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Share Based Compensation
 12 Months Ended
Sep. 30, 2021
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, 2021, there were approximately 2,089 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.
On May 18, 2021 (the “Grant Date”), the Compensation Committee of the Board approved and the Company granted special one-time awards of 234 restricted stock units (“Special RSUs”) and 469 performance share units (“Special PSUs”), at a target award level, under the Equity Incentive Plan to certain executive officers of the Company. Subject to the applicable executive officer’s continued employment with the Company and the terms and conditions of the Equity
Incentive Plan and the related award agreement, the Special RSUs will vest ratably over a three-year period on each annual anniversary of the Grant Date, and the Special PSUs will be earned incrementally in three tranches of 25%, 25%, and 50% after one-, two-, and three-year performance periods, respectively, and will cumulatively be paid, if earned, after the end of the three-year performance period ending on May 18, 2024, based on the Company’s total stockholder return (“TSR”) compared to peer water companies, including certain U.S.-listed companies included in the S&P Global Water Index (the “Peer Companies”). Each tranche of the Special PSUs reflects the right to receive between 50% and 100% of the shares underlying such tranche based on the Company’s TSR as compared to the Peer Companies (“Relative TSR”) for the applicable performance period. Subject to certain exceptions provided in the award agreements in the event of death, disability, or change in control, for each tranche, Special PSUs will be earned as follows: 100% if Relative TSR for the period is at the 80th percentile or above; 50% if Relative TSR for the period is at the 60th percentile; and 0% if Relative TSR is below the 60th percentile. Linear interpolation will be used to determine the percentage of each tranche earned when Relative TSR is between the 60th percentile and the 80th percentile for the applicable performance period. The payout for each tranche of the Special PSUs is capped at 100% even if Relative TSR exceeds the 80th percentile for the applicable period. If the Company’s TSR is negative for any performance period, the number of Special PSUs that may vest for the corresponding tranche will be capped at 50% of the amount that otherwise would have been earned for the period.
As of September 30, 2021, there were approximately 4,340 shares available for grants under the Equity Incentive Plan.
Option awards are granted at various times during the year, generally 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 for the years ended September 30, 2021 and 2020 is presented below:
(In thousands, except per share amounts)OptionsWeighted Average Exercise Price/ShareWeighted Average Remaining Contractual TermAggregate Intrinsic Value
Outstanding at September 30, 20198,619 8.15 6.3 years$80,826 
Granted823 23.52 
Exercised(1,834)5.62 
Forfeited(172)15.54 
Cancelled(6)20.60 
Expired— — 
Outstanding at September 30, 20207,430 $10.30 5.9 years$83,152 
Granted612 $24.78 
Exercised(2,884)$6.81 
Forfeited(67)$21.25 
Cancelled(1)16.63 
Expired— — 
Outstanding at September 30, 20215,090 $13.87 5.9 years$120,611 
Options exercisable at September 30, 20213,189 $9.72 4.6 years$88,776 
Options vested and expected to vest at September 30, 20215,047 $13.79 5.9 years$119,992 
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, 2021 was $60,370. During the year ended September 30, 2021, $21,205 was received from the exercise of stock options.
A summary of the status of the Company's nonvested stock options as of and for the years ended September 30, 2021, 2020 and 2019 is presented below.
202120202019
(In thousands, except per share amounts)SharesWeighted Average Grant Date Fair Value/ShareSharesWeighted Average Grant Date Fair Value/ShareSharesWeighted Average Grant Date Fair Value/Share
Nonvested at beginning of period2,166 $5.56 2,379 $4.96 3,335 $4.11 
Granted612 $9.00 823 $6.06 1,114 $3.87 
Vested(810)$5.48 (864)$4.52 (1,559)$2.61 
Forfeited(67)$6.82 (172)$4.94 (511)$4.38 
Nonvested at end of period1,901 $6.69 2,166 $5.56 2,379 $4.96 
The total fair value of options vested during the year was $4,434, $3,906, and $4,064 for the years ended September 30, 2021, 2020 and 2019, respectively.
Restricted Stock Units
The following is a summary of the RSU activity for the years ended September 30, 2021 and 2020.
SharesWeighted Average Grant Date Fair Value/Share
Outstanding at September 30, 20192,002 $17.45 
Granted394 $23.05 
Vested(1,555)$18.79 
Forfeited(91)$15.35 
Outstanding at September 30, 2020750 $17.86 
Granted731 $25.98 
Vested(240)$17.55 
Forfeited(25)$20.31 
Cancelled(7)$21.22 
Outstanding at September 30, 20211,209 $22.77 
Expected to vest at September 30, 20211,165 $22.67 
The following is a summary of the Special PSU activity for the year ended September 30, 2021.
(In thousands, except per share amounts)SharesWeighted Average Grant Date Fair Value/Share
Granted469 $16.92 
Nonvested at end of period469 $16.92 
Expected to vest426 $16.92 
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 $17,703 and $10,535 during the year ended September 30, 2021 and 2020, respectively, of which $15,524 and $10,509 was non-cash, respectively. Share-based compensation expense was $19,903 during the year ended September 30, 2019.
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,
202120202019
Cost of services$143 $91 $142 
General and administrative15,381 10,418 19,761 
$15,524 $10,509 $19,903 
The unrecognized compensation expense related to stock options, RSUs, and Special PSUs was $8,872, $20,177 and $6,946, respectively at September 30, 2021, and is expected to be recognized over a weighted average period of 2.0 years, 2.2 years, and 2.6 years, respectively.
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,
202120202019
Expected volatility
38.3% - 56.7%
24.2% - 77.1%
26.3% - 30.0%
Expected dividends———
Expected term (in years)
5.3 - 6.0
5.4 - 6.0
5.6 - 6.0
Risk free rate
0.4% - 0.9%
0.2% - 1.7%
1.5% - 2.6%
Grant date fair value per share of options granted
$8.12 - $19.76
$5.33 - $8.56
$3.14 - $7.06
The risk‑free interest rate is based on the U.S. treasury security rate in effect as of the date of grant. Beginning in fiscal year 2021, the Company utilized historical realized volatility for expected volatility which is based on historical stock prices during a period of time. Prior to fiscal year 2021, the Company had little history with respect to volatility of share prices, and as such, the expected volatility was not based on realized volatility. The Company, as permitted under ASC 718, had 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 were comparable in most significant respects, the Company believed they represent an appropriate basis for estimating expected volatility.
The Company estimated the fair value of PSUs on the grant date using a Monte Carlo Simulation incorporating the assumptions noted in the following table.
Year Ended September 30,
2021
Expected volatility61.0%
Expected dividends—
Expected term (in years)3
Risk free rate0.34%
Grant date fair value per share of PSUs granted$16.92
The risk‑free interest rate is based on the U.S. treasury security rate in effect as of the date of grant. The Company utilized historical realized volatility for expected volatility which is based on historical stock prices during a period of time.
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 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, 2021, 2020 and 2019, the Company incurred compensation expense of $887, $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, 2021, 2020 and 2019, 182 shares, 58 shares and 46 shares, respectively, were issued under the ESPP plan.