Stock-Based Compensation

Equity Awards Issued Under the Malibu Boats, Inc. Long-Term Incentive Plan

On January 6, 2014, the Company’s board of directors adopted the Malibu Boats, Inc. Incentive Plan. The Incentive Plan, which became effective on January 1, 2014, reserves for issuance up to 1,700,000 shares of Malibu Boats, Inc. Class A Common Stock for the Company’s employees, consultants, members of its board of directors and other independent contractors at the discretion of the compensation committee. Incentive stock awards authorized under the Incentive Plan including unrestricted shares of Class A Common Stock, stock options, SARs, restricted stock, restricted stock units, dividend equivalent awards and performance awards. As of June 30, 2019, there were 854,287 shares available for future issuance under Incentive Plan.

On November 4, 2016, the Company granted 130,500 restricted stock units and restricted stock awards to certain key employees. The grant date fair value of these awards was $2,039 based on a stock price of $15.62 per share on the date of grant. Under the terms of the agreements, approximately 63% of the awards vest in substantially equal annual installments over a four year period, and the remaining 37% of the awards vest in tranches based on the achievement of annual performance targets. Compensation costs associated with performance based awards are recognized over the requisite service period based on probability of achievement in accordance with ASC Topic 718, Compensation—Stock Compensation.

On June 29, 2017, the Company granted 104,000 options to certain key employees to purchase from the Company shares of Class A Common Stock at a price of $25.85 per share. The term of the options commence on June 29, 2017 and will expire on June 28, 2023, the day before the sixth anniversary of the grant date. Under the terms of the agreements, the awards will vest 25% ratably on each anniversary of their grant date. At June 30, 2017, the fair value of the option awards was $866 and is estimated using the Black-Scholes option-pricing model with the following assumptions: risk-free rate of 2.1%, expected volatility of 36.1%, expected term of 4.25 years, and no dividends. Stock-based compensation expense attributable to these options is amortized on a straight-line basis over the requisite service period.

On November 6, 2017, the Company granted 78,900 restricted stock units and restricted stock awards to certain key employees. The grant date fair value of these awards was $2,436 based on a stock price of $30.87 per share on the date of grant. Under the terms of the agreements, approximately 72% of the awards vest in substantially equal annual installments over a four year period, and the remaining 28% of the awards vest in tranches based on the achievement of annual performance targets. Compensation costs associated with performance based awards are recognized over the requisite service period based on probability of achievement.

On November 6, 2017, the Company granted 40,000 options to certain key employees to purchase from the Company shares of Class A Common Stock at a price of $30.87 per share. The term of the options commenced on November 6, 2017 and will expire on November 5, 2023, the day before the sixth anniversary of the grant date. Under the terms of the agreements, approximately 50% of the awards will vest ratably over four years on each anniversary of their grant date and approximately 50% of the awards will vest in tranches based on the achievement of annual or cumulative performance targets. At November 6, 2017, the fair value of the option awards was $405 and is estimated using the Black-Scholes option-pricing model with the following assumptions: risk-free rate of 2.0%, expected volatility of 37.1%, expected term of 4.25 years, and no dividends. Stock-based compensation expense attributable to the time based options is amortized on a straight-line basis over the requisite service period. Compensation costs associated with performance based option awards are recognized over the requisite service period based on probability of achievement.

On August 22, 2018, the Company granted 50,000 options to certain key employees to purchase from the Company shares of Class A Common Stock at a price of $42.13 per share. The term of the options commenced on August 22, 2018 and will expire on August 21, 2024, the day before the sixth anniversary of the grant date. Under the terms of the agreements, the awards will vest ratably over four years on each anniversary of their grant date. At August 22, 2018, the fair value of the option awards was $733 and was estimated using the Black-Scholes option-pricing model with the following assumptions: risk-free rate of 2.7%, expected volatility of 38.4%, expected term of 4.25 years, and no dividends. Stock-based compensation expense attributable to the service based options is amortized on a straight-line basis over the requisite service period. Compensation costs associated with performance based option awards are recognized over the requisite service period based on probability of achievement in accordance with ASC Topic 718, Compensation—Stock Compensation.

On November 1, 2018, the Company granted 35,000 restricted stock units and 48,000 restricted stock awards to key employees under the Incentive Plan. The grant date fair value of these awards was $3,474 based on a stock price of $41.85 per share on the date of grant. Under the terms of the agreements, 71% of the awards will vest ratably over four years beginning on November 6, 2019 and approximately 29% of the awards will vest in tranches based on the achievement of annual or cumulative performance targets. Compensation costs associated with performance based awards are recognized over the requisite service period based on probability of achievement in accordance with ASC Topic 718, Compensation—Stock Compensation.

On January 14, 2019, the Company granted 19,973 options to certain key employees to purchase from the Company shares of Class A Common Stock at a price of $37.55 per share. The term of the options commenced on January 14, 2019 and will expire on January 13, 2025, the day before the sixth anniversary of the grant date. Under the terms of the agreements, the awards will vest ratably over four years on each anniversary of their grant date. At January 14, 2019, the fair value of the option awards was $263 and was estimated using the Black-Scholes option-pricing model with the following assumptions: risk-free rate of 2.53%, expected volatility of 39.0%, expected term of 4.25 years, and no dividends. Stock-based compensation expense attributable to the service based options is amortized on a straight-line basis over the requisite service period. Compensation costs associated with performance based option awards are recognized over the requisite service period based on probability of achievement in accordance with ASC Topic 718, Compensation—Stock Compensation.

