Aris Water Solutions, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

Stock-Based Compensation

9 Months Ended

Sep. 30, 2024

12.Stock-Based Compensation

Our 2021 Equity Incentive Plan allows for the grant of, among other types of awards, stock options; restricted stock; RSUs; and PSUs.

Restricted Stock Units

RSU activity during the period was as follows:


	RSUs	Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2023	1,606,303	$	11.72
Granted	1,517,153		12.29
Forfeited	(64,505)		11.90
Vested ⁽¹⁾	(529,178)		11.61
Outstanding at September 30, 2024	2,529,773	$	12.08

(1)

Includes 60,078 of awards that vested but have not yet been issued. For these awards, the requisite service period was met during the three months ended September 30, 2024, and the awardees elected to defer issuance until retirement. Compensation expense for these shares was previously recognized over the requisite service period.

The RSUs generally vest in the following installments: (i) one-third at the first anniversary of the award date, (ii) one-third at the second anniversary of the award date, and (iii) one-third at the third anniversary of the award date. As of September 30, 2024, approximately $20.1 million of compensation cost related to unvested RSUs remained to be recognized. The cost is expected to be recognized over a weighted-average period of 1.1 years.

Performance-Based Restricted Stock Units

PSU activity during the period was as follows:


	PSUs	Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2023	404,993	$	13.06
Granted	281,527		29.38
Forfeited	(9,957)		14.23
Outstanding at September 30, 2024	676,563	$	19.83

The PSUs granted in 2024 were granted to management under the 2021 Equity Incentive Plan and have the following performance criteria:

●

Relative PSUs: 50% of the PSUs are based on total shareholder return relative to the total shareholder return of a predetermined group of peer companies. This relative total shareholder return is calculated at the end of the performance periods stipulated in the PSU agreement.

●

Absolute PSUs: 50% of the PSUs have a performance criteria of absolute total shareholder return calculated at the end of the performance period stipulated in the PSU agreement.

The vesting and payout of the PSUs occur when the related service condition is completed, which is approximately three years after the grant date regardless of the duration of the stipulated performance period. The PSUs can be paid out in either Class A common stock or cash, at our election. Dividends accrue on PSUs and are paid upon vesting. As of September 30, 2024, approximately $8.4 million of compensation cost related to unvested PSUs remained to be recognized. The cost is expected to be recognized over a weighted-average period of 1.5 years.

The grant date fair value was determined using the Monte Carlo simulation method and is expensed ratably over the service period. Expected volatilities used in the fair value simulation were estimated using historical periods consistent with the remaining performance periods. The risk-free rate was based on the U.S. Treasury rate for a term commensurate with the expected life of the grant.

We used the following assumptions to estimate the fair value of PSUs granted during the nine months ended September 30, 2024:


	Assumptions
Risk-free Interest Rate		4.67%
Volatility Range	17.04% - 61.19%