Share-based compensation expense was $18 million and $45 million during the three and nine months ended September 30, 2023, respectively, and $10 million and $28 million during the three and nine months ended September 30, 2022, respectively. The unrecognized compensation expense related to our stock options, restricted stock units and performance share units was $6 million, $31 million and $17 million, respectively, at September 30, 2023 and is expected to be recognized over a weighted average period of 2.9, 3.1 and 2.0 years, respectively. The amount of cash received from the exercise of stock options was $45 million and $6 million for the nine months ended September 30, 2023 and 2022, respectively.

On May 24, 2023, there were an additional 2.7 million shares registered for issuance. As of September 30, 2023, there were approximately 5.6 million shares of common stock available for future awards.

The following is a summary of the changes in outstanding stock options for the nine months ended September 30, 2023:


	Share units (in thousands)	Weighted Average Exercise Price / Share		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2023	1,935	$	67.55	5.9	$	83
Granted	2,153	38.13
Exercised	(1,550)	29.38
Forfeited and expired	(23)	96.73
Other	14	73.16
Outstanding at September 30, 2023	2,529	$	65.60	5.9	$	69
Options exercisable at September 30, 2023	1,953	$	58.98	5.1	$	64
Vested and expected to vest as of September 30, 2023	2,480	$	64.96	5.7	$	69

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 nine months ended September 30, 2023 was $119 million.

The fair value of each option grant was estimated on the date of grant using the binomial lattice pricing model which incorporates multiple and variable assumptions over time, including employee exercise patterns, stock price volatility and changes in dividends. The following are weighted-average assumptions for 2023 grants:


Volatility	27.30		%
Risk-free interest rate	4.25		%
Dividend yield	1.31		%
Expected term (in years)	5.4
Weighted-average fair value / share	$	29.06

Expected volatility is calculated based on an analysis of historic volatility measures for Xylem. We use historical data to estimate option exercise and employee termination behavior within the valuation model. Employee groups and option characteristics are considered separately for valuation purposes. The expected term represents an estimate of the period of time options are expected to remain outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of option grant.

The following is a summary of restricted stock unit activity for the nine months ended September 30, 2023. The fair value of the restricted share unit awards is determined using the closing price of our common stock on date of grant:


	Share units (in thousands)	Weighted Average Grant Date Fair Value / Share
Outstanding at January 1, 2023	553	$	88.88
Granted	1,048	103.07
Vested	(644)	41.56
Forfeited	(32)	66.58
Outstanding at September 30, 2023	925	$	98.78

As approved by the Leadership Development & Compensation Committee of the Company's Board of Directors, for the 2023-2025 performance period, the completion of the acquisition of Evoqua transitioned one of the performance share unit metrics from a pre-set, three-year adjusted Return on Invested Capital ("ROIC") performance target to a pre-set, third-year adjusted earnings before interest, taxes, depreciation and amortization expense (“EBITDA”) performance target for the combined company.

The following is a summary of our ROIC and EBITDA grants for the nine months ended September 30, 2023. The fair value of the adjusted EBITDA performance share units is equal to the closing share price on the date of the grant:


	Share units (in thousands)	Weighted Average Grant Date Fair Value / Share
Outstanding at January 1, 2023	146	$	88.78
Granted	36	100.69


Forfeited (a)	(68)	82.40
Outstanding at September 30, 2023	114	$	97.70

(a) Includes adjusted ROIC performance share unit awards forfeited during the period as a result of the final performance condition not being achieved on vest date.

The following is a summary of our Total Shareholder Return ("TSR") performance share unit grants for the nine months ended September 30, 2023:


	Share units (in thousands)	Weighted Average Grant Date Fair Value / Share
Outstanding at January 1, 2023	178	$	100.67
Granted	72	108.54
Adjustment for Market Condition Achieved (a)	40	102.55
Vested	(102)	102.55
Forfeited	(8)	100.99
Outstanding at September 30, 2023	180	$	103.52

(a) Represents an increase in the number of original TSR performance share units awarded based on the final market condition achievement at the end of the performance period of such awards.

The fair value of TSR performance share units was calculated on the date of grant using a Monte Carlo simulation model utilizing several key assumptions, including expected Company and peer company share price volatility, correlation coefficients between peers, the risk-free rate of return, the expected dividend yield and other award design features. The following are weighted-average assumptions for 2023 grants:


	Share units (in thousands)	Weighted Average Grant Date Fair Value / Share
Outstanding at January 1, 2023	32	86.77
Granted	36	100.69


Forfeited	(2)	91.12
Outstanding at September 30, 2023	66	$	94.19

The fair value of the Revenue performance share unit awards is determined using the closing price of our common stock on date of grant. The shares will vest contingent upon the achievement of a pre-set, three-year Revenue target.