Stock-Based Compensation

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

The Company has a 2017 Stock Incentive Plan ("the 2017 SIP") that provides for granting of stock options, restricted stock units and other equity awards. The 2017 SIP authorizes 3,636,000 shares of common stock for issuance. The 2017 SIP is designed to motivate and retain individuals who are responsible for the attainment of the Company's primary long-term performance goals. Options and restricted stock units awarded under the 2017 SIP plan normally vest over four year service periods.

The Company utilizes the Black-Scholes option-pricing model to estimate the grant-date fair value of all stock options granted during the years ended December 31, 2019 and 2018. The Black-Scholes option-pricing model requires the use of weighted average assumptions for estimated expected volatility, estimated expected term of stock options, risk-free rate, estimated expected dividend yield, and the fair value of the underlying common stock at the date of grant. Due to the recent date of the IPO, the Company does not have sufficient history to estimate the expected volatility of its common stock price. Thus, expected volatility has been based on the average volatility of peer public entities that are similar in size and industry. The Company estimates the expected term of all stock options based on the simplified method. The risk-free rate is 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 is 0.0% as the Company has not declared any common stock dividends to date and does 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 common stock at the date of grant. Forfeitures are recorded when incurred. The weighted average assumptions used in the Black-Scholes option-pricing model for the years ended December 31, 2019 and 2018, are set forth below:



	Year Ended December 31, 2019			Year Ended December 31, 2018
Expected term (in years)	6.25			6.25
Expected volatility	42.2		%	44.8		%
Risk-free interest rate	2.5		%	2.8		%
Expected dividend	—			—
Weighted average fair value at grant date	$	4.28		$	7.30

During the years ended December 31, 2019 and 2018, the Company granted 723,951 and 340,558 stock options, respectively, to employees that vest based on service only. All of these awards vest over a four-year period. The Company did not issue any stock options prior to its IPO in February 2017.

Information related to the stock options granted during the years ended December 31, 2019 and 2018 is as follows:



	2017 Stock Incentive Plan
	Options		Weighted Average Exercise Price		Aggregate Intrinsic Value
					(in thousands)
Outstanding at December 31, 2017	224,355		$	14.01	$	189
Options exercisable at December 31, 2017	—		$	—
Options granted	340,558		15.39
Options exercised	(1,641	)	11.27
Options canceled/forfeited	(29,689	)	14.77
Outstanding at December 31, 2018	533,583		$	14.86	$	—
Options exercisable at December 31, 2018	53,497		$	14.09
Options granted	723,951		9.55		—
Options exercised	(11,438	)	14.08		63
Options canceled/forfeited	(14,871	)	12.92		4
Outstanding at December 31, 2019	1,231,225		$	11.76	$	9,341
Vested and expected to vest at December 31, 2019	1,231,225		$	11.76	$	9,341
Options exercisable at December 31, 2019	170,139		$	14.68	$	795

A summary of the Company’s non‑vested stock options for the years ended December 31, 2019 and 2018 is as follows:



Non-vested Options	Options		Weighted Average Grant Date Fair Value
December 31, 2017	224,355		$	7.02
Granted	340,558		7.30
Vested	(55,919	)	7.02
Canceled/forfeited	(28,908	)	7.20
December 31, 2018	480,086		$	7.21
Granted	723,951		4.28
Vested	(131,696	)	7.21
Canceled/forfeited	(11,255	)	5.32
December 31, 2019	1,061,086		$	5.23

During the years ended December 31, 2019 and 2018, the Company recorded stock-based compensation expense related to stock options of $1.6 million and $0.8 million, respectively.

As of December 31, 2019, there was approximately $4.1 million of total unrecognized compensation cost related to non‑vested stock options granted under the 2017 SIP. That cost is expected to be recognized over a weighted average period of approximately 2.7 years.

