Share-Based Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

On May 17, 2019, the shareholders approved the Hanger, Inc. 2019 Omnibus Incentive Plan (the “2019 Plan”). The 2019 Plan authorizes the issuance of (a) up to 2,025,000 shares of Common Stock, plus (b) 243,611 shares available for issuance under the Hanger, Inc. 2016 Omnibus Incentive Plan (the “2016 Plan”). Upon approval of the 2019 Plan, the 2016 Plan was no longer available for future awards.

On May 19, 2017, the Board of Directors approved the Hanger, Inc. Special Equity Plan (the “Special Equity Plan”). The Special Equity Plan authorized up to 1.5 million shares of Common Stock and operates completely independent from our 2016 Omnibus Incentive Plan. All awards under the Special Equity Plan were made on May 19, 2017 which consisted of 0.8 million stock options and 0.3 million performance-based stock awards. No further grants of awards will be authorized or issued under the Special Equity Plan.

As of December 31, 2021, approximately 1.1 million shares were available for future issuance under the 2019 Plan. The available shares consisted of (a) 2.0 million shares of common stock originally authorized for issuance under the amended 2019 Plan, plus (b) 0.2 million shares rolled forward from the 2016 Plan, plus (c) 0.3 million shares forfeited and added back to the pool, less (d) 1.4 million shares issued for awards. In 2021, shares issued under equity plans were issued from authorized and unissued shares.

For the years ended December 31, 2021, 2020, and 2019, we recognized share-based compensation expense of approximately $12.3 million, $18.4 million, and $13.4 million. Share-based compensation expense, net of forfeitures, relates to restricted stock units, performance-based restricted stock units, and options.

Restricted Stock Units

The summary of restricted stock units, performance-based stock units, and weighted average grant date fair values are as follows:


	Employee Service-Based Awards			Employee Performance-Based Awards			Director Awards
	Units	Weighted Average Grant Date Fair Value		Units	Weighted Average Grant Date Fair Value		Units	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019	1,164,224	$	16.32	599,484	$	17.82	55,752	$	20.10
Granted	427,851	21.81		523,972	25.95		70,623	17.07
Vested	(489,026)	14.18		(541,923)	24.36		(55,752)	20.09
Forfeited	(21,289)	18.97		(260,852)	19.29		—	—
Nonvested at December 31, 2020	1,081,760	18.90		320,681	18.86		70,623	17.07
Granted	462,316	23.28		121,809	23.66		49,356	25.53
Vested	(433,499)	17.55		(132,095)	17.47		(70,623)	17.07
Forfeited	(91,370)	20.88		—	—		—	—
Nonvested at December 31, 2021	1,019,207	$	21.28	310,395	$	21.61	49,356	$	25.53

During the years ended December 31, 2021, 2020, and 2019, approximately 0.6 million, 1.1 million, and 0.6 million of restricted common stock units with an intrinsic value of $15.1 million, $21.3 million, and $12.3 million, respectively, became fully vested. As of December 31, 2021, total unrecognized compensation expense related to unvested restricted stock units and unvested performance based restricted stock units for which we have concluded the performance condition was probable of achievement was approximately $18.5 million and the related weighted-average period over which it is expected to be recognized is approximately 2.4 years. The aggregate granted units have vesting dates through June 2022. The 2021, 2020, and 2019 aggregate grants had total estimated grant date fair values of $15.7 million, $24.1 million, and $12.9 million, respectively.

A special equity grant of performance-based restricted stock units was granted on May 19, 2017 under the Special Equity Plan and was initially granted to vest 100% three years after the date of issuance, assuming the performance goal is achieved. The financial target for this grant was originally to achieve a compounded annual growth rate (“CAGR”) of our common stock price of 20% as of market close on May 18, 2020. This equated to a share price on that date of $22.07 compared to the closing price on the eve of grant of $12.77. The grant provided for the vesting of 50% of the original targeted shares if a CAGR of 10% (a stock price of $17.00) is achieved. The grant also provided for the vesting of up to 200% of the original targeted shares if a CAGR of 30% (a stock price of $28.06) or more is achieved. The percentage of vested shares will be interpolated on a linear basis between 50% and 200% for a CAGR between 10% and 30%. The stock price at time of award was $12.77, but given market condition performance criteria, the Monte Carlo Simulation valuation was used to calculate a fair value of $19.29 per share. The key assumptions used were a volatility rate of 109.5%, a risk-free interest rate of 1.44%, and a performance period of 3 years.

In November 2019, the special equity grant was amended by adjusting the calculation of the CAGR of our common stock price from the third anniversary of the grant date to the average closing price for the 25 trading days ending on and including the last day of the three year performance period (i.e., May 18, 2020). This adjustment was considered a modification per ASC 718, Compensation - Stock Compensation, and therefore, any incremental fair value arising from the modification of an award with market conditions would be recognized over the remaining service period. The valuation concluded there was an additional $34.0 thousand in incremental fair value that will be expensed ratably over the remainder of the service period.

In May 2020, the special equity grant was amended to modify the performance period ending date for purposes of the compounded annual growth rate calculation to February 20, 2020, shortening the performance period to approximately 33 months, representing a reduction of three months. This adjustment was considered a modification per ASC 718, Compensation - Stock Compensation, and, therefore, any incremental fair value arising from the modification of an award with market conditions would be recognized over the remaining service period. As a result of the modification, we recognized an additional $5.9 million in share-based compensation expense during the second quarter of 2020.

Performance-based restricted stock units were granted on March 9, 2020. The grants were made prior to knowing the impact of the COVID-19 pandemic on the company’s business and industry. The stock units would only be earned if we achieved the adjusted earnings per share (“Adjusted EPS”) performance goal for 2020. If earned, they would vest 25% annually over four years on the anniversary of the grant date, commencing on the first anniversary. In November 2020, the performance-based grant was amended by adjusting the Adjusted EPS performance goal for these awards to reflect our July 2020 revised financial forecast for the year, which gave consideration to the challenges we faced during the first half of the year and the expected performance for the remainder of the year, taking into account the expected impact of the COVID-19 pandemic. In addition, it also reduced the number of shares the participants could receive pursuant to their previously granted awards to 85% of the original target number.

Options

Certain options were granted in 2017 under the Special Equity Plan. The fair value of each employee stock option award was estimated on the date of grant of May 19, 2017 using the Black-Scholes option-pricing model and calculated a grant date fair value of $8.67 per option. The key assumptions used were an expected dividend yield of zero, an expected stock volatility of 92.48%, a risk-free interest rate of 1.68%, and an expected term of 4.38 years.

The summary of option activity and weighted average exercise prices are as follows:


	Shares	Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Term (Years)
Outstanding at December 31, 2019	523,105	$	12.77	$	7,762,878
Granted	—	—
Terminated	—	—
Exercised	(7,193)	12.77
Outstanding at December 31, 2020	515,912	12.77		4,756,709		5.6
Granted	—	—
Terminated	—	—
Exercised	(240,129)	12.77
Outstanding at December 31, 2021	275,783	$	12.77	$	1,478,197	5.4

At December 31, 2021, 0.3 million options were outstanding but not yet exercisable with a weighted average exercise price of $12.77, average remaining contractual terms of 5.4 years and aggregate intrinsic values of approximately $1.5 million. At December 31, 2020, 0.5 million options were outstanding but not yet exercisable with a weighted average exercise price of $12.77, average remaining contractual terms of 5.6 years and aggregate intrinsic values of approximately $4.8 million.