Equity-Based Compensation

9 Months Ended

Mar. 31, 2022

Share-based Payment Arrangement [Abstract]

2019 Equity Incentive Plan

In August 2019, the Board of Directors adopted the 2019 Equity Incentive Plan (the "2019 Plan"), which was subsequently approved by the Company’s stockholders in September 2019. The 2019 Plan serves as the successor to the 2015 Stock Plan (the "2015 Plan"). The 2015 Plan continues to govern the terms and conditions of the outstanding awards previously granted thereunder. Any reserved shares not issued or subject to outstanding grants under the 2015 Plan on the effective date of the 2019 Plan became available for grant under the 2019 Plan and will be issued as Class A common stock. The number of shares reserved for issuance under the 2019 Plan will increase automatically on July 1 of each of 2020 through 2029 by the number of shares of the Company’s Class A common stock equal to 5% of the total outstanding shares of all of the Company’s classes of common stock as of each June 30 immediately preceding the date of increase, or a lesser amount as determined by the Board of Directors. On July 1, 2021, the number of shares of Class A common stock available for issuance under the 2019 Plan was automatically increased according to its terms by 15,007,356 shares. As of March 31, 2022, 41,534,684 shares of Class A common stock are available for future award under the 2019 Plan.

Stock Options

The following summary sets forth the stock option activity under the 2019 Plan:


	Options Outstanding
	Number of Stock Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in millions)
Outstanding — June 30, 2021	57,946,608	$	18.47	7.3	$	6,119.2
Granted	18,290,794	$	45.86
Exercised	(8,068,769)	$	6.11		$	369.5
Forfeited	(4,286,726)	$	45.74
Outstanding — March 31, 2022	63,881,907	$	26.04	7.0	$	643.3
Vested and Exercisable— March 31, 2022	34,799,942	$	14.31	5.3	$	557.6

Unvested option activity is as follows:


	Options	Weighted-Average Grant Date Fair Value
Unvested - June 30, 2021	28,160,034	$	13.52
Granted	18,290,794	$	23.07
Early exercised unvested	(13,501)	$	2.02
Vested	(13,122,980)	$	11.06
Forfeited or expired	(4,232,382)	$	20.61
Unvested - March 31, 2022	29,081,965	$	19.61

The aggregate intrinsic value of options outstanding and vested and exercisable, were calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock as of March 31, 2022. The fair value of the common stock is the closing stock price of the Company's Class A common stock as reported on the Nasdaq Global Select Market. The aggregate intrinsic value of exercised options was $369.5 million and $1.0 billion for the nine months ended March 31, 2022 and 2021, respectively.

For the nine months ended March 31, 2022 and 2021, the weighted-average grant date fair value per option was $23.07 and $43.45, respectively. The fair value of each option was estimated at the grant date using the Black-Scholes method with the following assumptions:


			Nine Months Ended March 31, 2022
Weighted average risk-free interest rate(1)			1.6%
Weighted average expected term (in years)			6.0
Weighted average expected volatility(2)			54.8%
Expected dividend yield			—

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(1) Based on U.S. Treasury yield curve in effect at the time of grant.

(2) Expected volatility is based on a blended average of average historical stock volatilities of several peer companies over the expected term of the stock options, historical volatility of the Company's stock price, and implied stock price volatility derived from the price of exchange traded options on the Company's stock.

Restricted Stock and Restricted Stock Units

The following table summarizes the activity related to the Company's restricted stock and restricted stock units:


	Restricted Stock Units Outstanding
	Number of Awards	Weighted-Average Grant Date Fair Value
Outstanding — June 30, 2021	1,785,946	$	99.43
Granted	10,095,959	$	46.07
Vested and converted to shares	(995,317)	$	98.62
Cancelled	(1,083,529)	$	85.40
Outstanding — March 31, 2022	9,803,059	$	46.10

Employee Stock Purchase Plan

In August 2019, the Board of Directors adopted, and in September 2019, the Company's stockholders approved, the 2019 Employee Stock Purchase Plan ("ESPP"), through which eligible employees may purchase shares of the Company's Class A common stock at a discount through accumulated payroll deductions. The ESPP became effective on the date the registration statement, in connection with the Company’s IPO, was declared effective by the SEC (the "Effective Date"). The number of shares of the Company's Class A common stock that will be available for issuance and sale to eligible employees under the ESPP will increase automatically on the first day of each fiscal year of the Company beginning on July 1, 2020 through 2029, equal to 1% of the total number of outstanding shares of all classes of the Company's common stock on the immediately preceding June 30, or such lesser number as may be determined by the Board of Directors or applicable committee in its sole discretion. On July 1, 2021, the number of shares of Class A common stock available for issuance under the ESPP was automatically increased according to its terms by 3,001,471 shares. As of March 31, 2022, a total of 10,148,440 shares of Class A common stock were available for sale to employees under the ESPP.

