Samsung IP payment propels Cerence (NASDAQ: CRNC) revenue surge but taxes drive net loss
Filing Impact
Filing Sentiment
Form Type
10-Q
Cerence Inc. reported strong top-line growth for the three months ended December 31, 2025, with total revenue rising to $115.1 million from $50.9 million, driven largely by a $49.5 million one-time IP license payment from a cross-license agreement with Samsung.
License revenue jumped to $87.8 million, while connected services and professional services contributed $14.5 million and $12.8 million, respectively. Operating results improved to $29.3 million income from operations versus a prior-year loss, despite $7.8 million in restructuring and other costs and about $20.7 million of legal fees tied to the Samsung matter.
After a $35.3 million income tax provision, Cerence posted a net loss of $5.2 million, narrower than the $24.3 million loss a year earlier. Cash flow from operations strengthened to $37.9 million, cash and cash equivalents were $92.1 million, and long-term debt declined to $171.9 million following repurchases of 2028 convertible notes.
Positive
- Revenue and operating turnaround: Total revenue rose to $115.1 million (up 126.1%), and income from operations improved to $29.3 million from a $16.9 million loss, indicating significantly stronger operating performance.
- Samsung cross-license monetization: A cross-license agreement with Samsung generated a $49.5 million lump-sum IP license payment recognized as license revenue, alongside Cerence retaining a broad cross-license, materially boosting the quarter.
- Stronger cash and lower debt: Cash from operations increased to $37.9 million, cash and equivalents reached $92.1 million, and long-term debt declined to $171.9 million after repurchasing $30.0 million principal of 2028 convertible notes.
Negative
- Net loss despite strong operations: A $35.3 million income tax provision and substantial legal fees led to a $5.2 million net loss, although smaller than the prior-year $24.3 million loss.
- One-time revenue concentration: The Samsung IP license contributed $49.5 million, or 43.0% of quarterly revenue, meaning a large portion of the performance was driven by non-recurring revenue from a single customer.
- Ongoing restructuring and costs: Restructuring and other costs, net, were $7.8 million in the quarter related to personnel eliminations and facility closures, signaling continued organizational adjustments and associated charges.
Insights
Revenue surged on a one-time IP deal, with better operations but taxes and legal costs kept Cerence in a small loss.
Cerence delivered quarterly revenue of
Profitability at the operating level improved even after
Operating cash flow strengthened to
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended December 31, 2025
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period from __________ to __________
Commission File Number: 001-39030
(Exact name of Registrant as specified in its Charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| (Address of principal executive offices) | (Zip Code) | ||||
Registrant’s telephone number, including area code: (857 ) 362-7300
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | x | ||||||||||||||||||
| Non-accelerated filer | o | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of January 30, 2026, the registrant had 45,018,082 shares of common stock, $0.01 par value per share, outstanding.
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| Page | ||||||||
PART I. | FINANCIAL INFORMATION | 3 | ||||||
Item 1. | Condensed Consolidated Financial Statements (Unaudited) | 3 | ||||||
Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2025 and 2024 | 3 | |||||||
Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended December 31, 2025 and 2024 | 4 | |||||||
Condensed Consolidated Balance Sheets as of December 31, 2025 and September 30, 2025 | 5 | |||||||
Consolidated Statements of Stockholders' Equity for the Three Months Ended December 31, 2025 and 2024 | 6 | |||||||
Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2025 and 2024 | 7 | |||||||
Notes to Condensed Consolidated Financial Statements | 8 | |||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | ||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 37 | ||||||
Item 4. | Controls and Procedures | 38 | ||||||
PART II. | OTHER INFORMATION | 39 | ||||||
Item 1. | Legal Proceedings | 39 | ||||||
Item 1A. | Risk Factors | 40 | ||||||
Item 5. | Other Information | 40 | ||||||
Item 6. | Exhibits | 41 | ||||||
Signatures | 42 | |||||||
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”), filed by Cerence Inc. together with its consolidated subsidiaries, “Cerence,” the “Company,” “we,” “us” or “our” unless the context indicates otherwise, contains “forward-looking statements” that involve risks and uncertainties. These statements can be identified by the fact that they do not relate strictly to historical or current facts, but rather are based on current beliefs, expectations, anticipations, intentions, estimates, assumptions, plans and projections about our company, business, operations, industry and market trends, financial results, financial condition, strategy and plans, goals or prospects. Forward-looking statements often include words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “continues,” “believes,” “may,” “will,” “could,” “goals,” “objectives” and words and terms of similar substance in connection with discussions of our company, business, industry and market trends, strategy and plans, intellectual property enforcement efforts, and future operating or financial performance. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by us or on our behalf. Although we believe that the forward-looking statements contained in this Form 10-Q are based on reasonable assumptions as of the date of this report, you should be aware that many factors could affect our actual financial results, financial condition or results of operations and could cause actual results to differ materially from those set forth in such forward-looking statements, including but not limited to:
•the highly competitive and rapidly changing market in which we operate;
•adverse conditions in the automotive industry or the global economy more generally, including consumer spending and preferences, changes in interest rate levels and credit availability, fuel costs and availability, governmental incentives and regulatory requirements, trade restrictions, customs regulations, tariffs and price or exchange controls, and the ongoing conflicts in Ukraine and the Middle East;
•volatility in the political, legal and regulatory environment in which we operate, including trade, tariffs and other policies implemented by the new administration in the United States or actions taken by other countries in response and automotive production curtailment or delays related thereto or other changes in law and regulation applicable to us;
•our inability to deliver improved financial results from our process optimization and cost-reduction efforts or to control and successfully manage our expenses and cash position;
•our strategy to increase cloud services and ability to successfully introduce new products, applications or services and deploy generative AI and large language models (“LLMs”) and price increases related thereto;
•pricing pressures from our customers;
•our failure to win, renew or implement service contracts or the cancellation or postponement of service contracts after a design win;
•the loss of business from any of our largest customers;
•automotive production delays, including, without limitation, delays due to the increasing complexity of software included in automotive vehicles;
•fluctuations in our operating results from period to period, which may be contributed to by the following factors, among others: the volume, timing and fulfillment of customer contracts; changes in customer forecasts; the timing of receipt and accuracy of royalty reports; fluctuating sales by our customers to their end-users; pricing; the mix of revenue from customer contracts; the effect of one-time revenue or expense events, especially as a result of licensing transactions, litigation settlements or judgments; and the level of professional service projects;
•the impact on our business from the transition to a lower level of fixed contracts, including, but not limited to, the failure to achieve the expected predictability and growth in our reported revenue;
•our inability to successfully adopt new products;
•our inability to expand into non-automotive markets, including, but not limited to, televisions, consumer devices like smart watches, voice-powered kiosks, and industrial applications in the timeframe or levels expected;
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•our inability to recruit, retain and manage transitions of management and other key personnel;
•our dependence on skilled employees and a shortage of critical skills;
•some of our employees are represented by workers councils or unions or are subject to local laws that are less favorable to employers than the laws of the U.S.;
•cybersecurity and data privacy incidents that damage client relations;
•interruption or delays in our services or services from data center hosting facilities or public clouds;
•compliance with global privacy and data security requirements which could result in additional costs and liabilities to us or inhibit our ability to collect and process data globally;
•risks and challenges posed by the development and use of artificial intelligence;
•the evolving regulatory landscape governing artificial intelligence, including, but not limited to, existing and emerging laws, regulations, standards and conformity or compliance obligations related to artificial intelligence, machine learning, generative AI and LLMs;
•economic, political, regulatory, foreign exchange, tariff, trade, and other risks of international operations, including, but not limited to, those related to our business in China;
•unforeseen U.S. and foreign tax liabilities;
•increases or decreases to valuation allowances recorded against deferred tax assets;
•impairment of our goodwill and other intangible assets;
•the failure to protect our intellectual property or allegations that we have infringed the intellectual property of others;
•adverse developments related to our intellectual property enforcement litigations, the outcome of such litigations, or remedies that could be awarded in connection with such litigations;
•defects in our software products that result in lost revenue, expensive corrections or claims against us;
•our inability to quickly respond to changes in technology and to develop our intellectual property into commercially viable products;
•a significant interruption in the supply or maintenance of our third-party hardware, software, services or data;
•restrictions on our current and future operations under the terms of our debt, the use of cash to service our debt and our inability to generate sufficient cash from our operations;
•disruption from public health events, such as pandemics or disease outbreaks; and
•certain factors discussed elsewhere in this Form 10-Q.
These and other factors are more fully discussed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2025 and elsewhere in this Form 10-Q, including Part II, “Item 1A, Risk Factors.” These risks could cause actual results to differ materially from those implied by forward-looking statements in this Form 10-Q. Even if our results of operations, financial condition and liquidity and the development of our business or the industry in which we operate are consistent with the forward-looking statements contained in this Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods.
Any forward-looking statements made by us in this Form 10-Q speak only as of the date on which they are made. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise, except as required by law.
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PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
CERENCE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
| Three Months Ended December 31, | |||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| License | $ | $ | |||||||||||||||||||||||||||
| Connected services | |||||||||||||||||||||||||||||
| Professional services | |||||||||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||||||||
| Cost of revenues: | |||||||||||||||||||||||||||||
| License | |||||||||||||||||||||||||||||
| Connected services | |||||||||||||||||||||||||||||
| Professional services | |||||||||||||||||||||||||||||
| Total cost of revenues | |||||||||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||||||||
| Amortization of intangible assets | |||||||||||||||||||||||||||||
| Restructuring and other costs, net | |||||||||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||||||||
| Income (loss) from operations | ( | ||||||||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||||||||
| Interest expense | ( | ( | |||||||||||||||||||||||||||
| Other income, net | |||||||||||||||||||||||||||||
| Income (loss) before income taxes | ( | ||||||||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | |||||||||||||||||||||||||
| Net loss per share: | |||||||||||||||||||||||||||||
| Basic | $ | ( | $ | ( | |||||||||||||||||||||||||
| Diluted | $ | ( | $ | ( | |||||||||||||||||||||||||
| Weighted-average common shares outstanding: | |||||||||||||||||||||||||||||
| Basic | |||||||||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||||||||
Refer to accompanying Notes to the unaudited condensed consolidated financial statements.
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CERENCE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)
| Three Months Ended December 31, | |||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | |||||||||||||||||||||||||
| Other comprehensive loss: | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | |||||||||||||||||||||||||||
| Pension adjustments, net | ( | ( | |||||||||||||||||||||||||||
| Net unrealized losses on available-for-sale securities | ( | ( | |||||||||||||||||||||||||||
| Total other comprehensive loss | ( | ( | |||||||||||||||||||||||||||
| Comprehensive loss | $ | ( | $ | ( | |||||||||||||||||||||||||
Refer to accompanying Notes to the unaudited condensed consolidated financial statements.
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CERENCE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
| December 31, 2025 | September 30, 2025 | ||||||||||||||||
| (Unaudited) | |||||||||||||||||
| ASSETS | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Cash and cash equivalents | $ | $ | |||||||||||||||
| Marketable securities | |||||||||||||||||
Accounts receivable, net of allowances of $ | |||||||||||||||||
| Deferred costs | |||||||||||||||||
| Prepaid expenses and other current assets | |||||||||||||||||
| Total current assets | |||||||||||||||||
| Property and equipment, net | |||||||||||||||||
| Deferred costs | |||||||||||||||||
| Operating lease right of use assets | |||||||||||||||||
| Goodwill | |||||||||||||||||
| Deferred tax assets | |||||||||||||||||
| Other assets | |||||||||||||||||
| Total assets | $ | $ | |||||||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Accounts payable | $ | $ | |||||||||||||||
| Deferred revenue | |||||||||||||||||
| Short-term operating lease liabilities | |||||||||||||||||
| Accrued expenses and other current liabilities | |||||||||||||||||
| Total current liabilities | |||||||||||||||||
| Long-term debt | |||||||||||||||||
| Deferred revenue, net of current portion | |||||||||||||||||
| Long-term operating lease liabilities | |||||||||||||||||
| Other liabilities | |||||||||||||||||
| Total liabilities | |||||||||||||||||
| Commitments and contingencies (Note 12) | |||||||||||||||||
| Stockholders' Equity: | |||||||||||||||||
Common stock, $ | |||||||||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||||||||
| Additional paid-in capital | |||||||||||||||||
| Accumulated deficit | ( | ( | |||||||||||||||
| Total stockholders' equity | |||||||||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||||||||
Refer to accompanying Notes to the unaudited condensed consolidated financial statements.
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CERENCE INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(unaudited)
| Three Months Ended December 31, 2025 | ||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2025 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Issuance of common stock | — | — | ||||||||||||||||||||||||||||||||||||
| Common stock repurchases for tax withholdings for net settlement of equity awards | ( | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Three Months Ended December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | — | |||||||||||||||||||||||||||||||||||||||
| Common stock repurchases for tax withholdings for net settlement of equity awards | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
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CERENCE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
| Three Months Ended December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net loss | $ | ( | $ | ( | ||||||||||
| Adjustments to reconcile net loss to net cash provided by operations: | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Provision for credit loss reserve | ||||||||||||||
| Stock-based compensation | ||||||||||||||
| Non-cash interest expense | ||||||||||||||
| Gain on debt extinguishment | ( | ( | ||||||||||||
| Deferred tax provision | ||||||||||||||
| Unrealized foreign currency transaction losses | ||||||||||||||
| Other, net | ( | |||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Accounts receivable | ||||||||||||||
| Prepaid expenses and other assets | ||||||||||||||
| Deferred costs | ||||||||||||||
| Accounts payable | ||||||||||||||
| Accrued expenses and other liabilities | ( | ( | ||||||||||||
| Deferred revenue | ||||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Capital expenditures | ( | ( | ||||||||||||
| Sale and maturities of marketable securities | ||||||||||||||
| Other investing activities | ( | ( | ||||||||||||
| Net cash (used in) provided by investing activities | ( | |||||||||||||
| Cash flows from financing activities: | ||||||||||||||
| Principal payments of long-term debt | ( | |||||||||||||
| Principal payments of short-term debt | ( | |||||||||||||
| Common stock repurchases for tax withholdings for net settlement of equity awards | ( | ( | ||||||||||||
| Principal payment of lease liabilities arising from a finance lease | ( | ( | ||||||||||||
| Proceeds from the issuance of common stock | ||||||||||||||
| Net cash used in financing activities | ( | ( | ||||||||||||
| Effects of exchange rate changes on cash and cash equivalents | ( | ( | ||||||||||||
| Net change in cash and cash equivalents | ( | |||||||||||||
| Cash and cash equivalents at beginning of period | ||||||||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||||
| Cash paid for income taxes | $ | $ | ||||||||||||
| Cash paid for interest | $ | $ | ||||||||||||
| Supplemental cash flow disclosures from non-cash investing activities: | ||||||||||||||
| Fixed asset additions included in accounts payable and other current liabilities | $ | $ | ||||||||||||
Refer to accompanying Notes to the unaudited condensed consolidated financial statements.
