STOCK-BASED COMPENSATION

The Company currently has one active stock plan, which became effective in 2017 upon the completion of the Combination. This plan replaced the HomeAdvisor 2013 Incentive plan, which governed equity awards prior to the Combination. The 2017 plan covers stock options, stock appreciation rights and RSU awards denominated in shares of ANGI Homeservices common stock, as well as provides for the future grant of these and other equity awards. The 2017 plan authorizes the Company to grant awards to its employees, officers, directors and consultants. At December 31, 2018, there are 26.8 million shares available for grant under the 2017 plan.

The 2017 plan has a stated term of ten years, and provides that the exercise price of stock options and stock appreciation rights granted will not be less than the market price of the Company's common stock on the grant date. The plan does not specify grant dates or vesting schedules for awards, as those determinations have been delegated to the Compensation Committee of ANGI Homeservices Board of Directors (the "Committee"). Each grant agreement reflects the grant date and vesting schedule for that particular grant as determined by the Committee. Stock options and stock appreciation rights granted subsequent to the Combination through December 31, 2018 generally vest in equal annual installments over a four-year period from the grant date. RSU awards granted subsequent to the Combination through December 31, 2018 generally vest in two 50% installments over a three and four-year period from the grant date.

Stock-based compensation expense recognized in the consolidated and combined statement of operations includes expense related to: (i) the Company's stock options, stock appreciation rights and RSUs; (ii) equity instruments denominated in shares of its subsidiaries; and (iii) IAC denominated stock options and PSUs held by ANGI Homeservices employees. The amount of stock-based compensation expense recognized is net of estimated forfeitures, as the expense recorded is based on awards that are ultimately expected to vest. The forfeiture rate is estimated at the grant date based on historical experience and revised, if necessary, in subsequent periods if actual forfeitures differ from the estimated rate. At December 31, 2018, there is $130.0 million of unrecognized compensation cost, net of estimated forfeitures, related to all equity-based awards, which is expected to be recognized over a weighted average period of approximately 2.0 years.

The total income tax benefit recognized in the accompanying consolidated and combined statement of operations for the years ended December 31, 2018, 2017 and 2016 related to all stock-based compensation is $49.5 million, $71.1 million and $3.4 million, respectively. The increase in total income tax benefit recognized in the combined statement of operations during 2017 relative to 2016 is due to the adoption of ASU 2016-09, effective January 1, 2017, which required the recognition of excess tax benefits attributable to stock-based compensation to be included as a component of the provision for income taxes rather than recognized in equity. The aggregate income tax benefit recognized related solely to stock options for the years ended December 31, 2018, 2017 and 2016, including the portion recognized as a component of equity in 2016 is $40.2 million, $47.3 million and $8.8 million, respectively.

As the Company is currently in an NOL position, there will be some delay in the timing of the realization of the cash benefit of the income tax deductions related to stock-based compensation because it will be dependent upon the amount and timing of future taxable income and the timing of estimated income tax payments. In addition, a portion of the realized tax benefit related to stock-based compensation is payable to IAC pursuant to the tax sharing agreement as described in "Note 3—Income Taxes".

Stock Options and Stock Appreciation Rights

Stock options and stock appreciation rights outstanding at December 31, 2018 and changes during the year ended December 31, 2018 is as follows:



	December 31, 2018
	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value
	(Shares and intrinsic value in thousands)
Outstanding at January 1, 2018	47,115		$	3.25
Granted	—		—
Exercised	(11,049	)	2.02
Forfeited	(2,668	)	4.84
Expired	(240	)	17.67
Outstanding at December 31, 2018	33,158		$	3.42	6.9	$	420,201
Exercisable	17,612		$	2.78	6.1	$	234,922

The aggregate intrinsic value in the table above represents the difference between ANGI Homeservices closing stock price on the last trading day of 2018 and the exercise price, multiplied by the number of in-the-money awards that would have been exercised had all award holders exercised their awards on December 31, 2018. The total intrinsic value of awards exercised during the years ended December 31, 2018, 2017 and 2016 is $151.2 million, $100.7 million and $21.7 million, respectively.

