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Stock-based Compensation | 12 Months Ended
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Dec. 31, 2022
Share-Based Payment Arrangement [Abstract] |
Stock-based Compensation | 12. Stock-based Compensation We use share-based payments to compensate employees and non-employee directors. We recognize the cost of share-based payments under the fair-value-based method. Share-based awards include equity instruments in the form of stock options, restricted stock, or restricted stock units that have included service conditions and, in certain cases, performance conditions. Our share-based awards also include share-settled performance unit awards. Share-settled performance unit awards are accounted for as equity awards. In 2020, we granted performance-based cash-settled phantom units, which are accounted for as a liability classified award. We issue shares of common stock when vested stock options are exercised, when restricted stock is granted and after restricted stock units and share-settled performance unit awards vest. On June 3, 2021, our stockholders approved the 2021 Plan. No additional awards will be granted under any of our previously existing plans after such date. The aggregate number of shares of Common Stock authorized for grant under the 2021 Plan is approximately 13.5 million, which includes approximately 4.9 million shares previously authorized for issuance under our 2014 Plan. Our share-based compensation plans at December 31, 2022 are as follows:
|  | Shares |  |  | Shares Underlying |  |  | Shares |
|  | Authorized |  |  | Awards |  |  | Available |
Plan Name |  | for Grant |  |  | Outstanding |  |  | for Grant |
2021 Plan |  |  | 13,467,480 |  |  |  | 3,851,825 |  |  |  | 3,689,156 |
2014 Plan |  |  | — |  |  |  | 3,588,486 |  |  |  | — |
Patterson-UTI Energy, Inc. 2005 Long-Term Incentive Plan, as amended |  |  | — |  |  |  | 672,500 |  |  |  | — |
A summary of the 2021 Plan follows: • The Compensation Committee of the Board of Directors administers the Plan other than the awards to directors. • All employees, officers and directors are eligible for awards. • The Compensation Committee determines the vesting schedule for awards. Awards typically vest over one year for non-employee directors and three years for employees. • The Compensation Committee sets the term of awards and no option term can exceed 10 years. • The Plan provides that the total compensation paid to each non-employee director for their service as such, whether in cash or in equity awards under the 2021 Plan (based on the grant date fair value of any such awards) during a single fiscal year may not exceed $750,000; however, the foregoing limit will instead be $1,000,000 for any fiscal year in which the non-employee director is first appointed to the Board of Directors or any fiscal year in which the non-employee director serves as chairman or lead director. • All options granted under the 2021 Plan are granted with an exercise price equal to or greater than fair market value of our common stock at the time the option is granted. • The Plan provides for awards of incentive and non-incentive stock options, stock appreciation rights (“SARs”), restricted stock awards, other stock unit awards, performance share awards, performance unit awards and dividend equivalent rights. Options granted under the Patterson-UTI Energy, Inc. 2005 Long-Term Incentive Plan, as amended, and 2014 Plan typically vested over one year for non-employee directors and three years for employees. All options were granted with an exercise price equal to the fair market value of the related common stock at the time of grant. Stock Options — We estimate the grant date fair values of stock options using the Black-Scholes-Merton valuation model. Volatility assumptions are based on the historic volatility of our common stock over the most recent period equal to the expected term of the options as of the date such options are granted. The expected term assumptions are based on our experience with respect to employee stock option activity. Dividend yield assumptions are based on the expected dividends at the time the options are granted. The risk-free interest rate assumptions are determined by reference to United States Treasury yields. No options were granted during the years ended December 31, 2022, 2021 and 2020. Stock option activity for the year ended December 31, 2022 follows:
|  |  |  |  | Weighted Average |
|  | Shares |  |  | Exercise Price Per Share |
Outstanding at beginning of year |  |  | 3,720,150 |  |  | $ | 20.93 |
Exercised |  |  | (640,000 | ) |  | $ | 16.20 |
Expired |  |  | (175,000 | ) |  | $ | 17.37 |
Outstanding at end of year |  |  | 2,905,150 |  |  | $ | 22.19 |
Exercisable at end of year |  |  | 2,905,150 |  |  | $ | 22.19 |
