The following table summarizes stock-based compensation expense related to stock options, PSUs, RSUs and restricted stock for the years ended December 31, 2023, 2022 an

d 2021:


(In thousands)	2023			2022			2021
Stock-based compensation expense included in cost of revenue	$	1,293		$	2,876		$	543
Selling, general and administrative expenses		10,701			20,844			4,571
Research and development expenses		4,022			4,602			2,366
Stock-based compensation expense included in operating expenses		14,723			25,446			6,937
Total stock-based compensation expense		16,016			28,322			7,480
Tax benefit for expense associated with non-qualified stock options, PSUs, RSUs and restricted stock		(3,837	)		(5,152	)		(1,849	)
Total stock-based compensation expense, net of tax	$	12,179		$	23,170		$	5,631

At the annual meeting of stockholders held on May 13, 2020, the Company’s stockholders approved, upon recommendation of the Board of Directors, the adoption of the ADTRAN, Inc. 2020 Employee Stock Incentive Plan (the “2020 Employee Plan”), as well as the ADTRAN, Inc. 2020 Directors Stock Plan (the “2020 Directors Plan”), which were assumed by the Company upon consummation of the Merger. No additional awards will be granted under the Company’s previous stock incentive plans, the ADTRAN, Inc. 2015 Employee Stock Incentive Plan (the “2015 Employee Plan”) or the 2010 Directors Stock Plan (the “2010 Directors Plan”) subsequent to the stockholders’ approval of these new stock plans. Outstanding awards granted under the 2015 Employee Plan and the 2010 Directors Plan will remain subject to the terms of such plans, and shares underlying awards granted under such plans that are cancelled or forfeited will be available for issuance under the 2020 Employee Plan or the 2020 Directors Plan, as applicable.

Under the 2020 Employee Plan, the Company is authorized to issue 2.8 million shares of common stock to certain employees, key Service Providers and advisors through incentive stock options and non-qualified stock options, stock appreciation rights, RSUs and restricted stock, any of which may be subject to performance-based conditions. RSUs and restricted stock granted under the 2020 Employee Plan will typically vest pursuant to a four-year vesting schedule beginning on the first anniversary of the grant date. Stock options granted under the 2020 Employee Plan will typically become exercisable beginning after one year of continued employment, normally pursuant to a four-year vesting schedule beginning on the first anniversary of the grant date and have a ten-year contractual term. Stock options, RSUs and restricted stock granted under the 2020 Employee Plan reduce the shares authorized for issuance under the 2020 Employee Plan by one share of common stock for each share underlying the award. Forfeitures, cancellations or expirations of awards granted under the 2015 Employee Plan increase the shares authorized for issuance under the 2020 Employee Plan, with forfeitures, cancellations or expirations of RSUs and restricted stock increasing the shares authorized for issuance by 2.5 shares of common stock for each share underlying the award. Forfeitures, cancellations or expirations of stock options from the 2015 Employee Plan increase the shares authorized for issuance under the 2020 Employee Plan by one share of common stock for each share underlying the award.

Under the 2020 Directors Plan, the Company is authorized to issue 0.4 million shares of common stock through stock options, restricted stock and RSUs to non-employee directors. Stock awards issued under the 2020 Directors Plan typically will become vested in full on the first anniversary of the grant date. Stock options issued under the 2020 Directors Plan will have a ten-year contractual term. Stock options, restricted stock and RSUs granted under the 2020 Directors Plan reduce the shares authorized for issuance under the 2020 Directors Plan by one share of common stock for each share underlying the award. Forfeitures, cancellations and expirations of awards granted under the 2010 Directors Stock Plan increase the shares authorized for issuance under the 2020 Directors Plan by one share of common stock for each share underlying the award.

As of December 31, 2023, 1.1 million shares were available for issuance under shareholder-approved equity plans in connection with the grant and exercise of stock options, PSU’s, RSU’s or restricted stock.

In January 2015, the Board of Directors adopted the 2015 Employee Plan, which authorized 7.7 million shares of common stock for issuance to certain employees and officers through incentive stock options and non-qualified stock options, stock appreciation rights, PSUs, RSUs and restricted stock. The 2015 Employee Plan was adopted by stockholder approval at our annual meeting of stockholders held in May 2015. PSUs, RSUs and restricted stock granted under the 2015 Plan reduce the shares authorized for issuance under the 2015 Employee Plan by 2.5 shares of common stock for each share underlying the award. Options granted under the 2015 Employee Plan typically become exercisable beginning after one year of continued employment, normally pursuant to a four-year vesting schedule beginning on the first anniversary of the grant date and have a ten-year contractual term. Expiration dates of options outstanding as of December 31, 2023 under the 2015 Employee Plan range from 2024 to 2029.

