OPTIONS AND AWARDS

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

For all periods prior to the Spin-Off, employees of the Company participated in Ensign's stock-based compensation plans. The compensation expense recorded by the Company included the expense associated with these employees, as well as an allocation of stock-based compensation of certain Ensign employees who provided general and administrative services on behalf of the Company.

Outstanding options held by employees of the Company under the Ensign stock plans (collectively the “Ensign Plans”) and outstanding options and restricted stock awards under the Company Subsidiary Equity Plan (together with the Ensign Plans the “Pre-Spin Plans”) were modified and replaced with Pennant awards under the Pennant Plans at the Spin-Off date. Additionally, in connection with the Spin-Off, the Company issued new options and restricted stock awards to Pennant and Ensign employees under the 2019 Omnibus Incentive Plan (the “OIP”) and Long-Term Incentive Plan (the “LTIP”, together referred to as the “Pennant Plans”).

Under the Ensign Plans and the Pennant Plans, stock-based payment awards, including employee stock options, restricted stock awards (“RSA”), and restricted stock units (“RSU” and together with RSA, “Restricted Stock”) are issued based on estimated fair value. The following disclosures represent share-based compensation expense relating to the Ensign and Pennant Plans, including awards to employees of the Company’s subsidiaries, an allocation of costs from employees in the Service Center prior to the Spin-Off, and total share-based compensation after the Spin-Off.

Total share-based compensation expense for all of the Plans for the three and six months ended June 30, 2020 and 2019 was:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Prior to the Spin-Off:
Total share-based compensation	$	—	$	508			$	1,127
Following the Spin-Off:
Share-based compensation expense related to stock options	343		—		632		—
Share-based compensation expense related to Restricted Stock	1,542		—		3,085		—
Share-based compensation expense related to Restricted Stock to non-employee directors	74		—		198		—
Total share-based compensation	$	1,959	$	508	$	3,915	$	1,127

In future periods, the Company estimates it will recognize the following share-based compensation expense for unvested stock options and unvested Restricted Stock, which were unvested as of June 30, 2020:


	Unrecognized Compensation Expense		Weighted Average Recognition Period (in years)
Unvested stock options	$	6,631	4.4
Unvested Restricted Stock	14,093		2.3
Total unrecognized share-based compensation expense	$	20,724

Stock Options

Under the Pennant Plans, options granted to employees of the subsidiaries of Pennant generally vest over five years at 20% per year on the anniversary of the grant date. Options expire ten years after the date of grant.

The Company uses the Black-Scholes option-pricing model to recognize the value of stock-based compensation expense for share-based payment awards under the Plans. Determining the appropriate fair-value model and calculating the fair

value of stock-based awards at the grant date requires considerable judgment, including estimating stock price volatility and expected option life. The Company develops estimates based on historical data and market information, which can change significantly over time.

The fair value of each option is estimated on the grant date using a Black-Scholes option-pricing model with the following weighted average assumptions for stock options granted after the Spin-Off:


Grant Year	Options Granted	Risk-Free Interest Rate		Expected Life^(a)	Expected Volatility^(b)		Dividend Yield		Weighted Average Fair Value of Options
2020	366	0.6	%	6.5	35.8	%	—	%	$	8.44


(a)						Under the midpoint method, the expected option life is the midpoint between the contractual option life and the average vesting period for the options being granted. This resulted in an expected option life of 6.5 years for the options granted.
(b)						Because the Company’s equity shares have been traded for a relatively short period of time, expected volatility assumption was based on the volatility of related industry stocks.

The following table represents the employee stock option activity during the six months ended June 30, 2020:


	Number of Options Outstanding	Weighted Average Exercise Price		Number of Options Vested	Weighted Average Exercise Price of Options Vested
December 31, 2019	1,573	$	9.71	607	$	4.80
Granted	366	23.26
Exercised	(59)	3.63
Forfeited	(15)	12.44
June 30, 2020	1,865	$	12.54	631	$	5.20

Restricted Stock

A summary of the status of Pennant’s non-vested Restricted Stock, and changes during the six months ended June 30, 2020, is presented below:


	Non-Vested Restricted Stock	Weighted Average Grant Date Fair Value
December 31, 2019	1,793	$	14.44
Granted	20	25.04
Vested	(72)	11.56
Forfeited	(4)	9.99
June 30, 2020	1,737	$	14.69