Stockholders' Equity

12 Months Ended

Sep. 30, 2022

12. Stockholders’ Equity

Share-based Compensation Plans

Per the Amended and Restated Certificate of Incorporation, which was adopted on October 1, 2019, 600,000,000 shares of capital stock have been authorized, consisting of 40,000,000 shares of Preferred Stock, par value $0.01 per share, or (“Preferred Stock”), and 560,000,000 shares of Common Stock, par value $0.01 per share (“Common Stock”).

On October 2, 2019, we registered the issuance of 6,350,000 shares of Common Stock, consisting of 5,300,000 shares of Common Stock reserved under the Cerence 2019 Equity Incentive Plan, (“Equity Incentive Plan”), and 1,050,000 shares of Common Stock that are reserved for issuance under the Cerence 2019 Employee Stock Purchase Plan (“ESPP”). The Equity Incentive Plan provides for the grant of incentive stock options, stock awards, stock units, stock appreciation rights, and certain other stock-based awards. The shares available for issuance will automatically increase on January 1st of each year, by the lesser of (A) three percent (3%) of the number of shares of Common Stock outstanding as of the close of business on the immediately preceding December 31st; and (B) the number of shares of Common Stock determined by the Board on or prior to such date for such year. Awards issued under the Plan may not have a term greater than ten years from the date of grant.

Restricted Awards

The fair value of Restricted Awards, including Restricted Stock Units and Restricted Stock, is measured based upon the market price of the underlying common stock as of the date of grant. Restricted Awards generally vest over a period of two to four years. We also include certain Restricted Awards with vesting solely dependent on the achievement of specified performance targets. The fair value of Restricted Awards is amortized to expense over the awards applicable requisite service period. In the event that the employees’ employment with us terminates, or in the case of awards with only performance targets, if those targets are not met, any unvested shares are forfeited.

In fiscal years ended September 30, 2022, 2021 and 2020, we withheld payroll taxes totaling $49.0 million, $46.0 million and $9.4 million, respectively, related to the vesting of Restricted Awards.

Restricted Units are not included in issued and outstanding common stock until the shares are vested and released. The table below summarizes activity related to Restricted Stock Units:


	Non-Vested Restricted Stock Units
	Time-Based Shares			Performance- Based Shares			Total Shares			Weighted- Average Grant-Date Fair Value		Weighted- Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)
Non-vested at September 30, 2021		1,420,532			654,619			2,075,151		$	44.20
Granted		808,938			390,025			1,198,963		$	69.43
Vested		(1,029,854	)		(474,681	)		(1,504,535	)	$	58.70
Forfeited		(203,600	)		(134,968	)		(338,568	)	$	54.35
Non-vested at September 30, 2022		996,016			434,995			1,431,011		$	62.49		0.70	$	22,524
Expected to vest								1,431,011		$	62.49		0.70	$	22,524

Employee Stock Purchase Plan

On October 2, 2019, we adopted the ESPP and approved 1,050,000 shares for issuance under this plan. The ESPP is administered by our Board of Directors’ Compensation Committee.

The ESPP provides for the issuance of shares of our common stock to participating employees. At the end of each designated offering period, which occurs every six months on February 15 and August 15, employees can elect to purchase shares of our common stock with contributions of up to 12% of their base pay, accumulated via payroll deductions, at an amount equal to 85% of the lower of our stock price on (i) the first day of the offering period, or (ii) the last day of the offering period.

We use the Black-Scholes option pricing model to calculate the fair value of shares issued under the ESPP. The Black-Scholes model relies on a number of key assumptions to calculate estimated fair values. The following table sets forth the weighted-average key assumptions and fair value results for shares issued under the ESPP during the fiscal years ended September 30, 2022, 2021 and 2020:


	Year Ended September 30,
	2022			2021			2020
Expected dividend yield		0.00	%		0.00	%		0.00	%
Risk-free interest rate		0.41	%		0.10	%		1.56	%
Expected volatility		69.58	%		96.61	%		58.18	%
Expected life (in years)		0.50			0.50			0.50
Weighted-average fair value of shares issued (per share)	$	27.54		$	35.13		$	8.93

The following table sets forth the quantities and average prices of shares issued under the ESPP for the fiscal years ended September 30, 2022, 2021 and 2020:


	Year Ended September 30,
	2022		2021		2020
Shares issued under the ESPP		80,417		44,172		63,503
Average price of shares issued	$	28.18	$	73.40	$	20.66

Stock-based Compensation

During the fiscal years ended September 30, 2022, 2021 and 2020, we recognize stock-based compensation expenses over the requisite service periods. Our share-based awards are classified within equity. Stock-based compensation for the anticipated Restricted Awards has been adjusted to reflect our estimated achievement under the modified targets and is recorded prospectively over the requisite service period.

The amounts included in the Consolidated Statements of Operations related to stock-based compensation are as follows (dollars in thousands):


	Year Ended September 30,
	2022		2021		2020
Cost of connected services	$	499	$	865	$	1,382
Cost of professional services		3,267		4,895		4,191
Research and development		10,196		16,538		13,944
Sales and marketing		3,569		12,533		9,580
General and administrative		6,545		25,724		18,188
Restructuring and other costs, net		4,000		—		—
Total	$	28,076	$	60,555	$	47,285

For the fiscal year ended September 30, 2022, we had lower stock-based compensation expense relating to our performance-based restricted stock units. Compensation cost for our performance-based restricted stock units is recognized based on the number of units expected to vest upon the achievement of the performance conditions. During the fiscal year ended September 30, 2022, we recorded $4.0 million, net of $5.0 million in forfeitures, in stock-based compensation due to the resignation of our former CEO and the resulting modification of certain stock-based awards in Restructuring and other costs, net. We recorded $2.4 million, net of $0.2 million in forfeitures, in stock-based compensation due to the retirement of our former CFO and resignation of our former General Counsel and the resulting modification of certain stock-based awards.