10q10k10q10k.net

What changed in Cerence Inc.'s 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of Cerence Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+306 added−302 removedSource: 10-K (2024-11-25) vs 10-K (2023-11-29)

Top changes in Cerence Inc.'s 2024 10-K

306 paragraphs added · 302 removed · 236 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

33 edited+4 added−6 removed117 unchanged
Biggest changeThe revenue we actually recognize is subject to several factors, including the number and timing of vehicles our customers ship, potential terminations or changes in scope of customer contracts, and currency fluctuations.
Biggest changeThe revenue we actually recognize is uncertain and subject to numerous factors, including the number and timing of vehicles our customers ship, potential terminations or changes in 5 scope of customer contracts, and currency fluctuations, as well as the other risks discussed below in Item IA, “Risk Factors.” As of September 30, 2024, we estimate our five-year backlog to be $952.7 million, including $172.7 million of five-year remaining performance obligations and $780.0 million of five-year variable backlog.
We have existing relationships with all major OEMs or their tier 1 suppliers, and while our customer contracts vary, they generally represent multi-year engagements, giving us visibility into future revenue. We have master agreements or similar commercial arrangements in place with many of our customers, supporting customer retention over the long term.
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 visibility into future revenue. We have master agreements or similar commercial arrangements in place with many of our customers, supporting customer retention over the long term.
We have supplied speech recognition systems to OEMs and suppliers for over 20 years, working closely with our customers through our global professional services organization to design and integrate our solutions into their brands. Today, we work with all major OEMs or their tier 1 suppliers worldwide, leveraging the geographic breadth and industry experience of our professional services teams.
We have supplied speech recognition systems to OEMs and suppliers for over 20 years, working closely with our customers through our global professional services organization to design and integrate our solutions into their brands. Today, we work with nearly all major OEMs or their tier 1 suppliers worldwide, leveraging the geographic breadth and industry experience of our professional services teams.
Our customers include all major automobile original equipment manufacturers, or OEMs, or their tier 1 suppliers worldwide, including BMW, Daimler, FCA Group, Ford, Geely, GM, Renault-Nissan, SAIC, Toyota, Volkswagen Group, Aptiv, Bosch, Continental, DENSO TEN, NIO, XPeng and Harman.
Our customers include nearly all major automobile original equipment manufacturers, or OEMs, or their tier 1 suppliers worldwide, including BMW, Daimler, FCA Group, Ford, Geely, GM, Renault-Nissan, SAIC, Toyota, Volkswagen Group, Aptiv, Bosch, Continental, DENSO TEN, NIO, XPeng and Harman.
Culture and Work Environment We’re a group of highly motivated collaborators who share a common passion for creating meaningful change in our industry and shaping the future of mobility. We are committed to attracting and retaining the best and brightest talent and building a culture of transparency, trust, and respect.
Culture and Work Environment We are a group of highly motivated collaborators who share a common passion for creating meaningful change in our industry and shaping the future of mobility. We are committed to attracting and retaining the best and brightest talent and building a culture of transparency, trust, and respect.
We believe a neutral automotive cognitive assistance platform will increasingly be valued by OEMs that prioritize maintaining their unique and branded in-car experience and the ability to control the mobility experience overall. • Deliver new functionality to existing installed base. Our solutions have been installed in more than 475 million vehicles to date.
We believe a neutral automotive cognitive assistance platform will increasingly be valued by OEMs that prioritize maintaining their unique and branded in-car experience and the ability to control the mobility experience overall. • Deliver new functionality to existing installed base. Our solutions have been installed in more than 500 million vehicles to date.
Our long history in the automotive industry and the global reach and experience of our over 400 professional services employees across 12 countries gives us credibility with OEMs as we seek new business with OEMs, either directly or through their tier 1 suppliers.
Our long history in the automotive industry and the global reach and experience of our over 300 professional services employees across 12 countries gives us credibility with OEMs as we seek new business with OEMs, either directly or through their tier 1 suppliers.
Our professional services organization includes approximately 400 employees. These employees work with our customers in the design phase of the vehicle lifecycle to tailor our platform for specific requirements such as branding and also tune the software for the characteristics of a vehicle model.
Our professional services organization includes approximately 300 employees. These employees work with our customers in the design phase of the vehicle lifecycle to tailor our platform for specific requirements such as branding and also tune the software for the characteristics of a vehicle model.
Both our embedded and connected technologies are priced and sold on a per-vehicle or device basis, where we receive a single fee for either or both the embedded license and the connected service term. However, our five-year remaining performance obligations may not be indicative of our actual future revenue.
Both our embedded and connected technologies are largely priced and sold on a per-vehicle or device basis, where we receive a single fee for either or both the embedded license and the connected service term. However, our five-year remaining performance obligations and variable five-year backlog may not be indicative of our actual future revenue.
Accordingly, we intend to continue to invest in our product portfolio and allocate capital and resources to our growth opportunities. Customers Our customers include all major OEMs or their tier 1 suppliers worldwide.
Accordingly, we intend to continue to invest in our product portfolio and allocate available capital and resources to our growth opportunities. Customers Our customers include nearly all major OEMs or their tier 1 suppliers worldwide.
Research and Development We maintain technical engineering centers in major regions of the world that help develop our software platform and its underlying components and provide our customers with local engineering capabilities and design development. We employ approximately 1,000 research and development personnel around the world, including scientists, engineers and technicians.
Research and Development We maintain technical engineering centers in major regions of the world that help develop our software platform and its underlying components and provide our customers with local engineering capabilities and design development. We employ approximately 800 research and development personnel around the world, including scientists, engineers and technicians.
History and Corporate Information On October 1, 2019 (“Distribution Date”), Nuance, a leading provider of speech and language solutions for businesses and consumers around the world, completed the legal and structural separation and distribution to its stockholders of all of the outstanding shares of our common stock, and its consolidated subsidiaries, in a tax free spin-off (“Spin-Off”).
History and Corporate Information On October 1, 2019, Nuance, a leading provider of speech and language solutions for businesses and consumers around the world, completed the legal and structural separation and distribution to its stockholders of all of the outstanding shares of our common stock, and its consolidated subsidiaries, in a tax free spin-off ( the“Spin-Off”).
While no individual patent or group of patents, taken alone, is considered material to our business, in the aggregate, these patents and rights provide meaningful protection for our products, technologies, and technical innovations.
While no individual patent or group of patents, taken alone, is considered material to our business, in the aggregate, we believe that these patents and rights provide meaningful protection for our products, technologies, and technical innovations.
Our tier 1 supplier customers, who typically sell automobile components to the OEMs, include Aptiv, Bosch, Continental, DENSO TEN, NIO, Harman and many others and represented approximately 51% of our business in fiscal year 2023. Our revenue base is geographically diverse.
Our tier 1 supplier customers, who typically sell automobile components to the OEMs, include Aptiv, Bosch, Continental, DENSO TEN, NIO, Harman and many others and represented approximately 43% of our business in fiscal year 2024. Our revenue base is geographically diverse.
To meet the increasing demand for automotive cognitive assistance and to offer differentiated mobility experiences, OEMs and suppliers are building proprietary virtual assistants into an increasing proportion of their vehicles.
To meet the increasing demand for automotive cognitive assistance and to offer differentiated mobility experiences, OEMs and suppliers are building proprietary virtual assistants into a higher proportion of their vehicles.
Our automobile manufacturer customers, commonly referred to as OEMs, include BMW, XPeng, Stallantis, Ford, Daimler, Geely, Renault-Nissan, SAIC, Toyota, Harley Davidson, Volkswagen Group and many others and represented approximately 49% of our sales in fiscal year 2023.
Our automobile manufacturer customers, commonly referred to as OEMs, include BMW, XPeng, Stallantis, Ford, Daimler, Geely, Renault-Nissan, SAIC, Toyota, Harley Davidson, Volkswagen Group and many others and represented approximately 57% of our sales in fiscal year 2024.
Our total research and development expenses were approximately $123.3 million, $107.1 million and $112.1 million for fiscal years 2023, 2022 and 2021, respectively. We believe that continued investment in research and development will be critical for us to continue to deliver market-leading solutions for automotive cognitive assistance.
Our total research and development expenses were approximately $121.6 million, $123.3 million and $107.1 million for fiscal years 2024, 2023 and 2022, respectively. We believe that continued investment in research and development will be critical for us to continue to deliver market-leading solutions for automotive cognitive assistance.
It’s extremely important that every employee feel welcome and valued as we strive to make our company a great place to work. Intellectual Property As of September 30, 2023, we own approximately 752 patents and patent applications and other intellectual property.
We believe it's extremely important that every employee feel welcome and valued as we strive to make our company a great place to work. Intellectual Property As of September 30, 2024, we own approximately 869 patents and patent applications and other intellectual property.
On October 2, 2019, our common stock began regular-way trading on the Nasdaq Global Select Market under the ticker symbol CRNC. Our principal executive offices are located at 1 Burlington Woods Drive, Suite 301A, Burlington, Massachusetts 01803 and our telephone number at that address is (857) 362-7300. Our website is www.cerence.com .
On October 2, 2019, our common stock began regular-way trading on the Nasdaq Global Select Market under the ticker symbol CRNC. Our principal executive offices are located at 25 Mall Road, Suite 416, Burlington, Massachusetts 01803 and our telephone number at that address is (857) 362-7300. Our website is www.cerence.com .
Our analysis confirmed our commitment to a healthy, fair compensation system. Overall, in each country large enough to permit statistical comparisons, we saw no significant differences in pay by gender when controlling for factors such as job family, level, and years of service, nor did we see differences by gender or race in the United States.
Overall, in each country large enough to permit statistical comparisons, we saw no significant differences in pay by gender when controlling for factors such as job family, level, and years of service, nor did we see differences by gender or race in the United States.
In fiscal year 2023, approximately 30%, 35% and 35% of our revenue came from the Americas, Europe and Asia, respectively. Sales and Marketing and Professional Services We market our offerings using a high-touch OEM solutions model.
In fiscal year 2024, approximately 42%, 34% and 24% of our revenue came from the Americas, Europe and Asia, respectively. Sales and Marketing and Professional Services We market our offerings using a high-touch OEM solutions model.
Human Capital Summary As of September 30, 2023, we had approximately 1,700 full-time employees, including approximately 100 in sales and marketing, approximately 200 in administrative functions, approximately 400 in professional services, and approximately 1,000 in research and development. Approximately 90% of our employees are based outside of the United States.
As of September 30, 2024, we had approximately 1,400 full-time employees, including approximately 100 in sales and marketing, approximately 200 in administrative functions, approximately 300 in professional services, and approximately 800 in research and development. Approximately 90% of our employees are based outside of the United States.
We recorded net loss of $56.3 million for the fiscal year ended September 30, 2023, a change of 81.9% compared to net loss of $310.8 million recorded for the fiscal year ended September 30. 2022. The financial information included herein may not necessarily reflect our results of operations in the future.
We recorded net loss of $588.1 million for the fiscal year ended September 30, 2024, a change of 945.4% compared to net loss of $56.3 million recorded for the fiscal year ended September 30. 2023. The financial information included herein may not necessarily reflect our results of operations in the future.
As of September 30, 2023, we had five-year remaining performance obligations of $270.3 million. As of September 30, 2023, we had variable five-year backlog of $975.4 million, which includes estimated future revenue from variable forecasted royalties related to our embedded, connected, and professional service businesses.
As of September 30, 2024, we had five-year remaining performance obligations of $172.7 million. As of September 30, 2024, we had variable five-year backlog of $780.0 million, which includes estimated future revenue from variable forecasted royalties related to our embedded, connected, and professional service businesses.
We are proactively nurturing our culture by investing in our people, processes and professional development. We understand our people are critical for our continued success and are focused on helping our employees grow at every stage of their career.
We are proactively nurturing our culture by investing in our people, processes and professional development. We understand our people are critical for our continued success and are focused on helping our employees grow at every stage of their career. To help employees at every level develop professional skills to advance in their careers, we offer employee and manager development training.
Our solutions have been installed in more than 475 million automobiles to date, including over 47 million new vehicles in fiscal year 2023 alone. Based on royalty reports provided by our customers and third-party reports of total vehicle production worldwide, we estimate that approximately 54% of all cars shipped during the fiscal year ended September 30, 2023 included Cerence technologies.
Based on royalty reports provided by our customers and third-party reports of total vehicle production worldwide, we estimate that approximately 52% of all cars shipped during the fiscal year ended September 30, 2024 included Cerence technologies. Cerence hybrid solutions shipped on approximately 13 million vehicles during the fiscal year ended September 30, 2024.
Our estimate of forecasted royalties is based on our royalty rates for embedded and connected technologies from expected car shipments under our existing contracts over the term of the programs. Anticipated shipments are based on historical shipping experience and current customer projections that management believes are reasonable as of the date of this Form 10-K.
Our estimate of forecasted royalties is based on our royalty rates for embedded and connected technologies from expected car shipments under our existing contracts over the term of the programs.
Cerence hybrid solutions shipped on approximately 11.0 million vehicles during the fiscal year ended September 30, 2023. In aggregate, over 80 OEMs and Tier 1 suppliers worldwide use our solutions, covering over 70 languages and dialects, including English, German, Spanish, French, Mandarin, Cantonese, Japanese and Hindi.
In aggregate, over 80 OEMs and Tier 1 suppliers worldwide use our solutions, covering over 70 languages and dialects, including English, German, Spanish, French, Mandarin, Cantonese, Japanese and Hindi. In fiscal year 2024, we generated revenue of $331.5 million, an increase of 12.6% compared to $294.5 million for the fiscal year ended September 30, 2023.
