Stock-Based Compensation

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

5. STOCK-BASED COMPENSATION

The following table summarizes stock-based compensation expense related to stock options, performance stock units (“PSUs”), restricted stock units (“RSUs”) and restricted stock:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In thousands)	2022			2021			2022			2021
Stock-based compensation expense included in cost of revenue	$	162		$	125		$	321		$	256
Selling, general and administrative expense		1,135			1,098			2,259			2,196
Research and development expense		591			585			1,201			1,163
Stock-based compensation expense included in operating expenses		1,726			1,683			3,460			3,359
Total stock-based compensation expense		1,888			1,808			3,781			3,615
Tax benefit for expense associated with stock options, PSUs, RSUs and restricted stock		(472	)		(452	)		(945	)		(883	)
Total stock-based compensation expense, net of tax	$	1,416		$	1,356		$	2,836		$	2,732

PSUs, RSUs and Restricted Stock

The following table summarizes PSUs, RSUs and restricted stock outstanding as of December 31, 2021 and June 30, 2022 and the changes that occurred during the six months ended June 30, 2022:


	Number of Shares (in thousands)			Weighted Avg. Grant Date Fair Value (per share)
Unvested PSUs, RSUs and restricted stock outstanding, December 31, 2021		1,930		$	14.11
PSUs, RSUs and restricted stock granted		336		$	20.14
PSUs, RSUs and restricted stock vested		(15	)	$	13.26
PSUs, RSUs and restricted stock forfeited		(41	)	$	14.08
Unvested PSUs, RSUs and restricted stock outstanding, June 30, 2022		2,210		$	15.04

During each of the six months ended June 30, 2022 and 2021, the Company granted 0.3 million performance-based PSUs to its executive officers and certain employees. The grant-date fair value of these performance-based awards was based on the closing price of the Company’s stock on the date of grant. These awards vest over one-year, two-year and three-year periods, respectively, subject to the grantee’s continued employment, with the ability to earn shares in a range of 0% to 142.8% of the awarded number of PSUs based on the achievement of defined performance targets. Equity-based compensation expense with respect to these awards may be adjusted over the vesting period to reflect the probability of achievement of performance targets defined in the award agreements.

The fair value of RSUs and restricted stock is equal to the closing price of our stock on the date of grant. The fair value of PSUs with market conditions is calculated using a Monte Carlo simulation valuation method.

As of June 30, 2022, total unrecognized compensation expense related to non-vested market-based PSUs, RSUs and restricted stock was approximately $13.9 million, which will be recognized over the remaining weighted-average period of 2.5 years. Pursuant to the Business Combination, which was closed on July 15, 2022, 0.3 million of market-based PSUs were converted to time-based RSUs which will be treated as an award modification under U.S. GAAP in the third quarter of 2022. This will result in incremental compensation expense of $1.6 million which will be recognized over the remaining weighted-average period of 1.1 years. In addition, there was $13.2 million of unrecognized compensation expense related to unvested 2020, 2021 and 2022 performance-based PSUs, which will be recognized over the remaining requisite service period of 0.5 years if achievement of the performance obligation becomes probable. Pursuant to the Business Combination, which was closed on July 15, 2022, the unearned performance-based PSUs were converted to time-based RSUs which will be treated as an award modification under U.S. GAAP in the third quarter of 2022. This will result in incremental compensation and unrecognized compensation expense totaling $17.8 million, which will be recognized over the remaining service period of 0.5 years. Unrecognized compensation expense will be adjusted for actual forfeitures.

As of June 30, 2022, 3.5 million shares were available for issuance under stockholder-approved equity plans.

Stock Options

The following table summarizes stock options outstanding as of December 31, 2021 and June 30, 2022 and the changes that occurred during the six months ended June 30, 2022:


	Number of Stock Options (in thousands)			Weighted Avg. Exercise Price (per share)		Weighted Avg. Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Stock options outstanding, December 31, 2021		1,721		$	19.37		2.4	$	6,669
Stock options exercised		(37	)	$	17.24			$	110
Stock options expired		(23	)	$	23.67			$	5
Stock options outstanding, June 30, 2022		1,661		$	19.36		1.9	$	1,127
Stock options exercisable, June 30, 2022		1,661		$	19.36		1.9	$	1,127

As of June 30, 2022, there was no unrecognized compensation expense related to stock options as all awards vested in prior periods.

There were no stock options granted during the six months ended June 30, 2022 and 2021. All of the options were previously issued at exercise prices that approximated fair market value at the date of grant.

The aggregate intrinsic value of stock options represents the total pre-tax intrinsic value (the difference between ADTRAN’s closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2022. The amount of aggregate intrinsic value was $1.1 million as of June 30, 2022 and will change based on the fair market value of ADTRAN’s stock. The total pre-tax intrinsic value of options exercised during the six months ended June 30, 2022 was $0.1 million.