Equity-Based Compensation

9 Months Ended

Oct. 02, 2022

Equity-Based Compensation

Equity-Based Compensation

10.Equity-Based Compensation

Omnibus Equity Plan and Employee Stock Purchase Plan

In connection with the closing of the IPO, the Company adopted the Omnibus Equity Plan (the “Omnibus Equity Plan”) and the 2021 Employee Stock Purchase Plan (the “ESPP”).

Under the Omnibus Equity Plan, incentive awards may be granted to employees, directors, and consultants of the Company. The Company initially reserved 3,719,000 shares of common stock for future issuance under the Omnibus Equity Plan, including any shares subject to awards under the 2021 Equity Incentive Plan (the “2021 Equity Plan”) that are forfeited or lapse unexercised. The number of shares reserved for issuance under the Omnibus Equity Plan will automatically increase on the first day of each fiscal year, starting in 2022 and continuing through 2031, by a number of shares equal to (a) 4% of the total number of shares of the Company’s common stock outstanding on the last day of the immediately preceding fiscal year or (b) such smaller number of shares as determined by the Company’s board of directors.

Under the ESPP, the Company initially reserved 743,803 shares of common stock for future issuance.  The number of shares of common stock reserved for issuance will automatically increase on the first day of each fiscal year beginning in 2022 and ending in 2031, by a number of shares equal to (a) 1% of the total number of shares of the Company’s common stock outstanding on the last day of the immediately preceding fiscal year or (b) such smaller number of shares as determined by the Company’s board of directors.

On April 1, 2022, the Company filed a Registration Statement on Form S-8 (the “Form S-8”) with the SEC for the purpose of registering an additional 5,921,056 shares of the Company’s common stock, inclusive of 1,536,845 and 384,211 shares associated with automatic increases that occurred on January 3, 2022 under the Omnibus Equity Plan and ESPP, respectively.  An additional 3,200,000 and 800,000 shares were registered in the Form S-8 for the Omnibus Equity Plan and the ESPP, respectively, which represents two years’ worth of estimated future automatic increases in availability for these plans. As of October 2, 2022, the Company had 3,161,102 and 1,128,014 shares available for issuance under the Omnibus Equity Plan and ESPP, respectively. The compensation committee of the Company’s board of directors (the “compensation committee”) administers the Omnibus Equity Plan and determines to whom awards will be granted, the exercise price of any options, the rates at which awards vest and the other terms and conditions of the awards granted under the Omnibus Equity Plan. The compensation committee may or may not issue the full number of shares that are reserved for issuance.

The Company’s initial ESPP offering period commenced on August 26, 2022. The ESPP consists of consecutive, overlapping 12-month offering periods that begin on each August 26 and February 26 during the term of the ESPP, and end on each August 25 and February 25 occurring 12 months later, as applicable. Each offering period is comprised of two consecutive six-month purchase periods that begin on each August 26 and February 26 within each offering period and end on each February 25 and August 25, respectively, thereafter. The duration and timing of offering periods and purchase periods may be changed by the Company’s board of directors or compensation committee at any time. The ESPP allows participants to purchase shares of the Company’s common stock at a 15 percent discount from the lower of the Company’s stock price on (i) the first day of the offering period or on (ii) the last day of the purchase period and includes a rollover mechanism for the purchase price if the stock price on the purchase date is less than the stock price on the offering date. The ESPP also allows participants to reduce their percentage election once during the offering period, but they cannot increase their election until the next offering period. The Company recognizes equity-based compensation expense related to shares issued pursuant to the ESPP on a graded vesting approach over each offering period. For the thirteen and thirty-nine weeks ended October 2, 2022, equity-based compensation expense related to our ESPP was $16 thousand.

