GPGI, Inc.GPGI
GPGI, Inc. Stock Compensation Disclosure
EQUITY COMPENSATION
Upon the Business Combination, a valuation was performed which took into consideration all the key terms and conditions of the award, including the fact that, under Topic 718, there is no requisite service period due to the fact that there is no service condition prospectively, and as of the grant date there is no service inception date preceding the grant date on which to base historical valuation or expense amortization. As such, the award is considered to be immediately vested from a service perspective and is solely contingent on meeting the hurdles required for the award to be settled. Since there is no future substantive risk of forfeiture, all expenses associated with the awards were accelerated and recognized on December 27, 2021.
The following table summarizes share-based compensation expense included in selling, general and administrative expenses within the consolidated statements of operations:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Restricted stock unit expense | $ | 17,652 | $ | 14,753 | $ | 10,173 | |||||||||||
| Performance stock unit expense | 2,588 | 2,369 | — | ||||||||||||||
| Stock option expense | 856 | $ | 305 | 1,228 | |||||||||||||
| Employee stock purchase plan | 139 | 135 | 25 | ||||||||||||||
| Incentive units | — | — | 39 | ||||||||||||||
| Total stock-based compensation expense | $ | 21,235 | $ | 17,562 | $ | 11,465 | |||||||||||
Equity Incentive Plan
In connection with the business combination consummated on December 27, 2021, the Company established the CompoSecure, Inc. 2021 Incentive Equity Plan (the “2021 Plan”) effective as of December 27, 2021. The purpose of the 2021 Plan is to provide eligible employees of the Company and its subsidiaries, certain consultants and advisors who perform services for the Company or its subsidiaries, and non-employee members of the Board of Directors of the Company, with the opportunity to receive grants of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, stock units, and other stock-based awards. The aggregate authorized number of shares of Class A Common Stock that may be issued or transferred as of December 31, 2024 under the 2021 Plan was 7,326,820 shares of Class A Common Stock plus the number of shares of Class A Common Stock underlying grants issued under the Company’s existing amended and restated equity compensation plan that expire, terminate or are otherwise forfeited without being exercised. Pursuant to this provision, effective January 1, 2025, the shares of Class A Common Stock authorized under the 2021 Plan were increased by 4,018,514 shares, for a new aggregate authorized number of shares of 11,345,334.
The aggregate authorized number of shares of Class A Common Stock that may be issued or transferred as of December 31, 2023 under the 2021 Plan was 6,680,253 shares of Class A Common Stock plus the number of shares of Class A Common Stock underlying grants issued under the Company’s existing amended and restated equity compensation plan that expire, terminate or are otherwise forfeited without being exercised. Pursuant to this provision, effective January 1, 2024, the shares of Class A Common Stock authorized under the 2021 Plan were increased by 3,321,334 shares, for a new aggregate authorized number of shares of 10,033,262. Commencing with the first business day of each calendar year beginning in 2022, the aggregate number of shares of Class A Common Stock that may be issued or transferred under the Plan shall be increased by an amount of shares of Class A Common Stock equal to 4% of the aggregate number of shares of Class A Common Stock and Class B Common Stock outstanding as of the last day of the immediately preceding calendar year, or such lesser number of shares of Class A Common Stock as may be determined by the Board.
During the years ended December 31, 2024 and 2023 the Company granted Restricted stock units (“RSU”) to employees that generally vests over a period of two years or four years of continuous service. Certain grants made in 2024 vest in three tranches at the third, fifth and seventh anniversary of the grant. RSUs granted to the Board of Directors generally vest over a period of one year. The restricted stock will generally be forfeited upon termination of an employee prior to vesting. The fair value of each RSU is based on the market value of the Company's stock on the date of grant. During the years ended December 31, 2024 and 2023, the Company awarded officers with 872,685 and 658,156 PSUs, respectively, which vest upon three years of continuous employment and the achievement of certain performance targets. PSUs with performance conditions are valued based on the market value of the Company's stock on the date of grant and expensed based on the probability of achieving performance targets. PSUs with market conditions are valued using a Monte Carlo simulation model that utilizes significant assumptions, including volatility and the probability of satisfying the market condition and are expensed ratably over the service period.
During the year ended December 31, 2024, the Company granted options which vest over four years. No options were granted during 2023 or 2022. The fair value of each option award was estimated at the date of grant using the Black-Scholes option valuation model. The expected term assumption reflected the period for which the Company believed the option will remain outstanding. This assumption was based upon the historical and expected behavior of the Company employees. To determine volatility, the Company had used the historical closing values of comparable publicly held entities.
The risk-free rate reflected the U.S. Treasury yield curve for a similar expected life instrument in effect at the time of the grant.
A summary of RSU, PSU and stock option activity under the Plan during the year ended December 31, 2024 is presented below:
Restricted Stock Unit Activity
| Number of Shares | Weighted Average Grant Date Fair Value Per Share | |||||||
| Nonvested at January 1, 2024 | 5,651,895 | $ | 6.93 | |||||
| Granted | 2,831,900 | 7.85 | ||||||
| Vested | (2,215,284) | 6.24 | ||||||
| Forfeited | (51,850) | 5.48 | ||||||
| Nonvested at December 31, 2024 | 6,216,661 | 7.67 | ||||||
Unrecognized compensation expense for RSUs was $31,130 as of December 31, 2024 and is expected to be recognized over a remaining term of 2.1 years.