The following tabulation summarizes certain information about outstanding and exercisable stock options at December 31, 2019:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	December 31, 2019	Weighted Average Remaining Contractual Life in Years	Weighted Average Exercise Price		December 31, 2019	Weighted Average Exercise Price
$9.00 - $12.99	713,922	9.1	$	9.45	27	$	11.27
$13.00 - $14.99	187,324	7.1	14.00		90,610	14.00
$15.00 - $18.99	329,979	8.2	15.50		79,502	15.45
	1,231,225	8.6	$	11.76	170,139	$	14.68

The following table summarizes all unvested restricted stock unit activity for the years ended December 31, 2019 and 2018:



	Restricted Stock Units Outstanding		Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2017	128,815		$	14.18
Granted	286,808		15.16
Vested	(50,355	)	14.55
Canceled/forfeited	(15,754	)	14.82
Unvested balance at December 31, 2018	349,514		$	14.90
Granted	517,611		9.65
Vested	(100,779	)	15.06
Canceled/forfeited	(12,048	)	12.52
Unvested balance at December 31, 2019	754,298		$	11.31

The intrinsic value of all outstanding restricted stock units at December 31, 2019 and December 31, 2018 was $14.7 million and $5.2 million, respectively.

During the years ended December 31, 2019 and 2018, the Company recorded stock-based compensation expense related to restricted stock units of $2.6 million and $1.5 million, respectively.

As of December 31, 2019, there was $6.2 million of total unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted average period of 2.7 years.

The following table summarizes the amounts recognized in the consolidated financial statements for the year ended December 31, 2019 for total stock-based compensation expense (in thousands):



	Year Ended December 31, 2019
Total stock-based compensation expense	$	4,187
Income tax benefit recognized in earnings	(917		)
Total stock-based compensation expense, net of tax	$	3,270

Long-Term Incentive Plan

Following the acquisition of the Company's business by Lone Star, Lone Star implemented the LSF9 Cypress Parent LLC ("Parent") Long-Term Incentive Plan (the "LTIP"). Under the LTIP, participants were granted pool units entitling them, subject to the terms of the LTIP, to a potential cash payout upon a monetization event. The LTIP was effective October 9, 2015. The LTIP was assigned from Parent to the Company in connection with the IPO.

The LTIP was established with the purpose of attracting certain key employees and other service providers of the Company and its subsidiaries and to provide motivation to put forth maximum efforts toward the continued growth, profitability and success of the Company by providing incentives.

The Board of the Company administers the LTIP and awards pool units. Pool units vest 10% each year for the first three years. Pool units, whether vested or unvested, that are outstanding on the 5th anniversary of the date the award was granted will be forfeited on that date or, upon the date the participant ceases employment. Pool units will remain outstanding for a period of six months from the date of such termination if the termination is without cause, a resignation for good reason, due to death or due to disability. Total pool units available for grant under the LTIP is 1,000,000. At December 31, 2019 and December 31, 2018, there were 860,000 and 867,000 pool units outstanding, respectively.

The Company maintains an incentive pool account and upon a monetization event and obtaining a cumulative internal rate of return of at least 15%, the Company will credit to the incentive pool account amounts as defined in the LTIP and determined by the cumulative internal rate of return achieved at the time of the monetization event. A monetization event, as defined by the LTIP, is one of the following transactions: (a) the Company is sold, transferred or otherwise disposed of to an unrelated third party for cash; (b) a firm commitment underwritten public offering of the equity interests of the Company; or (c) the payment by the Company of any cash distributions to investors. Following a monetization event, the value of any incentive amount to be paid to a participant will be determined by the percentage of a participant’s pool units awarded to the total pool units awarded under the LTIP times the amount in the incentive pool account. If the required cumulative internal rate of return has been reached, participants will be paid within 60 days following the monetization event.

As of December 31, 2019, there were monetization events including the secondary offering, as discussed in Note 1, Description of Company and Basis of Presentation and a tax receivable agreement ("TRA") payment, as discussed in Note 19, Tax Receivable Agreement. However, the cumulative internal rate of return of at least 15% was not reached; therefore, no amounts were accrued in the accompanying consolidated balance sheets and no expense has been recognized for the LTIP. On February 15, 2017, the Company completed the IPO; however, the IPO was not a monetization event and no payout was triggered under the LTIP.