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EQUITY-BASED COMPENSATION | 12 Months Ended
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Dec. 31, 2020
EQUITY-BASED COMPENSATION |
EQUITY-BASED COMPENSATION | NOTE 12—EQUITY-BASED COMPENSATION The SES Holdings 2011 Equity Incentive Plan, (“2011 Plan”) was approved by the board of managers of SES Holdings in April 2011. In conjunction with the private placement of 16,100,000 shares of the Company’s Class A Common Stock on December 20, 2016 (the “Select 144A Offering”), the Company adopted the Select Energy Services, Inc. 2016 Equity Incentive Plan (as amended, the “2016 Plan”) for employees, consultants and directors of the Company and its affiliates. Options that were outstanding under the 2011 Plan immediately prior to the Select 144A Offering were cancelled in exchange for new options granted under the 2016 Plan. On May 8, 2020, the Company’s stockholders approved an amendment to the 2016 Plan to increase the number of shares of the Company’s Class A common stock that may be issued under the 2016 Plan by 4,000,000 shares and to make certain other administrative changes. Currently, the maximum number of shares reserved for issuance under the 2016 Plan is approximately 13.3 million shares, with approximately 3.8 million shares available to be issued as of December 31, 2020. For all share-based compensation award types, the Company accounts for forfeitures as they occur. Stock option awards Stock options were granted with an exercise price equal to or greater than the fair market value of a share of Class A Common Stock as of the date of grant. The Company utilized the Monte Carlo option pricing model to determine fair value of the options granted during 2018, which incorporates assumptions to value equity-based awards. The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant. The expected life of the options is based on the vesting period and term of the options awarded, which is ten years. The table below presents the assumptions used in determining the fair value of stock options granted during the year ended December 31, 2018. No options were granted during the years ended December 31, 2020 and 2019. The weighted-average grant date fair value of stock options granted was $8.98 for the year ended December 31, 2018. ​
​ | ​ | ​ | ​
​ | For the year ended December 31,
​ | 2018 | ​
Underlying equity | $ | 20.50 | ​
Strike price | $ | 20.50 - 30.75 | ​
Dividend yield (%) |  | 0.0 | %
Risk-free rate (%) |  | 2.3 | %
Volatility (%) |  | 50.0 | %
Expected term (years) |  | 10.0 | ​
​ A summary of the Company’s stock option activity and related information as of and for the year ended December 31, 2020 is as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the year ended December 31, 2020
​ | ​ | ​ | ​ | ​ | ​ |  | ​ | ​ | ​ | Weighted-average | ​ | ​ | ​
​ | ​ | ​ | ​ | Weighted-average | ​ | Weighted-average | ​ | Grant Date Value | ​ | Aggregate Intrinsic
​ |  | Stock Options |  | Grant Date Value | ​ | Exercise Price |  | Term (Years) |  | Value (in thousands) (a)
Beginning balance, outstanding |  | 3,797,319 | ​ | $ | 8.19 | ​ | $ | 15.95 | ​ | 4.2 | ​ | $ | 509
Forfeited |  | (22,437) | ​ | ​ | 8.42 | ​ | ​ | 18.52 | ​ | ​ | ​ | ​ | ​
Expired | ​ | (255,723) | ​ | ​ | 2.81 | ​ | ​ | 13.47 | ​ | ​ | ​ | ​ | ​
Ending balance, outstanding |  | 3,519,159 | ​ | $ | 8.58 | ​ | $ | 16.11 | ​ | 3.3 | ​ | $ | —
Ending balance, exercisable | ​ | 3,515,784 | ​ | $ | 8.58 | ​ | $ | 16.11 | ​ | 3.3 | ​ | $ | —
Nonvested at December 31, 2020 | ​ | 3,375 | ​ | ​ | N/A | ​ | $ | 22.22 | ​ | ​ | ​ | ​ | ​
(a)Aggregate intrinsic value for stock options is based on the difference between the exercise price of the stock options and the quoted closing Class A Common Stock price of $4.10 and $9.28 as of December 31, 2020 and 2019, respectively. The Company recognized $0.2 million, $4.3 million and $5.2 million of compensation expense related to stock options during the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, there was a nominal amount of unrecognized equity-based compensation expense related to nonvested stock options that is expected to be recognized during the first quarter of 2021. Restricted Stock Awards and Restricted Stock Units The value of the restricted stock awards and restricted stock units granted was established by the market price of the Class A Common Stock on the date of grant and is recorded as compensation expense ratably over the vesting term, which is generally one to three years from the applicable date of grant. The Company recognized compensation expense of $7.2 million, $8.5 million and $4.3 million related to the restricted stock awards and restricted stock units for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, there was $7.2 million of unrecognized compensation expense with a weighted-average remaining life of 1.7 years related to unvested restricted stock awards. During 2020 and 2019, the Company paid $1.5 million and $1.0 million, respectively, to repurchase shares in connection with employee minimum tax withholding obligation on vested shares. No restricted stock units were granted during the year ended December 31, 2020. A summary of the Company’s restricted stock awards activity and related information for the year ended December 31, 2020 is as follows: ​
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the year ended December 31, 2020
