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, 2021

Share-based Payment Arrangement [Abstract]

During 2018, Landsea Holdings created a long-term incentive compensation program designed to align the interests of Landsea Holdings, the Company, and its executives by enabling key employees to participate in the Company’s future growth through the issuance of phantom equity awards. Landsea Holdings’ phantom equity awards issued on or after January 1, 2018 were accounted for pursuant to ASC 710, Compensation, as the value was not based on the shares of comparable public entities or other equity, but was based on the book value of Landsea Holdings' equity. Landsea Holdings measured the value of phantom equity awards on a quarterly basis using the intrinsic value method and pushed down the expense to the Company as the employees participating in the long-term incentive compensation program primarily benefit the Company. 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 LHC and the program was terminated. The Company recorded $2.7 million in general and administrative expenses in 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.

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 our common stock for issuance under the Plan. As of December 31, 2021, approximately 5.1 million shares of common stock remained available for issuance under the Plan.

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 (the "Performance Periods"). Each award is conditioned upon the Company achieving adjusted EPS targets over the Performance Periods. Target awards of 100% will be earned if the Company’s adjusted EPS meets set thresholds in each of the Performance Periods ("Target Goals"). 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 Goals.

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


	Year Ended December 31,
	2021			2020			2019
	Awards	Weighted Average Grant Date Fair Value		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	—	$	—	—	$	—	—	$	—
Granted	886	9.45		—	—		—	—
Vested	(118)	9.55		—	—		—	—
Forfeited	—	—		—	—		—	—
Outstanding, end of the year	768	$	9.43	—	$	—	—	$	—

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

Stock-based compensation expense related to our RSUs and PSUs of $5.8 million during the year ended December 31, 2021 is included in general and administrative expenses on our consolidated statements of operations. The Company did not grant any RSUs or PSUs and did not recognize any stock-based compensation expense during the years ended December 31, 2020 and 2019.

A summary of our outstanding RSUs and PSUs, assuming current estimated level of performance achievement, are as follows:


	December 31, 2021
	(in thousands, except years)
Unvested units	768
Remaining cost on unvested units	$	5,102
Remaining vesting period	3.21 years

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