UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2025
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-39030
CERENCE INC.
(Exact name of registrant as specified in its charter)
Delaware
83-4177087
(State or other jurisdiction of
incorporation or organization)
(I.R.S. EmployerIdentification No.)
25 Mall Road, Suite 416
Burlington, Massachusetts
01803
(Address of principal executive offices)
(Zip Code)
(857) 362-7300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
CRNC
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 30, 2025, the registrant had 43,258,066 shares of common stock, $0.01 par value per share, outstanding.
Table of Contents
Page
PART I.
FINANCIAL INFORMATION
3
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2025 and 2024
Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended March 31, 2025 and 2024
4
Condensed Consolidated Balance Sheets as of March 31, 2025 and September 30, 2024
5
Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended March 31, 2025 and 2024
6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2025 and 2024
8
Notes to Condensed Consolidated Financial Statements
9
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
26
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
43
Item 4.
Controls and Procedures
44
PART II.
OTHER INFORMATION
45
Legal Proceedings
Item 1A.
Risk Factors
46
Item 5
Other Information
48
Item 6.
Exhibits
49
Signatures
50
i
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”), filed by Cerence Inc. together with its consolidated subsidiaries, “Cerence,” the “Company,” “we,” “us” or “our” unless the context indicates otherwise, contains “forward-looking statements” that involve risks and uncertainties. These statements can be identified by the fact that they do not relate strictly to historical or current facts, but rather are based on current expectations, anticipations, intentions, estimates, assumptions, plans and projections about our business, operations, industry, financial results, financial condition, strategy, goals or prospects. Forward-looking statements often include words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “continues,” “believes,” “may,” “will,” “goals,” “objectives” and words and terms of similar substance in connection with discussions of our company, business, market trends, and future operating or financial performance. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by us or on our behalf. Although we believe that the forward-looking statements contained in this Form 10-Q are based on reasonable assumptions as of the date of this report, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:
1
These and other factors are more fully discussed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2024 and elsewhere in this Form 10-Q, including Part II, “Item 1A, Risk Factors.” These risks could cause actual results to differ materially from those implied by forward-looking statements in this Form 10-Q. Even if our results of operations, financial condition and liquidity and the development of our business or the industry in which we operate are consistent with the forward-looking statements contained in this Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods.
Any forward-looking statements made by us in this Form 10-Q speak only as of the date on which they are made. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise, except as required by law.
2
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
Three Months Ended March 31,
Six Months Ended March 31,
2025
2024
Revenues:
License
$
51,460
35,527
74,185
56,350
Connected services
12,648
13,597
26,355
110,417
Professional services
13,902
18,701
28,366
39,393
Total revenues
78,010
67,825
128,906
206,160
Cost of revenues:
2,432
1,404
4,214
3,008
4,979
5,359
11,290
12,662
10,418
14,119
20,149
31,444
Amortization of intangible assets
—
103
Total cost of revenues
17,829
20,882
35,653
47,217
Gross profit
60,181
46,943
93,253
158,943
Operating expenses:
Research and development
23,332
31,846
44,201
65,152
Sales and marketing
4,930
5,619
9,696
11,690
General and administrative
11,199
16,659
23,953
29,452
536
555
1,090
1,100
Restructuring and other costs, net
2,832
4,551
13,894
5,256
Goodwill impairment
252,096
Total operating expenses
42,829
311,326
92,834
364,746
Income (loss) from operations
17,352
(264,383
)
419
(205,803
Interest income
918
1,190
2,355
2,622
Interest expense
(2,716
(3,111
(6,109
(6,347
Other income (expense), net
499
(25
771
1,397
Income (loss) before income taxes
16,053
(266,329
(2,564
(208,131
(Benefit from) provision for income taxes
(5,603
11,647
68
45,988
Net income (loss)
21,656
(277,976
(2,632
(254,119
Net income (loss) per share:
Basic
0.50
(6.66
(0.06
(6.13
Diluted
0.46
Weighted-average common shares outstanding:
43,223
41,724
43,059
41,452
51,530
Refer to accompanying Notes to the unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
Other comprehensive income (loss):
Foreign currency translation adjustments
972
(3,225
(2,877
1,055
Pension adjustments, net
(5
(39
(8
(12
Net unrealized gains (losses) on available-for-sale securities
(3
(17
160
Total other comprehensive income (loss)
971
(3,267
(2,902
1,203
Comprehensive income (loss)
22,627
(281,243
(5,534
(252,916
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
March 31, 2025
September 30, 2024
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
117,368
121,485
Marketable securities
5,413
5,502
Accounts receivable, net of allowances of $54 and $1,613
65,018
62,755
Deferred costs
4,737
5,286
Prepaid expenses and other current assets
39,633
70,481
Total current assets
232,169
265,509
Long-term marketable securities
-
3,453
Property and equipment, net
29,412
30,139
15,960
18,051
Operating lease right of use assets
17,989
12,879
Goodwill
293,357
296,858
Intangible assets, net
551
1,706
Deferred tax assets
55,248
51,398
Other assets
20,860
22,365
Total assets
665,546
702,358
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
6,634
3,959
Deferred revenue
49,740
52,822
Short-term operating lease liabilities
3,958
4,528
Short-term debt
60,056
87,094
Accrued expenses and other current liabilities
37,506
68,405
Total current liabilities
157,894
216,808
Long-term debt
197,593
194,812
Deferred revenue, net of current portion
119,954
114,354
Long-term operating lease liabilities
14,557
8,803
Other liabilities
26,279
26,484
Total liabilities
516,277
561,261
Commitments and contingencies (Note 12)
Stockholders' Equity:
Common stock, $0.01 par value, 560,000 shares authorized; 43,254 and 41,924 shares issued and outstanding, respectively
433
Accumulated other comprehensive loss
(28,814
(25,912
Additional paid-in capital
1,102,022
1,088,330
Accumulated deficit
(924,372
(921,740
Total stockholders' equity
149,269
141,097
Total liabilities and stockholders' equity
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Months Ended March 31, 2025
Common Stock
Shares
Amount
AdditionalPaid-InCapital
Accumulated Deficit
AccumulatedOtherComprehensiveLoss
Total
Balance at December 31, 2024
42,988
430
1,096,085
(946,028
(29,785
120,702
Net income
Other comprehensive income
Issuance of common stock
265
808
811
Stock withheld to cover tax withholdings requirements upon stock vesting
(802
Stock-based compensation
5,931
Balance at March 31, 2025
43,253
Three Months Ended March 31, 2024
Balance at December 31, 2023
41,237
412
1,064,022
(309,805
(23,496
731,133
Net loss
Other comprehensive loss
541
4,317
4,322
(1
(3,535
12,723
Balance at March 31, 2024
41,777
417
1,077,527
(587,781
(26,763
463,400
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Cont.)
Six Months Ended March 31, 2025
Balance at September 30, 2024
41,924
1,331
14
2,161
2,175
(2
(2,171
13,702
Six Months Ended March 31, 2024
Balance at September 30, 2023
40,423
404
1,056,099
(333,662
(27,966
694,875
1,355
13
10,510
10,523
(9,744
20,662
7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operations:
Depreciation and amortization
5,793
5,384
Provision for credit loss reserve
208
6,065
13,125
Non-cash interest expense
3,348
2,939
Loss on debt extinguishment
(327
Deferred tax (benefit) provision
(4,271
40,949
Unrealized foreign currency transaction losses (gains)
345
(262
Other, net
(33
474
Changes in operating assets and liabilities:
Accounts receivable
(8,029
(75
Prepaid expenses and other assets
25,250
5,854
2,041
3,423
2,492
(292
Accrued expenses and other liabilities
(23,532
(1,673
10,365
(75,659
Net cash provided by (used in) operating activities
24,720
(1,771
Cash flows from investing activities:
Capital expenditures
(3,703
(2,776
Sale and maturities of marketable securities
3,493
3,912
Other investing activities
(716
(891
Net cash (used in) provided by investing activities
(926
245
Cash flows from financing activities:
Principal payments of short-term debt
(26,964
Common stock repurchases for tax withholdings for net settlement of equity awards
Principal payment of lease liabilities arising from a finance lease
(229
(202
Proceeds from the issuance of common stock
10,461
Net cash (used in) provided by financing activities
(27,189
515
Effects of exchange rate changes on cash and cash equivalents
(722
(967
Net change in cash and cash equivalents
(4,117
(1,978
Cash and cash equivalents at beginning of period
101,154
Cash and cash equivalents at end of period
99,176
Supplemental information:
Cash paid for income taxes
3,105
6,256
Cash paid for interest
3,077
3,076
Note 1. Business Overview
Business
Cerence Inc. (referred to in this Quarterly Report on Form 10-Q as “we,” “our,” “us,” “ourselves,” the “Company” or “Cerence”) is a global, premier provider of AI-powered assistants and innovations for connected and autonomous vehicles. Our customers include nearly all major automobile original equipment manufacturers (“OEMs”), or their tier 1 suppliers worldwide. We deliver our solutions on a white-label basis, enabling our customers to deliver customized virtual assistants with unique, branded personalities and ultimately strengthening the bond between automobile brands and end users. We generate revenue primarily by selling software licenses and cloud-connected services. In addition, we generate professional services revenue from our work with OEMs and suppliers during the design, development and deployment phases of the vehicle model lifecycle and through maintenance and enhancement projects.
Note 2. Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, as well as those of our wholly owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements.
The condensed consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the consolidated results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for the three and six months ended March 31, 2025 are not necessarily indicative of the results to be expected for any other interim period or for the fiscal year ending September 30, 2025. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024.
Use of Estimates
The financial statements are prepared in accordance with GAAP, which requires management to make estimates, judgments and assumptions. These estimates, judgments and assumptions can affect the reported amounts in the financial statements and the footnotes thereto. Actual results could differ materially from these estimates.
On an ongoing basis, we evaluate our estimates, assumptions and judgments. Significant estimates inherent to the preparation of financial statements include: revenue recognition; allowance for credit losses; accounting for deferred costs; accounting for internally developed software; the valuation of goodwill and intangible assets; accounting for stock-based compensation; accounting for income taxes; accounting for leases; accounting for convertible debt; and loss contingencies. We base our estimates on historical experience, market participant fair value considerations, projected future cash flows, and various other factors that are believed to be reasonable under the circumstances. Actual amounts could differ significantly from these estimates.
Concentration of Risk
Financial instruments that potentially subject us to significant concentrations of credit risk primarily consist of trade accounts receivable. We perform ongoing credit evaluations of our customers’ financial condition and limit the amount of credit extended when deemed appropriate. Two customers accounted for 21.6% and 10.6% of our Accounts receivable, net balance at March 31, 2025. One customer accounted for 21.4% of our Accounts receivable, net balance at September 30, 2024.
Allowance for Credit Losses
We are exposed to credit losses primarily through our sales of software licenses and services to customers. We determine credit ratings for each customer in our portfolio based upon public information and information obtained directly from our customers. A credit limit for each customer is established and in certain cases we may require collateral or prepayment to mitigate credit risk. Our expected loss methodology is developed using historical collection experience, current customer credit information, current and future economic and market conditions and a review of the current status of the customer's account balances. We monitor our ongoing credit exposure through reviews of customer balances against contract terms and due dates, current economic conditions, and dispute resolution. Estimated credit losses are written off in the period in which the financial asset is no longer collectible.
The change in the allowance for credit losses for the six months ended March 31, 2025 is as follows (dollars in thousands):
Balance as of September 30, 2024
1,614
Credit loss provision
Write-offs, net of recoveries
(1,745
Effect of foreign currency translation
(13
Balance as of March 31, 2025
64
During the three months ended December 31, 2024, we signed a termination agreement with an international electric vehicle maker. As a result, we wrote off a $1.7 million balance, of which $1.5 million had been previously reserved for within our allowance for credit losses.
Inventory
Inventory, consisting primarily of finished goods related to our Cerence Link product, is accounted for using the first in, first out method, and is valued at the lower of cost and net realizable value. Inventory is included within Prepaid expenses and other current assets. As of March 31, 2025 and September 30, 2024, inventory was $1.2 million and $1.0 million, respectively.
Recently Adopted Accounting Standards
None.
Issued Accounting Standards Not Yet Adopted
In November 2023, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), to expand reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in the ASU require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to an entity's chief operating decision maker (“CODM”), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. ASU 2023-07 applies to entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. A public entity should apply ASU 2023-07 retrospectively to all prior periods presented in the financial statements, with early adoption permitted. We are currently in the process of evaluating the effects of this pronouncement on our condensed consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which requires greater disaggregation of income tax disclosures related to the income tax rate reconciliation and income taxes paid and is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. We are currently in the process of evaluating the effects of this pronouncement on our condensed consolidated financial statements and disclosures.
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” (“ASU 2024-03”), which requires disclosure about the types of costs and expenses included in certain expense captions presented on the income statement. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted, and may be applied either prospectively or retrospectively. We are currently evaluating this pronouncement to determine its impact on our disclosures.
