Share-based Compensation

9 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

Share-based Compensation

As of March 2, 2022, the Board and the stockholders of the Company approved an amendment to the Avaya Holdings Corp. 2019 Equity Incentive Plan (as amended, the “2019 Plan”), which increased the number of shares of the Company's common stock that may be issued or granted under the 2019 Plan by 6,500,000 shares. Awards granted under the 2019 Plan reduce the aggregate number of shares of the Company's common stock that may be granted or issued under the 2019 Plan as follows:


2019 Plan Award			Reduction to the 2019 Plan Capacity
Restricted stock units granted prior to March 2, 2022			1.7 shares
Restricted stock units granted on or after March 2, 2022			1.5 shares
Stock options and stock appreciation rights (regardless of grant date)			1 share

If any awards expire, terminate or are canceled or forfeited for any reason without having been exercised or vested in full, the number of shares of common stock underlying any such award (as described above) will again be available for issuance under the 2019 Plan. All awards and the shares reserved under the 2019 Plan were canceled upon Emergence.

Pre-tax share-based compensation expense for the three months ended June 30, 2022 and 2021 was $2 million and $14 million, respectively, and $30 million and $41 million for the nine months ended June 30, 2022 and 2021, respectively. The decrease in pre-tax share-based compensation was primarily due to a reduction in the projected attainment of performance-based awards, including the Stock Bonus Program.

Restricted Stock Units

During the nine months ended June 30, 2022, the Company granted 3,485,066 restricted stock units ("RSUs") with a weighted average grant date fair value of $17.34 per RSU, and there were 1,537,335 RSUs that vested with a weighted average grant date fair value of $18.36 per RSU.

Performance Restricted Stock Units

During the nine months ended June 30, 2022, the Company granted 669,228 performance awards ("PRSUs") with a grant date fair value of $21.89 per PRSU. These PRSUs will vest based on the attainment of specified performance metrics for each of the next three separate fiscal years (collectively the "Performance Period"), as well as the achievement of total shareholder return over the Performance Period for the Company as compared to the total shareholder return for a specified index of companies over the same period. During the Performance Period, the Company will adjust compensation expense for the PRSUs based on its best estimate of attainment of the specified annual performance metrics. The cumulative effect on current and prior periods of a change in the estimated number of PRSUs that are expected to be earned during the Performance Period will be recognized as an adjustment to earnings in the period of the revision.

The grant date fair value of the PRSUs was determined using a Monte Carlo simulation model that incorporated multiple valuation assumptions, including the probability of achieving the total shareholder return market condition and the following

assumptions:


	Nine months ended June 30, 2022
Expected volatility(1)	67.59	%
Risk-free interest rate(2)	0.76	%
Dividend yield(3)	—	%

(1)Expected volatility based on the Company's historical data.

(2)Risk-free interest rate based on U.S. Treasury yields with a term equal to the remaining Performance Period as of the grant date.

(3)Dividend yield was assumed to be zero as the Company does not anticipate paying dividends on its common stock.

During the nine months ended June 30, 2022, there were 274,223 PRSUs that vested with a grant date fair value of $11.18 per PRSU.

Stock Bonus Program

In fiscal 2021, the Company adopted the Avaya Holdings Corp. Stock Bonus Program ("Stock Bonus Program") under which certain employees could elect to receive a specified percentage of their annual incentive bonus in the form of fully vested shares of the Company’s common stock in lieu of cash. Annually, the Company's Board approved the maximum number of shares that could be issued under the Stock Bonus Program. For fiscal 2022, a maximum of 250,000 shares were approved for issuance under the Stock Bonus Program. The number of shares to be issued under the Stock Bonus Program would have been determined based on the attainment of specified annual performance targets and the average closing price of the Company's common stock over a specified 5-trading day period. The Stock Bonus Program is classified as a liability. The Company records compensation cost for the expected dollar value of the award and adjusts compensation expense for the awards based on its best estimate of attainment of its performance conditions. The cumulative effect of a change in the estimated value of the award will be recognized as an adjustment to earnings in the period of the revision. Pre-tax share-based compensation expense related to the Stock Bonus Program for the three and nine months ended June 30, 2022 was not material.

Stock Options

During the nine months ended June 30, 2022, there were 81,832 stock options exercised with an exercise price of $11.38. The intrinsic value of a stock option is the difference between the Company's common stock price and the option exercise price. The total pre-tax intrinsic value of stock options exercised during the nine months ended June 30, 2022 was $1 million.

Employee Stock Purchase Plan

During the nine months ended June 30, 2022, the Company withheld $9 million of eligible employee compensation for purchases of common stock and issued 1,291,901 shares of common stock under its employee stock purchase plan (the "ESPP"). During the fourth quarter of fiscal 2022, the Company suspended certain share issuances and other actions under the ESPP. Previous amounts withheld but not used to purchase shares of common stock have been refunded to employees.

The grant date fair value for shares issued under the ESPP is measured on the date that each offering period commences. The average grant date fair value for the offering periods that commenced during the nine months ended June 30, 2022 was $3.60 per share. The grant date fair value was determined using a Black-Scholes option pricing model with the following average grant date assumptions:


	Nine months ended June 30, 2022
Expected volatility(1)	81.36	%
Risk-free interest rate(2)	0.51	%
Dividend yield(3)	—	%

(1)Expected volatility based on the Company's historical data.

(2)Risk-free interest rate based on U.S. Treasury yields with a term equal to the length of the offering period.

(3)Dividend yield was assumed to be zero as the Company does not anticipate paying dividends on its common stock.

Upon implementation of the Plan, all share-based awards were canceled.

Avaya Holdings Corp. 10-Q