Equity-Based Compensation |
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| Equity-Based Compensation | EQUITY-BASED COMPENSATION
Total equity-based compensation expense was $14,779, $14,965, and $13,485 for fiscal years 2024, 2023, and 2022, of which, $221, $370, and $154, was related to liability-classified awards, respectively. The related tax benefit for these periods was $2,692, $2,507, and $2,556, respectively.
The following table shows the remaining unrecognized compensation expense on a pre-tax basis for all types of unvested equity awards that are outstanding and expected to vest, as of December 28, 2024. This table does not include an estimate for future grants that may be issued.
The remaining unrecognized compensation expense above is expected to be recognized over a weighted-average period of 1.7 years.
The Company's 2015 Equity Incentive Award Plan (the "2015 Plan") is currently the only plan under which equity awards are issued. The 2015 Plan allows for the grant of various equity awards including stock-settled stock appreciation rights, stock options, and restricted stock awards which include restricted stock units, deferred stock units, performance stock units, (collectively "restricted stock awards") and other types of equity-based awards to the Company’s officers, key employees, and non-employee directors.
Since the inception of the 2015 Plan, 1,750 shares have been authorized. As of December 28, 2024, 4,613 awards had been granted under the 2015 Plan, of which 2,946 were stock-settled stock appreciation rights, and 1,667 were restricted stock awards. Of the 2,946 granted stock-settled stock appreciation rights, approximately 450 shares have been issued, 24 awards are outstanding and the remaining have been returned to the plan. As of December 28, 2024, a total of 1,305 options and grants had been forfeited and added back to the number of shares available for issuance under the 2015 Plan.
Stock-Settled Stock Appreciation Rights
The Company uses the Black-Scholes option pricing model to estimate the fair value of its stock-settled stock appreciation rights. The weighted-average fair value of stock-settled stock appreciation rights granted in 2024 and 2023 were $14.60 and $19.92, respectively. There were no stock-settled stock appreciation rights granted in 2022.
Stock-settled stock appreciation rights granted to officers and key employees upon hire or promotion to such a position, or annually for existing participants, generally vest 25% each year on the anniversary of the grant date and expire 4.5 years from the date of grant.
The following table includes the weighted-average assumptions the Company used to calculate the fair value of stock-settled stock appreciation rights that were granted during the periods indicated.
(1)The Company utilizes historical volatility of the trading price of its common stock.
(2)Risk-free interest rate is based on the U.S. Treasury yield curve with respect to the expected life of the award.
(3)Depending upon the terms of the award, one of two methods will be used to calculate expected life:
(i)a weighted-average that includes historical settlement data of the Company’s equity awards and a hypothetical holding period, or (ii) the simplified method.
(4)The Company historically has not paid and currently has no plan to pay dividends.
(5)Exercise price is the closing price of the Company's common stock on the date of grant.
A summary of the Company’s stock-settled stock appreciation right activity is as follows:
* Aggregate intrinsic value is defined as the difference between the current market value at the reporting date (the closing price of the Company’s common stock on the last trading day of the period) and the exercise price of awards that were in-the-money. The closing price of the Company’s common stock at December 28, 2024 and December 30, 2023 was $35.69 and $53.60, respectively.
The total intrinsic value of stock-settled stock appreciation rights exercised was $0, $0, and $50, for the years ended 2024, 2023, and 2022, respectively. The total fair value of stock-settled stock appreciation rights that vested was $656, $1,009, and $983, for the years ended 2024, 2023, and 2022, respectively.
During the years ended 2024 and 2023, there were no exercises of stock-settled stock appreciation rights. During the year ended 2022, certain employees elected to receive a net amount of shares upon the exercise of stock-settled stock appreciation rights in order to satisfy the Company’s tax withholding obligation. There was no reduction to additional paid-in capital for the years ended 2024, 2023, and 2022.