10
Note 3. Revenue Recognition
We primarily derive revenue from the following sources: (1) royalty-based software license arrangements, (2) connected services, and (3) professional services. Revenue is reported net of applicable sales and use tax, value-added tax and other transaction taxes imposed on the related transaction including mandatory government charges that are passed through to our customers. We account for a contract when both parties have approved and committed to the contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
(a) Disaggregated Revenue
Revenues, classified by the major geographic region in which our customers are located, for the three and six months ended March 31, 2025 and 2024 (dollars in thousands):
United States
9,348
16,018
18,796
115,487
Other Americas
450
52
647
136
Germany
19,698
35,424
39,107
54,557
Other Europe, Middle East and Africa
5,610
3,457
11,153
8,232
Japan
18,501
4,548
24,458
10,171
Other Asia-Pacific
24,403
8,326
34,745
17,577
Total net revenues
For the three and six months ended March 31, 2025, revenues within Korea were $16.1 million and $18.2 million, respectively, which were more than 10% of revenues. For the three and six months ended March 31, 2025, revenues within China were $4.9 million and $10.3 million, respectively, which were less than 10% of revenues. Revenues within China and Korea are included in the total for the Other Asia-Pacific major geographic region in the table above.
Revenues relating to two customers accounted for $13.4 million, or 17.1%, and $8.1 million, or 10.4%, of revenues for the three months ended March 31, 2025. Revenues relating to two customers accounted for $14.6 million, or 11.3%, and $14.1 million, or 10.9%, of revenues for the six months ended March 31, 2025.
Revenues relating to two customers accounted for $9.1 million, or 13.4%, and $7.4 million, or 10.9%, of revenues for the three months ended March 31, 2024. Revenues relating to one customer accounted for $79.9 million, or 38.8%, of revenues for the six months ended March 31, 2024. On October 31, 2023, we entered into an early termination agreement relating to a legacy contract acquired by Nuance Communications Inc. (“Nuance”) through a 2013 acquisition. Previously, the term of the contract ended on December 31, 2025, whereas the agreement signed on October 31, 2023 updated the termination date to December 31, 2023. There is no cash flow associated with this legacy contract. The effect of this change was to accelerate $67.8 million of deferred revenue into the first quarter of fiscal year 2024. The acceleration of deferred revenue into the first quarter of fiscal year 2024 was included in the total for the United States major geographic region in the table above.
(b) Contract Acquisition Costs
We are required to capitalize certain contract acquisition costs. The capitalized costs primarily relate to paid commissions. The current and noncurrent portions of contract acquisition costs are included in Prepaid expenses and other current assets and in Other assets, respectively. As of March 31, 2025 and September 30, 2024, we had $5.9 million and $7.1 million of contract acquisition costs, respectively. We had amortization expense of $0.6 million and $1.0 million related to these costs during the three months ended March 31, 2025 and 2024, respectively, and $1.2 million and $1.7 million for the six months ended March 31, 2025 and 2024, respectively. There was no impairment related to contract acquisition costs.
(c) Capitalized Contract Costs
We capitalize incremental costs incurred to fulfill our contracts that (i) relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy our performance obligation under the contract, and (iii) are expected to be recovered through revenue generated under the contract. The current and noncurrent portions of capitalized contract fulfillment costs are presented as Deferred costs.
We had amortization expense of $1.1 million and $1.7 million related to these costs during the three months ended March 31, 2025 and 2024, respectively, and $3.5 million and $5.8 million for the six months ended March 31, 2025 and 2024, respectively. There was no impairment related to contract costs capitalized.
11
(d) Trade Accounts Receivable and Contract Balances
We classify our right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e., only the passage of time is required before payment is due). We present such receivables in Accounts receivable, net at their net estimated realizable value. Accounts receivable, net as of September 30, 2024 and 2023 was $62.8 million and $61.3 million, respectively. We maintain an allowance for credit losses to provide for the estimated amount of receivables and contract assets that may not be collected.
Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.
Contract assets include unbilled amounts from long-term contracts when revenue recognized exceeds the amount billed to the customer, and the right to payment is not solely subject to the passage of time. Contract assets were $56.7 million as of September 30, 2023. The current and noncurrent portions of contract assets are included in Prepaid expenses and other current assets and Other assets, respectively. The table below shows significant changes in contract assets (dollars in thousands):
Contract assets
22,219
Revenues recognized but not billed
14,738
Amounts reclassified to Accounts receivable, net
(18,519
(1,002
17,436
Our contract liabilities, which we present as deferred revenue, consist of advance payments and billings in excess of revenues recognized. Deferred revenues were $222.6 million as of September 30, 2023. We classify deferred revenue as current or noncurrent based on when we expect to recognize the revenues. The table below shows significant changes in deferred revenue (dollars in thousands):
167,176
Amounts billed but not recognized
50,021
Revenue recognized
(44,515
(2,988
169,694
(e) Remaining Performance Obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at March 31, 2025 (dollars in thousands):
Within OneYear
Two to FiveYears
GreaterthanFive Years
Total revenue
75,621
96,085
32,548
204,254
The table above includes fixed remaining performance obligations and does not include contingent usage-based activities, such as royalties and usage-based connected services.
12
Note 4. Earnings Per Share
Basic earnings per share is computed by dividing net (loss) income by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net (loss) income by the weighted-average number of shares of common stock outstanding during the period, increased to include the number of shares of common stock that would have been outstanding had potential dilutive shares of common stock been issued. The dilutive effect of restricted stock units is reflected in diluted net (loss) income per share by applying the treasury stock method.
The dilutive effect of the Notes (as defined in Note 14) is reflected in net (loss) income per share by application of the “if-converted” method. The “if-converted” method is only assumed in periods where such application would be dilutive. In applying the “if-converted” method for diluted net (loss) income per share, we would assume conversion of the Notes at the respective conversion ratio as further described in Note 14. Assumed converted shares of our common stock are weighted for the period the Notes were outstanding.
The following table presents the reconciliation of the numerator and denominator for calculating net (loss) income per share:
in thousands, except per share data
Numerator:
Net income (loss) - basic
Interest on the Notes, net of tax
2,093
Net income (loss) - diluted
23,749
Denominator:
Weighted average common shares outstanding - basic
Dilutive effect of restricted stock awards
1,481
Dilutive effect of contingently issuable stock awards
62
Dilutive effect of the Notes
6,764
Weighted average common shares outstanding - diluted
Net income (loss) per common share:
We exclude weighted-average potential shares from the calculations of diluted net (loss) income per share during the applicable periods when their inclusion is anti-dilutive. The following table sets forth potential shares that were considered anti-dilutive during the three and six months ended March 31, 2025 and 2024.
in thousands
Contingently issuable stock awards
218
92
396
Conversion option of our Notes
7,495
7,099
Note 5. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques must maximize the use of observable inputs and minimize the use of unobservable inputs. When determining fair value measurements for assets and liabilities recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use in pricing the asset or liability.
The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement as of the measurement date as follows:
The following table presents information about our financial assets that are measured at fair value and indicates the fair value hierarchy of the valuation inputs used (dollars in thousands) as of:
Fair Value
Cash and Cash Equivalents
Marketable Securities
Level 1:
Money market funds, $54,616 at cost (a)
54,616
Level 2:
Government securities, $1,405 at cost (b)
1,410
Time deposits, $5,499 at cost (a)
5,499
Corporate bonds, $3,995 at cost (b)
4,003
Debt securities, $2,000 at cost (c)
3,166
68,694
60,115
Money market funds, $77,785 at cost (a)
77,785
Government securities, $3,940 at cost (b)
3,950
Time deposits, $3,700 at cost (a)
3,700
Corporate bonds, $4,984 at cost (b)
5,005
3,099
93,539
81,485
8,955
During the three and six months ended March 31, 2025, unrealized gains related to our marketable securities were immaterial within Accumulated other comprehensive (loss) income. During the three and six months ended March 31, 2024, unrealized (losses) gains related to our marketable securities were immaterial and $0.2 million, respectively, within Accumulated other comprehensive (loss) income.
The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, and accounts payable, approximate fair value due to their short-term maturities and are excluded from the fair value tables above.
Derivative financial instruments are recognized at fair value using quoted forward rates and prices and classified within Level 2 of the fair value hierarchy. See Note 6 – Derivative Financial Instruments for additional details.
The estimated fair value of our Long-term debt is determined by Level 2 inputs and is based on observable market data including prices for similar instruments. As of March 31, 2025 and September 30, 2024, the estimated fair value of our Notes was $210.4 million and $184.8 million, respectively. The Notes are recorded at face value less transaction costs on our Condensed Consolidated Balance Sheets.
Equity securities
We have equity securities in a privately held company obtained as part of a non-cash transaction. These equity securities are recognized at fair value and are classified within Level 2 of the fair value hierarchy.
We have non-controlling equity investments in privately held companies. We evaluated the equity investments under the voting model and concluded consolidation was not applicable. We accounted for the investments by electing the measurement
alternative for investments without readily determinable fair values and for which we do not have the ability to exercise significant influence. The non-marketable equity securities are carried at cost less any impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, which is recorded within the Condensed Consolidated Statements of Operations.
Investments without readily determinable fair values were $2.6 million as of March 31, 2025 and September 30, 2024. The investments are included within Other assets on the Condensed Consolidated Balance Sheets. No impairment was recorded for the three and six months ended March 31, 2025 and 2024.
Note 6. Derivative Financial Instruments
We operate internationally and, in the normal course of business, are exposed to fluctuations in foreign currency exchange rates related to third-party vendor and intercompany payments for goods and services within our non-U.S. subsidiaries. We use foreign exchange forward contracts that are not designated as hedges to manage currency risk. The contracts can have maturities up to three years. As of March 31, 2025 and September 30, 2024, the total notional amount of forward contracts was $31.0 million and $59.1 million, respectively. As of March 31, 2025 and September 30, 2024, the weighted-average remaining maturity of these instruments was approximately 8.5 and 9.9 months, respectively.
The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheet for derivative instruments as of March 31, 2025 and September 30, 2024 (dollars in thousands):
Derivatives not designated as hedges
Classification
Foreign currency forward contracts
151
65
1,141
691
163
The following tables display a summary of the loss related to foreign currency forward contracts for the three and six months ended March 31, 2025 and 2024 (dollars in thousands):
Income (loss) recognized in earnings
Other income, net
(888
(171
(992
(500
Note 7. Goodwill and Other Intangible Assets
(a) Goodwill
We consider our Chief Executive Officer (“CEO”) to be our CODM. Our CEO approves all major decisions, including reorganizations and new business initiatives. Our CODM reviews routine consolidated operating information and makes decisions on the allocation of resources at this level, as such, we have concluded that we have one operating segment.
All goodwill is assigned to one or more reporting units. A reporting unit represents an operating segment or a component within an operating segment for which discrete financial information is available and is regularly reviewed by segment management for performance assessment and resource allocation. Upon consideration of our components, we have concluded that our goodwill is associated with one reporting unit.
The changes in the carrying amount of goodwill for the six months ended March 31, 2025 are as follows (dollars in thousands):
(3,501
At March 31, 2024, we performed a quantitative impairment test. We concluded indicators of impairment were present due to the current macroeconomic conditions and declines in our stock price. The fair value of our reporting unit was determined using a combination of the income approach and the market approach. For the income approach, fair value was determined based on the present value of estimated future after-tax cash flows estimates of projected future revenues, operating margins, and growth rates, discounted at an appropriate risk-adjusted rate. For the market approach, we used a valuation technique in which values were derived
15
based on valuation multiples of comparable publicly traded companies. We weighted the methodologies appropriately to estimate a fair value of approximately $463.4 million as of March 31, 2024. The carrying value of our reporting unit exceeded the estimated fair value. Based upon the results of the impairment test, we recorded a goodwill impairment charge of $252.1 million within the Condensed Consolidated Statement of Operations during the three and six months ended March 31, 2024.
(b) Intangible Assets, Net
The following tables summarizes the gross carrying amounts and accumulated amortization of intangible assets by major class (dollars in thousands):
GrossCarryingAmount
AccumulatedAmortization
NetCarryingAmount
Weighted AverageRemaining Life(Years)
Customer relationships
107,362
(106,811
0.1
Technology and patents
89,456
(89,456
196,818
(196,267
108,659
(106,953
0.5
90,042
(90,042
198,701
(196,995
Amortization expense related to intangible assets in the aggregate was $0.5 million and $0.6 million for the three months ended March 31, 2025 and 2024, respectively, and $1.1 million and $1.2 million for the six months ended March 31, 2025 and 2024, respectively. We expect amortization of intangible assets to be approximately $0.5 million for the remainder of fiscal year 2025.
Note 8. Leases
We have entered into a number of facility and equipment leases which qualify as operating leases under GAAP. We also have a limited number of equipment leases that qualify as finance leases.
