SOMNIGROUP INTERNATIONAL INC.SGI
SOMNIGROUP INTERNATIONAL INC. Stock Compensation Disclosure
Stock-based Compensation
Somnigroup has a stock-based compensation plan which provides for grants of non-qualified and incentive stock options, stock appreciation rights, restricted stock and stock unit awards, performance shares, stock grants and performance based awards to employees, non-employee directors, consultants and Company advisors. The plan under which equity awards may be granted in the future is the Amended and Restated 2013 Equity Incentive Plan, as amended and restated on May 11, 2017 and on May 5, 2022 (as amended and restated, the "2013 Plan"). It is the policy of the Company to issue stock out of treasury shares upon issuance or exercise of share-based awards. The Company believes that awards and purchases made under this plan better align the interests of the plan participants with those of its stockholders.
The 2013 Plan provides for grants of stock options to purchase shares of common stock to employees and directors of the Company. The 2013 Plan may be administered by the Human Resources/Capital and Talent Committee of the Board of Directors, by the Board of Directors directly or, in certain cases, by an executive officer or officers of the Company designated by the Human Resources/Capital and Talent Committee. The shares issued or to be issued under the 2013 Plan may be either authorized but unissued shares of the Company's common stock or shares held by the Company in its treasury. Somnigroup may issue a maximum of 44.7 million shares of common stock under the 2013 Plan, subject to certain adjustment provisions.
In 2013, the Board of Directors approved the terms of another Long-Term Incentive Plan established under the 2013 Plan. Awards under the Long-Term Incentive Plan have typically consisted primarily of a mix of stock options, RSUs and PRSUs. Shares with respect to the PRSUs will be granted and vest following the end of the applicable performance period and achievement of applicable performance metrics and strategic initiatives as determined by the Human Resources/Capital and Talent Committee of the Board of Directors.
The Company's stock-based compensation expense for the year ended December 31, 2025, 2024 and 2023 included PRSUs, RSUs and stock options. A summary of the Company's stock-based compensation expense is presented below:
| Year Ended December 31, | |||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| RSU expense | $ | 18.2 | $ | 17.9 | $ | 20.6 | |||||||||||
| PRSU expense | 17.3 | 16.3 | 24.9 | ||||||||||||||
| Stock option expense | 5.5 | 2.2 | 2.2 | ||||||||||||||
| Total stock-based compensation expense | $ | 41.0 | $ | 36.4 | $ | 47.7 | |||||||||||
Performance Restricted Stock Units
The Company grants PRSUs to executive officers and certain members of management. The Company granted PRSUs during the years ended December 31, 2025, 2024 and 2023. Actual payout under the PRSUs is dependent upon the achievement of certain financial and qualitative goals. A summary of the Company's PRSU activity and related information for the years ended December 31, 2025 and 2024 is presented below:
| (shares in millions) | Shares | Weighted Average Grant Date Fair Value | |||||||||
Awards unvested at December 31, 2023 | 2.9 | $ | 29.53 | ||||||||
| Granted | 0.3 | 50.34 | |||||||||
Performance adjustments (1) | — | 51.95 | |||||||||
| Vested | (1.6) | 25.37 | |||||||||
| Forfeited | — | 36.64 | |||||||||
Awards unvested at December 31, 2024 | 1.6 | 39.95 | |||||||||
| Granted | 0.2 | 55.72 | |||||||||
Performance adjustments (1) | — | 49.23 | |||||||||
| Vested | (0.8) | 34.71 | |||||||||
| Forfeited | (0.1) | 47.32 | |||||||||
Awards unvested at December 31, 2025 | 0.9 | $ | 49.52 | ||||||||
(1) Adjustments based on current attainment expectations of performance targets. | |||||||||||
During the first quarter of 2025, the Company granted 0.2 million PRSUs at target at a weighted average grant date fair value of $55.72 per share with a performance period of January 1, 2025 through December 31, 2025 as a component of the long-term incentive plan ("2025 PRSUs"). For the year ended December 31, 2025, the Company recognized stock-based compensation expense related to the 2025 PRSUs based on the Company's achievement of its performance targets for the performance period.
During the first quarter of 2024, the Company granted 0.3 million PRSUs at target at a weighted average grant date fair value of $50.34 per share with a performance period of January 1, 2024 through December 31, 2024 as a component of the long-term incentive plan ("2024 PRSUs"). For the year ended December 31, 2024, the Company recognized stock-based compensation expense related to the 2024 PRSUs based on the Company's achievement of its performance targets for the performance period.
