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Share-Based Compensation
Oct. 04, 2022
Share-Based Payment Arrangement [Abstract]  
Share Based Compensation Share-Based Compensation
The Company designs equity compensation plans to attract and retain employees while also aligning employees’ interests with the interests of the Company’s shareholders. In addition, non-employee members of the Company’s Board of Directors (the “Board”) participate in equity compensation plans in connection with their service on the Board.

The Company established the Evoqua Water Technologies Corp. Stock Option Plan (the “Stock Option Plan”) on March 6, 2014. The plan allows certain management employees and the Board to purchase shares in the Company. Under the Stock Option Plan, the number of shares available for award was 11,083. As of March 31, 2023, there were approximately 2,177 shares available for future grants, however, the Company does not currently intend to make additional grants under the Stock Option Plan.    
In connection with the IPO, the Board adopted, and the Company’s shareholders approved, the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (the “Equity Incentive Plan”), under which equity awards may be granted in the form of options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights, dividend equivalent rights, share awards, and performance-based awards (including performance share units and performance-based restricted stock).
As of March 31, 2023, there were approximately 3,559 shares available for grants under the Equity Incentive Plan.

Outstanding option awards vest ratably at 25% per year, and are exercisable on and after vesting. The options granted have a ten-year contractual term.

A summary of the stock option activity, including stock appreciation rights, as of March 31, 2023 is presented below:
(In thousands, except per share amounts)OptionsWeighted Average Exercise Price/ShareWeighted Average Remaining Contractual TermAggregate Intrinsic Value
Outstanding at September 30, 20224,265 $14.74 5.2 years$78,218 
Granted7 42.42 
Exercised(199)15.95 
Forfeited(7)24.36 
Outstanding at March 31, 20234,066 $14.71 4.7 years$142,350 
Options exercisable at March 31, 20233,589 $13.40 4.3 years$130,334 
Options vested and expected to vest at March 31, 20234,062 $14.70 4.7 years$142,253 
The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) during the six months ended March 31, 2023 was $5,968.
    
A summary of the status of the Company's unvested stock options as of and for the six months ended March 31, 2023 is presented below.
(In thousands, except per share amounts)SharesWeighted Average Grant Date Fair Value/Share
Unvested at beginning of period1,042 $6.82 
Granted7 21.39 
Vested(564)5.93 
Forfeited(8)7.95 
Unvested at end of period477 $8.21 
The total fair value of options vested during the six months ended March 31, 2023, was $3,346.

During the six months ended March 31, 2023, the Company granted RSUs and performance share units under the Equity Incentive Plan to certain employees of the Company. The final number of performance share units that may be earned is dependent on the Company’s achievement of performance goals related to cumulative revenue growth dollars and average adjusted EBITDA margin over a three-year measurement period. The maximum payout cannot exceed 250% of the applicable target award, which also considers that the final number of performance share units that may be earned is subject to a relative total stockholder return (“TSR”) modifier. The TSR modifier operates by increasing or decreasing the total number of shares earned by up to 25% based on the Company’s TSR relative to the TSR of the U.S. constituents of the S&P Global Water Index. In order to receive shares earned at the end of the performance period, the recipient must remain employed by the Company or its subsidiaries through the end of the three-year period (except in the event of retirement, death, disability or, in certain circumstances, related to change in control).
The following is a summary of the RSU activity for the six months ended March 31, 2023.
(In thousands, except per share amounts)SharesWeighted Average Grant Date Fair Value/Share
Outstanding at September 30, 2022980 $30.18 
Granted312 42.83 
Vested(398)27.73 
Forfeited(36)38.64 
Outstanding at March 31, 2023858 $35.56 
Expected to vest at March 31, 2023827 $35.35 
The following is a summary of the performance share unit activity for the six months ended March 31, 2023, assuming target award level.
(In thousands, except per share amounts)SharesWeighted Average Grant Date Fair Value/Share
Unvested at beginning of period592 $23.36 
Granted154 43.46 
Forfeited(4)44.84 
Unvested at end of period742 $27.42 
Expected to vest701 $27.17 
Expense Measurement and Recognition
The Company recognizes share-based compensation for all currently outstanding awards and, in future periods, will recognize compensation costs for the unvested portion of awards based on grant date fair values. Total share-based compensation expense was $6,884 and $6,068 during the three months ended March 31, 2023 and 2022, respectively, of which $6,004 and $5,386 was non-cash, respectively. Total share-based compensation expense was $13,201 and $11,402 during the six months ended March 31, 2023 and 2022, respectively, of which $12,200 and $10,589 was non-cash, respectively. The unrecognized compensation expense related to stock options, RSUs, and performance share units (measured at a target award level) was $3,289, $25,266 and $13,052, respectively at March 31, 2023, and is expected to be recognized over a weighted average period of 1.4 years, 1.9 years and 1.6 years, respectively. The Company received $4,700 from the exercise of stock options during the six months ended March 31, 2023.

Employee Stock Purchase Plan    
Effective October 1, 2018, the Company implemented an employee stock purchase plan (the “ESPP”) which allows employees to purchase shares of the Company’s stock at 85% of the lower of the fair market value on the first or last business day of the applicable six-month offering period. These purchases are offered twice throughout each fiscal year, and are paid by employees through payroll deductions over the respective six month purchase period, at the end of which the stock is transferred to the employees. On December 21, 2018, the Company registered 11,297 shares of common stock, par value $0.01 per share, of which 5,000 are available for future issuance under the ESPP. During the three months ended March 31, 2023 and 2022, the Company incurred compensation expense of $291 and $198, respectively, in salaries and wages with respect to the ESPP, representing the fair value of the discounted price of the shares. During the six months ended March 31, 2023 and 2022, the Company incurred compensation expense of $607 and $419, respectively. These amounts are included in the total share-based compensation expense above. On October 4, 2022 and April 1, 2023, 62 and 66 shares, respectively, were issued under the ESPP.