10. STOCK-BASED COMPENSATION

The compensation cost charged against income for all stock-based compensation was $29.8 million and $67.4 million in 2023 and 2022, respectively and was classified as selling, general, and administrative expenses in our consolidated statements of operations. The total income tax benefit for all stock-based compensation was $0.2 million and $0.4 million in 2023 and 2022 respectively; however, such benefit was substantially offset by the valuation allowance against our deferred tax assets.

Stock-based Compensation Related to Deemed Contributions

In connection with the Company’s IPO, our majority shareholders, Farris Wilks (“Farris”) and Dan Wilks (“Dan”) (together with certain family members or entities they control), sold Units representing approximately 1% of the equity interest in ProFrac LLC to an entity controlled by our Chief Executive Officer, Ladd Wilks (“Ladd”), and our Executive Chairman, Matt Wilks (“Matt”), respectively. These equity interests in ProFrac LLC entitled each of Ladd and Matt to 1,220,978 shares of Class B Common Stock in ProFrac Corp. These Units were sold in exchange for promissory notes. While some of the documentation relating to these transfers was subject to completion, we concluded that both transactions were consummated in connection with the Company’s IPO and, for accounting purposes, should be treated in accordance with ASC Topic 718, Compensation — Stock Compensation, as deemed contributions to the Company by Farris and Dan and grants of stock-based compensation to Ladd and Matt by the Company similar to stock options. As no future service period was required and because the promissory notes are prepayable at any time, all related stock-based compensation expense was recognized in the second quarter of 2022. The stock-based compensation expense was $33.7 million using the Black-Scholes-Merton option-pricing model with an average contractual term of 16.5 years, a volatility rate of 64%, and a 0% dividend yield.

Also in connection with the IPO, Farris engaged in estate planning that may result, subject to other terms and conditions, in additional shares being transferred by Farris to Ladd if the Company’s total market capitalization increases to certain target levels within the next five years, which resulted in a performance award being deemed granted by the Company to Ladd. We concluded that this arrangement should be treated, for accounting purposes, in accordance with ASC Topic 718, Compensation — Stock Compensation, as a deemed contribution to the Company by a related party and the grant of stock-based compensation with market conditions to Ladd by the Company.

The grant date fair value of this award was estimated to be $45.3 million and will be recognized over the estimated derived service period of approximately one year. The grant date fair value and the derived service period of this award was determined using a Monte Carlo simulation method, which incorporates the possibility that the market capitalization targets may not be satisfied. The Monte Carlo simulation is affected by a number of variables, including the fair value of our underlying common shares ($18.00 at grant date), the expected common share price volatility over the expected term (79.2%), the expected dividend yield of our common shares over the expected term (0.0%), the risk-free interest rates over the expected term (2.86%), and the performance period of the award (five years).

The derived service period for the award was determined based on the median vesting time for the simulations that achieved the vesting hurdle. Stock-based compensation expense associated with this award was recognized over the derived service period. Stock-based compensation expense for this award was $19.7 million and $25.6 million in 2023 and 2022, respectively. As of December 31, 2023, there was no unrecognized compensation cost related to this award.

Long Term Incentive Plan

In May 2022, we adopted the ProFrac Holding Corp. 2022 Long Term Incentive Plan (“2022 Plan”) to attract and retain officers, employees, directors, and other key personnel and to provide those persons incentives and awards for performance. The 2022 Plan originally allocated 3,120,708 shares of our Class A Common Stock in the form of incentive stock options, non-qualified stock options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights, or other stock-based awards. As of December 31, 2023, up to 2,542,708 shares were available for future grants under the 2022 Plan.

Pursuant to the 2022 Plan, we have granted time-based vesting RSUs to certain employees and directors. The RSUs granted generally vest over one to four years from the grant date. The grant date fair value of the RSUs is determined using the closing price of our Class A Common Stock on the grant date.

Stock-based compensation expense for these RSUs was $9.3 million and 6.0 million in 2023 and 2022, respectively. The weighted-average grant-date fair value per share of RSUs granted was $11.94 and $17.89 in 2023 and 2022, respectively. The weighted-average fair value of RSUs vested was $17.40 in 2023. As of December 31, 2023, there was $5.1 million of total unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a weighted average period of 0.6 years.

Pursuant to the 2022 Plan, the Company authorized performance-based vesting RSUs (“PRSU”) to certain company executives. The PRSUs that met the definition of having a grant date for accounting purposes in 2023 have a service component that vests one year from the grant date and two performance conditions. The grant date fair value of the PRSUs was determined using the closing price of our Class A Common Stock on the grant date. The performance conditions are based on an earnings metric and a cash flow metric and have an achievement range of 0% to 200% of the PRSUs granted. The performance conditions were not met during 2023 and therefore no stock-based compensation expense was recognized for these awards in 2023.

Flotek Stock-Based Compensation

Flotek stockholders have approved long-term incentive plans under which Flotek may grant equity awards to officers, key employees, non-employee directors and service providers in the form of stock options, restricted stock, restricted stock units, and certain other incentive awards. Stock-based compensation expense related to Flotek awards was $0.3 million and $2.1 million in 2023 and 2022, respectively. As of December 31, 2023, there was $2.2 million of unrecognized compensation cost for Flotek equity awards, which is expected to be recognized over a weighted-average period of 2 years.