Core Points - Cerence has filed a patent infringement lawsuit against Apple, focusing on "Hey, Siri" and virtual keyboard technology [1] - The lawsuit was submitted in the Western District of Texas, revealing that Cerence had previously engaged in discussions with Apple regarding potential acquisition or licensing of multiple patents since 2021 [3] - Cerence claims that despite providing key documents and engaging in discussions, no resolution was reached regarding the mobile text input patent portfolio [3] - The company is seeking a court ruling to declare Apple in violation of these patents and is requesting damages for the infringement, along with ongoing licensing fees [3]

Core Viewpoint - Cerence Inc. has filed a patent infringement lawsuit against Apple Inc. in the United States District Court for the Western District of Texas, aiming to protect its intellectual property rights related to its innovative technologies [1][2]. Company Overview - Cerence Inc. is a global leader in conversational AI-powered user experiences, with a strong portfolio of patents developed over decades of research and development [2][4]. - The company has shipped over 525 million cars equipped with its technology, partnering with leading automakers, transportation OEMs, and technology companies [4]. Patent Infringement Details - The lawsuit against Apple involves specific Cerence technologies, including text input and recognition, as well as voice command monitoring, which are utilized in Apple's products [2]. - Cerence emphasizes its commitment to defending its intellectual property rights to safeguard its significant investments in research and development [3]. Leadership Statement - Jennifer Salinas, Chief Administrative Officer & General Counsel of Cerence, stated the company's dedication to enforcing its intellectual property rights to protect its innovations and investments [3].

Core Viewpoint - Cerence Inc. and SiMa.ai have formed a strategic partnership to integrate Cerence's CaLLM™ Edge, an automotive-grade embedded small language model, with SiMa.ai's MLSoC Modalix, aiming to enhance in-car conversational AI experiences with low power consumption [2][4][9]. Group 1: Partnership Details - The collaboration will debut at IAA Mobility 2025 in Munich, showcasing Cerence's xUI™ platform with CaLLM Edge on SiMa.ai hardware [3][9]. - The integration aims to provide automakers with a robust technical foundation for in-vehicle AI, enabling real-time, multi-modal interaction and processing directly on-device [4][6]. Group 2: Technical Advantages - Cerence's hybrid AI architecture combines embedded AI for low-latency responsiveness with cloud-enhanced context-aware information, improving user experience even during connectivity loss [5]. - CaLLM Edge is designed for cross-platform compatibility, allowing OEMs to deploy efficient AI solutions across various hardware architectures [6][7]. Group 3: Market Implications - The partnership addresses the increasing demand for smart, reliable automotive experiences, as drivers expect features to function seamlessly regardless of connectivity [5]. - By leveraging the energy-efficient capabilities of the integrated solution, automakers can enhance flexibility and resilience in their offerings amidst supply chain challenges [6][7].

Volkswagen leverages Cerence Chat Pro’s latest enhancements to deliver smarter conversations and better journeysBURLINGTON, Mass., Aug. 25, 2025 (GLOBE NEWSWIRE) -- Cerence Inc. (NASDAQ: CRNC) (“Cerence AI”), a global leader pioneering conversational AI-powered user experiences, today announced the next evolution of its successful collaboration with the Volkswagen Group. Together, the companies have further enhanced the automaker’s IDA in-car assistant to now enable faster, more natural conversations that f ...

Core Insights - Cerence Inc. has integrated its Audio AI suite into HARMAN's AudioworX, enhancing automotive audio experiences with advanced technologies [1][2] - The collaboration aims to improve safety and clarity in vehicle communication through features like Speech Signal Enhancement (SSE), In-Car Communication (ICC), and Emergency Vehicle Detection (EVD) [2][3] Company Overview - Cerence Inc. is a leader in AI-powered automotive experiences, with over 525 million cars equipped with its technology [5] - The company focuses on creating safer and more enjoyable journeys by leveraging voice, generative AI, and large language models [5] Industry Context - The automotive industry is evolving towards integrated, personalized experiences that align with consumer expectations for smart devices [4] - HARMAN's AudioworX simplifies the development process for automakers, allowing for faster deployment of advanced audio solutions [2][4]

Core Viewpoint - Cerence (CRNC) reported quarterly earnings of $0.09 per share, significantly beating the Zacks Consensus Estimate of a loss of $0.34 per share, although down from $0.19 per share a year ago [1] Group 1: Earnings Performance - The quarterly report represents an earnings surprise of +126.47%, following a previous surprise of +55.88% when the company posted earnings of $0.53 per share against an expectation of $0.34 [2] - Cerence has surpassed consensus EPS estimates in all four of the last quarters [2] Group 2: Revenue Performance - The company posted revenues of $62.24 million for the quarter ended June 2025, exceeding the Zacks Consensus Estimate by 15.40%, but down from $70.54 million year-over-year [3] - Cerence has also topped consensus revenue estimates in four consecutive quarters [3] Group 3: Stock Performance and Outlook - Cerence shares have increased by approximately 8.9% since the beginning of the year, outperforming the S&P 500's gain of 7.1% [4] - The company's earnings outlook will be crucial for future stock performance, with current consensus EPS estimates at -$0.44 for the coming quarter and -$0.12 for the current fiscal year [5][8] Group 4: Industry Context - The Computers - IT Services industry, to which Cerence belongs, is currently ranked in the bottom 37% of over 250 Zacks industries, indicating potential challenges ahead [9] - The performance of Cerence's stock may be influenced by the overall industry outlook, as top-ranked industries tend to outperform lower-ranked ones significantly [9]

Financial Data and Key Metrics Changes - The company reported revenue of $62.2 million for Q3 FY 2025, exceeding the high end of guidance which was $52 million to $56 million [22] - Adjusted EBITDA for the quarter was $9 million, significantly above the guidance range of $1 million to $4 million [25] - The company generated positive free cash flow of $16.1 million, marking the fifth consecutive quarter of positive free cash flow [5][28] - The full fiscal year revenue guidance was raised to a range of $244 million to $249 million, with the low end above the previous midpoint [5][30] Business Line Data and Key Metrics Changes - Variable license revenue was $34.2 million, up 48% year over year, reflecting solid utilization across the customer base [22] - Connected services revenue increased to $12.8 million, up 17% year over year, driven by growth in the connected installed base [24] - Professional services revenue was $15.2 million, down 8% from the prior year, reflecting a lower mix of custom work [24] Market Data and Key Metrics Changes - The company shipped 12.4 million units in Q3, an increase from 12.1 million in the prior year [26] - The number of connected cars shipped grew by 12%, indicating continued momentum in vehicle connectivity [26] - The company captured 52% of worldwide auto production, consistent with historical penetration [26] Company Strategy and Development Direction - The company is focused on