Quarterly report pursuant to Section 13 or 15(d)

Equity-Based Compensation

v3.19.2
Equity-Based Compensation
6 Months Ended
Jun. 30, 2019
Equity-Based Compensation  
Equity-Based Compensation

(10) Equity-Based Compensation

The Company’s general and administrative expenses include equity-based compensation costs related to the Antero Midstream GP LP Long-Term Incentive Plan (“AMGP LTIP”) and the Series B Units prior to the Transactions. Equity-based compensation after the Transactions include (i) costs allocated to Antero Midstream Partners by Antero Resources for grants made prior to the Transactions pursuant to Antero Resources’ long-term incentive plan, (ii) costs due to Antero Midstream Corporation LTIP (the “AMC LTIP”) and (iii) the Exchanged B Units (as defined below). Antero Midstream Partners’ portion of the equity-based compensation expense is included in general and administrative expenses, and recorded as a credit to the applicable classes of equity. Equity-based compensation expense allocated to Antero Midstream Partners was $2.8 million for the period from March 13, 2019 to June 30, 2019. Antero Resources has unamortized expense totaling approximately $64 million as of June 30, 2019 related to its various equity-based compensation plans, which includes grants made under the AMC LTIP prior to the Transactions. A portion of

this will be allocated to Antero Midstream Partners as it is amortized over the remaining service period of the related awards. Antero Midstream Partners does not reimburse Antero Resources for noncash equity compensation allocated to it for awards issued under the Antero Resources long-term incentive plan.

Exchanged B Units

As of December 31, 2018, IDR Holdings had 98,600 Series B Units authorized and outstanding that entitled the holders to receive up to 6% of the amount of the distributions that Antero Midstream Partners made on its incentive distribution rights (“IDRs”) in excess of $7.5 million per quarter, subject to certain vesting conditions. On December 31, 2018, 65,745 Series B Units were vested. The holders of vested Series B Units had the right to convert the units to common shares with a value equal to their pro rata share of up to 6% of any increase in AMGP’s equity value in excess of $2.0 billion.

Upon Closing of the Transactions, each Series B Unit, vested and unvested, was exchanged for 176.0041 shares of our common stock (the “Series B Exchange”). A total of 17,353,999 shares of AMC common stock were issued in exchange for the 98,600 Series B Units then outstanding (the “Exchanged B Units”), which included 5,782,601 restricted shares of AMC common stock issued in exchange for the 32,855 unvested Series B Units.

The Company accounted for the Series B Exchange as a share-based payment modification under ASC 718, Stock Compensation. On March 12, 2019, which is the modification date, the Company determined the estimated fair value of the Series B Unit awards using a Monte Carlo simulation using various assumptions including a floor equity value of $2.0 billion, expected volatility of 40% based on historical volatility of a peer group of publicly traded partnerships, a risk free rate of 2.51%, and expected IDR distributions based on internal estimates discounted based on a weighted average cost of capital assumption of 7.25%. Based on these assumptions, the estimated value of each Series B Unit was $1,257 when exchanged for shares of AMC common stock. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The unvested Exchanged B Units retain the same vesting conditions as the Series B Units and are expected to vest on December 31, 2019. Expenses related to Exchanged B Units are recognized on a straight-line basis over the requisite service period of the entire award. Forfeitures are accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the period.

The Company recognized $18 million and $29 million of equity-based compensation expense related to the Series B awards, including the Series B Units prior to the Closing of the Transactions, for the three and six months ended June 30, 2019, respectively.
For the three and six months ended June 30, 2018, the Company recognized
$9 million and $17 million, respectively, of equity-based compensation expense related to the Series B Units. Unamortized expense related to these awards was $37 million as of June 30, 2019, which is expected to be recognized during the remainder of 2019.

