Stock Compensation Plans and Share-Based Compensation Awards

3 Months Ended

Mar. 31, 2020

Stock Compensation Plans and Share-Based Compensation Awards

Stock Compensation Plans and Share-Based Compensation Awards

(20) Stock Compensation Plans and Share-Based Compensation Awards

The Company provides share-based compensation awards to its employees under the 2018 Omnibus Equity Incentive Plan (the “2018 Plan”), which the Company adopted in conjunction with its IPO. The 2018 Plan became effective on May 22, 2018. As of the effective date of the 2018 Plan, a total of 7,792,162 shares of the Company’s Class A common stock were reserved for issuance. The 2018 Plan provides for accelerated vesting under certain conditions.

The following table summarizes share-based compensation expense, and the related income tax benefit recognized for share-based compensation awards. Share-based compensation expense is presented within selling, general, and administrative expenses within the unaudited condensed consolidated statements of operations and comprehensive loss:

	Three Months Ended March 31,
	2020		2019
	(In thousands)
Share-based compensation expense	$	3,585	$	1,845
Income tax benefit	$	(407)	$	(139)

Unit appreciation rights/Restricted stock awards

The Company assumed EVO, LLC’s obligations under the EVO, LLC Unit Appreciation Rights Plan (“UAR Plan”) and converted all of the outstanding UARs held by members of management and current and former employees at the consummation of the IPO to restricted Class A common stock (“RSAs”). In connection with the Company’s assumption of EVO, LLC’s obligation under the UAR Plan and the issuance of the RSAs, on the IPO date, the Company recorded share-based compensation expense based on the modification date fair value of the RSAs of $16.00 per share. The Company recognized share-based compensation expense related to RSAs of less than $0.1 million and $0.1 million, respectively, for the three months ended March 31, 2020 and 2019. Prior to the consummation of the IPO, no liquidity event was probable and, as such, no share-based compensation expense had been recognized for these awards. On the modification date, there were 35 members of management and current and former employees who held UARs.  

A summary of RSAs activity is as follows (in thousands, except per share data):

	Number of RSAs	Weighted-average grant date fair value
Balance at December 31, 2019	8	$	16.00
Granted	—		—
Vested	(3)		16.00
Forfeited	—		—
Balance at March 31, 2020	5	$	16.00

As of March 31, 2020 and 2019, total unrecognized share-based compensation expense related to outstanding RSAs was less than $0.1 million and $0.2 million. The total fair value of shares vested during the three months ended March 31, 2020 and 2019, was less than $0.1 million and $0.2 million, respectively.

Restricted stock units

The Company recognized share-based compensation expense for RSUs granted of $1.7 million and $0.7 million, respectively, for the three months ended March 31, 2020 and 2019.

A summary of RSUs activity is as follows (in thousands, except per share data):

	Number of RSUs	Weighted-average grant date fair value
Balance at December 31, 2019	876	$	22.30
Granted	601		23.22
Vested	(124)		26.01
Forfeited	(8)		22.41
Balance at March 31, 2020	1,345	$	22.37

As of March 31, 2020 and 2019, total unrecognized share-based compensation expense related to outstanding RSUs was $27.7 million and $18.3 million. RSUs settle in Class A common stock. RSUs granted in connection with the Company’s annual long-term incentive plan and ordinary course sign-on awards vest in equal annual vesting installments over a period of four years from the grant date. RSUs granted as part of a special, one-time grant on March 29, 2020 will cliff-vest upon the second anniversary of the grant date. The weighted-average remaining vesting period over which expense will be recognized for unvested RSUs is 3.0 years as of March 31, 2020 and 3.4 years as of March 31, 2019. The total fair value of shares vested during the three months ended March 31, 2020 was $3.2 million. No RSUs vested during the three months ended March 31, 2019.

Stock options

The Company recognized share-based compensation expense for the stock options granted of $1.9 million and $1.0 million, for the three months ended March 31, 2020 and 2019.

A summary of stock option activity is as follows (in thousands, except per share and term data):

	Number of Options	Weighted-average grant date fair value		Weighted-average exercise price		Weighted-average remaining contractual term		Total Intrinsic Value
Balance at December 31, 2019	3,369	$	7.90	$	20.46		8.77	$	20,312
Granted	2,405		6.82		20.81
Exercised	(1)		6.68		16.00				9
Forfeited	(28)		8.08		21.36
Balance at March 31, 2020	5,745	$	7.45	$	20.60		9.21	$	1,294
Exercisable at March 31, 2020	751	$	7.83	$	20.15		8.47	$	—

As of March 31, 2020 and 2019, total unrecognized share-based compensation expense related to unvested stock options was $33.4 million and $22.9 million. The weighted-average remaining vesting period over which expense will be recognized for unvested stock options is 2.6 years in 2020 and 3.5 years in 2019. Stock options granted in connection with the Company’s annual long-term incentive plan and ordinary course sign-on awards vest in equal annual installments over a period of four years from grant date. Stock options granted as part of a special, one-time grant on March 29, 2020 will cliff-vest upon the first anniversary of the grant date. Stock options expire no later than 10 years from the date of grant. For the purpose of calculating share-based compensation expense, the fair value of the stock option grants was determined through the application of the Black-Scholes model with the following assumptions:

	Three Months Ended March 31,
	2020		2019
Expected life (in years)		7.00		7.00
Weighted-average risk-free interest rate		0.9%		2.5%
Expected volatility		30.2%		29.0%
Dividend yield		0.0%		0.0%
Weighted-average fair value at grant date	$	6.82	$	9.43

The risk-free interest rate is based on the yield of a zero coupon United States Treasury security with a maturity equal to the expected life of the stock option from the date of the grant. The assumption for expected volatility is based on the historical volatility of a peer group of market participants as the Company has limited historical volatility. It is the Company’s intent to retain all profits for the operations of the business for the foreseeable future, as such the dividend yield assumption is zero. The Company applies the simplified method in determining the expected life of the stock options as the Company has limited historical basis upon which to determine historical exercise periods. The Company’s assumption of the expected life is determined based on the general grant vesting period plus half of the remaining life through expiration. All stock options exercised will be settled in Class A common stock.