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CERENCE INC.
Notes to Condensed Consolidated Financial Statements
Note 1. Business Overview
Business
Cerence Inc. (referred to in this Quarterly Report on Form 10-Q as “we,” “our,” “us,” “ourselves,” the “Company” or “Cerence”) is a global, premier provider of AI-powered assistants and innovations for connected and autonomous vehicles. Our customers include nearly all major automobile original equipment manufacturers (“OEMs”), or their tier 1 suppliers worldwide. We deliver our solutions on a white-label basis, enabling our customers to deliver customized virtual assistants with unique, branded personalities and ultimately strengthening the bond between automobile brands and end users. We generate revenue primarily by selling software licenses and cloud-connected services. In addition, we generate professional services revenue from our work with OEMs and suppliers during the design, development and deployment phases of the vehicle model lifecycle and through maintenance and enhancement projects.
Note 2. Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, as well as those of our wholly owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements.
The condensed consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the consolidated results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for the three months ended December 31, 2025 are not necessarily indicative of the results to be expected for any other interim period or for the fiscal year ending September 30, 2026. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
Use of Estimates
The financial statements are prepared in accordance with GAAP, which requires management to make estimates, judgments and assumptions. These estimates, judgments and assumptions can affect the reported amounts in the financial statements and the footnotes thereto. Actual results could differ materially from these estimates.
On an ongoing basis, we evaluate our estimates, assumptions and judgments. Significant estimates inherent to the preparation of financial statements include: revenue recognition; allowance for credit losses; accounting for deferred costs; accounting for internally developed software; the valuation of goodwill and intangible assets; accounting for stock-based compensation; accounting for income taxes; accounting for leases; and loss contingencies. We base our estimates on historical experience, market participant fair value considerations, projected future cash flows, and various other factors that are believed to be reasonable under the circumstances. Actual amounts could differ significantly from these estimates.
Concentration of Risk
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Allowance for Credit Losses
We are exposed to credit losses primarily through our sales of software licenses and services to customers. We determine credit ratings for each customer in our portfolio based upon public information and information obtained directly from our customers. A credit limit for each customer is established and in certain cases we may require collateral or prepayment to mitigate credit risk. Our expected loss methodology is developed using historical collection experience, current customer credit information, current and future economic and market conditions and a review of the current status of the customer's account balances. We monitor our ongoing credit exposure through reviews of customer balances against contract terms and due dates, current economic conditions, and dispute resolution. Estimated credit losses are written off in the period in which the financial asset is no longer collectible.
The change in the allowance for credit losses for the three months ended December 31, 2025 is as follows (dollars in thousands):
| Allowance for Credit Losses | ||||||||
| Balance as of September 30, 2025 | $ | |||||||
| Credit loss provision | ||||||||
| Write-offs, net of recoveries | ||||||||
| Effect of foreign currency translation | ||||||||
| Balance as of December 31, 2025 | $ | |||||||
Inventory
Recently Adopted Accounting Standards
In November 2023, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which requires enhanced disclosures of segment information on an annual and interim basis. We adopted this standard during the fiscal year ended September 30, 2025. Refer to Note 2, (i) Segment information, in our Annual Report on Form 10-K for additional segment reporting information.
Issued Accounting Standards Not Yet Adopted
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which requires greater disaggregation of income tax disclosures related to the income tax rate reconciliation and income taxes paid and is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. We are currently in the process of evaluating the effects of this pronouncement on our condensed consolidated financial statements and disclosures.
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” (“ASU 2024-03”), which requires disclosure about the types of costs and expenses included in certain expense captions presented on the income statement. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted, and may be applied either prospectively or retrospectively. We are currently evaluating this pronouncement to determine its impact on our disclosures.
In July 2025, the FASB issued ASU 2025-05, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (ASU 2025-05)", which introduces targeted relief to reduce complexity and cost when estimating expected credit losses for current accounts receivable and current contract assets arising from revenue transactions accounted for under Topic 606. Currently, guidance requires entities to incorporate macroeconomic forecasts in determining expected credit loss estimates. The current provision provides relief for these aforementioned credit losses by utilizing a practical expedient available to all entities, allowing an entity to assume that current conditions as of the balance sheet date remain unchanged over the remaining life of an asset; assuming
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they develop reasonable and supportable forecasts as part of estimating expected credit losses. This removes the requirement to rely on macroeconomic forecasts. Additionally, if selected, an accounting policy election permits eligible entities to consider post-balance sheet collection activity when estimating expected credit losses. This will be effective for fiscal years starting after December 15, 2025, with early adoption permissible on a prospective basis. We are currently evaluating this pronouncement to determine its impact on our disclosures.
In September 2025, the FASB issued ASU 2025-06, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software", which removes all references to prescriptive and sequential software development stages. It will now require entities to start capitalizing software cost when management has authorized and committed to funding the software project and it is probable that the project will be completed and the software will be used to perform the function intended. The standard also specifies that the disclosures in "Subtopic 360-10, Property Plant, and Equipment" are required for all capitalized internal-use software costs. This will be effective for fiscal years starting after December 15, 2027, with early adoption permissible on a prospective basis. We are currently evaluating this pronouncement to determine its impact on our disclosures.
Note 3. Revenue Recognition
We primarily derive revenue from the following sources: (1) royalty-based software or intellectual property “IP” license arrangements, (2) connected services, and (3) professional services. Revenue is reported net of applicable sales and use tax, value-added tax and other transaction taxes imposed on the related transaction including mandatory government charges that are passed through to our customers. We account for a contract when both parties have approved and committed to the contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
The timing and amount of revenue recognized from IP or patent licensing depends upon a variety of factors, including the specific terms of each agreement and the nature of the deliverables and obligations. These agreements could include, without limitation, performance obligations related to consideration for past patent royalties, patent licensing royalties on covered products sold by licensees, access to a portfolio of technology as it exists at a point in time, and access to a portfolio of technology at a point in time along with promises to provide any technology updates to the portfolio during the term on a when-and-if basis. Such licenses could be fixed and non-refundable in nature and/or variable over time. Certain components of revenue recognized with respect to IP license agreements may require the use of estimates, which may be significant. Related revenue is recognized at the point in time when the software and technology is made available to the customer and control is transferred and, if applicable, according to usage. Revenues relating to IP licensing accounted for $49.5 million, or 43.0 % of total revenues for the three months ended December 31, 2025. As a component of License revenues, IP licensing revenues represented 56.4 % of License revenues for the three months ended December 31, 2025.
(a)Disaggregated Revenue
Revenues, classified by the major geographic region in which our customers are located, for the three months ended December 31, 2025 and 2024 (dollars in thousands):
| Three Months Ended December 31, | |||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| United States | $ | $ | |||||||||||||||||||||||||||
| Other Americas | |||||||||||||||||||||||||||||
| Germany | |||||||||||||||||||||||||||||
| Other Europe, Middle East and Africa | |||||||||||||||||||||||||||||
| Japan | |||||||||||||||||||||||||||||
| Other Asia-Pacific | |||||||||||||||||||||||||||||
| Total revenues | $ | $ | |||||||||||||||||||||||||||
For the three months ended December 31, 2025, revenues within Korea were $57.3 million, which were more than 10% of total revenues. For the three months ended December 31, 2025, revenues within China were $5.5 million, which were less than 10% of total revenues.
Revenues relating to one customer accounted for $49.5 million, or 43.0 %, of revenue for the three months ended December 31, 2025.
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Revenues relating to three customers accounted for $7.4 million, or 14.5 %, $6.2 million, or 12.2 %, and $6.0 million, or 11.8 %, of revenues for the three months ended December 31, 2024.
(b)Contract Acquisition Costs
We are required to capitalize certain contract acquisition costs. The capitalized costs primarily relate to paid commissions. The current and noncurrent portions of contract acquisition costs are included in Prepaid expenses and other current assets and in Other assets, respectively. As of December 31, 2025 and September 30, 2025, we had $4.8 million and $5.3 million of contract acquisition costs, respectively. We had amortization expense of $0.5 million and $0.6 million related to these costs during the three months ended December 31, 2025 and 2024, respectively. There was no impairment related to contract acquisition costs.
(c)Capitalized Contract Costs
We capitalize incremental costs incurred to fulfill our contracts that (i) relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy our performance obligation under the contract, and (iii) are expected to be recovered through revenue generated under the contract. The current and noncurrent portions of capitalized contract fulfillment costs are presented as Deferred costs.
We had amortization expense of $1.0 million and $2.4 million related to these costs during the three months ended December 31, 2025 and 2024, respectively. There was no impairment related to contract costs capitalized.
(d)Trade Accounts Receivable and Contract Balances
We classify our right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e., only the passage of time is required before payment is due). We present such receivables in Accounts receivable, net at their net estimated realizable value. Accounts receivable, net as of December 31, 2025 and September 30, 2025 was $51.2 million and $58.9 million, respectively. We maintain an allowance for credit losses to provide for the estimated amount of receivables and contract assets that may not be collected.
Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.
Contract assets include unbilled amounts from long-term contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not solely subject to the passage of time. The current and noncurrent portions of contract assets are included in Prepaid expenses and other current assets and Other assets, respectively. The table below shows significant changes in contract assets (dollars in thousands):
| Contract assets | ||||||||
| Balance as of September 30, 2025 | $ | |||||||
| Revenues recognized but not billed | ||||||||
| Amounts reclassified to Accounts receivable, net | ( | |||||||
| Effect of foreign currency translation | ( | |||||||
| Balance as of December 31, 2025 | $ | |||||||
Our contract liabilities, which we present as deferred revenue, consist of advance payments and billings in excess of revenues recognized. We classify deferred revenue as current or noncurrent based on when we expect to recognize the revenues. The table below shows significant changes in deferred revenue (dollars in thousands):
| Deferred revenue | ||||||||
| Balance as of September 30, 2025 | $ | |||||||
| Amounts billed but not recognized | ||||||||
| Revenue recognized | ( | |||||||
| Effect of foreign currency translation | ||||||||
| Balance as of December 31, 2025 | $ | |||||||
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(e) Remaining Performance Obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at December 31, 2025 (dollars in thousands):
Within One Year | Two to Five Years | Greater than Five Years | Total | ||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||||||||
The table above includes fixed remaining performance obligations and does not include contingent usage-based activities, such as royalties and usage-based connected services.
Note 4. Earnings Per Share
Basic earnings per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, increased to include the number of shares of common stock that would have been outstanding had potential dilutive shares of common stock been issued. The dilutive effect of restricted stock units is reflected in diluted net loss per share by applying the treasury stock method.
The dilutive effect of the Notes (as defined in Note 14) is reflected in net loss per share by application of the “if-converted” method. The “if-converted” method is only assumed in periods where such application would be dilutive. In applying the “if-converted” method for diluted net loss per share, we would assume conversion of the Notes at the respective conversion ratio as further described in Note 14. Assumed converted shares of our common stock are weighted for the period the Notes were outstanding.
The following table presents the reconciliation of the numerator and denominator for calculating net loss per share:
| Three Months Ended December 31, | ||||||||||||||||||||||||||
| in thousands, except per share data | 2025 | 2024 | ||||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | ||||||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||||||||||||
| Net loss per common share: | ||||||||||||||||||||||||||
| Basic | $ | ( | $ | ( | ||||||||||||||||||||||
| Diluted | $ | ( | $ | ( | ||||||||||||||||||||||
We exclude weighted-average potential shares from the calculations of diluted net loss per share during the applicable periods when their inclusion is anti-dilutive. The following table sets forth potential shares that were considered anti-dilutive during the three months ended December 31, 2025 and 2024.
| Three Months Ended December 31, | |||||||||||||||||||||||||||||
| in thousands | 2025 | 2024 | |||||||||||||||||||||||||||
| Restricted stock unit awards | |||||||||||||||||||||||||||||
| Contingently issuable stock awards | |||||||||||||||||||||||||||||
| Conversion option of our Notes | |||||||||||||||||||||||||||||
Note 5. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques must maximize the use of observable inputs and minimize the use of unobservable inputs. When determining fair value measurements for assets
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and liabilities recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use in pricing the asset or liability.
The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement as of the measurement date as follows:
•Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
•Level 2 - Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the assets or liabilities.
•Level 3 - Unobservable inputs that are supported by little or no market activity.