Options outstanding and exercisable at December 31, 2022 have an intrinsic value of approximately $0.1 million and a weighted-average remaining contractual term of 2.04 years. Additional information with respect to options granted, vested and exercised during the years ended December 31, 2022, 2021 and 2020 follows (in thousands, except per share data):
|  | 2022 |  |  | 2021 |  |  | 2020 |
Weighted-average grant date fair value of stock options granted (per share) |  | NA |  |  | NA |  |  | NA |
Aggregate grant date fair value of stock options vested during the year |  | $ | — |  |  | $ | 89 |  |  | $ | 89 |
Aggregate intrinsic value of stock options exercised |  | $ | 410 |  |  | $ | — |  |  | $ | — |
As of December 31, 2022, no options to purchase shares were outstanding and unvested. Restricted Stock Units — For all restricted stock unit awards made to date, shares of common stock are not issued until the units vest. Restricted stock units are subject to forfeiture for failure to fulfill service conditions and, in certain cases, performance conditions. Forfeitable dividend equivalents are accrued on certain restricted stock units that will be paid upon vesting. We use the straight-line method to recognize periodic compensation cost over the vesting period. Restricted stock unit activity for the year ended December 31, 2022 follows:
|  |  |  |  |  |  |  | Weighted Average |
|  | Time |  |  | Performance |  |  | Grant Date Fair |
|  | Based |  |  | Based |  |  | Value Per Share |
Non-vested restricted stock units outstanding at beginning of year |  |  | 3,044,719 |  |  |  | 359,315 |  |  | $ | 8.31 |
Granted |  |  | 1,554,849 |  |  |  | — |  |  | $ | 17.37 |
Vested |  |  | (1,437,286 | ) |  |  | — |  |  | $ | 7.32 |
Forfeited |  |  | (71,436 | ) |  |  | — |  |  | $ | 13.15 |
Non-vested restricted stock units outstanding at end of year |  |  | 3,090,846 |  |  |  | 359,315 |  |  | $ | 12.71 |
As of December 31, 2022, approximately 3.2 million non-vested restricted stock units outstanding are expected to vest. Additional information as of December 31, 2022 with respect to these non-vested restricted stock units follows (dollars in thousands):
Aggregate intrinsic value |  | $ | 54,672 |
Weighted-average remaining vesting period |  | 1.40 years |
Unrecognized compensation cost |  | $ | 25,998 |
Performance Unit Awards — We have granted share-settled performance unit awards to certain employees (the “Performance Units”) on an annual basis since 2010. The Performance Units provide for the recipients to receive a grant of shares of common stock upon the achievement of certain performance goals during a specified period established by the Compensation Committee. The performance period for the Performance Units is generally the three-year period commencing on April 1 of the year of grant. The performance goals for the Performance Units are tied to our total shareholder return for the performance period as compared to total shareholder return for a peer group determined by the Compensation Committee. For the performance units granted in April 2021 and April 2022, the peer group also includes three market indices and one market index, respectively. These goals are considered to be market conditions under the relevant accounting standards and the market conditions were factored into the determination of the fair value of the respective Performance Units. Under the Performance Units granted beginning in April 2019, the recipients will receive the target number of shares if our total shareholder return during the performance period, when compared to the peer group, is at the 55th percentile. If our total shareholder return during the performance period, when compared to the peer group, is at the 75th percentile or higher, then the recipients will receive two times the target number of shares. If our total shareholder return during the performance period, when compared to the peer group, is at the 25th percentile, then the recipients will only receive one-half of the target number of shares. If our total shareholder return during the performance period, when compared to the peer group, is between the 25th and 55th percentile, or the 55th and 75th percentile, then the shares to be received by the recipients will be determined using linear interpolation for levels of achievement between these points. Under the Performance Units granted beginning in April 2019, the payout shall not exceed the target number of shares if our absolute total shareholder return is negative or zero. Additionally, the Performance Units granted in April 2020 will not pay out if our total shareholder return is not equal to or greater than the total stockholder return of the S&P 500 Index for the performance period. The total target number of shares with respect to the Performance Units for the years 2017-2022 is set forth below:
|  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | 2018 |  |  | 2017 |
|  | Performance |  |  | Performance |  |  | Performance |  |  | Performance |  |  | Performance |  |  | Performance |
