Equity Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

10.

Equity Compensation

Long-Term Incentive Plan (“LTIP”)

Our General Partner has adopted a long-term incentive plan (“LTIP”) that authorizes the issuance of up to 2.5 million common units. Certain of our directors and employees have been awarded phantom restricted units under the terms of the LTIP in the form of time-based unit awards (“Service Units”), performance- based unit awards (“Performance Units”), and market-based unit awards (“Market Units”). In 2021, 2020, and 2019, compensation expense of $1.2 million, $1.0 million and $1.1 million, respectively, was recorded under the LTIP.

Time-Based Unit Awards – The majority of the Service Units vest in three tranches, with one-third of the units vesting three years from the grant date, one-third vesting four years from the grant date, and one-third vesting five years from the grant date, contingent only on the continued service of the recipients through the vesting dates. However, certain of the Service Units have different, and typically shorter, vesting periods. The fair value of the Service Units is determined based on the quoted market value of the publicly-traded common units at the grant date, adjusted for a discount to reflect the fact that distributions are not paid on the Service Units during the vesting period. We recognize compensation expense on a straight-line basis over the vesting period of the grant. We account for forfeitures when they occur. Total unearned compensation associated with the Service Units at December 31, 2021 and 2020 was $1.5 million and $2.5 million, respectively, with an average remaining life of 1.5 years and 2.0 years, respectively. The following table summarizes the activity of the Service Units in 2021, 2020, and 2019:

Summary of Units activity

				Weighted Average
	Number of			Grant Date Fair
	Unvested Units			Value / Unit

Units at December 31, 2018		873,061		$	5.83

Units granted		201,306		$	4.40
Units vested		(145,200	)	$	8.48
Units forfeited		(64,635	)	$	6.10
Units at December 31, 2019		864,532		$	5.04

Units granted		420,181		$	4.15
Units vested		(168,969	)	$	7.66
Units forfeited		(144,723	)	$	4.39
Units at December 31, 2020		971,021		$	4.29

Units granted		70,092		$	2.20
Units vested		(240,063	)	$	4.75
Units forfeited		(39,789	)	$	4.33
Units at December 31, 2021		761,261		$	3.95

On November 10, 2021, Stanley A. Lybarger resigned as a Director of the Board of Directors (the “Board”) of Cypress Environmental Partners GP, LLC, the general partner of Cypress Environmental Partners, L.P., effective as of the close of business on November 15, 2021. Mr. Lybarger was also the chair of the Audit Committee of the Board. Mr. Lybarger’s resignation was not the result of any disagreement with us, our management, or the Board. Also, on November 10, 2021, the Board voted unanimously to accelerate the vesting of Mr. Lybarger’s 30,664 unvested Service Units as of the close of business on November 15, 2021.

In March 2022, the Board of Directors cancelled 576,807 unvested Service Units for the directors and certain members of management and intend to replace them with an equal number of Unit Appreciation Rights (“UARs”). These new UARs are expected to have vesting dates that are identical to the vesting dates of the phantom restricted units they expect to replace. The new UARs are expected to terminate ten years from the original grant dates of the Service Units they expect to replace.

Performance-Based Unit Awards – In the third quarter of 2019, we granted Performance Units to certain employees that are subject to performance conditions in addition to the service condition. These Performance Units will vest in April 2022, April 2023, April 2024, or not at all, depending on our performance relative to a specified profitability target. We recognize compensation expense on a straight-line basis over the estimated vesting period of the grant. We adjust the life-to-date expense recognized for the Performance Units for any changes in our estimates of the number of units that will vest and the timing of vesting. We account for forfeitures when they occur. The Performance Units had an estimated grant date fair value of $4.19 per unit and are being expensed over a service period of 3.73 years.

In addition, we have issued grants of Performance Units that vest three years from the grant date. Upon vesting, the recipient is entitled to receive a number of common units equal to a percentage of the units granted, based on the recipient meeting various performance targets in addition to the service condition.