The following table presents information about our financial assets that are measured at fair value and indicates the fair value hierarchy of the valuation inputs used (dollars in thousands) as of:
| December 31, 2025 | |||||||||||||||||||||||
| Fair Value | Cash and Cash Equivalents | Marketable Securities | |||||||||||||||||||||
| Level 1: | |||||||||||||||||||||||
Money market funds, $ | $ | $ | $ | ||||||||||||||||||||
Level I Government Securities, $ | |||||||||||||||||||||||
Corporate bonds, $ | |||||||||||||||||||||||
| Level 2: | |||||||||||||||||||||||
Time deposits, $ | |||||||||||||||||||||||
Convertible debt, $ | |||||||||||||||||||||||
| Total assets | $ | $ | $ | ||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||
| Fair Value | Cash and Cash Equivalents | Marketable Securities | |||||||||||||||||||||
| Level 1: | |||||||||||||||||||||||
Money market funds, $ | $ | $ | $ | ||||||||||||||||||||
Level I Government Securities, $ | |||||||||||||||||||||||
Corporate bonds, $ | |||||||||||||||||||||||
| Level 2: | |||||||||||||||||||||||
Level II Government Securities, $ | |||||||||||||||||||||||
Time deposits, $ | |||||||||||||||||||||||
Convertible debt, $ | |||||||||||||||||||||||
| Total assets | $ | $ | $ | ||||||||||||||||||||
(a)Money market funds and other highly liquid investments with original maturities of 90 days or less are included within Cash and cash equivalents in the Condensed Consolidated Balance Sheets.
(b)Government securities, commercial paper and corporate bonds with original maturities greater than 90 days are included within Marketable securities in the Condensed Consolidated Balance Sheets and classified as current or noncurrent based upon whether the maturity of the financial asset is less than or greater than 12 months.
During the three months ended December 31, 2025 and 2024, unrealized gains related to our marketable securities were immaterial
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The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, and accounts payable, approximate fair value due to their short-term maturities and are excluded from the fair value tables above.
Derivative financial instruments are recognized at fair value using quoted forward rates and prices and classified within Level 2 of the fair value hierarchy. See Note 6 – Derivative Financial Instruments for additional details.
Long-term debt
The estimated fair value of our Long-term debt is determined by Level 1 inputs and is based on observable market data including prices for similar instruments. As of December 31, 2025 and September 30, 2025, the estimated fair value of our Notes was $165.6 million and $174.2 million, respectively. The Notes are recorded at face value less unamortized discount and transaction costs on our Condensed Consolidated Balance Sheets.
Equity securities
We have a non-controlling equity investments in a privately held company. We evaluated the equity investment under the voting model and concluded consolidation was not applicable. We accounted for the investment by electing the measurement alternative for investments without readily determinable fair values. The non-marketable equity investment is carried at cost less any impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, which is recorded within the Condensed Consolidated Statements of Operations.
Investments without readily determinable fair values were $2.6 No
Note 6. Derivative Financial Instruments
We operate internationally and, in the normal course of business, are exposed to fluctuations in foreign currency exchange rates related to third-party vendor and intercompany payments for goods and services within our non-U.S. subsidiaries. We use foreign exchange forward contracts that are not designated as hedges to manage currency risk. The contracts can have maturities up to three years . As of December 31, 2025 and September 30, 2025, the total notional amount of forward contracts was $9.5 million and $16.7 million, respectively. As of December 31, 2025 and September 30, 2025, the weighted-average remaining maturity of these instruments was approximately 5.2 and 6.0 months, respectively.
The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheet for derivative instruments as of December 31, 2025 and September 30, 2025 (dollars in thousands):
| Fair Value | |||||||||||||||||||||||
| Derivatives not designated as hedges | Classification | December 31, 2025 | September 30, 2025 | ||||||||||||||||||||
| Foreign currency forward contracts | Prepaid expenses and other current assets | $ | $ | ||||||||||||||||||||
| Foreign currency forward contracts | Accrued expenses and other current liabilities | ||||||||||||||||||||||
| Foreign currency forward contracts | Other liabilities | ||||||||||||||||||||||
The following tables display a summary of the loss related to foreign currency forward contracts for the three months ended December 31, 2025 and 2024 (dollars in thousands):
| Loss recognized in earnings | |||||||||||||||||||||||||||||||||||
| Three Months Ended December 31, | |||||||||||||||||||||||||||||||||||
| Derivatives not designated as hedges | Classification | 2025 | 2024 | ||||||||||||||||||||||||||||||||
| Foreign currency forward contracts | Other income, net | $ | ( | $ | ( | ||||||||||||||||||||||||||||||
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Note 7. Goodwill and Other Intangible Assets
(a) Goodwill
We consider our Chief Executive Officer (“CEO”) to be our CODM. Our CEO approves all major decisions, including reorganizations and new business initiatives. Our CODM reviews routine consolidated operating information and makes decisions on the allocation of resources at this level, as such, we have concluded that we have one operating segment.
All goodwill is assigned to one or more reporting units. A reporting unit represents an operating segment or a component within an operating segment for which discrete financial information is available and is regularly reviewed by segment management for performance assessment and resource allocation. Upon consideration of our components, we have concluded that we have one reporting unit
| Total | ||||||||
| Balance as of September 30, 2025 | $ | |||||||
| Effect of foreign currency translation | ||||||||
| Balance as of December 31, 2025 | $ | |||||||
(b) Intangible Assets, Net
As of September 30, 2025, our intangible assets were fully amortized. The following table summarizes the gross carrying amounts and accumulated amortization of intangible assets by major class as of September 30, 2025 (dollars in thousands):
| September 30, 2025 | |||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Life (Years) | ||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | |||||||||||||||||||||||||
| Technology and patents | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | |||||||||||||||||||||||||
Amortization expense related to intangible assets in the aggregate was $0.6 million for the three months ended December 31, 2024.
Note 8. Leases
We have entered into a number of facility and equipment leases which qualify as operating leases under GAAP. We also have a limited number of equipment leases that qualify as finance leases.
The following table presents certain information related to lease term and incremental borrowing rates for leases as of December 31, 2025 and September 30, 2025:
| December 31, 2025 | September 30, 2025 | |||||||||||||
| Weighted-average remaining lease term (in months): | ||||||||||||||
| Operating leases | 43.0 | 46.9 | ||||||||||||
| Finance leases | 2.9 | 3.4 | ||||||||||||
| Weighted-average discount rate: | ||||||||||||||
| Operating leases | % | % | ||||||||||||
| Finance leases | % | % | ||||||||||||
The following table presents lease expense for the three months ended December 31, 2025 and 2024 (dollars in thousands):
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| Three Months Ended December 31, | |||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||
| Finance lease costs: | |||||||||||||||||||||||||||||
| Amortization of right of use asset | $ | $ | |||||||||||||||||||||||||||
| Interest on lease liability | |||||||||||||||||||||||||||||
| Operating lease cost | |||||||||||||||||||||||||||||
| Variable lease cost | |||||||||||||||||||||||||||||
| Sublease income | ( | ( | |||||||||||||||||||||||||||
| Total lease cost | $ | $ | |||||||||||||||||||||||||||
For the three months ended December 31, 2025 and 2024, cash payments related to operating leases were $1.3 million and $1.3 million, respectively. For the three months ended December 31, 2025 and 2024, cash payments related to finance leases were less than $0.1 million and $0.1 million, respectively, of which an immaterial none and $2.0 million, respectively.
The table below reconciles the undiscounted future minimum lease payments under non-cancelable leases to the total lease liabilities recognized on the Condensed Consolidated Balance Sheet as of December 31, 2025 (dollars in thousands):
| Year Ending September 30, | Operating Leases | Financing Leases | Total | ||||||||||||||||||||
| 2026 | $ | $ | $ | ||||||||||||||||||||
| 2027 | |||||||||||||||||||||||
| 2028 | |||||||||||||||||||||||
| 2029 | |||||||||||||||||||||||
| 2030 | |||||||||||||||||||||||
| Thereafter | |||||||||||||||||||||||
| Total future minimum lease payments | $ | $ | $ | ||||||||||||||||||||
| Less effects of discounting | ( | ( | |||||||||||||||||||||
| Total lease liabilities | $ | $ | $ | ||||||||||||||||||||
| Reported as of December 31, 2025 | |||||||||||||||||||||||
| Short-term lease liabilities | $ | $ | $ | ||||||||||||||||||||
| Long-term lease liabilities | |||||||||||||||||||||||
| Total lease liabilities | $ | $ | $ | ||||||||||||||||||||
Note 9. Accrued Expenses and Other Liabilities
Accrued expenses and other current liabilities consisted of the following (dollars in thousands):
| December 31, 2025 | September 30, 2025 | ||||||||||||||||
| Compensation | $ | $ | |||||||||||||||
| Professional fees | |||||||||||||||||
| Cost of revenue related liabilities | |||||||||||||||||
| Sales and other taxes payable | |||||||||||||||||
| Interest payable | |||||||||||||||||
| Other | |||||||||||||||||
| Total | $ | $ | |||||||||||||||
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Note 10. Restructuring and Other Costs, Net
Restructuring and other costs, net includes restructuring expenses as well as other charges that are unusual in nature, are the result of unplanned events, and arise outside of the ordinary course of our business. The following table sets forth accrual activity relating to restructuring reserves for the three months ended December 31, 2025 (dollars in thousands):
| Personnel | Facilities | Restructuring Subtotal | Other | Total | |||||||||||||||||||||||||||||||
| Balance as of September 30, 2025 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Restructuring and other costs, net | |||||||||||||||||||||||||||||||||||
| Non-cash adjustments | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Cash payments | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Effect of foreign currency translation | ( | ( | |||||||||||||||||||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
The following table sets forth restructuring and other costs, net recognized for the three months ended December 31, 2025 and 2024 (dollars in thousands):
| Three Months Ended December 31, | |||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||
| Personnel | $ | $ | |||||||||||||||||||||||||||
| Facilities | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Restructuring and other costs, net | $ | $ | |||||||||||||||||||||||||||
Fiscal Year 2026
For the three months ended December 31, 2025, we recorded restructuring and other costs, net of $7.8 million, which included a $7.5 million charge related to the elimination of personnel, a $0.3 million charge resulting from the closure of facilities that will no longer be utilized, and $0.1 million relating to our transformation initiatives and other one-time charges.
Fiscal Year 2025
Note 11. Stockholders’ Equity
On October 2, 2019, we registered the issuance of 6,350,000 shares of common stock, par value $0.01 per share, consisting of 5,300,000 shares of common stock reserved for issuance upon the exercise of options granted, or in respect of awards granted, under the Cerence 2019 Equity Incentive Plan (“Equity Incentive Plan”), and 1,050,000 shares of common stock that are reserved for issuance under the Cerence 2019 Employee Stock Purchase Plan (“ESPP”). The Equity Incentive Plan provides for the grant of incentive stock options, stock awards, stock units, stock appreciation rights, and certain other stock-based awards. The shares available for issuance will automatically increase on January 1st of each year, by the lesser of (A) 3 % of the number of shares of common stock outstanding as of the close of business on the immediately preceding December 31st; and (B) the number of shares of common stock determined by our board of directors on or prior to such date for such year.
On March 4, 2024, we registered the issuance of 600,000 shares of common stock, reserved for issuance under the Cerence Inc. 2024 Inducement Plan (the "Inducement Plan"). On October 6, 2024, we adopted Amendment No. 1 to the Inducement Plan, which increased the number of authorized shares of our common stock available for issuance under the Inducement Plan from 600,000 to 3,000,000 . On November 29, 2024, we adopted
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Amendment No. 2 to the Inducement Plan, which increased the number of authorized shares of our common stock available for issuance under the Inducement Plan from 3,000,000 to 4,500,000 .
Restricted Stock Units
Information with respect to our non-vested restricted stock units for the three months ended December 31, 2025 was as follows:
| Non-Vested Restricted Stock Units | ||||||||||||||||||||||||||||||||||||||
| Time-Based Shares | Performance- Based Shares | Total Shares | Weighted- Average Grant-Date Fair Value | Weighted- Average Remaining Contractual Term (years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||||||||||||||||||||||
| Non-vested at September 30, 2025 | $ | |||||||||||||||||||||||||||||||||||||
| Granted | $ | |||||||||||||||||||||||||||||||||||||
| Vested | ( | ( | ( | $ | ||||||||||||||||||||||||||||||||||
| Forfeited | ( | ( | ( | $ | ||||||||||||||||||||||||||||||||||
| Non-vested at December 31, 2025 | $ | |||||||||||||||||||||||||||||||||||||
| Expected to vest | $ | $ | ||||||||||||||||||||||||||||||||||||
Stock-based Compensation
Stock-based compensation was included in the following captions in our Condensed Consolidated Statements of Operations for the three months ended December 31, 2025 and 2024 (in thousands):
| Three Months Ended December 31, | |||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||
| Cost of connected services | $ | $ | |||||||||||||||||||||||||||
| Cost of professional services | |||||||||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||||||||
| Restructuring and other costs, net | |||||||||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||||||||
During the three months ended December 31, 2024, we recorded $2.6 million in stock-based compensation due to the termination of employment of our former CEO and the resulting vesting of certain stock-based awards in Restructuring and other costs, net. During the three months ended December 31, 2024, we recorded $0.4 million in stock-based compensation due to the termination of employment of a former senior management employee and the resulting vesting of certain stock-based awards in Restructuring and other costs, net.
Note 12. Commitments and Contingencies
Litigation and Other Claims
Similar to many companies in the software industry, we are involved in a variety of claims, demands, suits, investigations and proceedings that arise from time to time relating to matters incidental to the ordinary course of our business, including at times actions with respect to contracts, intellectual property, employment, benefits and securities matters. At each balance sheet date, we evaluate contingent liabilities associated with these matters in accordance with ASC 450 “Contingencies.” If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgments are required for the
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determination of probability and the range of the outcomes, and estimates are based only on the best information available at the time. Due to the inherent uncertainties involved in claims and legal proceedings and in estimating losses that may arise, actual outcomes may differ from our estimates. Contingencies deemed not probable or for which losses were not estimable in one period may become probable, or losses may become estimable in later periods, which may have a material impact on our results of operations and financial position. As of December 31, 2025, accrued losses were not material to our condensed consolidated financial statements, and we do not expect any pending matter to have a material impact on our condensed consolidated financial statements.
