Callon Petroleum Company Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Share-based Compensation

Share-based Compensation

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation Plans

At the Company’s annual meeting of shareholders on June 8, 2020, shareholders approved the 2020 Omnibus Incentive Plan (the “2020 Plan”), which replaced the 2018 Omnibus Incentive Plan (the “Prior Incentive Plan”). From the effective date of the 2020 Plan, no further awards may be granted under the Prior Incentive Plan, however, awards previously granted under the Prior Incentive Plan will remain outstanding in accordance with their terms. Effective August 7, 2020, in connection with the reverse stock split and reduction in authorized shares, the Board of Directors approved and adopted an amendment to the 2020 Plan to proportionately adjust the limitations on awards that may be granted. See “Note 11 - Stockholders’ Equity” for discussion of the reverse stock split and reduction in authorized shares. As of September 30, 2020, there were 1,967,782 common shares remaining available for grant under the 2020 Plan.

RSU Equity Awards

The following table summarizes activity for restricted stock units may be settled in common stock (“RSU Equity Awards”) for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,
	2020		2019
	RSU Equity Awards (in thousands) (1)	Weighted Average Grant Date Fair Value (1)	RSU Equity Awards (in thousands) (1)	Weighted Average Grant Date Fair Value (1)
Unvested, beginning of the period	719	$39.99	305	$105.86
Granted (2)	6	$9.35	—	$—
Vested (3)	(14)	$99.88	(17)	$131.20
Forfeited	(12)	$46.51	(8)	$110.81
Unvested, end of the period	699	$38.46	280	$104.17


	Nine Months Ended September 30,
	2020		2019
	RSU Equity Awards (in thousands) (1)	Weighted Average Grant Date Fair Value (1)	RSU Equity Awards (in thousands) (1)	Weighted Average Grant Date Fair Value (1)
Unvested, beginning of the period	269	$102.48	210	$130.39
Granted (2)	562	$21.07	188	$85.89
Vested (3)	(120)	$100.19	(96)	$124.24
Forfeited	(12)	$46.51	(22)	$116.20
Unvested, end of the period	699	$38.46	280	$104.17

(1)Shares and per share data have been retroactively adjusted to reflect the Company’s 1-for-10 reverse stock split effective August 7, 2020. See “Note 11 - Stockholders’ Equity” for additional information.

(2)Includes zero target performance-based RSU Equity Awards during the three months ended September 30, 2020 and 2019, respectively, and 111.2 thousand and 38.8 thousand during the nine months ended September 30, 2020 and 2019, respectively. The performance-based RSU Equity Awards granted during the nine months ended September 30, 2020 and 2019 will vest at a range of 0% to 300% and 0% to 200%, respectively.

(3)The fair value of shares vested was $0.1 million and $0.8 million during the three months ended September 30, 2020 and 2019, respectively, and $1.4 million and $6.8 million for the nine months ended September 30, 2020 and 2019, respectively.

Grant activity for the nine months ended September 30, 2020 and 2019 primarily consisted of RSU Equity Awards granted to executives and employees as part of the annual grant of long-term equity incentive awards in January and June 2020, respectively, as compared to the annual grant of long-term equity to executives and employees during the first quarter of 2019.

The number of outstanding performance-based RSU Equity Awards that can vest is based on a calculation that compares the Company’s total shareholder return (“TSR”) to the same calculated return of a group of peer companies selected by the Company and can range between 0% and 300% of the target units for the awards granted in 2020 and between 0% and 200% of the target units for the awards granted in 2018 and 2019. The increase in the maximum amount of performance-based RSU Equity Awards that can vest for the awards granted in 2020 is due to an absolute TSR modifier, which was added as a second factor in the calculation, in addition to the relative TSR multiplier. While the absolute TSR modifier could increase the number of awards that vest, the number of awards that vest could also be reduced if the absolute TSR is less than 5% over the performance period.

