Stock-Based Compensation and Equity Grants

3 Months Ended

Dec. 31, 2023

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 December 31, 2023, there were 0.8 million shares available for grant.

Stock-based compensation expense shown in the table below, is recorded in general and administrative expenses in our consolidated statements of operations for the three months ended December 31, 2023 and 2022 as follows (in thousands):

	2023		2022
DLH employees (a)	$	540	$	372
Non-employee directors (b)	80		180
Total stock option expense	$	620	$	552

(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, including both RSU and stock option grants to employees during prior fiscal years. The RSUs issued and outstanding totaled 367,795 and 140,404 at December 31, 2023 and 2022, respectively. During the three months ended December 31, 2023, 169,544 RSUs were granted to Executive Officers. Of the RSUs granted, 84,773 have performance-based vesting criteria and the remaining 84,771 have service-based vesting criteria. The RSUs granted during the three months ended December 31, 2023, were valued as follows using the Monte Carlo Method, and will be amortized over the 3-year measurement period.

(b) Equity grants of RSUs were made in accordance with DLH compensation policy for non-employee directors and a total of 61,525 and 53,510 restricted stock units were issued and outstanding at December 31, 2023 and 2022, respectively. These grants have service-based vesting criteria and vest at the end of this fiscal year.

				Volatility
				50%
Grant Date	Performance Vesting Base	Performance Vesting Criteria	(Years)	Fair Value
December 15, 2023	Revenue	Revenue increase at the end of the performance period as compared to the year ended September 30, 2023	3	$	3.82
December 15, 2023	Stock price	Stock price is at least $25.65 per share average for the 30 days prior to the end of the performance period	3	$	5.36
Notes:
Results based on 100,000 simulations

Unrecognized stock-based compensation expense

Unrecognized stock-based compensation expense is presented in the table below for the three months ended December 31, 2023 and 2022 as follows (in thousands):

	2023		2022
Unrecognized expense for DLH employees (a)	$	7,983	$	4,750
Unrecognized expense for non-employee directors	539		538
Total unrecognized expense	$	8,522	$	5,288

(a) On a weighted average basis, the unrecognized expense for the three months ended December 31, 2023 is expected to be recognized within the next 3.42 years.

Stock option activity for the three months ended December 31, 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:

				(in years)
				Weighted
		Weighted		Average	(in thousands)
	(in thousands)	Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Shares	Price		Term	Value
Options outstanding, September 30, 2023	2,278	$	8.40	5.80	$	8,693
Granted	—	—		—	—
Exercised	(220)	2.29		—	—
Cancelled	(25)	11.66		—	—
Options outstanding, December 31, 2023	2,033	$	9.02	6.00	$	13,803
Vested and exercisable, December 31, 2023	1,423	$	7.18	4.80	$	12,208

Stock option shares outstanding, vested and unvested balance as follows (in thousands):

	December 31,	September 30,
	2023	2023
Vested and exercisable	1,423	1,608
Unvested (a)	610	670
Options outstanding	2,033	2,278

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