Risk-free interest rate. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve at the date of grant.

Expected term. The Company used the simplified method to estimate the expected term of stock options. The simplified method assumes that employees will exercise share options evenly between the period when the share options are vested and ending on the date when the share options would expire.

Expected volatility. The Company determined expected volatility based on its historical volatility calculated using daily observations of the closing price of its publicaly traded common stock.

Expected dividend. The Company has not estimated any dividend yield as the Company currently does not pay a dividend and does not anticipate paying a dividend over the expected term.

The following table presents the number, grant date stock price per share, and weighted-average exercise price per share of the Company’s employee option awards:



	Fiscal Year Ended June 30,
	2019				2018			2017
	Shares		Weighted Average Exercise Price/Share		Shares	Weighted Average Exercise Price/Share		Shares	Weighted Average Exercise Price/Share
Total outstanding Options at beginning of year	144,000		$	27.24	104,000	$	25.85	—	$	—
Options granted	69,973		40.82		40,000	30.87		104,000	25.85
Options exercised	(28,500	)	26.29		—	—		—	—
Options canceled	—		—		—	—		—	—
Outstanding options at end of year	185,473		$	32.51	144,000	$	27.24	104,000	$	25.85
Exercisable at end of year	33,500		$	26.97	26,000	$	25.85	—	$	—

The Company expects all outstanding options to vest. The weighted average remaining contractual life of options outstanding and options outstanding and exercisable as of June 30, 2019 was 4.55 years and 4.08 years, respectively. The total intrinsic value of options exercised during the year ended June 30, 2019 was $732. The total intrinsic value of options outstanding and options outstanding and exercisable at June 30, 2019 was $1,339 and $398, respectively. The total intrinsic values are based on the Company’s closing stock price on the last trading day of the applicable year for in-the-money options.

The Company's non-employee directors receive an annual retainer for their services as directors consisting of both a cash retainer and equity awards in the form of Class A Common Stock or restricted stock units. Directors may elect that their cash annual retainer be converted into either fully vested shares of Class A Common Stock or restricted stock units paid on a deferral basis. Equity awards issued to directors are fully vested at the date of grant. Directors receiving restricted stock units as compensation for services have no rights as a stockholder of the Company, no dividend rights (except with respect to dividend equivalent rights), and no voting rights until Class A Common Stock is actually issued to them upon separation from service or change in control as defined in the Incentive Plan. If dividends are paid by the Company to its stockholders, directors would be entitled to receive an equal number of restricted stock units based on their proportional interest. For the fiscal year ended June 30, 2017, the Company issued 6,857 shares of Class A Common Stock and 37,727 restricted stock units with a weighted-average grant date fair value of $15.42 to its non-employee directors for their services as directors pursuant to the Incentive Plan. For the fiscal year ended June 30, 2018, the Company issued 4,567 shares of Class A Common Stock and 23,838 restricted stock units with a weighted-average grant date fair value of $30.52 to its non-employee directors for their services as directors pursuant to the Incentive Plan. For the fiscal year ended June 30, 2019, the Company issued 853 shares of Class A Common Stock and 17,663 restricted stock units with a weighted-average grant date fair value of $42.29 to its non-employee directors for their services as directors pursuant to the Incentive Plan.

The following table presents the number and weighted-average grant date fair value of the Company’s director and employee restricted stock units and restricted stock awards:



	Fiscal Year Ended June 30,
	2019				2018				2017
	Number of Restricted Stock Units and Restricted Stock Awards Outstanding		Weighted Average Grant Date Fair Value		Number of Restricted Stock Units and Restricted Stock Awards Outstanding		Weighted Average Grant Date Fair Value		Number of Restricted Stock Units and Restricted Stock Awards Outstanding		Weighted Average Grant Date Fair Value
Total Non-vested Restricted Stock Units and Restricted Stock Awards at beginning of year	227,154		$	20.84	225,854		$	15.77	140,908		$	16.17
Granted	107,321		41.63		102,738		30.80		168,227		15.55
Vested	(103,811	)	22.98		(99,613	)	19.57		(81,181	)	15.95
Forfeited	(4,424	)	25.00		(1,825	)	22.58		(2,100	)	18.52
Total Non-vested Restricted Stock Units and Restricted Stock Awards at end of year	226,240		$	29.64	227,154		$	20.84	225,854		$	15.77

As of June 30, 2019, the weighted-average years non-vested for service period awards and performance target awards was approximately 1.0 years and 0.5 year, respectively.

Stock compensation expense attributable to all of the Company's equity awards was $2,607, $1,973 and $1,396 for fiscal years 2019, 2018 and 2017, respectively, including $283 of expense related to profit interest awards previously granted prior to the IPO under the former LLC agreement for fiscal year 2017 and is included in general and administrative expense in the Company's consolidated statement of operations and comprehensive income. The cash flow effects resulting from all equity awards were reflected as noncash operating activities. During fiscal year 2019, the Company withheld approximately 26,458 shares at an aggregate cost of approximately $1,219, as permitted by the applicable equity award agreements, to satisfy employee tax withholding requirements for employee share-based equity awards that have vested. As of June 30, 2019 and 2018, unrecognized compensation cost related to nonvested, share-based compensation was $6,431 and $4,428, respectively.