advancing its AI roadmap, growing its business with new and existing customers, and continuing transformation and cost management [6][18] - Cerence XUI, the next-generation hybrid agentic AI assistant platform, is being developed with a strategic multi-year roadmap [6][7] - The company is expanding partnerships with chip providers like ARM to enhance performance and speed [7] Management's Comments on Operating Environment and Future Outlook - Management noted that while there are projections of a 2.5% decline in vehicle volumes for Q4, they believe the impacts will remain limited [19] - The company is optimistic about its strong customer interest and ongoing opportunities, particularly with new design wins and program extensions [12][13] - Management emphasized the importance of maintaining favorable conditions for the company while supporting customers [19] Other Important Information - The company has filed actions against Sony and TCL for infringement of its voice technology patents [20] - The partnership with LG is expected to leverage Cerence's technology across LG's global television lineup, enhancing user experience [15][17] Q&A Session Summary Question: Can you expand on what drove the increases this quarter? - Management indicated that the increases were across all three lines, with higher volume from embedded licenses and additional true-ups impacting professional services [35][36] Question: What are your customers saying in terms of auto production in the next six months? - Management noted that there was a build ahead in Q3, and while Q4 is expected to be more standard, they remain confident in the overall year-end performance [42][44] Question: Why the big move down in guidance for Q4? - Management explained that some of the Q3 revenue was pulled in from Q4 due to OEMs trying to get ahead of tariffs, leading to a more standard Q4 [51][52] Question: How should we think about your cash balance now? - Management stated that the company ended the quarter with over $79 million in cash and marketable securities and is comfortable operating at this level without adding debt [56][57] Question: Can you talk about new bookings in terms of market share? - Management indicated that the company is holding its market share and is competitive in ongoing RFQs, with several programs expected to close soon [72][84]

Q3 FY25 Performance - Total revenue decreased to $62.2 million, compared to $70.5 million in Q3 FY24[5] - Gross margin increased to 73.7% from 71.5% in Q3 FY24[5] - Net loss improved to $(2.7) million from $(313.5) million in Q3 FY24[5] - Adjusted EBITDA decreased to $9.0 million from $12.5 million in Q3 FY24[5] - Cash provided by operating activities significantly increased to $48.4 million from $11.1 million in Q3 FY24[5] - Cash balance & marketable securities decreased to $73.7 million from $121.5 million in Q3 FY24[5] Revenue Details - Variable license revenue increased to $34.2 million in Q3 FY25[7] - Pro forma royalties increased to $43.2 million in Q3 FY25[9] - Adjusted Total Billings TTM increased by 3.5% to $226 million[12] Key Performance Indicators - Cerence technology is present in 52% of worldwide auto production (TTM)[12] - Approximately 12 million units shipped with Cerence technology in Q3, a 2.5% YoY increase[12] - Connected attach rate increased to 31% from 27% a year ago[12] - Average PPU on a TTM basis increased to $4.91 from $4.47 a year ago[12] Fiscal Q4 and FY25 Guidance - Q4FY25 revenue is projected to be between $53 million and $58 million[13] - FY25 revenue is projected to be between $244 million and $249 million[13]

[PART I. FINANCIAL INFORMATION](index=6&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides Cerence Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents Cerence Inc.'s unaudited condensed consolidated financial statements and related notes for the three and nine months ended June 30, 2025 and 2024 [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This table summarizes Cerence Inc.'s revenues, gross profit, operating loss, net loss, and EPS for the specified periods | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Total Revenues | $62.2 | $70.5 | $191.1 | $276.7 | | Gross Profit | $45.9 | $50.4 | $139.1 | $209.4 | | Loss from Operations | $(0.9) | $(354.9) | $(0.5) | $(560.7) | | Net Loss | $(2.7) | $(313.5) | $(5.4) | $(567.7) | | Basic EPS | $(0.06) | $(7.50) | $(0.12) | $(13.66) | | Diluted EPS | $(0.06) | $(7.50) | $(0.12) | $(13.66) | [Condensed Consolidated Statements of Comprehensive (Loss) Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) This table presents Cerence Inc.'s net loss, other comprehensive income (loss), and total comprehensive income (loss) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net Loss | $(2.7) | $(313.5) | $(5.4) | $(567.7) | | Total Other Comprehensive Income (Loss) | $2.8 | $(1.8) | $(0.1) | $(0.6) | | Comprehensive Income (Loss) | $0.1 | $(315.4) | $(5.5) | $(568.3) | [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This table provides Cerence Inc.'s assets, liabilities, and stockholders' equity at June 30, 2025, and September 30, 2024 | Metric (in millions) | June 30, 2025 | September 30, 2024 | | :-------------------- | :------------ | :----------------- | | Total Current Assets | $190.1 | $265.5 | | Total Assets | $636.8 | $702.4 | | Total Current Liabilities | $107.6 | $216.8 | | Total Liabilities | $481.1 | $561.3 | | Total Stockholders' Equity | $155.7 | $141.1 | [Consolidated Statements of Stockholders' Equity](index=10&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) This table details changes in Cerence Inc.'s stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit | Metric | June 30, 2025 | September 30, 2024 | | :-------------------- | :------------ | :----------------- | | Common Stock (Shares) | 43,264 | 41,924 | | Common Stock (Amount, in millions) | $0.4 | $0.4 | | Additional Paid-In Capital (in millions) | $1,108.4 | $1,088.3 | | Accumulated Deficit (in millions) | $(927.1) | $(921.7) | | Accumulated Other Comprehensive Loss (in millions) | $(26.0) | $(25.9) | | Total Stockholders' Equity (in millions) | $155.7 | $141.1 | [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This table outlines Cerence Inc.'s cash flows from operating, investing, and financing activities for the specified periods | Metric (in millions) | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------ | :------------------------------ | | Net Cash Provided by Operating Activities | $48.4 | $11.1 | | Net Cash (Used in) Provided by Investing Activities | $(9.0) | $4.3 | | Net Cash (Used in) Provided by Financing Activities | $(87.4) | $0.1 | | Net Change in Cash and Cash Equivalents | $(47.8) | $14.4 | | Cash and Cash Equivalents at End of Period | $73.7 | $115.5 | [Notes to Condensed Consolidated Financial Statements](index=15&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanatory notes supporting the condensed consolidated financial statements [Note 1. Business Overview](index=15&type=section&id=Note%201.%20Business%20Overview) This note describes Cerence Inc.'s business as a global provider of AI-powered assistants for connected and autonomous vehicles - Cerence Inc. is a global provider of AI-powered assistants for connected and autonomous vehicles, serving major automobile OEMs and tier 1 suppliers worldwide. Revenue is primarily generated from software licenses, cloud-connected services, and professional services[28](index=28&type=chunk) [Note 2. Significant Accounting Policies](index=15&type=section&id=Note%202.