Ecovyst, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

Stock-Based Compensation

9 Months Ended

Sep. 30, 2021

19. Stock-Based Compensation:

The Company is authorized to issue shares for common stock awards to employees, directors and affiliates of the Company in connection with the Ecovyst Inc. (formerly PQ Group Holdings Inc.) 2017 Omnibus Incentive Plan, as Amended and Restated (the “2017 Plan”). During the nine months ended September 30, 2021, the Company granted 1,697,623 restricted stock units and 211,985 performance stock units (at target) under the 2017 Plan as part of its equity incentive compensation program. Each restricted stock unit provides the recipient with the right to receive a share of common stock subject to graded vesting terms based on service, which for the awards granted during the nine months ended September 30, 2021, generally requires approximately one year of service for members of the Company’s board of directors and approximately three years of service for employees.

The performance stock units granted during the nine months ended September 30, 2021 provide the recipients with the right to receive shares of common stock dependent on the achievement of a total shareholder return (“TSR”) goal, and are generally subject to the provision of service through the vesting date of the award. The performance period for the TSR goal is measured based on a three-year performance period from January 1, 2021 through December 31, 2023. The TSR goal is based on the Company’s actual TSR percentage increase over the performance period. Depending on the Company’s performance relative to the TSR goal, each performance stock unit award recipient is eligible to earn a percentage of the target number of shares granted to the recipient, ranging from zero to 200%. The performance stock units, to the extent earned, will vest on the date the Company’s compensation and governance committee certifies the achievement of the performance metric for the three-year period ending December 31, 2023, which will occur subsequent to the end of the performance period but before the Company files its annual consolidated financial statements for the year ending December 31, 2023.

The value of the restricted stock units granted during the nine months ended September 30, 2021 was based on the average of the high and low trading prices of the Company’s common stock on the NYSE on the preceding trading day, in accordance with the Company’s policy for valuing such awards. Compensation expense related to the restricted stock units is recognized on a straight-line basis over the respective vesting period.

The TSR goal of the performance stock units granted during the nine months ended September 30, 2021 is considered a market condition as opposed to a vesting condition. Because a market condition is not considered a vesting condition, it is reflected in the grant date fair value of the award, and the associated compensation cost based on the fair value of the award is recognized over the performance period, regardless of whether the Company actually achieves the market condition or the level of achievement, as long as service is provided by the recipient. The Company used a Monte Carlo simulation to estimate the fair value of the portion of the awards subject to the TSR goal. The following table provides the assumptions used to determine the grant date fair value of the market condition-dependent / TSR goal-based portion of the Company’s performance stock units granted during the nine months ended September 30, 2021 using a Monte Carlo simulation:


Expected dividend yield	—		%
Risk-free interest rate	0.20		%
Expected volatility	41.70		%
Expected term (in years)	2.95
Grant date fair value	$	13.21

The following table summarizes the activity for the Company’s restricted stock units and performance stock units for the nine months ended September 30, 2021:


	Restricted Stock Units			Performance Stock Units
	Number of Units	Weighted Average Grant Date Fair Value (per share)		Number of Units	Weighted Average Grant Date Fair Value (per share)
Nonvested as of December 31, 2020	1,841,139	$	16.14	965,736	$	17.69
Granted	1,697,623	$	15.39	211,985	$	13.21
Vested	(773,619)	$	16.00	—	$	—
Forfeited	(69,877)	$	15.83	(15,211)	$	16.75
Nonvested as of September 30, 2021	2,695,266	$	15.71	1,162,510	$	16.92

2021 Modifications

As more fully described in Note 6 to these condensed consolidated financial statements, the Company’s Board of Directors declared a special cash dividend of $3.20 per share to stockholders of record as of the close of business on August 12, 2021. The dividend declaration also included a dividend equivalent for all unvested restricted stock units, performance stock units and restricted stock awards (collectively, the “awards”) as of August 23, 2021 equal to $3.20 per award. Additionally, the Company’s Board of Directors approved a reduction in the strike price on all outstanding vested and unvested stock options by the amount of the dividend payment.

Further, with respect to stock options and awards held by employees of Performance Chemicals at the time of the sale (see Note 3 to these condensed consolidated financial statements), the Company’s Board of Directors approved modifications to the post-termination stock option exercise, and stock option and award vesting periods. The modifications provide that all stock options held by Performance Chemicals employees that were vested as of the date of the sale are eligible to be exercised for a period of one year from the date of the sale. Additionally, modifications to unvested stock options and awards allow holders to continue to vest in those instruments under the original terms of the instruments for a period of one year from the date of sale. The terms of the modifications to the Performance Chemicals awards are contingent upon the employee providing continued service to the Buyer. The modifications impacted all holders of the Company’s stock options and awards and resulted in incremental stock-based compensation expense of $6,667 recognized during the three and nine months ended September 30, 2021. Of this amount, $2,635 was included in loss from discontinued operations, net of tax on the Company’s consolidated statements of income for the three and nine months ended September 30, 2021.

Total Stock-Based Compensation Expense

Stock-based compensation expense for the Company is as follows:


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Continuing operations	10,193		4,355		$	22,837	$	13,324
Discontinued operations	4,375		1,782		8,066		5,099
Stock-based compensation expense	14,568		6,137		30,903		18,423

Continuing operations	(2,494)		(1,079)		(5,589)		(3,301)
Discontinued operations	(1,071)		(442)		(1,974)		(1,264)
Income tax benefit	(3,565)		(1,521)		(7,563)		(4,565)

Continuing operations	7,699		3,276		17,248		10,023
Discontinued operations	3,304		1,340		6,092		3,835
Stock-based compensation expense, net of income tax benefit	$	11,003	$	4,616	$	23,340	$	13,858

With the new grants of restricted stock units and performance stock units during the nine months ended September 30, 2021, unrecognized compensation cost at September 30, 2021 was $31,800 for restricted stock units and $8,991 for performance stock units considered probable of vesting. The weighted-average period over which these costs are expected to be recognized at September 30, 2021 is 1.54 years for the restricted stock units and 1.16 years for the performance stock units. Activity related to the Company’s stock options and restricted stock awards was not material for the nine months ended September 30, 2021.