Pre-tax unrecognized compensation cost

[Table of Contents](#i3b067f3fb23d442cae02253229e3471d_7)Stock-Based Compensation Expense  
The following table summarizes the components of total stock-based compensation expense included in the Company’s consolidated statements of income for the years ended December 31, 2021, 2020 and 2019 (in thousands): 

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | 2021 |  | 2020 |  | 2019 |
| Cost of revenue | $ | 27,143  |  |  | $ | 24,829  |  |  | $ | 22,479  |  |
| Research and development | 65,950  |  |  | 48,855  |  |  | 49,685  |  |
| Sales and marketing | 46,342  |  |  | 65,257  |  |  | 62,150  |  |
| General and administrative | 63,324  |  |  | 58,470  |  |  | 52,826  |  |
| Total stock-based compensation | 202,759  |  |  | 197,411  |  |  | 187,140  |  |
| Provision for income taxes | (56,084) |  |  | (62,153) |  |  | (51,177) |  |
| Total stock-based compensation, net of taxes | $ | 146,675  |  |  | $ | 135,258  |  |  | $ | 135,963  |  |

  
In addition to the amounts of stock-based compensation reported in the table above, the Company’s consolidated statements of income for the years ended December 31, 2021, 2020 and 2019 also include stock-based compensation reflected as a component of amortization primarily consisting of capitalized internal-use software; the additional stock-based compensation was $32.4 million, $29.6 million and $30.6 million, respectively, before taxes.  
The Company uses the Black-Scholes option pricing model to determine the fair value of the Company’s stock option awards. This model requires the input of subjective assumptions, including expected stock price volatility and the estimated term of each award. The estimated fair value of the Company's stock-based awards, less expected forfeitures, is amortized over the awards’ vesting period on a straight-line basis. Expected volatilities are based on the Company’s historical stock price volatility and implied volatility from traded options in its stock. The Company uses historical data to estimate the expected term of options granted within the valuation model. The risk-free interest rate for periods commensurate with the expected term of the option is based on the U.S. Treasury yield rate in effect at the time of grant. The expected dividend yield is zero, as the Company currently does not pay a dividend and does not anticipate doing so in the future.  
The grant-date fair values of awards granted under the 1999 ESPP during the years ended December 31, 2021, 2020 and 2019 were estimated using the Black-Scholes option pricing model with the following weighted-average assumptions: 

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | 2021 |  | 2020 |  | 2019 |
| Expected term (in years) | 0.5 |  | 0.5 |  | 0.5 |
| Risk-free interest rate | 0.1  | % |  | 0.7  | % |  | 2.3  | % |
| Expected volatility | 32.2  | % |  | 30.4  | % |  | 29.6  | % |
| Dividend yield | —  | % |  | —  | % |  | —  | % |

  
For the years ended December 31, 2021, 2020 and 2019, the weighted average fair value of awards granted under the 1999 ESPP was $36.17 per share, $32.30 per share and $20.90 per share, respectively.  
As of December 31, 2021, total pre-tax unrecognized compensation cost for stock options, restricted stock units, deferred stock units and shares of common stock issued under the 1999 ESPP was $315.5 million. The expense is expected to be recognized through 2025 over a weighted average period of 1.8 years years.  
  
  
  
83