Unless otherwise determined by the Board of Directors, each offering period will consist of four six-month purchase periods, provided that the initial offering period commenced on the Effective Date and ended on August 31, 2021, and the initial purchase period ended February 28, 2020. Thereafter, each offering period and each purchase period will commence on September 1 and March 1 and end on August 31 and February 28 of each two-year period or each six-month period, respectively, subject to a reset provision. If the closing stock price on the first day of an offering period is higher than the closing stock price on the last day of any applicable purchase period, participants will be withdrawn from the ongoing offering period immediately following the purchase of ESPP shares on the purchase date and would automatically be enrolled in the subsequent offering period, resulting in a modification under ASC 718.

Unless otherwise determined by the Board of Directors, the purchase price for each share of Class A common stock purchased under the ESPP will be 85% of the lower of the fair market value per share on the first trading day of the applicable offering period or the fair market value per share on the last trading day of the applicable purchase period. During the nine months ended March 31, 2022, there were ESPP resets that resulted in total modification charges of $0.5 million, which is recognized over the new two-year offering period ending February 28, 2024 .

The Black-Scholes option pricing model assumptions used to calculate the fair value of shares estimated to be purchased at the commencement of the ESPP offering periods were as follows:


			Nine Months Ended March 31, 2022
Weighted average risk-free interest rate			0.2%
Weighted average expected term (in years)			1.2
Weighted average expected volatility			71.6%
Expected dividend yield			—

The expected term assumptions were based on each offering period's respective purchase date. The expected volatility was derived from the blended average of historical stock volatilities of several unrelated public companies that the Company considers to be comparable to its business over a period equivalent to the expected terms of the stock options and the historical volatility of the Company's stock price. Beginning in the fiscal quarter ended March 31, 2022, the expected volatility is based on the historical volatility of the Company’s stock price. The risk-free rate assumptions were based on the U.S. treasury yield curve in effect at the time of the grants. The dividend yield assumption was zero as the Company has not historically paid any dividends and does not expect to declare or pay dividends in the foreseeable future.

During the three and nine months ended March 31, 2022, the Company recorded stock-based compensation expense associated with the ESPP of $2.4 million and $10.6 million, respectively, and $2.8 million and $6.6 million for the three and nine months ended March 31, 2021, respectively.

In connection with the offering period which ended on August 31, 2021, employees purchased 293,356 shares of Class A common stock at a weighted-average price of $39.95 under the ESPP. In connection with the offering period ended on February 28, 2022, employees purchased

under the ESPP 420,359 shares of Class A common stock at a weighted-average price of $24.30. As of March 31, 2022, total unrecognized compensation cost related to the ESPP was $28.4 million, which will be amortized over a weighted-average remaining period of 1.9 years.

Stock-Based Compensation Expense

The Company's total stock-based compensation expense was as follows:


	Three Months Ended March 31,				Nine Months Ended March 31,
	2022		2021		2022		2021
	(in millions)
Cost of revenue
Connected Fitness Products	$	5.7	$	3.3	$	16.7	$	6.8
Subscription	6.3		4.3		15.0		13.9
Total cost of revenue	12.0		7.6		31.8		20.6
Sales and marketing	7.5		5.7		23.0		13.7
General and administrative	41.1		22.5		108.9		60.4
Research and development	11.7		5.9		33.4		14.1
Restructuring expense	44.9		—		44.9		—
Total stock-based compensation expense	$	117.1	$	41.7	$	241.9	$	108.8

As of March 31, 2022, the Company had $971.9 million of unrecognized stock-based compensation expense related to unvested stock-based awards that is expected to be recognized over a weighted-average period of 3.3 years.

In the fiscal quarter ended March 31, 2022, four employees of the Company who were eligible to participate in the Company’s Severance and Change in Control Plan (the “Severance Plan”) terminated employment. Pursuant to the Severance Plan, the post-termination period during which each such employee may exercise outstanding stock options was extended from 90 days to one year (or the option expiration date, if earlier). Additionally, in the fiscal quarter ended March 31, 2022, the Company entered into a letter agreement with a board member who was terminating service and pursuant to the terms therein, extended the post-termination period during which the director may exercise outstanding stock options from 90 days to the original expiration date of the stock option. As a result of these modifications, the Company recognized incremental stock-based compensation expense of $15.7 million within Restructuring expense in the condensed consolidated statements of operations and comprehensive (loss) income.