SHARE-BASED COMPENSATION

All share information is presented after giving effect to the 1.5543 - for - 1 stock split consummated on January 30, 2018 in connection with our initial public offering.

Stock Options

The Company has granted stock awards to eligible participants under its incentive plans. The stock awards include options to purchase the Company’s common stock. These stock options include a combination of service and market conditions, as further described below. Prior to the Company’s IPO, these stock options included a performance vesting condition, a Qualified Public Offering (see Note 7), which was not considered to be probable prior to the consummation of the IPO, and as a result, no share-based compensation expense for stock options was recognized prior to 2018.

For the year ended December 31, 2018, the Company recognized $8.5 million in stock-based compensation for stock options and $2.4 million for restricted stock awards, the majority of which was recognized upon the consummation of the IPO. We recognize stock-based compensation on a straight-line basis over the vesting period for time based awards and we recognize the expense immediately for awards with market conditions. The amount of unrecognized compensation expense associated with stock options was $1.9 million and for restricted stock was $7.6 million at December 31, 2018 which is expected to be recognized over the a 2.3 and 3.6 yearly weighted average period, respectively.

The Company calculated the grant date fair value of stock options that vest over a service period using the Black Scholes model. For stock options that contain a market condition related to the return on investment that the Company’s stockholders achieve, the options were valued using a lattice-based option valuation model. The assumptions used in these calculations are noted in the following table. Expected volatilities are based on implied volatilities from comparable companies. The expected time to liquidity is based on management’s estimate. The risk-free rate is based on the U.S. Treasury yield curve for a term equivalent to the estimated time to liquidity.



	Year Ended December 31,
	2018	2017	2016
Option valuation assumptions:
Expected dividend yield	—%	—%	—%
Expected volatility	50%	66%	56%
Risk-free interest rate	2.71%	1.80%	1.64%
Expected term (in years)	6.3	6.2	6.3

Stock option awards represent options to purchase common stock and are granted pursuant to the Company’s incentive plans, and include options that the Company primarily classifies as Tranche A or time based, Tranche B and Tranche C.

Tranche A or time based options are eligible to vest in equal installments of 25% or 20% on each of the first four or five anniversaries of the date of the grant, subject to continued employment with the Company or its subsidiaries. In the event of a termination of employment without cause or as a result of death or disability, any such time based options which would have vested on the next applicable vesting date shall become vested, and the remaining unvested time based options shall be forfeited. In addition, upon a Change in Control (as defined in the incentive plans), subject to continued employment through the date of the Change in Control, all outstanding unvested time based options shall immediately vest. An IPO does not qualify as a Change in Control as it relates to the vesting of stock options.

All other option awards are eligible to vest upon the satisfaction of certain performance conditions (collectively, “Performance Options”). On January 16, 2018, we amended our option agreements to add additional vesting provisions to our Performance Options. Tranche B options are eligible to vest based on (a) achievement of an Investor IRR equal to or in excess of 20%, subject to a minimum cash-on-cash return of 2.5 times the Investor Investment (as such terms are defined in the Company’s 2014 Long-Term Incentive Plan) or (b) on the first day that the volume-weighted average price per share of our common stock for the prior 60 consecutive trading days exceeds $19.11 (provided that such 60-day period shall not commence earlier than the 181st day after the completion of our IPO). Tranche C options are eligible to vest based on (a) achievement of an Investor IRR (as defined in the incentive plans) equal to or in excess of 25% , subject to a minimum cash-on-cash return of 3.0 times the Investor Investment or (b) on the first day that the volume-weighted average price per share of our common stock for the prior 60 consecutive trading days exceeds $22.93 (provided that such 60-day period shall not commence earlier than the 181st day after the completion of our IPO). In the event of a termination of employment without cause or as a result of death or disability, any Performance Options which are outstanding and unvested will remain eligible to vest subject to achievement of such performance targets (without regard to the continued service requirement) until the first anniversary of the date of such termination. As a result of the modification, the Company measured the incremental fair value of Tranche B and Tranche C options, which resulted in $2.9 million of incremental fair value.

As of December 31, 2018, the Company had 667,565 Performance Options outstanding, all of which have vested as the vesting provisions were achieved.

A summary of the changes in stock options outstanding during the year ended December 31, 2018, is as follows:



	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contract Term (years)	Aggregate Intrinsic Value (in thousands)
Options outstanding as of December 31, 2017	1,644,212		$	8.81
Granted	48,400		$	24.46
Exercised	(74,722	)	$	10.36
Canceled or forfeited	(102,429	)	$	10.73
Options outstanding as of December 31, 2018	1,515,461		9.11		6.57	21,125
Exercisable as of December 31, 2018	1,102,594		$	8.15	6.17	$	16,369

The following is provided for stock options granted:



	Year Ended December 31,
	2018		2017		2016
Weighted average grant date fair value	$	12.63	$	5.31	$	5.77

Restricted awards

A summary of the changes in restricted stock shares outstanding during the year ended December 31, 2018 is as follows:



	Shares Outstanding		Grant Date Fair Value (per share)
Outstanding as of December 31, 2017	77,715		$	6.43
Granted	331,013		29.43
Vested	(112,286	)	13.77
Canceled or forfeited	(8,963	)	31.74
Outstanding as of December 31, 2018	287,479		$	29.26