APPLIED OPTOELECTRONICS, INC. Stock Compensation Disclosure
NOTE P—SHARE-BASED COMPENSATION
Equity Plans
The Company’s board of directors and stockholders approved the following equity plans:
| ‑ | the Amended and Restated 2021 Equity Incentive Plan ("2021 Plan") |
| ‑ | the 2023 Inducement Plan ("Inducement Plan") |
The Company has issued stock options, restricted stock awards ("RSAs") and restricted stock units ("RSUs") to employees, consultants and non-employee directors. Stock option awards generally vest over a year period and have a maximum term of years. Stock options under these plans have been granted with an exercise price equal to the fair market value on the date of the grant. Nonqualified and Incentive Stock Options, RSAs and RSUs may be granted from these plans.
Stock Options
In the years ended December 31, 2025 and 2024, the Company granted no stock options under its equity plans. As of December 31, 2025, there was no unrecognized stock-based compensation expense related to stock options. In the years ended December 31, 2025, 2024, and 2023, the intrinsic value of stock options was $0, $0, and $0.2 million, respectively.
Performance Based Incentive Plan
Starting in 2021, certain senior executives were granted performance stock units ("PSUs") under our 2021 Plan, which generally vest over a -year period subject to achievement of certain pre-established performance metrics. The number of shares of common stock that would ultimately be issued to settle PSUs granted ranged from 0% to 200% of the target number of shares granted. We estimate the fair value of the PSUs on the date of grant using a Monte Carlo simulation model, with stock-based compensation expense recognized ratably over the appliable three-year performance period. The Company recognized stock-based compensation expense for the PSUs for the twelve months ended December 31, 2025, 2024 and 2023 of $4.4 million, $3.0 million and $1.7 million, respectively.
On May 9, 2025, the Compensation Committee certified the Company exceeded the maximum performance level for each of the performance targets set for the PSUs granted June, 2022 (the "2022 PSUs"). Therefore, applicable employees were entitled to payment of the 2022 PSUs at 200% of the target shares granted under the 2021 Plan. The following is a summary of PSU activity (in thousands, except per share data):
| Weighted | ||||||||||||||||
| Average Share | Weighted | Aggregate | ||||||||||||||
| Number of | Price on Date | Average Fair | Intrinsic | |||||||||||||
| shares | of Release | Value | Value | |||||||||||||
| (in thousands, except price data) | ||||||||||||||||
| Outstanding at January 1, 2025 | 1,447 | $ | 7.72 | $ | 53,347 | |||||||||||
| Granted | 719 | 6.94 | 8,851 | |||||||||||||
| Released | (977 | ) | 14.76 | 2.49 | 14,431 | |||||||||||
| Cancelled/Forfeited | — | — | — | |||||||||||||
| Outstanding, December 31, 2025 | 1,189 | 11.55 | 41,442 | |||||||||||||
| Vested and expected to vest | 1,189 | 11.55 | 41,442 | |||||||||||||
As of December 31, 2025, there was $5.1 million of unrecognized stock-based expense related to outstanding PSUs. This expense is expected to be recognized over 1.7 years. For the years ended December 31, 2025, 2024 and 2023, the weighted-average grant value for PSUs was $6.94, $16.40 and $8.89 per share, respectively. The intrinsic values of PSUs exercised were $14.4 million, $2.9 million and $3.6 million for the years ended December 31, 2025, 2024 and 2023, respectively. The total fair value of shares vested for PSUs during years ended December 31, 2025, 2024 and 2023 were $4.5 million, $4.0 million and $0 million, respectively
Restricted Stock Units
Restricted stock units are issued to employees through a vesting plan and distribution schedule after employee remains with the Company for a particular length of time. The following is a total summary of RSU activity (in thousands, except per share data):
| Weighted | ||||||||||||||||
| Average Share | Weighted | Aggregate | ||||||||||||||
| Number of | Price on Date | Average Fair | Intrinsic | |||||||||||||
| shares | of Release | Value | Value | |||||||||||||
| (in thousands, except price data) | ||||||||||||||||
| Outstanding at January 1, 2025 | 2,231 | $ | 6.04 | $ | 82,243 | |||||||||||
| Granted | 497 | 12.74 | 6,332 | |||||||||||||
| Released | (1,217 | ) | $ | 24.99 | 6.26 | 30,400 | ||||||||||
| Cancelled/Forfeited | (50 | ) | 6.21 | 1,744 | ||||||||||||
| Outstanding, December 31, 2025 | 1,461 | 8.13 | 50,964 | |||||||||||||
| Vested and expected to vest | 1,461 | 8.13 | 50,964 | |||||||||||||
As of December 31, 2025, there was $10.6 million of unrecognized compensation expense related to these RSUs. This expense is expected to be recognized over 2.2 years. For the years ended December 31, 2025, 2024 and 2023, the weighted-average grant value for RSUs are $12.74, $10.73 and $6.15 per share, respectively. The intrinsic values of RSUs exercised are $30.4 million, $19.0 million and $7.8 million for the years ended December 31, 2025, 2024 and 2023, respectively. The total fair value of shares vested for RSUs during years ended December 31, 2025, 2024 and 2023 are $7.2 million, $8.1 million and $8.6 million, respectively.
Share-Based Compensation
The Company recognizes compensation expense on a straight-line basis over the applicable vesting term of the award and expense is adjusted as forfeitures occur.
The Company issues RSUs as share-based compensation to employees. The Company estimates the fair value of RSUs at the fair market value on the grant date.
Employee share-based compensation expenses recognized for the years ended December 31, were as follows (in thousands):
Share-Based compensation - by expense type:
| 2025 | 2024 | 2023 | ||||||||||
| Cost of goods sold | $ | 361 | $ | 473 | $ | 524 | ||||||
| Research and development | 1,193 | 1,455 | 1,492 | |||||||||
| Sales and marketing | 1,457 | 1,512 | 1,110 | |||||||||
| General and administrative | 8,699 | 11,350 | 8,758 | |||||||||
| Total share-based compensation expense | $ | 11,710 | $ | 14,790 | $ | 11,884 | ||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.