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Stock Based Compensation | 12 Months Ended
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Dec. 31, 2024
Share-Based Payment Arrangement [Abstract] |
Stock Based Compensation | NOTE 14. STOCK-BASED COMPENSATION Equity Incentive Plans In conjunction with the Merger, effective as of the Closing Date, the 2017 Omnibus Incentive Plan of Dril-Quip, Inc. (the “2017 Plan”), as amended, was maintained as the Company’s continuing equity incentive plan for the benefit of employees of the Company or any of its subsidiaries and members of the board of directors. The 2017 Plan provides for awards of stock options, stock appreciation rights (“SARs”), stock awards, restricted stock, restricted stock units, cash awards and performance awards. The 2017 Plan is administered by the Compensation Committee, which is composed entirely of independent directors, for all employee awards and by the board of directors for all director awards. Up to 3,400,000 shares of common stock may be issued, either made available from authorized but unissued shares or from treasury shares that have been issued but reacquired by us. The total number of shares available for future issuance under the 2017 Plan is 535,697 shares as of December 31, 2024. As described below, certain amounts of restricted stock awards (“RSAs”), restricted stock units (“Dril-Quip RSUs”), performance unit awards (“Performance Units”) and director stock compensation awards (“DSAs”) awarded by Dril-Quip under the 2017 Plan in the pre-combination period vested upon the Merger, and certain amounts of the RSAs, Dril-Quip RSUs, and Performance Units awarded under the 2017 Plan remained outstanding. All such stock-based payments awards are considered modified upon occurrence of the Merger. Compensation expense associated with those awards that have a requisite service period remaining as of the Closing Date will be recognized on a straight-line basis over the remaining requisite service period based on the Closing Date fair value. Prior to the Merger, Legacy Innovex maintained a single equity incentive plan, the 2016 Equity Incentive Plan (the “2016 Legacy Innovex Plan”). The 2016 Legacy Innovex Plan provided for awards of stock options, restricted stock awards, restricted stock units, bonus stock, and other awards. The outstanding awards under the 2016 Legacy Innovex Plan were converted to RSUs of the Combined Company and adjusted for the Exchange Ratio. Modification accounting is not required for Legacy Innovex stock-based payment awards as the fair value of the modified awards does not exceed the fair value of the original award immediately before the original award was modified, and the vesting conditions and classification of the modified awards are the same as the original award immediately before the original award was modified. As a result, there is no incremental compensation cost resulting from the modifications related to Legacy Innovex stock-based payment awards. Stock-based compensation expense recorded was $13.2 million, $2.0 million, and $0.9 million for the years ended December 31, 2024, 2023 and 2022, respectively. Total stock-based compensation expense by award type is as follows:
|  | Year Ended December 31, |
(in thousands) |  | 2024 |  |  | 2023 |  |  | 2022 |
Restricted stock awards |  | $ | 2,944 |  |  | $ | - |  |  | $ | - |
Restricted stock units - Dril-Quip |  |  | 279 |  |  |  | - |  |  |  | - |
Restricted stock units - Legacy Innovex |  |  | 6,853 |  |  |  | 1,205 |  |  |  | - |
Performance unit awards |  |  | 2,155 |  |  |  | - |  |  |  | - |
Director stock compensation awards |  |  | 46 |  |  |  | - |  |  |  | - |
Stock options |  |  | 971 |  |  |  | 757 |  |  |  | 907 |
Total stock-based compensation expense |  | $ | 13,248 |  |  | $ | 1,962 |  |  | $ | 907 |