The following table presents certain information related to lease term and incremental borrowing rates for leases as of March 31, 2025 and September 30, 2024:
Weighted-average remaining lease term (in months):
Operating leases
49.8
46.0
Finance leases
7.3
13.4
Weighted-average discount rate:
7.2
%
6.6
4.4
The following table presents lease expense for the three and six months ended March 31, 2025 and 2024 (dollars in thousands):
Finance lease costs:
Amortization of right of use asset
96
108
192
216
Interest on lease liability
Operating lease cost
1,375
1,581
2,785
3,209
Variable lease cost
463
807
1,571
Sublease income
(54
(51
(97
(111
Total lease cost
1,882
2,451
3,803
4,898
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For the three months ended March 31, 2025 and 2024, cash payments related to operating leases were $1.4 million and $1.6 million, respectively, and $2.7 million and $3.4 million for the six months ended March 31, 2025 and 2024, respectively. For the three months ended March 31, 2025 and 2024, cash payments related to finance leases were $0.1 million and $0.1 million, respectively, of which an immaterial amount related to the interest portion of the lease liability. For the six months ended March 31, 2025 and 2024, cash payments related to financing leases were $0.2 million and $0.2 million, respectively, of which an immaterial amount related to the interest portion of the lease liability. For the three months ended March 31, 2025 and 2024, right of use assets obtained in exchange for lease obligations were $5.9 million and $0.1 million, respectively, and $7.9 million and $1.6 million for the six months ended March 31, 2025 and 2024, respectively.
The table below reconciles the undiscounted future minimum lease payments under non-cancelable leases to the total lease liabilities recognized on the Condensed Consolidated Balance Sheet as of March 31, 2025 (dollars in thousands):
Year Ending September 30,
Operating Leases
Financing Leases
2,416
211
2,627
2026
5,519
53
5,572
2027
5,112
2028
4,388
2029
3,074
Thereafter
1,219
Total future minimum lease payments
21,728
264
21,992
Less effects of discounting
(3,213
(3,215
Total lease liabilities
18,515
262
18,777
Reported as of March 31, 2025
Short-term lease liabilities
249
4,207
Long-term lease liabilities
14,570
Note 9. Accrued Expenses and Other Liabilities
Accrued expenses and other current liabilities consisted of the following (dollars in thousands):
Compensation
19,344
18,755
Professional fees
4,470
4,015
Cost of revenue related liabilities
3,323
2,864
Sales and other taxes payable
3,675
3,668
Interest payable
1,735
Legal settlement
30,000
Other
5,319
7,368
At September 30, 2024, we recorded a $30.0 million legal settlement related to the settlement of the Securities Action (as defined in Note 12) and a corresponding receivable related to the insurance proceeds in Prepaid and other current assets. The entire settlement amount was funded by insurance proceeds in the first quarter of fiscal year 2025. See Note 12 - Commitments and Contingencies for additional details.
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Note 10. Restructuring and Other Costs, Net
Restructuring and other costs, net includes restructuring expenses as well as other charges that are unusual in nature, are the result of unplanned events, and arise outside of the ordinary course of our business. The following table sets forth accrual activity relating to restructuring reserves for the six months ended March 31, 2025 (dollars in thousands):
Personnel
3,758
572
4,330
11,970
1,924
Non-cash adjustments
(2,963
Cash payments
(11,648
(876
(12,524
1,163
1,620
2,783
The following table sets forth restructuring and other costs, net recognized for the three and six months ended March 31, 2025 and 2024 (dollars in thousands):
1,774
4,404
4,519
Facilities
147
292
1,058
445
Fiscal Year 2025
For the three months ended March 31, 2025, we recorded restructuring and other costs, net of $2.8 million, which included a $1.8 million charge related to the elimination of personnel and a $1.0 million charge relating to our transformation initiatives.
For the six months ended March 31, 2025, we recorded restructuring and other costs, net of $13.9 million, which included a $12.0 million charge related to the elimination of personnel, of which $3.0 million related to the stock-based compensation expense associated with the termination of former senior management employees, and a $1.9 million charge related to our transformation initiatives.
Fiscal Year 2024
For the three months ended March 31, 2024, we recorded restructuring and other costs, net of $4.6 million which included a $4.4 million severance charge related to the elimination of personnel and a $0.1 million charge resulting from the closure of facilities that will no longer be utilized.
For the six months ended March 31, 2024, we recorded restructuring and other costs, net of $5.3 million, which included a $4.5 million severance charge related to the elimination of personnel, $0.4 million related to other one-time charges and a $0.3 million charge resulting from the closure of facilities that will no longer be utilized.
Note 11. Stockholders’ Equity
On October 2, 2019, we registered the issuance of 6,350,000 shares of Common Stock, par value $0.01 per share (“Common Stock”), consisting of 5,300,000 shares of Common Stock reserved for issuance upon the exercise of options granted, or in respect of awards granted, 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. 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) 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 our board of directors on or prior to such date for such year.
On March 4, 2024, we registered the issuance of 600,000 shares of Common Stock, reserved for issuance under the Cerence Inc. 2024 Inducement Plan (the "Inducement Plan"). On October 6, 2024, we adopted Amendment No. 1 to the Inducement Plan, which increased the number of authorized shares of our Common Stock available for issuance under the Inducement Plan from
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600,000 to 3,000,000. On November 29, 2024, we adopted Amendment No. 2 to the Inducement Plan, which increased the number of authorized shares of our Common Stock available for issuance under the Inducement Plan from 3,000,000 to 4,500,000.
Restricted Stock Units
Information with respect to our non-vested restricted stock units for the six months ended March 31, 2025 was as follows:
Non-Vested Restricted Stock Units
Time-BasedShares
Performance-Based Shares
Total Shares
Weighted-AverageGrant-DateFair Value
Weighted-AverageRemainingContractualTerm (years)
AggregateIntrinsicValue(in thousands)
Non-vested at September 30, 2024
2,587,386
1,119,437
3,706,823
23.51
Granted
3,272,500
2,130,431
5,402,931
10.18
Vested
(1,064,029
(267,890
(1,331,919
28.79
Forfeited
(410,810
(681,420
(1,092,230
20.90
Non-vested at March 31, 2025
4,385,047
2,300,558
6,685,605
13.15
Expected to vest
1.46
Stock-based Compensation
Stock-based compensation was included in the following captions in our Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2025 and 2024 (in thousands):
Cost of connected services
76
129
145
Cost of professional services
481
601
1,161
2,566
2,548
4,395
6,379
887
372
1,396
1,921
1,160
3,901
4,350
2,963
4,745
During the three months ended December 31, 2024, we recorded $2.6 million in stock-based compensation due to the termination of employment of our former CEO and the resulting vesting of certain stock-based awards in Restructuring and other costs, net. During the three months ended December 31, 2024, we recorded $0.4 million in stock-based compensation due to the termination of employment of a former senior management employee and the resulting vesting of certain stock-based awards in Restructuring and other costs, net.
Note 12. Commitments and Contingencies
Litigation and Other Claims
Similar to many companies in the software industry, we are involved in a variety of claims, demands, suits, investigations and proceedings that arise from time to time relating to matters incidental to the ordinary course of our business, including at times actions with respect to contracts, intellectual property, employment, benefits and securities matters. At each balance sheet date, we evaluate contingent liabilities associated with these matters in accordance with ASC 450 “Contingencies.” If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgments are required for the determination of probability and the range of the outcomes, and estimates are based only on the best information available at the time. Due to the inherent uncertainties involved in claims and legal proceedings and in estimating losses that may arise, actual outcomes may differ from our estimates. Contingencies deemed not probable or for which losses were not estimable in one period may become probable, or losses may become estimable in later periods, which may have a material impact on our results of operations and financial position. As of March 31, 2025, accrued losses were not material to our condensed consolidated financial statements, and we do not expect any pending matter to have a material impact on our condensed consolidated financial statements.
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City of Miami Fire Fighters’ and Police Officers' Retirement Trust Action
On February 25, 2022, a purported shareholder class action captioned as City Of Miami Fire Fighters’ and Police Officers’ Retirement Trust v. Cerence Inc., et al. (the “Securities Action”) was filed in the United States District Court for the District of Massachusetts, naming the Company and two of its former officers as defendants. Following the court’s selection of a lead plaintiff and lead counsel, an amended complaint was filed on July 26, 2022 alleging classwide claims of material misrepresentations and/or omissions of material fact in the Company’s public disclosures during the period from November 16, 2020 to February 4, 2022, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. On December 18, 2024, the Court granted final approval of a settlement of the claims in the Securities Action for $30.0 million, which was paid for by insurance proceeds.
Derivative Actions
On May 10 and 12, 2022, respectively, plaintiffs William Shafer and Peter Morse filed shareholder derivative complaints in the United States District Court for the District of Massachusetts on behalf of Cerence Inc. against defendants (and former officers) Sanjay Dwahan and Mark J. Gallenberger as well as board members Arun Sarin, Thomas Beaudoin, Marianne Budnik, Sanjay Jha, Kristi Ann Matus, Alfred Nietzel and then-current CEO and board member Stefan Ortmanns. These actions are premised on factual contentions substantially similar to those made in the Securities Action and contain substantially similar legal contentions. As such, on June 13, 2022, at the parties’ request, the court consolidated these derivative actions into a single action and appointed co-lead counsel for plaintiffs in that consolidated action. On February 3, 2025, defendants filed a motion to dismiss on the grounds of demand futility and failure to state a claim, which motion is fully briefed as of April 3, 2025. Plaintiffs in the derivative actions seek, among other things, the implementation of purported corporate governance reforms and a requirement that the individual defendants pay unspecified damages and reimbursement of compensation to the company.
Three shareholder derivative complaints making factual and legal contentions substantially similar to those raised in the consolidated federal derivative action have been also filed in the Delaware Court of Chancery: the first filed on October 19, 2022 by plaintiff Melinda Hipp against the defendants named in the consolidated federal derivative action and board member Douglas Davis, the second filed on August 17, 2023 by plaintiff Catherine Fleming against the defendants named in the consolidated federal derivative action, and the third filed on July 10, 2024 by plaintiff Alberto Goncalves against the defendants named in the consolidated federal derivative action. On October 20, 2023, Ms. Hipp voluntarily dismissed her action with prejudice. On June 26, 2024, the court stayed the Fleming action pending the outcome of mediation. On August 12, 2024, the court stayed the Goncalves action pending the outcome of mediation.
Given the uncertainty of litigation, the preliminary stage of the cases, and the legal standards that must be met for, among other things, derivative standing and success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from these derivative actions.
A.P., a minor, by and through her guardian, Carlos Pena and Carlos Pena Action
On March 24, 2023, plaintiffs A.P., a minor, by and through her guardian, Carlos Pena, and Carlos Pena, each individually and on behalf of similarly situated individuals filed a purported class action lawsuit in the Circuit Court of Cook County, Illinois, Chancery Division (Case. No. 2023CH02866 (Cir. Ct. Cook Cnty. 2023)). The case was removed to Federal Court (Case No. 1:23CV2667 (N.D. Ill.)), and then severed and remanded back in part, so there are two pending cases. Plaintiffs subsequently amended the federal complaint twice, with the latest second amended complaint, filed on July 13, 2023, adding plaintiffs Randolph Freshour and Vincenzo Allan, each also filing individually and on behalf of similarly situated individuals. Plaintiffs allege that Cerence violated the Illinois Biometric Information Privacy Act (“BIPA”), 740 ILCS 14/1 et seq. through Cerence’s Drive Platform technology, which is integrated in various automobiles. The named plaintiffs allegedly drove or rode in a vehicle with Cerence’s Drive Platform technology. Across both cases, plaintiffs allege that Cerence violated: (1) BIPA Section 15(a) by possessing biometrics without any public written policy for their retention or destruction; (2) BIPA Section 15(b) by collecting, capturing, or obtaining biometrics without written notice or consent; (3) BIPA Section 15(c) by profiting from biometrics obtained from Plaintiffs and putative class members; and (4) BIPA Section 15(d) by disclosing biometrics to third party companies without consent. Cerence has filed motions to dismiss both cases. On February 27, 2024, the Circuit Court issued an order denying Cerence's motion to dismiss. On April 16, 2024, Cerence filed its answer and affirmative defenses, a motion to certify the Court’s order on Cerence’s motion to dismiss, and a motion to stay. Thereafter, in exchange for Cerence withdrawing its motions to certify and stay, plaintiffs filed amended complaints in both the Circuit Court and Federal Court. Cerence’s answers in the Federal Court and Circuit Court were due on July 15 and July 18, 2024, respectively, which the Company filed on such dates. Plaintiffs are seeking statutory damages of $5,000 for each willful and/or reckless violation of BIPA and, alternatively, damages of $1,000 for each negligent violation of BIPA. Given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, class certification and success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from this action.
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Samsung Electronics Co. Ltd and Samsung Electronics America, Inc.
On March 15, 2024, Cerence filed its second patent infringement complaint against Samsung alleging infringement of four Cerence patents. In its responsive pleading on July 10, 2024, Samsung asserted counterclaims, alleging infringement of U.S. Patent Nos. 10,395,657; 10,720,162; 11,823,682; and 9,583,103 against the Cerence Assistant. Samsung seeks damages, including trebled damages, and its costs and fees. Cerence filed its answer denying the allegations and counterclaims of invalidity and noninfringement on September 4, 2024. Trial is scheduled to begin in January 2026. Given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from this action.