​ | ​ | ​ | ​ | Weighted-average
​ |  | Restricted Stock Awards |  | Grant Date Fair Value
Nonvested at December 31, 2019 | ​ | 1,518,193 | ​ | $ | 10.08
Granted | ​ | 1,477,488 | ​ | ​ | 5.80
Vested | ​ | (578,281) | ​ | ​ | 11.79
Forfeited | ​ | (374,299) | ​ | ​ | 7.43
Repurchased | ​ | (40,029) | ​ | ​ | 7.81
Nonvested at December 31, 2020 | ​ | 2,003,072 | ​ | $ | 6.97
​ A summary of the Company’s restricted stock unit activity and related information for the year ended December 31, 2020 is as follows: ​ ​ ​
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the year ended December 31, 2020
​ | ​ | ​ | ​ | Weighted-average
​ |  | Restricted Stock Units |  | Grant Date Fair Value
Nonvested at December 31, 2019 |  | 1,250 | ​ | $ | 19.00
Vested |  | (625) | ​ | ​ | 20.00
Forfeited |  | (625) | ​ | ​ | 18.00
Nonvested at December 31, 2020 |  | — | ​ | $ | —
​ Performance Share Units During 2018 and 2019, the Company approved grants of performance share units (“PSUs”) that are subject to both performance-based and service-based vesting provisions. The number of shares of Class A Common Stock issued to a recipient upon vesting of the PSU will be calculated based on performance against certain metrics that relate to the Company’s return on asset performance over the January 1, 2018 through December 31, 2020 and January 1, 2019 through December 31, 2021 performance periods, respectively. ​ The target number of shares of Class A Common Stock subject to each PSU granted in 2018 and 2019 is one; however, based on the achievement of performance criteria, the number of shares of Class A Common Stock that may be received in settlement of each PSU can range from zero to 1.75 times the target number. The PSUs become earned at the end of the performance period after the attainment of the performance level has been certified by the compensation committee, which will be no later than June 30, 2021 for the 2018 PSU grants, and June 30, 2022 for the 2019 PSU grants, assuming the minimum performance metrics are achieved. The target PSUs that become earned PSUs during the performance period will be determined in accordance with the following table: ​
​ | ​ | ​
Return on Assets at Performance Period-End Date | ​ | Percentage of Target PSUs Earned
Less than 9.6% | ​ | 0%
9.6% | ​ | 50%
12% | ​ | 100%
14.4% | ​ | 175%
​ During 2020, the Company approved grants of PSUs that are subject to both performance-based and service-based vesting provisions related to (i) return on asset performance (“ROA”) in comparison to thirteen peer companies and (ii) Adjusted Free Cash Flow (“FCF”) performance percentage. The number of shares of Class A Common Stock issued to a recipient upon vesting of the PSUs will be calculated based on ROA and FCF performance over the period from January 1, 2020 through December 31, 2022. The target number of shares of Class A Common Stock subject to each PSU granted in 2020 is one; however, based on the achievement of performance criteria, the number of shares of Class A Common Stock that may be received in settlement of each PSU can range from zero to 1.75 times the target number. The PSUs become earned at the end of the performance period after the attainment of the performance level has been certified by the compensation committee, which will be no later than June 30, 2023 for the 2020 PSU grants, assuming the minimum performance metrics are achieved. The target PSUs that become earned connected with the ROA in comparison to other companies will be determined based on the Company’s Average Return on Assets (as defined in the applicable PSU agreement) relative to the Average Return on Assets of the peer companies (as defined in the applicable PSU agreement) in accordance with the following table, but only if the Company’s Average Return on Assets is equal to or greater than 5% during the performance period: ​
​ | ​ | ​
Ranking Among Peer Group | ​ | Percentage of Target Amount Earned
Outside of Top 10 | ​ | 0%
Top 10 | ​ | 50%
Top 7 | ​ | 100%
Top 3 | ​ | 175%
​ The target PSUs that become earned in connection with the adjusted FCF performance percentage will be determined (as defined in the applicable PSU agreement) in accordance with the following table: ​
​ | ​ | ​
Adjusted FCF Performance Percentage | ​ | Percentage of Target Amount Earned
Less than 70% | ​ | 0%
70% | ​ | 50%
100% | ​ | 100%
130% | ​ | 175%
​ The fair value on the date the PSUs were granted during 2020, 2019 and 2018 was $4.4 million, $7.0 million and $5.9 million, respectively. Compensation expense related to the PSUs is determined by multiplying the number of shares of Class A Common Stock underlying such awards that, based on the Company’s estimate, are probable to vest by the measurement-date (i.e., the last day of each reporting period date) fair value and recognized using the accelerated attribution method. During the year ended December 31, 2020, the Company revised the estimates for the PSUs granted in 2018 and 2019 and expect 0% to vest. The Company recognized a reduction to compensation expense of $1.7 million, compensation expense of $2.1 million and compensation expense of $0.5 million related to the PSUs for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, the unrecognized compensation cost related to our unvested PSUs is estimated to be $2.2 million and is expected to be recognized over a weighted-average period of 2.0 years. However, this compensation cost will be adjusted as appropriate throughout the applicable performance periods. ​ The following table summarizes the information about the performance share units outstanding at December 31, 2020: ​