To support our efforts, break down biases, and improve our ways of working collaboratively toward greater innovation, we have a company-wide Gender Diversity Program designed to elevate female and underrepresented voices within our teams. 14 We are committed to pay fairness. To that end, we performed a compensation analysis across the organization.
Our leadership and our people recognize that our efforts must include and support racial, ethnic, cultural, age, experience, gender, and LGBTQ+ diversity. To support our efforts, break down 14 biases, and improve our ways of working collaboratively toward greater innovation, we have a company-wide Gender Diversity Initiative designed to elevate female and underrepresented voices within our teams.
To help employees at every level develop professional skills to advance in their careers, we offer the Take Charge of Your Career Program. Through regular seminars and workshops, our people learn diverse skills that include leadership, negotiating, communicating, goal setting, and more. We provide access to world-class continuing education opportunities and resources including on-demand, self-paced learning opportunities via Linkedin Learning.
Through regular seminars and workshops, our people learn diverse skills that include leadership, negotiating, communicating, goal setting, and more. We provide access to world-class continuing education opportunities and resources including on-demand, self-paced learning opportunities via LinkedIn Learning. Our teams are also continuously connecting through local social events, which bring teams together while promoting engagement, inclusion, and community-service.
Like our sales representatives, our professional services employees often have longstanding relationships with specific customers and are distributed worldwide to provide local customer coverage.
Like our sales representatives, our professional services employees often have longstanding relationships with specific customers and are distributed worldwide to provide local customer coverage. Human Capital Summary In August 2024, we announced a restructuring plan intended to reduce operating expenses and position us for profitable growth, which included a reduction in force.
We offer comprehensive benefit options, including retirement savings plans, medical insurance, dental insurance, vision insurance, life and disability insurance, health savings accounts, flexible spending accounts, and an employee stock purchase plan, among others.
Compensation, Rewards and Benefits In addition to competitive base salaries, we provide incentive-based compensation programs to reward performance relative to key metrics. We offer comprehensive benefit options, including retirement savings plans, medical insurance, dental insurance, vision insurance, life and disability insurance, health savings accounts, flexible spending accounts, and paid time off, among others.
As of September 30, 2023, we estimate our five-year backlog to 5 be $1.2 billion, including $270.3 million of five-year remaining performance obligations and $975.4 million of five-year variable backlog. As of September 30, 2022, the estimated five-year backlog was $1.1 billion.
As of September 30, 2023, the estimated five-year backlog was $1.2 billion. Our solutions have been installed in more than 500 million automobiles to date, including over 46 million new vehicles in fiscal year 2024 alone.
Removed
In fiscal year 2023, we generated revenue of $294.5 million, a decrease of 10.2% compared to $327.9 million for the fiscal year ended September 30, 2022.
Added
Expected shipments are based on historical shipping experience, customer projections, and other information that management believes, taken collectively, provide a reasonable basis for estimating future shipments as of the date of this Form 10-K.
Removed
The distribution was made in the amount of one share of our common stock for every eight shares of Nuance common stock (“Distribution”) owned by Nuance’s stockholders as of 5:00 p.m. Eastern Time on September 17, 2019, the record date of the Distribution.
Added
We expect the implementation of the restructuring plan will be substantially complete by the end of the first quarter of fiscal year 2025. Potential position eliminations are subject to legal requirements that vary by jurisdiction, which may extend this process beyond the first quarter of fiscal year 2025 in certain cases.
Removed
In connection with the Distribution, on September 30, 2019, we filed an Amended and Restated Certificate of Incorporation, or the Charter, with the Secretary of State of the State of Delaware, which became effective on October 1, 2019. Our Amended and Restated By-laws also became effective on October 1, 2019.
Added
Our social committees organize numerous events including luncheons, karaoke, archery, yoga, hiking, fun runs, and community cleanup days. We also encourage employees to serve the community by offering compensated volunteer days to employees. In fiscal year 2024, we contributed over 600 community service hours globally.
Removed
Our teams are also continuously connecting through our local social committees, which bring teams together while promoting engagement, inclusion, and community-service. With more than 80 employees serving on these committees and approximately 70% of employees participating in at least one event live or digitally, this employee-driven initiative supports our company’s values.
Added
We are committed to pay fairness. To that end, in fiscal year 2023 we performed a compensation analysis across the organization. Our analysis confirmed our commitment to a healthy, fair compensation system.
Removed
Our social committees organize numerous events including luncheons, karaoke, archery, yoga, hiking, fun runs, and community cleanup days. Compensation, Rewards and Benefits In addition to competitive base salaries, we provide incentive-based compensation programs to reward performance relative to key metrics. We also provide compensation in the form of restricted stock unit grants as well as a competitive time-off policy.
Removed
Our leadership and our people recognize that our efforts must include and support racial, ethnic, cultural, age, experience, gender, and LGBTQ+ diversity.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

54 edited+16 added−24 removed194 unchanged
Biggest changeIf we fail to achieve some or all of the benefits that we expect to achieve as an independent company, or do not achieve them in the time we expect, our business, financial condition and results of operations could be adversely affected. We may have potential business conflicts of interest with Nuance with respect to our past and ongoing relationships.
Biggest changeIf we do not realize the expected benefits of the Plan on a timely basis, or at all, our business, results of operations and financial condition could be adversely affected. Furthermore, following completion of the Plan, our business may not be more efficient or effective than prior to the implementation of the Plan.
Our success depends substantially upon our ability to enhance our products and technologies, to develop and introduce, on a timely and cost-effective basis, new products and features that meet changing customer requirements and incorporate technological enhancements, and to maintain 15 our alignment with the OEMs, their technology and market strategies.
Our success depends substantially upon our ability to enhance our products and technologies, to develop and introduce, on a timely and cost-effective basis, 15 new products and features that meet changing customer requirements and incorporate technological enhancements, and to maintain our alignment with the OEMs, their technology and market strategies.
Additionally, the CPRA, a ballot initiative approved in November 2020, which went into effect on January 1, 2023 significantly modified the CCPA, including by expanding consumers’ rights and establishing a new state agency that has authority to implement and enforce the CPRA.
Additionally, the CPRA, a ballot initiative approved in November 2020, which went into effect on January 1, 2023 significantly modified the CCPA, including by expanding consumers’ rights and establishing a new state agency that has authority to implement and enforce the CCPA.
In June 2020, we issued an aggregate principal amount of $175 million 3.00% convertible senior notes due 2025, the “2025 Notes.” The interest rate is fixed at 3.00% per annum and is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020.
In June 2020, we issued an aggregate principal amount of $175 million 3.00% convertible senior notes due June 1, 2025, the “2025 Notes.” The interest rate is fixed at 3.00% per annum and is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020.
Factors that may contribute to fluctuations in operating results include: • given our limited customer base, the volume, timing and fulfillment of large customer contracts; • renewals of existing customer contracts and wins of new customer programs; • our mix of variable, fixed prepaid or fixed minimum purchase commitment license contracts; • increased expenditures incurred pursuing new product or market opportunities; • the timing of the receipt of royalty reports; • fluctuating sales by our customers to their end-users; • contractual counterparties failing to meet their contractual commitments to us; • introduction of new products by us or our competitors; • cybersecurity or data breaches; • reduction in the prices of our products in response to competition, market conditions or contractual obligations; • impairment of goodwill or intangible assets; • accounts receivable that are not collectible; • higher than anticipated costs related to fixed-price contracts with our customers; • change in costs due to regulatory or trade restrictions; 18 • expenses incurred in litigation matters, whether initiated by us or brought by third-parties against us, and settlements or judgments we are required to pay in connection with disputes; • changes in our stock compensation practices, as it relates to employee short-term incentive payments; and • general economic trends as they affect the customer bases into which we sell.
Factors that may contribute to fluctuations in operating results include: • given our limited customer base, the volume, timing and fulfillment of large customer contracts; • renewals of existing customer contracts and wins of new customer programs; • our mix of variable, fixed prepaid or fixed minimum purchase commitment license contracts; • increased expenditures incurred pursuing new product or market opportunities; • the timing of the receipt and accuracy of royalty reports; • fluctuating sales by our customers to their end-users; • contractual counterparties failing to meet their contractual commitments to us; • introduction of new products by us or our competitors; • cybersecurity or data breaches; • reduction in the prices of our products in response to competition, market conditions or contractual obligations; • impairment of goodwill or intangible assets; • accounts receivable that are not collectible; • higher than anticipated costs related to fixed-price contracts with our customers; • change in costs due to regulatory or trade restrictions; • expenses incurred in litigation matters, whether initiated by us or brought by third-parties against us, and settlements or judgments we are required to pay in connection with disputes; • changes in our stock compensation practices, as it relates to employee short-term incentive payments; and 18 • general economic trends as they affect the customer bases into which we sell.
Our Amended and Restated By-Laws further provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America are the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, the Exchange Act, or the respective rules and regulations promulgated thereunder.
Our Second Amended and Restated By-Laws further provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America are the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, the Exchange Act, or the respective rules and regulations promulgated thereunder.
AI-related issues, deficiencies and/or failures could (i) give rise to legal and/or regulatory actions, including with respect to proposed legislation regulating AI in jurisdictions such as the EEA, and as a result of new applications of existing data protection, privacy, intellectual property, and other laws; (ii) damage our reputation; or (iii) otherwise materially harm our business.
AI-related issues, deficiencies and/or failures could (i) give rise to legal and/or regulatory actions, including with respect to legislation regulating AI in jurisdictions such as the EEA, and as a result of new applications of existing data protection, privacy, intellectual property, and other laws; (ii) damage our reputation; or (iii) otherwise materially harm our business.
Our organizational documents designate the courts of the State of Delaware or the U.S. district courts as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our organizational documents designate the courts within the State of Delaware or the U.S. district courts as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Attacks on information technology systems are increasing in their frequency, levels of 19 persistence, sophistication and intensity, and they are being conducted by increasingly sophisticated and organized groups and individuals with a wide range of motives and expertise. The prevalent use of mobile devices also increases the risk of data security incidents.
Attacks on information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and they are being conducted by increasingly sophisticated and organized groups and individuals with a wide range of motives and expertise. The prevalent use of mobile devices also increases the risk of data security incidents.
Pandemics or disease outbreaks, such as COVID-19, have disrupted, and may continue to disrupt, global 16 automotive industry customer sales and production volumes. Vehicle production initially decreased significantly in China, which was first affected by COVID-19, then Europe and also the United States.
Pandemics or disease outbreaks, such as COVID-19, have disrupted, and may continue to disrupt, global automotive industry customer sales and production volumes. Vehicle production initially decreased significantly in China, which was first affected by COVID-19, then Europe and also the United States.
Our Amended and Restated Certificate of Incorporation provides, in all cases to the fullest extent permitted by law, unless we consent in writing to the selection of an alternative forum, the Court of Chancery located within the State of Delaware is the sole and exclusive forum for any derivative action or proceeding brought on behalf of Cerence, any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee or stockholder of Cerence to Cerence or Cerence’s stockholders, any action asserting a claim arising pursuant to the Delaware General Corporation Law, or DGCL, or as to which the DGCL confers jurisdiction on the Court of Chancery located in the State of Delaware or any action asserting a claim governed by the internal affairs doctrine or any other action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL.
Our Amended and Restated Certificate of Incorporation provides, in all cases to the fullest extent permitted by law, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for any derivative action or proceeding brought on behalf of Cerence, any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee or stockholder of Cerence to Cerence or Cerence’s stockholders, any action asserting a claim arising pursuant to the Delaware General Corporation Law, or DGCL, or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or any action asserting a claim governed by the internal affairs doctrine or any other action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL.
The GDPR enhances data protection obligations for processors and controllers of personal data, including, providing information to individuals regarding data processing activities, implementing 20 safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, requirements to conduct data protection impact assessments and taking certain measures when engaging third-party processors.
The GDPR enhances data protection obligations for processors and controllers of personal data, including, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, requirements to conduct data protection impact assessments and taking certain measures when engaging third-party processors.
We also continue to see jurisdictions, such as Russia, imposing data localization laws, which under Russian laws require personal information of Russian citizens to be, among other data processing operations, initially collected, stored, and modified in Russia. 21 Preparing for and complying with the evolving application of these laws has required and will continue to require us to incur substantial operational costs and may interfere with our intended business activities, inhibit our ability to expand into certain markets or prohibit us from continuing to offer services in those markets without significant additional costs.
We also continue to see jurisdictions, such as Russia, imposing data localization laws, which under Russian laws require personal information of Russian citizens to be, among other data processing operations, initially collected, stored, and modified in Russia. 22 Preparing for and complying with the evolving application of these laws has required and will continue to require us to incur substantial operational costs and may interfere with our intended business activities, inhibit our ability to expand into certain markets or prohibit us from continuing to offer services in those markets without significant additional costs.
If we fail to win a significant number of customer design competitions in the future or to renew a significant number of existing service contracts, our business, results of operations and financial condition would be adversely affected.
If we fail to win a significant number of customer design competitions in the future or to renew a significant number of existing service contracts, our business, 17 results of operations and financial condition would be adversely affected.
In June 2023, we issued an aggregate principal amount of $210 million 1.50% convertible senior notes due 2028, the “2028 Notes”, and together with the 2025 Notes and the 2025 Modified Notes (as defined below), the “Notes”.
In June 2023, we issued an aggregate principal amount of $210 million 1.50% convertible senior notes due July 1, 2028, the “2028 Notes”, and together with the 2025 Notes and the 2025 Modified Notes (as defined below), the “Notes”.
Even if we have an established relationship with a customer, any failure to perform under a service 17 contract or innovate in response to their feedback may neutralize our advantage with that customer.
Even if we have an established relationship with a customer, any failure to perform under a service contract or innovate in response to their feedback may neutralize our advantage with that customer.