The Company used the Black-Scholes model to estimate the fair value of the purchase rights under the ESPP. For the thirteen and thirty-nine weeks ended October 2, 2022, the Company utilized the following assumptions:

Expected term (in years)		0.50 to 1.00
Expected volatility		63.80 to 78.05	%
Risk-free interest rate		3.26 to 3.36	%
Dividend yield		-
Weighted average fair value per share of ESPP awards granted	$	2.72 to 2.93

2021 Equity Plan

In April 2021, the Company’s board of directors adopted the 2021 Equity Plan. The 2021 Equity Plan provides for the issuance of incentive stock options, restricted stock, restricted stock units and other stock-based and cash-based awards to the Company’s employees, directors, and consultants. The maximum aggregate number of shares reserved for issuance under the 2021 Equity Plan was 925,000 shares. The options outstanding under the 2021 Equity Plan expire ten years from the date of grant. The Company issues new common shares to satisfy stock option exercises. In connection with the closing of the IPO, no further awards will be granted under the 2021 Equity Plan.

CEO Stock Options and Special Compensation Awards

In April 2021, the Company entered into an Employment Agreement (the “Employment Agreement”) with the CEO and granted stock options under the 2021 Equity Plan to purchase 322,793 shares of common stock with an exercise price of $11.35 per share, which vest based on service and performance conditions. 275,133 of these stock options have only service vesting conditions, and 47,660 of these stock options have both service and performance vesting conditions. In addition, a portion of these stock options were subject to accelerated vesting conditions upon the occurrence of certain future events, which were satisfied upon the closing of the IPO.

Under the Employment Agreement and subject to ongoing employment, and in light of the closing of the IPO, the CEO will receive two bonuses which will be settled in fully-vested shares of the Company’s common stock equal to $3.0 million each ($6.0 million in aggregate) on March 31, 2022 and March 31, 2023. The Company initially concluded that the two bonuses were subject to the guidance within ASC 718 and were liability-classified upon issuance. Upon the completion of the IPO, the two bonuses became equity-classified as they no longer met the criteria for liability classification. The Company records the equity-based compensation expense on a straight-line basis over the requisite service periods through March 31, 2022 and March 31, 2023. During the thirteen and thirty-nine weeks ended October 2, 2022, the Company recognized equity-based compensation expense related to the two bonuses of $0.4 million and $1.9 million, respectively.  During the thirteen and thirty-nine weeks ended October 2, 2022, the Company issued zero and 208,914 of fully-vested shares, respectively, upon satisfaction of the service performed through March 31, 2022. On March 31, 2023, the Company will issue 208,914 fully-vested shares to the CEO upon satisfaction of the requisite service period.

Stock Options

A summary of stock option activity is as follows (in thousands, except per share amounts and years):

		Weighted-		Weighted-
		Average		Average
		Exercise		Remaining	Aggregate
	Options	Price per		Contractual	Intrinsic
	Outstanding	Option		Life (years)	Value
Balance as of January 2, 2022	322,793	$	11.35	9.29		—
Granted	—		—	—
Outstanding as of October 2, 2022	322,793	$	11.35	8.54	$	—
Exercisable as of October 2, 2022	161,397	$	11.35	8.54	$	—
Vested and expected to vest as of October 2, 2022	322,793	$	11.35	8.54	$	—

There were no options granted during the thirteen and thirty-nine weeks ended October 2, 2022.  There were 322,793 options granted during the thirteen and thirty-nine weeks ended October 3, 2021.

During the thirteen and thirty-nine weeks ended October 2, 2022, equity-based compensation expense of $0.3 million and $0.9 million, respectively, and during the thirteen and thirty-nine weeks ended October 3, 2021, equity-based compensation expense of $0.3 million and $0.6 million, respectively, was recorded to general and administrative expense related to the stock options. As of October 2, 2022, total unrecognized compensation cost related to unvested stock options was $1.4 million, which is expected to be recognized over a weighted average remaining service period of 1.5 years.

Class P Units

384,522 of the outstanding Class P units included both a service condition and a performance condition, while the remainder of the Class P units only included a service condition. The performance-based vesting condition was satisfied upon completion of the IPO. Equity-based compensation expense of $0.4 million and $1.3 million related to the Class P

units was recorded to general and administrative expense in the condensed consolidated statements of operations and comprehensive income for the thirteen and thirty-nine weeks ended October 3, 2021, respectively.