For the year ended December 31, 2024, the income tax benefit recognized in net income for stock-based payment awards was $8.1 million. No income tax benefit was recognized in net income for stock-based payment awards for the years ended December 31, 2023 and 2022. Restricted Stock Awards Under the 2017 Plan, Dril-Quip awarded officers, directors, and key employees RSAs, which is an award of common stock subject to time vesting. These RSAs provide immediate ownership rights but are restricted as to transference, sale, and other disposition. The RSAs vest ratably over a three-year period. As per the grant agreement, RSAs granted in 2021 become fully vested upon a change-in-control event, and the Merger qualified as a change-in-control event. As such, all 60,717 RSAs granted in 2021 outstanding at the Closing Date became fully vested as of the date of the Merger and were included in the purchase price consideration based on the fair value on the Closing Date. RSAs granted in 2022 and 2023 remained outstanding and, to the extent earned, will be settled in shares of Company Common Stock, subject to appropriate adjustments to the number of shares related to each award. As of September 6, 2024, 493,048 shares of Company Common Stock subject to RSAs were outstanding under the 2017 Plan; $4.9 million of their fair value is attributable to post-Merger services and will be recognized as equity-based compensation expense in the post-combination period to the extent earned. The fair value of RSAs settled in shares during the year ended December 31, 2024 was $5.4 million. Activity related to RSAs is as follows:
|  | Number of Restricted Stock Awards |  |  | Weighted- Average Grant Date Fair Value per Stock Unit |
Unvested, December 31, 2023 |  |  | - |  |  | $ | - |
Exchanged in conjunction with Merger |  |  | 493,048 |  |  | $ | 22.89 |
Granted |  |  | - |  |  | $ | - |
Vested |  |  | (350,198 | ) |  | $ | 22.84 |
Forfeited |  |  | (3,108 | ) |  | $ | 22.98 |
Unvested, December 31, 2024 |  |  | 139,742 |  |  | $ | 23.02 |
As of December 31, 2024, we expect $1.9 million of unrecognized compensation cost related to RSA grants to be recognized over the weighted–average period of 1.4 years. Restricted Stock Units Dril-Quip RSUs. Under the 2017 Plan, Dril-Quip awarded certain employees with key roles related to a prior acquisition Dril-Quip RSUs, which is an unfunded and unsecured promise to deliver common stock subject to time vesting. Dril-Quip RSUs do not provide ownership rights until settlement occurs (i.e., delivery of the underlying shares of common stock). These Dril-Quip RSUs are restricted as to transference, sale, and other disposition, and vest ratably over a two-year period. Dril-Quip RSUs granted in 2023 and 2024 remained outstanding at the Closing Date of the Merger and, to the extent earned, will be settled in shares of Company Common Stock, subject to appropriate adjustments to the number of shares related to each award. As of September 6, 2024, 103,014 shares of common stock subject to Dril-Quip RSUs remained outstanding under the 2017 Plan; $1.6 million of their fair value is attributable to post-Merger services and will be recognized as equity-based compensation expense in the post-combination period to the extent earned. The fair value of RSUs settled in shares during the year ended December 31, 2024 was $0.1 million. Activity related to Dril-Quip RSUs is as follows:
|  | Number of Dril-Quip Restricted Stock Units |  |  | Weighted- Average Grant Date Fair Value per Stock Unit |
Unvested, December 31, 2023 |  |  | - |  |  | $ | - |
Exchanged in conjunction with Merger |  |  | 103,014 |  |  | $ | 15.91 |
Granted |  |  | - |  |  | $ | - |
Vested |  |  | (4,522 | ) |  | $ | 22.78 |
Forfeited |  |  | - |  |  | $ | - |
Unvested, December 31, 2024 |  |  | 98,492 |  |  | $ | 15.59 |
As of December 31, 2024, we expect $1.3 million of unrecognized compensation cost related to Dril-Quip RSU grants to be recognized over the weighted–average period of 1.7 years. Legacy Innovex RSUs. Under the 2016 Legacy Innovex Plan, Legacy Innovex previously granted RSUs subject to vesting and forfeiture conditions during applicable restriction periods, as set forth in an applicable Award Agreements. During the twelve months ended December 31, 2024 and 2023, after adjustment for the Exchange Ratio, Legacy Innovex granted 617,246 and 315,169 equity-classified RSUs, respectively, with a weighted average grant date fair value of $17.39 and $15.49, respectively. The fair value of RSUs settled in shares during the year ended December 31, 2024 was $4.8 million. No RSUs were settled in shares during the year ended