Performance and Market based Stock Units Activity
| Number of Shares | Weighted Average Grant Date Fair Value Per Share | |||||||
| Nonvested at January 1, 2024 | 1,107,536 | $ | 7.14 | |||||
| Granted | 872,685 | 5.72 | ||||||
| Vested | (224,690) | 7.89 | ||||||
| Forfeited | — | — | ||||||
| Nonvested at December 31, 2024 | 1,755,531 | 6.48 | ||||||
Unrecognized compensation expense for PSUs was $4,743 as of December 31, 2024 and is expected to be recognized during the next 1.6 years
Stock Options
The assumptions utilized to calculate the value of the options granted for the year ended December 31, 2024 were as below:
| December 31, 2024 | |||||
| Expected term | 6.25 years | ||||
| Volatility | 47.81% | ||||
| Risk-free rate | 3.54% | ||||
| Expected dividends | 0% | ||||
| Expected forfeiture rate | 0% | ||||
The following table sets forth the options activity under the Company equity plan for the year ended December 31, 2024:
| Number of Shares | Weighted Average Exercise Price Per Shares | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Outstanding at January 1, 2024 | 3,278,463 | $ | 1.88 | 2.9 | $ | 11,780 | |||||||||||||||||
| Granted | 1,915,532 | 13.85 | 9.8 | 2,840 | |||||||||||||||||||
| Exercised | (2,918,324) | $ | 1.55 | 2.0 | $ | 24,669 | |||||||||||||||||
| Outstanding at December 31, 2024 | 2,275,671 | $ | 12.39 | 8.9 | $ | 6,698 | |||||||||||||||||
| Vested and expected to vest at December 31, 2024 | 2,275,671 | $ | 12.39 | 8.9 | $ | 6,698 | |||||||||||||||||
| Exercisable at December 31, 2024 | 360,133 | $ | 4.62 | 4.4 | $ | 3,858 | |||||||||||||||||
The weighted average grant date fair value of options granted during the year ended December 31, 2024 was $13.85. The Company recognized approximately $856, $305, and $1,228 of compensation expense for the options in selling, general and administrative expenses in the accompanying consolidated statements of operations for the years ended December 31, 2024, 2023, and 2022, respectively.
The number of options that have vested and are exercisable as of December 31, 2024, 2023, and 2022 were 360,133, 3,274,954 and 4,616,197 respectively. The weighted average exercise price of options exercisable and vested is $4.62, $1.88, and $1.29 for years ended December 31, 2024, 2023, and 2022, respectively. The weighted average remaining contractual term (years) of options exercisable as of December 31, 2024, 2023, and 2022 is 4.4, 2.9, and 3.1, respectively. Total intrinsic value of options exercised is $24,669, $9,465 and $3,180 for the years ended December 31, 2024, 2023, and 2022, respectively. The weighted-average fair value of options that exercised were $1.55, $0.41 and $0.01 during the years ended December 31, 2024, 2023, and 2022, respectively. Unrecognized compensation expense for the options of approximately $12,906 is expected to be recognized during the next 3.9 years.
Employee Stock Purchase Plan
Effective December 27, 2021, the Board of Directors approved the Employee Stock Purchase Plan (the “ESPP”). The Company had authorized 2,411,452 aggregate number of shares of Class A Common Stock reserved for sale pursuant to the ESPP Plan. The ESPP permitted participating eligible employees to purchase shares of Class A Common Stock, with after-tax payroll deductions, on a quarterly basis at a 15% discount at the lower of the closing price of the Common Stock on the Nasdaq Global Market on the first day of the offering period or the last trading day of each purchase period. As of December 31, 2024 and 2023, there were 2,245,224 and 2,312,747 shares of Class A Common Stock remaining authorized for issuance under the ESPP, respectively. The Company recognized the discount on the Common Stock issued under the ESPP as stock-based compensation expense in the period in which the employees began participating in the ESPP. For the years ended December 31, 2024, 2023 and 2022 the Company issued 91,012 , 80,446 and 18,259 shares and recognized compensation expense of $139, $135 and $25 respectively. The Company terminated the ESPP effective December 31, 2024.
Earnout Consideration
As a result of the Business Combination, certain of Holdings' equity holders have the right to receive an aggregate of up to7,500,000 additional shares of the Company's Class A Common Stock in earnout consideration based on the achievement of certain stock price thresholds (See Note 18 in Notes to Consolidated Financial Statements in this Form 10-K for further discussion) (collectively, the “Earnouts”). The Earnouts were subject to two price thresholds, with half to be awarded upon the achievement of each threshold. The Earnouts expire in two phases if the achievement thresholds are not met. The first phase was to expire upon the three-year anniversary of the Closing Date of the Business Combination, and the second phase is set to expire upon the four year anniversary of the Closing Date. The earnouts under the first phase were
achieved on December 13, 2024. The second phase has not yet been achieved. A total of 657,160 shares or 328,580 shares for each phase were issued to employees and were accounted for in accordance with ASC 718 as they were considered to be compensation. The following is a summary of the earnout activity for the year ended December 31, 2024:
| Number of Shares | |||||
| Outstanding at January 1, 2024 | 657,160 | ||||
| Granted | — | ||||
| Vested | (328,580) | ||||
| Nonvested at December 31, 2024 | 328,580 | ||||
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.