%20Significant%20Accounting%20Policies) This note outlines the significant accounting policies and estimates used in preparing the financial statements - The financial statements are prepared in accordance with GAAP for interim information, requiring management estimates for revenue recognition, credit losses, goodwill valuation, stock-based compensation, income taxes, leases, and convertible debt. Two customers accounted for **16.4%** and **11.8%** of accounts receivable at June 30, 2025[30](index=30&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) Allowance for Credit Losses (in millions) | Metric | Amount | | :------------------------ | :----- | | Balance as of Sep 30, 2024 | $1.6 | | Credit loss provision | $0.2 | | Write-offs, net of recoveries | $(1.7) | | Balance as of Jun 30, 2025 | $0.1 | - New accounting standards ASU 2023-07 (Segment Reporting), ASU 2023-09 (Income Tax Disclosures), and ASU 2024-03 (Income Statement Expense Disaggregation) are effective for fiscal years beginning after December 15, 2023, 2024, and 2026 respectively, and are currently being evaluated for their impact on financial statements and disclosures[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk) [Note 3. Revenue Recognition](index=17&type=section&id=Note%203.%20Revenue%20Recognition) This note details Cerence Inc.'s revenue recognition policies, including sources, geographic distribution, and contract balances - Cerence primarily generates revenue from royalty-based software licenses, connected services, and professional services. Revenue is reported net of applicable sales and use taxes[43](index=43&type=chunk) Revenues by Geographic Region (in millions) | Region | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | United States | $10.9 | $12.7 | $29.7 | $128.2 | | Other Americas | $0.2 | $0.3 | $0.9 | $0.5 | | Germany | $21.5 | $17.5 | $60.6 | $72.1 | | Other Europe, Middle East and Africa | $6.0 | $4.8 | $17.1 | $13.1 | | Japan | $6.4 | $25.0 | $30.8 | $35.2 | | Other Asia-Pacific | $17.3 | $10.1 | $52.1 | $27.7 | | **Total revenues** | **$62.2** | **$70.5** | **$191.1** | **$276.7** | - For the three months ended June 30, 2025, Korea and China contributed **$8.0 million** and **$7.3 million**, respectively, to revenues. For the nine months ended June 30, 2025, Korea contributed **$26.2 million**. Three customers accounted for **15.1%**, **11.4%**, and **11.1%** of revenues for the three months ended June 30, 2025, and one customer accounted for **12.5%** for the nine months ended June 30, 2025[44](index=44&type=chunk)[45](index=45&type=chunk) - Contract acquisition costs were **$5.7 million** at June 30, 2025, with amortization expense of **$0.6 million** for the three months and **$1.8 million** for the nine months ended June 30, 2025. Capitalized contract fulfillment costs are presented as Deferred costs[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) Contract Balances (in millions) | Metric | September 30, 2024 | June 30, 2025 | | :-------------------- | :----------------- | :------------ | | Contract Assets | $22.2 | $16.3 | | Deferred Revenue | $167.2 | $186.0 | Estimated Future Revenue from Remaining Performance Obligations (in millions) | Period | Amount | | :-------------------- | :----- | | Within One Year | $85.9 | | Two to Five Years | $82.9 | | Greater than Five Years | $55.8 | | **Total Revenue** | **$224.5** | [Note 4. Earnings Per Share](index=20&type=section&id=Note%204.%20Earnings%20Per%20Share) This note provides details on the calculation of basic and diluted net loss per common share Net Loss Per Common Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net loss - basic and diluted (in millions) | $(2.7) | $(313.5) | $(5.4) | $(567.7) | | Weighted average common shares outstanding (in thousands) | 43,262 | 41,795 | 43,127 | 41,566 | | Basic and diluted EPS | $(0.06) | $(7.50) | $(0.12) | $(13.66) | Anti-Dilutive Potential Shares (in thousands) | Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Restricted stock unit awards | 669 | — | — | — | | Contingently issuable stock awards | — | — | 61 | 264 | | Conversion option of Notes | 6,270 | 7,495 | 6,822 | 7,495 | [Note 5. Fair Value Measurements](index=20&type=section&id=Note%205.%20Fair%20Value%20Measurements) This note describes the categorization and valuation of financial assets and liabilities based on fair value inputs - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[60](index=60&type=chunk)[61](index=61&type=chunk) Fair Value of Financial Assets (in millions) | Asset Type | Fair Value (June 30, 2025) | Cash and Cash Equivalents (June 30, 2025) | Marketable Securities (June 30, 2025) | Fair Value (September 30, 2024) | Cash and Cash Equivalents (September 30, 2024) | Marketable Securities (September 30, 2024) | | :-------------------- | :------------------------- | :---------------------------------------- | :------------------------------------ | :------------------------------ | :--------------------------------------------- | :----------------------------------------- | | Money market funds | $18.7 | $18.7 | $- | $77.8 | $77.8 | $- | | Government securities | $1.4 | $- | $1.4 | $4.0 | $- | $4.0 | | Time deposits | $6.9 | $6.9 | $- | $3.7 | $3.7 | $- | | Corporate bonds | $4.0 | $- | $4.0 | $5.0 | $- | $5.0 | | Debt securities | $3.2 | $- | $- | $3.1 | $- | $- | | **Total assets** | **$34.2** | **$25.5** | **$5.5** | **$93.5** | **$81.5** | **$9.0** | - The estimated fair value of long-term debt (Notes) was **$162.4 million** at June 30, 2025, down from **$184.8 million** at September 30, 2024, determined using Level 2 inputs. Equity securities in privately held companies are recognized at fair value (Level 2) or carried at cost less impairment for non-marketable investments[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk) [Note 6. Derivative Financial Instruments](index=22&type=section&id=Note%206.%20Derivative%20Financial%20Instruments) This note discusses Cerence Inc.'s use of foreign exchange forward contracts to manage currency risk - Cerence uses foreign exchange forward contracts, not designated as hedges, to manage currency risk from international operations. The total notional amount of these contracts decreased from **$59.1 million** at September 30, 2024, to **$24.2 million** at June 30, 2025[70](index=70&type=chunk) Fair Value of Derivative Instruments (in millions) | Classification | June 30, 2025 | September 30, 2024 | | :------------------------------------ | :------------ | :----------------- | | Prepaid expenses and other current assets | $0.0 | $0.1 | | Other assets | $— | $0.1 | | Accrued expenses and other current liabilities | $1.2 | $0.7 | | Other liabilities | $0.1 | $0.2 | Income (Loss) from Foreign Currency Forward Contracts (in millions) | Period | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Other income, net | $0.0 | $(0.4) | $(1.4) | $(0.5) | [Note 7. Goodwill and Other Intangible Assets](index=22&type=section&id=Note%207.