Quarterly report pursuant to Section 13 or 15(d)

Equity-based Compensation

v3.21.2
Equity-based Compensation
 9 Months Ended
Sep. 30, 2021
Share-based Payment Arrangement [Abstract]  
Equity-based Compensation Equity-based Compensation
Incentive Plans
2021 Omnibus Incentive Plan
In September 2021, the Company’s board of directors adopted, and its stockholders approved, the 2021 Omnibus Incentive Plan (the “2021 Plan”) which became effective in connection with the IPO. The 2021 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units and other forms of equity and cash compensation. A total of 4,900,269 shares of the Company’s common stock were initially reserved for issuance under the 2021 Plan. The number of shares of common stock reserved and available for issuance under the 2021 Plan will automatically increase each January 1, beginning on January 1, 2022, by 1% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the compensation committee of the Company’s board of directors.
2021 Employee Stock Purchase Plan
In September 2021, the Company’s board of directors adopted, and its stockholders approved, the 2021 Employee Stock Purchase Plan (the “ESPP”) which became effective in connection with the IPO. The ESPP authorizes the issuance of shares of the Company’s common stock pursuant to purchase rights granted to employees. The ESPP includes two components: a “Section 423 Component” and a “Non-Section 423 Component.” The Section 423 Component is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code (the “Code”) and will be administered, interpreted and construed in a manner consistent with the requirements of Section 423 of the Code and is limited to employees of the Company located in the United States. The Non-Section 423 Component will be granted pursuant to separate offerings designed to achieve tax, securities laws or other objectives for eligible employees of the Company located outside of the United States.
A total of 1,225,067 shares of the Company’s common stock were initially reserved for issuance under the ESPP. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2023, by the lesser of 1% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the compensation committee of the Company’s board of directors.
The offering periods of the ESPP are six months long and begin on January 1 and July 1 of each year. The initial offering period will begin on January 1, 2022 and will end on June 30, 2022.
The price at which common stock is purchased under the ESPP is equal to 85% of the fair market value of a share of the Company’s common stock on the first or last day of the offering period, whichever is lower.
2018 Stock and Incentive Compensation Plan
Prior to the IPO, the 2018 Stock and Incentive Compensation Plan, as amended, (the “2018 Plan”) provided for the issuance of time-based incentive units and performance-based incentive units issued by Excelerate, L.P. (the predecessor entity of a.k.a. Brands Holding Corp.). In connection with the reorganization transactions and the IPO, all of the equity interests in Excelerate, L.P., including outstanding incentive units issued as equity-based compensation under the 2018 Plan, were transferred to New Excelerate, L.P. (refer to Note 1 for additional information). The incentive units issued under the 2018 Plan participate in distributions from New Excelerate, L.P., but only after investors receive their return of capital plus a specified threshold amount per unit. The total incentive pool size under the plan was 16,475,735 units. The 2018 Plan was terminated in September 2021 in connection with the IPO, but continues to govern the terms of outstanding incentive units that were granted prior to the IPO. No further incentive units will be granted under the 2018 Plan.
Upon the expiration, forfeiture, cancellation or withholding of units for employee taxes of any incentive units underlying outstanding incentive unit awards granted under the 2018 Plan, an equal number of shares of a.k.a. Brands Holding Corp. common stock will become available for grant under the 2021 Plan that was established in connection with the IPO.
Grant Activity
Stock Options
The 2021 Plan provides for the issuance of incentive and nonqualified stock options. Under the 2021 Plan, the exercise price of an incentive stock option shall not be less than the fair market value of one share of the Company’s common stock on the date of grant. Stock options are exercisable over periods not to exceed ten years from the date of grant, and can vest over time or based on performance. As of September 30, 2021, all stock option grants have been time-based.
A summary of the Company's time-based stock option activity under the 2021 Plan was as follows:
Number of Options
Weighted Average Exercise Price
Aggregate Intrinsic Value
Balance as of December 31, 2020
 —  $ —  $ — 
Granted
 273,026  9.50 
Vested
 —  — 
Forfeited/Repurchased
 —  — 
Balance as of September 30, 2021
 273,026  9.50  — 
Vested as of September 30, 2021
 —  $ —  $ — 
As of September 30, 2021, there was $1.4 million of total unrecognized compensation cost related to unvested stock options issued under the 2021 Plan, which is expected to be recognized over a weighted average period of 4.0 years.
The assumptions that the Company used to determine the grant date fair value of stock options granted under the 2021 Plan during the three months ended September 30, 2021 were as follows, presented on a weighted-average basis:
Risk free interest rate
 1.00  %
Expected volatility
 51.32  %
Expected dividend yield
 —  %
Expected term
 6.08 years
Restricted Stock Units
The 2021 Plan provides for the issuance of restricted stock units (“RSUs”). RSUs generally vest over four years.
