How does Noodles & Company measure stock-based compensation expense?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
Stock-based compensation expense is measured at the grant date based upon the estimated fair value of the portion of the award that is ultimately expected to vest and is recognized as expense over the applicable vesting period of the award generally using the straight-line method (see Note 9, Stock-Based Compensation for more information).
In July of 2024, the Company's Board of Directors adopted the 2024 Inducement Plan (the "Inducement Plan"). The Inducement Plan provides for the potential grant of options, stock appreciation rights, restricted stock and restricted stock units, any of which may be performance-based, and for incentive bonuses, which may be paid in cash or stock or a combination thereof, for certain newly hired employees. As of December 31, 2024, approximately 355,405 share-based awards were available to be granted under the Inducement Plan.
Stock-based compensation expense is generally recognized on a straight-line basis over the service period of the awards. In 2024, 2023 and 2022, non-cash stock-based compensation expense of $3.7 million, $4.3 million and $4.4 million, respectively, was included in general and administrative expense. As of December 31, 2024, there was $5.6 million of unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan, which is expected to be recognized over 2.6 years.
The Company has estimated forfeiture rates that average 26% based upon the class of employees receiving stock-based compensation in its calculation of stock-based compensation expense for the year ended December 31, 2024. These estimates are based on historical forfeiture behavior exhibited by employees of the Company.
Each share of the Financial PSUs has a fair value equal to the Company's stock price at the date of grant while the fair value of each share of TSR is determined using a Monte Carlo valuation model. The Financial PSU stock-based compensation expense is recognized during the three-year period and is adjusted for the number of shares that are expected to vest based on the probability of achieving the targeted performance measures. Stock-based compensation expense for TSR awards is recognized straight-line over the term of the award.
Source: Item 22 — CONTRACTS (FDD pages 98–99)
What This Means (2025 FDD)
According to Noodles & Company's 2025 Franchise Disclosure Document, stock-based compensation expense is measured at the grant date. This measurement is based on the estimated fair value of the portion of the award that is ultimately expected to vest. The expense is recognized over the applicable vesting period of the award, generally using the straight-line method.
For performance stock units (PSUs) granted to executive officers, each share of Financial PSUs has a fair value equal to Noodles & Company's stock price at the grant date, while the fair value of each share of TSR (total shareholder return) is determined using a Monte Carlo valuation model. The Financial PSU stock-based compensation expense is recognized during the three-year performance period and is adjusted for the number of shares expected to vest based on the probability of achieving targeted performance measures. Stock-based compensation expense for TSR awards is recognized straight-line over the term of the award.
In 2024, 2023 and 2022, Noodles & Company included non-cash stock-based compensation expense of $3.7 million, $4.3 million and $4.4 million, respectively, in general and administrative expense. As of December 31, 2024, there was $5.6 million of unrecognized compensation costs related to non-vested share-based compensation arrangements, which is expected to be recognized over 2.6 years. The company has estimated forfeiture rates that average 26% based upon the class of employees receiving stock-based compensation in its calculation of stock-based compensation expense for the year ended December 31, 2024. These estimates are based on historical forfeiture behavior exhibited by employees of the Company.
For prospective franchisees, understanding how Noodles & Company handles stock-based compensation is important for assessing the company's overall financial health and compensation practices. While franchisees themselves typically do not participate directly in these stock-based compensation plans, the expenses associated with these plans can impact the company's profitability and financial stability, which in turn can affect the support and resources available to franchisees.