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Share-Based Compensation
 9 Months Ended
Sep. 30, 2021
Share-based Payment Arrangement [Abstract]  
Share-Based Compensation Share-Based Compensation
The Company recognizes compensation expense for all share-based compensation awarded to employees, net of forfeitures, using a fair value-based method. The grant-date fair value of each award is amortized to expense on a straight-line basis over the award’s vesting period. Compensation expense associated with share-based awards is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. Share-based compensation expense is adjusted for forfeitures as incurred.
Wilco Acquisition, LP 2016 Equity Incentive Plan
Prior to the Business Combination, Wilco Acquisition, LP was the parent company of Wilco Holdco, Inc. and its subsidiaries. In 2016, the Company adopted the Wilco Acquisition, LP 2016 Equity Incentive Plan (the “2016 Plan”) under which, prior to the Business Combination, it granted profit interests of Wilco Acquisition, LP in the form of Incentive Common Units, to members of management, key employees and independent directors of Wilco Acquisition, LP and its subsidiaries.
Service-based vesting
Prior to the Business Combination, Wilco Acquisition, LP granted Incentive Common Units, subject to service-based vesting, to members of management, key employees and independent directors. Following the closing of the Business Combination, holders of service-based ICUs are entitled to a distribution of a number of Class A common shares of ATI Physical Therapy, Inc. based on the distribution priorities under the Wilco Acquisition, LP limited partnership agreement. The shares related to vested service-based ICUs convert to unrestricted Class A common shares of ATI. The shares related to unvested service-based ICUs convert to restricted Class A common shares of ATI eligible to vest over the shorter of: (a) the existing vesting schedule applicable to the underlying ICUs, or (b) in installments on each quarterly anniversary of the closing over three years post-closing, subject to the grantee's continued service through each vesting date.
Pursuant to the 2016 Plan, total share-based compensation expense related to service-based awards recognized in the three months ended September 30, 2021 and 2020 was $1.5 million and $0.5 million, respectively. Total share-based compensation expense related to service-based awards recognized in the nine months ended September 30, 2021 and 2020 was $2.4 million and $1.4 million, respectively.
As of September 30, 2021, the remaining unvested restricted shares from converted service-based ICUs totaled 0.3 million Class A common shares, with unrecognized compensation expense of $2.1 million to be recognized over a weighted-average period of 2.5 years. There were no service-based awards granted under the 2016 Plan during the three and nine months ended September 30, 2021.
Performance-based vesting
Prior to the Business Combination, Wilco Acquisition, LP granted Incentive Common Units, subject to performance-based vesting, to members of management, key employees and independent directors. Following the closing of the Business Combination, holders of performance-based ICUs are entitled to a distribution of a number of Class A common shares of ATI Physical Therapy, Inc. based on the distribution priorities under the Wilco Acquisition, LP limited partnership agreement. The shares related to performance-based ICUs convert to restricted Class A common shares of ATI eligible to vest in installments on each quarterly anniversary of the closing over the shorter of: (a) the eight-year period from the original grant date of the underlying ICUs, or (b) three years post-closing, subject to the grantee’s continued service through each vesting date.
Based on the terms of the performance-based ICUs, commencement of vesting is generally contingent upon the occurrence of certain events, such as a change-in-control subject to the achievement of specified investment returns of certain Wilco Acquisition, LP unit holders, or an initial public offering (“IPO”). Under the terms of the award agreements, in the event of an IPO, the performance-based vesting requirements convert to service-based vesting requirements. The performance-based awards follow the treatment of an IPO as a result of the Business Combination.
Prior to the Business Combination, no share-based compensation expense was recognized related to the performance-based awards, as a change-in-control or IPO cannot be assessed as probable prior to its occurrence. Following the closing of the Business Combination, the Company began recognizing share-based compensation expense associated with the performance-based awards. Recognition of such expense follows a straight-line expense allocation based on the original grant date and the shorter of (a) the eight-year period from the original grant date of the underlying ICUs, or (b) three years post-closing of the Business Combination. For the three and nine months ended September 30, 2021, the Company recognized $(0.3) million and $2.4 million of share-based compensation expense, including the impact of forfeitures, related to the performance-based awards, respectively.
As of September 30, 2021, the remaining unvested restricted shares from converted performance-based ICUs totaled 0.6 million shares, with unrecognized compensation expense of $1.8 million to be recognized over a weighted-average period of 2.7 years. There were no performance-based awards granted under the 2016 Plan during the three and nine months ended September 30, 2021.
Unallocated and forfeited Incentive Common Units
ATI and Wilco Acquisition, LP intend to cancel 0.5 million Class A common shares of ATI received by Wilco Acquisition, LP in connection with the Business Combination in respect of the remaining unallocated ICU pool. ATI intends to amend the ATI Physical Therapy 2021 Equity Incentive Plan (the "2021 Plan") to increase the share reserve by 0.5 million Class A common shares of ATI and to grant to certain employees restricted Class A common shares of ATI that vest on a quarterly basis over a three year period, subject to the grantee’s continued service through each vesting date.
If any restricted shares of ATI are forfeited following the closing of the Business Combination and prior to vesting, such shares will be cancelled and ATI intends to amend the 2021 Plan to permit such shares to be reissued as awards under the 2021 Plan.
ATI 2021 Equity Incentive Plan
The Company adopted the ATI Physical Therapy 2021 Equity Incentive Plan under which it may grant equity interests of ATI Physical Therapy, Inc., in the form of share-based awards, to members of management, key employees and independent directors of the Company and its subsidiaries. The Compensation Committee is authorized to make grants and to make various other decisions under the 2021 Plan. The maximum number of shares reserved for issuance under the 2021 Plan is approximately 20.7 million. There were no awards granted under the 2021 Plan during the three and nine months ended September 30, 2021.