Annual report pursuant to Section 13 and 15(d)

Equity-Based Compensation and Retention Awards

v3.20.4
Equity-Based Compensation and Retention Awards
12 Months Ended
Dec. 31, 2020
Equity-Based Compensation and Retention Awards  
Equity-Based Compensation and Retention Awards

(12)  Equity-Based Compensation and Retention Awards

(a) Summary of 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 Corporation by Antero Resources for grants made prior to the Transactions pursuant to the Antero Resources Corporation Long-Term Incentive Plan (the “AR LTIP”), (ii) costs related to the Antero Midstream Corporation Long-Term Incentive Plan (the “AM LTIP”) and (iii) the Exchanged B Units (as defined below). The Company’s 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 $4.9 million for the period from March 13, 2019 to December 31, 2019 and $5.2 million for the year ended December 31, 2020. For grants made prior to the Transactions, Antero Resources has total unamortized expense related to its various equity-based compensation plans that can be allocated to the Company of approximately $8 million as of December 31, 2020, which includes grants made under the Antero Midstream Partners Long Term Incentive Plan (the “AMP LTIP”) prior to the Transactions, which were converted into awards under the AM LTIP. A portion of this will be allocated to Antero Midstream Partners 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.

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 the Company’s 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 the Company’s 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 FASB ASC Topic 718, Stock Compensation. On March 12, 2019, which is the modification date, the Company determined the estimated fair value of the unvested 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 the

Company’s 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 retained the same vesting conditions as the Series B Units and vested on December 31, 2019. No awards were issued and outstanding as of December 31, 2019 and 2020. Expenses related to Exchanged B Units 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.

The Company recognized $66 million of equity-based compensation expense related to the Series B awards, including the Series B Units prior to the Closing of the Transactions and the Exchanged B Units following the Closing of the Transactions, for the year ended December 31, 2019. For the year ended December 31, 2018, the Company recognized $34 million of equity-based compensation expense related to the Series B Units.

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. For the years ended December 31, 2018 and 2019, the Company recognized expense of $0.7 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 expense was recognized for the year ended December 31, 2020.

AM LTIP

Effective March, 12, 2019, the Board of Directors of Antero Midstream Corporation (the “Board”) adopted the AM LTIP under which awards may be granted to employees, directors and other service providers of the Company and its affiliates. The AM 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 AM LTIP. As of December 31, 2020, a total of 11,131,949 shares were available for future grant under the AM LTIP. For the years ended December 31, 2019 and 2020, the Company recognized expense of $2.7 million and $7.6 million, respectively, related to these awards. Expenses related to restricted stock units (“RSUs”) 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.

(b) Restricted Stock Unit Awards

As part of the Transactions, each of the unvested outstanding phantom units granted under the AMP LTIP 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.

RSU awards vest subject to the satisfaction of service requirements. Expense related to each RSU award is 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 grant date fair values of these awards are determined based on the closing price of the Company’s common stock on the date of the grant.

Summary Information for Restricted Stock Unit Awards

A summary of the RSU awards activity during the year ended December 31, 2020 is as follows:

Weighted

Average

Aggregate

Number

Grant Date

Intrinsic Value

    

of Units

    

Fair Value

    

(in thousands)

Total AM LTIP RSUs awarded and unvested—December 31, 2019

1,275,990

$

14.38

$

9,685

Granted

2,592,191

$

6.32

Vested

(504,403)

$

14.31

Forfeited

(48,823)

$

14.37

Total AM LTIP RSUs awarded and unvested—December 31, 2020

3,314,955

$

8.09

$

25,558

Intrinsic values are based on the closing price of the Company’s common shares on the referenced dates. As of December 31, 2020, unamortized expense of $19 million related to the unvested RSUs is expected to be recognized over a weighted average period of approximately 2.4 years and the Company’s proportionate share will be allocated to it as it is recognized.

(c) Performance Share Unit Awards

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

In 2019, the Company granted performance share units (“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 such expense is reversed if the likelihood of achieving the performance condition decreases.

On December 17, 2019, the compensation committee of the Board modified the terms for the ROIC PSU agreement. Accordingly, the Company accounted for the amended agreement as a share-based payment modification under ASC 718, Stock Compensation and revalued the awards as of the modification date. Expense for the awards are recognized on a straight-line basis over the requisite service period of the entire award.

In 2019 and 2020, the likelihood of achieving the performance conditions related to ROIC PSU awards outstanding was probable and, therefore, for the years ended December 31, 2019 and 2020, the Company recognized expense of $0.2 million and $0.3 million, respectively.

Summary Information for Performance Share Unit Awards

A summary of PSU activity for the year ended December 31, 2020 is as follows:

Weighted

Average

Number

Grant Date

    

of Units

    

Fair Value

Total awarded and unvested—December 31, 2019

148,306

$

6.32

Granted

$

Vested

$

Forfeited

$

Total awarded and unvested—December 31, 2020

148,306

$

6.32

As of December 31, 2020, there was $0.4 million of unamortized equity-based compensation expense related to unvested PSUs that is expected to be recognized over a weighted average period of 1.3 years.

(d) Cash Retention 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, 2020, the Company has accrued $1.8 million in other liabilities in the consolidated balance sheet related to cash awards.