A.P., a minor, by and through her guardian, Carlos Pena and Carlos Pena Action
On March 24, 2023, plaintiffs A.P., a minor, by and through her guardian, Carlos Pena, and Carlos Pena, each individually and on behalf of similarly situated individuals filed a purported class action lawsuit in the Circuit Court of Cook County, Illinois, Chancery Division (Case. No. 2023CH02866 (Cir. Ct. Cook Cnty. 2023)). The case was removed to Federal Court (Case No. 1:23CV2667 (N.D. Ill.)), and then severed and remanded back in part, so there are two pending cases. Plaintiffs subsequently amended the federal complaint twice, with the latest second amended complaint, filed on July 13, 2023, adding plaintiffs Randolph Freshour and Vincenzo Allan, each also filing individually and on behalf of similarly situated individuals. Plaintiffs allege that Cerence violated the Illinois Biometric Information Privacy Act (“BIPA”), 740 ILCS 14/1 et seq. through Cerence’s Drive Platform technology, which is integrated in various automobiles. The named plaintiffs allegedly drove or rode in a vehicle with Cerence’s Drive Platform technology. Across both cases, plaintiffs allege that Cerence violated: (1) BIPA Section 15(a) by possessing biometrics without any public written policy for their retention or destruction; (2) BIPA Section 15(b) by collecting, capturing, or obtaining biometrics without written notice or consent; (3) BIPA Section 15(c) by profiting from biometrics obtained from Plaintiffs and putative class members; and (4) BIPA Section 15(d) by disclosing biometrics to third party companies without consent. Cerence filed motions to dismiss both cases. On February 27, 2024, the Circuit Court issued an order denying Cerence's motion to dismiss. On April 16, 2024, Cerence filed its answer and affirmative defenses, a motion to certify the Court’s order on Cerence’s motion to dismiss, and a motion to stay. Thereafter, in exchange for Cerence withdrawing its motions to certify and stay, plaintiffs filed amended complaints in both the Circuit Court and Federal Court, which 1) dismissed some plaintiffs and 2) amended the class definition to include Illinois individuals who owned, leased, and/or created user profiles for vehicles with Cerence’s “voice recognition technology” (rather than anyone in Illinois whose “voiceprint” was collected or stored by Cerence). Cerence filed its answers in both and the parties concluded fact discovery. On October 24, 2025, plaintiffs moved to certify the class, and that motion is fully briefed. On November 3, 2025, plaintiffs moved to stay the Federal Court case pending the Circuit Court’s ruling on class certification. On December 10, 2025, Cerence filed a Motion for Summary Judgment as to Plaintiff Vincenzo Allan on the basis that he did not use Cerence’s technology during the relevant period, as well as a Motion to Exclude Testimony of Plaintiffs’ class certification expert. Plaintiffs are seeking statutory damages of $5,000 for each willful and/or reckless violation of BIPA and, alternatively, damages of $1,000 for each negligent violation of BIPA. Given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, class certification and success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from this action.
Samsung Electronics Co. Ltd and Samsung Electronics America, Inc.
On October 13, 2023, Cerence filed its first patent infringement complaint against Samsung alleging infringement of five Cerence patents (“Samsung I”). On March 15, 2024, Cerence filed its second patent infringement complaint against Samsung alleging infringement of four additional Cerence patents (“Samsung II”). In its responsive pleading to Samsung II 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 sought damages, including trebled damages, and its costs and fees. On October 28, 2025, Samsung and Cerence resolved these disputes by entering into a cross-license agreement, which, among other things, resulted in Samsung agreeing to pay Cerence a one-time lump sum payment in the total amount of $49.5 million, which payment was received, net of tax, during the three months ended December 31, 2025. The lump-sum payment represents fixed consideration for a right-to-use intellectual property license. The related performance obligation was satisfied upon execution of the cross-license agreement. Accordingly, the full amount was recognized as license revenue during the three months ended December 31, 2025, consistent with the Company’s revenue recognition policy (see Note 3) and ASC 606. The cross-license agreement requires that each party is responsible for bearing their own costs for any associated legal fees incurred as a result of the alleged complaints and negotiations resulting in the dispute resolution. As a result, our final receipt of the one-time lump-sum payment resulted in us incurring approximately $20.7 million in legal fees, included in General and administrative expenses, which were paid in full during the three months ended December 31, 2025.
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Guarantees and Other
We include indemnification provisions in the contracts we enter with customers and business partners. Generally, these provisions require us to defend claims arising out of our products’ infringement of third-party intellectual property rights, breach of contractual obligations and/or unlawful or otherwise culpable conduct. The indemnity obligations generally cover damages, costs and attorneys’ fees arising out of such claims. In most, but not all cases, our total liability under such provisions is limited to either the value of the contract or a specified, agreed-upon amount. In some cases, our total liability under such provisions is unlimited. In many, but not all cases, the term of the indemnity provision is perpetual. While the maximum potential amount of future payments we could be required to make under all the indemnification provisions is unlimited, we believe the estimated fair value of these provisions is minimal due to the low frequency with which these provisions have been triggered.
We indemnify our directors and officers to the fullest extent permitted by Delaware law, which provides among other things, indemnification to directors and officers for expenses, judgments, fines, penalties and settlement amounts incurred by such persons in their capacity as a director or officer of the Company, regardless of whether the individual is serving in any such capacity at the time the liability or expense is incurred. Additionally, in connection with certain acquisitions, we agreed to indemnify the former officers and members of the boards of directors of those companies, on similar terms as described above, for a period of six years from the acquisition date. In certain cases, we purchase director and officer insurance policies related to these obligations, which fully cover the six-year period. To the extent that we do not purchase a director and officer insurance policy for the full period of any contractual indemnification, and such directors and officers do not have coverage under separate insurance policies, we would be required to pay for costs incurred, if any, as described above.
As of December 31, 2025, our letters of credit in connection with security deposits for facility leases totaled $0.7 million in the aggregate. These letters of credit have various terms and expiration dates that align with the underlying facilities for which they relate.
Note 13. Income Taxes
The components of income (loss) before income taxes are as follows (dollars in thousands):
| Three Months Ended December 31, | |||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||
| Domestic | $ | $ | ( | ||||||||||||||||||||||||||
| Foreign | ( | ||||||||||||||||||||||||||||
| Income (loss) before income taxes | $ | $ | ( | ||||||||||||||||||||||||||
The components of the provision for income taxes are as follows (dollars in thousands):
| Three Months Ended December 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||
| Domestic | $ | $ | ||||||||||||||||||||||||
| Foreign | ||||||||||||||||||||||||||
| Provision for income taxes | $ | $ | ||||||||||||||||||||||||
| Effective income tax rate | % | ( | % | |||||||||||||||||||||||
The effective tax rates for the periods presented are based upon estimated income for the fiscal year and the statutory tax rates enacted in the jurisdictions in which we operate. For all periods presented, the effective tax rate differs from the 21.0
Our effective tax rate for the three months ended December 31, 2025 was 117.4 % compared to negative 30.5 % for the three months ended December 31, 2024. Consequently, our provision for income taxes for the three months ended December 31, 2025 was $35.3 million, a net change of $29.6 million from a provision for income taxes of $5.7 million for the three months ended December 31, 2024. This difference was attributable to the tax impacts of foreign valuation allowances, stock-based compensation, research credits, and our composition of jurisdictional earnings.
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Deferred tax assets and liabilities are measured using the statutory tax rates and laws expected to apply to taxable income in the years in which the temporary differences are expected to reverse. Valuation allowances are provided against net deferred tax assets if, based upon all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the timing of the temporary differences becoming deductible. Management considers, among other available information, scheduled reversals of deferred tax liabilities, projected future taxable income, limitations of availability of net operating loss carryforwards, and other matters in making this assessment.
Note 14. Long-Term Debt
Long-term debt consisted of the following (in thousands):
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| Description | Maturity Date | Convertible Debt Coupon Rate | Effective Interest Rate | Principal | Unamortized Discount | Deferred Issuance Costs | Carrying Value | ||||||||||||||||||||||||||||||||||||||||
| 2025 Modified Notes | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| 2028 Notes | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Total debt | $ | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||
| Less: current portion of long-term debt | |||||||||||||||||||||||||||||||||||||||||||||||
| Total long-term debt | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| Description | Maturity Date | Convertible Debt Coupon Rate | Effective Interest Rate | Principal | Unamortized Discount | Deferred Issuance Costs | Carrying Value | ||||||||||||||||||||||||||||||||||||||||
| 2025 Modified Notes | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| 2028 Notes | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Total debt | $ | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||
| Less: current portion of long-term debt | |||||||||||||||||||||||||||||||||||||||||||||||
| Total long-term debt | $ | ||||||||||||||||||||||||||||||||||||||||||||||
The following table summarizes the maturities of our borrowing obligations as of December 31, 2025 (in thousands):
| Fiscal Year | 2028 Notes | 2025 Modified Notes | Total | ||||||||||||||||||||
| 2026 | $ | $ | $ | ||||||||||||||||||||
| 2027 | |||||||||||||||||||||||
| 2028 | |||||||||||||||||||||||
| 2029 | |||||||||||||||||||||||
| 2030 | |||||||||||||||||||||||
| Thereafter | |||||||||||||||||||||||
| Total before unamortized discount and issuance costs and current portion | $ | $ | $ | ||||||||||||||||||||
| Less: unamortized discount and issuance costs | ( | ( | ( | ||||||||||||||||||||
| Less: current portion of long-term debt | |||||||||||||||||||||||
| Total long-term debt | $ | $ | $ | ||||||||||||||||||||
On June 26, 2023, we issued $190.0 million in aggregate principal amount of 1.50 % Convertible Senior Notes due 2028 (the “2028 Notes”), which are governed by an indenture (the “2028 Indenture”), between us and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). On July 3, 2023, we
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issued an additional $20.0 million in aggregate principal amount of 2028 Notes. The initial net proceeds from the issuance of the 2028 Notes were $193.2 million after deducting transaction costs.
The 2028 Notes are senior, unsecured obligations and accrue interest payable semiannually in arrears on January 1 and July 1 of each year at a rate of 1.50 % per year. The 2028 Notes will mature on July 1, 2028 , unless earlier converted, redeemed, or repurchased. The 2028 Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.
A holder of 2028 Notes may convert all or any portion of its 2028 Notes at its option at any time prior to the close of business on the business day immediately preceding April 3, 2028 only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on September 30, 2023 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the 2028 Indenture) per $1,000 principal amount of 2028 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call such 2028 Notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after April 3, 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2028 Notes at any time, regardless of the foregoing circumstances.
The conversion rate is 24.5586 shares of our common stock per $1,000 principal amount of 2028 Notes (equivalent to an initial conversion price of approximately $40.72 per share of our common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2028 Notes in connection with such a corporate event or convert its 2028 Notes called for redemption in connection with such notice of redemption, as the case may be.
We may not redeem the 2028 Notes prior to July 6, 2026. We may redeem for cash all or any portion of the 2028 Notes (subject to certain limitations), at our option, on a redemption date occurring on or after July 6, 2026 and on or before the 31st scheduled trading day immediately before the maturity date, if the last reported sale price of our common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100 % of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2028 Notes.
If we undergo a “fundamental change”, subject to certain conditions, holders may require us to repurchase for cash all or any portion of their 2028 Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the 2028 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The 2028 Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not less than 25 % in aggregate principal amount of the 2028 Notes then outstanding may declare the entire principal amount of all the 2028 Notes plus accrued special interest, if any, to be immediately due and payable.
During the three months ended December 31, 2025, we repurchased $30.0 million aggregate principal amount of our 2028 Notes for $28.0 million in cash, including accrued interest and fees, via privately negotiated transactions with certain holders. The repurchased notes were subsequently cancelled and retired, resulting in a gain on extinguishment of debt of $1.1 million. The gain was calculated by subtracting the net carrying amount of the repurchased notes from the reacquisition price in accordance with ASC 470-50. The net carrying amount of the repurchased notes was calculated by allocating debt discount and issuance costs on a pro rata basis between amounts applicable to the 2025 Modified Notes and the 2028 Notes.
In connection with the offering of the 2028 Notes, we repurchased $87.5 million in aggregate principal amount of the 2025 Notes in a privately negotiated transaction. We specifically negotiated the repurchase of the 2025 Notes with investors who concurrently purchased the 2028 Notes. We evaluated the transaction to determine whether the exchange should be accounted for as a modification or extinguishment under the provisions of ASC 470-50, which allows
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for an exchange of debt instruments between the same debtor and creditor to be accounted for as a modification so long as the instruments do not have substantially different terms. Because the concurrent redemption of the 2025 Notes and a portion of issuance of the 2028 Notes were executed with the same investors, we evaluated the transaction as a debt modification, on a creditor by creditor basis. The repurchase of the 2025 Notes and issuance of the 2028 Notes were deemed to not have substantially different terms on the basis that (1) the present value of the cash flows under the terms of the new debt instrument were less than 10 % different from the present value of the remaining cash flows under the terms of the original instrument and (2) the fair value of the conversion feature did not change by more than 10 % of the carrying value of the 2025 Notes, and therefore, the repurchase of the 2025 Notes was accounted for as a debt modification.
As a result, $87.5 million of the 2028 Notes are considered a modification of the 2025 Notes and are included in the balances of the 2025 Notes (the “2025 Modified Notes” and together with the 2028 Notes, the “Notes”). 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 December 31, 2025, the carrying amount of the 2025 Modified Notes was $68.0 million, net of unamortized costs of $7.0 million.
