Quarterly report pursuant to Section 13 or 15(d)

Equity-Based Compensation

v3.23.3
Equity-Based Compensation
 9 Months Ended
Sep. 30, 2023
Share-Based Payment Arrangement [Abstract]  
Equity-Based Compensation
Note N – Equity-Based Compensation
Class P Unit Incentive Plan
The Company’s former parent adopted a written compensatory benefit plan (the “Class P Unit Incentive Plan”) to provide incentives to existing or new employees, officers, managers, directors, or other service providers of the Company or its subsidiaries in the form of Holdings’ Class P Units (“Incentive Units”). As amended, the Tranche I and the Tranche III Incentive Units became fully vested upon the closing of the Merger. Holdings also amended the Class P Unit Incentive Plan so that the Tranche II Incentive Units would vest on any liquidation event, as defined in the Class P Unit Incentive Plan, rather than only upon consummation of the sale of Holdings, subject to the market-based condition stipulated in the Class P Unit Incentive Plan prior to its amendment. All compensation expense related to Incentive Units was recognized during 2021 and 2022. As of September 30, 2023, Tranches I and III were fully vested, while Tranche II is still subject to the market-based vesting condition.

2021 Omnibus Incentive Plan
Stock Options
The Company’s 2021 Omnibus Incentive Plan (the “Plan”) authorizes the grant of stock options (incentive and non-qualified) to purchase shares of the Company’s common stock with a contractual term of 10 years. The options vest over a three-year term as follows: 33.3% on the first anniversary of the grant date, 33.3% on the second anniversary of the grant date, and 33.4% on the third anniversary of the grant date. Vesting is contingent upon continued employment or service to the Company; both the vested and unvested portion of an option will be immediately forfeited and canceled if employment or service ceases to the Company. The Company recognizes equity-based compensation expense for the options equal to the fair value of the awards on a straight-line basis over the requisite service period and recognizes forfeitures as they occur.
The table below presents the activity of stock options under the Plan:
Shares Weighted-Average Grant Date Fair Value per Share Weighted-Average Exercise Price per Share Weighted-Average Remaining Contractual Term (Years)
Outstanding as of December 31, 2022
 2,153,591  $ 2.70  $ 7.22  8.6
Granted —  —  — 
Expired (13,001) 3.28  9.86 
Forfeited (37,999) 2.81  7.74 
Outstanding as of September 30, 2023
 2,102,591  $ 2.69  $ 7.20  7.9

As of September 30, 2023, the total unrecognized compensation cost related to unvested stock options granted under the Plan was $2.0 million and is expected to be recognized over a weighted-average period of 1.4 years. As of September 30, 2023, there were 1,173,649 stock options that were vested and exercisable.

Performance-based Restricted Stock Units
The Plan authorizes the grant of performance-based restricted stock units (“PSUs”). The PSUs generally vest upon completion of a three-year period. The number of shares, if any, that are ultimately awarded is contingent upon the closing price per share at the end of the performance period and continued employment or service to the Company. The performance share payout is based on a market condition, and as such, the awards are valued using a Monte Carlo simulation model (“model”). The model generates the fair value of the award at the grant date, which is then recognized as expense on a straight-line basis over the vesting period. The Company recognizes forfeitures as they occur.

On July 3, 2023 and July 31, 2023, the Company granted 701,097 shares and 5,000 shares, respectively, of PSUs to certain officers, managers and other eligible employees pursuant to the Plan. The PSU award allows the grantee to earn between 0% and 200% of the award based on the Company’s closing price per share at December 31, 2025. The grant date fair value of these awards was $3.15 per share.

The fair value of PSUs granted under the Plan was estimated on the grant date using the Monte Carlo simulation model with the following assumptions:
2023 Grants
Valuation date stock price
 $ 2.63 
Remaining term of performance period
 2.49 years
Expected volatility 81.00  %
Risk-free rate of return 4.70  %
Expected annual dividend yield —  %

As of September 30, 2023, total unrecognized compensation cost related to unvested PSUs granted under the Plan was $2.0 million and is expected to be recognized over a weighted-average period of 2.3 years. The Company had 706,097 PSUs outstanding as of September 30, 2023. There were no forfeitures related to PSUs during the three and nine months ended September 30, 2023.

Restricted Stock Units
Restricted stock units awarded under the Plan follow the same contractual terms and vesting conditions as the options described above and are generally subject to forfeiture in the event of termination of employment prior to vesting dates. The Company recognizes equity-based compensation expense for the restricted stock units equal to the fair value of the awards on a straight-line basis over the requisite service period and recognizes forfeitures as they occur.

On May 25, 2023, the Company granted 205,765 restricted stock units of the Company’s common stock to non-employee directors. The restricted stock units vest on the one year anniversary from the grant date, subject to the director’s continued service on the board. The weighted average grant date fair value of these awards was $2.43 per share.
On July 3, 2023, the Company granted 1,640,347 restricted stock units to certain officers, managers and other eligible employees. The restricted stock units follow the same contractual terms and vesting conditions as the options described above. The grant date fair value of these awards was $2.63 per share.

The table below presents the activity of restricted stock units under the Plan:
Restricted Shares Weighted-Average Grant Date Fair Value per Share Weighted-Average Remaining Contractual Term (in Years) Aggregate Intrinsic Value
Unvested as of December 31, 2022
 2,282,778  $ 6.30  1.3 $ 4,520 
Granted 1,846,112  2.62 
Vested (585,463) 3.35 
Forfeited (215,781) 6.33 
Unvested as of September 30, 2023
 3,327,646  $ 5.48  1.3 $ 9,617 

As of September 30, 2023, total unrecognized compensation cost related to unvested restricted stock units granted under the Plan was $10.9 million and is expected to be recognized over a weighted-average period of 2.0 years.

The table below presents the equity-based compensation expense recorded for the following periods:
Three Months Ended Nine Months Ended
September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022
Cost of sales
Incentive Units $ —  $ —  $ —  $ 181 
Stock Options 13  17  105  42 
Restricted Stock Units 681  594  1,952  1,760 
Performance-based Restricted Stock Units
 6  —  6  — 
Total cost of sales $ 700  $ 611  $ 2,063  $ 1,983 
Selling, general and administrative expenses
Incentive Units $ —  $ —  $ —  $ 2,171 
Stock Options 417  511  1,161  1,199 
Restricted Stock Units 1,124  1,396  2,883  3,319 
Performance-based Restricted Stock Units
 210  —  210  — 
Total selling, general and administrative expenses $ 1,751  $ 1,907  $ 4,254  $ 6,689 
Total equity-based compensation expense $ 2,451  $ 2,518  $ 6,317  $ 8,672