Guarantees and Other
We include indemnification provisions in the contracts we enter with customers and business partners. Generally, these provisions require us to defend claims arising out of our products’ infringement of third-party intellectual property rights, breach of contractual obligations and/or unlawful or otherwise culpable conduct. The indemnity obligations generally cover damages, costs and attorneys’ fees arising out of such claims. In most, but not all cases, our total liability under such provisions is limited to either the value of the contract or a specified, agreed-upon amount. In some cases, our total liability under such provisions is unlimited. In many, but not all cases, the term of the indemnity provision is perpetual. While the maximum potential amount of future payments we could be required to make under all the indemnification provisions is unlimited, we believe the estimated fair value of these provisions is minimal due to the low frequency with which these provisions have been triggered.
We indemnify our directors and officers to the fullest extent permitted by Delaware law, which provides among other things, indemnification to directors and officers for expenses, judgments, fines, penalties and settlement amounts incurred by such persons in their capacity as a director or officer of the Company, regardless of whether the individual is serving in any such capacity at the time the liability or expense is incurred. Additionally, in connection with certain acquisitions, we agreed to indemnify the former officers and members of the boards of directors of those companies, on similar terms as described above, for a period of six years from the acquisition date. In certain cases, we purchase director and officer insurance policies related to these obligations, which fully cover the six-year period. To the extent that we do not purchase a director and officer insurance policy for the full period of any contractual indemnification, and such directors and officers do not have coverage under separate insurance policies, we would be required to pay for costs incurred, if any, as described above.
As of March 31, 2025, our letters of credit in connection with security deposits for facility leases totaled $0.6 million in the aggregate. These letters of credit have various terms and expiration dates that align with the underlying facilities for which they relate.
Note 13. Income Taxes
The components of income (loss) before income taxes are as follows (dollars in thousands):
Domestic
3,525
(270,347
(8,300
(204,711
Foreign
12,528
4,018
5,736
(3,420
The components of the provision for (benefit from) income taxes are as follows (dollars in thousands):
(821
2,994
470
32,072
(4,782
8,653
(402
13,916
Effective income tax rate
(34.9
)%
(4.4
(2.7
(22.1
The effective tax rates for the periods presented are based upon estimated income for the fiscal year and the statutory tax rates enacted in the jurisdictions in which we operate. For all periods presented, the effective tax rate differs from the 21.0% statutory U.S. tax rate due to the impact of the nondeductible stock-based compensation and our mix of jurisdictional earnings and related differences in foreign statutory tax rates.
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Our effective tax rate for the three months ended March 31, 2025 was negative 34.9% compared to negative 4.4% for the three months ended March 31, 2024. Consequently, our benefit from income taxes for the three months ended March 31, 2025 was $5.6 million, a net change of $17.2 million from a provision for income taxes of $11.6 million for the three months ended March 31, 2024. This difference was attributable to the impairment of book goodwill in the three months ended March 31, 2024.
Our effective tax rate for the six months ended March 31, 2025 was negative 2.7% compared to negative 22.1% for the six months ended March 31, 2024. Consequently, our provision for income taxes for the six months ended March 31, 2025 was $0.1 million, a net change of $45.9 million from a provision for income taxes of $46.0 million for the six months ended March 31, 2024. This difference was attributable to the impairment of book goodwill and one-time acceleration of legacy deferred revenue in the six months ended March 31, 2024.
Deferred tax assets and liabilities are measured using the statutory tax rates and laws expected to apply to taxable income in the years in which the temporary differences are expected to reverse. Valuation allowances are provided against net deferred tax assets if, based upon all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the timing of the temporary differences becoming deductible. Management considers, among other available information, scheduled reversals of deferred tax liabilities, projected future taxable income, limitations of availability of net operating loss carryforwards, and other matters in making this assessment.
Note 14. Long-Term Debt
Long-term debt consisted of the following (in thousands):
Description
Maturity Date
Convertible Debt Coupon Rate
Effective Interest Rate
Principal
Unamortized Discount
Deferred Issuance Costs
Carrying Value
2025 Modified Notes
6/1/2025
3.00%
3.68%
60,125
(69
7/1/2028
1.50%
8.46%
87,500
(2,248
(8,583
76,669
2028 Notes
1.91%
122,500
(1,576
120,924
Total debt
270,125
(10,228
257,649
Less: current portion of long-term debt
(60,056
Total long-term debt
3.70%
(406
8.55%
(2,777
(10,602
74,121
(1,809
120,691
297,500
(12,817
281,906
(87,094
The following table summarizes the maturities of our borrowing obligations as of March 31, 2025 (in thousands):
Fiscal Year
210,000
Total before unamortized discount and issuance costs and current portion
147,625
Less: unamortized discount and issuance costs
(10,900
(12,476
1.50% Senior Convertible Notes due 2028
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On June 26, 2023, we issued $190.0 million in aggregate principal amount of 1.50% Convertible Senior Notes due 2028 (the “2028 Notes”), which are governed by an indenture (the “2028 Indenture”), between us and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). On July 3, 2023, we issued an additional $20.0 million in aggregate principal amount of 2028 Notes. The initial net proceeds from the issuance of the 2028 Notes were $193.2 million after deducting transaction costs.
The 2028 Notes are senior, unsecured obligations and accrue interest payable semiannually in arrears on January 1 and July 1 of each year at a rate of 1.50% per year. The 2028 Notes will mature on July 1, 2028, unless earlier converted, redeemed, or repurchased. The 2028 Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.
A holder of 2028 Notes may convert all or any portion of its 2028 Notes at its option at any time prior to the close of business on the business day immediately preceding April 3, 2028 only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on September 30, 2023 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the 2028 Indenture) per $1,000 principal amount of 2028 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call such 2028 Notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after April 3, 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2028 Notes at any time, regardless of the foregoing circumstances.
The conversion rate is 24.5586 shares of our common stock per $1,000 principal amount of 2028 Notes (equivalent to an initial conversion price of approximately $40.72 per share of our common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2028 Notes in connection with such a corporate event or convert its 2028 Notes called for redemption in connection with such notice of redemption, as the case may be.
We may not redeem the 2028 Notes prior to July 6, 2026. We may redeem for cash all or any portion of the 2028 Notes (subject to certain limitations), at our option, on a redemption date occurring on or after July 6, 2026 and on or before the 31st scheduled trading day immediately before the maturity date, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2028 Notes.
If we undergo a “fundamental change”, subject to certain conditions, holders may require us to repurchase for cash all or any portion of their 2028 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2028 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The 2028 Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the 2028 Notes then outstanding may declare the entire principal amount of all the 2028 Notes plus accrued special interest, if any, to be immediately due and payable.
In connection with the offering of the 2028 Notes, we repurchased $87.5 million in aggregate principal amount of the 2025 Notes in a privately negotiated transaction. We specifically negotiated the repurchase of the 2025 Notes with investors who concurrently purchased the 2028 Notes. We evaluated the transaction to determine whether the exchange should be accounted for as a modification or extinguishment under the provisions of ASC 470-50, which allows for an exchange of debt instruments between the same debtor and creditor to be accounted for as a modification so long as the instruments do not have substantially different terms. Because the concurrent redemption of the 2025 Notes and a portion of issuance of the 2028 Notes were executed with the same investors, we evaluated the transaction as a debt modification, on a creditor by creditor basis. The repurchase of the 2025 Notes and issuance of the 2028 Notes were deemed to not have substantially different terms on the basis that (1) the present value of the cash flows under the terms of the new debt instrument were less than 10% different from the present value of the remaining cash flows under the terms of the original instrument and (2) the fair value of the conversion feature did not change by more than 10% of the carrying value of the 2025 Notes, and therefore, the repurchase of the 2025 Notes was accounted for as a debt modification.
As a result, $87.5 million of the 2028 Notes are considered a modification of the 2025 Notes and are included in the balances of the 2025 Notes along with the remaining $87.5 million of the 2025 Notes (together the “2025 Modified Notes” and together with
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the 2028 Notes, the “Notes”) that were not repurchased as part of the transaction. We recorded $14.3 million of fees paid directly to the lenders as deferred debt issuance costs, and $3.8 million of fees paid to third-parties were expensed in the period. As of March 31, 2025, the carrying amount of the 2025 Modified Notes was $136.7 million, net of unamortized costs of $10.9 million.
If a convertible debt instrument is modified or exchanged in a transaction that is not accounted for as an extinguishment, an increase in the fair value of the embedded conversion option shall reduce the carrying amount of the debt instrument with a corresponding increase in Additional paid-in capital. We recognized the increase in the fair value of the embedded conversion feature of $4.1 million as Additional paid-in capital and an equivalent discount that reduced the carrying value of the 2025 Modified Notes.
We accounted for $122.5 million of the 2028 Notes, that were not negotiated with the investors of the 2025 Notes, as a single liability. We incurred transaction costs of $2.4 million relating to the issuance of the 2028 Notes, which were recorded as a direct deduction from the face amount of the 2028 Notes and are being amortized as interest expense over the term of the 2028 Notes using the interest method. As of March 31, 2025, the carrying amount of the 2028 Notes was $120.9 million and unamortized issuance costs of $1.6 million. As of March 31, 2025, the 2028 Notes were not convertible. As of March 31, 2025 and September 30, 2024, the if-converted value of the 2028 Notes was $98.7 million and $113.0 million, respectively, less than its principal amount.
3.00% Senior Convertible Notes due 2025
On June 2, 2020, we issued $175.0 million in aggregate principal amount of 3.00% Convertible Senior Notes due 2025 (the “2025 Notes”), including the initial purchasers’ exercise in full of their option to purchase $25.0 million principal amount of the 2025 Notes, which are governed by an indenture (the “2025 Indenture”), between us and the Trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The net proceeds from the issuance of the 2025 Notes were $169.8 million after deducting transaction costs.
The 2025 Notes are senior, unsecured obligations and accrue interest payable semiannually in arrears on June 1 and December 1 of each year at a rate of 3.00% per year. The 2025 Notes will mature on June 1, 2025, unless earlier converted, redeemed, or repurchased. The 2025 Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. As of March 31, 2025 and September 30, 2024, the if-converted value of the 2025 Modified Notes was $118.0 million and $160.9 million, respectively, less than its principal amount.
A holder of 2025 Notes may convert all or any portion of its 2025 Notes at its option at any time prior to the close of business on the business day immediately preceding March 1, 2025 only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on September 30, 2020 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the 2025 Indenture) per $1,000 principal amount of 2025 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call such 2025 Notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after March 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2025 Notes at any time, regardless of the foregoing circumstances.
The conversion rate is 26.7271 shares of our common stock per $1,000 principal amount of 2025 Notes (equivalent to an initial conversion price of approximately $37.42 per share of our common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2025 Notes in connection with such a corporate event or convert its 2025 Notes called for redemption in connection with such notice of redemption, as the case may be.
The 2025 Notes did not by their terms permit repayment prior to June 5, 2023. We may redeem for cash all or any portion of the 2025 Notes, at our option, on a redemption date occurring on or after June 5, 2023 and on or before the 31st scheduled trading day immediately before the maturity date, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2025 Notes.
During the three months ended December 31, 2024, we repurchased $27.4 million aggregate principal amount of our 2025 Notes for $27.0 million in cash, including accrued interest and fees, via privately negotiated transactions with certain holders. The repurchased notes were subsequently cancelled and retired, resulting in a gain on extinguishment of debt of $0.3 million.
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See “1.50% Senior Convertible Notes due 2028” section above for discussion on the modification of the 2025 Notes as part of the offering of the 2028 Notes.
The interest expense recognized related to the Notes for the three and six months ended March 31, 2025 and 2024 was as follows (dollars in thousands):
Contractual interest expense
1,221
1,439
2,646
2,881
Amortization of debt discount
263
251
528
502
Amortization of issuance costs
1,224
2,505
2,436
Total interest expense related to the Notes
2,708
2,909
5,679
5,819
The conditional conversion feature of the Notes was not triggered during the three and six months ended March 31, 2025. As of March 31, 2025, the Notes were not convertible. As of this Quarterly Report on Form 10-Q, no Notes have been converted by the holders. Whether any of the Notes will be converted in future quarters will depend on the satisfaction of one or more of the conversion conditions in the future. If one or more holders elect to convert their Notes at a time when any such Notes are convertible, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional shares), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.
Senior Credit Facilities
On June 12, 2020 (the “Financing Closing Date”), we entered into a Credit Agreement, by and among the Borrower, the lenders and issuing banks party thereto and Wells Fargo Bank, N.A., as administrative agent (the “Credit Agreement”), consisting of a four-year senior secured term loan facility in the aggregate principal amount of $125.0 million (the “Term Loan Facility”). The net proceeds from the issuance of the Term Loan Facility were $123.0 million. We also entered into a senior secured first-lien revolving credit facility in an aggregate principal amount of $50.0 million (the “Revolving Facility” and, together with the Term Loan Facility, the “Senior Credit Facilities”), which could have been drawn on in the event that our working capital and other cash needs were not supported by our operating cash flow. In connection with the issuance of the 2028 Notes, in the third quarter of fiscal year 2023, we borrowed $24.7 million under our Revolving Facility and paid $106.3 million towards our Term Loan Facility. As a result, we recorded $104.9 million extinguishment of debt and $1.3 million loss on the extinguishment of debt. All principal and interest on the Term Loan Facility have been paid in full.
