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Share Based Compensation
 12 Months Ended
Sep. 30, 2020
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, 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 September 30, 2020, there were approximately 2,149 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 (or the “Equity Incentive Plan”), under which equity 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). Upon adoption of the Equity Incentive Plan, 5,100 shares of common stock of the Company were reserved for issuance thereunder. On February 18, 2020, the Company’s shareholders approved the amendment and restatement of the Equity Incentive Plan in order to increase the number of shares of common stock reserved for issuance thereunder by 5,000 shares and incorporate other changes. As of September 30, 2020, there were approximately 6,025 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 RSU agreements with each of the executive officers and certain other key members of management. Pursuant to the RSU agreements, recipients received, in the aggregate 1,197 stock-settled RSUs, the aggregate value of which equals $25,000. The RSU’s vested and settled in full upon the second anniversary of the IPO on November 2, 2019, resulting in the issuance of 1,158 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 contractual term of ten years.
    A summary of the stock option activity for the years ended September 30, 2020 and 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, 2018
8,973

 
7.57

 
6.9 years
 
 
Granted
1,114

 
12.74

 
 
 
 
Exercised
(930
)
 
5.22

 
 
 
 
Forfeited
(511
)
 
12.43

 
 
 
 
Cancelled
(27
)
 
20.88

 
 
 
 
Expired
—

 
—

 
 
 
 
Outstanding at September 30, 2019
8,619

 
$
8.15

 
6.3 years
 
$
80,826

Granted
823

 
$
23.52

 
 
 
 
Exercised
(1,834
)
 
$
5.62

 
 
 
 
Forfeited
(172
)
 
$
15.54

 
 
 
 
Cancelled
(6
)
 
20.60

 
 
 
 
Expired
—

 
—

 
 
 
 
Outstanding at September 30, 2020
7,430

 
$
10.30

 
5.9 years
 
$
83,152

Options exercisable at September 30, 2020
5,264

 
$
6.96

 
4.9 years
 
$
75,130

Options vested and expected to vest at September 30, 2020
7,382

 
$
10.23

 
5.9 years
 
$
83,042


The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options of the date of exercise) during the year ended September 30, 2020 was $27,973. During the year ended September 30, 2020, $18,927 was received from the exercise of stock options. The remaining stock options exercised during the year ended September 30, 2020 were effected through a cashless net exercise.
A summary of the status of the Company's nonvested stock options as of and for the years ended September 30, 2020, 2019 and 2018 is presented below.
 
2020
 
2019
 
2018
(In thousands, except per share amounts)
Shares
 
Weighted Average Grant Date Fair Value/Share
 
Shares
 
Weighted Average Grant Date Fair Value/Share
 
Shares
 
Weighted Average Grant Date Fair Value/Share
Nonvested at beginning of period
2,379

 
$
4.96

 
3,335

 
$
4.11

 
4,300

 
$
1.36

Granted
823

 
$
6.06

 
1,114

 
$
3.87

 
1,380

 
$
7.91

Vested
(864
)
 
$
4.52

 
(1,559
)
 
$
2.61

 
(2,180
)
 
$
1.20

Forfeited
(172
)
 
$
4.94

 
(511
)
 
$
4.38

 
(165
)
 
$
3.27

Nonvested at end of period
2,166

 
$
5.56

 
2,379

 
$
4.96

 
3,335

 
$
4.11


The total fair value of options vested during the year was $3,906, $4,064 and $2,623 for the years ended September 30, 2020, 2019 and 2018, respectively.
Restricted Stock Units
The following is a summary of the RSU activity for the years ended September 30, 2020 and 2019. On November 2, 2019, 1,158 stock-settled RSUs vested, resulting in the issuance of 739 shares of common stock to the grantees and 419 shares of common stock to treasury to satisfy withholding tax obligations.
 
Shares
 
Weighted Average Grant Date Fair Value/Share
Outstanding at September 30, 2018
1,213

 
$
20.88

Granted
883

 
$
12.69

Vested
(24
)
 
$
20.75

Forfeited
(70
)
 
$
15.84

Outstanding at September 30, 2019
2,002

 
$
17.45

Granted
394

 
$
23.05

Vested
(1,555
)
 
$
18.79

Forfeited
(91
)
 
$
15.35

Outstanding at September 30, 2020
750

 
$
17.86

Vested and expected to vest at September 30, 2020
729

 
$
17.79


Expense Measurement and Recognition
The Company recognizes share-based compensation for all current award grants and, in future periods, will recognize compensation costs for the unvested portion of previous award grants based on grant date fair values. Total share-based compensation expense was $10,535 during the year ended September 30, 2020, of which $10,509 was non-cash. Share-based compensation expense was $19,903 and $15,742 during the years ended September 30, 2019 and 2018, respectively.
Reported non-cash share-based compensation expense was classified on the Consolidated Statements of Operations as shown in the following table:
 
Year Ended September 30,
 
2020
 
2019
 
2018
Cost of services
$
91

 
$
142

 
$
80

General and administrative
10,418

 
19,761

 
15,662

 
$
10,509

 
$
19,903

 
$
15,742


The unrecognized compensation expense related to stock options and RSUs was $8,815 and $10,445, respectively at September 30, 2020, and is expected to be recognized over a weighted average period of 2.3 years and 2.6 years, respectively.
The Company has little historic data with respect to estimates of expected employee behaviors related to option exercises and forfeitures. As a result, in addition to Company data, the Company has used historic data from public disclosures of comparable companies which the Company believes to be representative of its own expected employee behaviors.
The Company estimates the fair value of each stock option award on the grant date using the Black-Scholes valuation model incorporating the assumptions noted in the following table. Option valuation models require the input of highly subjective assumptions, and changes in assumptions used can materially affect the fair value estimate.
Option valuation assumptions for options granted are as follows:
 
Year Ended September 30,
 
2020
 
2019
 
2018
Expected volatility
24.2% - 77.1%
 
26.3% - 30.0 %
 
23.5% - 34.3%
Expected dividends
—
 
—
 
—
Expected term (in years)
5.4 - 6.0
 
5.6 - 6.0
 
6.0 - 6.1
Risk free rate
0.2% - 1.7%
 
1.5% - 2.6%
 
2.5% - 2.8%
Grant date fair value per share of options granted
$5.33 - $8.56
 
$3.14 - $7.06
 
$5.58 - $7.96

The risk‑free interest rate is based on the U.S. treasury security rate in effect as of the date of grant. As the Company has little history with respect to volatility of share prices the expected volatility is not based on realized volatility. The Company, as permitted under ASC 718, has identified guideline public companies who are participants in the Company’s markets. The Company obtained share price trading data from the guideline companies and based their estimate of expected volatility on the implied volatility of the guideline companies in addition to the Company’s own implied volatility. As the guideline companies are comparable in most significant respects, the Company believes they represent an appropriate basis for estimating expected volatility.
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 are offered twice throughout each fiscal year, and were paid by employees through payroll deductions over the respective six month purchase period, at which point the stock was 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 years ended September 30, 2020 and 2019, the Company incurred compensation expense of $392 and $400 respectively, primarily 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 years ended September 30, 2020 and 2019, 58 shares and 46 shares, respectively, were issued under the ESPP plan.