The Company recognizes expense for performance-based RSU Equity Awards based on the fair value of the awards at the grant date. Awards with a performance-based provision do not allow for the reversal of previously recognized expense, even if the market metric is not achieved and no shares ultimately vest. The grant date fair value of performance-based RSU Equity Awards, calculated using a Monte Carlo simulation, was zero for the three months ended September 30, 2020 and 2019, respectively, and $3.4 million and $4.3 million for the nine months ended September 30, 2020 and 2019, respectively. The following table summarizes the assumptions

used to calculate the grant date fair value of the performance-based RSU Equity Awards granted during the nine months ended September 30, 2020 and 2019:


Performance-based Awards	June 29, 2020		January 31, 2020		January 31, 2019
Expected term (in years)	2.5		2.9		2.9
Expected volatility	113.2	%	54.8	%	47.9	%
Risk-free interest rate	0.2	%	1.3	%	2.4	%
Dividend yield	—	%	—	%	—	%

As of September 30, 2020, unrecognized compensation costs related to unvested RSU Equity Awards were $16.4 million and will be recognized over a weighted average period of 1.9 years.

Cash-Settled RSU Awards

The table below summarizes the activity for restricted stock units that may be settled in cash (“Cash-Settled RSU Awards”) for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,
	2020		2019
	Cash-Settled RSU Awards (in thousands) (1)	Weighted Average Grant Date Fair Value (1)	Cash-Settled RSU Awards (in thousands) (1)	Weighted Average Grant Date Fair Value (1)
Unvested, beginning of the period	208	$67.20	103	$129.67
Granted	—	$—	—	$—
Vested	(1)	$131.54	—	$—
Did not vest at end of performance period	(2)	$133.95	—	$—
Forfeited	—	$—	(3)	$132.86
Unvested, end of the period	205	$66.28	100	$129.58


	Nine Months Ended September 30,
	2020		2019
	Cash-Settled RSU Awards (in thousands) (1)	Weighted Average Grant Date Fair Value (1)	Cash-Settled RSU Awards (in thousands) (1)	Weighted Average Grant Date Fair Value (1)
Unvested, beginning of the period	86	$124.22	66	$147.59
Granted	125	$29.76	44	$105.08
Vested	(3)	$130.12	(2)	$108.10
Did not vest at end of performance period	(3)	$148.81	—	$—
Forfeited	—	$—	(8)	$145.65
Unvested, end of the period	205	$66.28	100	$129.58

Grant activity primarily consisted of Cash-Settled RSU Awards to executives as part of the annual grant of long-term equity incentive awards that occurred in the first half of each of the years presented in the table above. These awards cliff vest after an approximate three-year performance period.

The Company’s outstanding Cash-Settled RSU Awards include the same performance-based vesting conditions as the performance-based RSU Equity Awards, which are described above. Additionally, the assumptions used to calculate the grant date fair value per Cash-Settled RSU Award granted for each of the respective periods presented are the same as the performance-based RSU Equity Awards presented above.

The following table summarizes the Company’s liability for Cash-Settled RSU Awards and the classification in the consolidated balance sheets for the periods indicated:


	September 30, 2020	December 31, 2019
	(In thousands)
Other current liabilities	$49	$966
Other long-term liabilities	275	2,089
Total Cash-Settled RSU Awards	$324	$3,055

As of September 30, 2020, unrecognized compensation costs related to unvested Cash-Settled RSU Awards were $0.5 million and will be recognized over a weighted average period of 2.0 years.

Share-Based Compensation Expense, Net

Share-based compensation expense associated with the RSU Equity Awards, Cash-Settled RSU Awards, and cash-settled stock appreciation rights (“Cash SARs”), net of amounts capitalized, is included in “General and administrative” in the consolidated statements of operations. The following table presents share-based compensation expense (benefit), net for each respective period:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
	(In thousands)
RSU Equity Awards	$3,009	$2,649	$10,169	$11,032
Cash-Settled RSU Awards	(566)	(1,116)	(1,966)	238
Cash SARs	(1,005)	—	(4,646)	—
	1,438	1,533	$3,557	$11,270
Less: amounts capitalized to oil and gas properties	(1,532)	(866)	(3,862)	(3,170)
Total share-based compensation expense (benefit), net	($94)	$667	($305)	$8,100

See “Note 10 - Stock-Based Compensation” of the Notes to Consolidated Financial Statements in the 2019 Annual Report for details of the Company’s equity-based incentive plans.