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Share-Based Compensation

12 Months Ended

Dec. 31, 2023

Share-Based Payment Arrangement [Abstract]

The Company grants share-based incentive awards to its eligible employees and non-employee directors under two equity incentive plans: (i) the 2009 Long-Term Incentive Plan (the "2009 Plan") and (ii) the 2016 Long-Term Incentive Plan (the "2016 Plan"). No awards have been granted under the 2009 Plan since the 2016 Plan was approved by stockholders in 2016, and the remaining option award granted under the 2009 Plan expired during the three months ended March 31, 2022. Awards granted under the 2016 Plan may be in the form of stock options, restricted stock units, restricted stock and other forms of share-based incentives, including performance-based restricted stock units, stock appreciation rights and deferred stock rights. At the annual stockholders meeting on May 23, 2022, the Company’s stockholders approved an amendment to increase the total number of shares that may be issued under the 2016 Plan by 1.2 million, for a total of 4.9 million shares that are authorized for issuance under the 2016 plan, of which approximately 1,400,000 shares were available for future grants as of December 31, 2023.

Stock Options

On October 11, 2023, Mr. Stamatakis was granted an award of stock options to purchase 250,000 shares of common stock of the Company, with an exercise price of $5.36, the closing price of the Company's common stock as quoted on the New York Stock Exchange on the grant date (the "Options"). The Options were granted as an inducement for Mr. Stamatakis to accept the position of Interim President and CEO of Mistras and were therefore granted outside the 2016 Plan, as permitted by NYSE Rules. The Options can be exercised any time after the grant date until its expiration date, which is the earlier of 10 years from the grant date or one year following the date Mr. Stamatakis is no longer serving as an officer, director or in any other capacity of the Company. During the three months ended December 31, 2023, the Company recorded $0.8 million share-based compensation expenses related to the Options.

For each of the years ended December 31, 2022 and 2021, the Company did not recognize any share-based compensation expense related to stock option awards, as the one outstanding stock option award was already fully vested. No unrecognized compensation costs remained related to the stock option awards. In addition, there were no stock options exercised during the years ended December 31, 2023, 2022 and 2021.

The following table sets forth a summary of the stock option activity, weighted-average exercise prices and options outstanding as of December 31, 2023, 2022 and 2021 as follows (in thousands, except per share amounts and years):


	For the years ended December 31,
	2023			2022			2021
	Common Stock Options	Weighted Average Exercise Price		Common Stock Options	Weighted Average Exercise Price		Common Stock Options	Weighted Average Exercise Price
Outstanding at beginning of year:	—	$	—	5	$	22.35	5	$	22.35
Granted	250	$	5.36	—	$	—	—	$	—
Exercised	—	$	—	—	$	—	—	$	—
Expired or forfeited	—	$	—	(5)	$	22.35	—	$	—
Outstanding at end of year:	250	$	5.36	—	$	—	5	$	22.35

Stock Issuances to Non-Employee Directors

As part of its compensation program for non-employee directors, the Company makes semi-annual issuances of fully-vested common stock to its non-employee directors. A summary of the fully-vested common stock the Company issued to its non-employee directors, in connection with its non-employee director compensation, is as follows (in thousands):


	For the year ended December 31,
	2023		2022		2021
Awards issued	133		70		51
Grant date fair value of awards issued	$	750	$	450	$	525

Restricted Stock Unit Awards

Restricted Stock Units generally vest ratably on each of the first four anniversary dates of issuance. The Company recognized approximately $4.9 million, $3.7 million and $3.5 million of share-based compensation for the years ended December 31, 2023, 2022 and 2021, respectively, related to restricted stock unit awards. As of December 31, 2023, there was approximately $6.9 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which are expected to be recognized over a remaining weighted average period of 2.5 years. Upon vesting, restricted stock units are generally net share-settled to cover the required minimum withholding tax and the remaining amount is converted into an equivalent number of shares of common stock.

A summary of the vesting activity of restricted stock unit awards, with the respective fair value of the awards, is as follows (in thousands):


	For the year ended December 31,
	2023		2022		2021
Awards issued	683		401		317
Grand date fair value of awards issued	$	4,269	$	2,524	$	3,434

A summary of the Company's outstanding, non-vested restricted share units is as follows (in thousands, except per share amounts and years):


	For the year ended December 31,
	2023			2022			2021
	Units	Weighted Average Grant-Date Fair Value		Units	Weighted Average Grant-Date Fair Value		Units	Weighted Average Grant-Date Fair Value
Outstanding at beginning of period:	1,415	$	6.66	1,208	$	7.96	1,076	$	7.41
Granted	606	$	8.30	687	$	7.59	528	$	10.07
Released	(683)	$	6.25	(401)	$	6.63	(317)	$	10.77
Forfeited	(154)	$	8.00	(79)	$	14.23	(79)	$	8.82
Outstanding at end of period:	1,184	$	8.07	1,415	$	6.66	1,208	$	7.96

Performance Restricted Stock Units

The Company maintains Performance Restricted Stock Units ("PRSUs") that have been granted to select executives and senior officers whose ultimate payouts may vary between zero and 200% of the target award, based on the Company’s performance over a one-year period based on specific metrics approved by the Compensation Committee of the Board of Directors of the Company.