On December 31, 2024, we terminated the Credit Agreement. On the date of termination, there were no revolving loans outstanding under the Credit Agreement. As a result of the Credit Agreement termination, we will not have access to the Revolving Facility and we will not be subject to the applicable Credit Agreement covenants.
Total interest expense relating to the Senior Credit Facilities for the three months ended March 31, 2025 and 2024 was none and $0.1 million, respectively, and for the six months ended March 31, 2025 and 2024 was $0.4 million and $0.1 million, respectively. Amounts reflect the coupon and accretion of the discount.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements, and the related notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”), and our consolidated financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024, filed with the Securities and Exchange Commission (“SEC”) on November 25, 2024. Some of the information contained in this discussion and analysis or elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, our performance and future success, our liquidity and capital resources, including our ability to meet our liquidity needs after the repayment of the Notes due in the third quarter of fiscal 2025, results of operations and financial condition, macroeconomic conditions, volatility in the political, legal and regulatory environment in which we operate including trade, tariffs and other policies implemented by the new administration in the United States or actions taken by other countries in response, trends in the global auto industry and adjacent markets, including shipping and production issues, new products, process optimization efforts and cost management, litigation, and tax estimates and other tax matters, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Concerning Forward-Looking Statements.” You should review the “Risk Factors” sections in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2024 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Note that the results of operations for the three and six months ended March 31, 2025 are not necessarily indicative of what our operating results for the full fiscal year will be. In this Item, “we,” “us,” “our,” “Cerence” and the “Company” refer to Cerence Inc. and its consolidated subsidiaries, collectively.
Overview
Cerence builds AI powered virtual assistants for the mobility/transportation market. Our primary target is the automobile market, but our solutions can apply to all forms of transportation, including, but not limited to, two-wheel vehicles, planes, tractors, cruise ships and elevators. Our solutions power natural conversational and intuitive interactions between automobiles, drivers and passengers, and the broader digital world. We possess one of the leading software platforms for building automotive virtual assistants. Our customers include nearly all major original equipment manufacturers (“OEMs”) or their tier 1 suppliers worldwide. We deliver our solutions on a white-label basis, enabling our customers to deliver customized virtual assistants with unique, branded personalities and ultimately strengthening the bond between automobile brands and end users. Our vision is to enable a more enjoyable, safer journey for everyone.
Our principal offering is our software platform, which our customers use to build virtual assistants that can communicate, find information, and take action across an expanding variety of categories. Our software platform has a hybrid architecture combining edge software components with cloud-connected components. Edge software components are installed on a vehicle’s head unit and can operate without access to external networks and information. Cloud-connected components are comprised of certain speech and natural language understanding related technologies, AI-enabled personalization and context-based response frameworks, and a content integration platform.
We generate revenue primarily by selling software licenses and cloud-connected services. Our edge software components are typically sold under a traditional per unit perpetual software license model, in which a per unit fee is charged on a variable basis for each software instance installed on an automotive head unit. We typically license cloud-connected software components in the form of a service to the vehicle end user, which is paid for in advance. In addition, we generate professional services revenue from our work with our customers during the design, development, and deployment phases of the vehicle model lifecycle and through maintenance and enhancement projects. We have existing relationships with nearly all major OEMs or their tier 1 suppliers, and while our customer contracts vary, they generally represent multi-year engagements, giving us some level of visibility into future revenue; however, such revenue may not materialize as expected due to delays in automobile production, volatility in the political, legal and regulatory environment in which we operate including trade, tariffs and other policies implemented by the new administration in the United States or actions taken by other countries in response and automotive production curtailment or delays related thereto, changing customer forecasts, macroeconomic conditions or other factors discussed elsewhere in this Quarterly Report.
The financial information presented in the accompanying unaudited condensed consolidated financial statements has been prepared in accordance with U.S. GAAP and in accordance with rules and regulations of the SEC regarding interim financial reporting. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
The condensed consolidated balance sheet data as of September 30, 2024 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations. The operating results for the three and six months ended March 31, 2025 are not necessarily indicative of the results expected for the full fiscal year ending September 30, 2025.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, as well as those of its wholly owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation.
Key Financial Metrics
In evaluating our financial condition and operating performance, we focus on revenue, operating margins, and cash flow from operations.
For the three months ended March 31, 2025 as compared to the three months ended March 31, 2024:
For the six months ended March 31, 2025 as compared to the six months ended March 31, 2024:
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Operating Results
The following table shows the Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2025 and 2024 (dollars in thousands):
Revenue:
Cost of revenue:
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Our revenue consists primarily of license revenue, connected services revenue and revenue from professional services. License revenue primarily consists of license royalties associated with our edge software components. Our edge software components are typically sold under a traditional per unit perpetual software license model, in which a per unit fee is charged for each software instance installed on an automotive head unit. Our contracts contain variable, fixed prepaid or fixed minimum purchase commitment components. Revenue is recognized and cash is collected for variable contracts over the license distribution period. The fixed contracts typically provide the customer with a price discount and can include the conversion of a variable contract that is already in our variable backlog. Revenue for fixed contracts is recognized when the software is made available to the customer, which has typically occurred at the time the contract is signed. Cash is typically expected to be collected for a fixed prepaid deal at the inception of the contract. Cash is expected to be collected for a fixed minimum commitment deal over the license distribution period. Going forward, we will continue to assess the levels of fixed license contracts and make adjustments, as necessary. See Note 3 to the accompanying unaudited condensed consolidated financial statements for further discussion of our revenue, deferred revenue performance obligations and the timing of revenue recognition. Costs of license revenue primarily consists of third-party royalty expenses for certain external technologies we leverage and costs associated with our Cerence Link product.
Connected services revenue primarily represents the subscription fee that provides access to our connected services components, including the customization and construction of our connected services solutions. We also derive revenue within our connected services business from usage contracts and there can be instances where a customer purchases a software license that allows them to take possession of the software to enable hosting by the customer or a third-party. Subscription and usage contracts typically have a term of one to five years. Subscription revenue is recognized over the subscription period and cash is expected to be collected at the start of the subscription period. Usage based revenue is recognized and cash is collected as the service is used. If the customer takes possession of the software to have it hosted by the customer or a third-party, revenue is recognized, and cash is collected at the time the license is delivered. On October 31, 2023, we entered into an early termination agreement relating to a legacy contract acquired by Nuance through a 2013 acquisition. Previously, the term of the contract ended on December 31, 2025, whereas the agreement signed on October 31, 2023 updated the termination date to December 31, 2023. For the three months ended December 31, 2023, a total of $76.3 million was recognized in relation to this contract including $67.8 million of deferred revenue that was accelerated into the first quarter of fiscal year 2024 as a result of the termination. There was no cash flow associated with this legacy contract. We provided services to a separate customer, who in turn provided services to our legacy customer. This separate customer terminated services on October 31, 2023. There was no cash flow associated with this contract. For the three months ended December 31, 2023, a total of $10.3 million was recognized in relation to this contract including $9.9 million of deferred revenue that was accelerated into the first quarter of fiscal year 2024. See Note 3 to the accompanying unaudited condensed consolidated financial statements for further discussion of our revenue, deferred revenue performance obligations and the timing of revenue recognition. Cost of connected service revenue primarily consists of labor costs of software delivery services, infrastructure, and communications fees that support our connected services solutions.
Professional services revenue is primarily comprised of porting, integrating, and customizing our embedded solutions, with costs primarily consisting of compensation for services personnel, contractors and overhead.
Our operating expenses include R&D, sales and marketing and general and administrative expenses. R&D expenses primarily consist of salaries, benefits, and overhead relating to research and engineering staff. Sales and marketing expenses includes salaries, benefits, and commissions related to our sales, product marketing, product management, and business unit management teams. General and administrative expenses primarily consist of personnel costs for administration, finance, human resources, general management, fees for external professional advisers including accountants and attorneys, and provisions for credit losses.
Amortization of acquired patents and core technology are included within cost of revenues whereas the amortization of other intangible assets, such as acquired customer relationships, trade names and trademarks, are included within operating expenses. Customer relationships are amortized over their estimated economic lives based on the pattern of economic benefits expected to be generated from the use of the asset. Other identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives.
Restructuring and other costs, net include restructuring expenses as well as other charges that are unusual in nature, are the result of unplanned events, and arise outside the ordinary course of our business.
Total other expense, net consists primarily of foreign exchange gains (losses), interest income and interest expense related to the Notes and Senior Credit Facilities.
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We expect our revenue to continue to be impacted by dynamics in the global automotive industry which has experienced production delays and slowdowns. Volatility in the political, legal and regulatory environment in which we operate, including trade, tariffs and related policies, also has resulted in increased pricing pressure from customers and delays in program timelines. Macroeconomic conditions such as high interest rates and lack of credit availability have contributed to these production delays and slowdowns. In addition, the software and technology systems in automobiles have become increasingly complex, leading to substantial challenges and delays in production for some of our customers. Our business in adjacent markets, such as two-wheeled vehicles, trucks and AIoT, is also developing slower than anticipated due to the challenges of introducing different technology into a new market. In light of these challenges, we intend to continue to focus on cost management and may take future cost reduction actions, which may result in additional restructuring costs and impairment charges. In particular, in August 2024, we announced a restructuring plan intended to reduce operating expenses and position us for profitable future growth (the “Plan”). The implementation of the Plan was substantially complete by the end of the first quarter of fiscal year 2025. The charges that we incur are subject to a number of assumptions, including legal requirements in various jurisdictions. For additional details, refer to the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024.
Three Months Ended March 31, 2025 Compared with Three Months Ended March 31, 2024
Total Revenues
The following table shows total revenues by product type, including the corresponding percentage change, for the three months ended March 31, 2025 and 2024 (dollars in thousands):
% Change
% of Total
2025 vs. 2024
66.0%
52.4%
44.8
16.2%
20.0%
(7.0
17.8%
27.6%
(25.7
15.0
Total revenues for the three months ended March 31, 2025 were $78.0 million, an increase of $10.2 million, or 15.0%, from $67.8 million for the three months ended March 31, 2024. The increase in revenues was driven by license revenue. The increase was partly offset by decreases in connected service and professional service revenues.
License Revenue
License revenue for the three months ended March 31, 2025 was $51.5 million, an increase of $16.0 million, or 44.8%, from $35.5 million for the three months ended March 31, 2024. The increase in license revenue was primarily driven by a $11.0 million increase in fixed contracts and a $5.0 million increase associated with variable contract revenue, as we continue to assess the levels of fixed license contracts and make adjustments. As a percentage of total revenues, license revenue increased 13.6 percentage points from 52.4% for the three months ended March 31, 2024 to 66.0% for the three months ended March 31, 2025.
Connected Services Revenue
Connected services revenue for the three months ended March 31, 2025 was $12.6 million, a decrease of $1.0 million, or 7.0%, from $13.6 million for the three months ended March 31, 2024. This decrease was driven by a $2.6 million catch up recognized in the 2024 period related to amended customer royalty reports, which did not recur in the 2025 period, partially offset by increased demand for our connected services products. As a percentage of total revenues, connected services revenue decreased by 3.8 percentage points from 20.0% for the three months ended March 31, 2024 to 16.2% for the three months ended March 31, 2025.
Professional Services Revenue
Professional service revenue for the three months ended March 31, 2025 was $13.9 million, a decrease of $4.8 million, or 25.7%, from $18.7 million for the three months ended March 31, 2024. This decrease was driven by the increased standardization of our software product offerings, which requires less professional services effort to implement, other efficiencies in our professional services processes and, in some cases, customers opting to perform these activities internally. As a percentage of total revenues, professional services revenue decreased by 9.8 percentage points from 27.6% for the three months ended March 31, 2024 to 17.8% for the three months ended March 31, 2025.
Six Months Ended March 31, 2025 Compared with Six Months Ended March 31, 2024
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The following table shows total revenues by product type, including the corresponding percentage change, for the six months ended March 31, 2025 and 2024 (dollars in thousands):
57.5%
27.3%
31.7
20.4%
53.6%
(76.1
22.1%
19.1%
(28.0
(37.5
Total revenues for the six months ended March 31, 2025 were $128.9 million, a decrease of $77.3 million, or 37.5%, from $206.2 million for the six months ended March 31, 2024. The decrease in revenues was driven primarily by connected services revenue due to the early termination of a legacy contract acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer and a decrease in professional services revenue. The decrease was partially offset by increases in license revenue primarily related to fixed contracts.
License revenue for the six months ended March 31, 2025 was $74.2 million, an increase of $17.8 million, or 31.7%, from $56.4 million for the six months ended March 31, 2024. The increase in license revenue was primarily driven by a $11.1 million increase in fixed license contracts, a $5.2 million increase associated with variable contract revenue, as we continue to assess the levels of fixed license contracts and make adjustments, and $1.5 million associated with our Cerence Link product. As a percentage of total revenues, license revenue increased 30.2 percentage points from 27.3% for the six months ended March 31, 2024 to 57.5% for the six months ended March 31, 2025.
