Cerence Inc. (CRNC)
SIC breadcrumb: Services > Business Services > SIC 7372 Services-Prepackaged Software
SEC company page: https://www.sec.gov/edgar/browse/?CIK=1768267. Latest filing source: 0001628280-25-053372.
Selected Fundamentals
| Metric | Value | Unit | FY | Filed |
|---|---|---|---|---|
| Revenue | 251,781,000 | USD | 2025 | 2025-11-20 |
| Net income | -18,714,000 | USD | 2025 | 2025-11-20 |
| Assets | 630,591,000 | USD | 2025 | 2025-11-20 |
Financials
Annual standardized facts from SEC companyfacts as of latest extracted filing date 2025-11-20. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001768267.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.
| Metric | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 276,984,000 | 303,315,000 | 330,967,000 | 387,182,000 | 327,891,000 | 294,475,000 | 331,504,000 | 251,781,000 | |
| Net income | 5,881,000 | 100,268,000 | -18,316,000 | 45,893,000 | -310,826,000 | -56,254,000 | -588,078,000 | -18,714,000 | |
| Operating income | 36,852,000 | 10,852,000 | 22,431,000 | 60,594,000 | -184,345,000 | -27,199,000 | -579,936,000 | -2,291,000 | |
| Gross profit | 194,020,000 | 203,972,000 | 223,116,000 | 286,108,000 | 230,723,000 | 199,312,000 | 244,272,000 | 183,136,000 | |
| Diluted EPS | 0.16 | 2.76 | -0.50 | 1.17 | -7.93 | -1.40 | -14.12 | -0.43 | |
| Operating cash flow | 115,259,000 | 88,071,000 | 44,789,000 | 74,389,000 | -2,138,000 | 7,498,000 | 17,196,000 | 61,173,000 | |
| Capital expenditures | 6,510,000 | 4,517,000 | 19,012,000 | 12,047,000 | 17,446,000 | 5,124,000 | 4,996,000 | 14,356,000 | |
| Share buybacks | 9,369,000 | 45,769,000 | 49,003,000 | 4,894,000 | 9,865,000 | 2,380,000 | |||
| Assets | 1,483,829,000 | 1,687,617,000 | 1,705,728,000 | 1,318,493,000 | 1,297,590,000 | 702,358,000 | 630,591,000 | ||
| Liabilities | 415,701,000 | 727,546,000 | 673,783,000 | 605,543,000 | 602,715,000 | 561,261,000 | 479,915,000 | ||
| Stockholders' equity | 997,179,000 | 993,319,000 | 1,068,128,000 | 960,071,000 | 1,031,945,000 | 712,950,000 | 694,875,000 | 141,097,000 | 150,676,000 |
| Free cash flow | 108,749,000 | 83,554,000 | 25,777,000 | 62,342,000 | -19,584,000 | 2,374,000 | 12,200,000 | 46,817,000 |
Ratios
| Metric | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|---|---|---|---|
| Net margin | 2.12% | 33.06% | -5.53% | 11.85% | -94.80% | -19.10% | -7.43% | ||
| Operating margin | 13.30% | 3.58% | 6.78% | 15.65% | -56.22% | -9.24% | -0.91% | ||
| Return on equity | 0.59% | 9.39% | -1.91% | 4.45% | -43.60% | -8.10% | -416.79% | -12.42% | |
| Return on assets | 6.76% | -1.09% | 2.69% | -23.57% | -4.34% | -83.73% | -2.97% | ||
| Liabilities / equity | 0.39 | 0.76 | 0.65 | 0.85 | 0.87 | 3.98 | 3.19 | ||
| Current ratio | 0.72 | 1.26 | 1.74 | 1.55 | 1.52 | 1.22 | 1.89 |
Financial Charts
Quarterly
Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-07. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001768267.json.
| Quarter | End Date | Revenue | Net Income | Diluted EPS | Method |
|---|---|---|---|---|---|
| 2022-Q3 | 2022-06-30 | -2.53 | reported discrete quarter | ||
| 2023-Q1 | 2022-12-31 | -0.05 | reported discrete quarter | ||
| 2023-Q2 | 2023-03-31 | -0.65 | reported discrete quarter | ||
| 2023-Q3 | 2023-06-30 | 61,660,000 | -16,455,000 | -0.41 | reported discrete quarter |
| 2023-Q4 | 2023-09-30 | 80,764,000 | -11,552,000 | derived Q4 = FY annual - nine-month YTD | |
| 2024-Q1 | 2023-12-31 | 138,335,000 | 23,857,000 | 0.53 | reported discrete quarter |
| 2024-Q2 | 2024-03-31 | 67,825,000 | -277,976,000 | -6.66 | reported discrete quarter |
| 2024-Q3 | 2024-06-30 | 70,539,000 | -313,543,000 | -7.50 | reported discrete quarter |
| 2024-Q4 | 2024-09-30 | 54,805,000 | -20,416,000 | derived Q4 = FY annual - nine-month YTD | |
| 2025-Q1 | 2024-12-31 | 50,896,000 | -24,288,000 | -0.57 | reported discrete quarter |
| 2025-Q2 | 2025-03-31 | 78,010,000 | 21,656,000 | 0.46 | reported discrete quarter |
| 2025-Q3 | 2025-06-30 | 62,236,000 | -2,721,000 | -0.06 | reported discrete quarter |
| 2025-Q4 | 2025-09-30 | 60,639,000 | -13,361,000 | derived Q4 = FY annual - nine-month YTD | |
| 2026-Q1 | 2025-12-31 | 115,076,000 | -5,239,000 | -0.12 | reported discrete quarter |
| 2026-Q2 | 2026-03-31 | 64,192,000 | 1,673,000 | 0.04 | reported discrete quarter |
Quarterly Charts
Macro Cross-References
- CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
- UNRATE - Unemployment Rate
- FEDFUNDS - Federal Funds Effective Rate
- CES0500000003 - Average Hourly Earnings of All Employees, Total Private
- DFEDTARU - Federal Funds Target Range - Upper Limit
- DFEDTARL - Federal Funds Target Range - Lower Limit
- DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
- DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
- DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
- DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
- T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
- CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
- CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
- CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
- CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
- PCEPI - Personal Consumption Expenditures: Chain-type Price Index
- PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
- PPIACO - Producer Price Index by Commodity: All Commodities
- T10YIE - 10-Year Breakeven Inflation Rate
- U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
- PAYEMS - All Employees, Total Nonfarm
- CIVPART - Labor Force Participation Rate
- EMRATIO - Employment-Population Ratio
