NOTE 12—STOCK-BASED COMPENSATION PLANS

During the first nine months of 2022, the Company granted 291,894 service-based restricted stock awards under the 2015 Equity Incentive Plan (as amended and restated, the “2015 Plan”), at a grant date fair value of $1.85 per share, to its non-employee directors, which vest in full on February 3, 2023.

During the first nine months of 2022, the Company granted 362,356 service-based restricted stock units to its employees under the 2022 long-term incentive (“LTI”) program and the 2015 Plan at a grant date fair value of $1.99 per share. These service-based restricted stock units can be paid in cash or shares at the election of the Compensation Committee of the Board of Directors and shall vest in equal annual installments over a period of three years.

During the first nine months of 2022, the Company also granted 724,726 performance-based restricted stock units to its employees under the 2022 LTI program and the 2015 Plan at a grant date fair value of $1.99 per share. The 2022 performance-based restricted stock units have three annual performance periods (fiscal years 2022, 2023 and 2024), with operating income and free cash flow goals (equally weighted) for each year, and threshold performance resulting in awards earned at 50% of the target opportunity and maximum performance resulting in awards earned at 200% of the target. The annual achievement levels are accumulated over the three-year performance period and the earned amounts, if any, will vest on March 31, 2025. The three-year average payout level for each performance objective replaces the actual payout level for any fiscal year where the actual payout is less than the three-year average. These performance-based restricted stock units can be paid in cash or shares at the election of the Compensation Committee of the Board of Directors.

During the first nine months of 2021, the Company granted 307,616 service-based restricted stock units under the 2021 LTI program and the 2015 Plan at a grant date fair value of $3.48 per share. These service-based restricted stock units can be paid in cash or shares at the election of the Compensation Committee of the Board of Directors and shall vest in full on March 31, 2024.  

Additionally on June 15, 2021, the Company granted an employee 41,666 service-based restricted stock units under the 2015 Plan at a grant date fair value of $6.27 per share. The service-based restricted stock units vested with respect to 25,000 shares of common stock on the date of grant (June 15, 2021), while 8,333 vested on March 31, 2022 and the remaining 8,333 will vest on March 31, 2023. These awards may be paid in cash or shares at the election of the Compensation Committee of the Board of Directors.

During the first nine months of 2021, the Company also granted performance-based restricted stock units under the 2021 LTI program and the 2015 Plan with an aggregate cash value of approximately $2.2 million, which could be paid in cash or shares at the election of the Compensation Committee of the Board of Directors. The 2021 performance-based restricted stock units have three annual performance periods (fiscal years 2021, 2022 and 2023), with operating income and free cash flow goals (equally weighted) for each year, and threshold performance resulting in awards earned at 50% of the target opportunity and maximum performance resulting in awards earned at 200% of the target. The annual achievement levels are accumulated over the three-year performance period and the earned amounts, if any, vest on March 31, 2024. The three-year average payout level for each performance objective replaces the actual payout level for any fiscal year where the actual payout is less than the three-year average. These are cash-based awards that were included in other current liabilities on the consolidated balance sheet beginning in April 2021.

Additionally on May 17, 2021, the Company granted an employee 37,500 performance-based restricted stock units as an inducement award outside of the 2015 Plan at a grant date fair value of $5.00 per share. The performance-based restricted stock units, if any, vest on March 31, 2024. The performance-based awards have three annual performance periods (fiscal years 2021, 2022 and 2023), with operating income and free cash flow goals (equally weighted) for each year, and threshold performance resulting in awards earned at 50% of the target opportunity and maximum performance resulting in awards earned at 200% of the target. These awards may be paid in cash or shares at the election of the Compensation Committee of the Board of Directors.

The Company previously granted (i) performance-based restricted stock units under the 2016 LTI program, which were scheduled to vest if the Company achieved a per share stock price of $5.50 for 30 consecutive trading days prior to August 5, 2021, (ii) performance-based restricted stock units under the 2017 LTI program, which were scheduled to vest if the Company achieved a per share stock price of $6.00 for 30 consecutive trading days prior to March 31, 2021 (pursuant to an extension from the initial vesting date of March 31, 2020, which extension was approved by the Compensation Committee in February 2020), and (iii) performance-based restricted stock units under the 2018 LTI program, which were scheduled to vest if the Company achieved a per share stock price of at least $5.00 for any period of 30 consecutive trading days prior to June 30, 2021 (collectively, the “LTI Performance Awards”). On March 5, 2021, the Compensation Committee of the Board of Directors extended the performance period for each of the LTI Performance Awards to December 31, 2022. In accordance with ASC Topic 718, “Compensation—Stock Compensation” (“ASC 718”), the Company conducted a lattice valuation model in order to revalue the market price for the LTI Performance Awards at the March 5, 2021 modification date. The 2018 LTI program met the market objective by achieving a per share stock price of $5.00 for 30 consecutive days, and approximately 189,640 shares will vest for recipients remaining employed through December 31, 2022.

During the first nine months of 2021, the Compensation Committee of the Board of Directors approved modifying the 2020 and 2019 performance-based restricted stock units granted in 2020 and 2019. The 2020 and 2019 performance-based restricted stock units did not achieve the 2021 performance objectives. The 2019 performance-based restricted stock units expired because their final performance period was 2021.

On April 13, 2022, the Company’s management analyzed the probability of achieving the 2022 performance objectives for the 2021 and 2020 performance-based restricted stock units granted in 2021 and 2020 and determined that, after comparing the actual year-to-date results to the forecasted results, it is unlikely the Company will achieve the minimum performance metric for the 2022 performance period. This resulted in a $0.3 million adjustment for the 2021 performance-based restricted stock units and an entire reversal of $0.5 million for the 2020 performance-based restricted stock units within the first three months of 2022. The 2020 performance-based restricted stock units will expire after the 2022 performance period and the 2021 performance-based restricted stock units were adjusted to vest at 55% of their original cash value and as of September 30, 2022, will be expensed by approximately $0.5 million until the end of the service requisite period of March 31, 2024.

While the majority of  restricted stock units and awards were granted as equity, in accordance with ASC 718, the Company has one cash-based plan that is classified as a liability. Stock-based compensation expense for the three months ended September 30, 2022 and 2021 was $0.5 million and $1.1 million, respectively, and for the nine months ended September 30, 2022 and 2021 was $1.1 million and $2.6 million, respectively, and was included in general and administrative expenses on the Company’s unaudited condensed consolidated statements of operations.