Quarterly report pursuant to Section 13 or 15(d)

Equity-Based Compensation and Cash Awards

v3.22.2.2
Equity-Based Compensation and Cash Awards
9 Months Ended
Sep. 30, 2022
Equity-Based Compensation and Cash Awards  
Equity-Based Compensation and Cash Awards

(9) Equity-Based Compensation and Cash Awards

(a)

Summary of Equity-Based Compensation

The Company’s equity-based compensation includes (i) costs allocated to Antero Midstream by Antero Resources for grants made prior to March 12, 2019 pursuant to the Antero Resources Corporation Long-Term Incentive Plan (the “AR LTIP”) and (ii) costs related to the Antero Midstream Corporation Long-Term Incentive Plan (the “AM LTIP”). Antero Midstream’s equity-based compensation expense is included in general and administrative expenses, and recorded as a credit to the applicable classes of equity.

AR LTIP

Equity-based compensation expense allocated to Antero Midstream from Antero Resources was $0.3 million and $0.1 million for the three months ended September 30, 2021 and 2022, respectively, and $1.8 million and $0.4 million for the nine months ended September 30, 2021 and 2022, respectively, which includes expense related to the Converted AM RSU Awards (as defined below). For grants made prior to March 12, 2019, Antero Resources has total unamortized expense related to its various equity-based compensation plans that can be allocated to the Company of less than $0.1 million as of September 30, 2022, which includes the Converted AM RSU Awards (as defined below). A portion of this unamortized cost will be allocated to Antero Midstream as it is amortized over the remaining service period of the related awards. The Company does not reimburse Antero Resources for noncash equity compensation allocated to it for awards issued under the AR LTIP.

AM LTIP

The Company is authorized to grant up to 15,398,901 shares of AM common stock to employees and directors under the AM LTIP. The AM LTIP provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), dividend equivalents, other stock-based awards, cash awards and substitute awards. The terms and conditions of the

awards granted are established by the compensation committee of the Board of Directors (the “Board”). As of September 30, 2022, a total of 7,410,734 shares were available for future grant under the AM LTIP.

The Company’s equity-based compensation expense, by type of award, is as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2021

2022

2021

2022

Restricted stock units (1)

$

2,905

4,525

8,608

11,438

Performance share units (1)

123

833

1,036

1,938

Equity awards issued to directors

227

195

682

650

Total expense

$

3,255

5,553

10,326

14,026

(1) Amounts include equity-based compensation expense allocated to the Company by Antero Resources.

(b)

Restricted Stock Unit Awards

As of March 19, 2019, each of the unvested outstanding phantom units granted under the Antero Midstream Partners Long Term Incentive Plan was assumed by the Company and converted into 1.8926 RSUs under the AM LTIP representing a right to receive shares of the Company’s common stock for each converted phantom unit (all such RSUs, the “Converted AM RSU Awards”). The Converted AM RSU Awards are accounted for as if they are distributed by Antero Midstream Partners to Antero Resources. Therefore, the expense related to the Converted AM RSU Awards is subject to allocation by Antero Resources.

A summary of the RSU awards activity, which includes the Converted AM RSU Awards, is as follows:

Weighted Average

Number

Grant Date

    

of Units

    

Fair Value

Total AM LTIP RSUs awarded and unvested—December 31, 2021

3,573,377

$

8.11

Granted

2,750,896

11.28

Vested

(1,243,878)

8.40

Forfeited

(159,119)

9.37

Total AM LTIP RSUs awarded and unvested—September 30, 2022

4,921,276

$

9.77

As of September 30, 2022, unamortized expense of $39.2 million related to the unvested RSUs, which includes less than $0.1 million related to the Converted AM RSU Awards, is expected to be recognized over a weighted average period of approximately 2.4 years. The Company’s proportionate share of the Converted AM RSU Awards will be allocated to it as it is recognized.

(c)

Performance Share Unit Awards

2019 Performance Share Unit Awards

In 2019, the Company granted performance share units (“PSUs”) to certain of its employees and executive officers that vest based on the Company’s actual return on invested capital (“ROIC”) (as defined in the award agreement) over a three-year period as compared to a targeted ROIC (“2019 ROIC PSUs”). The number of shares of the Company’s common stock that could be earned with respect to the 2019 ROIC PSUs ranged from zero to 200% of the target number of 2019 ROIC PSUs originally granted. During the second quarter of 2022, the performance condition for the 2019 ROIC PSUs was met at 200% of target and 137,712 target 2019 ROIC PSUs converted into 275,424 shares of the Company’s common stock. As of September 30, 2022, there were no 2019 ROIC PSUs outstanding.

2022 Performance Share Unit Awards

In April 2022, the Company granted PSUs to certain of its executive officers that vest based on the Company’s actual ROIC (as defined in the award agreement) over a three-year period concluding on December 31, 2024 as compared to a targeted ROIC (“2022 ROIC PSUs”). The number of shares of the Company’s common stock that can be earned with respect to the 2022 ROIC PSUs ranges from zero to 200% of the target number of 2022 ROIC PSUs originally granted. The grant date fair value of these awards was based on the closing price of the Company’s common stock on the date of the grant, assuming target achievement of the performance condition. Expense related to the 2022 ROIC PSUs is recognized based on the number of shares of the Company’s common stock that are expected to be issued at the end of the measurement period, and such expense is reversed if the likelihood of achieving the performance condition decreases. The likelihood of achieving the performance conditions related to 2022 ROIC PSU awards was probable as of September 30, 2022.

Summary Information for Performance Share Unit Awards

A summary of the PSU awards activity is as follows:

Weighted Average

Number

Grant Date

    

of Units

    

Fair Value

Total AM LTIP PSUs awarded and unvested—December 31, 2021

116,526

$

6.32

Granted

461,121

11.05

Vested (1)

(137,712)

6.32

Forfeited

Total AM LTIP PSUs awarded and unvested—September 30, 2022

439,935

$

11.28

(1) The performance condition for these vested PSUs was met at 200% of target and as such, they converted into 275,424 shares of the Company’s common stock during the second quarter of 2022.

As of September 30, 2022, unamortized expense of $8.4 million related to unvested PSUs is expected to be recognized over a weighted average period of approximately 2.5 years.

(d)

Cash Awards

In January 2020, the Company granted cash awards of $2.2 million to certain executives under the AM LTIP that vest ratably over a period of up to three years. In July 2020, the Company granted additional cash awards of $0.7 million to certain non-executive employees under the AM LTIP that vest ratably over a period of four years. The compensation expense for these awards is recognized ratably over the applicable vesting period. As of December 31, 2021 and September 30, 2022, the Company has recorded $1.1 million and $0.5 million, respectively, in other liabilities in the condensed consolidated balance sheets related to unvested cash awards.