For 2022, the Compensation Committee of the Board of Directors utilized the same performance metrics for the Company's PRSUs awarded in 2022 as it utilized for the 2021 PRSUs. The three metrics were:

1.Free Cash Flow defined as net cash provided by operating activities less purchases of property, plant, equipment and intangible assets and is subject to adjustments approved by the Compensation Committee.

(including transaction due diligence costs and adjustments to the fair value of contingent consideration), foreign exchange (gain) loss and, if applicable, certain special items which are noted.

3.Total Shareholder Return ("TSR") measures the total return to shareholders of the Company during 2021 versus the total return to the shareholders of a predefined peer group of companies that provide inspection, testing, certification or similar industrial services. The return will be measured by the year over year percent change in share price. The share prices used to calculate the return are the average share price during the 20-trading day period ending on the initial measurement date (the last 20 trading days of 2021), compared to the average share price during the 20-trading day period ending on the final measurement date (the last 20 trading days of 2022). Any cash dividends or distributions paid in 2022 were added to calculate the return to shareholders during the year. TSR is considered a market condition for which the fair value of PRSUs with this condition is determined using a Monte Carlo valuation model. Key assumptions in the Monte Carlo valuation model included:

a.Expected Volatility. Expected volatility of the Company’s common stock at the date of grant was estimated based on a historical average volatility rate for the approximate 1-year performance period.

b.Dividend Yield. The dividend yield assumption was based on historical and anticipated dividend payouts (assumed at zero).

c.Risk-Free Interest Rate. The risk-free interest rate assumption was based on observed interest rates consistent with the approximate 1-year performance measurement period.

For 2023, the Compensation Committee of the Board of Directors used different performance metrics for PRSUs approved in that year. The three metrics are:

2.Adjusted EBITDA defined as net income attributable to the Company plus: interest expense, provision for income taxes, depreciation and amortization, share-based compensation expense and certain acquisition related costs (including transaction due diligence costs and adjustments to the fair value of contingent consideration), foreign exchange (gain) loss and, if applicable, certain special items which are noted.

3.Revenue

PRSUs are equity-classified and compensation costs related to PRSUs with performance conditions are initially measured using the fair value of the underlying stock at the date of grant. Compensation costs related to the PRSUs with performance conditions are subsequently adjusted for changes in the expected outcomes of the performance conditions. Compensation cost related to the PRSUs with a market condition is not reversed if the market condition is not achieved, provided the employee requisite service has been rendered. Earned PRSUs generally vest ratably on each of the first four anniversary dates following completion of the performance period, for a total requisite service period of up to five years and have no dividend rights.

A summary of the Company's PRSU activity is presented as follows (in thousands, except per share amounts and years):


	For the year ended December 31,
	2023			2022			2021
	Units	Weighted Average Grant-Date Fair Value		Units	Weighted Average Grant-Date Fair Value		Units	Weighted Average Grant-Date Fair Value
Outstanding at beginning of period:	371	$	9.96	388	$	10.07	333	$	8.84
Granted	282	$	8.50	341	$	6.55	189	$	12.59
Performance condition adjustments, net	(305)	$	8.34	(285)	$	7.71	(56)	$	9.27
Released	(204)	$	6.59	(73)	$	5.17	(78)	$	8.15
Forfeited	(84)	$	6.95	—	$	—	—	$	—
Outstanding at end of period:	60	$	9.33	371	$	9.96	388	$	10.07

For the year ended December 31, 2023, 282,000 PRSUs were granted. There was a 305,000 net unit reduction to these awards, which represents Company performance below target, during the year ended December 31, 2023.

For the year ended December 31, 2022, 341,000 PRSUs were granted. There was a 285,000 net unit reduction to these awards, which represents Company performance below target, during the year ended December 31, 2022.

For the year ended December 31, 2021, 189,000 PRSUs were granted. There was a 56,000 unit reduction to these awards, which represents Company performance against target, during the year ended December 31, 2021.

Compensation expense related to all PRSUs described above was $0.7 million, $1.2 million, and $1.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. At December 31, 2023, there was $0.2 million of total unrecognized compensation costs related to approximately 60,000 unvested performance restricted stock units. These costs are expected to be recognized over a weighted-average period of approximately 1.5 years.

For the years ended December 31, 2023, 2022 and 2021, the income tax benefit recognized on all share based compensation arrangements referenced above was approximately $0.8 million, $1.6 million, and $1.4 million, respectively.