A summary of the Company's RSU activity under the 2021 Plan was as follows:
Number of Shares
Weighted Average
Grant Date
Fair Value
Balance as of December 31, 2020
 —  $ 0.00 
Granted
 894,902  9.99 
Vested
 —  0.00 
Forfeited/Repurchased
 —  0.00 
Balance as of September 30, 2021
 894,902  $ 9.99 
As of September 30, 2021, there was $8.9 million of total unrecognized compensation cost related to unvested RSUs issued under the 2021 Plan, which is expected to be recognized over a weighted average period of 4.0 years.
Incentive Units
The 2018 Plan provided for the issuance of time-based incentive units and performance-based incentive units. Time-based incentive units generally vest over four years. Performance-based incentive units vested upon the satisfaction of the performance condition as described further below.
Time-Based Incentive Partnership Units
The following table summarizes time-based incentive unit activity under the 2018 Plan:
Number of Units
Weighted Average
Grant Date
Fair value
Weighted Average Participation Threshold
Aggregate Intrinsic Value
Balance as of December 31, 2020
 6,247,626  $ 1.27  $ 1.24  $ 23,688 
Granted
 2,079,367  0.90  6.36 
Vested
 (1,785,573) 1.13  1.18 
Balance as of September 30, 2021
 6,541,420  $ 1.19  $ 2.89  $ 19,818 
Vested as of September 30, 2021
 2,791,791 
As of September 30, 2021, there was $7.1 million of total unrecognized compensation cost related to unvested time-based incentive units issued under the 2018 Plan, which is expected to be recognized over a weighted average period of 3.1 years.
While there were no time-based incentive units granted under the 2018 plan during the three months ended September 30, 2021, the assumptions that the Company used to determine the grant date fair value of time-based incentive units during the periods presented below were as follows, presented on a weighted-average basis:
Three Months Ended September 30, 2020 Nine Months Ended September 30,
2021 2020
Risk free interest rate
 0.16  % 0.10  % 0.25  %
Expected volatility
 50  % 45  % 50  %
Expected dividend yield
 0  % 0  % 0  %
Expected term
 2.87 years 1.42 years 3.18 years
Performance-Based Incentive Units
Performance-based incentive units vest upon the satisfaction of a performance condition and become exercisable upon the satisfaction of the market condition. The performance condition was satisfied upon the occurrence of the IPO. As it was not deemed probable until it occurred, all compensation expense related to these awards was recognized at the date of IPO. The market condition is satisfied upon the initial investor in Excelerate, L.P. receiving an aggregate return equal to three times its aggregate investment. As of September 30, 2021, all outstanding performance-based incentive units have been fully expensed.
The following table summarizes performance-based incentive unit activity under the 2018 Plan:
Number of Units
Weighted Average Grant Date Fair value
Weighted Average Participation Threshold
Aggregate Intrinsic Value
Balance as of December 31, 2020
 4,461,764  $ 0.91  $ 1.19  $ 17,137 
Granted
 932,124  1.01  6.09 
Vested
 (5,393,888) 0.93  2.04 
Balance as of September 30, 2021
 —  $ —  $ 0.00  $ — 
Vested as of September 30, 2021
 5,393,888 
The grant date fair value of the performance-based incentive units was determined using the Black-Scholes option pricing model, modified to allow for vesting only if the value at the distribution date is at or above the performance threshold.
Transition Agreement
During the year ended December 31, 2020, the Company entered into a transition agreement with a former executive whereby all unvested incentive units were forfeited upon her termination. Pursuant to the terms of this transition agreement, the former executive retained 261,287 vested incentive units following her termination. As permitted by the original terms of the incentive units, the Company exercised its right to repurchase the former executive’s remaining 802,634 vested incentive units for total cash consideration of $1.1 million payable within 11 months following her termination. The consideration payable was deducted from additional paid-in capital as it did not exceed the fair value of the repurchased incentive units as of the date of repurchase.
Equity-Based Compensation Expense
The Company recognizes compensation expense in the general and administrative operating expense line for stock options, RSUs and time-based incentive units granted prior to the IPO, by amortizing the grant date fair value on a straight-line basis over the expected vesting period to the extent the vesting of the grant is considered probable. The Company recognized compensation expense for performance-based incentive units granted prior to the IPO at the date of IPO. The Company recognizes equity-based award forfeitures in the period such forfeitures occur.
The following table summarizes the Company’s equity-based compensation expense by award type for all Plans:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Stock options $ 8  $ —  $ 8  $ — 
RSUs 52  —  52  — 
Time-based incentive units 619  415  1,751  834 
Performance-based incentive units 4,903  —  4,903  — 
Total $ 5,582  $ 415  $ 6,714  $ 834