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Equity-Based Compensation | 12 Months Ended
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Oct. 01, 2022
Share-Based Payment Arrangement [Abstract] |
Equity-Based Compensation | Note 17—Equity-Based Compensation Equity-Based Compensation 2020 Omnibus Incentive Plan In October 2020, we adopted the Leslie’s, Inc. 2020 Omnibus Incentive Plan (the “Plan”). The Plan provides for the grant of awards such as non-qualified stock options to purchase Leslie’s common stock (each, a “Stock Option”) and restricted stock units (“RSUs”) which may settle in Leslie’s, Inc. common stock to our directors, executives and eligible employees of the Company. Stock Options granted under the Plan generally expire ten years from the date of grant and consist of Stock Options that vest upon the satisfaction of time-based requirements (“Service Stock Option”) and performance-based Stock Options that vest upon satisfaction of a performance-based requirement (“Performance Stock Options”). RSUs consist of grants that vest ratably upon the satisfaction of time-based requirements (“Service RSU”) and performance-based RSUs that vest upon satisfaction of performance-based requirements (“Performance RSU”). In each case, vesting of the Company’s outstanding and unvested Stock Options and RSUs is contingent upon the holder’s continued service through the date of each applicable vesting event. As of October 1, 2022, we had approximate ly 8.1 million shares of common stock available for future grants under the Plan. As of October 1, 2022, the aggregate unamortized value of all outstanding equity-based compensation awards was approximately $29.1 million, which is expected to be recognized over a weighted average period of approximately 2.5 years. Stock Options The fair value of each Stock Option granted is estimated on the grant date using the Black-Scholes option pricing model. The expected life is based on the SEC simplified method and a mid-point assumption. Expected price volatility is determined based on the implied volatilities of comparable companies over a historical period that matches the expected life of the Stock Options. The risk-free interest rate is based on the expected United States Treasury rate over the expected life. The dividend yield is based on the expectation that no dividends will be paid. During fiscal 2022, the Company did not grant any Stock Options. The following table summarizes the weighted average assumptions used for Stock Options granted during the year ended October 2, 2021:
Expected volatility |  |  | 28.9 | %
Risk-free interest rate |  |  | 0.7 | %
Dividend yield |  |  | 0.0 | %
Expected term (in years) |  |  | 6.3 |
The following tables summarize our Stock Option activity under the Plan for the fiscal years ended (in thousands, except per share amounts):
|  | Year Ended |
|  | October 1, 2022 |  |  | October 2, 2021 |
|  | Number of Options |  |  | Weighted Average Exercise Price |  |  | Number of Options |  |  | Weighted Average Exercise Price |
Outstanding, Beginning |  |  | 4,877 |  |  | $ | 18.22 |  |  |  | — |  |  | $ | — |
Granted |  |  | — |  |  |  | — |  |  |  | 5,372 |  |  |  | 18.43 |
Exercised |  |  | (81 | ) |  |  | 17.00 |  |  |  | — |  |  |  | — |
Forfeited/Expired |  |  | (1,016 | ) |  |  | 18.22 |  |  |  | (495 | ) |  |  | 17.26 |
Balance, Ending |  |  | 3,780 |  |  | $ | 18.24 |  |  |  | 4,877 |  |  | $ | 18.22 |
Vested and exercisable as of year-end |  |  | 1,349 |  |  | $ | 18.28 |  |  |  | — |  |  | $ | — |
|  | As of October 1, 2022 |
Aggregate intrinsic value of Stock Options outstanding |  | $ | — |
Unamortized value of unvested Stock Options |  | $ | 9,477 |
Weighted average years that expense is expected to be recognized |  |  | 1.8 |
Weighted average remaining contractual years outstanding |  |  | 8.6 |
Restricted Stock Units The following table summarizes our RSU activity under the Plan for the fiscal years ended (in thousands, except per share amounts):
|  | Year Ended |
|  | October 1, 2022 |  |  | October 2, 2021 |
|  | Number of RSUs |  |  | Weighted Average Grant Date Fair Value |  |  | Number of RSUs |  |  | Weighted Average Grant Date Fair Value |
Outstanding, Beginning |  |  | 3,135 |  |  | $ | 6.90 |  |  |  | — |  |  | $ | — |
Converted from Incentive Awards(1) |  |  | — |  |  |  | — |  |  |  | 6,038 |  |  |  | 1.43 |
Granted |  |  | 631 |  |  |  | 18.57 |  |  |  | 725 |  |  |  | 25.95 |
Vested(2) |  |  | (1,079 | ) |  |  | 5.99 |  |  |  | (3,321 | ) |  |  | 1.10 |
Cancelled/forfeited |  |  | (390 | ) |  |  | 9.82 |  |  |  | (307 | ) |  |  | 4.64 |
Balance, Ending |  |  | 2,297 |  |  | $ | 10.04 |  |  |  | 3,135 |  |  | $ | 6.90 |
(1) Represents approximately 4.8 million Service and Performance Incentive Awards converted to RSUs in connection with the IPO and adoption of the Plan during fiscal 2021. (2) RSUs that vested during the year ended October 2, 2021 inclu des RSUs that were issued in connection with the IPO that vest only upon achievement of volume weighted average price (“VWAP”) targets established by the compensation committee of the board of directors (Performance RSUs). The VWAP target was measured over rolling 20-day trading periods commencing on the six-month anniversary of the consummation of the IPO.