December 31, 2023. No RSUs were granted or vested during the year ended December 31, 2022. When RSUs are originally granted to employees or non-employee directors, they are valued at fair value on the date of grant. The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period for awards expected to ultimately vest. The RSUs granted in 2024 have two different vesting schedules. Immediately upon close of the Merger, 224,541 RSUs vested; as a result, the Company recorded $3.9 million of compensation expense related to these RSUs on the Closing Date. The remaining RSUs granted in 2024 will vest over two years beginning from the date of the Merger. RSUs granted in 2023 vest ratably over a three or four year period. Activity related to Legacy Innovex RSUs is as follows:
|  | Number of Legacy Innovex Restricted Stock Units |  |  | Weighted- Average Grant Date Fair Value per Stock Unit |
Unvested, December 31, 2023 |  |  | 315,169 |  |  | $ | 15.49 |
Granted |  |  | 617,246 |  |  | $ | 17.39 |
Vested |  |  | (303,837 | ) |  | $ | 16.89 |
Forfeited |  |  | (20,676 | ) |  | $ | 17.39 |
Unvested, December 31, 2024 |  |  | 607,902 |  |  | $ | 16.65 |
As of December 31, 2024, we expect $7.2 million of unrecognized compensation cost related to Legacy Innovex RSU grants to be recognized over the weighted–average period of 1.8 years. Performance Unit Awards Under the 2017 Plan, Dril-Quip awarded Performance Units to officers and key employees. Under the terms of the Performance Units, participants may earn from 0% to 200% of their target award based upon the Company’s relative total share return (TSR) in comparison to the 15 component companies of the Philadelphia Oil Service Index and the S&P 500 Index. Starting with the 2022 grants, the Philadelphia Oil Service Index was replaced by the VanEck Oil Services ETF Index. As per the grant agreement, Performance Units granted in 2021 become fully vested upon a change-in-control event, and the Merger qualified as a change-in-control event. As such, all 74,871 Performance Units granted in 2021 outstanding at the Closing Date became fully vested as of the date of the Merger and were included in the purchase price consideration based on the fair value on the Closing Date. Performance Units granted in 2022 and 2023 remained outstanding and, to the extent earned, will be settled in shares of Company Common Stock, subject to appropriate adjustments to the number of shares related to each award. As of September 6, 2024, 303,827 shares of Company Common Stock subject to Performance Units were outstanding under the 2017 Plan; $2.4 million of their fair value is attributable to post-Merger services and will be recognized as equity-based compensation expense in the post-combination period to the extent earned. The fair value of Performance Units settled in shares during the year ended December 31, 2024 was $4.3 million. The Performance Units have a three-year performance period calculated from October 1, 2023 and 2022 to September 30, 2026 and 2025 for the 2023 and 2022 grants, respectively. Activity related to Performance Units is as follows:
|  | Number of Performance Units |  |  | Weighted- Average Grant Date Fair Value per Stock Unit |
Unvested, December 31, 2023 |  |  | - |  |  | $ | - |
Exchanged in conjunction with Merger |  |  | 303,827 |  |  | $ | 22.63 |
Granted |  |  | - |  |  | $ | - |
Vested |  |  | (277,773 | ) |  | $ | 22.59 |
Forfeited |  |  | - |  |  | $ | - |
Unvested, December 31, 2024 |  |  | 26,054 |  |  | $ | 23.03 |
As of December 31, 2024, we expect $0.2 million of unrecognized compensation cost related to Performance Unit awards to be recognized over the weighted–average period of 1.3 years. Director Stock Compensation Awards Under the 2017 Plan, a stock compensation program for the directors is authorized whereby the directors may elect to receive all or a portion of their fees in the form of restricted stock awards (DSAs) in an amount equal to 125% of the fees in lieu of cash. The awards are made quarterly on the first business day after the end of each calendar quarter and vest on January 1 of the second year after the grant date. As per the grant agreement, DSAs become fully vested upon a change-in-control event, and the Merger qualified as a change-in-control event. As such, all 75,537 DSAs outstanding at the Closing Date became fully vested as of the date of the Merger and were included in the purchase price consideration. For the year ended December 31, 2024, the Company granted 15,604 DSAs with a weighted average grant date fair value of $14.68. Activity related to DSAs is as follows:
|  | Number of Director Stock Compensation Awards |  |  | Weighted- Average Grant Date Fair Value per Stock Unit |
Unvested, December 31, 2023 |  |  | - |  |  | $ | - |
Exchanged in conjunction with Merger |  |  | - |  |  | $ | - |
Granted |  |  | 15,604 |  |  | $ | 14.68 |
Vested |  |  | - |  |  | $ | - |
Unvested, December 31, 2024 |  |  | 15,604 |  |  | $ | 14.68 |
As of December 31, 2024, we expect $0.2 million of unrecognized compensation cost related to DSA grants to be recognized over the weighted–average period of 1.0 years. Stock Options Under the 2016 Legacy Innovex Plan, Legacy Innovex previously granted stock options which generally vested in equal increments over four years and had a ten-year term. Pursuant to the Merger Agreement, each stock option became fully vested and settled immediately prior to the effective time of the Merger. Due to the accelerated vesting, the Company recognized all remaining unamortized compensation expense of $0.6 million upon close of the Merger. Determining fair market value. Legacy Innovex estimated the fair value of each option grant using the Black-Scholes option-pricing model. The Black-Scholes option pricing model requires estimates of key assumptions based on both historical information and management judgment regarding market factors and trends. Determining the appropriate fair value model and calculating the fair value of options requires the input of highly subjective assumptions, including the expected volatility of the price of Legacy Innovex Common Stock, the risk-free rate, the expected term of the options and the expected dividend yield of Legacy Innovex Common Stock. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, stock-based compensation expense could be materially different in the future. • Expected volatility: 6 0%—Legacy Innovex estimated expected volatility by using the historical volatilities of a peer group of public companies. • Risk-free interest rate: The risk-free interest rates for options granted was based on the constant maturity Treasury bond rates whose term was consistent with the expected life of an option from the date of grant. • Expected term: 4 Years—Legacy Innovex based expected term for awards issued to employees on the vesting period for the option. • Expected dividend yield: 0%—Legacy Innovex did not anticipate paying cash dividends on shares of Legacy Innovex Common Stock; therefore, the expected dividend yield was assumed to be zero. • Weighted average estimated fair value per award: Using the Black-Scholes option-pricing model the estimated fair value for the awards granted in 2023 and 2022, after adjustment for the Exchange Ratio, were $5.95 and $5.05, respectively. No options were granted in 2024. During the years ended December 31, 2023 and 2022, after adjustment for the Exchange Ratio, a total of 835,175 and 121,754 options were granted with a total grant date fair value of $5.0 million and $0.6 million, respectively. The intrinsic value of options exercised in the year ended December 31, 2024 was $19.8 million. No options were exercised in 2023 or 2022. As of December 31, 2024, the Company had no unrecognized stock-based compensation expense attributable to stock options. Future grants will result in additional compensation expense. The following table summarizes stock option activity during the year ended December 31, 2024:
|  | Shares Under Option |  |  | Weighted Average Exercise Price |
Outstanding, December 31, 2023 |  |  | 2,535,768 |  |  | $ | 8.15 |
Granted |  |  | - |  |  | $ | - |
Exercised |  |  | (2,504,496 | ) |  | $ | 8.10 |
Forfeited |  |  | (31,272 | ) |  | $ | 12.67 |
Expired |  |  | - |  |  | $ | - |
Outstanding, December 31, 2024 |  |  | - |  |  | $ | - |
Expected to vest |  |  | - |  |  | $ | - |
Exercisable, December 31, 2024 |  |  | - |  |  | $ | - |

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