Stock-Based Compensation

12 Months Ended

Jun. 30, 2022

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, 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.

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 June 30, 2022, 3,123,978 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 year ended June 30, 2022:

				Weighted-Average
				Remaining	Aggregate
	Number of	Weighted-Average		Contractual Life	Intrinsic Value
	Options	Exercise Price		(in years)	(in thousands)
Outstanding as of July 1, 2021	1,561,049	$	32.05
Granted	181,825		37.00
Exercised	(416,045)		21.34
Forfeited	(132,807)		40.11
Expired	(49,650)		41.87
Outstanding as of June 30, 2022	1,144,372		35.36	6.3	$	2,979
Exercisable as of June 30, 2022	725,912	$	34.67	5.1	$	2,371

The total intrinsic value of options exercised for the years ended June 30, 2022, 2021, and 2020 was $6.9 million, $1.1 million, and $1.2 million, respectively. The tax benefit from options exercised for the years ended June 30, 2022, 2021, and 2020 was $1.8 million, $0.3 million, and $0.3 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 takes into account 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 for the years ended June 30, 2022, 2021, and 2020 was $14.72, $12.23, and $16.98, per share, respectively. The fair value of Adtalem’s option grants was estimated assuming the following weighted-average assumptions:

	Fiscal Year
	2022		2021		2020
Expected life (in years)	6.56		6.54		6.51
Expected volatility	39.99	%	39.27	%	37.66	%
Risk-free interest rate	0.94	%	0.45	%	1.40	%
Dividend yield	0.00	%	0.00	%	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 fiscal year 2022, Adtalem granted 750,192 RSUs to selected employees and directors. Of these, 235,351 were performance-based RSUs and 514,841 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 consolidated return on invested capital and free cash flow per share metrics and approved by the Compensation Committee of the Board. We issue non-performance-based RSUs generally with a four-year graduated vesting from the grant date. We also regularly issue RSUs to our Board members with a one-year cliff vest 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 year ended June 30, 2022:

		Weighted-Average
	Number of	Grant Date
	RSUs	Fair Value
Outstanding as of July 1, 2021	888,005	$	35.84
Granted	750,192		35.03
Vested	(288,050)		37.66
Forfeited	(178,455)		34.70
Outstanding as of June 30, 2022	1,171,692	$	35.05

The weighted-average estimated grant date fair values of RSUs granted at market price under Adtalem’s stock-based incentive plans for the years ended June 30, 2022, 2021, and 2020 were $35.03, $31.26, and $42.22, per share, respectively.

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

	Year Ended June 30,
	2022		2021		2020
Stock-based compensation	$	22,611	$	12,824	$	13,878
Income tax benefit		(3,658)		(2,824)		(4,463)
Stock-based compensation, net of tax	$	18,953	$	10,000	$	9,415

As of June 30, 2022, $19.3 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 2.4 years. The total fair value of options and RSUs vested during the years ended June 30, 2022, 2021, and 2020 was $15.2 million, $17.3 million, and $14.5 million, respectively. There was no capitalized stock-based compensation cost as of each of June 30, 2022 and 2021. Adtalem issues new shares of common stock to satisfy options exercises and RSU vestings.