Any cybersecurity or data privacy incident or breach may result in: • loss of revenue resulting from the operational disruption; • loss of revenue or increased bad debt expense due to the inability to invoice properly or to customer dissatisfaction resulting in collection issues; • loss of revenue due to loss of customers; • material remediation costs to recreate or restore systems; • material investments in new or enhanced systems in order to enhance our information security posture; • cost of incentives offered to customers to restore confidence and maintain business relationships; • reputational damage resulting in the failure to retain or attract customers; • costs associated with potential litigation or governmental investigations, enforcement actions or regulatory fines; • claims by third parties asserting that we have breached our privacy, confidentiality, data security or similar obligations; • costs associated with any required notices of a data breach; • costs associated with the potential loss of critical business data; • difficulties enhancing or creating new products due to loss of data or data integrity issues; and • other consequences of which we are not currently aware of but will discover through the remediation process.
Any cybersecurity or data privacy incident or breach may result in: 20 • loss of revenue resulting from the operational disruption; • loss of revenue or increased credit loss expense due to the inability to invoice properly or to customer dissatisfaction resulting in collection issues; • loss of revenue due to loss of customers; • material remediation costs to recreate or restore systems; • material investments in new or enhanced systems in order to enhance our information security posture; • cost of incentives offered to customers to restore confidence and maintain business relationships; • reputational damage resulting in the failure to retain or attract customers; • costs associated with potential litigation or governmental investigations, enforcement actions or regulatory fines; • claims by third parties asserting that we have breached our privacy, confidentiality, data security or similar obligations; • costs associated with any required notices of a data breach; • costs associated with the potential loss of critical business data; • difficulties enhancing or creating new products due to loss of data or data integrity issues; and • other consequences of which we are not currently aware of but will discover through the remediation process.
Our Board of Directors’, or our Board's, decisions regarding the payment of dividends depends on consideration of many factors, such as our financial condition, earnings, sufficiency of distributable reserves, opportunities to retain future earnings for use in the operation of our business and to fund future growth, capital requirements, debt service obligations, legal requirements, regulatory constraints and other factors that our Board deems relevant.
Our Board's decisions regarding the payment of dividends depends on consideration of many factors, such as our financial condition, earnings, sufficiency of distributable reserves, opportunities to retain future earnings for use in the operation of our business and to fund future growth, capital requirements, debt service obligations, legal requirements, regulatory constraints and other factors that our Board deems relevant.
Should the market price of our shares drop significantly, stockholders may institute securities class action lawsuits against us. A lawsuit against us, such as the currently pending actions described in Part I – Item 3, “Legal Proceedings,” could cause us to incur substantial costs and could divert the time and attention of our management and other resources.
Should the market price of our shares drop significantly, stockholders may institute securities class action lawsuits against us. A lawsuit against us, such as the actions described in Part I – Item 3, “Legal Proceedings,” could cause us to incur substantial costs and could divert the time and attention of our management and other resources.
Interruptions in our service may reduce our revenue, cause us to issue credits or pay service level agreement penalties, cause customers to terminate their on-demand services, and adversely affect our renewal rates and our ability to attract new customers. 23 If our goodwill or other intangible assets become impaired, our operating results could be negatively impacted.
Interruptions in our service may reduce our revenue, cause us to issue credits or pay service level agreement penalties, cause customers to terminate their on-demand services, and adversely affect our renewal rates and our ability to attract new customers. 24 If our goodwill or other intangible assets become impaired, our operating results could be negatively impacted.
Litigation, regardless of the outcome, can be very expensive and can divert management’s efforts. 24 Our software products may have bugs, which could result in delayed or lost revenue, expensive correction, liability to our customers and claims against us. Complex software products such as ours may contain errors, defects or bugs.
Litigation, regardless of the outcome, can be very expensive and can divert management’s efforts. 25 Our software products may have bugs, which could result in delayed or lost revenue, expensive correction, liability to our customers and claims against us. Complex software products such as ours may contain errors, defects or bugs.
The allocation of intellectual property rights and data between Nuance and Cerence as part of the Spin-Off, the shared use of certain intellectual property rights and data following the Spin-Off and restrictions on the use of intellectual property rights, could adversely impact our reputation, our ability to enforce certain intellectual property rights that are important to us and our competitive position.
Risks Relating to the Spin-Off The allocation of intellectual property rights and data between Nuance and Cerence as part of the Spin-Off, the shared use of certain intellectual property rights and data following the Spin-Off and restrictions on the use of intellectual property rights, could adversely impact our reputation, our ability to enforce certain intellectual property rights that are important to us and our competitive position.
Further, this exclusive forum provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or the Securities Act of 1933, as amended, or the Securities Act, except that it may apply to such suits if brought derivatively on behalf of Cerence.
Further, this exclusive forum provision would not apply to claims brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended, or the Exchange Act, or the Securities Act of 1933, as amended, or the Securities Act, except that it may apply to such claims if brought derivatively on behalf of Cerence.
Accordingly, our future results could be harmed by a variety of factors associated with international sales and operations, including: • adverse political and economic conditions, or changes to such conditions, in a specific region or country; • trade protection measures, including tariffs and import/export controls, imposed by the United States and/or by other countries or regional authorities such as China, Canada or the European Union; • the impact on local and global economies of the United Kingdom leaving the European Union; • changes in foreign currency exchange rates or the lack of ability to hedge certain foreign currencies; • compliance with laws and regulations in many countries, including with respect to data protection, anticorruption, labor relations, tax, foreign currency, anti-competition, import, export and trade regulations, and any subsequent changes in such laws and regulations; 22 • geopolitical turmoil, including terrorism and war, such as the conflict between Russia and Ukraine and the developing conflict between Israel and Hamas; • changing data privacy regulations and customer requirements to locate data centers in certain jurisdictions; • evolving restrictions on cross-border investment, including recent enhancements to the oversight by the Committee on Foreign Investment in the United States pursuant to the Foreign Investment Risk Preview Modernization Act and substantial restrictions on investment from China; • changes in applicable tax laws; • difficulties in staffing and managing operations in multiple locations in many countries; • longer payment cycles of foreign customers and timing of collections in foreign jurisdictions; and • less effective protection of intellectual property than in the United States.
Accordingly, our future results could be harmed by a variety of factors associated with international sales and operations, including: • adverse political and economic conditions, or changes to such conditions, in a specific region or country; • trade protection measures, including tariffs and import/export controls, imposed by the United States and/or by other countries or regional authorities such as China, Canada or the European Union; • the impact on local and global economies of the United Kingdom leaving the European Union; • changes in foreign currency exchange rates or the lack of ability to hedge certain foreign currencies; • compliance with laws and regulations in many countries, including with respect to data protection, anticorruption, labor relations, tax, foreign currency, anti-competition, import, export and trade regulations, and any subsequent changes in such laws and regulations; 23 • geopolitical turmoil, including terrorism and war, such as the ongoing conflicts in Ukraine and the Middle East; • changing data privacy regulations and customer requirements to locate data centers in certain jurisdictions; • evolving restrictions on cross-border investment, including recent enhancements to the oversight by the Committee on Foreign Investment in the United States pursuant to the Foreign Investment Risk Preview Modernization Act and substantial restrictions on investment from China; • changes in applicable tax laws; • difficulties in staffing and managing operations in multiple locations in many countries; • longer payment cycles of foreign customers and timing of collections in foreign jurisdictions; and • less effective protection of intellectual property than in the United States.
Our Board has adopted the Cerence 2019 Equity Incentive Plan, or the Equity Plan, for the benefit of certain of our current and future employees, service providers and non-employee directors. Such awards will have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock.
Our Board has adopted the Cerence 2019 Equity Incentive Plan, as well as the 2024 Inducement Plan, for the benefit of certain of our current and future employees, service providers and non-employee directors. Such awards will have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock.
In recent months, we have observed increased economic uncertainty in the United States and abroad. Impacts of such economic weakness include: • falling overall demand for goods and services, leading to reduced profitability; • reduced credit availability; • higher borrowing costs; • reduced liquidity; • volatility in credit, equity and foreign exchange markets; and • bankruptcies.
In the past couple of years, we have observed increased economic uncertainty in the United States and abroad. Impacts of such economic weakness include: • falling overall demand for goods and services, leading to reduced profitability; • reduced credit availability; • higher borrowing costs; • reduced liquidity; • volatility in credit, equity and foreign exchange markets; and • bankruptcies.
The loss of business from any of our major customers, whether by lower overall demand for vehicles, cancellation of existing contracts or the failure to award us new business, has in the past and could in the future have a material adverse effect on our business, results of operations and financial condition.
The loss of business from any of our major customers, including as a result of lower overall demand for vehicles, cancellation of existing contracts or the failure to award us new business, has in the past and could in the future have a material adverse effect on our business, results of operations and financial condition.
If other banks and financial institutions 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.
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.
At the legislative level, for example, in June 2018, California enacted the CCPA, which became operative on January 1, 2020 and broadly defines personal information, gives California residents expanded privacy rights and protections, and provides for civil penalties for violations and a private right of action for data breaches.
At the legislative level, the CCPA, which became operative on January 1, 2020 and broadly defines personal information, gives California residents expanded privacy rights and protections, and provides for civil penalties for violations and a private right of action for data breaches.
Further, European data protection laws also prohibit the transfer of personal data from the EEA and Switzerland to third countries that are not considered to provide adequate protections for personal data, including the U.S.
Further, European data protection laws also prohibit the transfer of personal data from the EEA and Switzerland to third countries that are not considered to provide adequate protections for personal data, including the U.S., unless certain measures are in place.
Further, in addition to existing European data protection law, the European Union also is considering another draft data protection regulation. The proposed regulation, known as the Regulation on Privacy and Electronic Communications, or ePrivacy Regulation, would replace the current ePrivacy Directive.
Further, in addition to existing European data protection law, a further European Union regulation is being proposed. The proposed regulation, known as the Regulation on Privacy and Electronic Communications, or ePrivacy Regulation, would replace the current ePrivacy Directive.
If we are unable to attract and retain management and other key personnel, our business could be harmed. If any of our management or other key employees were to leave, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience.
If any of our management or other key employees were to leave, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience.
The Information Commissioner’s Office, or ICO, has recently introduced new mechanisms for international transfers of personal data originating from the UK (an International Data Transfer Agreement, or IDTA, along with a separate addendum to the EU SCCs).
The Information Commissioner’s Office, or ICO, has recently introduced new mechanisms for international transfers of personal data originating from the UK (an International Data Transfer Agreement, or IDTA, along with a separate addendum to the EU SCCs). There has also been an extension to the Framework to cover UK transfers to the United States.
We may evaluate whether to pay cash dividends on our common stock in the future, and the terms of our Senior Credit Facilities limit our ability to pay dividends on our common stock.
We may evaluate whether to pay cash dividends on our common stock in the future, and the terms of our Senior Credit Facilities limit our ability to pay dividends on our common stock. We have not paid any dividends since our formation.
These developments, along with continued uncertainty about economic stability related to the global outbreak of COVID-19 and more recently the Russian invasion of Ukraine and the developing conflict between Israel and Hamas, 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.
These developments, along with continued uncertainty about 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.
To the extent we are unable to renew existing service contracts, such decrease could intensify. The period of time from winning a contract to implementation is long and we are subject to the risks of cancellation or postponement of the contract or unsuccessful implementation. Our products are technologically complex and incorporate many technological innovations.
The period of time from winning a contract to implementation is long and we are subject to the risks of cancellation or postponement of the contract or unsuccessful implementation. If we are unable to renew existing service contracts, deferred revenue may be negatively impacted. Our products are technologically complex and incorporate many technological innovations.
Further, we intend to continue to hire additional highly qualified personnel, including research and development and operational personnel, but may not be able to attract, assimilate or retain qualified personnel in the future. Any failure to attract, integrate, motivate and retain these employees could harm our business.
Further, we intend to continue to hire additional highly qualified personnel, including research and development and operational personnel, but may not be able to attract, assimilate or retain qualified personnel in the future.
The GDPR imposes additional obligations and risk upon our business and substantially increases the penalties to which we could be subject in the event of any non-compliance. Failure to comply with the requirements of the GDPR may result in warning letters, mandatory audits, orders to cease/change the use of data, and financial penalties.
The GDPR imposes additional obligations and risk upon our business and substantially increases the penalties to which we could be subject in the event of any non-compliance. Failure to comply with the requirements of the GDPR may result in potential fines.
Moreover, other states have enacted privacy laws with a more limited scope, such as the state of Washington which has enacted legislation that is focused on health privacy and a small number of states have enacted laws that target biometric privacy.
Numerous other states have passed comparable legislation and many others are considering proposals for similar broad consumer privacy laws. Moreover, other states have enacted privacy laws with a more limited scope, such as the state of Washington which has enacted legislation that is focused on health privacy and a small number of states have enacted laws that target biometric privacy.
Based upon the results of the impairment test, no goodwill impairment was recorded as of September 30, 2023. 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.
Future adverse changes in the above 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.
We expect that many of our key employees will receive a total compensation package that includes equity awards. New regulations or volatility in the stock market could diminish our use, and the value, of our equity awards. This would place us at a competitive disadvantage in attracting qualified personnel or force us to offer more cash compensation.
Further, new regulations or volatility in the stock market could diminish our use, and the value, of our equity awards. These issues could place us at a competitive disadvantage in attracting qualified personnel or force us to offer more cash compensation.
New rules related to the ePrivacy Regulation are likely to include enhanced consent requirements in order to use communications content and communications metadata, as well as obligations and restrictions on the processing of data from an end-user’s terminal equipment, which may negatively impact our product offerings and our relationships with our customers.
