Stock-Based Compensation

12 Months Ended

Dec. 30, 2020

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

Stock-Based Compensation

11. STOCK-BASED COMPENSATION

Pursuant to the 2018 Omnibus Equity Incentive Plan the Company grants stock options (“options”), restricted stock units, performance-based stock units and restricted stock. The Company has authorized 5,652,240 shares of common stock for issuance in connection with stock awards. As of December 30, 2020, 803,527 shares were available for grant.

During the years ended December 30, 2020, December 25, 2019 and December 26, 2018, the Company recognized stock-based compensation expense of $3.1 million, $2.5 million and $2.0 million, respectively. These expenses were included in general and administrative expenses consistent with the salary expense for the related optionees in the accompanying consolidated statements of operations. In connection with the retirement of our former President and Chief Executive Officer during fiscal 2018, the Company modified previously granted equity awards to accelerate the vesting of 33,545 awards, which would have otherwise vested in May 2018, and extended the exercisability of all vested and outstanding options until the expiration of the original term of such awards. As a result, the Company incurred incremental stock-based compensation expense of $0.8 million for the year ended December 26, 2018.

Stock Options

At December 30, 2020, options to purchase 1,030,866 shares of common stock of the Company were outstanding, including 685,007 vested and 345,859 unvested. Unvested options vest over time, or upon our achieving annual financial goals. However, the compensation committee of the board of directors, as administrator of the Company’s 2018 Omnibus Equity Incentive Plan, has the power to accelerate the vesting schedule of stock-based compensation, and, generally, in the event of an employee termination in connection with a change in control of the Company, any unvested portion of an award under the plan shall become fully vested. At December 30, 2020, 303,786 premium options, options granted above the stock price at date of grant, remained outstanding. The Company did not grant any options during fiscal 2020. In fiscal 2019, the Company granted 323,900 options, with an exercise price equal to the fair market value of the common stock on the date of grant. The options granted in fiscal 2019 had a four-year vesting period. Stock options generally expire 10 years from the date of grant. Changes in options for the years ended December 30, 2020 and December 25, 2019, are as follows:

				Weighted-Average		Aggregate
		Weighted-Average		Contractual Life		Intrinsic Value
	Shares	Exercise Price		Life (Years)		(in thousands)
Outstanding - December 26, 2018	2,102,404	$	7.68
Grants	323,900		11.51
Exercised	(234,728)		6.18
Forfeited, cancelled or expired	(114,006)		13.35
Outstanding - December 25, 2019	2,077,570	$	8.14
Exercised	(970,736)		6.04
Forfeited, cancelled or expired	(75,968)	$	12.14
Outstanding - December 30, 2020	1,030,866	$	9.82		5.51	$	8,638
Vested and expected to vest at December 30, 2020	1,026,480	$	9.81		5.50	$	8,609
Exercisable at December 30, 2020	685,007	$	9.02		4.28	$	6,288

The intrinsic value of options exercised, calculated as the difference between the market value on the date of exercise and the exercise price, was $9.9 million, $2.1 million and $1.5 million for fiscal years 2020, 2019 and 2018, respectively.

The Company measures and recognizes compensation expense for the estimated fair value of stock options for employees and non-employee directors and similar awards based on the grant-date fair value of the award. For options that are based on a service requirement, the cost is recognized on a straight-line basis over the requisite service period, usually the vesting period. For options that were based on performance requirements, costs were recognized over periods

to which the performance criteria related. In order to calculate our stock options’ fair values and the associated compensation costs for share-based awards, the Company utilizes the Black–Scholes option pricing model and has developed estimates of various inputs including forfeiture rate, expected term, expected volatility, and risk-free interest rate. The forfeiture rate is based on historical rates and reduces the compensation expense recognized. The expected term for options granted is derived using the “simplified” method, in accordance with SEC guidance. The Company calculates the risk-free interest rate using the implied yield for a U.S. Treasury security with constant maturity and a remaining term equal to the expected term of the Company’s employee stock options. The Company does not anticipate paying any cash dividends for the foreseeable future and therefore uses an expected dividend yield of zero for option valuation purposes. Expected volatility is estimated using four publicly-traded companies in our market category. These are selected based on similarities of market capitalization, size, and other financial and operational characteristics. Volatility is calculated by taking the historical daily closing equity prices of our peer companies, prior to the grant date, over a period equal to the expected term.

The weighted-average estimated fair value of employee stock options granted in fiscal 2019 and fiscal 2018 was $3.85 per share and $3.78 per share, respectively, using the Black–Scholes model with the following weighted-average assumptions used to value the option grants:

	December 25, 2019		December 26, 2018
Expected volatility	28.7	%	28.4	%
Risk-free interest rate	2.3	%	2.9	%
Expected term (years)	6.25		6.25
Expected dividends	—		—

As of December 30, 2020, we had total unrecognized compensation expense of $1.0 million related to unvested stock options, which the Company expects to recognize over a weighted average period of 1.99 years.

The above assumptions generally require significant judgment. If in the future we determine that another method is more reasonable, or if another method for calculating these input assumptions is prescribed by authoritative guidance, and, therefore, should be used to estimate volatility or expected term, the fair value calculated for our stock options could change significantly. Higher volatility and longer expected lives result in an increase to stock-based compensation expense determined at the date of grant.

We estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior, and other factors. Changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense, as the cumulative effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously-estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the financial statements. If a revised forfeiture rate is lower than the previously-estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the financial statements. The effect of forfeiture adjustments was insignificant in fiscal 2020, 2019 and 2018. We will continue to use significant judgment in evaluating the expected term, volatility, and forfeiture rate related to our stock-based compensation.

Restricted Shares

In fiscal 2020 and 2019, 415,022 and 299,052 restricted share awards were granted, respectively, at the fair market value on the date of grant. These grants vest based on continued service over three years for directors and four years for employees. Additionally, in fiscal 2018, 72,116 performance share units were granted, which vest over a minimum of one year and a maximum of five years. Performance share units are granted at fair market value on the date of grant and are subject to service-based and market-based vesting conditions. A portion of the performance share units satisfied their market-based vesting conditions during the fourth quarter of fiscal 2018 and vested upon the satisfaction of their service condition in the second quarter of fiscal 2019. The Company bases the amount of unearned compensation recorded on the fair market value of the awards on the date of issuance.

Changes in restricted shares for the years ended December 30, 2020 and December 25, 2019, are as follows:

		Weighted-Average
	Shares	Fair Value
Unvested shares at December 26, 2018	490,700	$	10.91
Granted	299,052	$	11.62
Released	(147,862)	$	10.73
Forfeited, cancelled, or expired	(53,882)	$	11.81
Unvested shares at December 25, 2019	588,008	$	11.23
Granted	415,022	$	12.50
Released	(158,748)	$	11.73
Forfeited, cancelled, or expired	(101,878)	$	12.32
Unvested shares at December 30, 2020	742,404	$	11.68

Unvested shares at December 30, 2020, included 658,268 unvested restricted shares, 36,058 unvested performance stock units and 48,078 unvested restricted units.

As of December 30, 2020, there was total unrecognized compensation expense of $6.3 million related to unvested restricted share awards, which the Company expects to recognize over a weighted-average period of 2.77 years, unrecognized compensation expense of $0.1 million related to performance stock units, which it expects to recognize over a weighted-average period of 2.35 years and unrecognized compensation expense of $0.3 million related to unvested restricted units, which it expects to recognize over a weighted-average period of 1.35 years.