If a convertible debt instrument is modified or exchanged in a transaction that is not accounted for as an extinguishment, an increase in the fair value of the embedded conversion option shall reduce the carrying amount of the debt instrument with a corresponding increase in Additional paid-in capital. We recognized the increase in the fair value of the embedded conversion feature of $4.1 million as Additional paid-in capital and an equivalent discount that reduced the carrying value of the 2025 Modified Notes.
We accounted for $122.5 million of the 2028 Notes, that were not negotiated with the investors of the 2025 Notes, as a single liability. We incurred transaction costs of $2.4 million relating to the issuance of the 2028 Notes, which were recorded as a direct deduction from the face amount of the 2028 Notes and are being amortized as interest expense over the term of the 2028 Notes using the interest method. As of December 31, 2025, the carrying amount of the 2028 Notes was $104.0 million and had unamortized issuance costs of $1.0 million. As of December 31, 2025, the 2028 Notes were not convertible. As of December 31, 2025 and September 30, 2025, the if-converted value of the 2028 Notes was $77.4 million and $85.0 million, respectively, less than its principal amount.
On June 2, 2020, we issued $175.0 million in aggregate principal amount of 3.00 % Convertible Senior Notes due June 1, 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 were governed by an indenture (the “2025 Indenture”), between us and the Trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The net proceeds from the issuance of the 2025 Notes were $169.8 million after deducting transaction costs.
The 2025 Notes were senior, unsecured obligations and accrued interest payable semiannually in arrears on June 1 and December 1 of each year at a rate of 3.00 % per year. For a complete description of the 2025 Notes, please refer to Footnote 17, Long-Term Debt as disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
During the year ended September 30, 2025, we repurchased $27.4 million aggregate principal amount of our 2025 Notes for $27.0 million in cash, including accrued interest and fees, via privately negotiated transactions with certain holders. The repurchased 2025 Notes were subsequently cancelled and retired, resulting in a gain on extinguishment of debt of $0.3 million. The remaining outstanding principal balance on the 2025 Notes and accrued interest of $61.0 million was repaid in its entirety at maturity during the three months ended June 30, 2025.
The interest expense recognized related to the Notes for the three months ended December 31, 2025 and 2024 was as follows (dollars in thousands):
| Three Months Ended December 31, | |||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||
| Contractual interest expense | $ | $ | |||||||||||||||||||||||||||
| Amortization of debt discount | |||||||||||||||||||||||||||||
| Amortization of issuance costs | |||||||||||||||||||||||||||||
| Total interest expense related to the Notes | $ | $ | |||||||||||||||||||||||||||
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
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Agreement”), consisting of a four-year senior secured term loan facility in the aggregate principal amount of $125.0 million (the “Term Loan Facility”). The net proceeds from the issuance of the Term Loan Facility were $123.0 million. We also entered into a senior secured first-lien revolving credit facility in an aggregate principal amount of $50.0 million (the “Revolving Facility” and, together with the Term Loan Facility, the “Senior Credit Facilities”), which could have been drawn on in the event that our working capital and other cash needs were not supported by our operating cash flow.
In connection with the issuance of the 2028 Notes, in the third quarter of fiscal year 2023, we borrowed $24.7 million under our Revolving Facility and paid $106.3 million towards our Term Loan Facility. As a result, we recorded $104.9 million extinguishment of debt and $1.3 million loss on the extinguishment of debt. All principal and interest on the Term Loan Facility have been paid in full. As of December 31, 2025 and September 30, 2025, there were no
On December 31, 2024, we terminated the Credit Agreement. On the date of termination, there were no revolving loans outstanding under the Credit Agreement. As a result of the Credit Agreement termination, we will not have access to the Revolving Facility and we will not be subject to the applicable Credit Agreement covenants.
Total interest expense relating to the Senior Credit Facilities for the three months ended December 31, 2025 and 2024 was none and $0.4 million, respectively. Amounts reflect the coupon and accretion of the discount.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements, and the related notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”), and our consolidated financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025, filed with the Securities and Exchange Commission (“SEC”) on November 20, 2025. Some of the information contained in this discussion and analysis or elsewhere in this Quarterly Report, including, but not limited to, information with respect to our plans and strategy for our business, our performance and future success, our liquidity and capital resources, including our ability to meet our liquidity needs, macroeconomic conditions, volatility in the political, legal and regulatory environment in which we operate including trade, tariffs and other policies implemented by the United States or actions taken by other countries in response, trends in the global auto industry and adjacent markets, including shipping and production issues, new products, process optimization efforts and cost management, litigation, and tax estimates and other tax matters, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Concerning Forward-Looking Statements.” You should review the “Risk Factors” sections in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2025 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Note that the results of operations for the three months ended December 31, 2025 are not necessarily indicative of what our operating results for the full fiscal year will be. In this Item, “we,” “us,” “our,” “Cerence” and the “Company” refer to Cerence Inc. and its consolidated subsidiaries, collectively.
Overview
Cerence builds conversational and agentic AI solutions 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 as well as the Internet of Things industry as a whole, including televisions, smart watches, voice-powered kiosks, and more. Our solutions power natural conversational and intuitive interactions between automobiles, drivers and passengers, and the broader digital world. We possess one of the leading software platforms for building automotive virtual assistants. Our automotive customers include nearly all major automobile original equipment manufacturers (“OEMs”) or their tier 1 suppliers worldwide. We deliver our solutions on a white-label basis, enabling our customers to deliver customized virtual assistants with unique, branded personalities and ultimately strengthening the bond between automobile brands and end users. Our vision is to enable a more enjoyable, safer journey for everyone.
Our principal offering is our software platform, which our customers use to build virtual assistants that can communicate, find information and take action across an expanding variety of categories. Our software platform has a hybrid architecture combining edge software components with cloud-connected components. Edge software components are installed on a vehicle’s head unit and can operate without access to external networks and information. Cloud-connected components are comprised of certain speech and natural language understanding related technologies, AI-enabled personalization and context-based response frameworks, and content integration platform.
We generate revenue primarily by selling software or intellectual property (“IP”) licenses and cloud-connected services. Our edge software components are typically sold under a traditional per unit perpetual software license model, in which a per unit fee is charged on a variable basis for each software instance installed on an automotive head unit. We typically license cloud-connected software components in the form of a service to the vehicle end user, which is paid for in advance. In addition, we generate professional services revenue from our work with our customers during the design, development and deployment phases of the vehicle model lifecycle and through maintenance and enhancement projects. We have existing relationships with nearly all major automotive OEMs or their tier 1 suppliers, and while our customer contracts vary, they generally represent multi-year engagements, giving us some visibility into future revenue; however, such revenue may not materialize as expected due to delays in automobile production, volatility in the political, legal and regulatory environment in which we operate including trade, tariffs and other policies implemented by the administration in the United States or actions taken by other countries in response, automotive production curtailment or delays related thereto, changing customer forecasts, macroeconomic conditions or other factors discussed elsewhere in this Quarterly Report.
Basis of Presentation
The financial information presented in the accompanying unaudited condensed consolidated financial statements has been prepared in accordance with U.S. GAAP and in accordance with rules and regulations of the SEC
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regarding interim financial reporting. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
The condensed consolidated balance sheet data as of September 30, 2025 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations. The operating results for the three months ended December 31, 2025 are not necessarily indicative of the results expected for the full fiscal year ending September 30, 2026.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, as well as those of its wholly owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation.
Key Financial Metrics
In evaluating our financial condition and operating performance, we focus on revenue, operating margins, and cash flow from operations.
For the three months ended December 31, 2025 as compared to the three months ended December 31, 2024:
•Total revenue increased by $64.2 million, or 126.1%, to $115.1 million from $50.9 million.
•Operating margin increased 58.7 percentage points to positive 25.5% from negative 33.3%.
•Cash provided by operating activities was $37.9 million, an increase of $28.6 million, or 309.5%, from cash provided by operating activities of $9.3 million.
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Operating Results
The following table shows the Condensed Consolidated Statements of Operations for the three months ended December 31, 2025 and 2024 (dollars in thousands):
| Three Months Ended December 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| License | $ | 87,758 | $ | 22,725 | ||||||||||||||||||||||
| Connected services | 14,532 | 13,707 | ||||||||||||||||||||||||
| Professional services | 12,786 | 14,464 | ||||||||||||||||||||||||
| Total revenues | 115,076 | 50,896 | ||||||||||||||||||||||||
| Cost of revenues: | ||||||||||||||||||||||||||
| License | 1,323 | 1,782 | ||||||||||||||||||||||||
| Connected services | 4,911 | 6,311 | ||||||||||||||||||||||||
| Professional services | 9,492 | 9,731 | ||||||||||||||||||||||||
| Total cost of revenues | 15,726 | 17,824 | ||||||||||||||||||||||||
| Gross profit | 99,350 | 33,072 | ||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Research and development | 24,701 | 20,869 | ||||||||||||||||||||||||
| Sales and marketing | 5,557 | 4,766 | ||||||||||||||||||||||||
| General and administrative | 31,987 | 12,754 | ||||||||||||||||||||||||
| Amortization of intangible assets | — | 554 | ||||||||||||||||||||||||
| Restructuring and other costs, net | 7,794 | 11,062 | ||||||||||||||||||||||||
| Total operating expenses | 70,039 | 50,005 | ||||||||||||||||||||||||
| Income (loss) from operations | 29,311 | (16,933) | ||||||||||||||||||||||||
| Interest income | 865 | 1,437 | ||||||||||||||||||||||||
| Interest expense | (1,665) | (3,393) | ||||||||||||||||||||||||
| Other income, net | 1,550 | 272 | ||||||||||||||||||||||||
| Income (loss) before income taxes | 30,061 | (18,617) | ||||||||||||||||||||||||
| Provision for income taxes | 35,300 | 5,671 | ||||||||||||||||||||||||
| Net loss | $ | (5,239) | $ | (24,288) | ||||||||||||||||||||||
Our revenue consists primarily of license revenue, connected services revenue and revenue from professional services. License revenue primarily consists of license royalties associated with our edge software components and revenue associated with the licensing of our Intellectual Property or “IP”. Our edge software components are typically sold under a traditional per unit perpetual software license model, in which a per unit fee is charged for each software instance installed on an automotive head unit. Our contracts contain variable, fixed prepaid or fixed minimum purchase commitment components. Revenue is recognized and cash is collected for variable contracts over the license distribution period. The fixed contracts typically provide the customer with a price discount and can include the conversion of a variable contract that is already in our variable backlog. Revenue for fixed contracts is recognized when the software is made available to the customer, which has typically occurred at the time the contract is signed. Cash is typically expected to be collected for a fixed prepaid deal at the inception of the contract. Cash is expected to be collected for a fixed minimum commitment deal over the license distribution period. Going forward, we will continue to assess the levels of fixed license contracts and make adjustments, as necessary. The timing and amount of revenue recognized from IP or patent licensing depends upon a variety of factors, including the specific terms of each agreement and the nature of the deliverables and obligations. These agreements could include, without limitation, performance obligations related to consideration for past patent royalties, patent licensing royalties on covered products sold by licensees, access to a portfolio of technology as it exists at a point in time, and access to a portfolio of technology at a point in time along with promises to provide any technology updates to the portfolio during the term on a when-and-if basis. Such licenses could be fixed and non-refundable in nature and/or variable over time. Certain components of revenue recognized with respect to IP license agreements may require the use of estimates, which may be significant. Related revenue is recognized at the point in time
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when the software and technology is made available to the customer and control is transferred and, if applicable, according to usage. See Note 3 to the accompanying unaudited condensed consolidated financial statements for further discussion of our revenue, deferred revenue performance obligations and the timing of revenue recognition. Costs of license revenue primarily consists of third-party royalty expenses for certain external technologies we leverage and costs associated with our Cerence Link product.
Connected services revenue primarily represents the subscription fee that provides access to our connected services components, including the customization and construction of our connected services solutions. We also derive revenue within our connected services business from usage contracts and there can be instances where a customer purchases a software license that allows them to take possession of the software to enable hosting by the customer or a third-party. Subscription and usage contracts typically have a term of one to five years. Subscription revenue is recognized over the subscription period and cash is expected to be collected at the start of the subscription period. Usage based revenue is recognized and cash is collected as the service is used. If the customer takes possession of the software to have it hosted by the customer or a third-party, revenue is recognized, and cash is collected at the time the license is delivered.
Professional services revenue is primarily comprised of porting, integrating, and customizing our embedded solutions, with costs primarily consisting of compensation for services personnel, contractors and overhead.
Our operating expenses include R&D, sales and marketing and general and administrative expenses. R&D expenses primarily consist of salaries, benefits, and overhead relating to research and engineering staff. Sales and marketing expenses includes salaries, benefits, and commissions related to our sales, product marketing, product management, and business unit management teams. General and administrative expenses primarily consist of personnel costs for administration, legal, finance, human resources, general management, fees for external professional advisers including accountants and attorneys, and provisions for credit losses.
Amortization of acquired patents and core technology are included within cost of revenues whereas the amortization of other intangible assets, such as acquired customer relationships, trade names and trademarks, are included within operating expenses. Customer relationships are amortized over their estimated economic lives based on the pattern of economic benefits expected to be generated from the use of the asset. Other identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives.
Restructuring and other costs, net include restructuring expenses as well as other charges that are unusual in nature, are the result of unplanned events, and arise outside the ordinary course of our business.
Total other expense, net consists primarily of foreign exchange gains (losses), interest income and interest expense related to the Notes.