%20Goodwill%20and%20Other%20Intangible%20Assets) This note details changes in goodwill and intangible assets, including impairment charges and amortization - Cerence operates as a single reporting unit, with the CEO as the Chief Operating Decision Maker (CODM)[72](index=72&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk) Changes in Goodwill Carrying Amount (in millions) | Metric | Amount | | :-------------------------- | :------- | | Balance as of Sep 30, 2024 | $296.9 | | Goodwill adjustment | $(3.8) | | Effect of foreign currency translation | $6.0 | | Balance as of Jun 30, 2025 | $299.1 | - Goodwill impairment charges of **$357.1 million** and **$609.2 million** were recorded for the three and nine months ended June 30, 2024, respectively, due to macroeconomic conditions and declines in stock price, which caused the carrying value of the reporting unit to exceed its fair value[76](index=76&type=chunk)[77](index=77&type=chunk) Intangible Assets, Net (in millions) | Asset Class | Gross Carrying Amount (June 30, 2025) | Accumulated Amortization (June 30, 2025) | Net Carrying Amount (June 30, 2025) | Gross Carrying Amount (Sep 30, 2024) | Accumulated Amortization (Sep 30, 2024) | Net Carrying Amount (Sep 30, 2024) | Weighted Average Remaining Life (Years) (Sep 30, 2024) | | :-------------------- | :------------------------------------ | :--------------------------------------- | :---------------------------------- | :----------------------------------- | :---------------------------------------- | :--------------------------------- | :----------------------------------------------------- | | Customer relationships | $110.3 | $(110.3) | $— | $108.7 | $(107.0) | $1.7 | 0.5 | | Technology and patents | $90.6 | $(90.6) | $— | $90.0 | $(90.0) | $— | — | | **Total** | **$200.8** | **$(200.8)** | **$—** | **$198.7** | **$(197.0)** | **$1.7** | | - Amortization expense for intangible assets was **$0.6 million** for both three-month periods and **$1.7 million** and **$1.8 million** for the nine-month periods ended June 30, 2025 and 2024, respectively. Acquired technology and patents were fully amortized by December 31, 2024, and customer relationships by June 30, 2025[79](index=79&type=chunk)[183](index=183&type=chunk) [Note 8. Leases](index=24&type=section&id=Note%208.%20Leases) This note provides information on Cerence Inc.'s operating and finance leases, including terms, discount rates, and future payments Lease Term and Discount Rates | Metric | June 30, 2025 | September 30, 2024 | | :------------------------------------ | :------------ | :----------------- | | Weighted-average remaining lease term (months) - Operating leases | 47.3 | 46.0 | | Weighted-average remaining lease term (months) - Finance leases | 5.8 | 13.4 | | Weighted-average discount rate - Operating leases | 7.3% | 6.6% | | Weighted-average discount rate - Finance leases | 4.4% | 4.4% | Lease Expense (in millions) | Lease Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Finance lease costs | $0.1 | $0.1 | $0.3 | $0.3 | | Operating lease cost | $2.0 | $1.6 | $4.8 | $4.8 | | Variable lease cost | $0.2 | $0.3 | $1.1 | $1.8 | | Sublease income | $(0.1) | $(0.1) | $(0.2) | $(0.2) | | **Total lease cost** | **$2.2** | **$1.9** | **$6.0** | **$6.8** | Future Minimum Lease Payments (in millions) as of June 30, 2025 | Year Ending September 30, | Operating Leases | Financing Leases | Total | | :------------------------ | :--------------- | :--------------- | :---- | | 2025 | $1.0 | $0.1 | $1.1 | | 2026 | $5.7 | $0.1 | $5.8 | | 2027 | $5.3 | $— | $5.3 | | 2028 | $4.5 | $— | $4.5 | | 2029 | $3.2 | $— | $3.2 | | Thereafter | $1.2 | $— | $1.2 | | **Total future minimum lease payments** | **$21.0** | **$0.2** | **$21.1** | | Less effects of discounting | $(3.0) | $(0.0) | $(3.0) | | **Total lease liabilities** | **$18.0** | **$0.2** | **$18.2** | | Reported as of June 30, 2025: | | | | | Short-term lease liabilities | $4.2 | $0.2 | $4.3 | | Long-term lease liabilities | $13.8 | $— | $13.8 | | **Total lease liabilities** | **$18.0** | **$0.2** | **$18.2** | [Note 9. Accrued Expenses and Other Liabilities](index=25&type=section&id=Note%209.%20Accrued%20Expenses%20and%20Other%20Liabilities) This note details the components of Cerence Inc.'s accrued expenses and other current liabilities Accrued Expenses and Other Current Liabilities (in millions) | Category | June 30, 2025 | September 30, 2024 | | :-------------------------- | :------------ | :----------------- | | Compensation | $27.3 | $18.8 | | Professional fees | $5.0 | $4.0 | | Cost of revenue related liabilities | $3.1 | $2.9 | | Sales and other taxes payable | $1.9 | $3.7 | | Interest payable | $1.6 | $1.7 | | Legal settlement | $— | $30.0 | | Other | $5.8 | $7.4 | | **Total** | **$44.6** | **$68.4** | - At September 30, 2024, a **$30.0 million** legal settlement for the Securities Action was recorded, which was fully funded by insurance proceeds in Q1 FY2025[82](index=82&type=chunk) [Note 10. Restructuring and Other Costs, Net](index=26&type=section&id=Note%2010.%20Restructuring%20and%20Other%20Costs,%20Net) This note outlines Cerence Inc.'s restructuring activities and associated costs, including personnel and transformation initiatives Restructuring Reserves Accrual Activity (in millions) for Nine Months Ended June 30, 2025 | Category | Personnel | Other | Total | | :-------------------------- | :-------- | :---- | :---- | | Balance as of Sep 30, 2024 | $3.8 | $0.6 | $4.3 | | Restructuring and other costs, net | $12.1 | $2.6 | $14.7 | | Non-cash adjustments | $(3.0) | $— | $(3.0) | | Cash payments | $(12.7) | $(1.0) | $(13.7) | | Balance at Jun 30, 2025 | $0.2 | $2.2 | $2.5 | Restructuring and Other Costs, Net (in millions) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Personnel | $0.1 | $0.4 | $12.1 | $4.9 | | Facilities | $— | $(0.3) | $— | $0.0 | | Other | $0.7 | $1.4 | $2.6 | $1.8 | | **Total** | **$0.9** | **$1.5** | **$14.7** | **$6.7** | - For the nine months ended June 30, 2025, restructuring costs totaled **$14.7 million**, primarily due to **$12.1 million** for personnel elimination (including **$3.0 million** in stock-based compensation for former senior management) and **$2.6 million** for transformation initiatives. This reflects ongoing efforts to optimize cost structure and align with generative AI and LLM product roadmap[86](index=86&type=chunk)[195](index=195&type=chunk) [Note 11. Stockholders' Equity](index=26&type=section&id=Note%2011.%20Stockholders'%20Equity) This note details Cerence Inc.'s equity incentive plans, employee stock purchase plan, and stock-based compensation - Cerence's Equity Incentive Plan and Employee Stock Purchase Plan allow for the issuance of common stock, with shares available for issuance increasing annually. The Inducement Plan's authorized shares were increased from **600,000** to **4,500,000** during fiscal year 2024[89](index=89&type=chunk)[90](index=90&type=chunk) Non-Vested Restricted Stock Units (RSUs) for Nine Months Ended June 30, 2025 | Metric | Time-Based Shares | Performance-Based Shares | Total Shares | Weighted Average Grant-Date Fair Value | | :-------------------------- | :---------------- | :----------------------- | :----------- | :------------------------------------- | | Non-vested at Sep 30, 2024 | 2,587,386 | 1,119,437 | 3,706,823 | $23.51 | | Granted | 3,327,503 | 2,130,431 | 5,457,934 | $10.23 | | Vested | (1,073,647) | (267,890) | (1,341,537) | $28.75 | | Forfeited | (433,978) | (681,420) | (1,115,398) | $21.45 | | Non-vested at Jun 30, 2025 | 4,407,264 | 2,300,558 | 6,707,822 | $13.05 | | Expected to vest | | | 6,707,822 | $13.05 | Stock-Based Compensation (in millions) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Cost of connected services | $0.1 | $0.1 | $0.2 | $0.2 | | Cost of professional services | $0.5 | $0.6 | $1.4 | $1.7 | | Research and development | $2.7 | $3.3 | $7.1 | $9.7 | | Sales and marketing | $0.9 | $0.6 | $2.3 | $1.6 | | General and administrative | $2.2 | $1.7 | $6.1 | $6.0 | | Restructuring and other costs, net | $— | $— | $3.0 | $— | | **Total** | **$6.3** | **$6.2** | **$20.0** | **$19.3** | - Stock-based compensation for the nine months ended June 30, 2025, included **$2.6 million** due to the termination of the former CEO and **$0.4 million** for another former senior management employee, resulting in accelerated vesting of awards[92](index=92&type=chunk) [Note 12. Commitments and Contingencies](index=27&type=section&id=Note%2012.