Profits Interest Plan

9 Months Ended

Jun. 30, 2021

13. Profits Interest Plan (amounts in thousands, except unit and per unit data)

The Company grants profits interest units with vesting periods ranging from one to five years to certain key employees in consideration for their services to or for the benefit of the Company. The profits interest units generally vest in three concurring installment periods of one to five years, in each case subject to the applicable holder’s continued employment through the applicable vesting date, provided that upon a termination for cause or a breach of restrictive covenants, all profits interest units held by the applicable holder will be forfeited. Profits interest units do not carry any voting rights, cannot be converted into common units and are settled in cash upon a liquidation event or a unitholder’s departure from the Company. As such, they are liability classified and the liability is measured at fair value each reporting period.

In April 2021, the Company granted additional profits interest units to employees. In addition to the vesting terms outlined within this footnote, a portion of the new grants vest based on the Company’s achievement of certain performance objectives associated with net sales. Expense associated with these awards will be recognized over the applicable vesting period if it is deemed probable that the performance conditions will be met at the end of each reporting period.

The profits interest units are granted in three separate tranches, each of which is subject to a different distribution threshold. The tranches are subject to distribution thresholds that exceed the implied equity value of the Company at the time of grant, which were established in order to incentivize higher levels of performance. During the quarter ended June 30, 2021, the Company amended the profits interest plan to include an antidilution provision which resulted in a decrease to the distribution thresholds under each tranche. As the profits interest are liability classified, they were remeasured at fair value at the end of the reporting period using the updated distribution thresholds post modification. Prior to the quarter ended June 30, 2021, one third of the profits interest units had a distribution threshold of $2,000,000, one third of the profits interest units had a distribution threshold of $2,500,000, and one third of the profits interest units had a distribution threshold of $3,000,000. Subsequent to the April 2021 grants and plan amendment, the profits interest units and their corresponding distribution thresholds were as follows as of June 30, 2021:


Distribution Threshold	Units Outstanding
$ 1,550,000 – 1,700,000		8,213
$ 2,000,000 – 2,200,000		8,213
$ 2,450,000 – 2,650,000		16,595
$ 2,800,000 – 2,900,000		2,350

Total		35,371

The weighted average distribution threshold for units outstanding as of June 30, 2021 was $3,902 per unit. The profits interest units do not require the payment of an exercise price, but since they are economically similar to stock options they are treated as an instrument with an option like feature.

The following tables summarize the Company’s profits interest units activity:


	Units Outstanding
Balance as of September 30, 2020		24,638
Units granted		10,733
Units exercised		—
Units forfeited or canceled		—

Balance at June 30, 2021		35,371


	Units Vested
Balance as of September 30, 2020		—
Units vested		5,545
Units exercised		—
Units forfeited or canceled		—

Balance at June 30, 2021		5,545

The aggregate

intrinsic value of all units outstanding was $

45,390

and $

as of June 30, 2021 and September 30, 2020, respectively. The aggregate intrinsic value of all vested units was $

7,638

and $

as of June 30, 2021 and September 30, 2020, respectively.

The associated liability and unit based compensation for units granted under the Profits Interest Plan is determined using the Black-Scholes option pricing model. See Note 1 for discussion of the change in accounting principle regarding the valuation of the profits interest units. The units are liability classified and are revalued each reporting period. The weighted-average assumptions used to estimate the fair value of the profits interest units, which were outstanding as of June 30, 2021 are as follows:


Fair value per unit	$	3,853
Expected term (in years)		1.53
Risk-free interest rate		0.07-0.67	%
Expected volatility		37.4	%
Expected dividend yield		—	%

The fair value of vested units as of June 30, 2021 and September 30, 2020 was $15,873 and $0, respectively. The total fair

value

of outstanding units as of June 30, 2021 and September 30, 2020 was $136,270 and $0, respectively, of which $53,795 and $83,830

was recognized as compensation expense within Selling, general and administrative expenses during the three and nine months ended June 30, 2021, respectively, and is included in Other long-term liabilities. As of June 30, 2021, there was $

52,440 of total unrecognized compensation cost related to

non-vested

profits interest units. The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.6 years.