- UNEMPLOY - Unemployed
- CE16OV - Employment Level
- ICSA - Initial Claims
- JTSJOL - Job Openings: Total Nonfarm
- JTSQUR - Quits: Total Nonfarm
- GDPC1 - Real Gross Domestic Product
- A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
- INDPRO - Industrial Production: Total Index
- TCU - Capacity Utilization: Total Index
- HOUST - New Privately-Owned Housing Units Started: Total Units
- PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
- RSAFS - Advance Retail Sales: Retail Trade
- PCE - Personal Consumption Expenditures
- DSPIC96 - Real Disposable Personal Income
- PSAVERT - Personal Saving Rate
- M2SL - M2
- BOPGSTB - U.S. International Trade in Goods and Services: Balance
- MSPUS - Median Sales Price of Houses Sold for the United States
- HSN1F - New One Family Houses Sold: United States
- RHORUSQ156N - Homeownership Rate in the United States
- TTLCONS - Total Construction Spending: Total Construction in the United States
- RRVRUSQ156N - Rental Vacancy Rate in the United States
- TOTALSL - Total Consumer Credit Owned and Securitized
- REVOLSL - Revolving Consumer Credit Owned and Securitized
- DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
- GDP - Gross Domestic Product
- GPDI - Gross Private Domestic Investment
- GCE - Government Consumption Expenditures and Gross Investment
- PCEC - Personal Consumption Expenditures
- NETEXP - Net Exports of Goods and Services
- GFDEBTN - Federal Debt: Total Public Debt
- GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
- FYFSD - Federal Surplus or Deficit
- FGRECPT - Federal Government Current Receipts
- FGEXPND - Federal Government: Current Expenditures
- MANEMP - All Employees, Manufacturing
- USCONS - All Employees, Construction
- USTRADE - All Employees, Retail Trade
- USFIRE - All Employees, Financial Activities
- USGOVT - All Employees, Government
- AWHAETP - Average Weekly Hours of All Employees, Total Private
- DGORDER - Manufacturers' New Orders: Durable Goods
- NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
- BUSINV - Total Business Inventories
- EXPGS - Exports of Goods and Services
- IMPGS - Imports of Goods and Services
- IR - Import Price Index (End Use): All Commodities
- PPIFIS - Producer Price Index by Commodity: Final Demand
Latest quarter (10-Q)
Latest 10-Q source: 0001628280-26-032139.
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 and six months ended March 31, 2026 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 embedded in and developed in connection with our operating software platform 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 27 Table of Contents 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 and six months ended March 31, 2026 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 March 31, 2026 as compared to the three months ended March 31, 2025: •Total revenue decreased by $13.8 million, or 17.7%, to $64.2 million from $78.0 million. •Operating margin decreased 26.1 percentage points to negative 3.8% from positive 22.2%. •Cash provided by operating activities was $14.1 million, a reduction of $1.4 million, or 8.8%, from cash provided by operating activities of $15.5 million. For the six months ended March 31, 2026 as compared to the six months ended March 31, 2025: •Total revenue increased by $50.4 million, or 39.1%, to $179.3 million from $128.9 million. •Operating margin increased 14.7 percentage points to positive 15.0% from positive 0.3%. •Cash provided by operating activities was $52.0 million, an increase of $27.3 million, or 110.4%, from cash provided by operating activities of $24.7 million. 28 Table of Contents Operating Results The following table shows the Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2026 and 2025 (dollars in thousands): Three Months Ended March 31, Six Months Ended March 31, 2026 2025 2026 2025 Revenues: License $ 37,577 $ 51,460 $ 125,335 $ 74,185 Connected services 15,310 12,648 29,843 26,355 Professional services 11,305 13,902 24,091 28,366 Total revenues 64,192 78,010 179,269 128,906 Cost of revenues: License 1,606 2,432 2,929 4,214 Connected services 5,043 4,979 9,954 11,290 Professional services 10,247 10,418 19,739 20,149 Total cost of revenues 16,896 17,829 32,622 35,653 Gross profit 47,296 60,181 146,647 93,253 Operating expenses: Research and development 30,298 23,332 54,999 44,201 Sales and marketing 6,519 4,930 12,076 9,696 General and administrative 12,796 11,199 44,783 23,953 Amortization of intangible assets — 536 — 1,090 Restructuring and other costs, net 127 2,832 7,921 13,894 Total operating expenses 49,740 42,829 119,779 92,834 (Loss) income from operations (2,444) 17,352 26,868 419 Interest income 655 918 1,520 2,355 Interest expense (1,477) (2,716) (3,142) (6,109) Other income, net 288 499 1,837 771 (Loss) income before income taxes (2,978) 16,053 27,083 (2,564) (Benefit from) provision for income taxes (4,651) (5,603) 30,649 68 Net income (loss) $ 1,673 $ 21,656 $ (3,566) $ (2,632) 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” that underpins and is deployed as part of our products and 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 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 relating to technology developed and commercialized in the ordinary course of our business 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 29 Table of Contents recognized with respect to IP license agreements may require the use of estimates, which may be significant. Related revenue is rec [Excerpt truncated for page length; source filing is linked above.]
