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, members of the Company’s Board of Directors (the “Board”) participate in equity compensation plans in connection with their service on the Company’s Board.

The Company established the Evoqua Water Technologies Corp. Stock Option Plan (the “Stock Option Plan”) shortly after the acquisition date of January 16, 2014. The plan allows certain management employees and the Board to purchase shares in Evoqua Water Technologies Corp. Under the Stock Option Plan, the number of shares available for award was 11,083. As of December 31, 2019, there were approximately 1,704 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 stockholders approved the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (or the “Equity Incentive Plan”), under which equity awards may be made in the respect of 5,100 shares of common stock of the Company. Under the Equity Incentive Plan, awards may be granted in the form of options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalent rights, share awards and performance-based awards (including performance share units and performance-based restricted stock). As of December 31, 2019, there were approximately 2,049 shares available for grants under the Equity Incentive Plan.

In addition to the establishment of the Equity Incentive Plan, in connection with the IPO, the Company entered into restricted stock unit (“RSU”) agreements with each of the executive officers and certain other key members of management. Pursuant to the RSU agreements, 1,197 stock-settled RSUs were granted, the aggregate value of which equals $25,000. The RSUs vested and settled in full upon the second anniversary of the IPO on November 2, 2019, resulting in the issuance of 1,159 shares, 419 of which were deposited into treasury in satisfaction of withholding tax obligations resulting from the vesting of the RSUs.

Option awards are granted at various times during the year, vest ratably at 25% per year, and are exercisable at the time of vesting. The options granted have a ten-year contractual term.

A summary of the stock option activity as of December 31, 2019 is presented below:



(In thousands, except per share amounts)	Options		Weighted Average Exercise Price/Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at September 30, 2019	8,619		$	8.15	6.3 years	$	80,826
Granted	5		18.82
Exercised	(430	)	5.22
Cancelled	(1	)	20.88
Forfeited	(32	)	16.52
Expired	—		—
Outstanding at December 31, 2019	8,161		$	8.28	6.0 years	$	89,300
Options exercisable at December 31, 2019	5,835		$	5.74	5.1 years	$	77,650
Options vested and expected to vest at December 31, 2019	8,142		$	8.27	6.0 years	$	89,196

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 three months ended December 31, 2019 was $6,011.

A summary of the status of the Company's non-vested stock options as of and for the three months ended December 31, 2019 is presented below.



(In thousands, except per share amounts)	Shares		Weighted Average Grant Date Fair Value/Share
Nonvested at beginning of period	2,379		$	4.96
Granted	5		5.33
Vested	(25	)	2.27
Forfeited	(32	)	5.78
Nonvested at end of period	2,327		$	4.98

The total fair value of options vested during the three months ended December 31, 2019, was $57.

Restricted Stock Units

The following is a summary of the RSU activity for the three months ended December 31, 2019.



(In thousands, except per share amounts)	Shares		Weighted Average Grant Date Fair Value/Share
Outstanding at September 30, 2019	2,002		$	17.45
Granted	4		18.82
Vested	(1,159	)	20.88
Forfeited	(17	)	12.67
Outstanding at December 31, 2019	830		$	12.76
Vested and expected to vest at December 31, 2019	818		$	12.75

Expense Measurement and Recognition

Total share-based compensation expense was $3,691 and $4,559 during the three months ended December 31, 2019 and 2018, respectively, of which $3,680 and $4,525 was non-cash, respectively. The unrecognized compensation expense related to stock options and restricted stock units was $8,009 and $6,141, respectively at December 31, 2019, and is expected to be recognized over a weighted average period of 2.2 years and 2.1 years, respectively. The Company received $4,046 from the exercise of stock options during the three months ended December 31, 2019. The remaining stock options exercised during the three months ended December 31, 2019 were effected via a cashless net exercise.

Employee Stock Purchase Plan

Effective October 1, 2018, the Company implemented an employee stock purchase plan (“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 day of the applicable offering period or on the last business day of a six-month purchase period within the offering period. These purchases were offered twice throughout fiscal 2019, and were paid by employees through payroll deductions over the respective six month purchase period, at which point the stock will be 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 December 31, 2019 and 2018, the Company incurred compensation expense of $39 and $155, respectively, in salaries and wages in respect of the ESPP, representing the fair value of the discounted price of the shares. These amounts are included in the total share-based compensation expense above. During the three months ended December 31, 2019, 56 shares were issued under the ESPP plan.