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Equity Transactions | 6 Months Ended
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Dec. 31, 2017
Equity Transactions |
Equity Transactions | 7. Equity Transactions On December 15, 2016 (the “Effective Date”), the Company’s stockholders approved the 2016 Incentive Award Plan (the “Plan”). The Plan is designed to attract, retain and motivate persons who make important contributions to the Company by providing such individuals with equity ownership opportunities. Awards granted under the Plan may include stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards. Under the Plan, the following types of shares go back into the pool of shares available for issuance:
| · |  | unissued shares related to forfeited or cancelled restricted stock and stock options from Plan awards and Prior Plan awards (that were outstanding as of the Effective Date) and;
| · |  | shares tendered to satisfy the tax withholding obligation related to the vesting of restricted stock (but not stock options).
Unlike the Company’s 2007 Equity Incentive Award Plan (the “Prior Plan”), the Plan has no evergreen provision to increase the shares available for issuance; any new shares would require stockholder approval. The Prior Plan was set to expire in October 2017; however, with the approval of the Plan, the Company will no longer award equity from the Prior Plan. As of December 31, 2017, the remaining aggregate number of shares of the Company’s common stock authorized for future issuance under the Plan was 3,899,933. As of December 31, 2017, there were 4,516,067 shares of the Company’s common stock that remain outstanding or nonvested under the Plan and Prior Plan. Stock Options Stock option activity including stand-alone agreements during the six months ended December 31, 2017 was as follows:
|  |  |  |  |  |  | Weighted |  |  |  |
|  |  |  | Weighted |  | Average |  |  |  |
|  |  |  | Average |  | Remaining |  | Aggregate |
|  |  |  | Exercise |  | Contractual |  | Intrinsic |
|  | Shares |  | Price |  | Life (Years) |  | Value |
Outstanding, June 30, 2017 |  | 1,356,528 |  | $ | 20.19 |  | 4.46 |  | $ | 1,481,585 |
Granted |  | — |  |  | — |  |  |  |  |  |
Exercised |  | (3,350) |  |  | 17.46 |  |  |  |  |  |
Forfeited or canceled |  | (49,077) |  |  | 24.67 |  |  |  |  |  |
Outstanding, December 31, 2017 |  | 1,304,101 |  |  | 20.03 |  | 3.83 |  |  | 734,842 |
Stock options exercisable at December 31, 2017 |  | 1,112,239 |  | $ | 20.93 |  | 3.58 |  | $ | 399,633 |
The aggregate intrinsic value of options exercised during the six months ended December 31, 2017 and 2016 was not material and $0.1 million, respectively. As of December 31, 2017, there was $1.2 million of total unrecognized compensation expense related to nonvested stock options granted. The cost is expected to be recognized over a weighted average period of 1.3 years. During the three months ended December 31, 2017 and 2016, the Company recognized $0.4 million and $0.5 million, respectively, of stock-based compensation expense related to stock options. During the six months ended December 31, 2017 and 2016, the expense was $0.8 million and $1.1 million, respectively. Restricted Stock Awards Restricted stock award activity during the six months ended December 31, 2017 was as follows:
|  |  |  | Weighted- |
|  |  |  | Average |
|  |  |  | Grant-Date |
|  | Shares |  | Fair Value |
Nonvested, June 30, 2017 |  | 2,141,047 |  | $ | 12.34 |
Granted |  | 956,312 |  |  | 17.49 |
Vested |  | (735,825) |  |  | 13.30 |
Canceled |  | (157,724) |  |  | 13.53 |
Nonvested, December 31, 2017 |  | 2,203,810 |  | $ | 14.17 |
Performance Based Restricted Stock Awards (included above) During the six months ended December 31, 2017, 398,442 new performance based restricted stock awards were granted and 610,633 remain nonvested at December 31, 2017. During the six months ended December 31, 2017, 209,940 performance-based restricted stock awards vested. Vesting of the performance-based restricted stock awards is contingent on the achievement of certain financial performance goals and service vesting conditions. Included above are 34,760 performance based restricted stock awards that were granted to Company executives with a weighted average grant date fair value of $17.70 per share. These awards were granted pursuant to the Plan and are subject to the achievement of a target free cash flow metric in fiscal 2018 and will be adjusted upwards or downwards based on the Company’s relative total shareholder return for fiscal 2018 ranked against other companies in the Russell 2000 Index. If the performance goals are achieved, 20% of the shares granted vest immediately, and the remaining 80% vest ratably in semi-annual intervals until the three year anniversary from grant date. Equity Incentive Market Based Restricted Stock Awards (included above) During fiscal year 2017, the Company granted equity incentive market based restricted stock awards which were subject to the attainment of an average stock price of $14.35 for 30 consecutive days after the date of the Company’s earnings release for the fourth quarter and fiscal year ended June 30, 2017. During the six months ended December 31, 2017, 10,000 of these equity incentive market based awards vested. Additionally, during fiscal year 2017, the Company granted equity incentive market based awards which were subject to the attainment of average prices of $13, $16 and $19 per share. These targets were achieved during fiscal year 2017. During the six months ended December 31, 2017, 91,732 of these equity incentive market based awards vested. As of December 31, 2017, 205,343 equity