New rules related to the ePrivacy Regulation are likely to include enhanced consent requirements in order to use communications content and communications metadata, as well as obligations and restrictions on the processing of data from an end-user’s terminal equipment. The new ePrivacy Regulation is expected to have the same penalty regime as the GDPR.
Further, our sales could be less than forecast if the vehicle model is unsuccessful, including reasons unrelated to our technology. Long development cycles and product cancellations or postponements may adversely affect our business, results of operations and financial condition. Our business could be materially and adversely affected if we lost any of our largest customers.
Long development cycles and product cancellations or postponements may adversely affect our business, results of operations and financial condition. Our business could be materially and adversely affected if we lost any of our largest customers.
These all may be further exacerbated by the global economic downturn resulting from the pandemic which could further decrease consumer demand for vehicles or result in the financial distress of one or more of our customers.
These all may be further exacerbated by the global economic downturn that resulted from the pandemic which could further decrease consumer demand for vehicles or result in the financial distress of one or more of our customers. Our strategy to increase cloud connected services may adversely affect our near-term revenue growth and results of operations.
Our strategy to increase cloud connected services may adversely affect our near-term revenue growth and results of operations. Our leadership position has historically been derived from our products and services based on edge software technology. We have been and are continuing to develop new products and services that incorporate cloud-connected components.
Our leadership position has historically been derived from our products and services based on edge software technology. We have been and are continuing to develop new products and services that incorporate cloud-connected components. The design and development of new cloud-connected components will involve significant expense.
A change in senior management, such as we experienced over the past years, also could result in our future strategy and plans differing from those of the past.
A change in senior management, such as we experienced over the past years, also could result in our future strategy and plans differing from those of the past. In August 2024, we announced a restructuring plan, including a reduction in force, intended to reduce operating expenses and position us for profitable growth.
Prospective customers generally must make significant commitments of resources to test and validate our products before including them in any particular vehicle model. The development cycles of our products with new customers are approximately six months to two years after a design win, depending on the customer and the complexity of the product.
The development cycles of our products with new customers are approximately six months to two years after a design win, depending on the customer and the complexity of the product. These development cycles result in us investing our resources prior to realizing any revenues from the customer contracts.
We depend on skilled employees and could be impacted by a shortage of critical skills. Much of our future success depends on the continued service and availability of skilled employees, particularly with respect to technical areas. Skilled and experienced personnel in the areas where we compete are in high demand, and competition for their talents is intense.
Any failure to attract, integrate, motivate and retain these employees could harm our business. 19 We depend on skilled employees and could be impacted by a shortage of critical skills. Much of our future success depends on the continued service and availability of skilled employees, particularly with respect to technical areas.
As a result, our strategy to incorporate more cloud-connected components may adversely affect our revenue growth and results of operations. Pricing pressures from our customers may adversely affect our business. We have in the past, and may in the future experience pricing pressure from our customers, including from the strong purchasing power of major OEMs.
We have in the past, and may in the future, experience pricing pressure from our customers, including from the strong purchasing power of major OEMs.
The design and development of new cloud-connected components will involve significant expense. Our research and development costs have greatly increased in recent years and, together with certain expenses associated with delivering our connected services, are projected to continue to escalate in the near future.
Our research and development costs have increased in recent years and, together with certain expenses associated with delivering our connected services, could continue to escalate in the near future. We may encounter difficulties with designing, developing and releasing new cloud-connected components, as well as integrating these components with our existing hybrid technologies.
These development cycles result in us investing our resources prior to realizing any revenues from the customer contracts. Further, we are subject to the risk that a customer cancels or postpones implementation of our technology, as well as the risk that we will not be able to implement our technology successfully.
Further, we are subject to the risk that a customer cancels or postpones implementation of our technology, as well as the risk that we will not be able to implement our technology successfully. Further, our sales could be less than forecast if the vehicle model is unsuccessful, including reasons unrelated to our technology.
We may also incur additional indebtedness to meet future financing needs, including under our secured revolving credit facility portion of our Senior Credit Facilities.
The remaining 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. We may also incur additional indebtedness to meet future financing needs, including under our secured revolving credit facility portion of our Senior Credit Facilities.
We may encounter difficulties with designing, developing and releasing new cloud-connected components, as well as integrating these components with our existing hybrid technologies. These development issues may further increase costs and may affect our ability to innovate in a manner demanded by the market.
These development issues may further increase costs and may affect our ability to innovate in a manner demanded by the market. As a result, our strategy to incorporate more cloud-connected components may adversely affect our revenue growth and results of operations. Pricing pressures from our customers may adversely affect our business.
During the fiscal year ended September 30, 2022, we recorded a goodwill impairment charge of $213.7 million within the Consolidated Statement of Operations. Due to the update of our multi-year target plan, we concluded that indicators of impairment were present and performed a quantitative impairment test as of September 30, 2023.
During the fiscal years ended September 30, 2024 and 2022, we recorded goodwill impairment charges of $609.2 million and $213.7 million, respectively, within the Consolidated Statement of Operations. For the fiscal year September 30, 2023, we did not have goodwill impairment.
Removed
For example, on March 10, 2023, Silicon Valley Bank (“SVB”), was placed into receivership with the Federal Deposit Insurance Corporation (“FDIC”), which resulted in all funds held at SVB being temporarily inaccessible by SVB’s customers.
Added
Our process optimization and cost-reduction efforts may not be successful. In August 2024, we announced a restructuring plan intended to reduce operating expenses and position us for profitable growth (the “Plan”).
Removed
Although we do not have deposits with SVB, or any other financial institution currently in receivership, we maintain deposits at financial institutions as a part of doing business that could be at risk if another similar event were to occur.
Added
The implementation of the Plan may be disruptive to our operations, result in higher than anticipated restructuring charges, including severance payments, payments in lieu of notice, employee benefits and related costs, and otherwise adversely affect our results of operations and financial condition.
Removed
The pandemic has already resulted in, and may continue to result in, work stoppages, slowdowns and delays, travel restrictions, and other factors that cause a decrease in the production and sale of automobiles by our customers.
Added
Additional risks associated with the continuing impact of the Plan include employee attrition, the ability to hire new employees in the future, diversion of management attention, and adverse effects on employee morale. 16 In addition, our ability to complete the Plan and achieve the anticipated benefits from the Plan within the expected time frame, or at all, is subject to management’s estimates and assumptions and may vary materially from our expectations, including as a result of factors that are beyond our control.
Removed
The production of automobiles with our products has been and may continue to be adversely affected with production delays and our ability to provide engineering support and implement design changes for customers may be impacted by restrictions on travel and quarantine policies put in place by businesses and governments.
Added
The increasing complexity of software in automobiles has created substantial challenges for some OEMs, leading to potential delays for a new program to launch. Moreover, prospective customers generally must make significant commitments of resources to test and validate our products before including them in any particular vehicle model.
Removed
The full extent to which the COVID-19 pandemic adversely affects our financial performance will depend on future developments, many of which are outside of our control, are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of COVID-19, including variants, its severity, the effectiveness of actions to treat or contain the virus and its impact and the extent to which normal economic and operating conditions are impacted.
Added
The transition in our Chief Executive Officer and other senior management positions will be critical to our success, and our business could be negatively impacted if we do not successfully manage these transitions. In October 2024, Brian Krzanich succeeded Stefan Ortmanns as Chief Executive Officer of our company and as a member of our Board of Directors, or our Board.
Removed
The COVID-19 pandemic could also result in additional governmental restrictions and regulations, which could adversely affect our business and financial results.
Added
Our company also recently experienced transitions in its chief financial officer, chief technology officer and certain other senior management functions. The departure and transition of key leadership personnel can take significant knowledge and experience from our company.
Removed
Even after the COVID-19 pandemic has lessened or subsided, we may continue to experience adverse impacts on our business and financial performance, our ability to access needed capital and liquidity, and the value of our common stock as a result of its global economic impact.
Added
While this loss of knowledge and experience can be mitigated through a successful transition, there can be no assurance that we will be successful in such efforts. Further, if our new Chief Executive Officer formulates different or changed views, the future strategy and plans of our company may differ materially from those of the past.
Removed
Moreover, due to the evolution of our connected offerings and architecture, trending away from providing legacy infotainment and connected services and a change in our professional services pricing strategies, we expect our deferred revenue balances to decrease in the future, including due to a wind-down of a legacy connected service relationship with a major OEM, since the majority of the cash from the contract has been collected.
Added
If we do not successfully manage senior leadership transitions, it could be viewed negatively by our customers, employees or investors and could have an adverse impact on our business and strategic direction. If we are unable to attract and retain management and other key personnel, our business could be harmed.
Removed
With regard to transfers of personal data from the EEA, transfers to third countries that have not been approved as “adequate” are prohibited unless an appropriate safeguard specified by the GDPR is implemented, such as the Standard Contractual Clauses, or SCCs, approved by the European Commission or binding corporate rules, or a derogation applies.
Added
These reductions and any additional measures we might take to reduce costs could yield unanticipated consequences, such as straining our workforce, diverting management attention, yielding attrition beyond our intended workforce reduction, or reducing employee morale.
Removed
European regulators have issued recent guidance that imposes significant new diligence requirements on transferring data outside the European Union, including under an approved transfer mechanism.
Added
Skilled and experienced personnel in the areas where we compete are in high demand, and competition for their talents is intense. We expect that many of our key employees will receive a total compensation package that includes equity awards. We are limited in the amount of equity awards that we may issue under the terms of our equity incentive plans.
Removed
Where relying on the SCCs for data transfers, we may also be required to carry out transfer impact assessments to assess whether the recipient is subject to local laws which allow public authority access to personal data. In addition, we are subject to Swiss data protection laws, including the Federal Act on Data Protection, or the FADP.
Added
The GDPR also confers a private right of action on data subjects and nonprofit organizations, acting subject to a mandate granted by the data subject, to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR.
Removed
Notably, twelve other states have passed comparable legislation and many others are considering proposals for similar broad consumer privacy laws.
Added
The European Commission has issued standard contractual clauses for data transfers from controllers or processors in the EU (or otherwise subject to the GDPR) to controllers or processors established outside the EU.
Removed
Moreover, restrictions on the use of our technology over the next year under the Intellectual Property Agreement which we entered into with Nuance in connection with the Spin-Off may limit our ability to adapt to technology and regulatory developments and thereby compete effectively in the market.
Added
The new standard contractual clauses require exporters to assess the risk of a data transfer on a case-by-case basis, including an analysis of the laws in the destination country. Further, the EU and United States have adopted its adequacy decision for the EU-U.S. Data Privacy Framework ("Framework"), which entered into force on July 11, 2023.

… 14 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−1 removed0 unchanged
Biggest changeItem 2. Pr operties. Our corporate headquarters is located in Burlington, Massachusetts, and our international headquarters is located in Heerlen, Netherlands. Other large, leased sites include properties located in: Montreal, Canada; Aachen and Ulm, Germany; Shanghai and Chengdu, China; Merelbeke, Belgium; Turin, Italy; Tokyo, Japan and Pune, India.
Biggest changeItem 2. Pr operties. Our corporate headquarters is located in Burlington, Massachusetts. Other large, leased sites include properties located in: Aachen and Ulm, Germany; Heerlen, Netherlands; Montreal, Canada; Shanghai and Chengdu, China; Merelbeke, Belgium; Turin, Italy; and Pune, India. We believe our existing facilities and equipment are in good operating condition and are suitable for the conduct of our business.
Removed
We believe our existing facilities and equipment are in good operating condition and are suitable for the conduct of our business.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

10 edited+9 added−4 removed9 unchanged
Biggest changeGiven 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.
Biggest changeGiven 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. 34 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.
Across both cases, plaintiffs allege that Cerence violated: (1) BIPA Section 15(a) by possessing biometrics 33 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.
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.
Gallenberger as well as board members Arun Sarin, Thomas Beaudoin, Marianne Budnik, Sanjay Jha, Kristi Ann Matus, Alfred Nietzel and 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.
Gallenberger as well as board members Arun Sarin, Thomas Beaudoin, Marianne Budnik, Sanjay Jha, Kristi Ann Matus, Alfred Nietzel and former 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.
The lawsuit alleges 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.
The lawsuit alleges 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 Exchange Act and Rule 10b-5 promulgated thereunder.
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.
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. Samsung Electronics Co. Ltd and Samsung Electronics America, Inc.
Two shareholder derivative complaints making factual and legal contentions substantially similar to those raised in the consolidated action have been also filed in the Delaware Court of Chancery: one filed on October 19, 2022 by plaintiff Melinda Hipp against the defendants named in the consolidated action and board member Douglas Davis, and one filed on August 17, 2023 by plaintiff Catherine Fleming against the defendants named in the consolidated action.
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.
Cerence has filed motions to dismiss both cases. 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.
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.
The plaintiff seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including attorney’s fees. On September 9, 2022, the defendants in the Securities Action moved to dismiss the action in its entirety. That motion is now fully briefed but it has not yet been resolved. We intend to defend the claims vigorously.
The plaintiff seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including attorney’s fees. On September 9, 2022, the defendants in the Securities Action moved to dismiss the action in its entirety.
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. The parties agreed to stay the consolidated action pending a ruling on the forthcoming motion to dismiss in the Securities Action, and the court has ordered that stay.
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 May 24, 2024, defendants filed a motion to dismiss under the forum selection clause in the Company’s charter, and on June 7, 2024, plaintiffs opposed the motion to dismiss.
While it is not possible to predict the outcome of these matters with certainty, we do not expect the results of any of these actions to have a material adverse effect on our results of operations or financial position.
While the results of any legal proceeding cannot be predicted with certainty, in our opinion none of these other pending matters are currently anticipated to have a material adverse effect on our consolidated financial position, liquidity or results of operations. Item 4. Mine Safe ty Disclosures. Not applicable. 35 PART II
Removed
The parties have respectively agreed to stay those actions pending a ruling on the motion to dismiss in the Securities Action, and the courts hearing those actions have ordered those stays.
