Landsea Homes Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

The Company adopted the Landsea Homes Corporation 2020 Stock Incentive Plan (the “Plan”) which provides for the grant of options, stock appreciation rights, restricted stock units (“RSUs”), and restricted stock, any of which may be performance-based, as determined by the Company’s Compensation Committee. The Company reserved a total of 6.0 million shares of common stock for issuance under the Plan. As of December 31, 2022, approximately 3.4 million shares of common stock remained available for issuance under the Plan.

In 2021, the Company granted long term performance share unit awards (“PSUs”) to certain executives under the Plan. The PSUs are earned based upon the Company’s performance over three years, measured by adjusted earnings per share (“EPS”) over fiscal years 2021, 2022 and 2023. Each award is conditioned upon the Company achieving adjusted EPS targets over these performance periods. Target awards of 100% will be earned if the Company’s adjusted EPS meets set thresholds in each of the performance periods. If adjusted EPS is below or above the target thresholds by defined amounts, an award may still be earned in a range between 50%-200% of the target.

In 2022, the Company granted long term performance share unit awards (“PSUs”) to certain executives under the Plan. The PSUs are earned based upon the Company’s performance over three years, measured by cumulative revenue and return on equity (“ROE”) over fiscal years 2023-2025, and in some cases, 2023-2027. Each award is conditioned upon the Company achieving cumulative revenue and ROE targets over these performance periods. Target awards of 100% will be earned if the Company’s cumulative revenue and ROE meet set thresholds in each of the performance periods. If cumulative revenue and ROE is below or above the target thresholds by defined amounts, an award may still be earned in a range between 50%-400% of the target with amounts greater than 200% of the target paid in cash.

The following table presents a summary of the Company’s nonvested PSUs and RSUs as of December 31, 2022 and 2021 and changes during the years then ended:


	Year Ended December 31,
	2022			2021
	Awards	Weighted Average Grant Date Fair Value		Awards	Weighted Average Grant Date Fair Value
	(in thousands, except fair value amounts)
Outstanding, beginning of the year	768	$	9.43	—	$	—
Granted	1,135	8.48		886	9.45
Vested	(278)	9.19		(118)	9.55
Forfeited	—	—		—	—
Outstanding, end of the year	1,625	$	8.82	768	$	9.43

Most awards vest ratably over three to five years; however, some have been granted with different vesting schedules. The Company records actual forfeitures related to unvested awards upon employee terminations.

The following table presents a summary of the Company’s stock options activity for the year ended December 31, 2022:


	Number of Shares	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in thousands)			(in years)	(in thousands)
Options outstanding at December 31, 2021	—	$	—
Granted	744	8.82
Exercised	—	—
Forfeited	(60)	8.83
Options outstanding at December 31, 2022(1)	684	$	8.82	8.06	$	—
Options exercisable at December 31, 2022	—	$	—	—	$	—

(1) As of December 31, 2022, the stock options were out-of-the-money, as the exercise price of the stock options exceeded the average market price of the Company’s common stock.

Stock-based compensation expense totaled $3.6 million and $5.8 million during the years ended December 31, 2022 and 2021, respectively, and is included in general and administrative expenses on the consolidated statements of operations. The Company did not grant any RSUs or PSUs and did not recognize any stock-based compensation expense during the year ended December 31, 2020.

The following table presents a summary of the Company’s outstanding RSUs and PSUs, assuming the current estimated level of performance achievement (in thousands, except years):


	December 31, 2022
	(in thousands, except years)
Unvested units	1,625
Remaining cost on unvested units	$	3,775
Remaining vesting period	4.00 years

Stock-based compensation expense associated with the outstanding RSUs and PSUs is measured using the grant date fair value which is based on the closing price as of the grant date. The expense associated with the PSUs also incorporates the estimated achievement of the established performance criteria at the end of each reporting period until the performance period ends.

During 2018, Landsea Holdings created a long-term incentive compensation program to enable key employees to participate in the Company’s future growth through the issuance of phantom equity awards. In connection with the Merger, all of the phantom equity awards vested and were either paid out in cash or were converted to stock of Landsea Homes and the program was terminated. The Company recorded $2.7 million in general and administrative expenses during the year ended December 31, 2021 related to the accelerated vesting of the phantom awards. The Company paid cash of $2.9 million for the phantom stock awards and granted 0.2 million shares with a grant date value of $1.9 million at the time of the Merger.