STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2020

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

17.  STOCK-BASED COMPENSATION

Stock-based compensation is based on the fair value of the award on the date of grant, which is recognized over the related service period, net of actual forfeitures. The service period is the period over which the related service is performed, which is generally the same as the vesting period. Vesting may be accelerated for certain officers and employees as a result of attaining certain age and service based requirements in the Company’s long-term incentive plan and award agreements.

The Company recognized stock-based compensation expense of $8.3 million and $5.4 million for the three months ended March 31, 2020 and 2019, respectively. Stock-based compensation expense is included in compensation and benefits and acquisition-related costs in the condensed consolidated statements of income.

The activity in the Company’s stock options and restricted stock, consisting of restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and performance-based restricted stock units (“PSUs”) for the three months ended March 31, 2020 was as follows:

Stock Options

The following table summarizes stock options activity during the three months ended March 31, 2020:
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				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic Value
	Shares	Price		Term (years)	(in millions)
Outstanding and exercisable, December 31, 2019	10,834	$	18.59
Exercised	1,510		21.15
Outstanding and exercisable, March 31, 2020	9,324	$	18.17	0.2	$	0.7

The total intrinsic value of stock options exercised was $0.2 million and $20.7 million for the three months ended March 31, 2020 and 2019, respectively.

RSAs and RSUs

The following table summarizes RSA and RSU activity during the three months ended March 31, 2020:

		Weighted
	Number of	Average Grant
	Shares	Date Fair Value
Nonvested stock at December 31, 2019	436,013	$	92.47
Granted	164,925		119.65
Vested	(246,850)		86.92
Forfeited	(10,674)		104.90
Nonvested stock at March 31, 2020	343,414	$	109.12

RSAs granted to non-employee members of the board of directors have a one-year vesting period and vesting accelerates upon the occurrence of a change in control of the Company. Unvested portions of the RSAs will be forfeited if the director leaves the board of directors prior to the applicable vesting date. The RSAs have voting rights and entitle the holder to receive dividends.

RSUs entitle the holder to one share of common stock upon vesting, typically vest over a three year period, and vesting accelerates upon the occurrence of a change in control or a termination of employment following a change in control. Vesting will also accelerate upon a qualified retirement. Qualified retirement eligibility occurs once a holder is at least 55 years of age and has completed at least 10 years of service for grants awarded in and after 2017. Unvested RSUs will be forfeited if the officer, or employee, leaves the Company prior to the applicable vesting date, except in limited circumstances. The RSUs have no voting rights but entitle the holder to receive dividend equivalents.

In connection with the Merger, each award of restricted Bats common stock (“Bats restricted shares”) granted under any of the Bats Plans that was unvested immediately prior to the effective time of the Merger was assumed by the Company and converted into an award of restricted shares of our common stock, subject to the same terms and conditions (including vesting schedule) that applied to the applicable Bats restricted shares immediately prior to the effective time of the Merger (but taking into account any changes, including any acceleration of vesting of such Bats restricted shares, occurring by reason provided for in the agreement related to the Merger).

During the three months ended March 31, 2020, to satisfy employees’ tax obligations upon the vesting of restricted stock, the Company purchased 97,321 shares of common stock totaling $11.5 million as the result of the vesting of 246,850 shares of restricted stock.

PSUs

The following table summarizes restricted stock units contingent upon achievement of performance conditions, also known as PSUs, activity during the three months ended March 31, 2020:

		Weighted
	Number of	Average Grant
	Shares	Date Fair Value
Nonvested stock at December 31, 2019	132,248	$	105.75
Granted	72,975		125.62
Vested	(48,053)		108.91
Forfeited	(34,504)		109.85
Nonvested stock at March 31, 2020	122,666	$	115.18

PSUs include awards related to earnings per share during the performance period as well as awards related to total shareholder return during the performance period. The Company used the Monte Carlo valuation model method to estimate the fair value of the total shareholder return PSUs which incorporated the following assumptions: risk-free interest rate (1.36)%, three-year volatility (21.0)% and three-year correlation with S&P 500 Index (0.25). Each of these performance shares has a performance condition under which the number of units ultimately awarded will vary from 0% to 200% of the original grant, with each unit representing the contingent right to receive one share of the Company’s common stock. The vesting period for the PSUs contingent on the achievement of performance conditions is three years. For each of the performance awards, the PSUs will be settled in shares of the Company’s common stock following vesting of the PSU assuming that the participant has been continuously employed during the vesting period, subject to acceleration in the event of a change in control of the Company, or a termination of employment following a change in control, or in the event of a participant’s earlier death or disability. Participants have no voting rights with respect to the PSUs until the issuance of the shares of common stock. Dividends are accrued by the Company and will be paid after the associated performance conditions are achieved and the PSUs are settled in shares of the Company’s common stock.

In the three months ended March 31, 2020, to satisfy employees’ tax obligations upon the vesting of PSUs, the Company purchased 19,456 shares of common stock totaling $2.4 million as the result of the vesting of 48,053 PSUs.

As of March 31, 2020, there were $34.1 million in total unrecognized compensation costs related to restricted stock, RSUs, and PSUs. These costs are expected to be recognized over a weighted average period of 2.3 years.

Employee Stock Purchase Plan

In May 2018, the Company’s stockholders approved an Employee Stock Purchase Plan, (“ESPP”), under which a total of 750,000 shares of the Company’s common stock was made available for purchase to employees. The ESPP is a broad-based plan that permits employees to contribute up to 10% of wages and base salary to purchase shares of the Company’s common stock at a discount, subject to applicable annual Internal Revenue Service limitations. Under the ESPP, a participant may not purchase more than a maximum of 312 shares of the Company’s common stock during any single offering period. No participant may accrue options to purchase shares of the Company’s common stock at a rate that exceeds $25,000 in fair market value of the Company’s common stock (determined at the time such options are granted) for each calendar year in which such rights are outstanding at any time. The exercise price per share of common stock shall be 90% (for eligible U.S. employees) or 85% (for eligible international employees) of the lesser of the fair value of the stock on the first day of the applicable offering period or the applicable exercise date.

The Company records compensation expense over the offering period related to the discount that is given to employees, which totaled $0.1 million for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, 710,103 shares were reserved for future issuance under the ESPP.