Annual report [Section 13 and 15(d), not S-K Item 405]

Equity-Based Compensation

v3.25.0.1
Equity-Based Compensation
 12 Months Ended
Dec. 31, 2024
Share-Based Payment Arrangement [Abstract]  
Equity-Based Compensation
20. Equity-Based Compensation
Restricted Stock Units
Pursuant to the terms of the A&R MLTIP, there were two types of equity-based compensation granted to employees, henceforth referred to as Replacement Restricted Stock Units (“Replacement RSUs”) and Earnout Right Restricted Stock Units (“Earnout Right RSUs”). The issuance of the Replacement RSUs and Earnout Right RSUs to employees under the A&R MLTIP are funded by the exchange of outstanding Class A Common Stock and Class A LLC Units. Therefore, the shares issued to employees under the A&R MLTIP do not result in incremental share ownership in the Company, and the total compensation costs associated with the vesting of the Replacement RSUs and Earnout Right RSUs are directly allocated to the noncontrolling interest and to FOA in proportion to their sharing percentages of exchanged units.
Additionally, pursuant to the terms of the 2021 Omnibus Incentive Plan, the Company grants equity-based compensation to certain employees and non-employee Board members, henceforth referred to as Non-LTIP Restricted Stock Units (“Non-LTIP RSUs”). Vested Non-LTIP RSUs are settled with issuance of shares of Class A Common Stock of FOA to the participant and a respective count of Class A LLC units of FOA Equity to FOA. There are 1,198,726 shares authorized and available for award as of December 31, 2024.
Each type of RSU is classified as equity and FOA accounts for the RSUs following the fair value method. Each type of RSU’s fair value is fixed on the grant date and not remeasured unless the award is subsequently modified.
Replacement RSUs
Pursuant to the terms of the A&R MLTIP executed on October 28, 2020, in consideration for the cancellation of their Phantom Units in FOA Equity, the Company granted Replacement RSUs to each employee who held Phantom Units and remained employed as of the Replacement RSU grant date, April 1, 2021.
Following the terms of the A&R MLTIP, 25% of the Replacement RSUs vested on the Replacement RSU grant date, and the remaining 75% vested in equal installments on each of the first three anniversaries of April 1, 2021, subject to each holder’s continued employment. The Replacement RSUs vested into shares of Class A Common Stock.
Earnout Right RSUs
In addition to the Replacement RSUs, participants in the A&R MLTIP are entitled to receive additional Earnout Right RSUs depending on whether the Company achieves certain market-based conditions. The market-based vesting conditions have been factored into the grant date fair value measurement of the Earnout Right RSUs using a Monte Carlo simulation. The assumptions used in the Monte Carlo simulation model included a volatility rate of 60%, risk free rate of 1.14%, and a weighted average expected term of 1.06 years for the first tranche of Earnout Right RSUs and 1.52 years for the second tranche of Earnout Right RSUs.
Earnout Right RSUs have the same service-based vesting conditions listed above for the Replacement RSUs along with market-based vesting conditions. The first tranche of Earnout Right RSUs vest upon satisfaction of the service-based vesting conditions and if, at any time through April 1, 2027, the VWAP of FOA’s Class A Common Stock is greater than or equal to $125 for any twenty out of thirty consecutive trading days. The second tranche of Earnout Right RSUs vest upon satisfaction of the service-based vesting conditions and if, at any time through April 1, 2027, the VWAP of FOA’s Class A Common Stock is greater than or equal to $150 for any twenty out of thirty consecutive trading days.
Non-LTIP RSUs
Pursuant to the terms of the 2021 Omnibus Incentive Plan and the form of Restricted Stock Unit Award Agreement adopted on November 18, 2021, the Company grants Non-LTIP RSUs to certain employees and non-employee Board members. The RSUs granted have various grant dates and vesting schedules. All vesting is subject to each holder’s continued employment and is subject to forfeiture if the participant leaves the company for reasons other than those permitted under the plan.
On January 1, 2022, FOA opened an initial offering period for our Employee Stock Purchase Plan (the “ESPP”) for the benefit of Company employees. Participation in the ESPP is voluntary and is open to any Company employee who satisfies the eligibility requirements under the ESPP other than the Company’s “officers” (as defined in Rule 16a-1 under the Exchange Act). The ESPP allows for shares of the Company’s Class A Common Stock to be purchased on behalf of participants, using funds contributed by participants through payroll deductions. Participants can contribute up to the lesser of 15% of the participant’s Base Earnings (as defined in the ESPP) or $50,000 per participant in any calendar year. The ESPP includes a matching component pursuant to which participating employees will be eligible to receive a grant of restricted stock units (“Match RSUs”) pursuant to and in accordance with the Company’s 2021 Omnibus Incentive Plan. The number of Match RSUs to be granted to participants with respect to each offering period will equal 20% of the shares purchased by participants under the ESPP with respect to such offering period.
A summary of each classification of RSU activity is presented below:
Grant Date Fair Value
Replacement RSUs Number of Units Unvested Number of Units Vested Total Number of Units Weighted Average Price Per Unit Total Fair Value (in thousands)
Outstanding, December 31, 2023
 112,489  20,640  133,129  $ 94.80  $ 12,620 
Vested (109,048) 109,048  —  —  — 
Forfeited (3,441) —  (3,441) 94.80  (326)
Settled —  (129,688) (129,688) 94.80  (12,294)
Outstanding, December 31, 2024
 —  —  —  $ —  $ — 
Equity-based compensation expense for the Replacement RSUs was $2.7 million and $18.9 million for the years ended December 31, 2024 and 2023, respectively. As of April 1, 2024, there is no further compensation expense associated with the Replacement RSUs.