During October 2021, the LP modified the vesting schedule related to 763,178 outstanding Class P units for two senior executives to accelerate vesting if the two senior executives perform service after the completion of the IPO over the subsequent 12-month period. The Company concluded that the amendment to the Class P units was a modification under ASC 718 and there was no incremental equity-based compensation expense to recognize. With the completion of the Company’s IPO, the remaining unrecognized expense associated with the restricted stock, received in exchange at the IPO for the modified Class P units, is being recognized over the subsequent 12-month period through November 2022.

Class P Distributions

With the completion of the IPO, the performance condition for the distributions related to the Class P units was met and the Company recognized a cumulative catch-up to equity-based compensation expense. Such amounts payable to the former Class P unit holders (“FCPUs”) were included in accrued expenses and other current liabilities as of January 2, 2022. The distributions payable to the FCPUs were determined to be settled in the thirteen weeks ended April 3, 2022 as a result of agreements reached with the FCPUs, and were recorded as an increase to additional paid-in capital as such amounts were related to the shares of common stock received by the FCPUs as part of the liquidation of the LP in November 2021. The agreements provided for payments to the FCPUs of up to $0.6 million (if future sales of shares of common stock held by the FCPUs during 2022 occur at a price less than the threshold stated in the agreements), which were recorded as equity-based compensation expense in the thirteen weeks ended April 3, 2022 and in accrued expenses and other current liabilities as of April 3, 2022.  During the thirteen weeks ended July 3, 2022 the $0.6 million accrual was reversed as the period in which the FCPUs were eligible for this payment expired on June 20, 2022 with one immaterial payment being triggered under this agreement and the remainder being reversed out of equity-based compensation expense.

Restricted Stock and Restricted Stock Units

Immediately before the completion of the IPO, the LP was liquidated and the Class P unit holders of the LP received shares of the Company’s common stock in exchange for their units of the LP. The Class P unit holders received 1,964,103 shares of common stock, comprised of 1,536,304 shares of vested common stock and 427,799 shares of unvested restricted stock. Any such shares of restricted stock received in respect of unvested Class P units of the LP are subject to vesting and a risk of forfeiture to the same extent as the corresponding Class P units. The Company recorded equity-based compensation expense of $0.7 million and $2.2 million during the thirteen and thirty-nine weeks ended October 2, 2022, respectively, related to the exchanged restricted stock. As of October 2, 2022, the unrecognized equity-based compensation expense for all restricted stock is $1.5 million and will be recognized over a weighted-average period of 1.44 years.

During the thirteen and thirty-nine weeks ended October 2, 2022, the Company granted zero RSUs and 2,063,444 RSUs, respectively, to certain executives and employees which vest over a two- or three- year service period, and 49,297 RSUs and 149,929 RSUs, respectively, to certain directors which vest over a six-month to three-year service period pursuant to the Company’s Non-Employee Director Compensation Program. The Company recognized equity-based compensation expense of $2.2 million and $6.5 million during the thirteen and thirty-nine weeks ended October 2, 2022, respectively, related to the RSUs. As of October 2, 2022, the unrecognized equity-based compensation expense is $12.7 million and will be recognized over a weighted-average period of 1.55 years.

		Weighted-
	Restricted	Average Fair
	Stock	Value per Share
Balance at January 2, 2022	381,612	$	5.39
Restricted stock granted	—		—
Restricted stock vested	(172,725)		5.40
Restricted stock forfeited	(22,693)		5.39
Balance at October 2, 2022	186,194	$	5.38
	Unvested	Weighted-
	Restricted	Average Fair
	Stock Units	Value per Share
Balance at January 2, 2022	—		—
Restricted stock units granted	2,213,373	$	9.54
Restricted stock units vested	(607,063)		10.06
Restricted stock units forfeited	(158,180)		10.02
Balance at October 2, 2022	1,448,130	$	9.27