Quarterly report pursuant to Section 13 or 15(d)

Stock-based Compensation

v3.21.2
Stock-based Compensation
6 Months Ended
Jul. 01, 2021
Share-based Payment Arrangement [Abstract]  
Stock-based Compensation Stock-based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation, which requires measurement of compensation cost for all stock awards at fair value on the date of grant and recognition of compensation, net of forfeitures, over the requisite service period for awards expected to vest. Stock-based compensation expense for the twenty-six weeks ended July 1, 2021 and June 25, 2020 was $10.1 million and $7.1 million, respectively, and was included in general and administrative expenses within the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income.
Stock Options
Stock options are granted with an exercise price greater than or equal to the fair market value on the date of grant, as authorized by the Company’s board of directors or compensation committee. Options granted have contractual terms of ten years and vesting provisions ranging from one year to five years. The stock options granted to eligible employees during the twenty-six weeks ended July 1, 2021 vest in four ratable annual installments on each of the first four anniversaries of the grant date, subject to the grantee’s continued service through the applicable vesting date. Stock option grants are generally subject to forfeiture if employment terminates prior to vesting.
The fair value of stock option awards granted during the twenty-six weeks ended July 1, 2021 was estimated using the Black-Scholes-Merton option pricing model with the following weighted-average assumptions:
Twenty-six Weeks Ended
July 1, 2021
Weighted average fair value per stock option $ 41.75
Risk-free interest rate 0.8%
Expected volatility 48.1%
Expected life (in years) 5.4
Dividend yield —%
The Company determines the grant date fair value of stock options with assistance from a third-party valuation specialist. Expected volatility is estimated based on the historical volatility of the Company’s Class A common stock since its initial public offering in 2017 as well as the historical volatility of the common stock of similar public entities. The Company considers various factors in determining the appropriateness of the public entities used in determining expected volatility, including the entity's life cycle stage, industry, growth profile, size, financial leverage, and products offered. To determine the expected life of the options granted, the Company relied upon a combination of the observed exercise behavior of prior grants with similar characteristics and the contractual terms and vesting schedules of the current grants. The risk-free interest rate is based on the term structure of interest rates at the time of the option grant.
The table below summarizes stock option activity for the twenty-six weeks ended July 1, 2021:
Options Weighted Average Exercise Price
Outstanding at January 1, 2021 3,740,604  $ 20.72 
Granted 66,505  95.68 
Exercised (603,769) 10.48 
Forfeited or expired (24,575) 39.91 
Outstanding at July 1, 2021
3,178,765  $ 24.09 
Vested and exercisable at July 1, 2021
1,865,343  $ 17.33 
The total unrecognized compensation cost related to stock options as of July 1, 2021 and December 31, 2020, was $14.1 million and $16.0 million, respectively. The unrecognized compensation cost remaining as of July 1, 2021 is expected to be recognized over a weighted average period of 2.2 years.
Restricted Stock Units
During the twenty-six weeks ended July 1, 2021, the Company granted restricted stock units to certain employees that represent an unfunded, unsecured right to receive a share of the Company’s Class A common stock upon vesting. These awards vest in four ratable annual installments on each of the first four anniversaries of the grant date, subject to the grantee’s continued service through the applicable vesting date. The fair value of the restricted stock units was determined based on the closing price of the Company’s Class A common stock on the date of grant.
The following table summarizes restricted stock unit activity during the twenty-six weeks ended July 1, 2021:
Restricted Stock Units
Unvested at January 1, 2021 128,220 
Granted 116,939 
Vested (26,666)
Forfeited (5,077)
Unvested at July 1, 2021 213,416 
The total unrecognized compensation cost related to restricted stock units as of July 1, 2021 and December 31, 2020 was $15.4 million and $6.2 million, respectively. The unrecognized compensation cost remaining as of July 1, 2021 is expected to be recognized over a weighted average period of 3.4 years.
Restricted Stock Awards
During the twenty-six weeks ended July 1, 2021, the Company issued service-based restricted stock awards to certain executive officers and non-employee directors that are subject to the grantee’s continued service through the applicable vesting date. Service-based restricted stock awards granted during the period to executive officers vest in four ratable annual installments on each of the first four anniversaries of the grant date, while such awards granted to non-employee directors during the period cliff vest on the first anniversary from the grant date.
The following table summarizes restricted stock award activity during the twenty-six weeks ended July 1, 2021:
Restricted Stock Awards
Service-based Performance-based Total Stock Return (TSR)
Unvested at January 1, 2021 131,844  160,315  104,456 
Granted 28,814  —  — 
Vested (13,555) —  — 
Forfeited (2,508) —  — 
Unvested at July 1, 2021 144,595  160,315  104,456 
The fair value of performance-based and service-based restricted stock awards is based on the closing market price of the Company's Class A common stock on the date of grant. The fair value of the TSR awards is estimated on grant date using the Monte Carlo valuation method. Compensation cost for restricted stock awards is recognized using the straight-line method over the requisite service period, which for each of the awards is the service vesting period. As of July 1, 2021 and December 31, 2020, total unrecognized compensation cost related to unvested restricted stock awards was $14.5 million and $15.2 million, respectively. The unrecognized compensation cost remaining as of July 1, 2021 is expected to be recognized over a weighted average period of 2.3 years.