Grant Date Fair Value
Earnout Right RSUs Number of Units Unvested Number of Units Vested Total Number of Units Weighted Average Price Per Unit Total Fair Value (in thousands)
Outstanding, December 31, 2023
 146,160  —  146,160  $ 89.05  $ 13,016 
Forfeited (360) —  (360) 89.05  (32)
Outstanding, December 31, 2024
 145,800  —  145,800  $ 89.05  $ 12,984 

Equity-based compensation expense for the Earnout Right RSUs was $0.1 million and $0.8 million for the years ended December 31, 2024 and 2023, respectively. As of April 1, 2024, there is no further compensation expense associated with the Earnout Right RSUs.

Grant Date Fair Value
Non-LTIP RSUs Number of Units Unvested Number of Units Vested Total Number of Units Weighted Average Price Per Unit Total Fair Value (in thousands)
Outstanding, December 31, 2023
 818,378  13,185  831,563  $ 14.89  $ 12,381 
Granted 929,946  —  929,946  7.39  6,869 
Vested (317,129) 317,129  —  —  — 
Forfeited (132,318) —  (132,318) 11.43  (1,512)
Settled —  (330,314) (330,314) 11.55  (3,816)
Outstanding, December 31, 2024
 1,298,877  —  1,298,877  $ 10.72  $ 13,922 

Equity-based compensation expense for the Non-LTIP RSUs was $5.7 million and $5.0 million for the years ended December 31, 2024 and 2023, respectively. Unrecognized equity-based compensation expense for the Non-LTIP RSUs totaled $8.0 million as of December 31, 2024 and is expected to be recognized over 1.8 years.
Options
On November 7, 2024, pursuant to the terms of the 2021 Omnibus Incentive Plan, the Company granted options to certain officers of the Company. The options vest on the second anniversary from the date of grant, subject to the officer’s continued employment on the vesting date. The options are exercisable for a period of five years from the date of grant on a one-for-one basis for Class A LLC Units of FOA Equity, which are exchangeable for shares of Class A Common Stock of the Company on a one-for-one basis.
A summary of the option award activity is presented below:
Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2023
 —  $ —  —  $ — 
Granted 720,000  25.00 
Outstanding, December 31, 2024
 720,000  $ 25.00  4.8 $ 2,246 
The weighted average grant date fair value of the options granted during the year ended December 31, 2024 was $7.30 per option.
Equity-based compensation expense for the options was $0.4 million for the year ended December 31, 2024. Unrecognized equity-based compensation expense for the options totaled $4.9 million as of December 31, 2024 and is expected to be recognized over 1.8 years.
The Company estimates the fair value of the options at the date of grant using the Black-Scholes option pricing model based on the following inputs:
For the year ended December 31, 2024
Expected volatility 75.0  %
Expected dividend yield 0.0  %
Risk-free interest rate 4.2  %
Expected term (in years) 5.0
Expected volatility - This measure is based on the historical volatility of the Company’s common stock price.
Expected dividend yield - The Company estimates the expected dividend yield to be zero as the Company does not currently expect to pay dividends on its common stock for the foreseeable future.
Risk-free interest rate - This rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption.
Expected term - The period of time over which the awards are expected to remain outstanding.