In January 2006, the Board of Directors adopted the ADTRAN, Inc. 2006 Employee Stock Incentive Plan (the “2006 Plan”), which authorized 13.0 million shares of common stock for issuance to officers and certain employees through incentive stock options and non-qualified stock options, stock appreciation rights, RSUs and restricted stock. Options granted under the 2006 Plan typically become exercisable beginning after one year of continued employment, normally pursuant to a four-year vesting schedule beginning on the first anniversary of the grant date and had a ten-year contractual term. The 2006 Plan was replaced in May 2015 by the 2015 Employee Plan. Options outstanding as of December 31, 2023 under the 2006 Plan expire in 2024.

The following table is a summary of our PSUs, RSUs and restricted stock outstanding as of December 31, 2022 and 2023 and the changes that occurred during 2023:


	Number of shares (In thousands)			Weighted Average Grant Date Fair Value (Per Share)
Unvested PSUs, RSUs and restricted stock outstanding, December 31, 2022		1,086		$	17.54
PSUs, RSUs and restricted stock granted		1,509		$	16.43
PSUs, RSUs and restricted stock vested		(501	)	$	14.67
PSUs, RSUs and restricted stock forfeited		(152	)	$	17.04
Unvested PSUs, RSUs and restricted stock outstanding, December 31, 2023		1,942		$	17.46

The following table details the significant assumptions that impact the fair value estimate of the market-based PSUs:


	2023			2022			2021
Estimated fair value per share	$	19.26		$	24.01		$	26.07
Expected volatility		51.52	%		45.77	%		53.27	%
Risk-free interest rate		3.93	%		4.28	%		0.85	%
Expected dividend yield		2.55	%		1.76	%		1.63	%

For market-based PSUs, the number of shares of common stock earned by a recipient is subject to a market condition based on ADTRAN’s relative total shareholder return against all companies in the NASDAQ Telecommunications Index at the end of a three-year performance period. Depending on the relative total shareholder return over the performance period, the recipient may earn from 0% to 150% of the shares underlying the PSUs, with the shares earned distributed upon the vesting. The fair value of the award is based on the market price of our common stock on the date of grant, adjusted for the expected outcome of the impact of market conditions using a Monte Carlo Simulation valuation method. A portion of the granted PSUs vests and the underlying shares become deliverable upon the death or disability of the recipient or upon a change of control of ADTRAN, as defined by the 2020 Employee Plan. The recipients of the PSUs receive dividend credits based on the shares of common stock underlying the PSUs. The dividend credits vest and are earned in the same manner as the PSUs and are paid in cash upon the issuance of common stock for the PSUs.

During the year ended December 31, 2023, the Company granted 0.9 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 either a two or three-year period, subject to the grantee’s continued employment, with the ability to earn shares in a range of 0% to either 100% or 150% of the awarded number of PSUs based on the achievement of defined performance targets. Equity-based compensation expense and liabilities 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.

During each of the years ended December 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 vested over one-year and two-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 were treated as an award modification during the third quarter of 2022. This resulted in incremental compensation expense totaling $17.8 million being recognized during the twelve months ended December 31, 2022. These awards were fully vested as of December 31, 2022.

Pursuant to the Business Combination, 0.3 million shares of market-based PSU awards converted to time-based RSU awards which were 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.

The fair value of RSUs and restricted stock is equal to the closing price of our stock on the grant date. RSUs and restricted stock vest ratably over four-year and one-year periods, respectively.

We will continue to assess the assumptions and methodologies used to calculate the estimated fair value of stock-based compensation. If circumstances change, and additional data becomes available over time, we may change our assumptions and methodologies, which may materially impact our fair value determination.

As of December 31, 2023, total unrecognized compensation expense related to the non-vested portion of market-based PSUs, RSUs and restricted stock was approximately $15.5 million, which is expected to be recognized over an average remaining recognition period of 2.1 years. There was $10.5 million of unrecognized compensation expense related to unvested 2023 performance-based PSUs, which will be recognized over the remaining requisite service period of 2.0 years if achievement of the performance obligation becomes probable. Unrecognized compensation expense will be adjusted for actual forfeitures as they occur.

The following table is a summary of stock options outstanding as of December 31, 2023 and 2022 and the changes that occurred during 2023:


	Number of Options (In thousands)			Weighted Average Exercise Price (Per share)		Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value (In thousands)
Stock options outstanding, December 31, 2022		3,148		$	14.37		3.42	$	16,251
Stock options granted		1,330		$	5.27
Stock options exercised		(23	)	$	7.02
Stock options forfeited		(74	)	$	11.20
Stock options expired		(487	)	$	22.74
Stock options outstanding, December 31, 2023		3,894		$	10.32		5.25	$	3,087
Stock options exercisable, December 31, 2023		1,478		$	12.47		1.62	$	254

As of December 31, 2023, there was $8.1 million of unrecognized compensation expense related to stock options which will be recognized over the remaining weighted-average period of 1.8 years.