%20Commitments%20and%20Contingencies) This note outlines Cerence Inc.'s legal proceedings, including shareholder actions, class action lawsuits, and patent infringement claims - Cerence is involved in various legal proceedings, including shareholder derivative actions, a class action lawsuit under the Illinois Biometric Information Privacy Act (BIPA), and a patent infringement complaint against Samsung. The Securities Action was settled for **$30.0 million**, paid by insurance proceeds. Derivative actions in federal and Delaware courts have been dismissed[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk)[100](index=100&type=chunk) - The BIPA class action alleges violations related to biometric data collection via Cerence's Drive Platform technology, seeking statutory damages. Cerence cannot estimate the reasonably possible loss due to the preliminary stage of the case[98](index=98&type=chunk)[99](index=99&type=chunk) - Cerence indemnifies customers and business partners for intellectual property infringement and contractual breaches, with liability often limited but sometimes unlimited. Directors and officers are also indemnified. Letters of credit for facility leases totaled **$0.7 million** as of June 30, 2025[101](index=101&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk) [Note 13. Income Taxes](index=29&type=section&id=Note%2013.%20Income%20Taxes) This note provides details on Cerence Inc.'s income tax provision, effective tax rates, and related adjustments Income (Loss) Before Income Taxes (in millions) | Region | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Domestic | $(7.5) | $(305.7) | $(15.8) | $(510.5) | | Foreign | $6.7 | $(50.3) | $12.4 | $(53.8) | | **Loss before income taxes** | **$(0.8)** | **$(356.1)** | **$(3.4)** | **$(564.2)** | Provision for (Benefit from) Income Taxes (in millions) | Region | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Domestic | $0.3 | $(34.7) | $0.8 | $(2.6) | | Foreign | $1.6 | $(7.9) | $1.2 | $6.0 | | **Provision for (benefit from) income taxes** | **$1.9** | **$(42.6)** | **$2.0** | **$3.4** | | Effective income tax rate | (244.9)% | 11.9% | (59.6)% | (0.6)% | - The effective tax rate for the three months ended June 30, 2025, was **-244.9%** (vs. **11.9%** in 2024), and for the nine months was **-59.6%** (vs. **-0.6%** in 2024). These differences are primarily due to goodwill impairment in 2024 and a change in interim tax estimation methodology[107](index=107&type=chunk)[109](index=109&type=chunk) - A non-cash out-of-period adjustment of **$3.8 million** was recorded to increase deferred tax assets and decrease goodwill, correcting a prior period error deemed immaterial[108](index=108&type=chunk) - The recently signed One Big Beautiful Bill Act, making permanent key elements of the 2017 Tax Cuts and Jobs Act, is being evaluated for its impact on the company's financial statements[111](index=111&type=chunk) [Note 14. Long-Term Debt](index=31&type=section&id=Note%2014.%20Long-Term%20Debt) This note details Cerence Inc.'s long-term debt, including convertible senior notes and senior credit facilities Long-Term Debt (in millions) | Description | Maturity Date | Coupon Rate | Effective Interest Rate | Principal (June 30, 2025) | Unamortized Discount (June 30, 2025) | Deferred Issuance Costs (June 30, 2025) | Carrying Value (June 30, 2025) | Principal (Sep 30, 2024) | Unamortized Discount (Sep 30, 2024) | Deferred Issuance Costs (Sep 30, 2024) | Carrying Value (Sep 30, 2024) | | :-------------------- | :------------ | :---------- | :---------------------- | :------------------------ | :----------------------------------- | :-------------------------------------- | :----------------------------- | :----------------------- | :---------------------------------- | :------------------------------------- | :---------------------------- | | 2025 Modified Notes | 7/1/2028 | 1.50% | 5.49% | $87.5 | $(2.0) | $(7.7) | $77.8 | $87.5 | $— | $(0.4) | $87.1 | | 2028 Notes | 7/1/2028 | 1.50% | 1.91% | $122.5 | $— | $(1.5) | $121.0 | $122.5 | $— | $(1.8) | $120.7 | | **Total debt** | | | | **$210.0** | **$(2.0)** | **$(9.2)** | **$198.8** | **$297.5** | **$(2.8)** | **$(12.8)** | **$281.9** | - Cerence issued **$210.0 million** in **1.50%** Convertible Senior Notes due 2028 (2028 Notes) in June/July 2023. **$87.5 million** of these notes were considered a modification of the existing 2025 Notes (2025 Modified Notes) due to concurrent repurchase and issuance with the same investors[114](index=114&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) - The 2028 Notes are senior, unsecured, accrue **1.50%** interest, and mature on July 1, 2028. They are convertible into cash, common stock, or a combination, at Cerence's election, under specific conditions. The initial conversion price is approximately **$40.72** per share[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk) - The remaining **$61.0 million** principal balance of the **3.00%** Senior Convertible Notes due 2025 was repaid in full at maturity during the three months ended June 30, 2025. Earlier, **$27.4 million** of 2025 Notes were repurchased for **$27.0 million** cash, resulting in a **$0.3 million** gain on extinguishment[126](index=126&type=chunk)[127](index=127&type=chunk) Interest Expense Related to Notes (in millions) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Contractual interest expense | $1.1 | $1.4 | $3.7 | $4.3 | | Amortization of debt discount | $0.2 | $0.3 | $0.8 | $0.8 | | Amortization of issuance costs | $1.1 | $1.2 | $3.6 | $3.7 | | **Total interest expense related to the Notes** | **$2.4** | **$2.9** | **$8.1** | **$8.7** | - The Senior Credit Facilities, including a **$125.0 million** Term Loan Facility and a **$50.0 million** Revolving Facility, were terminated on December 31, 2024. All principal and interest on the Term Loan Facility had been paid in full prior to termination[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Cerence Inc.'s financial condition and operating results, highlighting revenue trends, operating margins, and liquidity for the periods presented [Overview](index=35&type=section&id=Overview) This section provides a general overview of Cerence Inc.'s business, products, and market dynamics - Cerence Inc. develops AI-powered virtual assistants for the mobility/transportation market, primarily automotive, but also expanding to two-wheel vehicles, planes, tractors, cruise ships, elevators, and AIoT. The company's software platform combines edge and cloud-connected components to enable natural conversational interactions[134](index=134&type=chunk)[135](index=135&type=chunk) - Revenue is generated from per-unit perpetual software licenses (edge components), subscription fees for cloud-connected services, and professional services for design, development, and deployment. Contracts are typically multi-year, providing some revenue visibility, though subject to automotive production delays, macroeconomic conditions, and pricing pressures[136](index=136&type=chunk) - The company expects continued impact from global automotive industry dynamics, including production delays and slowdowns, increased pricing pressure, and slower-than-anticipated development in adjacent markets. Cerence plans to focus on cost management and process optimization, including a restructuring plan substantially completed by Q1 FY2025[148](index=148&type=chunk)[195](index=195&type=chunk) [Basis of Presentation](index=35&type=section&id=Basis%20of%20Presentation) This section explains that the unaudited financial statements adhere to U.S. GAAP and SEC interim reporting rules - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC rules for interim reporting, reflecting all necessary adjustments for fair presentation. Operating results for the interim periods are not necessarily indicative of the full fiscal year[137](index=137&type=chunk)[138](index=138&type=chunk)[139](index=139&type=chunk) [Key