Latest 10-K MD&A
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management’s Discussion and Analysis of Financial Condition and Results of Operations, (the “MD&A”), describes the principal factors, based on management’s assessment, which had a material impact on our results of operations, financial condition and liquidity, as well as our critical accounting estimates. Our MD&A generally includes a discussion of results of operations, financial condition, liquidity and capital resources related to year-over-year comparisons between fiscal years ended September 30, 2025 and 2024, as well as fiscal years ended September 30, 2024 and 2023. The following discussion and analysis presented below should be read in conjunction with the Consolidated Financial Statements and the corresponding notes, included elsewhere in this Form 10-K. The information presented in this section includes forward-looking statements, which are described in detail in the section titled “Cautionary Statement Concerning Forward-Looking Statements.” The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those made, projected, or implied in the forward-looking statements. See Item 1A.“Risk Factors” for a discussion of the risks, uncertainties, and assumptions associated with these statements. 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 Annual Report. Business Trends We experienced a 24.0% decrease in total revenue during fiscal year 2025. The decrease in revenues was driven by a decrease in connected services revenue due to the early termination of a legacy contract acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer. The effect of this change was to accelerate $67.8 million of deferred revenue into the first quarter of fiscal year 2024. The decrease was partially offset by an increase in license revenue primarily due to an increase in volume of licensing royalties. Our license revenue is highly dependent on vehicle production, the timing and volume of which continues to be impacted by the changing dynamics in the global automotive industry. Macroeconomic conditions 33 Table of Contents such as high interest rates and lack of credit availability have contributed to production delays and slowdowns. The decrease in our professional services revenues 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. During fiscal year 2025, total cost of revenues decreased by 21.3% compared to fiscal year 2024, primarily driven by the declines in connected services and professional services revenues. Total operating expenses decreased by 77.5% during fiscal year 2025, primarily driven by the impairment of goodwill recognized in fiscal year 2024 and our ongoing business transformation and cost reduction efforts. Restructuring and other costs, net decreased $1.7 million, driven by the wind-down of restructuring efforts initiated in 2024. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with GAAP, and the rules and regulations of the SEC. The consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the consolidated results of operations and financial position for the fiscal years presented. All such adjustments are of a normal recurring nature. The consolidated financial statements include the accounts of the Company, as well as those of its wholly owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation. Key Financial Metrics In evaluating our financial condition and operating performance, we focus on revenue, operating margins, and cash flow from operations. For the fiscal year 2025 as compared to fiscal year 2024: •Total revenue decreased by $79.7 million, or 24.0%, from $331.5 million to $251.8 million. •Operating margin increased by 174.0 percentage points from negative 174.9% to negative 0.9%. •Cash from operating activities changed by $44.0 million, or 255.7%, from cash provided by operating activities of $17.2 million to cash provided by operating activities of $61.2 million. For fiscal year 2024 as compared to fiscal year 2023: •Total revenue increased by $37.0 million, or 12.6%, from $294.5 million to $331.5 million. •Operating margin decreased by 165.7 percentage points from negative 9.2% to negative 174.9%. •Cash from operating activities changed by $9.7 million, or 129.4%, from cash provided by operating activities of $7.5 million to cash provided by operating activities of $17.2 million. Operating Results The following table shows the Consolidated Statements of Operations for the fiscal years 2025, 2024 and 2023 (dollars in thousands): 34 Table of Contents 2025 2024 2023 Revenues: License $ 140,625 $ 124,746 $ 145,159 Connected services 53,358 133,444 75,071 Professional services 57,798 73,314 74,245 Total revenues 251,781 331,504 294,475 Cost of revenues: License $ 6,941 $ 6,060 $ 8,522 Connected services 21,418 24,787 22,995 Professional services 40,286 56,282 63,232 Amortization of intangibles — 103 414 Total cost of revenues 68,645 87,232 95,163 Gross profit 183,136 244,272 199,312 Operating expenses: Research and development $ 97,756 $ 121,563 $ 123,333 Sales and marketing 21,815 21,725 27,504 General and administrative 48,770 52,468 57,903 Amortization of intangible assets 1,668 2,203 5,854 Restructuring and other costs, net 15,418 17,077 11,917 Goodwill impairment — 609,172 — Total operating expenses 185,427 824,208 226,511 Loss from operations (2,291) (579,936) (27,199) Interest income 3,853 5,353 4,471 Interest expense (10,223) (12,553) (14,769) Other (expense) income, net (160) 2,526 1,108 Loss before income taxes (8,821) (584,610) (36,389) Provision for income taxes 9,893 3,468 19,865 Net loss $ (18,714) $ (588,078) $ (56,254) Our revenue consists primarily of license revenue, connected services revenue and revenue from professional services. License revenue primarily consists of license royalties associated with our edge software components. Our edge software components are typically sold under a traditional per unit perpetual software license model, in which a per unit fee is charged for each software instance installed on an automotive