Stock-based Compensation and Equity Grants

12 Months Ended

Sep. 30, 2023

Share-Based Payment Arrangement [Abstract]

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, 2023, there were 1.0 million shares available for grant.

Total stock-based compensation expense, presented in the table below, is recorded in general and administrative expenses included in our consolidated statements of operations for the years ended September 30, 2023 and 2022 (in thousands):


	2023		2022
DLH employees (a)	$	1,204	$	1,960
Non-employee directors (b)	718		648
Stock option expense	$	1,922	$	2,608

(a): Included in this amount are equity grants of restricted stock units ("RSU") to Executive Officers, which were issued in accordance with the DLH long-term incentive compensation policy in this fiscal year, and stock option grants to employees during prior fiscal years. The RSUs issued and outstanding totaled 211,228 and 140,404 at September 30, 2023 and 2022, respectively. During the fiscal year ended September 30, 2023, 197,174 RSUs were granted to Executive Officers. Of the RSUs granted, 141,892 have performance-based vesting criteria and the remaining 55,282 have service-based vesting criteria. At a 50% volatility and assumptions of a 3-year term and the performance vesting criteria results in an indicated a fair value. The RSUs granted during the fiscal year ended September 30, 2023, as follows using the Monte Carlo Method.

Volatility

50%

Grant Date

Performance Vesting Base

Performance Vesting Criteria

(Years)

Calculated Fair Value

January 27, 2023

Revenue

Revenue increase at the end of the performance period as compared to the year ended September 30, 2022

3.51

January 27, 2023

Stock price

Stock price is at least $33.21 per share average for the 30 days prior to the end of the performance period

2.92

Notes: Results based on 100,000 simulations

(b): Equity grants of RSUs were made in accordance with DLH compensation policy for non-employee directors and a total of 50,367 and 53,510 restricted stock units were issued and outstanding at September 30, 2023 and 2022, respectively. These grants have service-based vesting criteria and vest at the end of this fiscal year.

Unrecognized stock-based compensation expense

Unrecognized stock-based compensation expense is presented in the table below for the years ending September 30, 2023 and 2022 (in thousands):


	2023		2022
Unrecognized expense for DLH employees (a)	$	7,107	$	5,214

Unrecognized expense	$	7,107	$	5,214

(a): On a weighted average basis, this expense is expected to be recognized within the next 4.20 years.

Stock option activity for the year ended September 30, 2023:

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. A summary of the Company's stock option awards is as follows:


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Shares	Price		Term	Value
	(in thousands)			(in years)	(in thousands)
Outstanding, September 30, 2022	2,392	$	7.05	5.4	$	13,566
Granted (a)	470	11.57		—	—
Exercised	(393)	3.42		—	—
Cancelled	(191)	9.54		—	—
Outstanding, September 30, 2023	2,278	$	8.40	5.8	$	8,693
Vested and exercisable, September 30, 2023	1,608	$	6.43	4.3	$	8,648

(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, 2023, as follows using the Monte Carlo method:


					Vesting		Expected
	Strike		Stock		Threshold		Term	Calculated
Grant Date	Price		Price		Price		(Years)	Fair Value
January 26, 2023	$	11.66	$	11.66	$	15.00	10	$	7.41
August 31, 2023	$	11.08	$	11.08	$	14.25	10	$	7.41
August 31, 2023	$	11.08	$	11.08	$	16.50	10	$	7.41
Note: Results based on 100,000 simulations

Stock options shares outstanding, vested and unvested for the years ended September 30, 2023 and 2022 (in thousands):


	Number of Shares
	2023	2022
Vested and exercisable	1,608	2,117
Unvested (a)	670	275
Options outstanding	2,278	2,392

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