Financial Metrics](index=36&type=section&id=Key%20Financial%20Metrics) This section highlights Cerence Inc.'s key financial performance indicators and their year-over-year changes Key Financial Metrics (YoY Change) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | Change (YoY) | | :-------------------------- | :------------------------------- | :------------------------------- | :----------- | :------------------------------ | :------------------------------ | :----------- | | Total Revenue | $62.2 million | $70.5 million | **(11.8)%** | $191.1 million | $276.7 million | **(30.9)%** | | Operating Margin | (1.5)% | (503.1)% | **+501.6 pp** | (0.3)% | (202.6)% | **+202.4 pp** | | Cash Provided by Operating Activities | $23.7 million | $12.9 million | **+$10.8 million** | $48.4 million | $11.1 million | **+$37.3 million** | [Operating Results](index=37&type=section&id=Operating%20Results) This section provides a detailed analysis of Cerence Inc.'s operating performance across different revenue and expense categories [Three Months Ended June 30, 2025 Compared with Three Months Ended June 30, 2024](index=39&type=section&id=Three%20Months%20Ended%20June%2030,%202025%20Compared%20with%20Three%20Months%20Ended%20June%2030,%202024) This section compares Cerence Inc.'s operating results for the three months ended June 30, 2025, against the prior year Total Revenues by Product Type (in millions) | Product Type | 2025 (3 Months) | % of Total (2025) | 2024 (3 Months) | % of Total (2024) | % Change (2025 vs 2024) | | :------------------ | :-------------- | :---------------- | :-------------- | :---------------- | :---------------------- | | License | $34.2 | 54.9% | $43.1 | 61.0% | (20.6)% | | Connected services | $12.8 | 20.6% | $10.9 | 15.5% | 17.4% | | Professional services | $15.2 | 24.5% | $16.5 | 23.5% | (8.0)% | | **Total revenues** | **$62.2** | | **$70.5** | | **(11.8)%** | - Total revenues decreased by **11.8%** due to a **$20.0 million** decrease in fixed license contracts, partially offset by an **$11.1 million** increase in variable license contract revenue and a **17.4%** increase in connected services revenue[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) - Professional services revenue decreased by **8.0%** due to increased standardization of software offerings and efficiencies, requiring less implementation effort[152](index=152&type=chunk) Total Cost of Revenues and Gross Profits (in millions) | Metric | 2025 (3 Months) | 2024 (3 Months) | % Change (2025 vs 2024) | | :-------------------- | :-------------- | :-------------- | :---------------------- | | Total cost of revenues | $16.3 | $20.1 | (18.7)% | | Total gross profit | $45.9 | $50.4 | (9.0)% | | License gross profit | $33.1 | $41.3 | (19.8)% | | Connected services gross profit | $8.0 | $5.2 | 53.9% | | Professional services gross profit | $4.7 | $4.0 | 20.1% | - Total cost of revenues decreased by **18.7%**, leading to a **9.0%** decrease in total gross profit, primarily due to lower fixed contract volumes. Connected services gross profit increased by **53.9%** due to higher revenues, while professional services gross profit increased by **20.1%** due to reduced costs[159](index=159&type=chunk)[163](index=163&type=chunk)[166](index=166&type=chunk) [Nine Months Ended June 30, 2025 Compared with Nine Months Ended June 30, 2024](index=40&type=section&id=Nine%20Months%20Ended%20June%2030,%202025%20Compared%20with%20Nine%20Months%20Ended%20June%2030,%202024) This section compares Cerence Inc.'s operating results for the nine months ended June 30, 2025, against the prior year Total Revenues by Product Type (in millions) | Product Type | 2025 (9 Months) | % of Total (2025) | 2024 (9 Months) | % of Total (2024) | % Change (2025 vs 2024) | | :------------------ | :-------------- | :---------------- | :-------------- | :---------------- | :---------------------- | | License | $108.4 | 56.7% | $99.4 | 35.9% | 9.0% | | Connected services | $39.2 | 20.5% | $121.4 | 43.9% | (67.7)% | | Professional services | $43.6 | 22.8% | $55.9 | 20.2% | (22.1)% | | **Total revenues** | **$191.1** | | **$276.7** | | **(30.9)%** | - Total revenues decreased by **30.9%** primarily due to an **$82.2 million** decrease in connected services revenue, largely from the early termination of a legacy contract and related services in Q1 FY2024, which accelerated **$86.6 million** of deferred revenue. License revenue increased by **9.0%** due to higher variable contract volumes[154](index=154&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk) - Professional services revenue decreased by **22.1%** due to increased standardization of software offerings and process efficiencies[157](index=157&type=chunk) Total Cost of Revenues and Gross Profits (in millions) | Metric | 2025 (9 Months) | 2024 (9 Months) | % Change (2025 vs 2024) | | :-------------------- | :-------------- | :-------------- | :---------------------- | | Total cost of revenues | $52.0 | $67.3 | (22.8)% | | Total gross profit | $139.1 | $209.4 | (33.5)% | | License gross profit | $103.1 | $94.6 | 9.0% | | Connected services gross profit | $23.1 | $103.0 | (77.6)% | | Professional services gross profit | $13.0 | $11.9 | 8.9% | - Total cost of revenues decreased by **22.8%**, but total gross profit decreased by **33.5%** due to the significant decline in connected services revenue. License gross profit increased by **9.0%** and professional services gross profit increased by **8.9%** due to revenue increases and cost reductions, respectively[168](index=168&type=chunk)[170](index=170&type=chunk)[174](index=174&type=chunk) [Operating Expenses](index=44&type=section&id=Operating%20Expenses) This section analyzes Cerence Inc.'s research and development, sales and marketing, general and administrative, and other operating expenses R&D Expenses (in millions) | Period | 2025 | 2024 | % Change | | :-------------------- | :----- | :----- | :------- | | Three Months Ended June 30 | $27.2 | $31.2 | (12.9)% | | Nine Months Ended June 30 | $71.4 | $96.3 | (25.9)% | - R&D expenses decreased by **12.9%** for the three months and **25.9%** for the nine months, driven by reductions in third-party contract labor, international tax credits, compensation-related expenditures, and increased capitalization of internally developed software costs[176](index=176&type=chunk)[178](index=178&type=chunk) Sales & Marketing Expenses (in millions) | Period | 2025 | 2024 | % Change | | :-------------------- | :----- | :----- | :------- | | Three Months Ended June 30 | $5.9 | $5.2 | 13.6% | | Nine Months Ended June 30 | $15.6 | $16.9 | (7.6)% | - Sales and marketing expenses increased by **13.6%** for the three months due to higher compensation, but decreased by **7.6%** for the nine months due to reduced travel, marketing, and third-party contract labor costs[179](index=179&type=chunk)[180](index=180&type=chunk) General & Administrative Expenses (in millions) | Period | 2025 | 2024 | % Change | | :-------------------- | :----- | :----- | :------- | | Three Months Ended June 30 | $12.3 | $9.8 | 25.5% | | Nine Months Ended June 30 | $36.3 | $39.3 | (7.6)% | - General and administrative expenses increased by **25.5%** for the three months due to a credit loss provision reversal in 2024, but decreased by **7.6%** for the nine months, primarily from lower compensation and credit loss provisions, partially offset by increased contract labor and professional services[181](index=181&type=chunk)[182](index=182&type=chunk) Amortization of Intangible Assets (in millions) | Period | 2025 | 2024 | % Change | | :-------------------- | :----- | :----- | :------- | | Three Months Ended June 30 | $0.6 | $0.6 | 5.1% | | Nine Months Ended June 30 | $1.7 | $1.8 | (4.8)% | - Amortization