head unit. Our contracts contain variable, fixed prepaid or fixed minimum purchase commitment components. Revenue is recognized and cash is collected for variable contracts over the license distribution period. The fixed contracts typically provide the customer with a price discount and can include the conversion of a variable contract that is already in our variable backlog. Revenue for fixed contracts is recognized when the software is made available to the customer, which has typically occurred at the time the contract is signed. Cash is typically expected to be collected for a fixed prepaid deal at the inception of the contract. Cash is expected to be collected for a fixed minimum commitment deal over the license distribution period. During fiscal year 2023, we had a reduction in contributions from our fixed license contracts due to our decision to limit the level of such contracts on a go-forward basis which contributed to a decline in reported license revenue for fiscal years 2023, 2024 and 2025. Going forward, we will continue to assess the levels of fixed license contracts and make adjustments, as necessary. See Note 3 to the accompanying 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 35 Table of Contents revenue is recognized and cash is collected as the service is used. If the customer takes possession of the software to have it hosted by the customer or a third-party, revenue is recognized, and cash is collected at the time the license is delivered. On October 31, 2023, we entered into an early termination agreement relating to a legacy contract acquired by Nuance through a 2013 acquisition. Previously, the term of the contract ended on December 31, 2025, whereas the agreement signed on October 31, 2023 updated the termination date to December 31, 2023. The effect of this change was to accelerate $67.8 million of deferred revenue into the first quarter of fiscal year 2024. There was no cash flow associated with this legacy contract. We provided services to a separate customer, who in turn provided services to our legacy customer. This separate customer terminated services on October 31, 2023. There was no cash flow associated with this contract. The effect of this termination was to accelerate $9.9 million of deferred revenue into the first quarter of fiscal year 2024. See Note 3 to the accompanying consolidated financial statements for further discussion of our revenue, deferred revenue performance obligations and the timing of revenue recognition. Cost of connected service revenue primarily consists of labor costs of software delivery services, infrastructure, and communications fees that support our connected services solutions. During the first quarter of fiscal year 2024, we had an acceleration of $2.0 million of expenses associated with the termination of the legacy contract acquired by Nuance through a 2013 acquisition. Professional services revenue is primarily comprised of porting, integrating, and customizing our embedded solutions, with costs primarily consisting of compensation for services personnel, contractors and overhead. 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. Other components of operating expenses include restructuring and other costs, net and goodwill impairment. 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. Goodwill impairment is recognized on a non-recurring basis when the carrying value of our reporting unit exceeds the estimated fair value. Total other expense, net consists primarily of foreign exchange gains (losses), losses on our investments in convertible notes, gains (losses) on the extinguishment of debt 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 operations. In August 2024, we announced the 2024 Plan intended to reduce operating expenses and position us for profitable growth. During fiscal year 2025, we incurred approximately $15.4 million of restructuring charges as part of the 2024 Plan and currently estimate cash charges of approximately $7.4 million to $7.6 million during fiscal year 2026, as part of the 2025 Plan. The implementation of the 2024 Plan was substantially complete by the end of the first quarter of fiscal year 2025 and the implementation of the 2025 Plan is expected to be substantially complete by the end of the first quarter of fiscal year 2026. 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 Item 1A. Risk Factors. 36 Table of Contents Fiscal Year 2025 Compared with Fiscal Year 2024 and Fiscal Year 2024 Compared with Fiscal Year 2023 Total Revenues The following table shows total revenues by product type, including the corresponding percentage change (dollars in thousands): Year Ended September 30, % Change % Change 2025 % of Total 2024 % of Total 2023 % of Total 2025 vs. 2024 2024 vs. 2023 License $ 140,625 55.9% $ 124,746 37.6% $ 145,159 49.3% 12.7 % (14.1) % Connected services 53,358 21.2% 133,444 40.3% 75,071 25.5% (60.0) % 77.8 % Professional services 57,798 23.0% 73,314 22.1% 74,245 25.2% (21.2) % (1.3) % Total revenues $ 251,781 $ 331,504 $ 294,475 (24.0) % 12.6 % Fiscal Year 2025 Compared with Fiscal Year 2024 Total revenues for fiscal year 2025 were $251.8 million, a decrease of $79.7 million, or 24.0%, from $331.5 million from fiscal year 2024. The decrease in revenues was driven by connected services revenue due to the early termination of a legacy contract in fiscal year 2024 acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer (hereinafter the "2013 Nuance Legacy Contract Termination"). The decrease was partially offset by increases in license revenue primarily due to higher volume of licensing royalties. License Revenue License revenue for fiscal year 2025 was $140.6 million, an increase of $15.9 million, or 12.7%, from $124.7 million for fiscal year 2024. The increase in license revenue was driven by a $24.1 million increase in variable license revenue due to higher volume of licensing royalties, primarily offset by a $8.2 million decrease in fixed contracts. As a percentage of total revenue, license revenue increased