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Stock-Based Compensation

9 Months Ended

Mar. 31, 2023

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

17. Stock-Based Compensation

Adtalem maintains two stock-based incentive plans: the Amended and Restated Incentive Plan of 2005 and the Fourth Amended and Restated Incentive Plan of 2013, which are administered by the Compensation Committee of the Board. Under these plans, directors, key executives, and managerial employees are eligible to receive incentive or nonqualified stock options to purchase shares of Adtalem’s common stock, and also permit the granting of stock appreciation rights, restricted stock units (“RSUs”), performance-based RSUs, and other stock and cash-based compensation. Although options remain outstanding under the 2005 incentive plan, no further grants will be issued under this plan. We issue options generally with a four-year graduated vesting from the grant date and expire ten years from the grant date. The option price under the plans is the fair market value of the shares on the date of the grant. The Compensation Committee of the Board determined to no longer grant stock options beginning with the fiscal year 2023 stock-based grant awards.

Stock-based compensation expense is measured at the grant date based on the fair value of the award. Adtalem accounts for stock-based compensation granted to retirement eligible employees that fully vests upon an employee’s retirement under the non-substantive vesting period approach. Under this approach, the entire stock-based compensation expense is recognized at the grant date for stock-based grants issued to retirement eligible employees. For non-retirement eligible employees, stock-based compensation expense is recognized as expense over the employee requisite service period. We account for forfeitures of unvested awards in the period they occur.

As of March 31, 2023, 2,714,891 shares were authorized for issuance but not issued or subject to outstanding awards under Adtalem’s stock-based incentive plans.

The following is a summary of options activity for the nine months ended March 31, 2023:


							Weighted-Average
							Remaining		Aggregate
		Number of		Weighted-Average			Contractual Life		Intrinsic Value
		Options		Exercise Price			(in years)		(in thousands)
Outstanding as of July 1, 2022		1,144,372		$	35.36
Exercised		(62,214)			26.06
Forfeited		(3,975)			36.46
Expired		(1,575)			18.60
Outstanding as of March 31, 2023		1,076,608			35.92		5.7		$	4,346
Exercisable as of March 31, 2023		805,802		$	35.91		5.0		$	3,456

The total intrinsic value of options exercised for the nine months ended March 31, 2023 and 2022 was $0.8 million and $6.8 million, respectively.

The fair value of Adtalem’s options was estimated using a binomial model. This model uses historical cancellation and exercise experience of Adtalem to determine the option value. It also considers the illiquid nature of employee options during the vesting period.

The weighted-average estimated grant date fair value of options granted at market price under Adtalem’s stock-based incentive plans during the first nine months of fiscal year 2022 was $14.72 per share. No stock options were granted during the first nine months of fiscal year 2023. The fair value of Adtalem’s option grants was estimated assuming the following weighted-average assumptions:


		Fiscal Year
		2022
Expected life (in years)		6.56
Expected volatility		39.99	%
Risk-free interest rate		0.94	%
Dividend yield		0.00	%

The expected life of the options granted is based on the weighted-average exercise life with age and salary adjustment factors from historical exercise behavior. Adtalem’s expected volatility is computed by combining and weighting the implied market volatility, the most recent volatility over the expected life of the option grant, and Adtalem’s long-term historical volatility.

During the first nine months of fiscal year 2023, Adtalem granted 521,690 RSUs to selected employees and directors. Of these, 200,720 were performance-based RSUs and 320,970 were non-performance-based RSUs. We issue performance-based RSUs generally with a three-year cliff vest from the grant date. The final number of shares issued under performance-based RSUs is based on metrics approved by the Compensation Committee of the Board. Prior to fiscal year 2023, we issued non-performance-based RSUs generally with a four-year graduated vesting from the grant date. Beginning in fiscal year 2023, we issue non-performance-based RSUs generally with a three-year graduated vesting from the grant date. The recipient of the non-performance-based RSUs has the right to receive dividend equivalents, if any. This right does not pertain to the performance-based RSUs. The following is a summary of RSU activity for the nine months ended March 31, 2023:


				Weighted-Average
		Number of		Grant Date
		RSUs		Fair Value
Unvested as of July 1, 2022		1,171,692		$	35.05
Granted		521,690			40.08
Vested		(313,167)			37.33
Forfeited		(107,053)			36.97
Unvested as of March 31, 2023		1,273,162		$	36.39

The weighted-average estimated grant date fair values of RSUs granted at market price under Adtalem’s stock-based incentive plans during the first nine months of fiscal years 2023 and 2022 were $40.08 and $35.15, per share, respectively.

Stock-based compensation expense, which is included in student services and administrative expense, and the related income tax benefit were as follows (in thousands):


		Three Months Ended						Nine Months Ended
		March 31,						March 31,
		2023			2022			2023			2022
Stock-based compensation		$	2,795		$	4,673		$	10,908		$	18,604
Income tax benefit			(721)			(1,137)			(3,024)			(3,630)
Stock-based compensation, net of tax		$	2,074		$	3,536		$	7,884		$	14,974

As of March 31, 2023, $23.6 million of total pre-tax unrecognized stock-based compensation expense related to unvested grants is expected to be recognized over a weighted-average period of 2.1 years. The total fair value of options and RSUs vested during the nine months ended March 31, 2023 and 2022 was $14.0 million and $14.5 million, respectively. There was no capitalized stock-based compensation cost as of each of March 31, 2023, June 30, 2022, and March 31, 2022. Adtalem issues new shares of common stock to satisfy option exercises and RSU vests.