Equity-Based Compensation

6 Months Ended

Oct. 31, 2017

Equity-Based Compensation

Equity-Based Compensation

6. Equity-Based Compensation

General

The Company has granted options to purchase the Company’s common stock under its 2014 GYP Holdings I Corp. Stock Option Plan. The stock options granted under this plan vest over a four-year period and have a 10‑year term. In October 2017, the shareholders of the Company approved the GMS Inc. Equity Incentive Plan (the “Equity Incentive Plan”). Future grants will be made from the Equity Incentive Plan. The Equity Incentive Plan is administered by a committee of the Board of Directors, which determines the terms of the awards granted. Under the Equity Incentive Plan, the committee may grant various forms of equity-based incentive compensation, including stock options, stock appreciation rights, restricted stock, restricted stock units and performance awards, among others. The Company’s Equity Incentive Plan provides for the issuance of a maximum of 2.5 million shares, of which approximately 2.5  million shares were still available for grant as of October 31, 2017. The Company intends to use authorized and unissued shares to satisfy share award exercises, unless otherwise noted.

The Company measures compensation cost for all share‑based awards at fair value on the grant date (or measurement date if different) using the Black-Scholes option-pricing model and recognizes compensation expense, net of estimated forfeitures, over the requisite service period for awards expected to vest. The Company estimates forfeitures based on historical analysis of actual stock option forfeitures and employee turnover. Actual forfeitures are recorded when incurred and estimated forfeitures are reviewed and adjusted at least annually.

Stock Option Awards

The following table presents stock option activity for the six months ended October 31, 2017:

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Options	Price		Life (years)	Value
	(shares and dollars in thousands)
Outstanding as of May 1, 2017	2,088	$	13.49	7.23	$	47,336
Options granted	—		—
Options exercised	161		12.53
Options forfeited	—		—
Options expired	—		—
Outstanding as of October 31, 2017	1,927	$	13.57	6.73	$	39,467
Exercisable as of October 31, 2017	1,501	$	12.83	6.56	$	31,854
Expected to vest after October 31, 2017	426	$	16.17	7.31	$	7,614

The aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the period in excess of the weighted average exercise price multiplied by the number of options outstanding, exercisable or expected to vest. Options expected to vest are unvested shares net of expected forfeitures.The total intrinsic value of options exercised during the six months ended October 31, 2017 was $3.5 million. There were no stock option exercises during the six months ended October 31, 2016. As of October 31, 2017, there was $1.0 million of total unrecognized compensation cost related to stock options. That cost is expected to be recognized over a weighted-average period of 0.5 years.

The Company did not grant any stock option awards during the six months ended October 31, 2017. The fair value of stock options granted during the six months ended October 31, 2016 was estimated using the Black-Scholes option-pricing model with the following assumptions:

	October 31, 2016
Volatility	41.10	%
Expected life (years)	6.0
Risk-free interest rate	1.53	%
Dividend yield	—	%

The weighted average grant date fair value of options granted during the six months ended October 31, 2016 was $9.56 per share. The expected volatility was based on the average volatility of peer public entities that are similar in size and industry since prior to our IPO discussed in Note 1, “—Initial and Secondary Public Offerings,” we did not have sufficient history to estimate the expected volatility of our common stock price. The expected life of stock options was based on previous history of exercises. The risk‑free rate was based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the stock option. The expected dividend yield was 0% as we have not declared any common stock dividends to date and do not expect to declare common stock dividends in the near future. The fair value of the underlying common stock at the date of grant was determined based on the value of the Company’s closing stock price on the trading day immediately preceding the date of the grant.