Annual report pursuant to Section 13 and 15(d)

STOCK???BASED COMPENSATION

v3.20.4
STOCK‑BASED COMPENSATION
12 Months Ended
Dec. 31, 2020
Share-based Payment Arrangement [Abstract]  
STOCK‑BASED COMPENSATION STOCK‑BASED COMPENSATION
Stock Option Plan
In March 2013, we approved the Stock Option Plan of ProPetro Holding Corp. (the “Stock Option Plan”) pursuant to which our Board of Directors may grant stock options to our consultants, directors, executives and employees. No awards have been granted under the Stock Option Plan following our IPO, and no further awards will be granted under the Stock Option Plan.
2017 Incentive Award Plan
          In March 2017, our shareholders approved the ProPetro Holding Corp. 2017 Incentive Award Plan (the "2017 Incentive Plan") pursuant to which our Board of Directors was authorized to grant stock options, restricted stock units (“RSUs”), performance stock units (“PSUs”), or other stock-based and cash awards to consultants, directors, executives and employees. The 2017 Incentive Plan originally authorized up to 5,800,000 shares of common stock to be issued under awards granted pursuant to the plan.
2020 Long Term Incentive Plan
          In October 2020, our shareholders approved the ProPetro Holding Corp. 2020 Long Term Incentive Plan (the “2020 Incentive Plan”) pursuant to which our Board of Directors may grant stock options, RSUs, PSUs, or other stock-based and cash awards to consultants, directors, executives and employees. The 2020 Incentive Plan authorizes up to 4,650,000 shares of common stock to be issued under awards granted pursuant to the plan. The 2020 Incentive Plan became effective October 22, 2020, and as of such date no further awards will be granted under the 2017 Incentive Plan on or after October 22, 2020.
          The 2017 Incentive Plan and the 2020 Incentive Plan are herein collectively referred to as the “Incentive Plans”.
Stock Options
          On June 14, 2013, we granted 2,799,408 stock option awards to certain key employees, officers and directors pursuant to the Stock Option Plan that vested and became exercisable based upon the achievement of a service requirement. The options vested in 25% increments for each year of continuous service and an option became fully vested upon the optionee’s completion of the fourth year of service. The contractual term for the options awarded is 10 years. The fair value of each option award granted was estimated on the date of grant using the Black-Scholes option-pricing model.
          On July 19, 2016, we granted 1,274,549 stock option awards to certain key employees, officers and directors pursuant to the Stock Option Plan which vested in five substantially equal semi-annual installments commencing in December 2016, subject to a continuing services requirement. The contractual term for the options awarded is 10 years. We fully accelerated vesting of the options in connection with our IPO. The fair value of each option award granted was estimated on the date of grant using the Black-Scholes option-pricing model.
          On March 16, 2017, we granted 793,738 stock option awards to certain key employees, officers and directors pursuant to the 2017 Incentive Plan which are scheduled to vest in four substantially equal annual installments, subject to a continuing service requirement. The contractual term for the options awarded is 10 years. The fair value of each stock option award granted was estimated on the date of grant using the Black-Scholes option-pricing model. There were no new stock option grants during the years ended December 31, 2020, 2019 and 2018.
          As of December 31, 2020, the aggregate intrinsic value for our outstanding stock options was $14.6 million, and the aggregate intrinsic value for our exercisable stock options was $14.6 million. There were no exercises of stock options during the year ended December 31, 2020. The remaining contractual term for the outstanding and exercisable stock options as of December 31, 2020, was 2.5 years and 2.4 years, respectively.
          On March 13, 2020, the Company modified the stock options previously granted to two former officers in connection with one such former officer’s separation agreement and the other former officer’s amended employment arrangement. Such modifications extended the exercise period such that all vested but unexercised stock options held by such former officers shall not be forfeited or cancelled on the ninety-first day following the former officers’ respective separation dates but rather shall remain outstanding and exercisable until the one-year anniversary of such former officers’ separation date. In connection with a former officer’s separation agreement, on December 31, 2020, the Company modified the stock options previously granted to such former officer to (i) accelerate the vesting of the stock options granted to such former officer in 2017 pursuant to the 2017 Incentive Plan and (ii) extend the exercise period applicable to all vested but unexercised stock options held by such former officer such that all such stock options shall not be forfeited or cancelled on the ninety-first day following the former officer’s separation date but rather shall remain outstanding and exercisable until June 14, 2023. As a result of these modifications, we recorded an incremental stock expense of $2.0 million during the year ended December 31, 2020. For the years ended December 31, 2020, 2019 and 2018, the Company recognized approximately $2.3 million, $0.5 million and $0.6 million, respectively, in compensation expense related to stock options.