The following table summarizes the information about stock options and stock appreciation rights outstanding and exercisable at December 31, 2018:



	Awards Outstanding				Awards Exercisable
Range of Exercise Prices	Outstanding at December 31, 2018	Weighted Average Remaining Contractual Life in Years	Weighted Average Exercise Price		Exercisable at December 31, 2018	Weighted Average Remaining Contractual Life in Years	Weighted Average Exercise Price
	(Shares in thousands)
$0.01 to $3.00	16,404	5.7	$	1.55	11,666	5.2	$	1.28
$3.01 to $6.00	15,044	8.1	4.53		5,049	8.1	4.53
$6.01 to $9.00	327	5.7	7.73		217	5.2	7.93
$9.01 to $12.00	826	8.4	10.65		311	7.4	10.40
$12.01 to $15.00	390	7.3	13.01		202	5.9	13.25
$15.01 to $18.00	1	3.2	15.47		1	3.2	15.47
$18.01 to $21.00	115	4.2	19.88		115	4.2	19.88
$21.01 to $24.00	51	3.9	22.66		51	3.9	22.66
	33,158	6.9	3.42		17,612	6.1	2.78

The fair value of stock options and stock appreciation rights is estimated on the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model incorporates various assumptions, including expected volatility and expected term. Prior to the Combination, expected stock price volatilities were estimated based on historical stock price volatilities of a group of peer companies. Subsequent to the Combination, expected stock price volatilities were estimated based on the average of IAC's historical volatility, as a result of the Company representing a large percentage of the overall value of IAC, and the historical stock price volatilities of the aforementioned group of peer companies. The risk-free interest rates are based on U.S. Treasuries with comparable terms as the awards, in effect at the grant date. Prior to the Combination, expected term was based on the mid-point of the first and last windows for exercise. Subsequent to the Combination, expected term is based on the historical exercise pattern of IAC's employees for comparable awards, a ten-year contractual life with vesting in four equal annual installments, because the Company did not have sufficient data to estimate an expected term for these awards. No dividends have been assumed. The following are the weighted average assumptions used in the Black-Scholes option pricing model:



	Years Ended December 31,
	2017		2016
Expected volatility	50	%	44	%
Risk-free interest rate	2.0	%	0.8	%
Expected term	5.5 years		3.2 years
Dividend yield	—	%	—	%

There were no stock options or stock appreciation rights granted by the Company for the year ended December 31, 2018. Approximately 0.9 million stock options and stock appreciation rights were granted by the Company subsequent to the Combination through December 31, 2017. Approximately 4.7 million and 2.1 million stock appreciation rights were granted by the Company for the period prior to the Combination in 2017, and for the year ended December 31, 2016, respectively. The per share weighted average grant date fair value of stock options and stock appreciation rights granted by the Company subsequent to the Combination through December 31, 2017 is $4.30. The per share weighted average grant date fair value of stock appreciation rights granted by the Company for the period prior to the Combination in 2017, and for the year ended December 31, 2016, are $8.24 and $3.13, respectively.

In connection with the Combination, the previously issued HomeAdvisor (US) stock appreciation rights were converted into ANGI Homeservices' equity awards resulting in a modification charge of $217.7 million of which $56.9 million and $93.4 million were recognized as stock-based compensation expense in the years ended December 31, 2018 and 2017, respectively, and the remaining charge will be recognized over the remaining vesting period of the modified awards.

In connection with the chief executive officer transition during the fourth quarter of 2018, the Company accelerated $3.9 million of expense into 2018 from 2019.

During the second quarter of 2017, the Company modified certain HomeAdvisor (US) stock appreciation rights and recognized a modification charge of $6.6 million.

Cash received from stock option exercises for the year ended December 31, 2018 and for the period subsequent to the Combination through December 31, 2017 is $4.7 million and $1.7 million, respectively. For periods prior to the Combination, no cash was received from the exercise of stock appreciation rights because they were net settled in shares of IAC’s common stock.

In connection with the Combination, previously issued stock appreciation rights related to the common stock of HomeAdvisor (US) were converted into ANGI stock appreciation rights that are settleable, at the Company's option, on a net basis with ANGI remitting withholding taxes on behalf of the employee or on a gross basis with the Company issuing a sufficient number of Class A shares to cover the withholding taxes. In addition, at IAC's option, these awards can be settled in either Class A shares of ANGI or shares of IAC common stock. If settled in IAC common stock, ANGI reimburses IAC in either cash or through the issuance of Class A shares to IAC. Assuming all of the stock appreciation rights outstanding on December 31, 2018 were net settled on that date, ANGI would have issued 12.8 million Class A shares (either to IAC as reimbursement or to award holders) and ANGI would have remitted $205.9 million in cash for withholding taxes (assuming a 50% withholding rate). If the Company decided to issue a sufficient number of shares to cover the $205.9 million employee withholding tax obligation, 12.8 million additional Class A shares would be issued by ANGI. The Company's cash withholding obligation on all other ANGI net settled awards outstanding on December 31, 2018 is $36.5 million (assuming a 50% withholding rate), which is the equivalent of 2.3 million shares.

