Equity-Based Compensation

3 Months Ended

Sep. 30, 2024

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.

Under the terms of the 2019 Plan, for stock option and restricted stock unit grants, vesting generally occurs over four years. Stock option grants are not exercisable after the expiration of ten years from the date of grant or such shorter period as specified in a stock award agreement.

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 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 (the “evergreen feature”), or a lesser amount as determined by the Board of Directors. On July 1, 2024, the number of shares of Class A common stock available for issuance under the 2019 Plan was automatically increased according to its terms by 18,813,085 shares.

In October 2023, the Company’s Board of Directors adopted an amendment to the 2019 Plan (the “Amendment”) that increases the number of shares available under the 2019 Plan by 36,000,000 shares of Class A common stock (and retains the existing evergreen feature through July 1, 2029) and extends the right to grant awards under the 2019 Plan through October 24, 2033. The Amendment became effective following approval by the Company’s stockholders on December 7, 2023. As of September 30, 2024, 60,724,755 shares of Class A common stock were 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, 2024	28,901,489	$	20.14	4.7	$	3.4
Granted	255,145	$	4.63
Exercised	(298,996)	$	3.00		$	0.6
Forfeited or expired	(1,454,932)	$	11.95
Outstanding — September 30, 2024	27,402,706	$	20.62	4.8	$	6.7
Vested and Exercisable — September 30, 2024	22,226,512	$	19.40	4.3	$	6.5

Unvested option activity is as follows:


	Options	Weighted-Average Grant Date Fair Value
Unvested — June 30, 2024	6,348,265	$	17.24
Granted	255,145	$	2.86
Vested	(1,327,270)	$	14.40
Forfeited or expired	(99,946)	$	17.21
Unvested — September 30, 2024	5,176,194	$	17.26

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 September 30, 2024. The fair value of the common stock is the closing stock price of Class A common stock as reported on The Nasdaq Global Select Market. The aggregate intrinsic value of exercised options was $0.6 million and $5.0 million for the three months ended September 30, 2024 and 2023, respectively.

For the three months ended September 30, 2024, the weighted-average grant date fair value per option was $2.86, and for the three months ended September 30, 2023 no options were granted. The fair value of each option was estimated at the grant date using the Black-Scholes method with the following assumptions:


	Three Months Ended September 30,
	2024
Weighted average risk-free interest rate (1)	3.7	%
Weighted average expected term (in years)	3.3
Weighted average expected volatility (2)	90.6	%
Expected dividend yield	—

____________________________

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

(2) Expected volatility is based on the historical volatility of the price of Class A common 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, 2024	55,811,463	$	6.80
Granted	25,936,757	$	4.47
Vested and converted to shares	(4,214,886)	$	9.03
Cancelled	(2,885,825)	$	6.71
Outstanding — September 30, 2024	74,647,509	$	5.87

Employee Stock Purchase Plan

In August 2019, the Board of Directors adopted, and in September 2019, the Company's stockholders approved, the Employee Stock Purchase Plan (“ESPP”), through which eligible employees may purchase shares of Class A common stock at a discount through accumulated payroll deductions. The ESPP became effective on September 25, 2019, the date the registration statement, in connection with the Company’s initial public offering, was declared effective by the SEC (the “Effective Date”). The number of shares of 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, in an amount 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, 2024, the number of shares of Class A common stock available for issuance under the ESPP was automatically increased according to its terms by 3,762,617 shares. As of September 30, 2024, 18,632,205 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 commences on September 1 and March 1 and ends 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 price of Class A common stock on the first day of an offering period is higher than the closing price of Class A common stock 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 (“ESPP reset”), resulting in a modification under ASC 718, Compensation - Stock Compensation.

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.

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:


	Three Months Ended September 30,
	2024		2023
Weighted average risk-free interest rate	2.7	%	1.6	%
Weighted average expected term (in years)	1.3		1.3
Weighted average expected volatility	92.4	%	92.4	%
Expected dividend yield	—		—

The expected term assumptions were based on each offering period's respective purchase date. The expected volatility is based on the historical volatility of the price of Class A common stock. 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 months ended September 30, 2024 and 2023, the Company recorded stock-based compensation expense associated with the ESPP of $1.6 million and $1.1 million, respectively.

In connection with the offering period that ended on August 31, 2024, employees purchased 375,829 shares of Class A common stock at a weighted-average price of $3.91 under the ESPP. As of September 30, 2024, total unrecognized compensation cost related to the ESPP was $7.0 million, which will be amortized over a weighted-average remaining period of 1.8 years.

Stock-Based Compensation Expense

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


	Three Months Ended September 30,
	2024		2023
	(in millions)
Cost of revenue
Connected Fitness Products	$	2.3	$	2.3
Subscription	8.7		9.7
Total cost of revenue	11.0		12.0
Sales and marketing	3.7		4.7
General and administrative	21.1		35.4
Research and development	11.4		14.9
Restructuring expense	—		7.2
Total stock-based compensation expense	$	47.2	$	74.2

As of September 30, 2024, the Company had $433.7 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 2.4 years.

In the three months ended September 30, 2023 one employee who was eligible to participate in the Company’s Severance and Change in Control Plan (the “Severance Plan”) terminated employment. Certain modifications were made to equity awards, including the extension of the post-termination period during which an employee may exercise outstanding stock options from 90 days to the earlier of the original expiration date or 3 years. The employee transitioned to a non-executive advisory role and as a result of this modification, the Company recognized incremental stock-based compensation expense of $5.4 million for the three months ended September 30, 2023 within Restructuring expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss