Stock Incentive Plans

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

On December 15, 2016, the Company’s shareholders approved the 2016 Equity Compensation Plan (the “2016 Plan”) and the Company registered 764,087 shares of common stock adjusted for the Reverse Stock Split, which may be issued under the 2016 Plan. On June 7, 2019, the Company's shareholders approved an amendment and restatement of the 2016 Plan, which increased the number of shares reserved under the 2016 Plan by an additional 357,142 shares to a maximum of 1,121,229 shares of common stock. On June 14, 2022, the Company's shareholders approved a second amendment and restatement of the 2016 Plan, which increased the number of shares reserved under the 2016 Plan by an additional 300,000 shares to a maximum of 1,421,229 shares of common stock. Any director, officer, employee or consultant of the Company or any of its subsidiaries (including any prospective officer or employee) is eligible to be designated to participate in the 2016 Plan. The Company withheld shares related to restricted stock awards that vested in 2022 at the fair market value equivalent to the maximum statutory tax withholding obligation and remitted that amount in cash to the appropriate taxation authorities.

On February 11, 2022, the Company granted 31,781 restricted shares as a Company-wide grant under the 2016 Plan. The aggregate fair value of the grant is $1.7 million based on the closing share price of $52.32 on February 11, 2022. The shares will vest in equal installments on January 2, 2023, January 2, 2024 and January 2, 2025. Additionally, on March 11, 2022, the Company granted 7,451 shares of fully vested common stock to its board of directors. The aggregate fair value of the director grant is $0.5 million based on the closing share price of $65.88 on March 11, 2022. On April 5, 2022, the Company granted 7,468 restricted shares with 2-year cliff vesting. The aggregate fair value of $0.5 million based on the closing share price of $63.24 on April 5, 2022. The amortization of the above grants is $0.4 million and $1.0 million for the three and six months ended June 30, 2022, respectively, which is included in General and administrative expenses in the Condensed Consolidated Statements of Operations.

On March 11, 2022, the Company granted 17,661 shares of time-based RSUs to certain members of its senior management team under the 2016 Plan. The units vest in three equal installments on January 2, 2023, January 2, 2024 and January 2, 2025. The aggregate fair value of these units is $1.2 million based on the closing share price of $65.88 on March 11, 2022. The amortization of the above grant is $0.2 million and $0.3 million for the three and six months ended June 30, 2022, respectively, which is included in General and administrative expenses in the Condensed Consolidated Statements of Operations.

As discussed further below, on March 11, 2022, the Company granted performance-based RSUs to certain members of its senior management team under the 2016 Plan, which are contingent on certain performance criteria. The maximum number of performance-based RSUs that can be earned is 52,982.

17,661 target performance-based RSUs were granted based on earnings per share (“EPS performance”) for the performance period beginning January 1, 2022 and ending December 31, 2022 (with targets set forth during the three months ended June 30, 2022). The RSUs will vest in three substantially equal installments (subject to achievement of performance criteria as of December 31, 2022) with the first installment vesting upon certification by the Compensation Committee and the second and third installments on January 2, 2024 and January 2, 2025, respectively. The total RSUs eligible to vest ranges from zero to 200% of the target number granted based on the EPS performance. The aggregate grant-date fair value of these RSUs is $1.2 million based on the closing share price of $65.88 on March 11, 2022 and assuming the target number is probable of vesting. The EPS performance is considered to be a performance condition under ASC 718, Share based payment awards, and therefore, the stock-based compensation expense is initially recorded based on the probable outcome that the performance condition will be achieved as of the grant date with subsequent adjustments to the probable outcome over time. The ultimate expense recognized is based on the actual performance outcome at the end of the performance period. As of June 30, 2022, the Company estimated that the target (100%) will be met and recorded $0.2 million of stock-based compensation expense, which is included in General and administrative expenses in its Condensed Consolidated Statement of Operations for both the three and six months ended June 30, 2022.

8,830 performance-based RSUs were granted based on relative total shareholder return (“TSR performance”) for the performance period beginning January 1, 2022 and ending December 31, 2022 (with targets set forth during the three months ended June 30, 2022). These market-based RSUs will vest in three substantially equal installments (subject to achievement of performance criteria as of December 31, 2022) with the first installment vesting upon certification by the Compensation Committee and the second and third installments on January 2, 2024 and January 2, 2025, respectively. The total RSUs eligible to vest ranges from zero to 200% of the target number granted based on the TSR performance. All the vested TSR performance units are subject to a 1-year holding period after vesting. The TSR performance is based on the Company's total shareholder return compared to seven peer companies over the performance period. The TSR performance is calculated based on average daily closing stock price over a 20-trading-day period at each of the beginning and end of the performance period and is adjusted to reflect dividend payments by assuming additional shares are purchased with the dividend payments. The aggregate fair value of the TSR performance

awards, which was calculated using a Monte Carlo simulation model, was $0.7 million. The assumptions used in the model were risk-free rate of return of 1.05% based on continuously compounded yield on zero-coupon treasury rates as of March 11, 2022; expected volatility of 54.74% based on 1-year historical daily volatility of the closing share prices for the Company; a dividend yield of 12.45%; and 11.41% discount applied for the 1-year holding period using the Finnerty model. Volatility for each of the peer companies as well as the correlation of returns between each of the companies was also determined as inputs into the Monte Carlo model. The Company recorded $0.1 million of stock-based compensation expense, which is included in General and administrative expenses in its Condensed Consolidated Statement of Operations for both the three and six months ended June 30, 2022.

As of June 30, 2022 and December 31, 2021, stock awards, including RSUs, covering a total of 234,418 and 246,962 shares of the Company’s common stock, respectively, are outstanding under the 2016 Plan. The vesting terms are generally three years from the grant date, or as described above in the March 11, 2022 RSU grants or the April 5, 2022 stock grant. The Company is amortizing the grant date fair value of non-vested stock awards to stock-based compensation expense included in General and administrative expenses.

As of December 31, 2021, 47,568 vested stock options were outstanding with exercise prices ranging from $32.97 to $38.92 per share. During the six months ended June 30, 2022, all 47,568 stock options were exercised. In connection with the exercise, 8,077 shares of common stock were issued and 39,491 stock options were cancelled as a settlement for the liability relating to tax withholding as well as the exercise price owed to the Company.

As of June 30, 2022 and December 31, 2021, there were no unvested options outstanding.

Stock-based compensation expense for all stock awards, units and options included in General and administrative expenses:


	Three Months Ended				Six Months Ended
(In thousands)	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Stock awards/Stock Option Plans	$	1,605	$	586	$	3,092	$	1,458

The future compensation to be recognized for all the grants for the six months ending December 31, 2022, and the years ending December 31, 2023 and 2024 will be $2.7 million, $2.7 million and $0.8 million, respectively.