Stock-Based Compensation

12 Months Ended

Dec. 31, 2023

Share-Based Payment Arrangement [Abstract]

During the years ended December 31, 2023, 2022 and 2021, the Company recognized $14 million, $15 million and $11 million, respectively, in stock-based compensation expense, which is included as a component of salaries, wages and benefits within the Company’s consolidated statements of operations. The stock-based compensation expense is related to stock options and restricted stock units. The total income tax benefit recognized in the income statement for stock-based compensation expenses was $3 million for each of the years ended December 31, 2023 and 2022, and $2 million for the year ended December 31, 2021. The Company also recognized additional income tax benefits of $5 million, $1 million, and $8 million for each of the years ended December 31, 2023, 2022, and 2021, respectively, for which options were exercised or restricted shares vested.

Stock Options and Restricted Stock Units

In April 2014, FGHI approved the 2014 Equity Incentive Plan (the “2014 Plan”). Under the terms of the 2014 Plan, 38 million shares of FGHI common stock were reserved for issuance. Concurrently with the Company’s IPO, on April 1, 2021 the Company approved the 2021 Incentive Award Plan (the “2021 Plan”), which reserved 7 million shares of FGHI common stock, as well as the 11 million issued awards from the 2014 Plan that were still outstanding plus any subsequently forfeited awards or awards that lapse unexercised after April 1, 2021, to be available for future issuances of stock-based compensation awards to be granted to members of the Board of Directors and certain employees and consultants. Additionally, shares available for issuance under the 2021 Plan will be subject to an annual increase on the first day of each fiscal year beginning in 2022 and ending in 2031, equal to the lesser of (i) one percent (1%) of the shares of stock outstanding on the last day of the immediately preceding fiscal year and (ii) such smaller number of shares of stock as determined by the Company’s Board of Directors; provided, however, that no more than 30 million shares of stock may be issued upon the exercise of incentive stock

options. On January 1, 2023, 2,178,758 shares were added to the 2021 Plan as a result of the annual increase. As of December 31, 2023, there were 5 million shares available for issuance.

Stock Options

Stock option awards are granted with an exercise price equal to the fair market value of FGHI’s common stock on the date of grant, and generally vest evenly over four years of continuous service. Compensation expense related to stock options is recognized on a straight-line basis over the requisite service period, net of forfeitures, which are recognized on a specific-identification basis.

A summary of stock option activity during the year ended December 31, 2023 is presented below:


	Number of Shares	Weighted-Average Exercise Price		Aggregate Grant Date Fair Value (in millions)
Outstanding at January 1, 2023	7,373,678	$	1.96	$	7
Issued	—	$	—	—
Exercised	(4,322,711)	$	0.29	—
Forfeited	(28,500)	$	10.93	—
Outstanding at December 31, 2023	3,022,467	$	4.27	$	7
Exercisable at December 31, 2023	3,022,467	$	4.27	$	7

There were no stock options granted during the years ended December 31, 2023, 2022, and 2021. During the years ended December 31, 2023, 2022, and 2021, 4,322,711, 277,729 and 2,202,895 vested stock options were exercised, respectively, with an intrinsic value of $26 million, $3 million and $32 million, respectively. As of December 31, 2023, the aggregate intrinsic value of outstanding options was $6 million.

As of December 31, 2023, there were no unvested options remaining and therefore, there was no unrecognized compensation costs related to options. Additionally, as of December 31, 2023, exercisable options and outstanding options both have a remaining weighted-average contractual term of 2.4 years.

Restricted Stock Units

Restricted stock units (“RSUs”) in FGHI are valued at the fair value of FGHI’s common stock on the date of grant. Each RSU represents the right to receive one share of common stock upon vesting of such RSU. Vesting of RSUs is based on time-based service conditions, approximately one year of continuous service for the Company’s Board of Directors and three to four years of continuous service for all other employees. In order to vest, the participant must still be employed by the Company, with certain contractual exclusions, at each vesting event. Generally, within 30 days after the vesting date, the shares underlying the RSU will be issued to the participant. Compensation expense, net of forfeitures as incurred on a specific identification basis, is recognized on a straight-line basis over the requisite service period.

A summary of RSU activity during the years ended December 31, 2023, 2022 and 2021 is presented below:


	2023			2022			2021
	Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value
Outstanding at January 1	2,395,509	$	12.24	1,970,294	$	12.47	2,020,650	$	10.54
Issued	6,176,938	$	5.88	1,344,532	$	11.96	899,800	$	14.70
Vested	(800,189)	$	11.55	(533,065)	$	12.48	(543,879)	$	10.23
Forfeited	(549,950)	$	12.17	(73,711)	$	11.98	(205,542)	$	10.62
Repurchased (a)	(443,720)	$	12.21	(312,541)	$	12.14	(200,735)	$	11.00
Outstanding at December 31	6,778,588	$	6.53	2,395,509	$	12.24	1,970,294	$	12.47

________________

(a) Represents withholdings to cover tax obligations on vested shares when applicable.

The total fair value of RSUs vested was $13 million, $10 million and $11 million, during the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, there was $33 million of unrecognized compensation cost related to unvested RSUs which is expected to be recognized over a weighted-average period of 2.5 years.

Liability-Classified Awards

On December 3, 2013, to give effect to the reorganization of the Company’s corporate structure, an agreement was reached to amend and restate a phantom equity agreement with the Company’s pilots. Under the terms of this agreement, when an amendment to the underlying collective bargaining agreement was approved, the Company’s pilots employed by Frontier in June 2011, (the “Participating Pilots”), through their agent, FAPAInvest, LLC, received phantom equity units. Each unit represented the right to receive common stock or cash in connection with certain events, including a qualifying initial public offering, such stock to be distributed or cash paid to the Participating Pilots in 2020 and 2022 based on a predetermined formula. In accordance with the amended and restated phantom equity agreement, the obligation became fixed as of December 31, 2019 and was no longer subject to valuation adjustments. As of December 31, 2019, the final associated liability was $137 million, of which $111 million was paid during the year ended December 31, 2020 and the remaining $26 million was paid during the year ended December 31, 2022.