Share-Based Compensation

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

The Company has share-based incentive awards outstanding to its eligible employees and non-employee directors under two equity incentive plans: (i) the 2009 Long-Term Incentive Plan (the "2009 Plan") and (ii) the 2016 Long-Term Incentive Plan (the "2016 Plan"). No further awards may be granted under the 2009 Plan, although awards granted under the 2009 Plan remain outstanding in accordance with their terms. Awards granted under the 2016 Plan may be in the form of stock options, restricted stock units and other forms of share-based incentives, including performance restricted stock units, stock appreciation rights and deferred stock rights.

Stock Options

For the three months ended March 31, 2020 and 2019, the Company did not recognize any share-based compensation expense related to stock option awards, as all outstanding stock options awards were then already fully vested. No unrecognized compensation costs remained related to stock option awards as of March 31, 2020.

The following table sets forth a summary of the stock option activity, weighted-average exercise prices and options outstanding as of March 31, 2020 and March 31, 2019:


	Three months ended March 31,
	2020				2019
	Common Stock Options	Weighted Average Exercise Price		Common Stock Options	Weighted Average Exercise Price
Outstanding at beginning of period:	5	$	22.35	2,105	$	13.47
Granted	—	$	—	—	$	—
Exercised	—	$	—	(4)	$	10.00
Expired or forfeited	—	$	—	—	$	—
Outstanding at end of period:	5	$	22.35	2,101	$	13.47

Restricted Stock Unit Awards

For the three months ended March 31, 2020 and March 31, 2019, the Company recognized share-based compensation expense related to restricted stock unit awards of $1.1 million and $0.9 million, respectively. As of March 31, 2020, there was $5.8 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which is expected to be recognized over a remaining weighted-average period of 2.2 years. Upon vesting, restricted stock units are generally net share-settled to cover the required withholding tax and the remaining amount is converted into an equivalent number of shares of common stock.

A summary of the vesting activity of restricted stock unit awards, with the respective fair value of the awards, is as follows:


	Three months ended March 31,
	2020		2019
Restricted stock awards vested	120		50
Fair value of awards vested	$	454	$	693

A summary of the fully-vested common stock the Company issued to its six non-employee directors, in connection with its non-employee director compensation plan, is as follows:


	Three months ended March 31,
	2020		2019
Awards issued	—		14
Grant date fair value of awards issued	$	—	$	200

A summary of the Company's outstanding, non-vested restricted share units is as follows:


	Three months ended March 31,
	2020				2019
	Units	Weighted Average Grant-Date Fair Value		Units	Weighted Average Grant-Date Fair Value
Outstanding at beginning of period:	559	$	16.92	443	$	20.55
Granted	—	$	—	334	$	14.04
Released	(120)	$	15.87	(50)	$	19.21
Forfeited	(3)	$	16.34	(8)	$	20.78
Outstanding at end of period:	436	$	17.21	719	$	17.61

Performance Restricted Stock Units

The Company maintains Performance Restricted Stock Units (PRSUs) that have been granted to select executives and senior officers whose ultimate payout is based on the Company’s performance over a one-year period based on specific metrics approved by the Compensation Committee of the Board of Directors of the Company. For 2019, three metrics, as defined: (1) Operating Income, (2) Adjusted EBITDAS (defined as net income attributable to MISTRAS Group, Inc. plus: interest expense, provision for income taxes, depreciation and amortization, share-based compensation expense and certain acquisition related costs (including transaction due diligence costs and adjustments to the fair value of contingent consideration), foreign exchange (gain) loss and, if applicable, certain special items which are noted) and (3) Revenue. There also is a discretionary portion of the PRSUs based on individual performance, granted at the discretion of the Compensation Committee (Discretionary PRSUs). PRSUs and Discretionary PRSUs generally vest ratably on each of the first four anniversary dates upon completion of the performance period, for a total requisite service period of up to five years and have no dividend rights.

PRSUs are equity-classified and compensation costs are initially measured using the fair value of the underlying stock at the date of grant, assuming that the target performance conditions will be achieved. Compensation costs related to the PRSUs are subsequently adjusted for changes in the expected outcomes of the performance conditions.

Discretionary PRSUs are liability-classified and adjusted to fair value (with a corresponding adjustment to compensation expense) based upon the targeted number of shares to be awarded and the fair value of the underlying stock each reporting period until approved by the Compensation Committee, at which point they are equity-classified.

A summary of the Company's PRSU activity is as follows:


	Three months ended March 31,
	2020				2019
	Units	Weighted Average Grant-Date Fair Value		Units	Weighted Average Grant-Date Fair Value
Outstanding at beginning of period:	260	$	16.77	277	$	17.80
Granted	—	$	—	—	$	—
Performance condition adjustments	1	$	13.63	(3)	$	18.46
Released	(19)	$	19.46	(17)	$	20.22
Forfeited	—	$	—	—	$	—
Outstanding at end of period:	242	$	15.42	257	$	17.35

During the three months ended March 31, 2020 and March 31, 2019, the Compensation Committee approved the final calculation of the award metrics for calendar year 2019 and calendar year 2018, respectively. As a result, the calendar year 2019 PRSUs increased by approximately 1,000 units and the calendar year 2018 PRSUs decreased by approximately 3,000 units.

For the three months ended March 31, 2020 and March 31, 2019, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $0.3 million and $0.2 million, respectively. At March 31, 2020, there was $1.2 million of total unrecognized compensation costs related to approximately 242,000 non-vested PRSUs, which is expected to be recognized over a remaining weighted-average period of 1.9 years.

For 2020, the Compensation Committee is changing the criteria to four metrics with no discretionary portion. Revenue and Adjusted EBITDAS are being retained, and two additional metrics, free cash flow as a percentage of revenue and return on average book equity, will replace Operating Income. These two newly-added metrics are relative metrics, the performance of which are based upon how the Company performs relative to a peer group. However, due to the COVID-19 pandemic and the health and economic upheaval it has created, no targets have been established yet for the Revenue and Adjusted EBITDAS metrics for 2020. In addition, the Company does not have sufficient shares remaining in the 2016 Plan for the 2020 target grants, so no grants will be made unless and until the Company's shareholders approve a proposed amendment to the 2016 Plan to increase the number of shares authorized for issuance under the plan. Approval of the proposed amendment is being sought at the 2020 annual shareholders meeting scheduled for May 19, 2020. As such, no shares have been granted, in the first quarter

of 2020, as noted in the table above. The Company expects these awards to be finalized and approved by its Compensation Committee during the second quarter of 2020 if shareholders approve the proposed amendment to the 2016 Plan.