UNIT BASED COMPENSATION

6 Months Ended

Jun. 30, 2023

Share-Based Payment Arrangement [Abstract]

Long-term Incentive Plan

In 2023 and 2022, the board of directors of our general partner, acting in its capacity as our general partner, approved the grant of 714,725 and 625,732 Phantom Units, respectively, to directors and employees of our general partner and its affiliates under our Amended LTIP Plan. At June 30, 2023, we had 3,192,352 Phantom Units remaining available for issuance. The Phantom Units are subject to all of the terms and conditions of the Amended LTIP Plan and the Phantom Unit award agreements, which are collectively referred to as the Award Agreements. Award amounts for each of the grants are generally determined by reference to a specified dollar amount based on an allocation formula which included a percentage multiplier of the grantee’s base salary, among other factors, converted to a number of units based on the closing price of one of our common units preceding the grant date, as determined by the board of directors of our general partner and quoted on the NYSE.

Phantom Unit awards generally represent rights to receive our common units upon vesting. However, with respect to the awards granted to directors and employees of our general partner and its affiliates domiciled in Canada, for each Phantom Unit that vests, a participant is entitled to receive cash for an amount equivalent to the closing market price of one of our common units on the vesting date. Each Phantom Unit granted under the Award Agreements includes an accompanying distribution equivalent right, or DER, which entitles each participant to receive payments at a per unit rate equal in amount to the per unit rate for any distributions we make with respect to our common units. The Award Agreements granted to employees of our general partner and its affiliates generally contemplate that the individual grants of Phantom Units will vest in four equal annual installments based on the grantee’s continued employment through the vesting dates specified in the Award Agreements, subject to acceleration upon the grantee’s death or disability, or involuntary termination in connection with a change in control of the Partnership or our general partner. Awards to independent directors of the board of our general partner and an independent consultant typically vest over a one year period following the grant date.

The following tables present the award activity for our Equity-classified Phantom Units:


	Director and Independent Consultant Phantom Units	Employee Phantom Units	Weighted-Average Grant Date Fair Value Per Phantom Unit
Phantom Unit awards at December 31, 2022	39,408	1,328,964	$	6.91
Granted	39,408	616,758	$	3.54
Vested	(39,408)	(527,448)	$	7.85
Forfeited	—	(11,925)	$	5.60
Phantom Unit awards at June 30, 2023	39,408	1,406,349	$	5.02


	Director and Independent Consultant Phantom Units	Employee Phantom Units	Weighted-Average Grant Date Fair Value Per Phantom Unit
Phantom Unit awards at December 31, 2021	26,272	1,317,493	$	8.21
Granted	39,408	536,729	$	5.85
Vested	(26,272)	(519,342)	$	9.01
Forfeited	—	(941)	$	5.37
Phantom Unit awards at June 30, 2022	39,408	1,333,939	$	6.91

The following tables present the award activity for our Liability-classified Phantom Units:


	Director and Independent Consultant Phantom Units	Employee Phantom Units	Weighted-Average Grant Date Fair Value Per Phantom Unit
Phantom Unit awards at December 31, 2022	13,136	56,847	$	6.27
Granted	13,136	45,423	$	3.54
Vested	(13,136)	(3,022)	$	5.67

Phantom Unit awards at June 30, 2023	13,136	99,248	$	4.93


	Director and Independent Consultant Phantom Units	Employee Phantom Units	Weighted-Average Grant Date Fair Value Per Phantom Unit
Phantom Unit awards at December 31, 2021	13,136	63,730	$	7.26
Granted	13,136	36,459	$	5.85
Vested	(13,136)	—	$	4.82

Phantom Unit awards at June 30, 2022	13,136	100,189	$	6.92

The fair value of each Phantom Unit on the grant date is equal to the closing market price of our common units on the grant date. We account for the Phantom Unit grants to independent directors and employees of our general partner and its affiliates domiciled in Canada that are paid out in cash upon vesting, throughout the requisite vesting period, by revaluing the unvested Phantom Units outstanding at the end of each reporting period and recording a charge to compensation expense in “Selling, general and administrative” in our consolidated statements of operations and recognizing a liability in “Other current liabilities” in our consolidated balance sheets. With respect to the Phantom Units granted to consultants, independent directors and employees of our general partner and

its affiliates domiciled in the United States, we amortize the initial grant date fair value over the requisite service period using the straight-line method with a charge to compensation expense in “Selling, general and administrative” in our consolidated statements of operations, with an offset to common units within the Partners’ Capital section of our consolidated balance sheet.

We recognized $0.9 million and $1.3 million, respectively, for the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, we recognized $1.9 million and $2.5 million of compensation expense associated with outstanding Phantom Units. As of June 30, 2023, we have unrecognized compensation expense associated with our outstanding Phantom Units totaling $6.1 million, which we expect to recognize over a weighted average period of 2.47 years. We have elected to account for actual forfeitures as they occur rather than using an estimated forfeiture rate to determine the number of awards we expect to vest.

We made payments to holders of the Phantom Units pursuant to the associated DERs we granted to them under the Award Agreements as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Equity-classified Phantom Units (1)	$	—	$	167	$	169	$	330
Liability-classified Phantom Units	—		14		9		23
Total	$	—	$	181	$	178	$	353

(1) We reclassified $7 thousand and $8 thousand to unit based compensation expense for DERs paid in relation to Phantom Units that have been forfeited for the three and six months ended June 30, 2023, respectively. We had no significant amounts reclassified for the three and six months ended June 30, 2022, respectively, for forfeitures.

USD Partners LP 10-Q