Stockholders' Equity

9 Months Ended

Mar. 31, 2023

Stockholders' Equity

Stockholders' Equity

Note 11. Stockholders’ Equity

Common Stock

As of March 31, 2023, the Company had 33,270,909 shares of common stock outstanding.

The Company began paying quarterly cash dividends on common stock in December 2013. As of March 31, 2023, the Company has cumulatively paid over $98.4 million in cash dividends. The Company paid dividends of $12.1 million and $8.4 million to its common stockholders during the nine months ended March 31, 2023 and 2022, respectively. The following table reflects the dividends paid per share within the respective three-month periods:

	Fiscal Year
	2023		2022
Third quarter ended March 31,	$	0.120	$	0.100
Second quarter ended December 31,		0.120		0.075
First quarter ended September 30,		0.120		0.075

On September 8, 2022, the Board of Directors approved a share repurchase program, under which the Company is authorized to repurchase up to $25.0 million of its common stock through December 31, 2024. The Company intends to fund repurchases from working capital and cash provided by operating activities. The Board of Directors along with the management team believe that a share repurchase program is complimentary to the existing dividend policy and is a tax efficient means to further improve shareholder return. The shares may be repurchased from time to time in open market transactions, through privately negotiated transactions or by other means in accordance with federal securities laws. The timing, as well as the number and value of shares repurchased under the program, will depend on a variety of factors, including management’s assessment of the intrinsic value of the Company’s shares, the market price of the Company’s common stock, the Company’s capital needs and resources, general market and economic conditions, and applicable legal requirements. The value of shares authorized for repurchase by the Company’s Board of Directors does not require the Company to repurchase such shares or guarantee that such shares will be repurchased, and the program may be suspended, modified, or discontinued at any time without prior notice.

Once the Company completed repayment of borrowings on its Senior Secured Credit Facility and emerged from its blackout period in December 2022, the Company entered into a Rule 10b5-1 plan that authorizes a broker to repurchase shares in the open market subject to pre-defined limitations on trading volume and price. The plan included a 30-day cooling off period that did not allow repurchases to commence until January 2023. The plan is effective until June 30, 2023, unless extended, renewed or terminated by the Company, and has a maximum authorized amount of $5.0 million over that period. The Company may alter the terms of the plan from time to time to the extent it determines changes are necessary to achieve the intended objectives of the repurchase program. During the three and nine months ended March 31, 2023, 0.6 million shares of the Company’s common stock were repurchased under the plan at a total cost of

approximately $3.9 million, including incremental direct transaction costs. These treasury shares were subsequently cancelled.

During the nine months ended March 31, 2023 and 2022, the Company also acquired treasury stock upon the vesting of employee stock-based awards to fund payroll tax withholding obligations. These treasury shares were subsequently cancelled. Such shares were valued at fair market value on the date of vesting.

The following table summarizes all treasury stock purchases during the nine months ended March 31, 2023 and 2022:

	Nine Months Ended
	March 31,
	2023		2022
Number of treasury shares acquired(1)		650,435		7,385
Average cost per share(1)	$	6.12	$	5.09
Total cost of treasury shares acquired	$	3,982,849	$	37,596

(1) For the nine months ended March 31, 2023, includes 633,789 shares repurchased under the Company’s share repurchase program for a weighted average price of $6.07 per share.

Expected Tax Treatment of Dividends

For the fiscal year ended June 30, 2022, all common stock dividends for that fiscal year were treated for tax purposes as qualified dividend income to the recipients. Based on its current projections for the fiscal year ended June 30, 2023, the Company expects all common stock dividends for such period to be treated as qualified dividend income to the recipients. Such projections are based on the Company’s reasonable expectations as of March 31, 2023 and are subject to change based on the Company’s final tax calculations at the end of the fiscal year.

Stock-Based Incentive Plan

The Evolution Petroleum Corporation 2016 Equity Incentive Plan (as amended, the “2016 Plan”) authorizes the issuance of 3.6 million shares of common stock prior to its expiration on December 8, 2026. Incentives under the 2016 Plan may be granted to employees, directors, and consultants of the Company in any one or a combination of the following forms: incentive stock options and non-statutory stock options, stock appreciation rights, restricted stock awards and restricted stock unit awards, performance share awards, performance cash awards, and other forms of incentives valued in whole or in part by reference to, or otherwise based on, the Company’s common stock, including its appreciation in value. As of March 31, 2023 and June 30, 2022, approximately 1.3 million shares and 1.8 million shares, respectively, remained available for grant under the 2016 Plan.

The Company estimates the fair value of stock-based compensation awards on the grant date to provide the basis for future compensation expense. For the three and nine months ended March 31, 2023, the Company recognized $0.5 million and $1.2 million, respectively, of stock-based compensation expense. During the three and nine months ended March 31, 2022, the Company recognized $0.3 million and $0.9 million, respectively, of stock-based compensation expense. Stock-based compensation expense is recorded as a component of “General and administrative expenses” on the unaudited condensed consolidated statements of operations.