Added
On March 25, 2024, the court granted in part and denied in part the motion to dismiss, dismissing certain of the alleged misrepresentations and omissions while allowing claims challenging certain other alleged misrepresentations and omissions to proceed. On April 15, 2024, the defendants filed their answer to the amended complaint.
Removed
Other Legal Proceedings Similar to many companies in the software industry, we are or may become 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, without limitation, actions with respect to contracts, intellectual property, product liability claims, employment, benefits and securities matters.
Added
On August 14, 2024, the parties conducted a mediation and thereafter the parties agreed to settle the matter for $30.0 million, subject to court approval. On September 18, 2024, the Court granted preliminary approval of the settlement and scheduled a final settlement approval hearing on December 16, 2024. The entire settlement amount is being funded by insurance proceeds.
Removed
We evaluate the probability of adverse outcomes and, as applicable, estimate the amount of probable losses that may result from pending matters. Probable losses that can be reasonably estimated are reflected in our consolidated financial statements. These recorded amounts are not material to our consolidated financial statements for any of the periods presented in the accompanying consolidated financial statements.
Added
As of September 30, 33 2024, we have recorded a $30.0 million receivable related to the insurance proceeds within Prepaid and other current assets and a $30.0 million liability related to the settlement within Accrued expenses and other current liabilities within the Consolidated Balance Sheets.
Removed
However, each of these matters is subject to uncertainties, the actual losses may prove to be larger or smaller than the accruals reflected in our consolidated financial statements, and we could incur judgments or enter into settlements of claims that could adversely affect our financial position, results of operations or cash flows. Item 4. Mine Safe ty Disclosures.
Added
The parties are awaiting the court’s decision on the motion to dismiss.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 4. Mine Safety Disclosures 34 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 35 Item 6 Reserved 36 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 60 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 35 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 36 Item 6 Reserved 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 61 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+0 added−0 removed4 unchanged
Biggest changeWe caution that the stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock. 35 10/2/2019 9/30/2020 9/30/2021 9/30/2022 9/30/2023 Cerence Inc. $ 100.00 $ 318.37 $ 626.12 $ 102.61 $ 132.70 Russell 2000 $ 100.00 $ 101.90 $ 148.98 $ 112.51 $ 120.65 S&P Software & Services Select $ 100.00 $ 131.74 $ 189.66 $ 118.19 $ 140.34 Recent Sales of Unregistered Securities and Use of Proceeds None.
Biggest changeWe caution that the stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock. 36 10/2/2019 9/30/2020 9/30/2021 9/30/2022 9/30/2023 9/30/2024 Cerence Inc. $ 100.00 $ 318.37 $ 626.12 $ 102.61 $ 132.70 $ 20.52 Russell 2000 $ 100.00 $ 101.90 $ 148.98 $ 112.51 $ 120.65 $ 150.71 S&P Software & Services Select $ 100.00 $ 131.74 $ 189.66 $ 118.19 $ 140.34 $ 177.50 Recent Sales of Unregistered Securities and Use of Proceeds None.
There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence the payment of dividends. Performance Graph The graph below compares the cumulative total shareholder return of our common stock for the last four years with the Russell 2000 and the S&P Software & Services Select indices.
There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence the payment of dividends. Performance Graph The graph below compares the cumulative total shareholder return of our common stock for the last five years with the Russell 2000 and the S&P Software & Services Select indices.
A “when-issued” trading market for our common stock existed between September 17, 2019 and October 1, 2019 under the symbol “CRNCV”. Holders of Common Stock As of November 13, 2023, there were 461 holders of record of our common stock. This number does not reflect beneficial owners whose shares are held in street name.
A “when-issued” trading market for our common stock existed between September 17, 2019 and October 1, 2019 under the symbol “CRNCV”. Holders of Common Stock As of November 13, 2024, there were 442 holders of record of our common stock. This number does not reflect beneficial owners whose shares are held in street name.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

129 edited+41 added−31 removed138 unchanged
Biggest changeFiscal Year 2022 For the fiscal year ended September 30, 2022, we recorded restructuring and other costs, net of $9.0 million, which included $4.0 million, net of $5.0 million in forfeitures, in stock-based compensation due to the resignation of our former CEO and the resulting modification of certain stock-based awards, $2.6 million other one-time charges, $1.7 million severance charge related to the elimination of personnel, and $0.7 million charge resulting from the closure of facilities that will no longer be utilized.
Biggest changeOther Components of Operating Expense Year Ended September 30, % Change % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 Restructuring and other costs, net $ 17,077 $ 11,917 $ 8,965 43.3 % 32.9 % Goodwill impairment $ 609,172 $ - $ 213,720 100.0 % (100.0 )% 47 Fiscal Year 2024 Compared with Fiscal Year 2023 Fiscal Year 2024 For the fiscal year ended September 30, 2024, we recorded restructuring and other costs, net of $17.1 million, which included a $13.4 million severance charge related to the elimination of personnel, of which $8.1 million related to the Plan, and $2.8 million of consulting costs relating to our transformation initiatives, and $0.8 million of other one-time charges.
The effective tax rate for the fiscal year 2023 differed from the U.S. federal statutory rate of 21.0%, primarily due to the tax impacts of stock-based compensation, U.S. inclusions of foreign taxable income, valuation allowance on foreign loss carryforwards, and our composition of jurisdictional earnings.
The effective income tax rate for fiscal year 2023 differed from the U.S. federal statutory rate of 21.0%, primarily due to the tax impacts of stock-based compensation, U.S. inclusions of foreign taxable income, valuation allowance on foreign loss carryforwards, and our composition of jurisdictional earnings.
The applicable margins for the revolving credit and term facilities is subject to a pricing grid based upon the net total leverage ratio as follows (i) if the net total leverage ratio is greater than 3.00 to 1.00, the applicable margin is SOFR plus 10 basis point credit spread adjustment plus 3.00% or ABR plus 2.00%; (ii) if the net total leverage ratio is less than or equal to 3.00 to 1.00 but greater than 2.50 to 1.00, the applicable margin is SOFR plus 10 basis point credit spread adjustment plus 2.75% or ABR plus 1.75%; (iii) if the net total leverage ratio is less than or equal to 2.50 to 1.00 but greater than 2.00 to 1.00, the applicable margin is SOFR plus 10 basis point credit spread adjustment plus 2.50% or ABR plus 50 1.50%; (iv) if the net total leverage ratio is less than or equal to 2.00 to 1.00 but greater than 1.50 to 1.00, the applicable margin is SOFR plus 10 basis point credit spread adjustment plus 2.25% or ABR plus 1.25%; and (v) if the net total leverage ratio is less than or equal to 1.50 to 1.00, the applicable margin is SOFR plus 10 basis point credit spread adjustment plus 2.20% or ABR plus 1.00%.
The applicable margins for the revolving credit and term facilities is subject to a pricing grid based upon the net total leverage ratio as follows (i) if the net total leverage ratio is greater 52 than 3.00 to 1.00, the applicable margin is SOFR plus 10 basis point credit spread adjustment plus 3.00% or ABR plus 2.00%; (ii) if the net total leverage ratio is less than or equal to 3.00 to 1.00 but greater than 2.50 to 1.00, the applicable margin is SOFR plus 10 basis point credit spread adjustment plus 2.75% or ABR plus 1.75%; (iii) if the net total leverage ratio is less than or equal to 2.50 to 1.00 but greater than 2.00 to 1.00, the applicable margin is SOFR plus 10 basis point credit spread adjustment plus 2.50% or ABR plus 1.50%; (iv) if the net total leverage ratio is less than or equal to 2.00 to 1.00 but greater than 1.50 to 1.00, the applicable margin is SOFR plus 10 basis point credit spread adjustment plus 2.25% or ABR plus 1.25%; and (v) if the net total leverage ratio is less than or equal to 1.50 to 1.00, the applicable margin is SOFR plus 10 basis point credit spread adjustment plus 2.20% or ABR plus 1.00%.
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. 49 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”).
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. 51 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”).
Loss Contingencies 59 We may be subject to legal proceedings, lawsuits and other claims relating to labor, service, intellectual property, and other matters that arise from time to time in the ordinary course of business. On a quarterly basis, we review the status of each significant matter and assess our potential financial exposure.
Loss Contingencies We may be subject to legal proceedings, lawsuits and other claims relating to labor, service, intellectual property, and other matters that arise from time to time in the ordinary course of business. On a quarterly basis, we review the status of each significant matter and assess our potential financial exposure.
Our solutions power natural conversational and intuitive interactions between automobiles, drivers and passengers, and the broader digital world. We possess one of the world’s most popular software platforms for building automotive virtual assistants. Our customers include all major OEMs or their tier 1 suppliers worldwide.
Our solutions power natural conversational and intuitive interactions between automobiles, drivers and passengers, and the broader digital world. We possess one of the world’s most popular software platforms for building automotive virtual assistants. Our customers include nearly all major OEMs or their tier 1 suppliers worldwide.
Income Taxes We account for income taxes using the assets and liabilities method, as prescribed by ASC No. 740, Income Taxes , or ASC 740. Deferred Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carry amount of assets and liabilities and their respective tax bases.
Income Taxes We account for income taxes using the assets and liabilities method, as prescribed by ASC No. 740, Income Taxes , or ASC 740. Deferred Taxes 59 Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carry amount of assets and liabilities and their respective tax bases.
As of September 30, 2023, the 2028 Notes were not convertible. 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 of 1933, as amended.
As of September 30, 2024, the 2028 Notes were not convertible. 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 of 1933, as amended.
Net Cash Provided by (Used) in Investing Activities Fiscal Year 2023 Compared with Fiscal Year 2022 Net cash provided by investing activities for the fiscal year 2023 was $5.8 million, a net change of $16.4 million, or 155.1%, from net cash used in investing activities of $10.6 million for fiscal year 2022.
Fiscal Year 2023 Compared with Fiscal Year 2022 Net cash provided by investing activities for fiscal year 2023 was $5.8 million, a net change of $16.4 million, or 155.1%, from net cash used in investing activities of $10.6 million for fiscal year 2022.
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 39 through a 2013 acquisition.
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 40 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. The effect of this change is to accelerate $67.8 million of deferred revenue into the first quarter of fiscal year 2024. There is no cash flow associated with this legacy contract.
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. The effect of this change was to accelerate $67.8 million of deferred revenue into the first quarter of fiscal year 2024. There was no cash flow associated with this legacy contract.
An extended period of economic disruption, market volatility or recent bank failures, could materially affect our business, results of operations, ability to meet debt covenants, access to sources of liquidity and financial condition. 1.50% Senior Convertible Notes due 2028 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.
An extended period of economic disruption or market volatility could materially affect our business, results of operations, ability to meet debt covenants, access to sources of liquidity and financial condition. 1.50% Senior Convertible Notes due 2028 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.
As a percentage of total cost of revenue, cost of license revenue increased by 6.2 percentage points from 2.8% for fiscal year 2022 to 9.0% for fiscal year 2023. License gross profit decreased by $19.3 million, or 12.4%, primarily due to decreases in license revenues.
As a percentage of total cost of revenue, cost of license revenue increased by 6.2 percentage points from 2.8% for fiscal year 2022 to 9.0% for fiscal year 2023. License gross profit decreased by $19.3 million, or 12.4%, from $155.9 million to $136.6 million, primarily due to decreases in license revenues.
As a percentage of total revenue, license revenue increased by 0.9 percentage points from 48.4% for fiscal year 2022 to 49.3% for fiscal year 2023. Connected Services Revenue 40 Connected services revenue for fiscal year 2023 was $75.1 million, a decrease of $10.5 million, or 12.3%, from $85.6 million for fiscal year 2022.
As a percentage of total revenue, license revenue increased 0.9 percentage points from 48.4% for fiscal year 2022 to 49.3% for fiscal year 2023. Connected Services Revenue Connected services revenue for fiscal year 2023 was $75.1 million, a decrease of $10.5 million, or 12.3%, from $85.6 million for fiscal year 2022.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management’s Discussion and Analysis of Financial Condition and Results of Operations, (the “MD&A”), describes the principal factors, based on management’s assessment, which have a material impact on our results of operations, financial condition and liquidity, as well as our critical accounting estimates.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management’s Discussion and Analysis of Financial Condition and Results of Operations, (the “MD&A”), describes the principal factors, based on management’s assessment, which had a material impact on our results of operations, financial condition and liquidity, as well as our critical accounting estimates.
Our MD&A generally includes a discussion of results of operations, financial condition, liquidity and capital resources related to year-over-year comparisons between fiscal years ended September 30, 2023, and 2022, as well as fiscal years ended September 30, 2022, and 2021.
Our MD&A generally includes a discussion of results of operations, financial condition, liquidity and capital resources related to year-over-year comparisons between fiscal years ended September 30, 2024 and 2023, as well as fiscal years ended September 30, 2023 and 2022.
Other identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives. Other components of operating expenses includes restructuring and other costs, net and goodwill impairment.
Other identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives. Other components of operating expenses include restructuring and other costs, net and goodwill impairment.
At the conclusion of the covenant adjustment period, the original financial covenants will resume. As of September 30, 2023 and 2022, we were in compliance with all Credit Agreement covenants.
At the conclusion of the covenant adjustment period, the original financial covenants will resume. As of September 30, 2024 and 2023, we were in compliance with all Credit Agreement covenants.
See the section titled “Risk Factors” for a discussion of the risks, uncertainties, and assumptions associated with these statements. 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.
See Item 1A.“Risk Factors” for a discussion of the risks, uncertainties, and assumptions associated with these statements. 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.