Restricted Stock Units

RSUs are awards in the form of phantom shares or units denominated in a hypothetical equivalent number of shares of ANGI Homeservices common stock and with the value of each RSU equal to the fair value of ANGI Homeservices common stock at the date of grant. Each RSU grant is subject to service-based vesting, where a specific period of continued employment must pass before an award vests. The expense is measured at the grant date as the fair value of ANGI Homeservices common stock and expensed as stock-based compensation over the vesting term.

Prior to the Combination, there were no RSUs outstanding. Unvested RSUs outstanding at December 31, 2018 and changes during the year ended December 31, 2018 are as follows:



	RSUs
	Number of Shares		Weighted Average Grant Date Fair Value
	(Shares in thousands)
Unvested at January 1, 2018	2,895		$	12.48
Granted	3,537		18.08
Vested	(1,221	)	12.23
Forfeited	(600	)	12.55
Unvested at December 31, 2018	4,611		$	16.77

The per share weighted average grant date fair value of RSUs granted during years ended December 31, 2018 and 2017 based on market prices of ANGI Homeservices’ common stock on the grant date was $18.08 and $12.58, respectively. The total fair value of RSUs that vested during the years ended December 31, 2018 and 2017 was $19.5 million and $19.2 million, respectively.

Equity Instruments Denominated in the Shares of Certain Subsidiaries

ANGI Homeservices has granted stock appreciation rights denominated in the equity of certain non-publicly traded subsidiaries to employees and management of those subsidiaries. These equity awards vest over a period of years, which is typically four years. The value of the stock appreciation rights is tied to the value of the common stock of these subsidiaries, which is determined by the Company using a variety of valuation techniques including a combination of market based and discounted cash flow valuation methodologies. Accordingly, these interests only have value to the extent the relevant business appreciates in value above the initial value utilized to determine the exercise price. These interests can have significant value in the event of significant appreciation. The fair value of these interests is generally determined by negotiation or arbitration, when settled; which will occur at various dates through 2025 and are ultimately settled in IAC common stock or ANGI Homeservices Class A common stock, at IAC's election. These equity awards are settled on a net basis, with the award holder entitled to receive a payment in shares equal to the intrinsic value of the award at exercise less an amount equal to the required cash tax withholding payment. The expense associated with these equity awards is initially measured at fair value, using the Black-Scholes option pricing model, at the grant date and is expensed as stock-based compensation over the vesting term.

The plans under which these awards are granted establish specific settlement dates or liquidity events for which the valuation of the relevant subsidiary is determined for purposes of settlement of the awards.

IAC Denominated Stock Options

There were no IAC stock options granted by IAC under its equity incentive plans to employees of ANGI Homeservices during the years ended December 31, 2018 and 2017. For the year ended December 31, 2016, approximately 0.1 million IAC stock options were granted by IAC under its equity incentive plans to employees of ANGI Homeservices. At December 31, 2018, approximately 0.1 million IAC options remain outstanding to employees of ANGI Homeservices. The fair value of each stock option award is estimated on the grant date using the Black-Scholes option-pricing model. IAC stock options are granted with exercise prices at least equal to the fair value on the date of grant, vest ratably in annual installments over a four-year period and expire ten years from the date of grant.

IAC Denominated Performance Stock Units ("PSUs")

There were no IAC PSUs granted by IAC to employees of ANGI Homeservices during the years ended December 31, 2018 and 2016. For the year ended December 31, 2017, approximately 0.1 million IAC PSUs were granted by IAC to employees of ANGI Homeservices. At December 31, 2018, approximately 0.1 million IAC PSUs held by employees of ANGI Homeservices remain outstanding. PSUs are awards in the form of phantom shares or units, denominated in a hypothetical equivalent number of shares of IAC common stock and with the value of each PSU equal to the fair value of IAC common stock at the date of grant. Each PSU grant is subject to service-based vesting, where a specific period of continued employment must pass before an award vests and certain performance targets, set at the time of grant, must be achieved before an award vests. Assuming all of the PSUs outstanding on December 31, 2018 were net settled on that date, ANGI would have issued 0.6 million Class A shares (either to IAC as reimbursement or to award holders) and ANGI would have remitted $10.4 million in cash for withholding taxes (assuming a 50% withholding rate).