Equity-Based Compensation

12 Months Ended

Sep. 30, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

EQUITY-BASED COMPENSATION

A summary of equity-based compensation expense recognized during the years ended September 30, 2019, 2018 and 2017 is as follows:


	Year ended September 30,
	2019		2018		2017
TRA non-participation compensatory shares	$	—	$	741	$	—
Stock options	6,124		826		—
Equity-based compensation expense	$	6,124	$	1,567	$	—

Amounts are included in general and administrative expense on the consolidated statements of operations. Income tax benefits of 160 were recognized related to equity-based compensation during the year ended September 30, 2019. No income tax benefits were recognized related to equity-based compensation during the years ended September 30, 2018, and 2017.

TRA Non-Participation Compensatory Shares

On June 25, 2018, the Company entered into the Tax Receivable Agreement as described in Note 10. The Former Equity Owners did not participate in the Tax Receivable Agreement. Therefore, as part of the Reorganization Transactions, the Class B common units held by the Former Equity Owners were converted into shares of Class A common stock based on a conversion ratio that provided an equitable adjustment to reflect the full value of the Class B common units. For employees who are Former Equity Owners, this arrangement was a modification under ASC 718. The Company recognized stock-based compensation expense of $741 as part of the Reorganization Transactions as a result of this conversion.

Stock Options

In May 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) under which the Company may grant up to 3,500,000 stock options and other equity-based awards to employees, directors and officers. The number of shares of Class A common stock available for issuance under the 2018 Plan includes an annual increase on the first day of each year, beginning with the 2019 calendar year, equal to 4.0% of the outstanding shares of all classes of the Company's common stock as of the last day of the immediately preceding calendar year, unless the Company’s board of directors determines prior to the last trading day of December of the immediately preceding calendar year that the increase shall be less than 4%. As of September 30, 2019, there were 4,552,873 options available to grant under the 2018 Plan.

In connection with the IPO, the Company granted 2,045,000 stock options to its directors and certain employees. The stock options were granted with an exercise price of $13.00 per share and vest ratably over a three-year period.

The fair value of stock option awards during the year ended September 30, 2019 and from June 20, 2018 through September 30, 2018 was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions:


	September 30, 2019		September 30, 2018
Expected volatility⁽¹⁾	26.7	%	26.2	%
Expected dividend yield⁽²⁾	—	%	—	%
Expected term⁽³⁾	6 years		6 years
Risk-free interest rate⁽⁴⁾	2.5	%	2.8	%

_________________

1.Expected volatility is based on the historical volatility of a selected peer group over a period equivalent to the expected term.

2.The Company has assumed a dividend yield of zero as management has no plans to declare dividends in the foreseeable future.

3.Expected term represents the estimated period of time until an award is exercised and was determined using the simplified method.

4.The risk-free rate is an interpolation of yields on U.S. Treasury securities with maturities equivalent to the expected term.

A summary of stock option activity for the year ended September 30, 2019 is as follows:


	Stock Options	Weighted Average Exercise Price
Outstanding at beginning of period	2,138,500	$	13.13
Granted	2,432,916	22.50
Exercised	(89,974)	13.06
Forfeited	(240,747)	16.20
Outstanding at end of period	4,240,695	$	18.33

The weighted-average grant date fair value of stock options granted during the year ended September 30, 2019 was $7.06. As of September 30, 2019, there were 4,240,695 stock options outstanding, of which 611,592 were exercisable. As of September 30, 2019, total unrecognized compensation expense related to unvested stock options, including an estimate for pre-vesting forfeitures, was $17,770, which is expected to be recognized over a weighted-average period of 2.3 years. The Company's policy is to account for forfeitures of stock-based compensation awards as the occur. The total fair value of stock options that vested during the year ended September 30, 2019 was $2,925.