We expect our revenue to continue to be impacted by the changing dynamics in the global automotive industry which has experienced production delays and slowdowns. Volatility in the political, legal and regulatory environment in which we operate, including trade, tariffs and related policies also has resulted in increased pricing pressure from customers and delays in program timelines. Macroeconomic conditions such as high interest rates and lack of credit availability have contributed to these production delays and slowdowns. In addition, the software and technology systems in automobiles have become increasingly complex, leading to substantial challenges and delays in production for some of our customers. Our business in adjacent markets, such as two-wheeled vehicles, trucks and AIoT, is also developing slower than anticipated due to the challenges of introducing different technology into a new market. In light of these challenges, we intend to make efforts to streamline our operations, and we continue to focus on our cost management and have taken, and expect to continue to take, cost reduction actions, which may result in additional restructuring costs. In particular, in September 2025, we announced the 2025 Plan intended to streamline certain foreign operations. In August 2024, we announced the 2024 Plan intended to reduce operating expenses and position us for profitable growth. The implementation of the 2024 Plan was substantially complete by the end of the first quarter of fiscal year 2025 and is formally concluded as of December 31, 2025. The implementation of the 2025 Plan was substantially completed during the three months ended December 31, 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 2026 in certain cases. The charges that we expect to incur from the implementation of the 2025 Plan are subject to a number of assumptions, including legal requirements in various jurisdictions, and actual expenses and charges may differ materially from the estimates disclosed above. For additional details, refer to the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
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Three Months Ended December 31, 2025 Compared with Three Months Ended December 31, 2024
Total Revenues
The following table shows total revenues by product type, including the corresponding percentage change, for the three months ended December 31, 2025 and 2024 (dollars in thousands):
| Three Months Ended December 31, | % Change | |||||||||||||||||||||||||||||||
| 2025 | % of Total | 2024 | % of Total | 2025 vs. 2024 | ||||||||||||||||||||||||||||
| License | $ | 87,758 | 76.3% | $ | 22,725 | 44.6% | 286.2 | % | ||||||||||||||||||||||||
| Connected services | 14,532 | 12.6% | 13,707 | 26.9% | 6.0 | % | ||||||||||||||||||||||||||
| Professional services | 12,786 | 11.1% | 14,464 | 28.4% | (11.6) | % | ||||||||||||||||||||||||||
| Total revenues | $ | 115,076 | $ | 50,896 | 126.1 | % | ||||||||||||||||||||||||||
Total revenues for the three months ended December 31, 2025 were $115.1 million, an increase of $64.2 million, or 126.1%, from $50.9 million for the three months ended December 31, 2024. The increase in revenue was primarily driven by our IP license agreement with Samsung, resulting in $49.5 million of one-time revenue. Additional increases in revenue were attributable to higher volume of both license volumes and connected services, and an increase of $7.8 million of fixed contracts.
License Revenue
License revenue for the three months ended December 31, 2025 was $87.8 million, an increase of $65.0 million, or 286.2%, from $22.7 million for the three months ended December 31, 2024. The increase in revenue was primarily driven by our IP license agreement with Samsung, resulting in $49.5 million of one-time revenue, recognized in accordance with ASC 606. The additional increase in license revenue was primarily driven by a $7.8 million increase in fixed contracts and a $7.8 million increase in variable license revenue due to higher volume of licensing royalties. As a percentage of total revenues, license revenue increased 31.6 percentage points from 44.6% for the three months ended December 31, 2024 to 76.3% for the three months ended December 31, 2025.
Connected Services Revenue
Connected services revenue for the three months ended December 31, 2025 was $14.5 million, an increase of $0.8 million, or 6.0%, from $13.7 million for the three months ended December 31, 2024. This increase was primarily driven by higher reported volumes. As a percentage of total revenues, connected services revenue decreased by 14.3 percentage points from 26.9% for the three months ended December 31, 2024 to 12.6% for the three months ended December 31, 2025.
Professional Services Revenue
Professional services revenue for the three months ended December 31, 2025 was $12.8 million, a decrease of $1.7 million, or 11.6%, from $14.5 million for the three months ended December 31, 2024. This decrease was primarily driven by the increased standardization of our software product offerings, which requires less professional services effort to implement, other efficiencies in our professional services processes and, in some cases, customers opting to perform these activities internally. As a percentage of total revenues, professional services revenue decreased by 17.3 percentage points from 28.4% for the three months ended December 31, 2024 to 11.1% for the three months ended December 31, 2025.
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Three Months Ended December 31, 2025 Compared with Three Months Ended December 31, 2024
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):
| Three Months Ended December 31, | % Change | |||||||||||||||||||
| 2025 | 2024 | 2025 vs. 2024 | ||||||||||||||||||
| License | $ | 1,323 | $ | 1,782 | (25.8 | %) | ||||||||||||||
| Connected services | 4,911 | 6,311 | (22.2) | % | ||||||||||||||||
| Professional services | 9,492 | 9,731 | (2.5) | % | ||||||||||||||||
| Total cost of revenues | $ | 15,726 | $ | 17,824 | (11.8) | % | ||||||||||||||
The following table shows total gross profit by product type and the corresponding percentage change (dollars in thousands):
| Three Months Ended December 31, | % Change | |||||||||||||||||||
| 2025 | 2024 | 2025 vs. 2024 | ||||||||||||||||||
| License | $ | 86,435 | $ | 20,943 | 312.7 | % | ||||||||||||||
| Connected services | 9,621 | 7,396 | 30.1 | % | ||||||||||||||||
| Professional services | 3,294 | 4,733 | (30.4) | % | ||||||||||||||||
| Total gross profit | $ | 99,350 | $ | 33,072 | 200.4 | % | ||||||||||||||
Total cost of revenues for the three months ended December 31, 2025 were $15.7 million, a decrease of $2.1 million, or 11.8%, from $17.8 million for the three months ended December 31, 2024.
We experienced an increase in total gross profit of $66.3 million, or 200.4%, from $33.1 million for the three months ended December 31, 2024 to $99.4 million for the three months ended December 31, 2025. The increase was primarily driven by the Samsung patent license revenue.
Cost of License Revenue
Cost of license revenue for the three months ended December 31, 2025 was $1.3 million, a decrease of $0.5 million, or 25.8%, from $1.8 million for the three months ended December 31, 2024. Cost of license revenues decreased due to lower hardware costs attributable to decreased volume of our Cerence Link product revenue. As a percentage of total cost of revenues, cost of license revenue decreased by 1.6 percentage points from 10.0% for the three months ended December 31, 2024 to 8.4% for the three months ended December 31, 2025.
License gross profit increased by $65.5 million, or 312.7%, for the three months ended December 31, 2025 when compared to the three months ended December 31, 2024, primarily driven by the Samsung patent license revenue.
Cost of Connected Services Revenue
Cost of connected services revenue for the three months ended December 31, 2025 was $4.9 million, a decrease of $1.4 million, or 22.2%, from $6.3 million for the three months ended December 31, 2024. Cost of connected services revenue decreased primarily due to a $1.0 million decrease associated with lower amortization expense of capitalized project costs and lower overall in-period deferrals of project delivery costs, a $0.3 million reduction in internal allocated labor, and a $0.1 million decrease in our cloud infrastructure costs. As a percentage of total cost of revenues, cost of connected services revenue decreased by 4.2 percentage points from 35.4% for the three months ended December 31, 2024 to 31.2% for the three months ended December 31, 2025.
Connected services gross profit increased $2.2 million, or 30.1%, from $7.4 million for the three months ended December 31, 2024 to $9.6 million for the three months ended December 31, 2025, primarily due to higher reported volumes resulting in increased revenue, and lower overall costs associated with the delivery of connected services.
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Cost of Professional Services Revenue
Cost of professional services revenue for the three months ended December 31, 2025 was $9.5 million, a decrease of $0.2 million, or 2.5%, from $9.7 million for the three months ended December 31, 2024. Cost of professional services revenue decreased primarily due a $0.3 million decrease in third-party contractor costs. As a percentage of total cost of revenues, cost of professional services revenue increased by 5.8 percentage points from 54.6% for the three months ended December 31, 2024 to 60.4% for the three months ended December 31, 2025.
Professional services gross profit decreased $1.4 million, or 30.4%, from $4.7 million for the three months ended December 31, 2024 to $3.3 million for the three months ended December 31, 2025, which was primarily due to a decrease in related revenues.
R&D Expenses
Three Months Ended December 31, 2025 Compared with Three Months Ended December 31, 2024
| Three Months Ended December 31, | % Change | |||||||||||||||||||
| 2025 | 2024 | 2025 vs. 2024 | ||||||||||||||||||
| Research and development | $ | 24,701 | $ | 20,869 | 18.4 | % | ||||||||||||||
Historically, R&D expenses are our largest operating expense as we continue to build on our existing software platforms and develop new technologies. R&D expenses for the three months ended December 31, 2025 were $24.7 million, an increase of $3.8 million, or 18.4%, from $20.9 million for the three months ended December 31, 2024. The increase was primarily attributable to $2.1 million of international tax credit catch-ups recorded in three months ended December 31, 2024 which did not recur in three months ended December 31, 2025, a $0.9 million increase in employee compensation costs, a $0.4 million increase in third-party contractor costs, and a $0.4 million increase in depreciation and amortization related to facilities and equipment required to support our AI infrastructure. As a percentage of total operating expenses, R&D expenses decreased by 6.5 percentage points from 41.7% for the three months ended December 31, 2024 to 35.3% for the three months ended December 31, 2025.
Sales & Marketing Expenses
Three Months Ended December 31, 2025 Compared with Three Months Ended December 31, 2024
| Three Months Ended December 31, | % Change | |||||||||||||||||||
| 2025 | 2024 | 2025 vs. 2024 | ||||||||||||||||||
| Sales and marketing | $ | 5,557 | $ | 4,766 | 16.6 | % | ||||||||||||||
Sales and marketing expenses for the three months ended December 31, 2025 were $5.6 million, an increase of $0.8 million, or 16.6%, from $4.8 million for the three months ended December 31, 2024. This increase was primarily driven by stock-based compensation expense of $0.3 million and other employee compensation costs of $0.3 million. As a percentage of total operating expenses, sales and marketing expenses decreased by 1.6 percentage points from 9.5% for the three months ended December 31, 2024 to 7.9% for the three months ended December 31, 2025.
General & Administrative Expenses
Three Months Ended December 31, 2025 Compared with Three Months Ended December 31, 2024
| Three Months Ended December 31, | % Change | |||||||||||||||||||
| 2025 | 2024 | 2025 vs. 2024 | ||||||||||||||||||
| General and administrative | $ | 31,987 | $ | 12,754 | 150.8 | % | ||||||||||||||
General and administrative expenses for the three months ended December 31, 2025 were $32.0 million, an increase of $19.2 million, or 150.8%, from $12.8 million for the three months ended December 31, 2024. The increase in general and administrative expenses was primarily attributable to a $20.8 million increase in legal professional services driven by costs related to the Samsung IP license agreement. As a percentage of total operating expenses, general
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and administrative expenses increased by 20.2 percentage points from 25.5% for the three months ended December 31, 2024 to 45.7% for the three months ended December 31, 2025.
Amortization of Intangible Assets
Three Months Ended December 31, 2025 Compared with Three Months Ended December 31, 2024
| Three Months Ended December 31, | % Change | |||||||||||||||||||
| 2025 | 2024 | 2025 vs. 2024 | ||||||||||||||||||
| Operating expense | — | 554 | (100.0) | % | ||||||||||||||||
| Total amortization | $ | — | $ | 554 | (100.0) | % | ||||||||||||||
Amortization expense for acquired technology and patents is included in the cost of revenues in the accompanying Condensed Consolidated Statements of Operations. Acquired technology and patents were fully amortized as of December 31, 2024. Amortization expense for customer relationships is included in operating expenses in the accompanying Condensed Consolidated Statements of Operations. Customer relationships were fully amortized as of June 30, 2025.
As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses decreased by 1.1 percentage points from 1.1% for the three months ended December 31, 2024 as compared to zero percent for the three months ended December 31, 2025.
Other Components of Operating Expense
Three Months Ended December 31, 2025 Compared with Three Months Ended December 31, 2024
| Three Months Ended December 31, | % Change | |||||||||||||||||||
| 2025 | 2024 | 2025 vs. 2024 | ||||||||||||||||||
| Restructuring and other costs, net | $ | 7,794 | $ | 11,062 | (29.5) | % | ||||||||||||||
Fiscal Year 2026
For the three months ended December 31, 2025, we recorded restructuring and other costs, net of $7.8 million, which included a $7.5 million charge related to the elimination of personnel, a $0.3 million charge resulting from the closure of facilities that will no longer be utilized, and $0.1 million relating to our transformation initiatives and other one-time charges.
Fiscal Year 2025
For the three months ended December 31, 2024, we recorded restructuring and other costs, net of $11.1 million, which included a $10.2 million charge related to the elimination of personnel, of which $3.0 million related to the stock-based compensation expense related to the termination of our former senior management employees, and a $0.9 million charge relating to our transformation initiatives.
As a percentage of total operating expenses, restructuring and other costs, net decreased by 11.0 percentage points from 22.1% for the three months ended December 31, 2024 to 11.1% for the three months ended December 31, 2025.
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Total Other Income (Expense), Net
Three Months Ended December 31, 2025 Compared with Three Months Ended December 31, 2024
| Three Months Ended December 31, | % Change | |||||||||||||||||||
| 2025 | 2024 | 2025 vs. 2024 | ||||||||||||||||||
| Interest income | $ | 865 | $ | 1,437 | (39.8) | % | ||||||||||||||
| Interest expense | (1,665) | (3,393) | (50.9) | % | ||||||||||||||||
| Other income, net | 1,550 | 272 | 469.9 | % | ||||||||||||||||
| Total other income (expense), net | $ | 750 | $ | (1,684) | (144.5) | % | ||||||||||||||
Total other income (expense), net for the three months ended December 31, 2025 was income of $0.8 million, a change of $2.4 million from $1.7 million of expense for the three months ended December 31, 2024. The decrease in interest income was primarily attributable to lower balances of marketable securities and a generally lower interest rate environment when compared to the three months ended December 31, 2024. The decrease in interest expense was primarily attributable to a lower applicable interest rate on our Notes and a lower overall principal balance outstanding. The change in Other income, net was driven primarily by the gain on debt repurchase of the Notes. For further information, see “Liquidity and Capital Resources” below.
