Note 13 – Equity Compensation

Profit interest units –

Under the pre-IPO plan, the Parent granted time-based and performance-based profit interest units to certain key employees of the Company and its subsidiaries. Subsequent to the IPO, the profit interest units converted to Class B shares. Stock-based compensation related to profit interest units increases noncontrolling interests.

The performance-based grants were awarded with vesting conditions based on performance targets connected to the value received from change of control of the Parent and were subject to certain forfeiture provisions prior to vesting. In June 2021, the Parent amended previously issued profit interest units with performance-based vesting conditions that were based on performance targets connected to the value received from change of control of the Parent. The vesting condition, as amended, was based on the average trading price of XPO Inc. common stock exceeding the IPO threshold price, as defined in the amendment. The amendment of these units was treated as a modification with the compensation cost of the amended units of $18,127 recognized over the new estimated service period through November 2022. In March 2022, the units vested when the average trading price condition was met. During the years ended December 31, 2022, and 2021, the Company recognized $12,003 and $6,069 of expenses, respectively.

During the years ended December 31, 2023, 2022 and 2021, the Company recognized $19, $190 and $906 of compensation expenses, respectively, which was included within selling, general and administration expenses. At December 31, 2023, the Company had $3 of unrecognized compensation expense. The unrecognized compensation expense is expected to be recognized over a weighted average period of approximately 0.61 years for the time-based grants.

Phantom stock –

Club Pilates issued 14 phantom stock units to certain employees that settle, or were expected to settle, with cash payments. The phantom stock units were awarded with vesting conditions that include a service period and/or performance targets and a change of control and were subject to certain forfeiture provisions prior to vesting. There was no expense recorded for the year ended December 31, 2021 related to the phantom stock units as vesting was not considered probable. During the year ended December 31, 2021 the 14 phantom stock units issued by Club Pilates were cancelled.

Liability classified restricted stock units –

In November 2021, the Company granted RSU awards with performance conditions of meeting certain EBITDA targets through the year ending December 31, 2024. The awards were granted with fixed dollar valuation and the number of shares granted depends on the trading price at the closing date of the period in which the EBITDA target is met. As such, these awards are classified as a liability. Management performs a regular assessment to determine the likelihood of meeting the targets and adjusts the expense recognized if necessary. During the first quarter of 2023, the performance condition of an award with a total fixed dollar value of $2,250 was met and 101 units were earned and issued as shares. During the fourth quarter of 2023, the Company determined that it is no longer probable that the EBITDA targets will be achieved for the remaining RSU awards granted in November 2021. Accordingly, the Company reversed $3,360 of previously recognized stock-based compensation expense including $1,332 recognized in 2023 through the quarter ended September 30, 2023. During the years ended December 31, 2023, 2022 and 2021, the Company recognized ($2,028), $3,926, and $352 of expense (benefit), respectively.

Equity classified restricted stock units –

In June 2021, the Company adopted the 2021 Omnibus Incentive Plan (the “2021 Plan”) under which the Company may grant options, restricted stock units and other equity-based awards. The number of shares available for issuance under the 2021 Plan shall not exceed in the aggregate the sum of (i) 5,746 shares of Class A common stock, (ii) the number of shares of Class A common stock issuable pursuant to awards previously granted under the First Amended and Restated Profits Interest Plan of H&W Franchise Holdings LLC (“Pre-IPO Plan”) (taking into account any conversion of such outstanding Awards) and (iii) an additional number of shares of Class A common stock that shall become available on the first day of each fiscal year of the Company in an amount equal to the lesser of a) 511, b) 2% of the outstanding shares of Class A common stock on the last day of the immediately prior fiscal year or c) such number of shares of Class A common stock as determined by the board of directors in its discretion. As of December 31, 2023, there were 3,644 shares available for future grants under the 2021 Plan, less the variable number of shares relating to RSU awards granted with performance conditions classified as a liability. As an accounting policy election, the Company recognizes forfeitures as they occur.

Restricted stock units are valued at the Company’s closing stock price on the date of grant, and generally vest over a one- to four-year period. Compensation expense for restricted stock units is recognized on a straight-line basis. For the years ended December 31, 2023, 2022 and 2021, the weighted average grant-date fair value per share of RSUs granted was $21.60, $19.82 and $13.76, respectively. The total fair value of RSUs vested during the years ended December 31, 2023, 2022 and 2021 was $17,858, $6,635 and $0, respectively.

During 2022, included in the RSUs described above, the Company granted 171 performance-based RSUs at a weighted average grant-date closing price of $18.25 per share. The performance-based RSUs are recognized as expense on a straight-line basis over the vesting period of three to four years. Management performs a regular assessment to determine the likelihood of meeting the related metrics and adjusts the expense recognized if necessary. During 2022, the performance metrics related to 18 performance-based RSUs fell below the minimum threshold and as a result, the Company cancelled these previously granted performance-based RSUs and reversed previously recorded expense. During the first quarter of 2023, 36 performance-based RSUs were earned and issued as shares. During 2023, an additional 7 performance-based RSUs were cancelled or forfeited. As of December 31, 2023, the achievement of remaining performance metrics is considered probable.

Total compensation expense recognized for RSUs was $20,006, $12,925, and $2,372 for the years ended December 31, 2023, 2022 and 2021, respectively. Due to the Company's full valuation allowance on its net deferred tax assets, there is no income tax benefit on the unvested RSUs. During the years ended December 31, 2023 and 2022, the Company recognized income tax benefits of $1,049 and $445 on vested RSUs, respectively.

Included in the total compensation for RSUs described above, the Company recorded $2,489 of stock-based compensation for the year ended December 31, 2023, related to a stock-based incentive bonus plan that the Company plans to settle by issuing fully-vested restricted stock units to employees. The $2,489 recorded for the year ended December 31, 2023 is for the eligible employees included in the Company’s 2023 annual bonus plan and is expected to be settled during the first quarter of 2024.

At December 31, 2023, the Company had $23,211 of total unamortized compensation expense related to non-vested RSUs. That cost is expected to be recognized over a weighted-average period of 2.22 years.