Stock Options
The Company uses the Black-Scholes option-pricing model to calculate the fair value of stock options granted. During the years ended December 31, 2024 and 2023, no stock options were granted. The assumptions used in the Black-Scholes option-pricing model for the year ended December 31, 2025 are set forth in the following table. Expected volatility is based on the unbiased standard deviation of the Company's common stock over the option term. The expected life of the options represents the period of time that the Company expects the options granted to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant of the option for the expected term of the instrument. The dividend yield reflects an estimate of dividend payouts over the term of the award. The Company uses historical data to determine these assumptions.
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Expected volatility of stock | 40.3% | N/A | N/A | ||||||||||||||
| Expected life of option, in years | 4 | N/A | N/A | ||||||||||||||
| Risk-free interest rate | 3.9% | N/A | N/A | ||||||||||||||
| Expected dividend yield on stock | 0.9% | N/A | N/A | ||||||||||||||
A summary of the Company's stock option activity under the 2013 Plan for the years ended December 31, 2025 and 2024 is presented below:
| (in millions, except per share amounts and years) | Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||||||||
Options outstanding at December 31, 2023 | 4.6 | $ | 20.54 | ||||||||||||||||||||
| Granted | — | — | |||||||||||||||||||||
| Exercised | — | 14.22 | |||||||||||||||||||||
| Forfeited | — | 12.97 | |||||||||||||||||||||
Options outstanding at December 31, 2024 | 4.6 | $ | 20.60 | ||||||||||||||||||||
| Granted | 1.2 | 72.00 | |||||||||||||||||||||
| Exercised | (2.8) | 17.54 | |||||||||||||||||||||
| Forfeited | — | 14.38 | |||||||||||||||||||||
Options outstanding at December 31, 2025 | 3.0 | $ | 44.59 | 6.89 | $ | 131.0 | |||||||||||||||||
Options exercisable at December 31, 2025 | 1.4 | $ | 24.66 | 4.83 | $ | 92.5 | |||||||||||||||||
The aggregate intrinsic value of options exercised during the years ended December 31, 2025 and 2024 was $135.7 million and $1.6 million, respectively.
A summary of the Company's unvested shares relating to stock options as of December 31, 2025 and 2024, and changes during the years ended December 31, 2025 and 2024, are presented below:
| (shares in millions) | Shares | Weighted Average Grant Date Fair Value | |||||||||
Options unvested at December 31, 2023 | 0.9 | $ | 30.00 | ||||||||
| Granted | — | — | |||||||||
| Vested | (0.3) | 30.00 | |||||||||
| Forfeited | — | — | |||||||||
Options unvested at December 31, 2024 | 0.6 | $ | 30.00 | ||||||||
| Granted | 1.2 | 72.00 | |||||||||
| Vested | (0.2) | 30.00 | |||||||||
| Forfeited | — | — | |||||||||
Options unvested at December 31, 2025 | 1.6 | $ | 63.60 | ||||||||
Restricted Stock Units
A summary of the Company's RSU activity and related information for the years ended December 31, 2025 and 2024 is presented below:
| (in millions, except per share amounts) | Shares | Weighted Average Grant Date Fair Value | Aggregate Intrinsic Value | ||||||||||||||
Awards outstanding at December 31, 2023 | 1.7 | $ | 29.51 | ||||||||||||||
| Granted | 0.3 | 48.23 | |||||||||||||||
| Vested | (0.6) | 32.09 | |||||||||||||||
| Terminated | — | 39.55 | |||||||||||||||
Awards outstanding at December 31, 2024 | 1.4 | $ | 33.29 | $ | 77.9 | ||||||||||||
| Granted | 0.3 | 57.26 | |||||||||||||||
| Vested | (0.5) | 39.51 | |||||||||||||||
| Terminated | — | 47.63 | |||||||||||||||
Awards outstanding at December 31, 2025 | 1.2 | $ | 37.36 | $ | 111.0 | ||||||||||||
The aggregate intrinsic value of RSUs vested during the years ended December 31, 2025 and 2024 was $25.6 million and $30.8 million, respectively.
A summary of total unrecognized stock-based compensation expense based on current performance estimates related to stock options, RSUs and PRSUs for the year ended December 31, 2025 is presented below:
| (in millions, except years) | December 31, 2025 | Weighted Average Remaining Vesting Period (Years) | |||||||||
| Unrecognized stock option expense | $ | 22.8 | 3.32 | ||||||||
| Unrecognized RSU expense | 20.2 | 2.27 | |||||||||
| Unrecognized PRSU expense | 14.8 | 1.63 | |||||||||
| Total unrecognized stock-based compensation expense | $ | 57.8 | 2.52 | ||||||||
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.