Provision For Income Taxes
Three Months Ended December 31, 2025 Compared with Three Months Ended December 31, 2024
| Three Months Ended December 31, | % Change | |||||||||||||||||||
| 2025 | 2024 | 2025 vs. 2024 | ||||||||||||||||||
| Provision for income taxes | $ | 35,300 | $ | 5,671 | 522.5 | % | ||||||||||||||
| Effective income tax rate % | 117.4 | % | (30.5) | % | ||||||||||||||||
Our effective income tax rate for the three months ended December 31, 2025 was positive 117.4%, compared to negative 30.5% for the three months ended December 31, 2024. Our provision for income taxes for the three months ended December 31, 2025 was $35.3 million, a net change of $29.6 million from a provision for income taxes of $5.7 million for the three months ended December 31, 2024. This difference was attributable to the tax impacts of foreign valuation allowances, stock-based compensation, research credits, and our composition of jurisdictional earnings.
Liquidity and Capital Resources
Financial Condition
As of December 31, 2025, we had $94.7 million in cash, cash equivalents, and marketable securities. Cash equivalents include highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. Marketable securities include corporate bonds and government securities.
Sources and Material Cash Requirements
Our principal sources of liquidity are our cash, cash equivalents, and marketable securities, as well as the cash flows we generate from our operations. The primary uses of cash include costs of revenues, funding of R&D activities, capital expenditures and debt obligations.
Our ability to fund future operating needs will depend on our ability to generate positive cash flows from operations and access additional funding in the capital and debt markets as needed. Based on our expectations to generate positive cash flows and the $94.7 million of cash, cash equivalents, and marketable securities as of December 31, 2025, we believe that we will be able to meet our liquidity needs over the next 12 months.
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The following table presents our material cash requirements for future periods (dollars in thousands):
| Material Cash Requirements Due by Period | ||||||||||||||||||||||||||||||||
| 2026 | 2027-2028 | 2029-2030 | Thereafter | Total | ||||||||||||||||||||||||||||
| 2028 Notes | $ | — | $ | 105,000 | $ | — | $ | — | $ | 105,000 | ||||||||||||||||||||||
Cash interest payable on the 2028 Notes (a) | 788 | 3,150 | — | — | 3,938 | |||||||||||||||||||||||||||
| 2025 Modified Notes | — | 75,000 | — | — | 75,000 | |||||||||||||||||||||||||||
Cash interest payable on the 2025 Modified Notes (a) | 563 | 2,250 | — | — | 2,813 | |||||||||||||||||||||||||||
| Operating leases | 4,467 | 10,044 | 4,159 | 110 | 18,780 | |||||||||||||||||||||||||||
| Financing leases | 54 | — | — | — | 54 | |||||||||||||||||||||||||||
| Total material cash requirements | $ | 5,871 | $ | 195,444 | $ | 4,159 | $ | 110 | $ | 205,584 | ||||||||||||||||||||||
(a)Interest per annum is due and payable semiannually and is determined based on the outstanding principal as of December 31, 2025.
Should we need to secure additional sources of liquidity, we believe that we could finance our needs through the issuance of equity securities or debt offerings. However, we cannot guarantee that we will be able to obtain financing through the issuance of equity securities or debt offerings or that, if such financing is obtained, that it will be on acceptable terms. Our ability to issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers or if there are other significantly unfavorable changes in economic conditions. For instance, inflation and persistently high interest rates, changes in the political, legal and regulatory environment, including trade policies and tariffs, and disruptions have negatively impacted the global economy and created significant volatility and disruption of financial markets. An extended period of economic disruption or market volatility, could materially affect our business, results of operations, access to sources of liquidity and financial condition.
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. Bank Trust Company, National Association, as trustee (the “Trustee”), in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). On July 3, 2023, we issued an additional $20.0 million in aggregate principal amount of 2028 Notes. The initial net proceeds from the issuance of the 2028 Notes were $193.2 million after deducting transaction costs.
The 2028 Notes are senior, unsecured obligations and accrue interest payable semiannually in arrears on January 1 and July 1 of each year at a rate of 1.50% per year. The 2028 Notes will mature on July 1, 2028, unless earlier converted, redeemed, or repurchased. The 2028 Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.
The conversion rate is 24.5586 shares of our common stock per $1,000 principal amount of 2028 Notes (equivalent to an initial conversion price of approximately $40.72 per share of our common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2028 Notes in connection with such a corporate event or convert its 2028 Notes called for redemption in connection with such notice of redemption, as the case may be.
During the three months ended December 31, 2025, we repurchased $30.0 million aggregate principal amount of our 2028 Notes for $28.0 million in cash, including accrued interest and fees, via privately negotiated transactions with certain holders. The repurchased notes were subsequently cancelled and retired, resulting in a gain on extinguishment of debt of $1.1 million.
In connection with the offering of the 2028 Notes, we repurchased $87.5 million in aggregate principal amount of the 2025 Notes in a privately negotiated transaction. We specifically negotiated the repurchase of the 2025 Notes with investors who concurrently purchased the 2028 Notes. We evaluated the transaction to determine whether the exchange should be accounted for as a modification or extinguishment under the provisions of ASC 470-50, which allows for an exchange of debt instruments between the same debtor and creditor to be accounted for as a modification so long as
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the instruments do not have substantially different terms. Because the concurrent redemption of the 2025 Notes and a portion of issuance of the 2028 Notes were executed with the same investors, we evaluated the transaction as a debt modification, on a creditor by creditor basis. The repurchase of the 2025 Notes and issuance of the 2028 Notes were deemed to not have substantially different terms on the basis that (1) the present value of the cash flows under the terms of the new debt instrument were less than 10% different from the present value of the remaining cash flows under the terms of the original instrument and (2) the fair value of the conversion feature did not change by more than 10% of the carrying value of the 2025 Notes, and therefore, the repurchase of the 2025 Notes was accounted for as a debt modification.
As a result, $87.5 million of the 2028 Notes are considered a modification of the 2025 Notes and are included in the balances of the 2025 Notes (the “2025 Modified Notes” and together with the 2028 Notes, the “Notes”). 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 December 31, 2025, the carrying amount of the 2025 Modified Notes was $68.0 million, net of unamortized costs of $7.0 million.
If a convertible debt instrument is modified or exchanged in a transaction that is not accounted for as an extinguishment, an increase in the fair value of the embedded conversion option shall reduce the carrying amount of the debt instrument with a corresponding increase in Additional paid-in capital. We recognized the increase in the fair value of the embedded conversion feature of $4.1 million as Additional paid-in capital and an equivalent discount that reduced the carrying value of the 2025 Modified Notes.
We accounted for $122.5 million of the 2028 Notes, that were not negotiated with the investors of the 2025 Notes, as a single liability. We incurred transaction costs of $2.4 million relating to the issuance of the 2028 Notes, which were recorded as a direct deduction from the face amount of the 2028 Notes and are being amortized as interest expense over the term of the 2028 Notes using the interest method. As of December 31, 2025, the carrying amount of the 2028 Notes was $104.0 million and had unamortized issuance costs of $1.0 million. As of December 31, 2025, the 2028 Notes were not convertible. As of December 31, 2025 and September 30, 2025, the if-converted value of the 2028 Notes was $77.4 million and $85.0 million, respectively, less than its principal amount.
3.00% Senior Convertible Notes due 2025
On June 2, 2020, we issued $175.0 million in aggregate principal amount of 3.00% Convertible Senior Notes due June 1, 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 were governed by an indenture (the “2025 Indenture”), between us and the Trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The net proceeds from the issuance of the 2025 Notes were $169.8 million after deducting transaction costs.
The 2025 Notes were senior, unsecured obligations and accrued interest payable semiannually in arrears on June 1 and December 1 of each year at a rate of 3.00% per year. For a complete description of the 2025 Notes, please refer to Footnote 17, Long-Term Debt as disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
During the year ended September 30, 2025, we repurchased $27.4 million aggregate principal amount of our 2025 Notes for $27.0 million in cash, including accrued interest and fees, via privately negotiated transactions with certain holders. The repurchased 2025 Notes were subsequently cancelled and retired, resulting in a gain on extinguishment of debt of $0.3 million. The remaining outstanding principal balance on the 2025 Notes and accrued interest of $61.0 million was repaid in its entirety at maturity during the three months ended June 30, 2025.
The interest expense recognized related to the Notes for the three months ended December 31, 2025 and 2024 was as follows (dollars in thousands):
| Three Months Ended December 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||
| Contractual interest expense | $ | 784 | $ | 1,425 | ||||||||||||||||||||||
| Amortization of debt discount | 158 | 265 | ||||||||||||||||||||||||
| Amortization of issuance costs | 721 | 1,281 | ||||||||||||||||||||||||
| Total interest expense related to the Notes | $ | 1,663 | $ | 2,971 | ||||||||||||||||||||||
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
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Agreement”), consisting of a four-year senior secured term loan facility in the aggregate principal amount of $125.0 million (the “Term Loan Facility”). The net proceeds from the issuance of the Term Loan Facility were $123.0 million. We also entered into a senior secured first-lien revolving credit facility in an aggregate principal amount of $50.0 million (the “Revolving Facility” and, together with the Term Loan Facility, the “Senior Credit Facilities”), which could have been drawn on in the event that our working capital and other cash needs were not supported by our operating cash flow.
In connection with the issuance of the 2028 Notes, in the third quarter of fiscal year 2023, we borrowed $24.7 million under our Revolving Facility and paid $106.3 million towards our Term Loan Facility. As a result, we recorded $104.9 million extinguishment of debt and $1.3 million loss on the extinguishment of debt. All principal and interest on the Term Loan Facility have been paid in full. As of December 31, 2025 and September 30, 2025, there were no amounts outstanding under the Revolver Facility.
On December 31, 2024, we terminated the Credit Agreement. On the date of termination, there were no revolving loans outstanding under the Credit Agreement. As a result of the Credit Agreement termination, we will not have access to the Revolving Facility and we will not be subject to the applicable Credit Agreement covenants.
Total interest expense relating to the Senior Credit Facilities for the three months ended December 31, 2025 and 2024 was none and $0.4 million, respectively. Amounts reflect the coupon and accretion of the discount.
Cash Flows
Cash flows from operating, investing and financing activities for the three months ended December 31, 2025 and 2025, as reflected in the unaudited Condensed Consolidated Statements of Cash Flows included in Item 1 of this Form 10-Q, are summarized in the following table (dollars in thousands):
| Three Months Ended December 31, | % Change | |||||||||||||||||||
| 2025 | 2024 | 2025 vs. 2024 | ||||||||||||||||||
| Net cash provided by operating activities | $ | 37,894 | $ | 9,254 | 309.5 | % | ||||||||||||||
| Net cash (used in) provided by investing activities | (1,789) | 759 | (335.7 | %) | ||||||||||||||||
| Net cash used in financing activities | (27,654) | (27,084) | 2.1 | % | ||||||||||||||||
| Effects of exchange rate changes on cash and cash equivalents | (338) | (311) | 8.7 | % | ||||||||||||||||
| Net changes in cash and cash equivalents | $ | 8,113 | $ | (17,382) | (146.7) | % | ||||||||||||||
Net Cash Provided by Operating Activities
Net cash provided by operating activities for the three months ended December 31, 2025 was $37.9 million, a net change of $28.6 million, or 309.5%, from net cash provided by operating activities of $9.3 million for the three months ended December 31, 2024. The change in cash flows were primarily due to:
•An increase of $30.2 million from income before non-cash charges primarily driven by the net impact of the lump sum payment, net of taxes, received from Samsung and related legal expenses;
•A increase of $1.9 million due to favorable changes in working capital primarily related to accrued expenses and other liabilities, accounts receivable, prepaid expenses and other assets; and
•A decrease of $3.5 million from changes in deferred revenue.
Deferred revenue represents a significant portion of our net cash used in or provided by operating activities and, depending on the nature of our contracts with customers and foreign currency exchange rates, this balance can fluctuate significantly from period to period. Fluctuations in deferred revenue are not a reliable indicator of future performance and the related revenue associated with these contractual commitments. We do not expect any changes in deferred revenue to affect our ability to meet our obligations.
Net Cash (Used in) Provided by Investing Activities
Net cash used in investing activities for the three months ended December 31, 2025 was $1.8 million, a net change of $2.5 million, or 335.7%, from $0.8 million of cash provided by investing activities for the three months ended December 31, 2024. The change in cash flows were primarily due to a decrease of $1.6 million related to marketable securities and $0.9 million related to additional capital expenditures.
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Net Cash Used in Financing Activities
Net cash used in financing activities for the three months ended December 31, 2025 was $27.7 million, a net change of $0.6 million, from cash used in financing activities of $27.1 million for the three months ended December 31, 2024. The change in cash flows were primarily due to:
•An increase of $27.6 million in principal payments for long-term debt;
•A decrease of $27.0 million in principal payments for short-term debt;
•An increase of $6.1 million in proceeds from the issuance of our common stock; and
•An increase of $6.2 million in payments of tax related withholdings due to the net settlement of equity awards.
Critical Accounting Estimates
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that have a material impact on the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses. Actual results may differ from these estimates.
We believe that our critical accounting estimates are those related to revenue recognition; allowance for credit losses; accounting for deferred costs; accounting for internally developed software; the valuation of goodwill and intangible assets; accounting for stock-based compensation; accounting for income taxes; accounting for convertible debt; and loss contingencies. We believe these estimates are critical because they most significantly affect the portrayal of our financial condition and results of operations and involve our most complex and subjective estimates and judgments. A discussion of our critical accounting estimates may be found in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025 in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Estimates” and below.
