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.

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, is based on the average trading price of XPO Inc. common stock exceeding the IPO threshold price, as defined in the agreement. The amendment of these units is 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 nine months ended September 30, 2022, the Company recognized $12,003 of expense, including $8,467 of accelerated compensation expense when these grants vested in March 2022.

The fair value of the time-based grants was recognized as compensation expense over the vesting period (generally four years), with an increase to Member’s contribution / Additional Paid-in Capital in Member’s / Stockholders' equity. The fair value of the time-based grants was calculated using a Black-Scholes option-pricing model. The Company recognized $24 and $171 of expense during the three and nine months ended September 30, 2022, respectively, and $137 and $808 in the three and nine months ended September 30, 2021, respectively. At September 30, 2022, the Company had $40 of unrecognized compensation expense. The unrecognized compensation expense is expected to be recognized over a weighted average period of approximately 0.84 years for the time-based grants.

Liability Classified Restricted stock units –

In November 2021, the Company granted restricted stock unit (“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. As of September 30, 2022, management believes that the EBITDA targets will be achieved and is accordingly recognizing expense ratably over the vesting period. Management performs a regular assessment to determine the likelihood of meeting the targets and adjusts the expense recognized if necessary.

During the three and nine months ended September 30, 2022, the Company recognized $623 and $1,865 of expense, respectively. At September 30, 2022, the Company had $5,658 of unrecognized expense relating to these grants.

Equity Classified Restricted stock units –

During the three and nine months ended September 30, 2022, the Company granted 15,022 and 1,537,087 RSUs, respectively, at a weighted average grant-date fair value of $17.36 and $19.62 per share. RSUs 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 RSUs is recognized on a straight-line basis.

Included in the RSUs described above, the Company granted 170,767 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. As of September 30, 2022, the achievement of performance metrics is considered probable.

Total compensation expense recognized for restricted stock units was $3,597 and $9,881 for the three and nine months ended September 30, 2022, respectively, and $783 for the three and nine months ended September 30, 2021. 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 three and nine months ended September 30, 2022, the Company recognized an income tax benefit of $388 and $434 on vested RSUs, respectively.

At September 30, 2022, the Company had $32,400 of total unrecognized compensation expense related to non-vested RSUs. That cost is expected to be recognized over a weighted-average period of 3.1 years.