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EQUITY-BASED COMPENSATION | 6 Months Ended
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Jun. 30, 2017
EQUITY-BASED COMPENSATION |
EQUITY-BASED COMPENSATION | 8. EQUITY‑BASED COMPENSATION Partnership Units Prior to the Company’s restructuring and IPO, the business operated as a partnership and its ownership structure was comprised of common partners (principally outside investors) holding units. The common partners contributed capital to the partnership and were not subject to vesting. Units granted to Managing Directors upon joining the Company and as part of annual incentive compensation generally vested based on service over five to eight years. Certain non‑Managing Director employees were granted units as part of their incentive arrangements and these units generally vest based on service ratably over four years. In connection with the Company’s restructuring and IPO, substantially all of the Managing Director partner equity subject to vesting had been accelerated. Units granted to non‑Managing Director employees were not accelerated in connection with the Company’s restructuring and IPO and continue to vest based on the original terms of the grant. In connection with the reorganization and IPO, Group LP issued Class A partnership units to Moelis & Company and to certain existing unit holders. Following the reorganization, a Group LP Class A partnership unit (not held by Moelis & Company or its subsidiaries) is exchangeable into one share of Moelis & Company Class A common stock and represents the Company’s noncontrolling interests. As of June 30, 2017, partners held 28,286,746 Group LP partnership units, 459,656 of which were unvested and will continue to vest over their service life. In relation to the vesting of units, the Company recognized compensation expenses of $511 and $736 for the three months ended June 30, 2017 and 2016, respectively, and expenses of $1,199 and $1,633 for the six months ended June 30, 2017 and 2016, respectively. As of June 30, 2017, there was $2,311 of unrecognized compensation expense related to unvested Class A partnership units which is expected to be recognized over a weighted-average period of 1.2 years, using the graded vesting method. 2014 Omnibus Incentive Plan In connection with the IPO, the Company adopted the Moelis & Company 2014 Omnibus Incentive Plan (the “Plan”) to provide additional incentives to selected officers, employees, Managing Directors, non‑employee directors, independent contractors, partners, senior advisors and consultants. The Plan provides for the issuance of incentive stock options (“ISOs”), nonqualified stock options, stock appreciation rights (“SARs”), restricted stock, RSUs, stock bonuses, other stock‑based awards and cash awards. In the first quarter of 2015, the Board of Directors authorized the repurchase of up to $25 million of shares of Class A common stock of the Company and/or Class A partnership units of Group LP with no expiration date. Under this share repurchase program, shares may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual number of shares repurchased will be opportunistic and measured in nature and will depend on a variety of factors, including price and market conditions. As of June 30, 2017, approximately $20 million of shares may yet be purchased under the program. Restricted Stock and Restricted Stock Units (RSUs) Pursuant to the Plan and in connection with the Company’s annual compensation process and ongoing hiring process, the Company issues RSUs which generally vest over a service life of four to five years. For the three months ended June 30, 2017 and 2016, the Company recognized expense of $22,727 and $19,942, respectively, and expenses of $47,190 and $34,795 for the six months ended June 30, 2017 and 2016, respectively, in relation to the vesting of RSUs. The following table summarizes activity related to restricted stock and RSUs for the six months ended June 30, 2017 and 2016.
|  | Restricted Stock & RSUs
|  | 2017 |  | 2016 |
|  |  |  | Weighted |  |  |  | Weighted |
|  |  |  | Average |  |  |  | Average |
|  | Number of |  | Grant Date |  | Number of |  | Grant Date |
|  | Shares |  | Fair Value |  | Shares |  | Fair Value |
Unvested Balance at January 1, |  | 8,504,190 |  | $ | 26.70 |  | 5,123,481 |  | $ | 28.67 |
Granted |  | 3,027,744 |  |  | 37.05 |  | 3,561,401 |  |  | 24.07 |
Forfeited |  | (61,633) |  |  | 29.99 |  | (33,559) |  |  | 26.95 |
Vested |  | (2,035,782) |  |  | 26.73 |  | (472,954) |  |  | 28.07 |
Unvested Balance at June 30, |  | 9,434,519 |  | $ | 29.89 |  | 8,178,369 |  | $ | 26.86 |
As of June 30, 2017, the total compensation expense related to unvested restricted stock and RSUs not yet recognized was $137,792. The weighted-average period over which this compensation expense is expected to be recognized at June 30, 2017 is 1.9 years. Beginning in January of 2017, the Company accounts for forfeitures as they occur per the guidance in ASU 2016-09. See Note 2 for further discussion on this change in accounting policy. Stock Options Pursuant to the Plan, the Company issued 3,501,881 stock options in 2014 which vest over a five‑year period. The Company estimated the fair value of stock option awards at grant using the Black‑Scholes valuation model with the following assumptions:
|  | Assumptions |
Expected life (in years) |  |  | 6 |
Weighted-average risk free interest rate |  |  | 1.91 | %
Expected volatility |  |  | 35 | %
Dividend yield |  |  | 2.72 | %
Weighted-average fair value at grant date |  | $ | 6.70 |
The Company paid special dividends of $4.05, in aggregate, through June 30, 2017. As required under Section 5 of the Company’s 2014 Omnibus Incentive Plan, the Compensation Committee of the Company’s Board of Directors equitably reduced the exercise price of the Company’s outstanding options to purchase common stock by $4.05 from $25.00 per share to $20.95 per share. The following table summarizes activity related to stock options for the six months ended June 30, 2017 and 2016.
|  | Stock Options Outstanding
|  | 2017 |  | 2016 |
|  |  |  | Weighted |  |  |  | Weighted |
|  |  |  | Average |  |  |  | Average |
|  | Number |  | Exercise Price |  | Number |  | Exercise Price |
|  | Outstanding |  | Per Share |  | Outstanding |  | Per Share |
Outstanding at January 1, |  | 2,822,728 |  | $ | 20.95 |  | 3,081,203 |  | $ | 20.95 |
Grants |  | — |  |  | — |  | — |  |  | — |
Exercises |  | (243,077) |  |  | 20.95 |  | — |  |  | — |
Forfeitures or expirations |  | (72,000) |  |  | 20.95 |  | (124,000) |  |  | 20.95 |
Outstanding at June 30, |  | 2,507,651 |  | $ | 20.95 |  | 2,957,203 |  | $ | 20.95 |
For the three months ended June 30, 2017 and 2016, the Company recognized expenses of $588 and $1,335, respectively, and expenses of $1,340 and $2,278 for the six months ended June 30, 2017 and 2016, respectively, in relation to these stock options. As of June 30, 2017, the total compensation expense related to unvested stock options not yet recognized was $4,430. The weighted-average period over which this compensation expense is expected to be recognized at June 30, 2017 is 1.6 years. Beginning in January of 2017, the Company accounts for forfeitures as they occur per the guidance in ASU 2016-09. See Note 2 for further discussion on this change in accounting policy.

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