During the first quarter of fiscal year 2024, we will have an acceleration of approximately $2.0 million of expenses associated with the termination of the legacy contract acquired by Nuance through a 2013 acquisition. 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.
During the first quarter of fiscal year 2024, we had an acceleration of $2.0 million of expenses associated with the termination of the legacy contract acquired by Nuance through a 2013 acquisition. 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.
The estimates of our uncertain tax positions involve judgments and assessment of the potential tax implications related to legal entity restructuring, intercompany transfers and acquisitions or divestures.
The estimates of our uncertain tax positions involve judgments and assessment of the potential tax implications related to legal entity restructuring, intercompany transfers and acquisitions or divestitures.
As of September 30, 2023, the Notes were not convertible. As of this Annual Report, 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.
As of September 30, 2024, the Notes were not convertible. As of the date of this report, 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.
Net Cash Used in by Financing Activities Fiscal Year 2023 Compared with Fiscal Year 2022 52 Net cash used in financing activities for the fiscal year 2023 was $5.3 million, a net change of $14.3 million, from cash used in financing activities of $19.6 million for fiscal year 2022 .
Fiscal Year 2023 Compared with Fiscal Year 2022 Net cash used in financing activities for fiscal year 2023 was $5.3 million, a net change of $14.3 million, from cash used in financing activities of $19.6 million for fiscal year 2022.
Total interest expense relating to the Senior Credit Facilities for the fiscal year ended September 30, 2023, 2022 and 2021 was $6.7 million, $4.3 million, $4.1 million, respectively, reflecting the coupon and accretion of the discount.
Total interest expense relating to the Senior Credit Facilities for the fiscal year ended September 30, 2024, 2023 and 2022 was $0.4 million, $6.7 million, $4.3 million, respectively, reflecting the coupon and accretion of the discount.
There was no goodwill impairment for the fiscal years ending September 30, 2021 and 2023. For the purpose of testing goodwill for impairment, all goodwill acquired in a business combination is assigned to one or more reporting units.
There was no goodwill impairment for the fiscal year ending September 30, 2023. For the purpose of testing goodwill for impairment, all goodwill acquired in a business combination is assigned to one or more reporting units.
Other income (expense), net and provision for income taxes are non-operating expenses and presented in a similar format (dollars in thousands). 43 R&D Expenses Year Ended September 30, % Change % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Research and development $ 123,333 $ 107,116 $ 112,070 15.1 % (4.4 )% Fiscal Year 2023 Compared with Fiscal Year 2022 Historically, R&D expenses are our largest operating expense as we continue to build on our existing software platforms and develop new technologies.
Other income (expense), net and provision for income taxes are non-operating expenses and presented in a similar format (dollars in thousands). 45 R&D Expenses Year Ended September 30, % Change % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 Research and development $ 121,563 $ 123,333 $ 107,116 (1.4 )% 15.1 % Fiscal Year 2024 Compared with Fiscal Year 2023 Historically, R&D expenses are our largest operating expense as we continue to build on our existing software platforms and develop new technologies.
Liquidity and Capital Resources Financial Condition As of September 30, 2023, we had $121.0 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 commercial paper, corporate bonds, and government securities.
Liquidity and Capital Resources Financial Condition As of September 30, 2024, we had $130.4 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 commercial paper, corporate bonds, and government securities.
As a percentage of total cost of revenues, intangible asset amortization within cost of revenues decreased by 4.3 percentage points from 7.4% for fiscal year 2021 to 3.1% for fiscal year 2022.
As a percentage of total cost of revenues, intangible asset amortization within cost of revenues decreased by 2.7 percentage points from 3.1% for fiscal year 2022 to 0.4% for fiscal year 2023.
As a percentage of total operating expense, restructuring and other costs, net increased by 3.1 percentage points from 2.2% for fiscal year 2022 to 5.3% for fiscal year 2023.
As a percentage of total operating expense, restructuring and other costs, net decreased by 3.2 percentage points from 5.3% for fiscal year 2023 to 2.1% for fiscal year 2024.
The decrease primarily relates to certain intangible assets having been fully amortized during fiscal year 2023. As a percentage of total cost of revenues, intangible asset amortization within cost of revenues decreased by 2.7 percentage points from 3.1% for fiscal year 2022 to 0.4% for fiscal year 2023.
The decrease primarily relates to certain intangible assets having been fully amortized during fiscal years 2024 and 2023. As a percentage of total cost of revenues, intangible asset amortization within cost of revenues decreased by 0.3 percentage points from 0.4% for fiscal year 2023 to 0.1% for fiscal year 2024.
As a percentage of total operating expense, restructuring and other costs, net decreased by 0.1 percentage points from 2.3% for fiscal year 2021 to 2.2% for fiscal year 2022. Goodwill impairment for the fiscal year ended September 30, 2022 was $213.7 million.
As a percentage of total operating expense, restructuring and other costs, net increased by 3.1 percentage points from 2.2% for fiscal year 2022 to 5.3% for fiscal year 2023. Goodwill impairment for the fiscal year ended September 30, 2022 was $213.7 million.
Inflation and rising interest rates, and disruptions and instability in the banking industry have negatively impacted the global economy and created significant volatility and disruption of financial markets.
For instance, inflation and fluctuating interest rates, and disruptions and instability in the banking industry have negatively impacted the global economy and created significant volatility and disruption of financial markets.
Any significant fluctuations in rates or changes in tax laws could cause our estimates of taxes we anticipate either paying or recovering in the future to change.
Any significant fluctuations in rates or changes in tax laws could cause our estimates of taxes we anticipate either paying or recovering in the future to change. Such changes could lead to either increases or decreases in our effective tax rates.
Based on our expectation to generate positive cash flows and the $121.0 million of cash, cash equivalents and marketable securities as of September 30, 2023, we believe we will be able to meet our liquidity needs over the next 12 months.
Based on our expectation to generate positive cash flows and the $130.4 million of cash, cash equivalents and marketable securities as of September 30, 2024, we believe we will be able to meet our liquidity needs over 49 the next 12 months.
Prior to the adoption of ASU 2020-06: (i) we bifurcate the debt and equity (the contingently convertible feature) components of our convertible debt instruments in a manner that reflects our nonconvertible debt borrowing rate at the time of issuance; (ii) the equity components of our convertible debt instruments were recorded within stockholders’ equity with an allocated issuance premium or discount; and (iii) the debt issuance premium or discount was amortized to Interest expense in our Consolidated Statements of Operations using the effective interest method over the expected term of the convertible debt.
Whenever the holders have a contractual right to convert, the carrying amount of the convertible debt is reclassified to current liabilities. 60 Prior to the adoption of ASU 2020-06: (i) we bifurcate the debt and equity (the contingently convertible feature) components of our convertible debt instruments in a manner that reflects our nonconvertible debt borrowing rate at the time of issuance; (ii) the equity components of our convertible debt instruments were recorded within stockholders’ equity with an allocated issuance premium or discount; and (iii) the debt issuance premium or discount was amortized to Interest expense in our Consolidated Statements of Operations using the effective interest method over the expected term of the convertible debt.
The interest expense recognized related to the Notes for the fiscal years ended September 30, 2023, 2022 and 2021 was as follows (dollars in thousands): Year Ended September 30, 2023 2022 2021 Contractual interest expense $ 5,383 $ 5,246 $ 5,246 Amortization of debt discount 258 3,755 3,527 Amortization of issuance costs 2,119 944 887 Total interest expense related to the Notes $ 7,760 $ 9,945 $ 9,660 The conditional conversion feature of the Notes was not triggered during the fiscal year ended September 30, 2023.
The interest expense recognized related to the Notes for the fiscal years ended September 30, 2024, 2023 and 2022 was as follows (dollars in thousands): Year Ended September 30, 2024 2023 2022 Contractual interest expense $ 5,776 $ 5,383 $ 5,246 Amortization of debt discount 1,019 258 3,755 Amortization of issuance costs 4,936 2,119 944 Total interest expense related to the Notes $ 11,731 $ 7,760 $ 9,945 The conditional conversion feature of the Notes was not triggered during the fiscal year ended September 30, 2024.
Provision for Income Taxes Year Ended September 30, % Change % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Provision for income taxes $ 19,865 $ 112,075 $ 2,376 (82.3 )% 4617.0 % Effective income tax rate% (54.6 )% (56.4 )% 4.9 % Fiscal Year 2023 Compared with Fiscal Year 2022 Our effective income tax rate for fiscal year 2023 was negative 54.6%, compared to negative 56.4% for fiscal year 2022.
Provision for Income Taxes Year Ended September 30, % Change % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 Provision for income taxes $ 3,468 $ 19,865 $ 112,075 (82.5 )% (82.3 )% Effective income tax rate% (0.6 )% (54.6 )% (56.4 )% Fiscal Year 2024 Compared with Fiscal Year 2023 Our effective income tax rate for fiscal year 2024 was negative 0.6%, compared to negative 54.6% for fiscal year 2023.
We recognize revenue after applying the following five steps for arrangements with customers within the scope of ASC 606: • identification of the contract, or contracts, with a customer; • identification of the performance obligations in the contract, including whether they are distinct within the context of the contract; • determination of the transaction price, including the constraint on variable consideration; • allocation of the transaction price to the performance obligations in the contract; and • recognition of revenue when, or as, the performance obligations are satisfied. 53 We allocate the transaction price of the arrangement based on the relative estimated standalone selling price (“SSP”) of each distinct performance obligation.
We recognize revenue after applying the following five steps for arrangements with customers within the scope of ASC 606: • identification of the contract, or contracts, with a customer; • identification of the performance obligations in the contract, including whether they are distinct within the context of the contract; 55 • determination of the transaction price, including the constraint on variable consideration; • allocation of the transaction price to the performance obligations in the contract; and • recognition of revenue when, or as, the performance obligations are satisfied.
We recorded $14.3 million of fees paid directly to the lenders as deferred debt issuance costs, 48 and $3.8 million of fees paid to third-parties were expensed in the period. As of September 30, 2023, the carrying amount of the 2025 Modified Notes was $155.7 million, net of unamortized costs of $19.3 million.
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 September 30, 2024, the carrying amount of the 2025 Modified Notes was $161.2 million, net of unamortized costs of $13.8 million.
Cost of License Revenue Cost of license revenue for fiscal year 2023 was $8.5 million, an increase of $5.8 million, or 215.9%, from $2.7 million for fiscal year 2022. Cost of license revenues increased primarily due to costs associated with our Cerence Link product.
The decrease was primarily driven by declines in revenues across all product types. Cost of License Revenue Cost of license revenue for fiscal year 2023 was $8.5 million, an increase of $5.8 million, or 215.9%, from $2.7 million for fiscal year 2022. Cost of license revenues increased primarily due to costs associated with our Cerence Link product.
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.
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.
Fiscal Year 2022 Compared with Fiscal Year 2021 Intangible asset amortization for fiscal year 2022 was $14.5 million, a decrease of $5.7 million, or 28.2%, from $20.2 million for fiscal year 2021. The decrease primarily relates to certain intangible assets having been fully amortized during fiscal year 2022.
Fiscal Year 2023 Compared with Fiscal Year 2022 Intangible asset amortization for fiscal year 2023 was $6.3 million, a decrease of $8.2 million, or 56.8%, from $14.5 million for fiscal year 2022. The decrease primarily relates to certain intangible assets having been fully amortized during fiscal year 2023.
We recognize revenue as each distinct service period is performed (i.e., recognized as incurred). Fixed fee subscription basis revenue represents a single promise to stand-ready to provide access to our connected services.
We recognize revenue as each distinct service period is performed (i.e., recognized as incurred). 56 Fixed fee subscription basis revenue represents a single promise to stand-ready to provide access to our connected services. We recognize revenue over time on a ratable basis over the respective hosting subscription term.
Fiscal Year 2022 Compared with Fiscal Year 2021 Our effective income tax rate for fiscal year 2022 was negative 56.4%, compared to 4.9% for fiscal year 2021.
Fiscal Year 2023 Compared with Fiscal Year 2022 Our effective income tax rate for fiscal year 2023 was negative 54.6%, compared to 56.4% for fiscal year 2022.
The effective income tax rate for fiscal year 2022 differed from the U.S. federal statutory rate of 21.0%, primarily due to the establishment of a valuation allowance in a foreign jurisdiction, impairment of book goodwill, the tax impacts of stock-based compensation, and our composition of jurisdictional earnings.
The effective tax rate for the fiscal year 2024 differed from the U.S. federal statutory rate of 21.0%, primarily due to impairment of book goodwill, the tax impacts of stock-based compensation, U.S. inclusions of foreign taxable income, valuation allowance on foreign loss carryforwards, and our composition of jurisdictional earnings.
In connection with the issuance of the 2028 Notes, 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.
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.
Connected services gross profit decreased $21.0 million, or 25.0%, from $83.8 million to $62.8 million which was primarily driven by decreases in connected services revenue due to the winding down of a legacy contract.
Connected services gross profit decreased $10.7 million, or 17.1%, from $62.8 million to $52.1 million which was primarily driven by decreases in connected services revenue due to the winding down of a legacy contract.
The remaining useful lives of long-lived assets are re-assessed periodically at the asset group level for any events and circumstances that may change the future cash flows expected to be generated from the long-lived asset or asset group.
Other definite-lived assets are amortized over their estimated economic lives using the straight-line method. The remaining useful lives of long-lived assets are re-assessed periodically at the asset group level for any events and circumstances that may change the future cash flows expected to be generated from the long-lived asset or asset group.