by 18.2 percentage points from 37.6% for fiscal year 2024 to 55.9% for fiscal year 2025. Connected Services Revenue Connected services revenue for fiscal year 2025 was $53.4 million, a decrease of $80.1 million, or 60.0%, from $133.4 million for fiscal year 2024. This decrease was primarily driven by the 2013 Nuance Legacy Contract Termination. As a percentage of total revenue, connected services revenue decreased by 19.1 percentage points from 40.3% for fiscal year 2024 to 21.2% for fiscal year 2025. Professional Services Revenue Professional services revenue for fiscal year 2025 was $57.8 million, a decrease of $15.5 million, or 21.2%, from $73.3 million for fiscal year 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 revenue, professional services revenue increased by 0.8 percentage points from 22.1% for fiscal year 2024 to 23.0% for fiscal year 2025. Fiscal Year 2024 Compared with Fiscal Year 2023 Total revenues for fiscal year 2024 were $331.5 million, an increase of $37.0 million, or 12.6%, from $294.5 million from fiscal year 2023. The increase in revenues was driven by connected services revenue due to the 2013 Nuance Legacy Contract Termination. The increase was partially offset by decreases in license revenue primarily due to lower volume of licensing royalties. 37 Table of Contents License Revenue License revenue for fiscal year 2024 was $124.7 million, a decrease of $20.5 million, or 14.1%, from $145.2 million for fiscal year 2023. The decrease in license revenue was driven by a $14.6 million decrease in variable license revenue due to lower volume of licensing royalties and a $6.1 million decrease in fixed contracts. As a percentage of total revenue, license revenue decreased by 11.7 percentage points from 49.3% for fiscal year 2023 to 37.6% for fiscal year 2024. Connected Services Revenue Connected services revenue for fiscal year 2024 was $133.4 million, an increase of $58.3 million, or 77.8%, from $75.1 million for fiscal year 2023. This increase was primarily driven by the 2013 Nuance Legacy Contract Termination. The effect of these changes was an acceleration of $67.8 million and $9.9 million of deferred revenue, respectively, into the first quarter of fiscal year 2024. As a percentage of total revenue, connected services revenue increased by 14.8 percentage points from 25.5% for fiscal year 2023 to 40.3% for fiscal year 2024. Professional Services Revenue Professional services revenue for fiscal year 2024 was $73.3 million, a decrease of $0.9 million, or 1.3%, from $74.2 million for fiscal year 2023. This decrease was primarily driven by the structure of our arrangements and the related timing of fulfilling performance obligations under the contracts. As a percentage of total revenue, professional services revenue decreased by 3.1 percentage points from 25.2% for fiscal year 2023 to 22.1% for fiscal year 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): Year Ended September 30, % Change % Change 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 License $ 6,941 $ 6,060 $ 8,522 14.5 % (28.9) % Connected services 21,418 24,787 22,995 (13.6) % 7.8 % Professional services 40,286 56,282 63,232 (28.4) % (11.0) % Amortization of intangibles — 103 414 (100.0) % (75.1) % Total cost of revenues $ 68,645 $ 87,232 $ 95,163 (21.3) % (8.3) % The following table shows total gross profit by product type and the corresponding percentage change (dollars in thousands): Year Ended September 30, % Change % Change 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 License $ 133,684 $ 118,686 $ 136,637 12.6 % (13.1) % Connected services 31,940 108,657 52,076 (70.6) % 108.7 % Professional services 17,512 17,032 11,013 2.8 % 54.7 % Amortization of intangibles — (103) (414) (100.0) % (75.1) % Total gross profit $ 183,136 $ 244,272 $ 199,312 (25.0) % 22.6 % Fiscal Year 2025 Compared with Fiscal Year 2024 Total cost of revenues for fiscal year 2025 was $68.6 million, a decrease of $18.6 million, or 21.3%, from $87.2 million for fiscal year 2024. We experienced a decrease in total gross profit of $61.1 million, or 25.0%, from $244.3 million to $183.1 million. The decrease was primarily driven by the 2013 Nuance Legacy Contract Termination. 38 Table of Contents Cost of License Revenue Cost of license revenue for fiscal year 2025 was $6.9 million, an increase of $0.9 million, or 14.5%, from $6.1 million for fiscal year 2024. Cost of license revenues increased primarily due to costs associated with our Cerence Link product. As a percentage of total cost of revenue, cost of license revenue increased by 3.2 percentage points from 6.9% for fiscal year 2024 to 10.1% for fiscal year 2025. License gross profit increased by $15.0 million, or 12.6%, primarily due to increased license revenues. Cost of Connected Services Revenue Cost of connected services revenue for fiscal year 2025 was $21.4 million, a decrease of $3.4 million, or 13.6%, from $24.8 million for fiscal year 2024. Cost of connected services revenue decreased primarily due to a $1.4 million decrease from lower internal allocated labor, a $1.1 million decrease in our cloud infrastructure costs and a $0.4 million decrease in cost of goods sold. As a percentage of total cost of revenue, cost of connected service revenue increased by 2.8 percentage points from 28.4% for fiscal year 2024 to 31.2% for fiscal year 2025. Connected services gross profit decreased $76.7 million, or 70.6%, from $108.7 million to $31.9 million which was primarily driven by the 2013 Nuance Legacy Contract Termination. Cost of Professional Services Revenue Cost of professional services revenue for fiscal year 2025 was $40.3 million, a decrease of $16.0 million, or 28.4%, from $56.3 million for fiscal year 2024. Cost of professional services revenue decreased primarily due to a $10.1 million decrease in third-party contractor costs, a $3.4 million decrease in allocated costs, and a $1.2 million decrease in compensation-related expenditures. Decreases were driven by the increased standardization of our software