Restricted Stock Awards
Restricted stock awards include stock-settled and cash-settled restricted stock units, performance stock units granted to the Company’s officers and key employees, and deferred stock units granted to non-employee directors. Restricted stock units are granted to officers and key employees upon hire or promotion to such a position, or annually for existing participants, and generally vest 25% each year on the anniversary of the grant date. Awards of deferred stock units granted to non-employee directors generally vest 25% each quarter, commencing on the first vest date anniversary following the final vesting of the previous award. Upon vesting, holders of stock-settled restricted stock units and deferred stock units are entitled to receive shares of the Company’s common stock on a one-for-one basis. Holders of cash-settled restricted stock units are entitled to receive cash payments equivalent to the number of units held, valued at the closing market price on the vest date. The fair value of restricted stock units is determined based on the Company’s closing stock price on the date of grant. Cash-settled restricted stock units are accounted for as liability-classified awards and fair value is remeasured to the current fair value, which is the Company's closing stock price, at each reporting date until the award is settled at vesting. Restricted stock units are full-value shares at the date of grant, vesting over the periods of service, and do not have expiration dates. Performance stock units are granted to officers and key employees. The ultimate number of shares to be earned depends on the achievement of certain market and performance conditions, and continued service through the applicable vesting date, and do not have expiration dates.
A summary of the Company’s stock-settled restricted stock unit activity is as follows:
During the year ended 2024, certain employees elected to receive a net amount of shares upon the release of restricted stock units in order to satisfy the Company’s tax withholding obligation. This resulted in a reduction to additional paid-in capital of $3,223, $3,092, and $4,706 for the years ended 2024, 2023, and 2022, respectively, reflected as a financing activity in the Company’s consolidated statements of cash flows.
The total fair value of restricted stock units that vested was $9,309, $9,293, and $12,808, for the years ended 2024, 2023, and 2022, respectively.
A summary of the Company’s cash-settled restricted stock unit activity is as follows:
The weighted-average fair value of liability-classified awards outstanding was $60, $69, and $85 for the years ended 2024, 2023, and 2022, respectively.
The number of deferred stock units vested and unreleased totaled 8, for the years ended 2024, 2023, and 2022, respectively. There were no deferred stock units that vested in 2024, 2023, and 2022.
During 2024, the Company granted no performance stock units to officers and key employees. The performance stock units are subject to a cliff vesting at the end of a three-year period. The number of units that vest will vary between 0% - 200% based on the achievement of market and performance conditions, over the three-year service period. The fair value of the performance stock units is determined using a Monte-Carlo simulation model. A Monte-Carlo simulation model uses stock price volatility and other assumptions to estimate the probability of satisfying the market conditions and the resulting fair value of the award.
The weighted-average grant date fair value of performance stock units granted in 2023 was $40.05. There were no performance stock units granted in 2024 or 2022. In 2024 and 2023, there was unrecognized compensation expense of $2,025 and $913 related to unvested performance stock units that are not probable of achieving the performance condition.
The following table includes the weighted-average assumptions the Company used to calculate the fair value of performance stock units that were granted during the periods indicated.
(1)The Company utilizes historical volatility of the trading price of its common stock.
(2)Risk-free interest rate is based on the U.S. Treasury yield curve with respect to the expected life of the award.
(3)The Company historically has not paid and currently has no plan to pay dividends.
The market condition is met if the Company achieves the target closing stock price on December 31, 2025, of $59.84. If the market condition is met, the number of earned performance stock units, as a percentage of the target number of performance stock units, is calculated based on the compound annual growth rate ("CAGR") of the Company's active Customers from fiscal year-end 2022 to fiscal year-end 2025. The payout as a percent of target shares will be determined based on the active Customer growth rate achieved by the Company as of fiscal year-end 2025, as illustrated in the table below. If the active Customer CAGR growth rate does not meet the performance condition according to the table below, the corresponding payout will be zero.
(1) Based on active Customer count of 490,000 at December 31, 2022. For purposes of this performance condition, "active Customer" is defined as active Customer in the Company’s direct selling operating segment (discussed further in Note M – Segment Information below), excluding customers from mergers and acquisitions.
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