​ | ​ | ​
​ |  | Performance Share Units
Nonvested as of December 31, 2019 | ​ | 1,014,990
Target shares granted | ​ | 753,378
Target shares forfeited | ​ | (4,459)
Target shares outstanding as of December 31, 2020 | ​ | 1,763,909
​ Stock-Settled Incentive Awards Effective May 17, 2018, the Company approved grants of stock-settled incentive awards to certain key employees under the 2016 Plan that were subject to both market-based and service-based vesting provisions. These awards vested after a two-year service period and, if earned, would have been settled in shares of Class A Common Stock. The ultimate amount earned was based on the achievement of the market metrics, which was based on the stock price of the Class A Common Stock at the vesting date, for which payout could have ranged from 0% to 200%. Any award not earned on the vesting date was forfeited. The target amount that became earned during the performance period was determined in accordance with the following table: ​
​ | ​ | ​
Stock Price at Vesting Date(1) | ​ | Percentage of Target Amount Earned
Less than $20.00 | ​ | 0%
At least $20.00, but less than $25.00 | ​ | 100%
$25.00 or greater | ​ | 200%
| (1) | The stock price at vesting date equals the greater of (i) the fair market value of a share of the Class A Common Stock on the vesting date, or (ii) the volume weighted-average closing price of a share of the Class A Common Stock, as reported on the NYSE, for the 30 trading days preceding the vesting date.
The target amount of stock-settled incentive awards granted was $3.9 million. However, the ultimate settlement of the awards was in shares of Class A Common Stock with a fair market value equal to the earned amount, which could have ranged from 0% to 200% of the target amount depending on the stock price at vesting date. The earned amount was 0% and no shares of Class A Common Stock were issued. Compensation expense associated with the stock-settled incentive awards was recognized ratably over the corresponding requisite service period. The fair value of the stock-settled incentive awards was determined using a Monte Carlo option pricing model, similar to the Black-Scholes-Merton model, and adjusted for the specific characteristics of the awards. The key assumptions in the model included price, the expected volatility of our stock, risk-free interest rate based on U.S. Treasury yield curve, cross-correlations between us and our self-determined peer companies’ asset, equity and debt-to-equity volatility. The Company recognized $0.1 million, $0.5 million and $0.4 million of compensation expense related to the stock-settled incentive awards during the years ended December 31, 2020, 2019 and 2018, respectively. The following table summarizes the information about the stock-settled incentive awards as of May 17, 2020, the date at which the awards expired: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Award Value
​ |  | Value at Target |  | Being Recognized
​ | ​ | (in thousands)
​ | ​ | ​ | ​ | ​ | ​ | ​
Nonvested as of December 31, 2019 | ​ | $ | 2,937 | ​ | $ | 1,122
Forfeited during 2020 | ​ | ​ | (410) | ​ | ​ | (157)
Awards earned and forfeited as market condition not satisfied as of vesting date | ​ | ​ | (2,527) | ​ | ​ | —
Cumulative expense recognized | ​ | $ | — | ​ | $ | 965
​ Employee Stock Purchase Plan (ESPP) The Company maintains the Employee Stock Purchase Plan (the “ESPP”) under which employees that have been continuously employed for at least one year may purchase shares of Class A Common Stock at a discount. The ESPP provides for four offering periods for purchases: December 1 through February 28, March 1 through May 31, June 1 through August 31 and September 1 through November 30. At the end of each offering period, enrolled employees purchase shares of Class A Common Stock at a price equal to 95% of the market value of the stock on the last day of such offering period. The purchases are made at the end of an offering period with funds accumulated through payroll deductions over the course of the offering period. Subject to limitations set forth in the plan and under IRS regulations, eligible employees may elect to contribute a maximum of $15,000 to the plan in a single calendar year. The ESPP is deemed to be noncompensatory. The following table summarizes ESPP activity (in thousands, except shares):
​ | ​ | ​ | ​
​ | ​ | For the year ended
​ |  | December 31, 2020
Cash received for shares issued | ​ | $ | 76
Shares issued | ​ | ​ | 15,132
​ Share-repurchases During the years ended December 31, 2020 and 2019, the Company repurchased 1,989,440 and 2,180,806 shares, respectively, of Class A Common Stock in the open market and repurchased 210,384 and 108,074 shares, respectively, of Class A Common Stock in connection with employee minimum tax withholding requirements for units vested under the 2016 Plan. All repurchased shares were retired. During the year ended December 31, 2020, the repurchases were accounted for as a decrease to paid in-capital of $12.3 million and a decrease to Class A common stock of approximately $22,000.

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