expense for intangible assets decreased by **4.8%** for the nine months, as certain assets (acquired technology, patents, and customer relationships) were fully amortized during fiscal years 2024 and 2025[185](index=185&type=chunk) Restructuring and Other Costs, Net (in millions) | Period | 2025 | 2024 | % Change | | :-------------------- | :----- | :----- | :------- | | Three Months Ended June 30 | $0.9 | $1.5 | (43.0)% | | Nine Months Ended June 30 | $14.7 | $6.7 | 118.6% | Goodwill Impairment (in millions) | Period | 2025 | 2024 | % Change | | :-------------------- | :----- | :----- | :------- | | Three Months Ended June 30 | $— | $357.1 | (100.0)% | | Nine Months Ended June 30 | $— | $609.2 | (100.0)% | - Restructuring and other costs, net, decreased by **43.0%** for the three months but increased by **118.6%** for the nine months, reflecting personnel elimination and transformation initiatives. No goodwill impairment was recorded in 2025, compared to **$357.1 million** and **$609.2 million** in 2024[188](index=188&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) [Total Other Expense, Net](index=49&type=section&id=Total%20Other%20Expense,%20Net) This section analyzes Cerence Inc.'s interest income, interest expense, and other non-operating income and expenses Total Other Income (Expense), Net (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | % Change | | :-------------------------- | :------------------------------- | :------------------------------- | :------- | :------------------------------ | :------------------------------ | :------- | | Interest income | $0.9 | $1.3 | (30.5)% | $3.3 | $3.9 | (16.9)% | | Interest expense | $(2.4) | $(3.1) | (22.4)% | $(8.5) | $(9.5) | (9.9)% | | Other income, net | $1.7 | $0.6 | 167.3% | $2.4 | $2.0 | 20.8% | | **Total other income (expense), net** | **$0.2** | **$(1.2)** | (113.4)% | **$(2.8)** | **$(3.5)** | (19.7)% | - Total other expense, net, shifted from a **$1.2 million** expense to a **$0.2 million** income for the three months, driven by foreign exchange gains and lower interest expense due to reduced principal on 2025 Notes. For the nine months, total other expense decreased by **19.7%**, also due to lower interest expense from the 2025 Notes and termination of Senior Credit Facilities, and a **$0.3 million** gain on debt extinguishment[200](index=200&type=chunk)[201](index=201&type=chunk) [Provision For (Benefit From) Income Taxes](index=50&type=section&id=Provision%20For%20(Benefit%20From)%20Income%20Taxes) This section discusses Cerence Inc.'s income tax provision or benefit and effective tax rates for the periods presented Provision For (Benefit From) Income Taxes (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | % Change | | :-------------------------- | :------------------------------- | :------------------------------- | :------- | :------------------------------ | :------------------------------ | :------- | | Provision for (benefit from) income taxes | $1.9 | $(42.6) | (104.5)% | $2.0 | $3.4 | (41.8)% | | Effective income tax rate % | (244.9)% | 11.9% | | (59.6)% | (0.6)% | | - The effective income tax rate for the three months ended June 30, 2025, was **-244.9%** (vs. **11.9%** in 2024), and for the nine months was **-59.6%** (vs. **-0.6%** in 2024). This significant change is primarily attributed to the goodwill impairment in 2024 and a shift in interim tax estimation methodology from annual to year-to-date[202](index=202&type=chunk)[203](index=203&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes Cerence Inc.'s cash position, material cash requirements, and cash flow activities - As of June 30, 2025, Cerence had **$79.1 million** in cash, cash equivalents, and marketable securities. The company believes it can meet its liquidity needs for the next 12 months based on current cash and expected positive cash flows from operations[204](index=204&type=chunk)[206](index=206&type=chunk) Material Cash Requirements Due by Period (in millions) | Requirement | 2025 | 2026-2027 | 2028-2029 | Thereafter | Total | | :-------------------------- | :--- | :-------- | :-------- | :--------- | :------ | | 2028 Notes | $— | $— | $122.5 | $— | $122.5 | | Cash interest payable on the 2028 Notes | $0.9 | $3.7 | $1.8 | $— | $6.4 | | 2025 Modified Notes | $— | $— | $87.5 | $— | $87.5 | | Cash interest payable on the 2025 Modified Notes | $0.7 | $2.6 | $1.3 | $— | $4.6 | | Operating leases | $1.0 | $11.0 | $7.7 | $1.2 | $21.0 | | Financing leases | $0.1 | $0.1 | $— | $— | $0.2 | | **Total material cash requirements** | **$2.7** | **$17.3** | **$220.9** | **$1.2** | **$242.1** | - The company may seek additional liquidity through equity or debt offerings, but cannot guarantee favorable terms, especially given economic disruptions, high interest rates, and trade policy volatility[209](index=209&type=chunk) Cash Flows (in millions) | Metric | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | % Change | | :------------------------------------ | :------------------------------ | :------------------------------ | :------- | | Net cash provided by operating activities | $48.4 | $11.1 | 337.0% | | Net cash (used in) provided by investing activities | $(9.0) | $4.3 | 308.2% | | Net cash (used in) provided by financing activities | $(87.4) | $0.1 | 150817.2% | | Net changes in cash and cash equivalents | $(47.8) | $14.4 | 432.8% | - Net cash provided by operating activities increased by **$37.3 million** (**337.0%**) due to a **$54.9 million** decrease in income before non-cash charges, a **$4.4 million** increase from unfavorable working capital changes, and an **$87.8 million** increase from deferred revenue changes[226](index=226&type=chunk)[228](index=228&type=chunk) - Net cash used in investing activities increased by **$13.3 million** (**308.2%**) due to a **$5.7 million** decrease in marketable securities and **$7.8 million** in additional capital expenditures[227](index=227&type=chunk) - Net cash used in financing activities increased by **$87.5 million** (**150817.2%**) due to **$87.1 million** in principal payments for short-term debt, an **$8.4 million** decrease in common stock issuance proceeds, and a **$7.7 million** decrease in tax withholdings for equity awards[228](index=228&type=chunk)[229](index=229&type=chunk)[230](index=230&type=chunk) [Critical Accounting Estimates](index=54&type=section&id=Critical%20Accounting%20Estimates) This section identifies key accounting estimates that require significant management judgment and can materially affect financial results - Critical accounting estimates include revenue recognition, allowance for credit losses, deferred costs, internally developed software, goodwill and intangible asset valuation, stock-based compensation, income taxes, convertible debt, and loss contingencies. These estimates involve significant judgment and can materially impact financial results[232](index=232&type=chunk) [Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements To Be Adopted](index=54&type=section&id=Recently%20Adopted%20Accounting%20Pronouncements%20and%20Recent%20Accounting%20Pronouncements%20To%20Be%20Adopted) This section refers to Note 2 for details on new and upcoming accounting standards and their potential impact - Refer to Note 2 for details on recently adopted and future accounting standards that may impact financial results[233](index=233&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=54&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Cerence Inc. is exposed to market risks from fluctuations in foreign currency exchange rates and interest rates. The company manages these risks through operational activities and derivative financial instruments, specifically foreign exchange forward