product offerings, which requires less professional services effort to implement, and other efficiencies in our professional services processes. As a percentage of total cost of revenue, cost of professional services revenue decreased by 5.8 percentage points from 64.5% for fiscal year 2024 to 58.7% for fiscal year 2025. Professional services gross profit increased $0.5 million, or 2.8%, from $17.5 million to $17.0 million which was primarily due to decreases in compensation-related expenditures during fiscal year 2025. Fiscal Year 2024 Compared with Fiscal Year 2023 Our total cost of revenues for fiscal year 2024 was $87.2 million, a decrease of $8.0 million, or 8.3%, from $95.2 million for fiscal year 2023. We experienced an increase in gross profit of $45.0 million, or 22.6%, from $199.3 million to $244.3 million. The increase was primarily driven by the increase in connected service revenue due to the 2013 Nuance Legacy Contract Termination. Cost of License Revenue Cost of license revenue for fiscal year 2024 was $6.1 million, a decrease of $2.4 million, or 28.9%,, from $8.5 million for fiscal year 2023. Cost of license revenues decreased primarily due to costs associated with our Cerence Link product. As a percentage of total cost of revenue, cost of license revenue decreased by 2.1 percentage points from 9.0% for fiscal year 2023 to 6.9% for fiscal year 2024. License gross profit decreased by $17.9 million, or 13.1%, from $136.6 million to $118.7 million, primarily due to decreases in license revenues. Cost of Connected Services Revenue Cost of connected services revenue for fiscal year 2024 was $24.8 million, an increase of $1.8 million, or 7.8%, from $23.0 million for fiscal year 2023. Cost of connected services revenue increased primarily due to a $1.6 million increase in our cloud infrastructure costs and a $1.0 million increase from higher internal allocated labor. The increase was partially offset by a $0.7 million decrease in salary-related expenditures. As a percentage of total cost of revenue, cost of connected service revenue increased by 4.2 percentage points from 24.2% for fiscal year 2023 to 28.4% for fiscal year 2024. 39 Table of Contents Connected services gross profit increased $56.6 million, or 108.7%, from $52.1 million to $108.7 million which was primarily driven by the 2013 Nuance Legacy Contract Termination. Cost of Professional Services Revenue Cost of professional services revenue for fiscal year 2024 was $56.3 million, a decrease of $6.9 million, or 11.0%, from $63.2 million for fiscal year 2023. Cost of professional services revenue decreased primarily due to a $3.9 million decrease in salary-related expenditures, a $1.4 million decrease in allocated costs, and a $0.9 million decrease in stock-based compensation expense. As a percentage of total cost of revenue, cost of professional services revenue decreased by 1.9 percentage points from 66.4% for fiscal year 2023 to 64.5% for fiscal year 2024. Professional services gross profit increased $6.0 million, or 54.7%, from $11.0 million to $17.0 million which was primarily due to decreases in compensation-related expenditures during fiscal year 2024. Operating Expenses The tables below show each component of operating expense. Other income (expense), net and provision for income taxes are non-operating expenses and presented in a similar format (dollars in thousands). R&D Expenses Year Ended September 30, % Change % Change 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Research and development $ 97,756 $ 121,563 $ 123,333 (19.6) % (1.4) % Fiscal Year 2025 Compared with Fiscal Year 2024 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 fiscal year 2025 were $97.8 million, a decrease of $23.8 million, or 19.6%, from $121.6 million for fiscal year 2024. The decrease in R&D expenses was primarily attributable to a $8.6 million decrease in third-party contractor costs, a $5.6 million decrease in employee compensation costs, a net $3.6 million decrease in internally allocated costs, a $0.4 million decrease in our cloud infrastructure costs, and a $6.3 million international tax credit catch-up related to two different tax jurisdictions; partially offset by $0.6 million in depreciation and amortization expense. As a percentage of total operating expenses, R&D expenses increased by 38.0 percentage points from 14.7% for fiscal year 2024 to 52.7% for fiscal year 2025. Fiscal Year 2024 Compared with Fiscal Year 2023 Historically, R&D expenses are our largest operating expense as we continue to build on our existing software platforms and develop new technologies. R&D expenses for fiscal year 2024 were $121.6 million, a decrease of $1.7 million, or 1.4%, from $123.3 million for fiscal year 2023. The decrease in R&D expenses was primarily attributable to a $6.7 million decrease in stock-based compensation costs, a $1.1 million decrease in allocated costs, a $1.1 million R&D international tax credit refund, and a $1.0 million decrease in internally allocated labor. The decrease was partially offset by a $4.3 million increase in salary-related expenditures, a $2.3 million increase in third-party contractor costs, and a $0.9 million decrease in capitalized costs associated with internally developed software. As a percentage of total operating expenses, R&D expenses decreased by 39.7 percentage points from 54.4% for fiscal year 2023 to 14.7% for fiscal year 2024. Sales & Marketing Expenses Year Ended September 30, % Change % Change 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Sales and marketing $ 21,815 $ 21,725 $ 27,504 0.4 % (21.0) % 40 Table of Contents Fiscal Year 2025 Compared with Fiscal Year 2024 Sales and marketing expenses for fiscal year 2025 were $21.8 million, an increase of $0.1 million, or 0.4%, from $21.7 million for fiscal year 2024. As a percentage of total operating expenses, sales and marketing expenses increased by 9.1 percentage points from 2.6% for fiscal year 2024 to 11.8% for fiscal year 2025. Fiscal Year 2024 Compared with Fiscal Year 2023 