Connected services revenue for the six months ended March 31, 2025 was $26.4 million, a decrease of $84.0 million, or 76.1%, from $110.4 million for the six months ended March 31, 2024. This decrease was primarily driven by the early termination of a legacy contract acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer. The effect of these changes was an acceleration of $67.8 million and $9.9 million of deferred revenue, respectively, as well as in period revenue of $8.9 million for these terminated contracts, in the first quarter of fiscal year 2024. This decrease was offset by an increase of $2.6 million in new connected revenue during the first half of fiscal year 2025. As a percentage of total revenues, connected services revenue decreased by 33.2 percentage points from 53.6% for the six months ended March 31, 2024 to 20.4% for the six months ended March 31, 2025.
Professional service revenue for the six months ended March 31, 2025 was $28.4 million, a decrease of $11.0 million, or 28.0%, from $39.4 million for the six months ended March 31, 2024. This decrease was primarily driven by the increased standardization of our software product offerings, which requires less professional services effort to implement, other efficiencies in our professional services processes and, in some cases, customers opting to perform these activities internally. As a percentage of total revenues, professional services revenue increased by 3.0 percentage points from 19.1% for the six months ended March 31, 2024 to 22.1% for the six months ended March 31, 2025.
Total Cost of Revenues and Gross Profits
The following table shows total cost of revenues by product type and the corresponding percentage change (dollars in thousands):
73.2
(7.1
(26.2
(14.6
31
The following table shows total gross profit by product type and the corresponding percentage change (dollars in thousands):
49,028
34,123
43.7
7,669
8,238
(6.9
3,484
4,582
(24.0
Total gross profit
28.2
Total cost of revenues for the three months ended March 31, 2025 were $17.8 million, a decrease of $3.1 million, or 14.6%, from $20.9 million for the three months ended March 31, 2024.
We experienced an increase in total gross profit of $13.3 million, or 28.2%, from $46.9 million for the three months ended March 31, 2024 to $60.2 million for the three months ended March 31, 2025. The increase was primarily driven by the increase in license revenues due to a higher volume of fixed contracts.
Cost of License Revenue
Cost of license revenue for the three months ended March 31, 2025 was $2.4 million, an increase of $1.0 million, or 73.2%, from $1.4 million for the three months ended March 31, 2024. Cost of license revenues increased due to the costs associated with our Cerence Link product revenue. As a percentage of total cost of revenues, cost of license revenue increased by 6.9 percentage points from 6.7% for the three months ended March 31, 2024 to 13.6% for the three months ended March 31, 2025.
License gross profit increased by $14.9 million, or 43.7%, for the three months ended March 31, 2025 when compared to the three months ended March 31, 2024, primarily due to increases in license revenues.
Cost of Connected Services Revenue
Cost of connected services revenue for the three months ended March 31, 2025 was $5.0 million, a decrease of $0.4 million, or 7.1%, from $5.4 million for the three months ended March 31, 2024. Cost of connected services revenue decreased primarily due to a $0.2 million decrease in our cloud infrastructure costs and $0.1 million decrease in amortization of costs previously deferred, and a $0.1 million decrease in internal allocated labor. As a percentage of total cost of revenues, cost of connected services revenue increased by 2.2 percentage points from 25.7% for the three months ended March 31, 2024 to 27.9% for the three months ended March 31, 2025.
Connected services gross profit decreased $0.5 million, or 6.9%, from $8.2 million for the three months ended March 31, 2024 to $7.7 million for the three months ended March 31, 2025, primarily due to declines in connected services revenues.
Cost of Professional Services Revenue
Cost of professional services revenue for the three months ended March 31, 2025 was $10.4 million, a decrease of $3.7 million, or 26.2%, from $14.1 million for the three months ended March 31, 2024. Cost of professional services revenue decreased primarily due to a $2.4 million decrease in third party contract labor and a $1.3 million decrease in salary-related expenditures. Decreases were driven by the increased standardization of our software product offerings, which requires less professional services effort to implement, and other efficiencies in our professional services processes. As a percentage of total cost of revenues, cost of professional services revenue decreased by 9.2 percentage points from 67.6% for the three months ended March 31, 2024 to 58.4% for the three months ended March 31, 2025.
Professional services gross profit decreased $1.1 million, or 24.0%, from $4.6 million for the three months ended March 31, 2024 to $3.5 million for the three months ended March 31, 2025, which was primarily due to a decrease in professional services revenue.
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40.1
(10.8
(35.9
Amortization of intangibles
(100.0
(24.5
69,971
53,342
31.2
15,065
97,755
(84.6
8,217
7,949
3.4
(103
100.0
(41.3
Total cost of revenues for the six months ended March 31, 2025 were $35.7 million, a decrease of $11.5 million, or 24.5%, from $47.2 million for the six months ended March 31, 2024.
We experienced a decrease in total gross profit of $65.6 million, or 41.3%, from $158.9 million for the six months ended March 31, 2024 to $93.3 million for the six months ended March 31, 2025. The decrease was primarily driven by the decrease in connected service revenue due to the early termination of a legacy contract acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer.
Cost of license revenue for the six months ended March 31, 2025 was $4.2 million, an increase of $1.2 million, or 40.1%, from $3.0 million for the six months ended March 31, 2024. Cost of license revenues increased primarily due to costs associated with our Cerence Link product revenue. As a percentage of total cost of revenues, cost of license revenue increased by 5.4 percentage points from 6.4% for the six months ended March 31, 2024 to 11.8% for the six months ended March 31, 2025.
License gross profit increased by $16.6 million, or 31.2%, for the six months ended March 31, 2025 when compared to the six months ended March 31, 2024, primarily due to increases in license revenues.
Cost of connected services revenue for the six months ended March 31, 2025 was $11.3 million, a decrease of $1.4 million, or (10.8)%, from $12.7 million for the six months ended March 31, 2024. Cost of connected services revenue decreased primarily due to a $0.7 million decrease in amortization of costs previously deferred, a $0.3 million decrease in our cloud infrastructure costs and a $0.4 million decrease in internally allocated labor costs. As a percentage of total cost of revenues, cost of connected service revenue increased by 4.9 percentage points from 26.8% for the six months ended March 31, 2024 to 31.7% for the six months ended March 31, 2025.
Connected services gross profit decreased $82.7 million, or 84.6%, from $97.8 million for the six months ended March 31, 2024 to $15.1 million for the six months ended March 31, 2025, primarily due to the decrease in connected service revenue due to the early termination of a legacy contract acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer.
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Cost of professional services revenue for the six months ended March 31, 2025 was $20.1 million, a decrease of $11.3 million, or 35.9%, from $31.4 million for the six months ended March 31, 2024. Cost of professional services revenue decreased primarily due to a $7.6 million decrease in third-party contractor costs, a $1.7 million decrease in salary-related expenditures, a $1.7 million decrease in internally allocated labor, a $0.2 million decrease in travel-related expenses, and a $0.1 million decrease in hardware costs. Decreases were driven by the increased standardization of our software product offerings, which requires less professional services effort to implement, and other efficiencies in our professional services processes. As a percentage of total cost of revenues, cost of professional services revenue decreased by 10.1 percentage points from 66.6% for the six months ended March 31, 2024 to 56.5% for the six months ended March 31, 2025.
Professional services gross profit increased $0.3 million, or 3.4%, from $7.9 million for the six months ended March 31, 2024 to $8.2 million for the six months ended March 31, 2025, which was primarily due to the composition of our professional service arrangements.
Operating Expenses
The tables below show each component of operating expense. Total other expense, net and (benefit from) provision for income taxes are non-operating expenses and presented in a similar format (dollars in thousands).
R&D Expenses
(26.7
Historically, R&D expenses are our largest operating expense as we continue to build on our existing software platforms and develop new technologies. R&D expenses for the three months ended March 31, 2025 were $23.3 million, a decrease of $8.5 million, or 26.7%, from $31.8 million for the three months ended March 31, 2024. The decrease was primarily attributable to a $2.6 million decrease in third-party contract labor, a $2.2 million international tax credit catch-up, $2.0 million in capitalized costs associated with internally developed software and a $1.7 million decrease in salary-related expenditures. As a percentage of total operating expenses, R&D expenses increased by 44.3 percentage points from 10.2% for the three months ended March 31, 2024 to 54.5% for the three months ended March 31, 2025.
(32.2
Historically, R&D expenses are our largest operating expense as we continue to build on our existing software platforms and develop new technologies. R&D expenses for the six months ended March 31, 2025 were $44.2 million, a decrease of $21.0 million, or 32.2%, from $65.2 million for the six months ended March 31, 2024. The decrease was primarily attributable to a $5.3 million decrease in third-party contractor costs, a $4.9 million international tax credit catch-up related to two different tax jurisdictions, a $5.9 million decrease in salary-related expenditures, a $1.9 million decrease in stock-based compensation expense, and a $3.2 million decrease in capitalized costs associated with internally developed software. The decreases are offset by a $0.2 million increase in our cloud infrastructure costs. As a percentage of total operating expenses, R&D expenses increased by 29.7 percentage points from 17.9% for the six months ended March 31, 2024 to 47.6% for the six months ended March 31, 2025.
Sales & Marketing Expenses
(12.3
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Sales and marketing expenses for the three months ended March 31, 2025 were $4.9 million, a decrease of $0.7 million, or 12.3%, from $5.6 million for the three months ended March 31, 2024. The decrease in sales and marketing expenses was primarily attributable to a $0.5 million decrease in professional services, and a $0.2 million decrease in commissions expenditures. As a percentage of total operating expenses, sales and marketing expenses decreased by 9.7 percentage points from 1.8% for the three months ended March 31, 2024 to 11.5% for the three months ended March 31, 2025.
(17.1
Sales and marketing expenses for the six months ended March 31, 2025 were $9.7 million, a decrease of $2.0 million, or 17.1%, from $11.7 million for the six months ended March 31, 2024. The decrease in sales and marketing expenses was primarily attributable to a $1.2 million decrease in salary-related expenditures, a $0.5 million decrease in travel-related expenditures, and a $0.3 million decrease in professional services. As a percentage of total operating expenses, sales and marketing expenses increased by 7.2 percentage points from 3.2% for the six months ended March 31, 2024 to 10.4% for the six months ended March 31, 2025.
General & Administrative Expenses
(32.8
General and administrative expenses for the three months ended March 31, 2025 were $11.2 million, a decrease of $5.5 million, or 32.8%, from $16.7 million for the three months ended March 31, 2024. The decrease in general and administrative expenses was primarily attributable to a $6.1 million credit loss provision related to the bankruptcy of one fitness equipment manufacturer recognized in the second quarter of 2024, a $0.5 million decrease in salary-related expenditures, and a $0.4 million decrease in rent expenditures. The decrease was partially offset by a $0.8 million increase in stock-based compensation costs and a $0.7 million increase in depreciation expense. As a percentage of total operating expenses, general and administrative expenses increased by 20.7 percentage points from 5.4% for the three months ended March 31, 2024 to 26.1% for the three months ended March 31, 2025.
(18.7
General and administrative expenses for the six months ended March 31, 2025 were $24.0 million, a decrease of $5.5 million, or 18.7%, from $29.5 million for the six months ended March 31, 2024. The decrease in general and administrative expenses was primarily attributable to a $6.1 million credit loss provision related to the bankruptcy of one fitness equipment manufacturer recognized in the second quarter of 2024. The decrease was partially offset by a $0.6 million increase in third-party contract labor. As a percentage of total operating expenses, general and administrative expenses increased by 17.7 percentage points from 8.1% for the six months ended March 31, 2024 to 25.8% for the six months ended March 31, 2025.
Amortization of Intangible Assets
Cost of revenues
Operating expense
(3.4
Total amortization
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Intangible asset amortization for the three months ended March 31, 2025 was $0.5 million, a decrease of $0.1 million, or 3.4%, from $0.6 million for the three months ended March 31, 2024. The decrease in amortization relates to certain intangible assets having been fully amortized during fiscal year 2025 and 2024. Amortization expense for acquired technology and patents is included in the cost of revenues in the accompanying Condensed Consolidated Statements of Operations. Acquired technology and patents were fully amortized as of December 31, 2024. Amortization expense for customer relationships is included in operating expenses in the accompanying Condensed Consolidated Statements of Operations.
As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses increased by 1.1 percentage point from 0.2% for the six months ended March 31, 2024 as compared to 1.3% for the six months ended March 31, 2025.
(0.9
(9.4
Intangible asset amortization for the six months ended March 31, 2025 was $1.1 million, a decrease of $0.1 million, or 9.4%, from $1.2 million for the six months ended March 31, 2024. The decrease in amortization relates to certain intangible assets having been fully amortized during fiscal year 2025 and 2024. Amortization expense for acquired technology and patents is included in the cost of revenues in the accompanying Condensed Consolidated Statements of Operations. Amortization expense for customer relationships is included in operating expenses in the accompanying Condensed Consolidated Statements of Operations.
