Note 8 - Share-Based Compensation

12 Months Ended

Dec. 31, 2025

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

(8) 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.

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 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 December 31, 2025, 672,000 restricted stock awards and 242,460 stock options had been granted, and 4.1 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. Such vesting terms vary by grant and option award and generally range from immediate vesting to five 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 253,481, 54,530, and 96,359 service-based stock option awards during the years ended December 31, 2025, 2024, and 2023, respectively. 

The fair value of service-based stock options granted in 2025, 2024, and 2023 were estimated using a Black-Scholes valuation model with the following weighted average assumptions:

	2025			2024			2023
Expected dividend yield at date of grant		4.73	%		1.94	%		2.13	%
Expected stock price volatility		32.55	%		33.75	%		35.12	%
Risk-free interest rate		3.83	%		4.50	%		3.61	%
Expected life of options (in years)		5.13			5.0			6.85

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 for the year ended December 31, 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		253,481	$	12.88
Exercised		22,360	$	14.31
Expired		59,965	$	24.70
Forfeited		32,695	$	41.29
Outstanding at December 31, 2025		608,782	$	27.52		7.11	$	1,526
Exercisable at December 31, 2025		378,233	$	32.84		6.15	$	518

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 year ended December 31, 2024. No performance-based stock options were awarded in 2025 or 2023.

The fair value of performance-based stock options granted was estimated using a Black-Scholes valuation model with the following weighted average assumptions:

	2024
Expected dividend yield at date of grant		1.44	%
Expected stock price volatility		33.83	%
Risk-free interest rate		4.13	%
Expected life of options (in years)		4.0

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 performance-based stock option activity for the year ended December 31, 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 December 31, 2025		104,833	$	39.54		4.05	$	—
Exercisable at December 31, 2025		—	$	—		—	$	—

The following table summarizes information related to stock options for the years ended December 31, 2025, 2024, and 2023:

	2025		2024		2023
Weighted average grant date fair value of stock options granted	$	2.78	$	11.12	$	13.29
Intrinsic value of stock options exercised (in thousands)	$	75	$	1,275	$	2,037
Intrinsic value of stock options vested (in thousands)	$	518	$	146	$	3,894

As of December 31, 2025, the total unrecognized compensation cost related to non-vested performance-based and service-based stock option awards was approximately $1.5 million which was expected to be recognized over a weighted average period of 1.1 years.

There was $132,000 and $584,000 in cash received from stock options exercised for the years ended December 31, 2025, and 2023, respectively. No cash was received for stock options exercised for the year ended December 31, 2024. We recognized $545,000, $440,000, and $997,000 of non-cash compensation for the years ended December 31, 2025, 2024, and 2023, respectively, related to options, which is included in selling, general and administrative expenses. The tax benefit realized for the tax deduction from stock options exercised was $21,000, $316,000, and $498,000 for the years ended December 31, 2025, 2024, and 2023, respectively.

Non-vested Stock Awards

We granted 872,000 non-vested shares of common stock during the year ended December 31, 2025. No shares of non-vested common stock were granted during the years ended December 31, 2024, or 2023. As of December 31, 2025, there were 829,000 non-vested shares of common stock outstanding and total remaining unrecognized compensation cost of $8.8 million which was expected to be recognized over a weighted average period of 2.28 years. We recognized non-cash compensation expense (benefit) of $2.8 million, ($156,000), and ($62,000) for the years ended December 31, 2025, 2024, and 2023, respectively, related to this non-vested stock, which is included in selling, general and administrative expenses. 43,000 shares of restricted stock vested during the year ended December 31, 2025. No restricted stock vested during the years end December 31, 2024, and 2023.

The following table summarizes information regarding non-vested stock granted for the year ended December 31, 2025:

	Common Stock Outstanding		Common Stock Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2024		—	$	—
Granted		872,000	$	13.21
Vested		43,000	$	13.30
Forfeited		—	$	—
Outstanding at December 31, 2025		829,000	$	13.21