There was no unearned compensation associated with the Performance Units at December 31, 2021 and less than $0.1 million at December 31, 2020. The Performance Units had an average remaining life of 1.3 years and 1.5 years at December 31, 2021 and 2020, respectively. The following table summarizes the activity of the Performance Units in 2021, 2020, and 2019:

Summary of Units activity

				Weighted Average
	Number of			Grant Date Fair
	Unvested Units			Value / Unit

Units at December 31, 2018		101,648		$	5.11

Units granted		89,402		$	4.19
Units vested		(6,167	)	$	6.54
Units forfeited		(24,310	)	$	6.45
Units at December 31, 2019		160,573		$	4.34

Units granted		1,050		$	4.19
Units vested		—		$	—
Units forfeited		(20,574	)	$	4.19
Units at December 31, 2020		141,049		$	4.36

Units granted		—		$	—
Units vested		—		$	—
Units forfeited		(77,044	)	$	4.50
Units at December 31, 2021		64,005		$	4.19

During March 2021, four members of our Board of Directors (“Directors”) elected to have certain of their LTIP units net settled upon vesting for tax withholding purposes. As the Directors are not considered employees under the IRS statutory withholding requirements, any unit withholding upon settlement is considered an excess withholding, resulting in liability accounting treatment for the entire award. The modification of these awards from equity awards to liability awards did not result in the recognition of any additional compensation cost. As of December 31, 2021, we recorded $ 0.2 million of liabilities in accrued payroll and other and other noncurrent liabilities related to these awards on our Consolidated Balance Sheet. The remaining unvested LTIP units previously granted to employees continue to be accounted for as equity awards.

In March 2022, the Board of Directors cancelled 51,250 unvested Performance Units for certain members of management. It was not likely that we would meet the performance targets required for any of these Performance Units to vest.

Market-Based Unit Awards – In the third quarter of 2019, we granted Market Units that are subject to market conditions in addition to the service condition. Half of the Market Units will vest in April 2022, April 2023, April 2024, or not at all, depending on the market value of our common units relative to specified targets on those dates. These Market Units had an estimated fair value on the grant date of $3.51 per unit and are being expensed over a derived service period of 2.73 years. The other half of the Market Units will vest in April 2022, April 2023, April 2024, or not at all, depending on the yield on our common units relative to specified targets on those dates. The Market Units granted in 2020 had an estimated fair value on the grant date of $3.58 per unit and are being expensed over a derived service period of 2.73 years. Compensation expense is recognized on a straight-line basis over a derived service period, regardless of when, if ever, the market condition is satisfied. Total unearned compensation associated with the Market Units at December 31, 2021 and 2020 was less than $0.1 million and $0.1 million, respectively, with an average remaining life of 0.3 years and 1.3 years, respectively. The following table summarizes the activity of the Market Units in 2021, 2020, and 2019:

Summary of Units activity Summary of Units activity

				Weighted Average
	Number of			Grant Date Fair
	Unvested Units			Value / Unit

Units at December 31, 2018		—		$	—

Units granted		89,403		$	3.54
Units vested		—		$	—
Units forfeited		(875	)	$	3.54
Units at December 31, 2019		88,528		$	3.54

Units granted		1,050		$	3.54
Units vested		—		$	—
Units forfeited		(20,576	)	$	3.54
Units at December 31, 2020		69,002		$	3.54

Units granted		—		$	—
Units vested		—		$	—
Units forfeited		(4,998	)	$	3.54
Units at December 31, 2021		64,004		$	3.54

In March 2022, the Board of Directors cancelled 51,250 unvested Market Units for certain members of management. It was not likely that we would meet the targets required for any of these Market Units to vest.

Unit Appreciation Rights - In the second quarter of 2021, we granted 1,048,000 UARs to certain employees. The UARs will vest in three equal tranches in May 2024, May 2025, and May 2026, respectively, contingent only on the continued service of the recipients through the vesting dates. The UARs have an exercise price of $2.14 and terminate ten years from the grant date. The assumptions used to estimate the fair value of the UARs at the grant date were as follows:

Expected term	7 years
Expected volatility	66.54	%
Distribution yield	0.00	%
Risk-free interest rate	1.26	%

We used a term-matched historical volatility in determining the fair value of the UARs. We considered using a blended approach of historical and implied volatilities but concluded this method could not be utilized given the lack of applicable option trading volume of our common units.

The UARs granted in 2021 had an estimated fair value on the grant date of $1.40 per unit and are being expensed on a straight-line basis over the service period. Total unearned compensation associated with the UARs at December 31, 2021 was $1.2 million with an average remaining life of 3.4 years. The following table summarizes the activity of the UARs in 2021:

Summary of Units activity

				Weighted Average
	Number of			Grant Date Fair
	Unvested UARs			Value / UAR

UARs at December 31, 2020		—		$	—

UARs granted		1,048,000		$	1.40
UARs vested		—		$	—
UARs forfeited		(85,000	)	$	1.40
UARs at December 31, 2021		963,000		$	1.40

Cypress Environmental Partners, L.P. 10-K