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements To Be Adopted
Refer to Note 2 to the accompanying unaudited condensed consolidated financial statements for a description of certain issued accounting standards that have been recently adopted and are expected to be adopted by us and may impact our results of operations in future reporting periods.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk from changes in foreign currency exchange rates and interest rates which could affect our operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities, and through the use of derivative financial instruments.
Exchange Rate Sensitivity
We are exposed to changes in foreign currency exchange rates. Any foreign currency transaction, defined as a transaction denominated in a currency other than the local functional currency, will be reported in the functional currency at the applicable exchange rate in effect at the time of the transaction. A change in the value of the functional currency compared to the foreign currency of the transaction will have either a positive or negative impact on our financial position and results of operations.
Assets and liabilities of our foreign entities are translated into U.S. dollars at exchange rates in effect at the balance sheet date and income and expense items are translated at average rates for the applicable period. Therefore, the change in the value of the U.S. dollar compared to foreign currencies will have either a positive or negative effect on our financial position and results of operations. Historically, our primary exposure has been related to transactions denominated in the Canadian dollar, Chinese yuan, Euro, and Japanese yen.
We use foreign currency forward contracts to hedge the foreign currency exchange risk associated with forecasted foreign denominated payments related to our ongoing business. The aggregate notional amount of our
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outstanding foreign currency forward contracts was $9.5 million at December 31, 2025. Foreign currency forward contracts are sensitive to changes in foreign currency exchange rates. A 10% unfavorable exchange rate movement in our portfolio of foreign currency contracts would have resulted in unrealized losses of $1.0 million at December 31, 2025. Such losses would be offset by corresponding gains in the remeasurement of the underlying transactions being hedged. We believe these foreign currency forward exchange contracts and the offsetting underlying commitments, when taken together, do not create material market risk.
Interest Rate Sensitivity
We are exposed to interest rate risk as a result of our cash and cash equivalents. As of December 31, 2025, we held approximately $92.1 million of cash and cash equivalents consisting of cash and highly liquid investments, including money-market funds and time deposits. Assuming a 1% increase in interest rates, our interest income on our highly liquid investments would increase by $0.3 million per annum, based on December 31, 2025 reported balances.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures. Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report. Based on this evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of December 31, 2025 to ensure that all material information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to them as appropriate to allow timely decisions regarding required disclosure and that all such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations of the effectiveness of internal control. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
A.P., a minor, by and through her guardian, Carlos Pena and Carlos Pena Action
On March 24, 2023, plaintiffs A.P., a minor, by and through her guardian, Carlos Pena, and Carlos Pena, each individually and on behalf of similarly situated individuals filed a purported class action lawsuit in the Circuit Court of Cook County, Illinois, Chancery Division (Case. No. 2023CH02866 (Cir. Ct. Cook Cnty. 2023)). The case was removed to Federal Court (Case No. 1:23CV2667 (N.D. Ill.)), and then severed and remanded back in part, so there are two pending cases. Plaintiffs subsequently amended the federal complaint twice, with the latest second amended complaint, filed on July 13, 2023, adding plaintiffs Randolph Freshour and Vincenzo Allan, each also filing individually and on behalf of similarly situated individuals. Plaintiffs allege that Cerence violated the Illinois Biometric Information Privacy Act (“BIPA”), 740 ILCS 14/1 et seq. through Cerence’s Drive Platform technology, which is integrated in various automobiles. The named plaintiffs allegedly drove or rode in a vehicle with Cerence’s Drive Platform technology. Across both cases, plaintiffs allege that Cerence violated: (1) BIPA Section 15(a) by possessing biometrics without any public written policy for their retention or destruction; (2) BIPA Section 15(b) by collecting, capturing, or obtaining biometrics without written notice or consent; (3) BIPA Section 15(c) by profiting from biometrics obtained from Plaintiffs and putative class members; and (4) BIPA Section 15(d) by disclosing biometrics to third party companies without consent. Cerence filed motions to dismiss both cases. On February 27, 2024, the Circuit Court issued an order denying Cerence's motion to dismiss. On April 16, 2024, Cerence filed its answer and affirmative defenses, a motion to certify the Court’s order on Cerence’s motion to dismiss, and a motion to stay. Thereafter, in exchange for Cerence withdrawing its motions to certify and stay, plaintiffs filed amended complaints in both the Circuit Court and Federal Court, which 1) dismissed some plaintiffs and 2) amended the class definition to include Illinois individuals who owned, leased, and/or created user profiles for vehicles with Cerence’s “voice recognition technology” (rather than anyone in Illinois whose “voiceprint” was collected or stored by Cerence). Cerence filed its answers in both and the parties concluded fact discovery. On October 24, 2025, plaintiffs moved to certify the class, and that motion is fully briefed. On November 3, 2025, plaintiffs moved to stay the Federal Court case pending the Circuit Court’s ruling on class certification. On December 10, 2025, Cerence filed a Motion for Summary Judgment as to Plaintiff Vincenzo Allan on the basis that he did not use Cerence’s technology during the relevant period, as well as a Motion to Exclude Testimony of Plaintiffs’ class certification expert. Plaintiffs are seeking statutory damages of $5,000 for each willful and/or reckless violation of BIPA and, alternatively, damages of $1,000 for each negligent violation of BIPA. Given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, class certification and success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from this action.
Samsung Electronics Co. Ltd and Samsung Electronics America, Inc.
On October 13, 2023, Cerence filed its first patent infringement complaint against Samsung alleging infringement of five Cerence patents (“Samsung I”). On March 15, 2024, Cerence filed its second patent infringement complaint against Samsung alleging infringement of four additional Cerence patents (“Samsung II”). In its responsive pleading to Samsung II 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 sought damages, including trebled damages, and its costs and fees. On October 28, 2025, Samsung and Cerence resolved these disputes by entering into a cross-license agreement, which, among other things, resulted in Samsung agreeing to pay Cerence a one-time lump sum payment in the total amount of $49.5 million, which payment was received, net of tax, during the three months ended December 31, 2025, and the entirety of which was recorded as license revenue in accordance with ASC 606 during the three months ended December 31, 2025, consistent with the Company’s revenue recognition policy. The cross-license agreement requires that each party is responsible for bearing their own costs for any associated legal fees incurred as a result of the alleged complaints and negotiations resulting in the dispute resolution. As a result, our final receipt of the one-time lump-sum payment resulted in us incurring approximately $20.7 million in legal fees, included in General and administrative expenses, which were paid in full during the three months ended December 31, 2025.
IP Enforcement Actions
From time to time, we may need to file actions to enforce our intellectual property rights. As of the date of this report, we have filed the following pending actions: (1) a complaint against Apple Inc. in the United States District Court for the Western District of Texas for patent infringement and seeking damages for such infringement; (2) a complaint with the United States International Trade Commission (ITC) against Sony Group Corporation ("Sony") and TCL Technology Group Corporation ("TCL") to block the importation of products infringing the Company's patents; (3) complaints against both Sony and TCL in the United States District Court for the Eastern District of Texas seeking
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damages for such infringement; and (4) a complaint against Microsoft Corp. and Nuance Communications, Inc. in the United States District Court for the District of Delaware seeking damages for copyright infringement and breach of contract. The potential outcomes of litigation are unpredictable and, as a result, there can be no assurance that we will prevail in any such litigation or, if we prevail, what remedies might be awarded or whether any revenue may be recognized.
Other Legal Proceedings
From time to time, we may become a party to other legal proceedings, including, without limitation, product liability claims, employment matters, commercial disputes, governmental inquiries and investigations (which may in some cases involve our entering into settlement arrangements or consent decrees), and other matters arising out of the ordinary course of our business. While the results of any legal proceeding cannot be predicted with certainty, in our opinion none of our pending matters are currently anticipated to have a material adverse effect on our consolidated financial position, liquidity or results of operations.
Item 1A. Risk Factors.
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025, which could materially affect our business, financial condition or future results of operations. The risks described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025 and those described in this Quarterly Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Other than as updated below, there are no material changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
Benefits realized by our intellectual property monetization efforts may result in unpredictable or variable accounting treatments
Any agreements reached or damages awarded to us in connection with our intellectual property monetization efforts are subject to the appropriate application of relevant accounting standards under US GAAP based on the terms and conditions of any future potential agreement to license our IP. Our historical accounting treatment of such receipts and application of the relevant accounting standards may not be indicative of how future benefits may be accounted for. The revenue we may recognize from licenses,settlements or judgments in our favor may have a one-time effect of increasing revenue in the applicable period as required under applicable accounting standards, which may make comparisons with prior and future periods more difficult. For example, we recognized $49.5 million of revenue associated with the settlement of our litigation and IP license with Samsung and a one-time lump sum payment in connection therewith during the first quarter of fiscal year 2026.
Item 5. Other Information.
Rule 10b5-1 Plans. Our policy governing transactions in our securities by directors, officers and employees permits our officers, directors and certain other persons to enter into trading plans complying with Rule 10b5-1 under the Exchange Act. Generally, under these trading plans, the individual relinquishes control over the transactions once the trading plan is put into place. Accordingly, sales under these plans may occur at any time, including possibly before, simultaneously with, or immediately after significant events involving our company.
During the three-month period ended December 31, 2025, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted terminated
We anticipate that, as permitted by Rule 10b5-1 and our policy governing transactions in our securities, some or all of our officers, directors and employees may establish trading plans in the future. We intend to disclose the names of executive officers and directors who establish a trading plan in compliance with Rule 10b5-1 and Regulation S-K, Item 408(a) and the requirements of our policy governing transactions in our securities in our future quarterly and annual reports on Form 10-Q and 10-K filed with the SEC. However, we undertake no obligation to update or revise the information provided herein, including for revision or termination of an established trading plan, other than in such quarterly and annual reports.
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Item 6. Exhibits.
The exhibits listed on the Exhibit Index are filed or furnished as part of this Quarterly Report on Form 10-Q.
| EXHIBIT INDEX | ||||||||||||||||||||||||||||||||||||||
| Incorporated by Reference | ||||||||||||||||||||||||||||||||||||||
| Exhibit Index # | Exhibit Description | Filed Herewith | Form | File No. | Exhibit | Filing Date | ||||||||||||||||||||||||||||||||
| 3.1 | Amended and Restated Certification of Incorporation of Cerence Inc. | 8-K | 001-39030 | 3.1 | October 2, 2019 | |||||||||||||||||||||||||||||||||
| 3.2 | Second Amended and Restated By-laws of Cerence Inc. | 8-K | 001-39030 | 3.1 | May 4, 2023 | |||||||||||||||||||||||||||||||||
| 3.3 | Amendment No. 1 to Second Amended and Restated By-laws of Cerence Inc. | 10-Q | 001-39030 | 3.3 | May 7, 2025 | |||||||||||||||||||||||||||||||||
| 31.1 | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||||||||||||||||||||||||||||||||||||
| 31.2 | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||||||||||||||||||||||||||||||||||||
| 32.1* | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||||||||||||||||||||||||||||||||||
| 32.2* | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||||||||||||||||||||||||||||||||||
| 101.INS | Inline XBRL Instance Document | X | ||||||||||||||||||||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents | X | ||||||||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*) | X | ||||||||||||||||||||||||||||||||||||
*Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Cerence Inc. | ||||||||
Date: February 4, 2026 | By: | /s/ Brian Krzanich | ||||||
| Brian Krzanich | ||||||||
Chief Executive Officer (Principal Executive Officer) | ||||||||
Date: February 4, 2026 | By: | /s/ Tony Rodriquez | ||||||
| Tony Rodriquez | ||||||||
Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) | ||||||||
42
FAQ
How did Cerence (CRNC) perform financially in the quarter ended December 31, 2025?
Cerence reported revenue of $115.1 million, up 126.1% year over year. Income from operations was $29.3 million, but a $35.3 million tax provision led to a net loss of $5.2 million, narrower than the prior-year loss.
What drove the large increase in Cerence (CRNC) revenue this quarter?
The biggest driver was a $49.5 million one-time IP license payment from a cross-license agreement with Samsung, recorded as license revenue. Additional growth came from higher license volumes, connected services, and about $7.8 million of incremental fixed license contracts.
How profitable were Cerence’s core operations for the quarter?
Cerence generated $99.4 million in gross profit on $115.1 million of revenue and reported $29.3 million of income from operations. This compares with a prior-period operating loss of $16.9 million, reflecting significantly improved operating profitability before taxes.
Why did Cerence (CRNC) still report a net loss despite positive operating income?
Although operating income reached $29.3 million, Cerence recorded a substantial $35.3 million income tax provision. Combined with interest expense, this pushed results to a net loss of $5.2 million, albeit much smaller than the previous year’s loss.
What was Cerence’s cash flow and debt position at December 31, 2025?
Cash provided by operating activities was $37.9 million, up from $9.3 million a year earlier. Cerence held $92.1 million in cash and cash equivalents and had $171.9 million of long-term debt, mainly 1.50% convertible notes due 2028.
How concentrated was Cerence’s revenue among major customers this quarter?
One customer contributed $49.5 million, or 43.0% of total revenue, reflecting the Samsung IP license payment. In the prior-year quarter, three customers individually represented between 11.8% and 14.5% of revenue, showing elevated concentration this period.
What restructuring activities affected Cerence (CRNC) in the quarter?
Cerence recorded $7.8 million in restructuring and other costs, mainly $7.5 million related to personnel eliminations and $0.3 million from facility closures. These actions are tied to cost-reduction and transformation initiatives, with related cash payments largely made in the period.
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Software - Application
Services-prepackaged Software
United States
BURLINGTON