Stock-based Compensation and Equity Grants

12 Months Ended

Sep. 30, 2021

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, 2021, there were 1.7 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,
		2021		2020
DLH employees	(a)	$	1,193	$	563
Non-employee directors	(b)	467		347
Total stock option expense		$	1,660	$	910

Ref (a): Included in this amount are equity grants of restricted stock units to Named Executive Officers ("NEO"), which were issued in accordance with the DLH long-term incentive compensation policy in this fiscal year, and stock option grants to NEO and non-NEO company employees. The restricted stock units totaled 147,431 restricted stock units issued and outstanding at September 30, 2021.

Ref (b): In the first quarter of fiscal 2021, we issued 63,177 restricted stock units to the Company's non-employee directors, all of which vested as of September 30, 2021. The shares of common stock underlying such restricted stock units were issued on September 30, 2021.

Unrecognized stock-based compensation expense

		(in thousands)
		Year Ended
		September 30,
	Ref	2021		2020
Unrecognized expense for DLH employees	(a)	$	4,468	$	2,633

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 4.70 years.

Stock option activity for the year ended September 30, 2021:

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, 2020		2,129	$6.14	7.4	$	6,583
Granted	(a)	455	$10.47	—	—
Exercised		(175)	$2.48	—	—
Cancelled		(35)	$7.36	—	—
Options outstanding, September 30, 2021		2,374	$7.77	7.7	$	15,899

    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, 2021,

as follows using the Monte Carlo method.

								Volatility
								50%
					Vesting		Expected
	Strike		Stock		Threshold		Term	Calculated
Grant Date	Price		Price		Price		(Years)	Fair Value
December 15, 2020	$	10.05	$	10.05	$	13.00	10	$	5.83
July 30, 2021	$	10.75	$	10.75	$	14.00	10	$	5.83
Notes:
Results based on 100,000 simulations

Stock options shares outstanding, vested and unvested for the years ended September 30, 2021 and 2020 (in thousands):

		Number of Shares
		September 30,
	Ref	2021	2020
Vested and exercisable	(a)	1,662	1,213
Unvested	(b)	712	916
Options outstanding		2,374	2,129

Ref (a): Weighted average exercise price of vested and exercisable shares was $3.91 and $2.25 at September 30, 2021 and 2020, respectively. Aggregate intrinsic value was approximately $13.9 and $6.1 million at September 30, 2021 and 2020, respectively. Weighted average contractual term remaining was 6.0 years and 4.6 years at September 30, 2021 and 2020, respectively.

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