|  | As of October 1, 2022 |
Unamortized value of unvested RSUs |  | $ | 19,622 |
Weighted average period (years) expense is expected to be recognized |  |  | 2.8 |
During the fiscal year ended October 1, 2022, equity-based compensation expens e was $11.3 million. During the fiscal year ended October 2, 2021, equity-based compensation expense was $25.6 million and approximately $10.7 million associated with the acceleration of certain Incentive Awards in connection with the completion of our IPO. Equity-based compensation expense was $1.8 million during the fiscal year ended October 3, 2020. Equity-based compensation expense is reported in SG&A in our consolidated statements of operations. Incentive Grant Agreements Prior to the IPO, our then parent company granted profits interests to our employees (“Incentive Awards”) through incentive unit grant agreements (“Incentive Agreements”). The Incentive Awards had economic characteristics similar to Stock Options and had the right to share in the appreciation of the equity value of our then parent company. The sole asset of our then parent company was indirect ownership of Leslie’s, Inc. We concluded such Incentive Awards were classified as equity awards. The Incentive Awards were spread over two tiers, a service-based (time) award tier (“Service Incentive Awards”) and a performance-based award tier (“Performance Incentive Awards”). The Service Incentive Awards vested over a four-year period at a rate of 25% annually on each anniversary of the date of grant. The Performance Incentive Awards vested based on performance conditions as defined in the Incentive Agreements. In connection with the IPO and adoption of the Plan, all Incentive Awards granted under Incentive Agreements were converted to RSUs under the Plan with substantially similar service and performance conditions as defined in the Incentive Agreements. The fair value of the Incentive Awards was estimated on the date of grant using the Black-Scholes option pricing model, which treated the Incentive Unit Grant Agreements as implicit call options with exercise prices determined based on their respective rights to participate in distributions. The Black-Scholes option pricing model required the use of a number of assumptions, including expected volatility, risk-free interest rate, expected dividends, and expected term. The following table summarizes the assumptions and fair value used for Incentive Awards for the fiscal year ended October 3, 2020:
Expected volatility |  |  | 23.5 | %
Risk-free interest rate |  |  | 1.4 | %
Dividend yield |  |  | 0.0 | %
Expected term (in years) |  |  | 4.0 |
The following table summarizes our Incentive Awards activity for the fiscal year ended (in thousands, except per share amounts):
|  | October 2, 2021 |  | October 3, 2020 |
|  | Number of Awards |  |  | Weighted Average Exercise Price |  | Number of Awards |  |  | Weighted Average Exercise Price |
Outstanding, Beginning |  |  | 13,267 |  |  |  |  |  | 10,263 |  |  |  |
Cancelled upon IPO |  |  | (8,450 | ) |  |  |  |  | — |  |  |  |
Converted to RSUs |  |  | (4,817 | ) |  |  |  |  | — |  |  |  |
Granted |  |  | — |  |  |  |  |  | 5,980 |  |  | $ | 1.87 |
Cancelled/forfeited |  |  | — |  |  |  |  |  | (2,976 | ) |  |  |
Balance, Ending |  |  | — |  |  |  |  |  | 13,267 |  |  |  |

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