As a percentage of total cost of revenues, intangible asset amortization within cost of revenues decreased by 0.2 percentage points from 0.2% for the six months ended March 31, 2024 to 0.0% for the six months ended March 31, 2025. As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses increased by 0.9 percentage points from 0.3% for the six months ended March 31, 2024 as compared to 1.2% for the six months ended March 31, 2025.
Other Components of Operating Expense
(37.8
For the three months ended March 31, 2025, we recorded restructuring and other costs, net of $2.8 million, which included a $1.6 million charge related to the elimination of personnel, and a $1.1 million charge related to our transformation initiatives.
Whenever events or changes in circumstances indicate that the carrying value may not be recoverable, we will be required to assess the potential impairment of goodwill and other intangible assets. Examples of factors that could trigger an impairment of such assets include, but are not limited to, our market capitalization declining to below net book value, declines in our stock price for sustained periods of time, and negative industry or economic trends. Future adverse changes in these or other unforeseeable factors could result in additional impairment charges that would impact our results of operations and financial position in the reporting period identified.
Goodwill impairment for the three months ended March 31, 2024 was $252.1 million. At March 31, 2024, we concluded indicators of impairment were present due to the current macroeconomic conditions, including declines in our stock price. The fair value of our reporting unit was determined using a combination of the income approach and the market approach. We weighted the methodologies appropriately to estimate a fair value of approximately $463.4 million as of March 31, 2024. The carrying value of our reporting unit exceeded the estimated fair value. Based upon the results of the impairment test, we recorded a goodwill impairment charge of $252.1 million.
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Whenever events or changes in circumstances indicate that the carrying value may not be recoverable, we will be required to assess the potential impairment of goodwill and other intangible assets. Examples of factors that could trigger an impairment of such assets include, but are not limited to, our market capitalization declining to below net book value, declines in our stock price for sustained periods of time and negative industry or economic trends. Future adverse changes in these or other unforeseeable factors could result in additional impairment charges that would impact our results of operations and financial position in the reporting period identified.
As a percentage of total operating expenses, restructuring and other costs, net increased by 5.1 percentage points from 1.5% for the three months ended March 31, 2024 to 6.6% for the three months ended March 31, 2025.
164.3
For the six months ended March 31, 2025,we recorded restructuring and other costs, net of $13.9 million, which included an $12.0 million charge related to the elimination of personnel, of which $3.0 million related to the stock-based compensation expense for the termination of our former senior management employees, and a $1.9 million charge related to our transformation initiatives. We are focused on pursuing actions intended to position us to deliver on our generative AI and LLM product roadmap and also deliver improved financial results which include process optimization efforts and cost reductions. During the remainder of fiscal year 2025, we expect additional personnel-related restructuring costs in connection with the Plan as we better align our cost structure with current levels of revenue.
Goodwill impairment for the six months ended March 31, 2024 was $252.1 million. At March 31, 2024, we concluded indicators of impairment were present due to the current macroeconomic conditions, including declines in our stock price. The fair value of our reporting unit was determined using a combination of the income approach and the market approach. We weighted the methodologies appropriately to estimate a fair value of approximately $463.4 million as of March 31, 2024.
As a percentage of total operating expenses, restructuring and other costs, net increased by 13.6 percentage points from 1.4% for the six months ended March 31, 2024 to 15.0% for the six months ended March 31, 2025.
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Total Other Expense, Net
(22.9
(12.7
(2096.0
Total other expense, net
(1,299
(1,946
(33.2
Total other expense, net for the three months ended March 31, 2025 was expense of $1.3 million, a change of $0.6 million from $1.9 million of expense for the three months ended March 31, 2024. The decrease in interest expense was primarily attributable to a lower principal balance of the 2025 Notes. The change in Other income (expense), net was primarily driven by foreign exchange gains. For further information, see “Liquidity and Capital Resources” below.
(10.2
(3.7
(44.8
(2,983
(2,328
28.1
Total other expense, net for the six months ended March 31, 2025 was expense of $3.0 million, a change of $0.7 million from $2.3 million of expense for the six months ended March 31, 2024. The decrease in interest income was primarily attributable to lower returns on investments. The decrease in interest expense was primarily attributable to a lower average principal balance on our 2025 Notes and the termination of our Senior Credit Facilities in December of 2024. The change in Other income, net was primarily driven by a reduction in gains from foreign exchange offset by a $0.3 million gain on the extinguishment of debt related to our repurchase of $27.4 million principal value of the 2025 Notes. For further information, see “Liquidity and Capital Resources” below.
Provision For (Benefit From) Income Taxes
(148.1
Effective income tax rate %
Our effective income tax rate for the three months ended March 31, 2025 was negative 34.9%, compared to negative 4.4% for the three months ended March 31, 2024. Our benefit from income taxes for the three months ended March 31, 2025 was $5.6 million, a net change of $17.2 million from a provision for income taxes of $11.6 million for the three months ended March 31, 2024. This difference was attributable to the impairment of book goodwill in the three months ended March 31, 2024.
Provision for income taxes
(99.9
Effective income tax rate%
Our effective income tax rate for the six months ended March 31, 2025 was negative 2.7%, compared to negative 22.1% for the six months ended March 31, 2024. Our provision for income taxes for the six months ended March 31, 2025 was $0.1 million, a net change of $45.9 million from a provision for income taxes of $46.0 million for the six months ended March 31, 2024. This difference was attributable to the impairment of book goodwill and one-time acceleration of legacy deferred revenue in the six months ended March 31, 2024.
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Liquidity and Capital Resources
Financial Condition
As of March 31, 2025, we had $122.8 million in cash, cash equivalents, and marketable securities. Cash equivalents include highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. Marketable securities include corporate bonds and government securities.
Sources and Material Cash Requirements
Our principal sources of liquidity are our cash, cash equivalents, and marketable securities, as well as the cash flows we generate from our operations. The primary uses of cash include costs of revenues, funding of R&D activities, capital expenditures and debt obligations.
Our ability to fund future operating needs will depend on our ability to generate positive cash flows from operations and access additional funding in the capital and debt markets as needed. Based on our expectations to generate positive cash flows and the $122.8 million of cash, cash equivalents, and marketable securities as of March 31, 2025, we believe that we will be able to meet our liquidity needs over the next 12 months. Our assessment included the repayment of the $60.1 million of the 2025 Modified Notes due in the third quarter of fiscal 2025.
The following table presents our material cash requirements for future periods (dollars in thousands):
Material Cash Requirements Due by Period
2026-2027
2028-2029
Cash interest payable on the 2028 Notes (a)
921
3,672
1,383
5,976
Cash interest payable on the 2025 Modified Notes (a)
959
2,623
988
4,570
10,631
7,462
Financing leases
196
Total material cash requirements
64,616
16,979
219,833
302,647
Should we need to secure additional sources of liquidity, we believe that we could finance our needs through the issuance of equity securities or debt offerings. However, we cannot guarantee that we will be able to obtain financing through the issuance of equity securities or debt offerings or that, if such financing is obtained, that it will be on acceptable terms. Our ability to issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers or if there are other significantly unfavorable changes in economic conditions. For instance, inflation and persistently high interest rates, changes in the political, legal and regulatory environment, including trade policies and tariffs, and disruptions and instability in the banking industry have negatively impacted the global economy and created significant volatility and disruption of financial markets. An extended period of economic disruption or market volatility, could materially affect our business, results of operations, access to sources of liquidity and financial condition.
On June 26, 2023, we issued $190.0 million in aggregate principal amount of 2028 Notes, which are governed by the 2028 Indenture, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. On July 3, 2023, we issued an additional $20.0 million in aggregate principal amount of 2028 Notes. The initial net proceeds from the issuance of the 2028 Notes were $193.2 million after deducting transaction costs.
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The conversion rate is 24.5586 shares of our common stock per $1,000 principal amount of 2028 Notes (equivalent to an initial conversion price of approximately $40.72 per share of our common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.
As a result, $87.5 million of the 2028 Notes are considered a modification of the 2025 Notes and are included in the balances of the 2025 Notes along with the remaining $87.5 million of the 2025 Notes (together the "2025 Modified Notes") that were not repurchased as part of the transaction. We recorded $14.3 million of fees paid directly to the lenders as deferred debt issuance costs, and $3.8 million of fees paid to third-parties were expensed in the period. As of March 31, 2025, the carrying amount of the 2025 Modified Notes was $136.7 million, net of unamortized costs of $10.9 million.
We accounted for $122.5 million of the 2028 Notes, that were not negotiated with the investors of the 2025 Notes, as a single liability. We incurred transaction costs of $2.4 million relating to the issuance of the 2028 Notes, which were recorded as a direct deduction from the face amount of the 2028 Notes and are being amortized as interest expense over the term of the 2028 Notes using the interest method. As of March 31, 2025, the carrying amount of the 2028 Notes was $120.9 million and unamortized issuance costs of $1.6 million. As of March 31, 2025, the 2028 Notes were not convertible.
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On June 2, 2020, we issued $175.0 million in aggregate principal amount of 2025 Notes, including the initial purchasers’ exercise in full of their option to purchase $25.0 million principal amount of the 2025 Notes, which are governed by the 2025 Indenture, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The net proceeds from the issuance of the 2025 Notes were $169.8 million after deducting transaction costs.
The 2025 Notes are senior, unsecured obligations and accrue interest payable semiannually in arrears on June 1 and December 1 of each year at a rate of 3.00% per year. The 2025 Notes will mature on June 1, 2025, unless earlier converted, redeemed, or repurchased. The repayment of the 2025 Notes in cash upon maturity could adversely affect our liquidity.
The 2025 Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The conversion rate is 26.7271 shares of our common stock per $1,000 principal amount of 2025 Notes (equivalent to an initial conversion price of approximately $37.42 per share of our common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2025 Notes in connection with such a corporate event or convert its 2025 Notes called for redemption in connection with such notice of redemption, as the case may be.
The conditional conversion feature of the Notes was not triggered during the three and six months ended March 31, 2025. As of March 31, 2025, the Notes were not convertible. As of this Quarterly Report, no Notes have been converted by the holders. Whether any of the Notes will be convertible in future quarters will depend on the satisfaction of one or more of the conversion conditions in the future. If one or more holders elect to convert their Notes at a time when any such Notes are convertible, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional shares), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.
On June 12, 2020, we entered into the Term Loan Facility. The net proceeds from the issuance of the Term Loan Facility were $123.0 million. We also entered into the Revolving Facility, which could have been drawn on in the event that our working capital and other cash needs were not supported by our operating cash flow. In connection with the issuance of the 2028 Notes, in the third quarter of fiscal year 2023, we borrowed $24.7 million under our Revolving Facility and paid $106.3 million towards our Term Loan Facility. As a result, we recorded $104.9 million extinguishment of debt and $1.3 million loss on the extinguishment of debt. All principal and interest on the Term Loan Facility have been paid in full.
Total interest expense relating to the Senior Credit Facilities for the three months ended March 31, 2025 and 2024 was zero and $0.1 million, respectively, and was $0.4 million and $0.1 million for the six months ended March 31, 2025 and 2024, respectively. Amounts reflect the coupon and accretion of the discount.
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Cash Flows
Cash flows from operating, investing and financing activities for the six months ended March 31, 2025 and 2024, as reflected in the unaudited Condensed Consolidated Statements of Cash Flows included in Item 1 of this Form 10-Q, are summarized in the following table (dollars in thousands):
1495.8
478.0
5379.4
Effect of foreign currency exchange rates on cash and cash equivalents
25.3
Net changes in cash and cash equivalents
(108.1
Net Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities for the six months ended March 31, 2025 was $24.7 million, a net change of $26.5 million, or 1495.8%, from net cash used in operating activities of $1.8 million for the six months ended March 31, 2024. The change in cash flows were primarily due to:
Deferred revenue represents a significant portion of our net cash used in or provided by operating activities and, depending on the nature of our contracts with customers and foreign currency exchange rates, this balance can fluctuate significantly from period to period. Fluctuations in deferred revenue are not a reliable indicator of future performance and the related revenue associated with these contractual commitments. We do not expect any changes in deferred revenue to affect our ability to meet our obligations.
Net Cash (Used in) Provided by Investing Activities
Net cash provided by investing activities for the six months ended March 31, 2025 was $0.9 million, a net change of $1.1 million, or 478.0%, from $0.2 million of cash used in investing activities for the six months ended March 31, 2024. The change in cash flows were primarily due to an decrease of $0.4 million net cash inflow related to marketable securities and $0.9 million related to additional capital expenditures.
Net Cash (Used in) Provided by Financing Activities
Net cash used in financing activities for the six months ended March 31, 2025 was $27.2 million, a net change of $27.7 million, from cash provided by financing activities of $0.5 million for the six months ended March 31, 2024. The change in cash flows were primarily due to:
Critical Accounting Estimates
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that have a material impact on the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses. Actual results may differ from these estimates.
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We believe that our critical accounting estimates are those related to revenue recognition; allowance for credit losses; accounting for deferred costs; accounting for internally developed software; the valuation of goodwill and intangible assets; accounting for stock-based compensation; accounting for income taxes; accounting for convertible debt; and loss contingencies. We believe these estimates are critical because they most significantly affect the portrayal of our financial condition and results of operations and involve our most complex and subjective estimates and judgments. A discussion of our critical accounting estimates may be found in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024 in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Estimates” and below.
