Workhorse Group, 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

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

The Company maintains, as approved by the board of directors, the 2017 Incentive Stock Plan and the 2019 Incentive Stock Plan (the “Plans”) providing for the issuance of stock-based awards to employees, officers, directors or consultants of the Company. Non-qualified stock options may only be granted with an exercise price equal to the market value of the Company’s common stock on the grant date. Awards under the Plan may be either vested or unvested options, or unvested restricted stock. The Plans have authorized 13.0 million shares for issuance of stock-based awards. As of June 30, 2022 there were approximately 2.0 million shares available for issuance of future stock awards under the Plans.

Stock-based compensation expense

The following table summarizes stock-based compensation expense:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Stock options	$	254,585	$	21,210	$	486,963	$	91,622
Restricted stock awards	2,226,865		1,118,703		3,906,109		1,940,719
Performance-based restricted stock awards	810,959		—		1,249,630		—
Total stock-based compensation expense	$	3,292,409	$	1,139,913	$	5,642,702	$	2,032,341

Stock options

A summary of stock option activity for the six months ended June 30, 2022 is as follows:


	Number of Options	Weighted Average Exercise Price per Option		Weighted Average Remaining Contractual Life (Years)
Balance, December 31, 2021	495,836	$	6.80	6.5
Exercised	(51,198)	1.36
Forfeited	(625)	22.30

Balance, June 30, 2022	444,013	$	7.45	6.7

Number of options exercisable at June 30, 2022	188,988	$	4.03	3.2

As of June 30, 2022, unrecognized compensation expense was $2.1 million for unvested options which is expected to be recognized over the next 2.2 years.

Restricted stock awards

A summary of restricted stock award activity for the six months ended June 30, 2022 is as follows:


	Number of Unvested Shares	Weighted Average Grant Date Fair Value per Share
Balance, December 31, 2021	1,617,192	$	9.33
Granted	2,829,992	3.10
Vested	(282,504)	9.06
Forfeited	(145,016)	6.05
Balance, June 30, 2022	4,019,664	$	5.07

As of June 30, 2022, unrecognized compensation expense was $17.4 million for unvested restricted stock awards which is expected to be recognized over the next 2.4 years.

Performance share units (“PSUs”)

On February 23, 2022, the Company issued 0.9 million PSUs to certain executives. The PSUs will vest upon achievement of the performance objectives over a performance period ending December 31, 2024 as defined in the agreement. Fifty percent of the PSUs vest based upon the Company’s total shareholder return as compared to a group of peer companies (“TSR PSUs”), and fifty percent of the PSUs vest based upon the Company’s performance on certain measures including a cumulative adjusted EBITDA target (“EBITDA PSUs”). Depending on the actual achievement on the performance objectives, the grantee may earn between 0% and 200% of the target PSUs.

A summary of the activity for PSU awards with total shareholder return performance objectives for the six months ended June 30, 2022 is as follows:


	Number of Unvested Shares	Weighted Average Grant Date Fair Value per Share
Balance, December 31, 2021	306,197	$	11.79
Granted	454,832	11.79
Forfeited	(11,138)	11.79
Balance, June 30, 2022	749,891	$	11.79

The grant date fair value of $11.79 per TSR PSU was estimated using a Monte-Carlo simulation model using a volatility assumption of 117% and risk-free interest rate of 0.69%.

As of June 30, 2022, unrecognized compensation expense was $7.8 million for unvested TSR PSUs, which is expected to be recognized over the next 2.5 years.

A summary of the PSU awards with cumulative adjusted EBITDA targets for the six months ended June 30, 2022 is as follows:


			Number of Unvested Shares
Balance, December 31, 2021			—
Granted			454,822
Forfeited			(11,138)
Balance, June 30, 2022			443,684

The fair value of performance share units is calculated based on the stock price on the date of grant. The stock-based compensation expense recognized each period is dependent upon our estimate of the number of shares that will ultimately vest based on the achievement of EBITDA-based performance conditions. Future stock-based compensation expense for unvested EBITDA PSUs will be based on the fair value of the awards as of the grant date, which has not yet occurred, as the cumulative adjusted EBITDA target condition is not yet defined.