20. Equity-based Compensation Plans

The following table summarizes the equity-based compensation that has been included in the following line items within the consolidated statements of operations during:


	Year Ended December 31,
($ in thousands)	2016		2015		2014
Equity-based compensation expense:
Costs applicable to revenue	$	90	$	—	$	—
Selling, general, and administrative		1,507		—		—
Total equity-based compensation expense	$	1,597	$	—	$	—
Total income tax benefit recognized related to equity-based compensation	$	—	$	—	$	—

CWGS Enterprises, LLC Equity Incentive Plan

In 2012, CWGS, LLC entered into the CWGS Enterprises, LLC Equity Incentive Plan (the “CWGS LLC Plan”), as defined in CWGS, LLC’s Limited Liability Agreement, with certain employees and directors of the Company, who, in the judgment of the Company, had played a meaningful role in enhancing the value of CWGS, LLC. Such employees and directors had been granted awards (“Profits Units”) under the CWGS LLC Plan which entitled them to receive, in aggregate, up to 10% of the increase in the value of the Company above certain thresholds, if any, realized in such sale of CWGS, LLC or other liquidity event. CWGS, LLC began making grants of these Profits Units pursuant to the CWGS LLC Plan effective for the year ended December 31, 2012. Generally, so long as the Unit holder is employed or remains a member of the board of managers of the Company, these Profits Units vest over time (generally a four‑year period), but do not become exercisable or fully vested until a liquidity event occurs. All unvested Profits Units become exercisable and fully vested upon a liquidity event. Any unvested Profits Units are forfeited if the Unit holder ceases to be an employee of the Company or remain on the board of managers of the Company.

As of December 31, 2015, there were 15,556 Profits Units authorized, issued and outstanding pursuant to the CWGS LLC Plan. During the years ended December 31, 2015 and 2014, no equity-based compensation expense was recorded relating to the Profits Units because the Company determined, as of each period end, it was not probable that a sale of CWGS, LLC or other liquidity event would occur.

On April 4, 2016, CWGS, LLC's board of directors approved a Profits Units redemption by Mr. Lemonis in the amount of 1,763 Profits Units for $17.0 million. CWGS, LLC remitted the proceeds to Mr. Lemonis through a cash distribution in the amount of $13.0 million and a $4.0 million note. The note bore interest at 3.00% per annum and had scheduled principal amortization of (i) $1.5 million, plus all accrued and unpaid interest on May 1, 2016, (ii) $1.5 million, plus all accrued and unpaid interest on June 1, 2016 and (iii) all outstanding principal, plus all accrued and unpaid interest on July 1, 2016. The largest aggregate amount of principal outstanding since the note was issued on April 4, 2016 was $4.0 million and the Company paid $6,250 of interest on the note prior to its repayment in full in April 2016. The Company recorded an equity-based compensation charge of $60,000 relating to this redemption during the year ended December 31, 2016 based on the grant date fair value.

On October 6, 2016, in connection with the Company’s IPO, the remaining 13,793 outstanding Profits Units fully vested and converted to 5,877,513 common units of CWGS, LLC. These common units are exchangeable for shares of the Company’s Class A common stock on a one-to-one basis. The Company recorded an equity-based compensation charge of $889,000 relating to this conversion during the year ended December 31, 2016 based on the grant date fair value.

The weighted-average grant date fair value of Profits Units granted during the year ended December 31, 2015 was $317 per unit. No Profits Units were granted during the years ended December 31, 2016 and 2014. As of December 31, 2016, there were no Profits Units outstanding and no further Profits Units were available for grant under the CWGS LLC Plan.

2016 Incentive Award Plan

In October 2016, the Company adopted the 2016 Incentive Award Plan (the “2016 Plan”) under which the Company may grant up to 14,693,518 stock options, restricted stock units, and other types of equity-based awards to employees, consultants or non-employee directors of the Company. The Company does not intend to use cash to settle any of its equity-based awards. Upon the exercise of a stock option award, the vesting of a restricted stock unit or the award of common stock or restricted stock, shares of Class A common stock are issued from authorized but unissued shares. Stock options and restricted stock units granted to employees vest in equal annual installments over a four-year period and are canceled upon termination of employment. Stock options are granted with an exercise price equal to the fair market value of the Company’s Class A common stock on the date of grant. Stock option grants expire after ten years unless canceled earlier due to termination of employment. Restricted stock units granted to non-employee directors vest in equal annual installments over a three-year period subject to voluntary deferral elections made at the time of grant.

The fair value of the stock option awards was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions for the year ended December, 31:


	2016
Expected term (years) (1)	6.3
Expected volatility (2)	36.1	%
Risk-free interest rate (3)	1.5	%
Dividend yield (4)	1.1	%

(1)

Expected term represents the estimated period of time until an award is exercised and was determined using the simplified method.

(2)

Expected volatility is based on the historical volatility of a selected peer group over a period equivalent to the expected term.

(3)

The risk-free rate is an interpolation of yields on U.S. Treasury securities with maturities equivalent to the expected term.

(4)

The dividend yield was based on the Company’s expectation at the time of grant to declare quarterly dividends of $0.06 per share.

A summary of stock option activity for the year ended December 31, 2016 is as follows:


							Weighted Average
					Aggregate		Remaining
	Stock Options		Weighted Average		Intrinsic Value		Contractual Life
	(in thousands)		Exercise Price		(in thousands)		(years)
Outstanding at December 31, 2015		—
Granted		1,133	$	21.86
Exercised		—
Forfeited		(15)	$	22.00
Cancelled		—
Outstanding at December 31, 2016		1,118	$	21.86	$	11,995		9.8
Options exercisable at December 31, 2016		—

The weighted-average grant date fair value of stock options granted during the year ended December 31, 2016 was $7.24. The Company did not grant any stock options during the years ended December 31, 2015 and 2014. There were no exercises of stock options during the years ended December 31, 2016, 2015, and 2014. At December 31, 2016, total unrecognized compensation cost related to unvested stock options was $7.6 million and is expected to be recognized over a weighted-average period of 3.8 years.

A summary of restricted stock unit activity for the year ended December 31, 2016 is as follows:


	Restricted		Weighted Average
	Stock Units		Grant Date
	(in thousands)		Fair Value
Outstanding at December 31, 2015		—
Granted		145	$	21.37
Exercised		—
Forfeited		(1)	$	21.40
Cancelled		—
Outstanding at December 31, 2016		144	$	21.37

The weighted-average grant date fair value of restricted stock units granted during the year ended December 31, 2016 was $21.37. The Company did not grant any restricted stock units during the years ended December 31, 2015 and 2014. There were no restricted stock units that vested during the years ended December 31, 2016, 2015, and 2014. At December 31, 2016, the intrinsic value of unvested restricted stock units was $4.7 million. At December 31, 2016, total unrecognized compensation cost related to unvested restricted stock units was $2.9 million and is expected to be recognized over a weighted-average period of 3.6 years.