-based stock option awards was approximately $1.4 million which was expected to be recognized over a weighted average period of 2.60 years. There was $132,000 of cash received from stock options exercised during the six-month period ended June 30, 2025. No cash was received from stock options exercised during the six-month period ended June 30, 2024. We recognized (87,000) and $112,000 of non-cash compensation (benefit) for the three-month periods ended June 30, 2025 and 2024, respectively, and $84,000 and $64,000 of non-cash compensation for the six-month periods ended June 30, 2025 and 2024, respectively, related to options, which is included in selling, general and administrative expenses. Non-vested Stock Awards We granted 700,000 non-vested shares of common stock during the six-month period ended June 30, 2025. No non-vested shares were granted in 2024. We recognized non-cash compensation (benefit) expense of $394,000 and ($169,000) for the three-month periods ended June 30, 2025 and 2024, respectively, and $394,000 and ($156,000) for the six-month periods ended June 30, 2025 and 2024, respectively, related to non-vested stock, which is included in selling, general and administrative expenses. The following table summarizes information regarding non-vested stock granted to associates under the 2006 Equity Incentive Plan and the 2025 Omnibus Incentive Plan for the six-month period ended June 30, 2025:
|  | Common Stock Outstanding |  |  | Weighted Average Grant Date Fair Value Per Share |
Outstanding at December 31, 2024 |  |  | - |  |  |  |  |
Granted |  |  | 700,000 |  |  |  | 13.19 |
Vested |  |  | - |  |  |  | - |
Forfeited |  |  | - |  |  |  | - |
Outstanding at June 30, 2024 |  |  | 700,000 |  |  | $ | 13.19 |
As of June 30, 2025, the total unrecognized compensation cost related to non-vested shares common stock awards was approximately $8.8 million which was expected to be recognized over a weighted average period of 2.87 years.

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