Pursuant to the Business Combination, which closed on July 15, 2022, Adtran Networks stock option holders were entitled to have their Adtran Networks 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 2.3 million shares. The period in which such options could be assumed ended July 22, 2022. A total of 2.1 million shares of ADTRAN Holdings stock are subject to assumed Adtran Networks options.

As part of our Business Efficiency Program, on October 25, 2023, all employees were informed of certain personnel measures, which included the reduction of salary for select employees. The Company provided the employees subject to the salary reductions with 1.3 million of stock option awards for retention purposes. Our Chief Executive Officer voluntarily reduced his salary by 50% and did not receive any awards under the Business Efficiency Program.

The determination of the fair value of stock options assumed or granted 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 December 31, 2023. The amount of aggregate intrinsic value was $3.1 million as of December 31, 2023 and will change based on the fair market value of ADTRAN’s stock. The total pre-tax intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021 was $0.1 million, $4.0 million and $1.5 million, respectively. The fair value of options fully vesting during the years ended December 31, 2023 and 2022 was $1.1 million and $0.2 million, respectively. No options vested during the year ended December 31, 2021.

The following table further describes our stock options outstanding as of December 31, 2023:


	Options Outstanding						Options Exercisable
Range of Exercise Prices (Per Share)	Options Outstanding at December 31, 2023 (In thousands)		Weighted Average Remaining Contractual Life in Years		Weighted Average Exercise Price (Per Share)		Options Exercisable at December 31, 2023 (In thousands)		Weighted Average Exercise Price
$5.23 – $5.23		1,320		9.92	$	5.23		—	$	—
$5.24 – $8.58		716		2.01	$	7.37		559	$	7.45
$8.59 – $12.17		773		3.72	$	11.49		195	$	9.49
$12.18 – $15.33		415		2.20	$	15.33		362	$	15.33
$15.34 – $19.08		670		2.93	$	19.02		362	$	18.97
		3,894						1,478

The Black-Scholes option pricing model (the “Black-Scholes Model”) is used to determine the estimated fair value of stock option awards on the date of grant. The Black-Scholes Model requires the input of certain assumptions that involve judgment. Because our stock options have characteristics significantly different from those of traded options, and because changes in the input assumptions can materially affect the fair value estimate, existing models may not provide reliable measures of fair value of our stock options. 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 our stock price and employee exercise behaviors.

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 our stock price and employee exercise behaviors.

The weighted-average estimated fair value of stock options granted to employees during the years ended December 31, 2023 and 2022 was $2.99 and $5.81 per share, respectively, with the following weighted-average assumptions:


	2023			2022
Expected volatility		51.78	%		45.00	%
Risk-free interest rate		4.13	%		3.00	%
Expected dividend yield		—			1.77	%
Expected life (in years)		5.8			2.4

The following table summarizes Adtran Networks stock options outstanding as of December 31, 2022 and December 31, 2023 and the changes that occurred during the year ended December 31, 2023:


	Number of Options (In thousands)			Weighted Average Exercise Price (Per share)		Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value (In thousands)
Stock options outstanding, December 31, 2022		81		$	8.58		4.00	$	1,222
Stock options exercised		(50	)	$	7.64
Stock options forfeited		(12	)	$	10.45
Stock options expired		(1	)	$	9.60
Stock options outstanding, December 31, 2023		18		$	11.04		4.48	$	193
Stock options exercisable, December 31, 2023		—		$	—		—	$	—

As of December 31, 2023, there was $24 thousand of unrecognized compensation expense related to stock options which will be recognized over the remaining weighted-average period of 1.4 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 Adtran Networks' 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 December 31, 2023. The amount of aggregate intrinsic value was $0.2 million as of December 31, 2023 and will change based on the fair market value of Adtran Networks' stock. The total pre-tax intrinsic value of options exercised during the year ended December 31, 2023 was $0.7 million. The total pre-tax intrinsic value of options exercised during the period July 15, 2022 through December 31, 2022 was $1.6 million.

The following table further describes Adtran Networks' stock options outstanding as of December 31, 2023:


	Options Outstanding						Options Exercisable
Range of Exercise Prices (Per Share)	Options Outstanding at December 31, 2023 (In thousands)		Weighted Average Remaining Contractual Life in Years		Weighted Average Exercise Price (Per Share)		Options Exercisable at December 31, 2023 (In thousands)		Weighted Average Exercise Price
€10.00 - €10.00		18		4.48	$	11.04		—	$	—
		18						—