Time-Vested Restricted Stock Awards

Time-vested restricted stock awards contain service-based vesting conditions and expire after a maximum of four years from the date of grant if unvested. The common shares underlying these awards are issued on the date of grant and

participate in dividends paid by the Company. These service-based awards vest with continuous employment by the Company, generally in annual installments over terms of three to four years. Awards to the Company’s directors generally have one-year cliff vesting. For such awards, grant date fair value is based on market value of the Company’s common stock at the time of grant. This value is then amortized ratably over the service period. Previously recognized amortization expense subsequent to the last vesting date of an award is reversed in the event that the holder has no longer rendered service to the Company resulting in forfeiture of the award.

Performance-Based Restricted Stock Awards and Performance-Based Contingent Stock Units

Performance-based restricted stock awards and performance-based contingent stock units contain market-based vesting conditions based on the price of the Company’s common stock, the intrinsic value indexed solely to its common stock or the intrinsic value indexed to its common stock compared to the performance of the common stock of its peers. The common shares underlying the Company’s performance-based restricted stock awards are issued on the date of grant and participate in dividends paid by the Company and expire after a maximum of four years from the date of grant if unvested. Performance-based contingent share units do not participate in dividends and shares are only issued in part or in full upon the attainment of vesting conditions, generally have a lower probability of achievement and expire after a maximum of four years from the date of grant if unvested. Shares underlying performance-based contingent share units are reserved from the 2016 Plan. Performance-based restricted stock awards and contingent restricted stock units are valued using a Monte Carlo simulation and geometric Brownian motion techniques applied to the historical volatility of the Company’s total stock return compared to the historical volatilities of other companies or indices to which the Company compares its performance and/or the Company’s absolute total stock return. For certain awards, this Monte Carlo simulation also provides an expected vesting term. Stock-based compensation is recognized ratably over the expected vesting period, so long as the award holder remains an employee of the Company. Previously recognized compensation expense is only reversed for the awards with market-based vesting conditions if the requisite service period is not rendered by the holder resulting in forfeiture of the award or as a result of regulatory required clawback.

Vesting of grants with performance-based vesting conditions is dependent on the future price of the Company’s common stock. Such awards vest in part or in full if the trailing total returns on the Company’s common stock for a specified three-year period exceed the corresponding total returns of various quartiles of indices consisting of peer companies or, in some cases, vest when the average of the Company’s closing common stock price over a defined measurement period meets or exceeds a required common stock price.

During the nine months ended March 31, 2023, the Company granted a total of 0.5 million equity awards that included 0.4 million time-vested restricted stock awards, 0.1 million performance-based restricted stock awards, and approximately 0.05 million performance-based contingent stock units.

During the nine months ended March 31, 2022, the Company granted a total of 0.4 million equity awards that included 0.2 million time-vested restricted stock awards, 0.1 million performance-based restricted stock awards, and 0.1 million of performance-based contingent stock units.

For performance-based awards granted during the nine months ended March 31, 2023 and 2022, the assumptions used in the Monte Carlo simulation valuations were as follows:

	Nine Months Ended
	March 31,
	2023		2022
Weighted average fair value of performance-based awards granted	$	6.52	$	3.10
Risk-free interest rate		3.91% to 4.51%		0.53% to 0.60%
Expected term in years		2.36 to 2.78		2.64 to 2.79
Expected volatility		56.5% to 70.9%		64.7%
Dividend yield		6.1% to 7.8%		4.8% to 6.3%

Unvested restricted stock awards as of March 31, 2023 consisted of the following:

		Weighted
	Number of	Average
	Restricted	Grant-Date
Award Type	Shares	Fair Value
Time-vested awards	465,541	$	6.63
Performance-based awards	192,789		5.30
Unvested at March 31, 2023	658,330	$	6.24

The following table sets forth the restricted stock transactions for the nine months ended March 31, 2023:

						Weighted
		Weighted		Unamortized		Average
	Number of	Average		Compensation		Remaining
	Restricted	Grant-Date		Expense		Amortization
	Shares	Fair Value		(In thousands)		Period (Years)
Unvested at June 30, 2022	341,211		4.54	$	1,092	2.1
Time-vested shares granted	376,015		7.18
Performance-based shares granted	100,239		7.39
Vested	(133,515)		5.37
Forfeited	(25,620)		6.51
Unvested at March 31, 2023	658,330	$	6.24	$	3,279	2.5

Unvested contingent restricted stock units table below consists solely of performance-based awards for the nine months ended March 31, 2023:

						Weighted
				Unamortized		Average
	Number of	Weighted Average		Compensation		Remaining
	Restricted	Grant-Date		Expense		Amortization
	Stock Units	Fair Value		(In thousands)		Period (Years)
Unvested at June 30, 2022	50,062		2.21	$	68	1.7
Performance-based awards granted	50,123		4.79
Vested	—		—
Forfeited	(3,787)		3.69
Expired	—		—
Unvested at March 31, 2023	96,398	$	3.49	$	227	2.1