Cash Flows Cash flows from operating, investing and financing activities for the fiscal years ended September 30, 2023, 2022, and 2021, as reflected in the audited Consolidated Statements of Cash Flows included in Item 8 of this Form 10-K, are summarized in the following table (dollars in thousands): Year Ended September 30, % Change % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Net cash provided by (used in) operating activities $ 7,498 $ (2,138 ) $ 74,389 (450.7 )% (102.9 )% Net cash provided by (used in) investing activities 5,820 (10,565 ) (41,631 ) (155.1 )% (74.6 )% Net cash used in financing activities (5,334 ) (19,606 ) (41,505 ) (72.8 )% (52.8 )% Effect of foreign currency exchange rates on cash and cash equivalents (1,677 ) (1,272 ) 1,108 31.8 % (214.8 )% Net changes in cash and cash equivalents $ 6,307 $ (33,581 ) $ (7,639 ) (118.8 )% 339.6 % 51 Net Cash Provided by (Used in) Operating Activities Fiscal Year 2023 Compared with Fiscal Year 2022 Net cash provided by operating activities for fiscal year 2023 was $7.5 million, a net change of $9.6 million, or 450.7%, from net cash used in operating activities of $2.1 million for fiscal year 2022 .
Cash Flows Cash flows from operating, investing and financing activities for the fiscal years ended September 30, 2024, 2023, and 2022, as reflected in the audited Consolidated Statements of Cash Flows included in Item 8 of this Form 10-K, are summarized in the following table (dollars in thousands): Year Ended September 30, % Change % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 Net cash provided by (used in) operating activities $ 17,196 $ 7,498 $ (2,138 ) 129.4 % (450.7 )% Net cash provided by (used in) investing activities 4,379 5,820 (10,565 ) (24.8 )% (155.1 )% Net cash provided by (used in) financing activities 225 (5,334 ) (19,606 ) (104.2 )% (72.8 )% Effect of foreign currency exchange rates on cash and cash equivalents (1,469 ) (1,677 ) (1,272 ) (12.4 )% 31.8 % Net changes in cash and cash equivalents $ 20,331 $ 6,307 $ (33,581 ) 222.4 % (118.8 )% 53 Net Cash Provided by (Used in) Operating Activities Fiscal Year 2024 Compared with Fiscal Year 2023 Net cash provided by operating activities for fiscal year 2024 was $17.2 million, a net change of $9.7 million, or 129.4%, from net cash provided by operating activities of $7.5 million for fiscal year 2023.
Fiscal Year 2022 Compared with Fiscal Year 2021 Net cash used in operating activities for fiscal year 2022 was $2.1 million, a net change of $76.5 million, or 102.9%, from net cash provided by operating activities of $74.4 million for fiscal year 2021.
Fiscal Year 2023 Compared with Fiscal Year 2022 Net cash provided by operating activities for fiscal year 2023 was $7.5 million, a net change of $9.6 million, or 450.7%, from net cash used in operating activities of $2.1 million for fiscal year 2022.
Deferred revenue represents a significant portion of our net cash provided by operating activities and, depending on the nature of our contracts with customers, this balance can fluctuate significantly from period to period.
Deferred revenue represents a significant portion of our net cash provided by operating activities and, depending on the nature of our contracts with customers, this balance can fluctuate significantly from period to period. We do not expect any changes in deferred revenue to affect our ability to meet our obligations.
Fiscal Year 2022 Compared with Fiscal Year 2021 Restructuring and other costs, net for fiscal year 2022 were $9.0 million, an increase of $3.9 million, from $5.1 million for fiscal year 2021.
Fiscal Year 2023 Compared with Fiscal Year 2022 Restructuring and other costs, net for fiscal year 2023 were $11.9 million, an increase of $2.9 million, from $9.0 million for fiscal year 2022.
The increase in interest income was primarily attributable to returns on investments. The increase in interest expense was primarily attributable to a higher applicable interest rate on our Term Loan Facility. The change in other income (expense), net was primarily driven by foreign exchange losses.
The increase in interest income was primarily attributable to returns on investments. The decrease in interest expense was primarily attributable to a lower applicable interest rate on our Notes. The change in Other income (expense), net was primarily driven by foreign exchange gains.
As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses decreased by 2.8 percentage points from 5.6% for fiscal year 2021 to 2.8% for fiscal year 2022.
As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses decreased by 2.3 percentage points from 2.6% for fiscal year 2023 to 0.3% for fiscal year 2024.
Sales & Marketing Expenses Year Ended September 30, % Change % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Sales and marketing $ 27,504 $ 31,098 $ 38,683 (11.6 )% (19.6 )% Fiscal Year 2023 Compared with Fiscal Year 2022 Sales and marketing expenses for fiscal year 2023 were $27.5 million, a decrease of $3.6 million, or 11.6%, from $31.1 million for fiscal year 2022.
Sales & Marketing Expenses Year Ended September 30, % Change % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 Sales and marketing $ 21,725 $ 27,504 $ 31,098 (21.0 )% (11.6 )% Fiscal Year 2024 Compared with Fiscal Year 2023 Sales and marketing expenses for fiscal year 2024 were $21.7 million, a decrease of $5.8 million, or 21.0%, from $27.5 million for fiscal year 2023.
Amortization of Intangible Assets Year Ended September 30, % Change % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Cost of revenues $ 414 $ 2,984 $ 7,516 (86.1 )% (60.3 )% Operating expense 5,854 11,516 12,690 (49.2 )% (9.3 )% Total amortization $ 6,268 $ 14,500 $ 20,206 (56.8 )% (28.2 )% Fiscal Year 2023 Compared with Fiscal Year 2022 Intangible asset amortization for fiscal year 2023 was $6.3 million, a decrease of $8.2 million, or 56.8%, from $14.5 million for fiscal year 2022.
Amortization of Intangible Assets Year Ended September 30, % Change % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 Cost of revenues $ 103 $ 414 $ 2,984 (75.1 )% (86.1 )% Operating expense 2,203 5,854 11,516 (62.4 )% (49.2 )% Total amortization $ 2,306 $ 6,268 $ 14,500 (63.2 )% (56.8 )% Fiscal Year 2024 Compared with Fiscal Year 2023 Intangible asset amortization for fiscal year 2024 was $2.3 million, a decrease of $4.0 million, or 63.2%, from $6.3 million for fiscal year 2023.
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.
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. 50 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 the 2028 Notes, the “Notes”) that were not repurchased as part of the transaction.
On December 17, 2020 (the “Amendment No. 1 Effective Date”), we entered into Amendment No. 1 to the Credit Agreement (the “Amendment No. 1”). Amendment No. 1 extended the scheduled maturity date of the revolving credit and term facilities from June 12, 2024 to April 1, 2025. Amendment No. 1 revised certain interest rates in the Credit Agreement.
Amendment No. 1 extended the scheduled maturity date of the revolving credit and term facilities from June 12, 2024 to April 1, 2025. Amendment No. 1 revised certain interest rates in the Credit Agreement.
As a percentage of total revenue, professional services revenue increased by 6.0 percentage points from 19.5% for fiscal year 2021 to 25.5% for fiscal year 2022. 41 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): Year Ended September 30, % Change % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 License $ 8,522 $ 2,698 $ 3,544 215.9 % (23.9 )% Connected services 22,995 22,722 25,727 1.2 % (11.7 )% Professional services 63,232 68,764 64,287 (8.0 )% 7.0 % Amortization of intangibles 414 2,984 7,516 (86.1 )% (60.3 )% Total cost of revenues $ 95,163 $ 97,168 $ 101,074 (2.1 )% (3.9 )% The following table shows total gross profit by product type and the corresponding percentage change (dollars in thousands): Year Ended September 30, % Change % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 License $ 136,637 $ 155,912 $ 198,639 (12.4 )% (21.5 )% Connected services 52,076 62,849 83,807 (17.1 )% (25.0 )% Professional services 11,013 14,946 11,178 (26.3 )% 33.7 % Amortization of intangibles (414 ) (2,984 ) (7,516 ) (86.1 )% (60.3 )% Total gross profit $ 199,312 $ 230,723 $ 286,108 (13.6 )% (19.4 )% Fiscal Year 2023 Compared with Fiscal Year 2022 Total cost of revenues for fiscal year 2023 was $95.2 million, a decrease of $2.0 million, or 2.1%, from $97.2 million for fiscal year 2022.
As a percentage of total revenue, professional services revenue decreased by 0.3 percentage points from 25.5% for fiscal year 2022 to 25.2% for fiscal year 2023. 43 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): Year Ended September 30, % Change % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 License $ 6,060 $ 8,522 $ 2,698 (28.9 )% 215.9 % Connected services 24,787 22,995 22,722 7.8 % 1.2 % Professional services 56,282 63,232 68,764 (11.0 )% (8.0 )% Amortization of intangibles 103 414 2,984 (75.1 )% (86.1 )% Total cost of revenues $ 87,232 $ 95,163 $ 97,168 (8.3 )% (2.1 )% The following table shows total gross profit by product type and the corresponding percentage change (dollars in thousands): Year Ended September 30, % Change % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 License $ 118,686 $ 136,637 $ 155,912 (13.1 )% (12.4 )% Connected services 108,657 52,076 62,849 108.7 % (17.1 )% Professional services 17,032 11,013 14,946 54.7 % (26.3 )% Amortization of intangibles (103 ) (414 ) (2,984 ) (75.1 )% (86.1 )% Total gross profit $ 244,272 $ 199,312 $ 230,723 22.6 % (13.6 )% Fiscal Year 2024 Compared with Fiscal Year 2023 Total cost of revenues for fiscal year 2024 was $87.2 million, a decrease of $8.0 million, or 8.3%, from $95.2 million for fiscal year 2023.
We have existing relationships with all major OEMs or their tier 1 suppliers, and while our customer contracts vary, they generally represent multi-year engagements, giving us visibility into future revenue.
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 visibility into future revenue. Business Trends We experienced a 12.6% increase in total revenue during fiscal year 2024.
Other Components of Operating Expense Year Ended September 30, % Change % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Restructuring and other costs, net $ 11,917 $ 8,965 $ 5,092 32.9 % 76.1 % Goodwill impairment $ - $ 213,720 $ - (100.0 )% 100.0 % 45 Fiscal Year 2023 Compared with Fiscal Year 2022 Fiscal Year 2023 For the fiscal year ended September 30, 2023, we recorded restructuring and other costs, net of $11.9 million, which included a $7.8 million severance charge related to the elimination of personnel, $3.8 million of third-party fees relating to the modification of the 2025 Notes, and a $0.5 million charge resulting from the closure of facilities that will no longer be utilized.
Fiscal Year 2023 For the fiscal year ended September 30, 2023, we recorded restructuring and other costs, net of $11.9 million, which included a $7.8 million severance charge related to the elimination of personnel, $3.8 million of third-party fees relating to the modification of the 2025 Notes, and a $0.5 million charge resulting from the closure of facilities that will no longer be utilized.
Cash is expected to be collected for a fixed minimum commitment deal over the license distribution period. During fiscal year 2023, we had a reduction in contributions from our fixed license contracts due to our decision to limit the level of such contracts on a go-forward basis which contributed to a decline in reported license revenue for fiscal year 2023.
During fiscal year 2023, we had a reduction in contributions from our fixed license contracts due to our decision to limit the level of such contracts on a go-forward basis which contributed to a decline in reported license revenue for fiscal years 2023 and 2024.
Fiscal Year 2022 Compared with Fiscal Year 2021 Our total cost of revenues for fiscal year 2022 was $97.2 million, a decrease of $3.9 million, or 3.9%, from $101.1 million for fiscal year 2021. We experienced a decrease in gross profit of $55.4 million, or 19.4%, from $286.1 million to $230.7 million.
Fiscal Year 2023 Compared with Fiscal Year 2022 Our total cost of revenues for fiscal year 2023 was $95.2 million, a decrease of $2.0 million, or 2.1%, from $97.2 million for fiscal year 2022. We experienced a decrease in gross profit of $31.4 million, or 13.6%, from $230.7 million to $199.3 million.
As of September 30, 2023, the carrying amount of the 2028 Notes was $120.2 million and unamortized issuance costs of $2.3 million.
As of September 30, 2024, the carrying amount of the 2028 Notes was $120.7 million and unamortized issuance costs of $1.8 million.
Total Other Expense, Net Year Ended September 30, % Change % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Interest income $ 4,471 $ 1,007 $ 109 344.0 % 823.9 % Interest expense (14,769 ) (14,394 ) (13,997 ) 2.6 % 2.8 % Other income (expense), net 1,108 (1,019 ) 1,563 (208.7 )% (165.2 )% Total other expense, net $ (9,190 ) $ (14,406 ) $ (12,325 ) (36.2 )% 16.9 % Fiscal Year 2023 Compared with Fiscal Year 2022 Total other expense, net for fiscal year 2023 was $9.2 million, a change of $5.2 million from $14.4 million of expense for fiscal year 2022.
Total Other Expense, Net Year Ended September 30, % Change % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 Interest income $ 5,353 $ 4,471 $ 1,007 19.7 % 344.0 % Interest expense (12,553 ) (14,769 ) (14,394 ) (15.0 )% 2.6 % Other income (expense), net 2,526 1,108 (1,019 ) 128.0 % (208.7 )% Total other expense, net $ (4,674 ) $ (9,190 ) $ (14,406 ) (49.1 )% (36.2 )% 48 Fiscal Year 2024 Compared with Fiscal Year 2023 Total other expense, net for fiscal year 2024 was $4.7 million, a change of $4.5 million from $9.2 million of expense for fiscal year 2023.
If indicators are present, a quantitative test of impairment is performed. Goodwill impairment, if any, is determined by comparing the reporting unit’s fair value to its carrying value.
Goodwill is not amortized but tested annually for impairment or when indicators of impairment are present. The test for goodwill impairment involves a qualitative assessment of impairment indicators. If indicators are present, a quantitative test of impairment is performed. Goodwill impairment, if any, is determined by comparing the reporting unit’s fair value to its carrying value.