incentive market based restricted stock awards remain nonvested. Service-Based Restricted Stock Awards (included above) During the six months ended December 31, 2017, 557,870 new service-based restricted stock awards were granted and 1,387,834 remain nonvested at December 31, 2017. During the six months ended December 31, 2017, 424,153 service-based restricted stock awards vested. Summary of All Restricted Stock Awards As of December 31, 2017, there was $22.0 million of total unrecognized compensation expense related to nonvested restricted stock awards. The cost is expected to be recognized over a weighted average period of 1.6 years. The fair value of restricted stock awards granted for the six months ended December 31, 2017 and 2016 was $16.7 million and $13.3 million, respectively. The total fair value of shares vested for the six months ended December 31, 2017 and 2016 was $12.9 million and $6.0 million, respectively. During the three months ended December 31, 2017 and 2016, the Company recognized $3.9 million and $4.2 million, respectively, of stock-based compensation expense related to restricted stock awards. During the six months ended December 31, 2017 and 2016, the expense was $7.8 million and $8.2 million, respectively. Performance Share Units (“PSU”) The PSUs vest upon achievement of certain performance criteria associated with a Board-approved Long Term Incentive Plan (“LTIP”) and continuation of employee service over a two to three year period. The level of performance will determine the number of PSUs earned as measured against threshold, target and stretch achievement levels of the LTIP. Each PSU represents the right to receive one share of the Company’s common stock, or at the option of the Company, an equivalent amount of cash, and is classified as an equity award in accordance with ASC 718. In addition to the LTIP performance conditions, there is a service vesting condition which stipulates that thirty percent of the earned award (“Tranche #1”) will vest quarterly beginning November 15, 2017 and seventy percent of the earned award (“Tranche #2”) will vest on August 15, 2018, in both cases dependent upon continuing service by the grantee as an employee of the Company, unless the grantee is eligible for earlier vesting upon a change in control and qualifying termination, as defined by the PSU agreement. For equity performance awards, including the PSUs, subject to graduated vesting schedules for which vesting is based on achievement of a performance metric in addition to grantee service, stock-based compensation expense is recognized on an accelerated basis by treating each vesting tranche as if it was a separate grant. For the year ended June 30, 2017, the Company determined the achievement of the performance condition was probable on Tranche #1. Achievement was believed to be probable at the highest level which equals 150% of the target award. Therefore, during the fourth quarter of fiscal 2017, the Company recorded $3.8 million of expense for the period of grant date (September 2015) through June 2017. On August 2, 2017, the Compensation Committee of the Company’s Board of Directors certified that as of August 1, 2017, 97% of the MPS schools were not in academic jeopardy, as determined by the independent members of the Academic Committee of the Board of Directors on that date, and that the Academic Metric for Tranche #1 of the LTIP was achieved at the Outperform level. This resulted in 446,221 PSUs (including 138,241 additional PSUs due to the Outperform level) earned by the participants, consisting of 90,000 PSUs for Mr. Davis and 70,021 PSUs for Mr. Udell. During the three months ended December 31, 2017, the Company determined the achievement of the performance conditions was probable on a portion of Tranche #2. Tranche #2 is comprised of two performance measures, an academic measure (similar to Tranche #1) and a lifetime value measure. The Company believes that achievement is probable only as it relates to the academic measure and is currently expected to meet the threshold level. Therefore, during the second quarter of fiscal 2018, the Company recorded $2.5 million of expense for the period of grant date (September 2015) through December 2017. For the six months ended December 31, 2017, the Company determined the achievement of the performance conditions associated with the lifetime value measure of Tranche #2 was not probable and therefore no expense was recorded. As of December 31, 2017, there was $3.5 million of total unrecognized compensation expense related to the lifetime value measure of Tranche #2 assuming achievement at the target level. Additionally, if actual performance exceeds the target criteria for all of Tranche #2, then additional expense of $5.6 million of expense would be incurred. As of December 31, 2017, there was $1.4 million of total unrecognized compensation expense related to nonvested PSUs for Tranches #1 and #2. During the three months ended December 31, 2017 and 2016, the Company recognized $3.0 million and zero, respectively, of stock-based compensation expense related to PSUs. During the six months ended December 31, 2017 and 2016, the expense was $3.5 million and zero, respectively. Performance share unit activity during the six months ended December 31, 2017 was as follows:
|  |  |  | Weighted-
|  |  |  | Average
|  |  |  | Grant-Date
|  | Shares |  | Fair Value
Nonvested, June 30, 2017 |  | 1,043,602 |  | $ | 13.16
Granted |  | 138,241 |  |  | 18.07
Vested |  | (103,687) |  |  | 12.81
Canceled |  | (70,000) |  |  | 13.45
Nonvested, December 31, 2017 |  | 1,008,156 |  | $ | 13.66

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