Equity Based Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

Equity Based Compensation

Equity-Based Compensation

2020 Plan

On October 14, 2020, the Company’s 2020 Equity Incentive Plan (the “2020 Plan”) became effective. The 2020 Plan authorized 6,683,919 new shares, subject to adjustments pursuant to the 2020 Plan.

During the year ended December 31, 2021, the Company granted an aggregate of 661,924 restricted stock units (“RSUs”) to employees and board of director members and 177,472 Performance Stock Units (PSUs) to certain executives. The fair value of the RSUs is determined using the market value of common stock on the grant date. The PSUs cliff vest after three years and upon meeting certain revenue and adjusted EPS targets. The PSUs also contain a modifier based on the total stock return (TSR) compared to a certain Index which modifies the number of PSUs that vest. The PSUs were valued using a Monte-Carlo simulation method with a volatility assumption of 66%, risk free interest rate of 0.28% based on the United States Treasury Constant Maturity rates and no dividends paid assumption. Based on results achieved in 2021 and the forecasted amounts over the remainder of the performance period, the Company does not expect the units to vest and therefore has recognized no expense in 2021.

Activity under the 2020 Plan was as follows:

	Number of Shares	Weighted Average Grant Date Fair Value
RSUs
Unvested, December 31, 2019	—	—
Granted	500,006	$	22.00
Vested	—	—
Forfeited	—	—
Unvested, December 31, 2020	500,006	$	22.00
Granted	661,924	$	23.17
Vested	(157,473)	$	22.00
Forfeited	(74,048)	$	27.51
Unvested, December 31, 2021	930,409	$	22.39
	Number of Shares	Weighted Average Grant Date Fair Value
PSUs
Unvested, December 31, 2020	—	—
Granted	177,472	$	28.25
Vested	—	—
Forfeited	(29,785)	30.74
Unvested, December 31, 2021	147,687	$	27.75

Class B Units and Class C Units of Former Parent

The Company accounted for equity grants to employees (Class B units and Class C units, “the Units”, of Former Parent) as equity-based compensation under ASC 718, Compensation-Stock Compensation. The Units contain vesting provisions as defined in the agreement. Vested units do not forfeit upon termination and represent a residual interest in Former Parent. Equity-based compensation cost is measured at the grant date fair value and is recognized on a straight-line basis over the requisite service period, including those units with graded vesting with a corresponding credit to additional paid-in capital as a capital contribution from Former Parent. However, the amount of equity-based compensation at any date is equal to the portion of the grant date value of the award that is vested.

The Units issued to employees are measured at fair value on the grant date using an option pricing model. The Company utilizes the estimated weighted average of the Company’s expected fund life dependent on various exit scenarios to estimate the expected term of the awards. Expected volatility is based on the average of historical and implied volatility of a set of comparable companies, adjusted for size and leverage. The risk-free rates are based on the yields of U.S. Treasury instruments with comparable terms. Actual results may vary depending on the assumptions applied within the model.

On November 19, 2019 and May 19, 2020, Former Parent issued 22,326,653 and 4,344,941, respectively, Class B units to certain employees of the Company. On March 28, 2020, Former Parent issued 1,000 Class C units to a member of the board of directors of Array Technologies, Inc.

On March 23, 2021, in connection with the closing of the 2021 Follow-on Offering, all of the outstanding Class B Units of Former Parent were immediately vested per the terms of the equity awards, resulting in the Company accelerating the recognition of expense of $8.9 million.

For the years ended December 31, 2021, 2020 and 2019, the Company recognized $16.3 million, $4.8 million and $0.8 million, respectively, in equity-based compensation. At December 31, 2021, the Company had $16.8 million of unrecognized compensation costs related to RSU’s which is expected to be recognized over approximately 2.1 years. There were 103,833 forfeitures during the year ended December 31, 2021, and no forfeitures during 2020 and 2019.