Stock Based Compensation

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

On October 8, 2018, the Company’s board of directors adopted the “Magnolia Oil & Gas Corporation Long Term Incentive Plan” (the “Plan”), effective as of July 17, 2018. A total of 11.8 million shares of Class A Common Stock have been authorized for issuance under the Plan. The Company grants stock based compensation awards in the form of restricted stock units (“RSUs”) and performance stock units (“PSUs”) to eligible employees and directors to enhance the Company and its affiliates’ ability to attract, retain, and motivate persons who make important contributions to the Company and its affiliates by providing these individuals with equity ownership opportunities. Shares issued as a result of awards granted under the Plan are generally new shares of Class A Common Stock.

Stock based compensation expense is recognized net of forfeitures within “General and administrative expenses” on the consolidated statements of operations and was $2.9 million and $2.4 million for the three months ended March 31, 2020 and 2019, respectively. The Company has elected to account for forfeitures of awards granted under the Plan as they occur in determining compensation expense.

Restricted Stock Units

The Company grants service-based RSU awards to employees and non-employee directors, which generally vest ratably over a three-year service period, in the case of awards to employees, and vest in full after one year, in the case of awards to directors. RSUs represent the right to receive shares of Class A Common Stock at the end of the vesting period equal to the number of RSUs that vest. RSUs are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases to be an employee or director of the Company for any reason prior to vesting of the award. Compensation expense for the service-based RSU awards is based upon the grant date market value of the award and such costs are recorded on a straight-line basis over the requisite service period for each separately vesting portion of the award, as if the award was, in-substance, multiple awards. Unrecognized compensation expense related to unvested RSUs at March 31, 2020 was $13.6 million, which the Company expects to recognize over a weighted average period of 2.2 years.

The table below summarizes RSU activity for the three months ended March 31, 2020:



	Restricted Stock Units		Weighted Average Grant Date Fair Value
Unvested RSUs, beginning of period	1,099,901		$	12.97
Granted	686,345		7.45
Vested	(213,846	)	12.68
Forfeited	—		—
Unvested RSUs, end of period	1,572,400		$	10.60

Performance Stock Units

During the three months ended March 31, 2020, the Company granted PSUs to certain employees. Each PSU, to the extent earned, represents the contingent right to receive one share of Class A Common Stock and the awardee may earn between zero and 150% of the target number of PSUs granted based on the total shareholder return (“TSR”) of the Class A Common Stock relative to the TSR achieved by a specific industry peer group over a three-year performance period, the last day of which is also the vesting date. In addition to the TSR conditions, vesting of the PSUs is subject to the awardee’s continued employment through the date of settlement of the PSUs, which will occur within 60 days following the end of the performance period. Unrecognized compensation expense related to unvested PSUs at March 31, 2020 was $7.5 million, which the Company expects to recognize over a weighted average period of 2.0 years.

The table below summarizes PSU activity for the three months ended March 31, 2020:



	Performance Stock Units		Weighted Average Grant Date Fair Value
Unvested PSUs, beginning of period	701,128		$	14.31
Granted	401,958		6.14
Vested	(8,334	)	14.58
Forfeited	—		—
Unvested PSUs, end of period	1,094,752		$	11.31

The grant date fair value of the PSUs granted during the three months ended March 31, 2020 and 2019 was $2.5 million and $3.6 million, respectively, calculated using a Monte Carlo simulation. The following table summarizes the assumptions used to calculate the grant date fair value of these PSUs.



Grant Date Fair Value Assumptions	Three Months Ended March 31, 2020	Three Months Ended March 31, 2019
Expected term (in years)	2.85	2.85
Expected volatility	33.50%	33.61%
Risk-free interest rate	1.16%	2.48%