Sales and marketing expenses for fiscal year 2024 were $21.7 million, a decrease of $5.8 million, or 21.0%, from $27.5 million for fiscal year 2023. The decrease in sales and marketing expenses was primarily attributable to a $3.0 million decrease in salary-related expenditures, a $1.3 million decrease in stock-based compensation costs, a $1.0 million decrease in allocated costs, and a $1.1 million decrease in professional services. The decrease was partially offset by a $0.6 million increase in commissions expenditures. As a percentage of total operating expenses, sales and marketing expenses decreased by 9.5 percentage points from 12.1% for fiscal year 2023 to 2.6% for fiscal year 2024. General & Administrative Expenses Year Ended September 30, % Change % Change 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 General and administrative $ 48,770 $ 52,468 $ 57,903 (7.0) % (9.4) % Fiscal Year 2025 Compared with Fiscal Year 2024 General and administrative expenses for fiscal year 2025 were $48.8 million, a decrease of $3.7 million, or 7.0%, from $52.5 million for fiscal year 2024. The decrease in general and administrative expenses was primarily attributable to a $3.3 million decrease in bad debt expense, a $1.9 million decrease in employee compensation-related expenditures, and a $0.7 million decrease in rent and utilities expenses. The decrease was partially offset by $2.0 million less costs being allocated out. As a percentage of total operating expenses, general and administrative expenses increased by 19.9 percentage points from 6.4% for fiscal year 2024 to 26.3% for fiscal year 2025. Fiscal Year 2024 Compared with Fiscal Year 2023 General and administrative expenses for fiscal year 2024 were $52.5 million, a decrease of $5.4 million, or 9.4%, from $57.9 million for fiscal year 2023. The decrease in general and administrative expenses was primarily attributable to a $8.1 million decrease in stock-based compensation costs, a $1.9 million decrease in depreciation expense, a $1.3 million decrease in rent expense, and a $0.7 million decrease in salary-related expenditures. The decrease was partially offset by $3.9 million less costs being allocated out, a $2.0 million increase in professional services and a $0.6 million increase in hardware and software expenditures. As a percentage of total operating expenses, general and administrative expenses decreased by 19.2 percentage points from 25.6% for fiscal year 2023 to 6.4% for fiscal year 2024. Amortization of Intangible Assets Year Ended September 30, % Change % Change 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Cost of revenues $ — $ 103 $ 414 (100.0) % (75.1) % Operating expense 1,668 2,203 5,854 (24.3) % (62.4) % Total amortization $ 1,668 $ 2,306 $ 6,268 (27.7) % (63.2) % Fiscal Year 2025 Compared with Fiscal Year 2024 Intangible asset amortization for fiscal year 2025 was $1.7 million, a decrease of $0.6 million, or 27.7%, from $2.3 million for fiscal year 2024. The decrease primarily relates to certain intangible assets having been fully amortized during fiscal years 2025 and 2024. As a percentage of total cost of revenues, intangible asset amortization within cost of revenues decreased by 0.1 percentage points from 0.1% for fiscal year 2024 to none for fiscal year 2025. As a percentage of total operating 41 Table of Contents expenses, intangible asset amortization expenses within operating expenses increased by 0.6 percentage points from 0.3% for fiscal year 2024 to 0.9% for fiscal year 2025. Fiscal Year 2024 Compared with Fiscal Year 2023 Intangible asset amortization for fiscal year 2024 was $2.3 million, a decrease of $4.0 million, or 63.2%, from $6.3 million for fiscal year 2023. The decrease primarily relates to certain intangible assets having been fully amortized during fiscal year 2024. As a percentage of total cost of revenues, intangible asset amortization within cost of revenues decreased by 0.3 percentage points from 0.4% for fiscal year 2023 to 0.1% for fiscal year 2024. As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses decreased by 2.3 percentage points from 2.6% for fiscal year 2023 to 0.3% for fiscal year 2024. Other Components of Operating Expense Year Ended September 30, % Change % Change 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Restructuring and other costs, net $ 15,418 $ 17,077 $ 11,917 (9.7) % 43.3 % Goodwill impairment $ — $ 609,172 $ — 100.0 % — % Fiscal Year 2025 Compared with Fiscal Year 2024 Fiscal Year 2025 For the fiscal year ended September 30, 2025, we recorded restructuring and other costs, net of $15.4 million, which included a $12.1 million severance charge related to the elimination of personnel, of which $3.0 million related to the stock-based compensation expense for the termination of former senior management employees, and a $3.3 million charge related to our transformation initiatives. We are focused on pursuing actions intended to position the Company to deliver on our generative AI and large language model product roadmap and also deliver improved financial results which include process optimization efforts and cost reductions. Fiscal Year 2024 Goodwill impairment for the fiscal year ended September 30, 2024 was $609.2 million. At March 31, 2024, we concluded indicators of impairment were present due to the current macroeconomic conditions, including declines in our stock price. The fair value of our reporting unit was determined using a combination of the income approach and the market approach. We weighted the methodologies appropriately to estimate a fair value of approximately $463.4 million as of March 31, 2024. The carrying value of our reporting unit exceeded the estimated fair value. Based upon the results of the impairment test, we recorded a goodwill impairment charge of $252.1 million during the three months ended March 31, 2024. At June 30, 2024, we concluded indicators of impairment were present due to the current macroeconomic conditions, including declines in our stock price. The fair value of