Quarterly report pursuant to Section 13 or 15(d)

Equity-Based Compensation

v3.23.2
Equity-Based Compensation
 6 Months Ended
Jun. 30, 2023
Share-Based Payment Arrangement [Abstract]  
Equity-Based Compensation Equity-Based Compensation
Incentive Units

Authentic Brands' maintained an equity incentive plan (the “Plan”) under which it could grant incentive units (“Incentive Units”) to employees or non-employee directors. In connection with the Plan, 200,000 non-voting units have been authorized. These units may contain certain service and performance related vesting provisions. The Incentive Units are awarded to eligible employees and non-employee directors and entitle the grantee to receive non-voting member units upon vesting, subject solely to the employee’s continuing employment or the non-employee director’s continuing service on the board of directors.

The grant date estimated fair value of the Incentive Units was based upon an option pricing model valuation of the awards at the grant date. The Company did not change pricing models during the year, however, began to incorporate and consider the probability-weighted expected return method. The Incentive Units have no strike price; however, participation thresholds, as defined in the Plan were established at grant date that must be exceeded for the holder of the unit to participate in any distributions of the Company. The following assumptions were utilized in determining the fair value of the units at the grant date:
Expected dividend —
Expected volatility
60% to 85%
Risk-free interest rate
0.13% to 2.53%
Expected life of incentive awards (in years)
1 to 5 years
Grant date performance and market threshold
$35,000 to $1,250,000

The computation of expected volatility is based on a weighted average of comparable public companies within the Company’s industry. Expected life is based on the estimated liquidity event timing. The risk-free interest rate is based on
the yield of zero-coupon U.S. Treasury securities of comparable terms. The Company does not anticipate paying dividends in the foreseeable future. The Company recognizes pre-vesting forfeitures as they occur rather than estimate the forfeiture rate at the grant date.

The following table summarizes the changes in the number of Incentive Units for the six months ended June 30, 2023:

Incentive Units Weighted Average Grant Date Fair Value
Granted and outstanding at January 1, 2023 14,210  $ 192.52 
Granted —  — 
Forfeited —  — 
Granted and outstanding at June 30, 2023 14,210  $ 192.52 
Vested at June 30, 2023 4,398  $ 212.38 

As of June 30, 2023, total unrecognized equity compensation expense related to nonvested Incentive Units to be recognized over a weighted average period of approximately two years was $1,829.

In connection with the Business Combination, 28,990 Incentive Units under the Plan fully vested and converted into Common Units in Authentic Brands that allow for their exchange into Class A Common Stock of the Company. The Company recognized $1,856 of compensation costs as a result of the accelerated vesting of incentive units under the "Change in Control" provision of the Plan. The Company accounted for the accelerated vesting of the Incentive Units as a modification. However, because the fair value of the modified awards was the same immediately before and after the modification, no incremental compensation expense was recognized.

In connection with the Business Combination, the Company adopted the 2022 Omnibus Incentive Plan ("Omnibus Plan"), which replaced the Plan, and the 2022 Employee Stock Purchase Plan (the "ESPP").

Stock Options

The Company granted stock options to employees under the Omnibus Plan that vest ratably over three years and expire after seven years. The grant date estimated fair value of the stock options was based upon a Black Scholes model valuation of the options at the grant date. The following weighted average assumptions were utilized in determining the fair value of options granted:
Weighted average grant date fair value $3.41
Expected dividend —
Expected volatility 62%
Risk-free interest rate 3.33%
Options term (in years) 4.5

The computation of expected volatility is based on a weighted average of comparable public companies within the Company’s industry. Expected term assumption is based on the mid-point between vesting and maturity of the stock options. The risk-free interest rate is based on the yield of zero-coupon U.S. Treasury securities of comparable terms. The Company does not anticipate paying dividends in the foreseeable future. The Company recognizes pre-vesting forfeitures as they occur rather than estimate the forfeiture rate at the grant date.
The following table summarizes information about stock options activities for the six months ended June 30, 2023:

Stock Options Weighted Average Exercise Price
Outstanding at January 1, 2023 792,370  $ 9.77 
Granted 1,888,882  5.26 
Forfeited (72,347) 11.13 
Outstanding at June 30, 2023 2,608,905  $ 6.42 
Vested at June 30, 2023 186,742  $ 9.95 

As of June 30, 2023, total unrecognized equity compensation expense related to stock options to be recognized over a weighted average period of approximately three years was $7,382.

Restricted Stock Units

The Company granted restricted stock unit (“RSU”) awards to employees and non-employee directors under the Omnibus Plan that vest annually over approximately three years. The grant date fair values were based on the closing price of the Class A Common Stock of the Company on the date of grant.

The following table summarizes information about the RSUs under the Omnibus Plan for the six months ended June 30, 2023:

Restricted Stock Units Weighted Average Grant Date Fair Value
Nonvested at January 1, 2023 823,829  $ 10.68 
Granted 1,347,403  5.36 
Forfeited (101,401) 10.09 
Vested (307,642) 12.27 
Nonvested at June 30, 2023 1,762,189  $ 6.37 

As of June 30, 2023, total unrecognized equity compensation expense related to RSUs to be recognized over a weighted average period of approximately two years was $10,236.

Performance-Based Restricted Stock Units

On December 29, 2022, the Company granted 8,462,412 performance-based restricted stock units (“PSUs”) to a key employee which vest if certain market capital growth rates are achieved each year through April 2027. Vested PSUs are settled in shares of the Company Class A common stock equal to the number of PSUs granted. The PSUs are forfeited upon termination of employment before the performance period ends. PSUs granted during the year ended December 31, 2022 have a weighted-average grant date fair value of $0.46 per share. All PSUs were unvested as of June 30, 2023. The Company used the Monte Carlo pricing model to estimate the fair value of PSUs utilizing the following assumptions at the grant date:

Expected dividend —
Expected volatility 65%
Risk-free interest rate 3.97%
Award term years 4.3
Valuation date share price $6.21

As of June 30, 2023, total unrecognized equity-based compensation expense related to PSUs to be recognized over a weighted average period of approximately four years was $2,480.

In September 2022, the Company began offering an Employee Stock Purchase Plan ("ESPP") whereby eligible employees may acquire an equity interest in the Company through payroll contributions. At the end of a six-month offering period, shares are purchased at 85% of the stock price at enrollment date or purchase date, whichever is lower.
On March 8, 2023, the Company issued 59,521 shares for a total of $359 under the September 9, 2022 ESPP period, which covered the period between September 9, 2022 and March 8, 2023. Under the March 9, 2023 ESPP period, which covers a period through September 8, 2023, the Company expects to issue 95,309 shares based on the Company's stock price of $6.00 on March 9, 2023.