Stock-Based Compensation | 11. Stock-Based Compensation The Weber Inc. Omnibus Incentive Plan (the “2021 Plan”) provides for the issuance of up to 22,694,608 shares of Class A common stock in connection with equity awards granted under the 2021 Plan. The Company had three types of share-based compensation awards outstanding under the 2021 Plan: profits interest awards, options and RSUs. Profits Interest Awards Prior to the Company's IPO, the Company granted profits interest units with vesting periods ranging from one The profits interest units have distribution thresholds determined on a per common unit in Weber HoldCo LLC (“LLC unit”) basis with the holder receiving, upon exercise, a value in LLC units equal to the difference between the current fair value per LLC unit less the distribution threshold. Therefore, the distribution thresholds serve as a cashless exercise price, with holders receiving their share of the value of the Company’s implied equity value in excess of the distribution threshold. Once vested, the profits interests represent profits interest ownership in the Company tied solely to the accretion, if any, in the value of the Company in excess of the distribution threshold. Weber Inc. paid a dividend of $0.04 per share to holders of Class A common stock on both December 17, 2021 and March 8, 2022. Profits interest units that were outstanding at the time of the dividends were adjusted pursuant to pre-existing anti-dilution provisions in the Company’s equity incentive plan documents. The adjustments reduced the distribution thresholds of outstanding profits interest units by the amount of the dividend per share. The adjustments did not result in incremental stock-based compensation expense as the anti-dilutive adjustments were required by pre-existing terms included within the awards. The following table summarizes the Company’s profits interest units distribution thresholds as of March 31, 2022, which serve as a cashless exercise price: Distribution Threshold (per unit) (1) Service-Based Units Hybrid Units $5.42 – $6.92 4,142,102 — $6.93 – $8.42 4,142,102 — $8.43 – $9.42 5,481,420 1,118,019 $9.43 – $10.67 2,295,274 559,010 Total 16,060,898 1,677,029 _____________ (1) The exercise price of units outstanding as of March 31, 2022 reflect the non-cash adjustments to the unit thresholds as a result of the cash dividends paid by the Company. As such, the distribution thresholds noted above have been reduced by $0.08 per unit during the six months ended March 31, 2022 to reflect the adjustment. The following tables summarize the Company’s profits interest award activity during the six months ended March 31, 2022: Service-Based Units Hybrid Units Units Weighted Average Exercise Price Weighted Average Fair Value Units Weighted Average Exercise Price Weighted Average Fair Value Nonvested units, September 30, 2021 11,713,015 $ 8.13 $ 8.97 1,777,770 $ 9.54 $ 7.88 Vested units (1,005,749) $ 9.43 $ 7.59 (592,590) $ 9.54 $ 7.48 Nonvested units, March 31, 2022 (1)(2) 10,707,266 $ 8.01 $ 9.10 1,185,180 $ 9.54 $ 8.09 Service-Based Units Hybrid Units Units Weighted Average Exercise Price Weighted Average Fair Value Units Weighted Average Exercise Price Weighted Average Fair Value Vested units, September 30, 2021 4,347,883 $ 7.68 $ 9.15 — $ — $ — Vested units 1,005,749 $ 9.43 $ 7.59 592,590 $ 9.54 $ 7.48 Adjustment to vested hybrid units (3) — $ — $ — (100,741) $ 9.54 $ 7.48 Vested units, March 31, 2022 (1)(2)(4)(5) 5,353,632 $ 8.01 $ 8.86 491,849 $ 9.54 $ 7.48 _____________ (1) The aggregate intrinsic value of all nonvested and vested service-based units outstanding was $28.0 million. (2) The aggregate intrinsic value of all nonvested and vested hybrid units outstanding was $0.3 million. (3) The hybrid awards vest based on achievement of a performance target. For the awards that vested during the second quarter of fiscal 2022, 83% of the awards met the performance target resulting in a 17% reduction in the number of vested units. (4) The aggregate intrinsic value of all vested service-based units was $9.3 million. (5) The aggregate intrinsic value of all vested hybrid units was $0.1 million. As of March 31, 2022, there was $22.4 million and $5.1 million of total unrecognized compensation cost related to nonvested profits interest units for service-based vesting units and hybrid units, respectively. The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of 0.7 years for service-based units and 0.7 years for hybrid units. Options During the six months ended March 31, 2022, the Company granted options to certain employees of the Company. Options are awarded with an exercise price equal to the market price on the date of the grant and become exercisable in one to three years after grant. Options expire ten years after the date of grant. The Company granted 1,038,866 options during the six months ended March 31, 2022. The weighted average exercise price of the options granted was $18.05 per option and the weighted average fair value was $7.06 per option. During the six months ended March 31, 2022, zero options vested and 58,651 options were forfeited. As of March 31, 2022, the outstanding options had an intrinsic value of zero. The fair value and corresponding stock-based compensation expense for options was determined using the Black-Scholes option pricing model. The weighted-average assumptions used to estimate the fair value of the options as of March 31, 2022, were as follows: Expected term (in years) 6.0 Risk-free interest rate 