Equity-Based Compensation

3 Months Ended

Jul. 31, 2020

Equity-Based Compensation

Equity-Based Compensation

9. Equity-Based Compensation

General

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.

Equity-based compensation expense related to stock options and restricted stock units was $1.4 million and $1.2 million during the three months ended July 31, 2020 and 2019, respectively, and is included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income.

Stock Option Awards

The following table presents stock option activity for the three months ended July 31, 2020:

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Options	Price		Life (years)	Value
	(shares and dollars in thousands)
Outstanding as of April 30, 2020	1,487	$	18.85	6.4	$	3,895
Options granted	—		—
Options exercised	(37)		13.10
Options forfeited	(42)		24.64
Options expired	—		—
Outstanding as of July 31, 2020	1,408	$	18.83	6.1	$	7,825
Exercisable as of July 31, 2020	943	$	16.58	4.9	$	7,143
Vested and expected to vest as of July 31, 2020	1,404	$	18.82	6.1	$	7,821

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 three months ended July 31, 2020 and 2019 was $0.3 million and $0.1 million, respectively. As of July 31, 2020, there was $2.9 million of total unrecognized compensation cost related to stock options. That cost is expected to be recognized over a weighted-average period of 1.8 years.

There were no stock options granted during the three months ended July 31, 2020. The fair value of stock options granted during the three months ended July 31, 2019 was estimated using the Black-Scholes option-pricing model with the following assumptions:

	Three Months
	Ended
	July 31, 2019
Volatility	48.96	%
Expected life (years)	6.0
Risk-free interest rate	2.36	%
Dividend yield	—	%

The weighted average grant date fair value of options granted during the three months ended July 31, 2019 was $8.84 per share. The expected volatility was based on historical and implied volatility. 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

The following table presents restricted stock unit activity for the three months ended July 31, 2020:

		Weighted
	Number of	Average
	Restricted	Exercise
	Stock Units	Price
	(shares in thousands)
Outstanding as of April 30, 2020	286	$	22.71
Granted	—		—
Vested	(14)		18.04
Forfeited	(22)		23.81
Outstanding as of July 31, 2020	250	$	22.87

As of July 31, 2020, there was $2.9 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 1.7 years.

Employee Stock Purchase Plan

The Company has an employee stock purchase plan (“ESPP”), the terms of which allow for qualified employees to participate in the purchase of shares of the Company’s common stock at a price equal to 90% of the lower of the closing price at the beginning or end of the purchase period, which is a six-month period ending on December 31 and June 30 of each year. During the three months ended July 31, 2020, 0.1 million shares of the Company’s common stock were purchased under the ESPP at a price of $22.13 per share. The Company recognized $0.2 million and $0.2 million of stock-based compensation expense during the three months ended July 31, 2020 and 2019, respectively, related to the ESPP.