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 2.4 million shares were still available for grant as of January 31, 2018. 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) and recognizes compensation expense, net of estimated forfeitures, over the requisite service period for awards expected to vest. The Company estimates the fair value of stock options using the Black-Scholes valuation model, and determines the fair value of restricted stock units based on the quoted price of GMS’s common stock on the date of grant. The Company estimates forfeitures based on historical analysis of actual 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 nine months ended January 31, 2018:


				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	63		37.49
Options exercised	(171)		12.56
Options forfeited	—		—
Options expired	—		—
Outstanding as of January 31, 2018	1,980	$	14.34	6.58	$	39,493
Exercisable as of January 31, 2018	1,559	$	12.89	6.33	$	33,339
Vested and expected to vest as of January 31, 2018	1,980	$	14.34	7.52	$	39,493

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 nine months ended January 31, 2018 was $3.7 million. There were no stock option exercises during the nine months ended January 31, 2017. As of January 31, 2018, there was $1.3 million of total unrecognized compensation cost related to stock options. That cost is expected to be recognized over a weighted-average period of 2.2 years.

The fair value of stock options granted during the nine months ended January 31, 2018 and 2017 was estimated using the Black-Scholes option-pricing model with the following assumptions:


	Nine Months Ended
	January 31,
	2018		2017
Volatility	30.86	%	41.10	%
Expected life (years)	6.0		6.0
Risk-free interest rate	2.18	%	1.53	%
Dividend yield	—	%	—	%

The weighted average grant date fair value of options granted during the nine months ended January 31, 2018 and 2017 was $12.81 per share and $9.53 per share, respectively. 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.

Restricted Stock Units

During the nine months ended January 31, 2018, the Company granted 21,766 restricted stock units to employees pursuant to its Equity Incentive Plan. The restricted stock units vest ratably over three years and have a fair value of $37.49 per unit. As of January 31, 2018, there was $0.7 million of total unrecognized compensation cost related to nonvested restricted stock units. That cost is expected to be recognized over a weighted-average period of 2.8 years.