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 finance additional funding in the capital markets as needed.
Our ability to fund future operating needs will depend on our ability to generate positive cash flows from operations and finance additional funding in the capital markets as needed.
In determining whether these services are distinct, we consider the dependence of the cloud service on the up-front development and stand-up, as well as availability of the services from other vendors.
Our connected service arrangements generally include services to develop, customize, and stand-up applications for each customer. In determining whether these services are distinct, we consider the dependence of the cloud service on the up-front development and stand-up, as well as availability of the services from other vendors.
General & Administrative Expenses Year Ended September 30, % Change % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 General and administrative $ 57,903 $ 42,653 $ 56,979 35.8 % (25.1 )% 44 Fiscal Year 2023 Compared with Fiscal Year 2022 General and administrative expenses for fiscal year 2023 were $57.9 million, an increase of $15.2 million, or 35.8%, from $42.7 million for fiscal year 2022.
Fiscal Year 2023 Compared with Fiscal Year 2022 General and administrative expenses for fiscal year 2023 were $57.9 million, an increase of $15.2 million, or 35.8%, from $42.7 million for fiscal year 2022.
For fiscal year 2022 as compared to fiscal year 2021: • Total revenue decreased by $59.3 million, or 15.3%, from $387.2 million to $327.9 million. • Operating margin decreased by 71.9 percentage points from 15.7% to negative 56.2%. • Cash from operating activities changed by $76.5 million, or 102.9%, from cash provided by operating activities of $74.4 million to cash used in operating activities of $2.1 million. 38 Operating Results The following table shows the Consolidated Statements of Operations for the fiscal years 2023, 2022 and 2021 (dollars in thousands): 2023 2022 2021 Revenues: License $ 145,159 $ 158,610 $ 202,183 Connected services 75,071 85,571 109,534 Professional services 74,245 83,710 75,465 Total revenues 294,475 327,891 387,182 Cost of revenues: License $ 8,522 $ 2,698 $ 3,544 Connected services 22,995 22,722 25,727 Professional services 63,232 68,764 64,287 Amortization of intangibles 414 2,984 7,516 Total cost of revenues 95,163 97,168 101,074 Gross profit 199,312 230,723 286,108 Operating expenses: Research and development $ 123,333 $ 107,116 $ 112,070 Sales and marketing 27,504 31,098 38,683 General and administrative 57,903 42,653 56,979 Amortization of intangible assets 5,854 11,516 12,690 Restructuring and other costs, net 11,917 8,965 5,092 Goodwill impairment — 213,720 — Total operating expenses 226,511 415,068 225,514 (Loss) income from operations (27,199 ) (184,345 ) 60,594 Interest income 4,471 1,007 109 Interest expense (14,769 ) (14,394 ) (13,997 ) Other income (expense), net 1,108 (1,019 ) 1,563 (Loss) income before income taxes (36,389 ) (198,751 ) 48,269 Provision for income taxes 19,865 112,075 2,376 Net (loss) income $ (56,254 ) $ (310,826 ) $ 45,893 Our revenue consists primarily of license revenue, connected services revenue and revenue from professional services.
For fiscal year 2023 as compared to fiscal year 2022: • Total revenue decreased by $33.4 million, or 10.2%, from $327.9 million to $294.5 million. • Operating margin increased by 47.0 percentage points from negative 56.2% to negative 9.2%. • Cash from operating activities changed by $9.6 million, or 450.7%, from cash used in operating activities of $2.1 million to cash provided by operating activities of $7.5 million. 39 Operating Results The following table shows the Consolidated Statements of Operations for the fiscal years 2024, 2023 and 2022 (dollars in thousands): 2024 2023 2022 Revenues: License $ 124,746 $ 145,159 $ 158,610 Connected services 133,444 75,071 85,571 Professional services 73,314 74,245 83,710 Total revenues 331,504 294,475 327,891 Cost of revenues: License $ 6,060 $ 8,522 $ 2,698 Connected services 24,787 22,995 22,722 Professional services 56,282 63,232 68,764 Amortization of intangibles 103 414 2,984 Total cost of revenues 87,232 95,163 97,168 Gross profit 244,272 199,312 230,723 Operating expenses: Research and development $ 121,563 $ 123,333 $ 107,116 Sales and marketing 21,725 27,504 31,098 General and administrative 52,468 57,903 42,653 Amortization of intangible assets 2,203 5,854 11,516 Restructuring and other costs, net 17,077 11,917 8,965 Goodwill impairment 609,172 — 213,720 Total operating expenses 824,208 226,511 415,068 Loss from operations (579,936 ) (27,199 ) (184,345 ) Interest income 5,353 4,471 1,007 Interest expense (12,553 ) (14,769 ) (14,394 ) Other income (expense), net 2,526 1,108 (1,019 ) Loss before income taxes (584,610 ) (36,389 ) (198,751 ) Provision for income taxes 3,468 19,865 112,075 Net loss $ (588,078 ) $ (56,254 ) $ (310,826 ) Our revenue consists primarily of license revenue, connected services revenue and revenue from professional services.
As a percentage of total revenue, connected services revenue decreased by 2.2 percentage points from 28.3% for fiscal year 2021 to 26.1% for fiscal year 2022. Professional Services Revenue Professional services revenue for fiscal year 2022 was $83.7 million, an increase of $8.2 million, or 10.9%, from $75.5 million for fiscal year 2021.
As a percentage of total revenue, connected services revenue decreased by 0.6 percentage points from 26.1% for fiscal year 2022 to 25.5% for fiscal year 2023. 42 Professional Services Revenue Professional services revenue for fiscal year 2023 was $74.2 million, a decrease of $9.5 million, or 11.3%, from $83.7 million for fiscal year 2022.
All significant intercompany transactions and balances are eliminated in consolidation. Key Metrics In evaluating our financial condition and operating performance, we focus on revenue, operating margins, and cash flow from operations.
The 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 Metrics In evaluating our financial condition and operating performance, we focus on revenue, operating margins, and cash flow from operations.
Fiscal Year 2023 Compared with Fiscal Year 2022 and Fiscal Year 2022 Compared with Fiscal Year 2021 Total Revenues The following table shows total revenues by product type, including the corresponding percentage change (dollars in thousands): Year Ended September 30, % Change % Change 2023 % of Total 2022 % of Total 2021 % of Total 2023 vs. 2022 2022 vs. 2021 License $ 145,159 49.3% $ 158,610 48.4% $ 202,183 52.2% (8.5 )% (21.6 )% Connected services 75,071 25.5% 85,571 26.1% 109,534 28.3% (12.3 )% (21.9 )% Professional services 74,245 25.2% 83,710 25.5% 75,465 19.5% (11.3 )% 10.9 % Total revenues $ 294,475 $ 327,891 $ 387,182 (10.2 )% (15.3 )% Fiscal Year 2023 Compared with Fiscal Year 2022 Total revenues for fiscal year 2023 were $294.5 million, a decrease of $33.4 million, or 10.2%, from $327.9 million from fiscal year 2022.
Fiscal Year 2024 Compared with Fiscal Year 2023 and Fiscal Year 2023 Compared with Fiscal Year 2022 Total Revenues The following table shows total revenues by product type, including the corresponding percentage change (dollars in thousands): 41 Year Ended September 30, % Change % Change 2024 % of Total 2023 % of Total 2022 % of Total 2024 vs. 2023 2023 vs. 2022 License $ 124,746 37.6% $ 145,159 49.3% $ 158,610 48.4% (14.1 )% (8.5 )% Connected services 133,444 40.3% 75,071 25.5% 85,571 26.1% 77.8 % (12.3 )% Professional services 73,314 22.1% 74,245 25.2% 83,710 25.5% (1.3 )% (11.3 )% Total revenues $ 331,504 $ 294,475 $ 327,891 12.6 % (10.2 )% Fiscal Year 2024 Compared with Fiscal Year 2023 Total revenues for fiscal year 2024 were $331.5 million, an increase of $37.0 million, or 12.6%, from $294.5 million from fiscal year 2023.
For the fiscal year 2023 as compared to fiscal year 2022: • Total revenue decreased by $33.4 million, or 10.2%, from $327.9 million to $294.5 million. • Operating margin increased by 47.0 percentage points from negative 56.2% to negative 9.2%. • Cash from operating activities changed by $9.6 million, or 450.7%, from cash used in operating activities of $2.1 million to cash provided by operating activities of $7.5 million.
For the fiscal year 2024 as compared to fiscal year 2023: • Total revenue increased by $37.0 million, or 12.6%, from $294.5 million to $331.5 million. • Operating margin decreased by 165.7 percentage points from negative 9.2% to negative 174.9%. • Cash from operating activities changed by $9.7 million, or 129.4%, from cash provided by operating activities of $7.5 million to cash provided by operating activities of $17.2 million.
The change in cash flows were primarily due to: • A decrease of $72.5 million from income before non-cash charges; • A decrease of $21.4 million due to unfavorable changes in working capital primarily related to cash inflows from accounts receivables; and • An increase of $17.4 million from changes in deferred revenue.
The change in cash flows were primarily due to: • An increase of $49.6 million from income before non-cash charges; • A decrease of $0.4 million due to changes in working capital primarily related to accounts receivable and prepaid expenses and other assets and accounts payable; and • A decrease of $39.5 million from changes in deferred revenue.
The change in cash flows were primarily due to: • An increase of $24.5 million in proceeds from the issuance of our common stock; and • An increase of $3.2 million in payments of tax related withholdings due to the net settlement of equity awards.
The change in cash flows were primarily due to: • A decrease of $210.0 million in proceeds from long-term debt; • A decrease of $198.4 million in principal payments of long-term debt; • A decrease of $16.8 million in payments for long-term debt issuance costs; • An increase of $5.3 million in proceeds from the issuance of our common stock; and • An increase of $5.0 million in payments of tax related withholdings due to the net settlement of equity awards.
This decrease was primarily driven by our arrangements and the related timing of fulfilling performance obligations under the contracts. As a percentage of total revenue, professional services revenue decreased by 0.3 percentage points from 25.5% for fiscal year 2022 to 25.2% for fiscal year 2023.
Professional Services Revenue Professional services revenue for fiscal year 2024 was $73.3 million, a decrease of $0.9 million, or 1.3%, from $74.2 million for fiscal year 2023. This decrease was primarily driven by the structure of our arrangements and the related timing of fulfilling performance obligations under the contracts.
We believe the procedures and estimates used in our accounting for income taxes are reasonable and in accordance with established tax law. The income tax estimates used have not resulted in material adjustments to income tax expense in subsequent period when the estimates are adjusted to the actual filed tax return amounts.
The income tax estimates used have not resulted in material adjustments to income tax expense in subsequent period when the estimates are adjusted to the actual filed tax return amounts.
The decrease in revenues was across all product types. Our license revenue is highly dependent on vehicle production. We expect our business to continue to be impacted by the current macroeconomic conditions. License Revenue License revenue for fiscal year 2023 was $145.2 million, a decrease of $13.4 million, or 8.5%, from $158.6 million for fiscal year 2022.
The decrease in revenues was across all product types. License Revenue License revenue for fiscal year 2023 was $145.2 million, a decrease of $13.4 million, or 8.5%, from $158.6 million for fiscal year 2022.
Cost of Professional Services Revenue Cost of professional services revenue for fiscal year 2022 was $68.8 million, an increase of $4.5 million, or 7.0%, from $64.3 million for fiscal year 2021. Cost of professional services revenue increased primarily due to a $8.6 million increase in third-party contractor costs.
Cost of Professional Services Revenue Cost of professional services revenue for fiscal year 2023 was $63.2 million, a decrease of $5.6 million, or 8.0%, from $68.8 million for fiscal year 2022. Cost of professional services revenue decreased primarily due to a $5.8 million decrease in salary-related expenditures, and a $2.0 million decrease in third-party contractor costs.

… 121 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+0 added−0 removed6 unchanged
Biggest changeAssuming a 1% increase in interest rates, our interest income on our money-market funds and time deposits classified as cash and cash equivalents would increase by $0.7 million per annum, based on September 30, 2023 reported balances. The borrowings under our Senior Credit Facilities are subject to interest rates based on SOFR.
Biggest changeAssuming a 1% increase in interest rates, our interest income on our money-market funds and time deposits classified as cash and cash equivalents would increase by $0.8 million per annum, based on September 30, 2024 reported balances. The borrowings under our Senior Credit Facilities are subject to interest rates based on SOFR.
As of September 30, 2023, assuming a 1% increase in interest rates and our Revolving Facility is fully drawn, our interest expense on our Senior Credit Facilities would increase by approximately $0.5 million per annum. 60
As of September 30, 2024, assuming a 1% increase in interest rates and our Revolving Facility is fully drawn, our interest expense on our Senior Credit Facilities would increase by approximately $0.5 million per annum. 61
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 $98.0 million at September 30, 2023. Foreign currency forward contracts are sensitive to changes in foreign currency exchange rates.
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 $59.1 million at September 30, 2024. 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 $6.9 million at September 30, 2023. Such losses would be offset by corresponding gains in the remeasurement of the underlying transactions being hedged.
A 10% unfavorable exchange rate movement in our portfolio of foreign currency contracts would have resulted in unrealized losses of $5.0 million at September 30, 2024. Such losses would be offset by corresponding gains in the remeasurement of the underlying transactions being hedged.
At September 30, 2023, we held approximately $101.2 million of cash and cash equivalents consisting of cash and highly liquid investments, including money-market funds and time deposits.
At September 30, 2024, we held approximately $121.5 million of cash and cash equivalents consisting of cash and highly liquid investments, including money-market funds and time deposits.

Other CRNC 10-K year-over-year comparisons