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Stock-Based Compensation | 9 Months Ended
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Sep. 30, 2022
Share-Based Payment Arrangement [Abstract] |
Stock-Based Compensation | 6. STOCK-BASED COMPENSATION For the three months ended September 30, 2022 and 2021, stock-based compensation expense was $12.1 million and $1.8 million, respectively. For the nine months ended September 30, 2022 and 2021, stock-based compensation expense was $15.9 million and $5.5 million, respectively. PSUs, RSUs and Restricted Stock - ADTRAN Holdings, Inc. The following table summarizes the RSUs and restricted stock outstanding as of December 31, 2021 and September 30, 2022 and the changes that occurred during the nine months ended September 30, 2022:
|  | Number of Shares (in thousands) |  |  | Weighted Avg. Grant Date Fair Value (per share) |
Unvested RSUs and restricted stock outstanding, December 31, 2021 |  |  | 1,930 |  |  | $ | 14.11 |
RSUs and restricted stock granted |  |  | 545 |  |  | $ | 19.96 |
RSUs and restricted stock vested |  |  | (20 | ) |  | $ | 13.67 |
RSUs and restricted stock forfeited |  |  | (46 | ) |  | $ | 14.18 |
Unvested RSUs and restricted stock outstanding, September 30, 2022 |  |  | 2,409 |  |  | $ | 17.36 |
During each of the nine months ended September 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. Pursuant to the Business Combination, the unearned performance-based PSUs converted to time-based RSUs which was treated as an award modification during the third quarter of 2022. This resulted in incremental compensation and unrecognized compensation expense totaling $17.8 million of which $8.9 million was recognized during the three months ended September 30, 2022 and the remainder will be recognized over the remaining service period of 0.3 years. Unrecognized compensation expense will be adjusted for actual forfeitures. Pursuant to the Business Combination, 0.3 million shares of market-based PSU awards converted to time-based RSU's awards which was treated as an award modification during the third quarter of 2022. Given that the fair value of these awards after the modification was less than the fair value of the awards immediately before the modification, no incremental compensation expense was recognized. The Company continued to recognize compensation expense based on the award's original grant date fair value. As of September 30, 2022, there was $2.1 million of unrecognized compensation expense related to these awards which will be recognized over the weighted average remaining service period of 1.1 years. The fair value of RSUs and restricted stock is equal to the closing price of its 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 September 30, 2022, total unrecognized compensation expense related to non-vested market-based RSUs and restricted stock was approximately $24.6 million, which will be recognized over the remaining weighted-average period of 1.6 years. As of September 30, 2022, 3.4 million shares were available for issuance under stockholder-approved equity plans. Stock Options - ADTRAN Holdings, Inc. The following table summarizes ADTRAN Holdings, Inc. stock options outstanding as of December 31, 2021 and September 30, 2022 and the changes that occurred during the nine months ended September 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 |
ADVA stock options replaced by ADTRAN Holdings stock options(1) |  |  | 1,980 |  |  | $ | 11.16 |  |  |  |  |  |  |
Stock options exercised |  |  | (439 | ) |  | $ | 16.16 |  |  |  |  |  |  |
Stock options forfeited |  |  | (12 | ) |  | $ | 11.08 |  |  |  |  |  |  |
Stock options expired |  |  | (70 | ) |  | $ | 26.38 |  |  |  |  |  |  |
Stock options outstanding, September 30, 2022 |  |  | 3,180 |  |  | $ | 14.58 |  |  |  | 3.5 |  |  | $ | 17,839 |
Stock options exercisable, September 30, 2022 |  |  | 1,627 |  |  | $ | 16.85 |  |  |  | 2.0 |  |  | $ | 6,375 |
(1) Each ADVA stock option surrendered was exchanged for 0.8244 ADTRAN Holdings stock options. As of September 30, 2022, there was $9.0 million of unrecognized compensation expense related to stock options which will be recognized over the remaining weighted-average period of 2.7 years. Pursuant to the Business Combination, which closed on July 15, 2022, ADVA stock option holders were entitled to have their ADVA stock options assumed by ADTRAN Holdings (applying the exchange ratio in the Business Combination Agreement), thereafter representing options to acquire stock of ADTRAN Holdings. The maximum number of shares of ADTRAN Holdings stock potentially issuable upon such assumption was 2.1 million shares. The period in which such options could be assumed ended July 22, 2022. A total of 2.0 million shares of ADTRAN Holdings stock are subject to assumed ADVA options. The determination of the fair value of stock options assumed by ADTRAN Holdings was estimated using the Monte Carlo method and is affected by its stock price, as well as assumptions regarding a number of complex and subjective variables that may have a significant impact on the fair value estimate. The stock option pricing model requires the use of several assumptions that impact the fair value estimate. These variables include, but are not limited to, the volatility of the Company's stock price and employee exercise behaviors. 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 September 30, 2022. The amount of aggregate intrinsic value was $17.8 million as of September 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 nine months ended September 30, 2022 was $3.4 million. Stock Options - ADVA Optical Networking SE The following table summarizes ADVA Optical Networking SE stock options outstanding as of July 15, 2022 (the Business Combination closing date) and September 30, 2022 and the changes that occurred between July 15, 2022 and September 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, July 15, 2022 |  |  | 2,745 |  |  | $ | 9.09 |  |  |  | 4.6 |  |  | $ | 27,205 |
Stock options exercised |  |  | (56 | ) |  | $ | 6.79 |  |  |  |  |  |  |
ADVA stock options replaced by ADTRAN Holdings stock options(1) |  |  | (2,403 | ) |  | $ | 9.25 |  |  |  |  |  |  |
Stock options forfeited |  |  | (4 | ) |  | $ | 7.91 |  |  |  |  |  |  |
Stock options outstanding, September 30, 2022 |  |  | 282 |  |  | $ | 8.45 |  |  |  | 3.9 |  |  | $ | 2,976 |
Stock options exercisable, September 30, 2022 |  |  | 32 |  |  | $ | 7.72 |  |  |  | 1.2 |  |  | $ | 363 |
(1) Each ADVA stock option surrendered was exchanged for 0.8244 ADTRAN Holdings stock options. As of September 30, 2022, there was $0.3 million of unrecognized compensation expense related to stock options which will be recognized over the remaining weighted-average period of 1.1 years. 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 ADVA'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 September 30, 2022. The amount of aggregate intrinsic value was $3.0 million as of September 30, 2022 and will change based on the fair market value of ADVA's stock. The total pre-tax intrinsic value of options exercised during the period July 15, 2022 through September 30, 2022 was $0.7 million.

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