AMGP LTIP

On April 17, 2017, Antero Midstream GP LP adopted the AMGP LTIP pursuant to which certain non-employee directors of Antero Midstream GP LP’s general partner and certain officers, employees and consultants of Antero Resources were eligible to receive awards representing equity interests in Antero Midstream GP LP. The Company recognized expense of $0.2 million for the three months ended June 30, 2018, and the Company did not recognize expense related to these awards for the three months ended June 30, 2019. For the six months ended June 30, 2018 and 2019, the Company recognized $0.3 million and $0.2 million, respectively, related to these awards. Expenses related to these awards were recognized on a straight-line basis over the requisite service period of the entire award. Forfeitures were accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the period. In connection with the Transactions, the AMGP LTIP was terminated on March 12, 2019. No awards were issued and outstanding as of March 12, 2019.

AMC LTIP

Effective March, 12, 2019, the Board of Directors of Antero Midstream Corporation (the “Board”) adopted the AMC LTIP under which awards may be granted to employees, directors and other service providers of the Company and its affiliates. The AMC LTIP provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, 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. The Company is authorized to grant up to 15,398,901 shares of common stock to employees and directors under the AMC LTIP. As of June 30, 2019, a total of 13,653,739 shares were available for future grant under the AMC LTIP. For the three and six months ended June 30, 2019, the Company recognized $0.8 million and $0.8 million, respectively, expenses related to these awards. Expenses related to restricted stock units are recognized on a straight-line basis over the requisite service period of the entire award. Forfeitures are accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the period.

As part of the Transactions, each of the unvested outstanding phantom units in the Antero Midstream Partners Long Term Incentive Plan (“AMP LTIP”) was assumed by Antero Midstream Corporation and converted into 1.8926 restricted stock units under the AMC LTIP representing a right to receive shares of AMC common stock for each converted phantom unit.

A summary of the restricted stock unit awards activity during the six months ended June 30, 2019 is as follows:

Weighted

Average

Aggregate

Number of

grant date

intrinsic value

    

units

    

fair value

    

(in thousands)

Total AMC LTIP units awarded and unvested—December 31, 2018

$

$

AMP LTIP Awards converted into AMC LTIP Awards(1)

1,068,900

$

14.58

Granted

647,030

$

14.15

Vested

(335,480)

$

14.04

Forfeited

(23,674)

$

13.92

Total AMC LTIP units awarded and unvested—June 30, 2019

1,356,776

$

14.52

$

15,549

(1)

Effective as of March 12, 2019, all unvested outstanding phantom units in the AMP LTIP were assumed by the Company and converted into restricted stock units under the AMC LTIP at a conversion rate of 1.8926.

Intrinsic values are based on the closing price of the Company’s common shares on the referenced dates. AMC LTIP unamortized expense of $18 million at June 30, 2019, is expected to be recognized over a weighted average period of approximately 2.8 years and the Company’s proportionate share will be allocated to it as it is recognized.

Performance Share Unit Awards Based on Return on Invested Capital (“ROIC”)

In 2019, the Company granted PSUs to certain of its employees and executive officers, a portion of which vest based on the Company’s actual ROIC (as defined in the award agreement) over a three-year period as compared to a targeted ROIC (“ROIC PSUs”). The number of shares of common stock that may ultimately be earned with respect to the ROIC PSUs ranges from zero to 200% of the target number of ROIC PSUs originally granted. Expense related to the ROIC PSUs is recognized based on the number of shares of common stock that are expected to be issued at the end of the measurement period, and is reversed if the likelihood of achieving the performance condition decreases. For the three and six months ended June 30, 2019, the Company recognized $0.2 million and $0.2 million, respectively, expenses related to these awards.

Summary Information for Performance Share Unit Awards

A summary of PSU activity for the six months ended June 30, 2019 is as follows:

Weighted

Average

Number of

grant date

    

units

    

fair value

Total awarded and unvested—December 31, 2018

$

Granted

164,196

$

14.16

Vested

$

Forfeited

$

Total awarded and unvested—June 30, 2019

164,196

$

14.16

The grant-date fair value for the ROIC PSUs is based on the closing price of the Company’s common stock on the date of the grant, assuming the achievement of the performance condition.

As of June 30, 2019, there was $2.2 million of unamortized equity-based compensation expense related to unvested PSUs. That expense is expected to be recognized over a weighted average period of approximately 2.8 years.