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements To Be Adopted
Refer to Note 2 to the accompanying unaudited condensed consolidated financial statements for a description of certain issued accounting standards that have been recently adopted and are expected to be adopted by us and may impact our results of operations in future reporting periods.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk from changes in foreign currency exchange rates and interest rates which could affect our operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities, and through the use of derivative financial instruments.
Exchange Rate Sensitivity
We are exposed to changes in foreign currency exchange rates. Any foreign currency transaction, defined as a transaction denominated in a currency other than the local functional currency, will be reported in the functional currency at the applicable exchange rate in effect at the time of the transaction. A change in the value of the functional currency compared to the foreign currency of the transaction will have either a positive or negative impact on our financial position and results of operations.
Assets and liabilities of our foreign entities are translated into U.S. dollars at exchange rates in effect at the balance sheet date and income and expense items are translated at average rates for the applicable period. Therefore, the change in the value of the U.S. dollar compared to foreign currencies will have either a positive or negative effect on our financial position and results of operations. Historically, our primary exposure has been related to transactions denominated in the Canadian dollar, Chinese yuan, Euro, and Japanese yen.
We use foreign currency forward contracts to hedge the foreign currency exchange risk associated with forecasted foreign denominated payments related to our ongoing business. The aggregate notional amount of our outstanding foreign currency forward contracts was $31.0 million at March 31, 2025. Foreign currency forward contracts are sensitive to changes in foreign currency exchange rates. A 10% unfavorable exchange rate movement in our portfolio of foreign currency contracts would have resulted in unrealized losses of $2.6 million at March 31, 2025. Such losses would be offset by corresponding gains in the remeasurement of the underlying transactions being hedged. We believe these foreign currency forward exchange contracts and the offsetting underlying commitments, when taken together, do not create material market risk.
Interest Rate Sensitivity
We are exposed to interest rate risk as a result of our cash and cash equivalents. At March 31, 2025, we held approximately $117.4 million of cash and cash equivalents consisting of cash and highly liquid investments, including money-market funds and time deposits. Assuming a 1% increase in interest rates, our interest income on our highly liquid investments would increase by $0.6 million per annum, based on March 31, 2025 reported balances.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures. Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report. Based on this evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of March 31, 2025 to ensure that all material information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to them as appropriate to allow timely decisions regarding required disclosure and that all such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations of the effectiveness of internal control. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
On May 10 and 12, 2022, respectively, plaintiffs William Shafer and Peter Morse filed shareholder derivative complaints in the United States District Court for the District of Massachusetts on behalf of Cerence Inc. against defendants (and former officers) Sanjay Dwahan and Mark J. Gallenberger as well as board members Arun Sarin, Thomas Beaudoin, Marianne Budnik, Sanjay Jha, Kristi Ann Matus, Alfred Nietzel and then-current CEO and board member Stefan Ortmanns. These actions are premised on factual contentions substantially similar to those made in the now settled securities class action filed on February 2022 in the United States District Court for the District of Massachusetts, which alleged that material misrepresentations and/or omissions of material fact regarding the Company’s operations, financial performance and prospects were made in the Company’s public disclosures during the period from November 16, 2020 to February 4, 2022, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. On June 13, 2022, at the parties’ request, the court consolidated these derivative actions into a single action and appointed co-lead counsel for plaintiffs in that consolidated action. On February 3, 2025, defendants filed a motion to dismiss on the grounds of demand futility and failure to state a claim, which motion is fully briefed as of April 3, 2025. Plaintiffs in the derivative actions seek, among other things, the implementation of purported corporate governance reforms and a requirement that the individual defendants pay unspecified damages and reimbursement of compensation to the Company.
Three shareholder derivative complaints making factual and legal contentions substantially similar to those raised in the consolidated federal derivative action have also been filed in the Delaware Court of Chancery: the first filed on October 19, 2022 by plaintiff Melinda Hipp against the defendants named in the consolidated federal derivative action and board member Douglas Davis, the second filed on August 17, 2023 by plaintiff Catherine Fleming against the defendants named in the consolidated federal derivative action, and the third filed on July 10, 2024 by plaintiff Alberto Goncalves against the defendants named in the consolidated federal derivative action. On October 20, 2023, Ms. Hipp voluntarily dismissed her action with prejudice. On June 26, 2024, the court stayed the Fleming action pending the outcome of mediation. On August 12, 2024, the court stayed the Goncalves action pending the outcome of mediation.
On March 15, 2024, Cerence filed its second patent infringement complaint against Samsung alleging infringement of four Cerence patents. In its responsive pleading on July 10, 2024, Samsung asserted counterclaims, alleging infringement of U.S. Patent Nos. 10,395,657; 10,720,162; 11,823,682; and 9,583,103 against the Cerence Assistant. Samsung seeks damages, including trebled damages, and its costs and fees. Cerence filed its answer denying the allegations and counterclaims of invalidity and noninfringement
on September 4, 2024. Trial is scheduled to begin in January 2026. Given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from this action.
Other Legal Proceedings
From time to time, we may become a party to other legal proceedings, including, without limitation, product liability claims, employment matters, commercial disputes, governmental inquiries and investigations (which may in some cases involve our entering into settlement arrangements or consent decrees), and other matters arising out of the ordinary course of our business. While the results of any legal proceeding cannot be predicted with certainty, in our opinion none of our pending matters are currently anticipated to have a material adverse effect on our consolidated financial position, liquidity or results of operations.
Item 1A. Risk Factors.
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024, which could materially affect our business, financial condition or future results of operations. The risks described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024 and those described in this Quarterly Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Other than as updated below, there are no material changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024.
Adverse conditions in the automotive industry or the global economy more generally could have adverse effects on our results of operations.
Our business depends on, and is directly affected by, the global automotive industry. Automotive production and sales are highly cyclical and depend on general economic conditions and other factors, including consumer spending and preferences, changes in interest rate levels and credit availability, consumer confidence, fuel costs, fuel availability, environmental impact, governmental incentives and regulatory requirements, trade restrictions, customs regulations, tariffs and price or exchange controls, preferences by nations for domestically manufactured products and political volatility, especially in energy-producing countries and large or high growth markets. Such factors have in the past and may in the future also negatively impact consumer demand for automobiles that include features such as our products. In addition, automotive production and sales can be affected by our customers’ ability to continue operating in response to challenging economic conditions, and in response to labor relations issues, regulatory requirements, trade agreements and other factors. The volume of global automotive production has fluctuated, sometimes significantly, from year to year, and such fluctuations give rise to fluctuations in the demand for our products. For example, the U.S. government and governments of other countries recently adopted tariffs that apply to the automotive industry and may affect the business of our customers, which in turn could impact our own business. Any significant adverse change in any of these factors, including, but not limited to, general economic conditions and the resulting bankruptcy of a customer, the closure of a customer manufacturing facility or the ability of a customer manufacturing facility to obtain supplies to manufacture automobiles and to ship or receive shipments of parts, supplies or finished product on prices that are acceptable to them, or imposition of tariffs that affect the prices at which end consumers purchase automobiles, may result in a reduction in automotive sales and production by our customers, and could have a material adverse effect on our business, results of operations and financial condition.
In the past couple of years, we have observed increased economic uncertainty in the United States and abroad. Impacts of such economic weakness include:
Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or the financial services industry generally, have in the past and may in the future lead to market-wide liquidity problems. If banks or financial institutions where we maintain deposits enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, then our ability to access our cash and cash equivalents may be threatened and could have a material adverse effect on our business and financial condition. In addition, if any of our customers, suppliers or other parties with whom we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected.
These developments, along with continued uncertainty about tariffs and trade policies,economic stability related to the global outbreak of COVID-19, and the ongoing conflicts in Ukraine and the Middle East, have resulted in supply chain disruption, inflation, higher interest rates, fluctuations in currency exchange rates, and uncertainty about business continuity, which may adversely affect our business and our results of operations. As our customers react to global political, trade and economic conditions and the potential for a global recession, we may see them increase pricing pressure on us, reduce spending on our products and take additional precautionary measures to limit or delay expenditures and preserve capital and liquidity. Reductions in spending on our solutions, delays in automobile production or purchasing decisions, lack of renewals or the inability to attract new customers, as well as pressure for extended billing terms or pricing discounts, would limit our ability to grow our business and negatively affect our operating results and financial condition.
Our operating results may fluctuate significantly from period to period, and this may cause our stock price to decline.
Our revenue and operating results may fluctuate materially in the future. These fluctuations may cause our results of operations to not meet the expectations of securities analysts or investors which would likely cause the price of our stock to decline. Factors that may contribute to fluctuations in operating results include:
Due to the foregoing factors, among others, our financial and operating results may fluctuate significantly from period to period. Our expense levels are based in significant part on our expectations of future revenue, and we may not be able to reduce our expenses quickly to respond to near-term shortfalls in projected revenue. Therefore, our failure to meet revenue expectations would seriously harm our operating results, financial condition and cash flows.
47
Unauthorized use of our proprietary technology and intellectual property could adversely affect our business and results of operations.
Our success and competitive position depend in large part on our ability to obtain and maintain intellectual property rights protecting our products and services. We rely on a combination of patents, copyrights, trademarks, service marks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect our intellectual property and proprietary rights. Unauthorized parties may attempt to copy or discover aspects of our products or to obtain, license, sell or otherwise use information that we regard as proprietary. Policing unauthorized use of our products is difficult and we may not be able to protect our technology from unauthorized use. Additionally, our competitors may independently develop technologies that are substantially the same or superior to our technologies and that do not infringe our rights. In these cases, we would be unable to prevent our competitors from selling or licensing these similar or superior technologies. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States.
Litigation may be necessary to enforce our intellectual property rights, including our patents, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. For example, we have initiated legal proceedings to enforce or defend our intellectual property rights or the terms of existing agreements against multiple third parties. Litigation, regardless of the outcome, can be very expensive and can divert management’s efforts, which could harm our business and financial results, and third parties may have the ability to dedicate substantially greater resources to these legal actions than us. The potential outcomes of litigation are unpredictable and, as a result, there can be no assurance that we will prevail in any such litigation or, if we prevail, what remedies might be awarded. Moreover, such litigation has resulted, and may in the future result, in counterclaims against us which may be costly to defend and could subject us to significant liabilities or cause severe disruptions to our business. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property rights which could harm the Company’s business, financial condition and results of operations.
Item 5. Other Information.
Rule 10b5-1 Plans. Our policy governing transactions in our securities by directors, officers and employees permits our officers, directors and certain other persons to enter into trading plans complying with Rule 10b5-1 under the Exchange Act. Generally, under these trading plans, the individual relinquishes control over the transactions once the trading plan is put into place. Accordingly, sales under these plans may occur at any time, including possibly before, simultaneously with, or immediately after significant events involving our company.
During the three-month period ended March 31, 2025, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).
We anticipate that, as permitted by Rule 10b5-1 and our policy governing transactions in our securities, some or all of our officers, directors and employees may establish trading plans in the future. We intend to disclose the names of executive officers and directors who establish a trading plan in compliance with Rule 10b5-1 and Regulation S-K, Item 408(a) and the requirements of our policy governing transactions in our securities in our future quarterly and annual reports on Form 10-Q and 10-K filed with the SEC. However, we undertake no obligation to update or revise the information provided herein, including for revision or termination of an established trading plan, other than in such quarterly and annual reports.
By-law Amendment. On May 6, 2025, our Board of Directors approved an amendment (the “Amendment”) to Section 5.10 of our Second Amended and Restated By-laws for purposes of clarifying that our Controller shall be our Chief accounting Officer, unless otherwise determined by our Board of Directors. This Amendment is effective as of May 6, 2025. The Amendment is filed as Exhibit 3.3 to this report and incorporated herein by this reference.
Item 6. Exhibits.
The exhibits listed on the Exhibit Index are filed as part of this Quarterly Report on Form 10-Q.
EXHIBIT INDEX
Incorporated by Reference
Exhibit Index #
Exhibit Description
Filed Herewith
Form
File No.
Exhibit
Filing Date
3.1
Amended and Restated Certificate of Incorporation of Cerence Inc.
001-39030
October 2, 2019
3.2
Second Amended and Restated By-laws of Cerence Inc.
8-K
May 4, 2023
3.3
Amendment No. 1 to Second Amended and Restated By-laws of Cerence Inc.
X
10.1†
Promotion Offer Letter, dated January 2, 2025, by and between Cerence Inc. and Christian Mentz
10-Q
10.7
February 3, 2025
10.2†
Retention Bonus Agreement, dated January 2, 2025, by and between Cerence Inc. and Christian Mentz
10.8
31.1
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
104
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)
*
Furnished herewith.
†
Management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Cerence Inc.
Date: May 7, 2025
By:
/s/ Brian Krzanich
Brian Krzanich
Chief Executive Officer
(Principal Executive Officer)
/s/ Tony Rodriquez
Tony Rodriquez
Executive Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)