          A summary of the stock option activity during the year ended December 31, 2020 is presented below:
Number
of Shares
Weighted
Average
Exercise
Price
Outstanding at January 1, 2020 4,300,088  $ 5.03 
Granted
—  $ — 
Exercised
—  $ — 
Forfeited
(76,398) $ 14.00 
Expired
(23,349) $ 14.00 
Outstanding at December 31, 2020 4,200,341  $ 4.82 
Exercisable at December 31, 2020 4,098,924  $ 4.59 
Restricted Stock Units
          In 2020, we granted 1,185,832 RSUs to key employees, officers and directors pursuant to the Incentive Plan, which generally vest ratably over a three-year vesting period, in the case of awards to employees and officers, and generally vest in full after one year, in the case of awards to directors. RSUs are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases to be an employee or director of the Company prior to vesting of the award. Each RSU represents the right to receive one share of common stock. The grant date fair value of the RSUs was based on the closing share price of our common stock on the date of grant. For the years ended December 31, 2020, 2019 and 2018, the Company recognized stock compensation expense for RSUs of approximately $5.1 million, $3.5 million and $2.9 million, respectively.
          On October 30, 2020, the Company modified the RSUs previously granted to a former officer in 2019 and 2020 to accelerate the vesting of such RSUs in connection with his separation agreement. On December 31, 2020, the Company modified the RSUs previously granted to a former officer in 2018, 2019 and 2020 to accelerate the vesting of such RSUs in connection with his separation agreement. As a result of these modifications, we recorded an incremental stock expense of $0.1 million during the year ended December 31, 2020. As of December 31, 2020, the total unrecognized compensation expense for all RSUs was approximately $5.9 million, and is expected to be recognized over a weighted-average period of approximately 1.8 years.
          The following table summarizes the RSUs activity during the year December 31, 2020:
Number of
Shares
Weighted
Average
Grant Date
Fair Value ("FV")
Outstanding at January 1, 2020 613,217  $ 18.75 
Granted 1,185,832  $ 7.00 
Vested (262,931) $ 17.37 
Forfeited (370,749) $ 14.37 
Canceled —  $ — 
Outstanding at December 31, 2020 1,165,369  $ 8.50 
Performance Stock Units
          In 2020, we granted 1,007,058 PSUs (excluding PSUs that were administratively cancelled and regranted) to certain key employees and officers as new awards under the 2017 Incentive Plan. The actual number of shares of common stock that may be issued under the PSUs ranges from zero up to a maximum of 200% of the target number of PSUs granted to the participant, based on our total shareholder return (“TSR”) relative to a designated peer group from January 1, 2020 through December 31, 2022. In addition to the TSR conditions, vesting of the PSUs is generally subject to the recipient’s continued employment through the end of the applicable performance period. Compensation expense is recorded ratably over the corresponding requisite service period. The grant date fair value of PSUs was determined using a Monte Carlo probability model. Grant recipients do not have any shareholder rights until performance relative to the peer group has been determined following the completion of the performance period and shares have been issued.
          In connection with a former officer’s separation agreement, on October 30, 2020, the Company modified the PSUs previously granted to such former officer in 2019 and 2020 to provide for deemed satisfaction of the service requirement applicable to such PSUs as of October 30, 2020 such that such PSUs shall remain outstanding and eligible to vest based on our TSR relative to a designated peer group over the applicable performance period. In connection with a former officer’s separation agreement, on December 31, 2020, the Company modified the PSUs previously granted to such former officer in 2018, 2019 and 2020 to provide for deemed satisfaction of the service requirement applicable to such PSUs as of December 31, 2020 such that such PSUs shall remain outstanding and eligible to vest based on our TSR relative to a designated peer group over the applicable performance period. As a result of these modifications, we recorded an incremental stock expense of $0.1 million during the year ended December 31, 2020. For the years ended December 31, 2020, 2019 and 2018 the Company recognized stock compensation expense for the PSUs of approximately $1.7 million, $3.8 million and $2.0 million, respectively.
          The following table summarizes the PSU activity during the year ended December 31, 2020:
Period
Granted
Target Shares Outstanding at January 1, 2020 Target
Shares
Granted
Target Shares Vested Target
Shares
Forfeited
Target Shares Outstanding at December 31, 2020 Weighted
Average
Grant Date
Fair Value per
Share for Outstanding Shares
2017 151,492  —  (151,492) —  —  $ 10.73 
2018 156,576  —  —  (72,254) 84,322  $ 27.51 
2019 214,553  —  —  (88,235) 126,318  $ 27.49 
2020 —  1,007,058  —  (198,420) 808,638  $ 8.30 
Total 522,621  1,007,058  (151,492) (358,909) 1,019,278  $ 12.27 
Weighted Average FV Per Share $ 23.88  $ 9.31  $ 10.73  $ 21.51  $ 12.27 
          The total stock compensation expense for the years ended December 31, 2020, 2019 and 2018 for all stock awards was approximately $9.1 million, $7.8 million and $5.5 million, respectively. The total unrecognized compensation expense for all stock awards as of December 31, 2020, is approximately $11.1 million, and is expected to be recognized over a weighted-average period of approximately 1.8 years.