contracts. A 10% unfavorable exchange rate movement would result in $2.4 million in unrealized losses on foreign currency contracts, offset by gains in underlying transactions. Interest rate sensitivity analysis indicates a 1% increase in interest rates would increase interest income on highly liquid investments by $0.3 million annually - Cerence is exposed to foreign currency exchange rate fluctuations, primarily in Canadian dollar, Chinese yuan, Euro, and Japanese yen. Foreign exchange forward contracts are used to hedge this risk, with a total notional amount of **$24.2 million** at June 30, 2025[235](index=235&type=chunk)[236](index=236&type=chunk)[237](index=237&type=chunk) - A **10%** unfavorable exchange rate movement in foreign currency contracts would result in **$2.4 million** in unrealized losses, which would be offset by corresponding gains in the underlying hedged transactions[237](index=237&type=chunk) - The company is exposed to interest rate risk on its cash and cash equivalents (**$73.7 million** at June 30, 2025). A **1%** increase in interest rates would lead to an annual increase of **$0.3 million** in interest income[238](index=238&type=chunk) [Item 4. Controls and Procedures](index=55&type=section&id=Item%204.%20Controls%20and%20Procedures) Cerence Inc.'s management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of June 30, 2025, and concluded they were effective. There were no material changes in internal control over financial reporting during the most recent fiscal quarter. The company acknowledges that control systems provide reasonable, not absolute, assurance - Management, including the CEO and CFO, concluded that Cerence's disclosure controls and procedures were effective as of June 30, 2025[239](index=239&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[240](index=240&type=chunk) [PART II. OTHER INFORMATION](index=56&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information, including legal proceedings, risk factors, and other disclosures [Item 1. Legal Proceedings](index=56&type=section&id=Item%201.%20Legal%20Proceedings) This section details Cerence Inc.'s ongoing legal proceedings, including derivative actions, a class action lawsuit under the Illinois Biometric Information Privacy Act (BIPA), and a patent infringement complaint against Samsung. Several derivative actions have been dismissed, while the BIPA case and the Samsung patent infringement case are still in preliminary stages, with potential outcomes and losses currently inestimable - Federal shareholder derivative actions, consolidated in the U.S. District Court for the District of Massachusetts, were dismissed without leave to amend on June 18, 2025[244](index=244&type=chunk) - Three similar shareholder derivative complaints filed in the Delaware Court of Chancery have also been dismissed, with one voluntarily dismissed with prejudice and two dismissed without prejudice by stipulation or request[245](index=245&type=chunk) - A class action lawsuit alleges Cerence violated the Illinois Biometric Information Privacy Act (BIPA) through its Drive Platform technology, seeking statutory damages. Cerence has filed motions to dismiss, which were denied in Circuit Court, and cannot estimate the reasonably possible loss[246](index=246&type=chunk)[247](index=247&type=chunk) - Cerence filed a patent infringement complaint against Samsung, which counterclaimed alleging infringement of four patents. Trial is scheduled for April 2026, and the reasonably possible loss cannot be estimated at this preliminary stage[247](index=247&type=chunk)[248](index=248&type=chunk) [Item 1A. Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) This section updates the risk factors from the Annual Report on Form 10-K, emphasizing the company's dependence on the highly cyclical global automotive industry and broader economic conditions. Key risks include adverse conditions in the automotive industry (e.g., production delays, trade policies, tariffs), general global economic weakness (e.g., reduced demand, higher borrowing costs, liquidity issues), and significant period-to-period fluctuations in operating results due to customer contracts, product mix, competition, and potential goodwill impairment. The company also highlights risks related to unauthorized use of its intellectual property and the high costs of litigation - Cerence's business is highly dependent on the global automotive industry, which is cyclical and affected by economic conditions, consumer preferences, interest rates, fuel costs, governmental incentives, and trade policies[251](index=251&type=chunk) - Increased economic uncertainty, including falling demand, reduced credit availability, and higher borrowing costs, can negatively impact Cerence's profitability and liquidity, leading to increased pricing pressure and reduced spending from customers[252](index=252&type=chunk)[254](index=254&type=chunk) - Operating results may fluctuate significantly due to factors like large customer contracts, product mix (variable vs. fixed), new product introductions, pricing pressures, and potential impairment of goodwill or intangible assets[256](index=256&type=chunk)[257](index=257&type=chunk)[258](index=258&type=chunk) - The company's success relies on protecting its intellectual property. Unauthorized use or infringement by competitors, along with expensive and unpredictable litigation, could harm the business and financial results[259](index=259&type=chunk)[260](index=260&type=chunk) [Item 5. Other Information](index=59&type=section&id=Item%205.%20Other%20Information) This section discloses information regarding Rule 10b5-1 trading plans. During the three months ended June 30, 2025, no directors or officers adopted or terminated such plans. However, Jennifer Salinas, Executive Vice President, Chief Administrative Officer and General Counsel, entered into a 10b5-1 plan on February 11, 2025, for the sale of up to 168,776 shares, effective after the report date and terminating by February 11, 2026, or earlier - No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[262](index=262&type=chunk) - Jennifer Salinas, EVP, Chief Administrative Officer and General Counsel, entered a 10b5-1 plan on February 11, 2025, to sell up to **168,776** shares, effective after the report date and terminating by February 11, 2026[262](index=262&type=chunk) [Item 6. Exhibits](index=61&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed or furnished as part of the Quarterly Report on Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL documents - The report includes certifications from the Principal Executive Officer and Principal Financial Officer under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[266](index=266&type=chunk) - Inline XBRL Instance Document and Taxonomy Extension Schema are filed as exhibits[266](index=266&type=chunk) [Signatures](index=62&type=section&id=Signatures) The report is duly signed on August 6, 2025, by Brian Krzanich, Chief Executive Officer, and Tony Rodriquez, Executive Vice President, Chief Financial Officer, on behalf of Cerence Inc - The report was signed on August 6, 2025, by Brian Krzanich (CEO) and Tony Rodriquez (EVP, CFO)[270](index=270&type=chunk)

Headlines Revenue of $62.2 million; Net cash provided by operating activities of $23.7M; Free cash flow of $16.1 million marks fifth consecutive positive quarterCompany raises and narrows full fiscal year guidance for revenue, adjusted EBITDA and free cash flowCompany continues to advance innovation and gain customer momentum for Cerence xUI, its hybrid LLM-based platform BURLINGTON, Mass., Aug. 06, 2025 (GLOBE NEWSWIRE) -- Cerence Inc. (NASDAQ: CRNC) (“Cerence AI”), a global leader pioneering conversationa ...