1.24 % Expected volatility 39.01 % Expected dividend yield — % The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected holding period. The Company assumed a dividend yield of zero percent when valuing the options because, as of the grant date, the Company did not have a history of paying dividends. Expected volatility is based on the expected volatility of comparable peer companies that are publicly traded. The expected term represents the period of time that awards granted are expected to be outstanding. The Company elected to use the simplified method to estimate the expected holding period because there is not sufficient information to estimate post-vesting exercise behavior. As such, the Company will continue to use this methodology until there is sufficient history to provide a reasonable basis on which to estimate the expected term. As of March 31, 2022, there was $4.4 million of total unrecognized compensation cost related to nonvested options. The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of 0.9 years. Restricted Stock Units During the six months ended March 31, 2022 the Company granted RSUs to certain employees of the Company. The RSUs vest over a period ranging from three months to three years. The RSUs accrue dividend equivalents associated with the underlying shares of Class A common stock as the Company declares dividends. Dividends will generally be paid to holders of RSUs in cash upon the vesting date of the associated RSU and will be forfeited if the RSU does not vest. RSUs that were converted from equity awards outstanding prior to the Company’s IPO do not accrue dividends until they are fully vested. The fair value of the RSU awards was calculated utilizing the closing day stock price on the date of grant. No RSUs were granted or outstanding during the six months ended March 31, 2021. Upon vesting of the award, the Company will issue shares of Class A common stock to the award holder. At the time of issuance, the Company will typically withhold the number of shares to satisfy the statutory withholding tax obligation and deliver the net number of resulting shares vested to award holder. The following tables summarize the Company’s RSUs and activity during the six months ended March 31, 2022: Total RSUs Number of RSUs Weighted Average Grant Date Fair Value Nonvested, September 30, 2021 2,086,541 $ 17.56 Granted 2,625,545 $ 17.04 Vested (353,181) $ 13.47 Forfeited (266,421) $ 17.82 Nonvested, March 31, 2022 4,092,484 $ 17.21 Total RSUs Number of RSUs Weighted Average Grant Date Fair Value Vested, September 30, 2021 776,544 $ 17.59 Units vested 353,181 $ 13.47 Units settled (265,953) $ 14.33 Vested, March 31, 2022 863,772 $ 16.01 As of March 31, 2022, there was $43.1 million of total unrecognized compensation cost related to RSUs. The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of 0.8 years. Employee Stock Purchase Plan In August 2021, the Board of Directors approved the Employee Stock Purchase Plan (“ESPP”). The ESPP allows eligible employees to purchase, through payroll deductions, a limited number of shares of Class A common stock during pre-specified offering periods at a discount established by the Company's Compensation Committee. The purchase price will be equal to the lesser of (i) 85% of the fair market value of a share on the first trading day of the offering period and (ii) 85% of the fair market value of a share on the applicable purchase date. For the ESPP, a total of 9,077,843 shares of Class A common stock were reserved for issuance and no shares have been issued during the six months ended March 31, 2022. Withholding periods began on January 1, 2022. The ESPP is accounted for as a compensatory plan since the number of shares a participant is permitted to purchase is not fixed based on the stock price at the beginning of the offering period and the expected withholdings. The ESPP enables a participant to “buy-up” to the plan’s share limit, if the stock price is lower on the purchase date. As a result, the fair value of the awards granted under the ESPP is calculated using the Black-Scholes option pricing model at the beginning of each offering period as the sum of: • 15% of the share price of an unvested share at the beginning of the offering period, • 85% of the fair market value of a six-month call on the unvested share aforementioned, and • 15% of the fair market value of a six-month put on the unvested share aforementioned. Summary of Stock-Based Compensation Expense The table below summarizes stock-based compensation expense recognized by award type: Three Months Ended March 31, Six Months Ended March 31, 2022 2021 2022 2021 (dollars in thousands) Profits interest awards: Service-based profits interest awards $ 7,945 $ 27,913 $ 16,929 $ 30,035 Hybrid profits interest awards 1,081 — 3,498 — Total profits interest awards 9,026 27,913 20,427 30,035 Options 767 — 1,724 — Pre-IPO Management Incentive Compensation Plan awards — 1,138 — 2,014 RSUs 12,290 — 24,298 — ESPP 107 — 107 — Total stock-based compensation expense (1) $ 22,190 $ 29,051 $ 46,556 $ 32,049 _____________ (1) In addition to the stock-based compensation expense recognized for the awards listed above, $1.1 million and $0.4 million of expense was recognized in relation to partial recourse notes for the six months ended March 31, 2022 and 2021, respectively. No expense was recognized in relation to partial recourse notes during the three months ended March 31, 2022 and 2021. See Note 15 for further information. |