|  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |
Target number of shares |  |  | 414,000 |  |  |  | 843,000 |  |  |  | 500,500 |  |  |  | 489,800 |  |  |  | 310,700 |  |  |  | 186,198 |
In May 2020, 332,773 shares were issued to settle the 2017 Performance Units. In April 2021, 621,400 shares were issued to settle the 2018 Performance Units. In April 2022, 979,600 shares were issued to settle the 2019 Performance Units. The Performance Units granted in 2020, 2021 and 2022 have not reached the end of their respective performance periods. Because the Performance Units are share-settled awards, they are accounted for as equity awards and measured at fair value on the date of grant using a Monte Carlo simulation model. The fair value of the Performance Units is set forth below (in thousands):
|  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | 2018 |  |  | 2017 |
|  | Performance |  |  | Performance |  |  | Performance |  |  | Performance |  |  | Performance |  |  | Performance |
|  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |
Aggregate fair value at date of grant |  | $ | 10,743 |  |  | $ | 7,225 |  |  | $ | 826 |  |  | $ | 9,958 |  |  | $ | 8,004 |  |  | $ | 5,780 |
The weighted-average fair value calculations for performance units granted during the years ended December 31, 2022, 2021 and 2020 were based on the following weighted-average assumptions set forth below:
|  | 2022 |  |  | 2021 |  |  | 2020 |
Risk-free interest rate (1) |  |  | 2.9 | % |  |  | 0.4 | % |  |  | 0.4 | %
Expected stock volatility (2) |  |  | 86.5 | % |  |  | 83.2 | % |  |  | 66.2 | %
Expected dividend yield (3) |  |  | 1.0 | % |  |  | 1.3 | % |  |  | 7.7 | %
Expected term (in years) |  |  | 3 |  |  |  | 3 |  |  |  | 3 |
(1) The risk-free interest rate is based on U.S. Treasury securities for the expected term of the performance units. (2) Expected volatilities are based on the daily closing price of our stock based upon historical experience over a three-year period. (3) Expected dividend yield is based on the annualized dividend in effect on the measurement date and the stock price on the grant date. These fair value amounts are charged to expense on a straight-line basis over the performance period. Compensation expense associated with the Performance Units is set forth below (in thousands):
|  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | 2018 |  |  | 2017 |
|  | Performance |  |  | Performance |  |  | Performance |  |  | Performance |  |  | Performance |  |  | Performance |
|  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |
Year ended December 31, 2022 |  | $ | 2,686 |  |  | $ | 2,408 |  |  | $ | 275 |  |  | $ | 830 |  |  | NA |  |  | NA |
Year ended December 31, 2021 |  | NA |  |  | $ | 1,806 |  |  | $ | 275 |  |  | $ | 3,319 |  |  | $ | 667 |  |  | NA |
Year ended December 31, 2020 |  | NA |  |  | NA |  |  | $ | 206 |  |  | $ | 3,319 |  |  | $ | 2,668 |  |  | $ | 642 |
As of December 31, 2022, we had unrecognized compensation cost of $11.1 million related to our unvested Performance Units. The weighted-average remaining vesting period for these unvested Performance Units was 1.20 years as of December 31, 2022. Dividends on Equity Awards – Dividend equivalents are paid or accrued on certain restricted stock units. These dividends are recognized as reductions of retained earnings for the portion of restricted stock units expected to vest. Phantom Units — In May 2020, the Compensation Committee approved a grant of long-term performance-based phantom units to our Chief Executive Officer and President, William A. Hendricks, Jr (the “Phantom Units”). The Phantom Units were granted outside of the 2014 Plan. Pursuant to this phantom unit grant, Mr. Hendricks may earn from 0% to 200% of a target award of 298,500 phantom units based on our achievement of the same performance conditions over the same performance period that applies to the Performance Units granted in April 2020, as described above. Earned Phantom Units, if any, will be settled in 2023, following completion of the three-year performance p eriod, in a cash payment equal to the number of earned phantom units multiplied by our average trading price per share over the twenty consecutive trading days ending March 31, 2023. Because the Phantom Units are cash-settled awards, they are accounted for as a liability classified award. The grant date fair value of the Phantom Units was $1.2 million. Compensation expense is recognized on a straight-line basis over the performance period, with the amount recognized fluctuating as a result of the Phantom Units being remeasured to fair value at the end of each reporting period due to their liability-award classification. We recognized $6.0 million, $1.8 million, and $0.6 million in compensation expense associated with the Phantom Units in 2022, 2021, and 2020, respectively.

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