Stock-based Compensation and Equity Grants

12 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Stock-based Compensation and Equity Grants

Stock-based Compensation and Equity Grants

Stock-based compensation expense

Options issued under equity incentive plans were designated as either an incentive stock or a non-statutory stock option. No option was granted with a term of more than 10 years from the date of grant. Exercisability of option awards may depend on achievement of certain performance measures determined by the Compensation Committee of our Board. Shares issued upon option exercise are newly issued shares. As of September 30, 2020, there were 0.9 million shares available for grant.

Stock-based compensation expense, shown in the table below, is recorded in general and administrative expenses included in our Consolidated Statements of Operations:

		(in thousands)
		Year Ended
	Ref	September 30,
		2020		2019
DLH employees		$	563	$	263
Non-employee directors	(a)	347		527
Total stock option expense		$	910	$	790

Ref (a): In the first quarter of fiscal 2019, we issued 90,000 restricted stock units to the Company's non-employee directors, all of which vested as of September 30, 2020. The shares of common stock underlying such restricted stock units were issued on October 5, 2020. Equity grants of restricted stock units, in accordance with DLH compensation policy for non-employee directors, were made in the first quarter of fiscal 2020 totaling 63,177 restricted stock units. The restricted stock units were granted on October 1, 2020.

Unrecognized stock-based compensation expense

		(in thousands)
		Year Ended
		September 30,
	Ref	2020		2019
Unrecognized expense for DLH employees	(a)	$	2,633	$	631

Ref (a): Compensation expense for the portion of equity awards for which the requisite service has not been rendered is recognized as the requisite service is rendered. The compensation expense for that portion of awards has been based on the grant-date fair value of those awards as calculated for recognition purposes under applicable guidance. For options that vest based on the Company’s common stock achieving and maintaining defined market prices, the Company values the awards with a Monte Carlo binomial model that utilizes various probability factors and other criterion in establishing fair value of the grant. The related compensation expense is recognized over the derived service period determined in the valuation. On a weighted average basis, this expense is expected to be recognized within the next 4.58 years.

Stock option activity for the year ended September 30, 2020:

The aggregate intrinsic value in the table below represents the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their in the money options on those dates. This amount will change based on the fair market value of the Company’s stock.

				(in years)
				Weighted
			Weighted	Average	(in thousands)
		(in thousands)	Average	Remaining	Aggregate
		Number of	Exercise	Contractual	Intrinsic
	Ref	Shares	Price	Term	Value
Options outstanding, September 30, 2019		2,134	$4.36	5.9	$	4,815
Granted	(a)	750	$6.74	—	—
Exercised		(395)	$0.99	—	—
Cancelled		(360)	$2.89	—	—
Options outstanding, September 30, 2020		2,129	—	7.4	$	6,583

    Ref (a): Utilizing a volatility of 50% along with assumptions of a 10-year term and the aforementioned 10-day stock

price threshold results in an indicated range of value of the Options granted during the year ended September 30, 2020,

as follows using the Monte Carlo and Black Scholes methods.

									Volatility
									50%
						Vesting		Expected
		Strike		Stock		Threshold		Term	Calculated
Grant Date	Ref	Price		Price		Price		(Years)	Fair Value
July 13, 2020	(a)	$	8.02	$	8.02	Service		10	$	4.69
July 13, 2020		$	8.02	$	8.02	$	12.00	10	$	4.79
July 13, 2020		$	8.02	$	8.02	$	14.00	10	$	4.76
July 13, 2020		$	8.02	$	8.02	$	16.00	10	$	4.76
Notes:
Results based on 100,000 simulations

Ref (a): Options granted vest after completion of a one-year service period.

Stock options shares outstanding, vested and unvested for the years ended:

		(in thousands)
		Number of Shares
		September 30,
	Ref	2020	2019
Vested and exercisable	(a)	1,213	1,300
Unvested	(b)	916	834
Options outstanding		2,129	2,134

Ref (a): Weighted average exercise price of vested and exercisable shares was $2.25 and $1.51 at September 30, 2020 and 2019, respectively. Aggregate intrinsic value was approximately $6.1 million and $3.9 million at September 30, 2020 and 2019, respectively. Weighted average contractual term remaining was 4.6 years and 3.8 years at September 30, 2020 and 2019, respectively.

    Ref (b): Certain awards vest upon satisfaction of certain performance criteria.