our reporting unit was determined using a combination of the income approach and the market approach. We weighted the methodologies appropriately to estimate a fair value of approximately $154.2 million as of June 30, 2024. The carrying value of our reporting unit exceeded the estimated fair value. Based upon the results of the impairment test, we recorded a goodwill impairment charge of $357.1 million during the three months ended June 30, 2024. On July 1, 2024, we concluded that a quantitative goodwill impairment test is not necessary as of July 1, 2024, as the June 30, 2024 quantitative analysis is deemed applicable. Based upon the results of the above impairment tests, our goodwill impairment charges total $609.2 million on the Consolidated Statement of Operations for the fiscal year ended September 30, 2024. Whenever events or changes in circumstances indicate that the carrying value may not be recoverable, we will be required to assess the potential impairment of goodwill and other intangible assets. Examples of factors that could trigger an impairment of such assets include, but are not limited to, our market capitalization declining to below net book value, declines in our stock price for sustained periods of time and negative industry or economic trends. Future adverse changes in these or other unforeseeable factors could result in additional impairment charges that would impact our results of operations and financial position in the reporting period identified. 42 Table of Contents For the fiscal year ended September 30, 2024, we recorded restructuring and other costs, net of $17.1 million, which included a $13.4 million severance charge related to the elimination of personnel, of which $8.1 million related to the 2024 Plan, $2.8 million of consulting costs relating to our transformation initiatives, and $0.8 million of other one-time charges. We are focused on pursuing actions intended to position the Company to deliver on our generative AI and large language model product roadmap and also deliver improved financial results which include process optimization efforts and cost reductions. As a percentage of total operating expense, restructuring and other costs, net increased by 6.2 percentage points from 2.1% for fiscal year 2024 to 8.3% for fiscal year 2025. Fiscal Year 2024 Compared with Fiscal Year 2023 Restructuring and other costs, net for fiscal year 2024 were $17.1 million, an increase of $5.2 million, from $11.9 million for fiscal year 2023. The increase in restructuring and other costs, net was primarily due to a $13.4 million severance charge related to the elimination of personnel, of which $8.1 million related to the 2024 Plan, $2.8 million of consulting costs relating to our transformation initiatives, and $0.8 million of other one-time charges. As a percentage of total operating expense, restructuring and other costs, net decreased by 3.2 percentage points from 5.3% for fiscal year 2023 to 2.1% for fiscal year 2024. Total Other Expense, Net Year Ended September 30, % Change % Change 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Interest income $ 3,853 $ 5,353 $ 4,471 (28.0) % 19.7 % Interest expense (10,223) (12,553) (14,769) (18.6) % (15.0) % Other income (expense), net (160) 2,526 1,108 (106.3) % 128.0 % Total other expense, net $ (6,530) $ (4,674) $ (9,190) 39.7 % (49.1) % Fiscal Year 2025 Compared with Fiscal Year 2024 Total other expense, net for fiscal year 2025 was $6.5 million, a change of $1.9 million from $4.7 million of expense for fiscal year 2024. The decrease in interest income was primarily attributable to a reduction of balances generating interest. The decrease in interest expense was primarily attributable to a lower applicable interest rate on our Notes. The change in other income (expense), net was primarily driven by a $2.4 million write down of investments in convertible notes in fiscal year 2025, offset by foreign exchange gains. Fiscal Year 2024 Compared with Fiscal Year 2023 Total other expense, net for fiscal year 2024 was $4.7 million, a change of $4.5 million from $9.2 million of expense for fiscal year 2023. The increase in interest income was primarily attributable to returns on investments. The decrease in interest expense was primarily attributable to a lower applicable interest rate on our Notes. The change in other income (expense), net, was primarily driven by foreign exchange gains. Provision for Income Taxes Year Ended September 30, % Change % Change 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Provision for income taxes $ 9,893 $ 3,468 $ 19,865 185.3 % (82.5) % Effective income tax rate % (112.2) % (0.6) % (54.6) % Fiscal Year 2025 Compared with Fiscal Year 2024 Our effective income tax rate for fiscal year 2025 was negative 112.2%, compared to negative 0.6% for fiscal year 2024. Consequently, our provision for income taxes for fiscal year 2025 was $9.9 million, an increase of $6.4 million, or 185.3%, from a provision for income taxes of $3.5 million for fiscal year 2024. The effective tax rate for the fiscal year 2025 43 Table of Contents differed from the U.S. federal statutory rate of 21.0%, primarily due to the tax impacts of stock-based compensation, research credits, and our composition of jurisdictional earnings. Fiscal Year 2024 Compared with Fiscal Year 2023 Our effective income tax rate for fiscal year 2024 was negative 0.6% , compared to negative 54.6% for fiscal year 2023. Consequently, our provision for income taxes for fiscal year 2024 was $3.5 million, a decrease of $16.4 million, or 82.5%, from a provision for income taxes of $19.9 million for fiscal year 2023. The effective income tax rate for fiscal year 2024 differed from the U.S. federal statutory rate of 21.0%, primarily due to impairment of book goodwill, the tax impacts of stock-based compensation, U.S. inclusions of foreign taxable income, valuation allowance on foreign loss carryforwards, and our composition of jurisdictional earnings. Liquidity and Capital Resources Financial Condition As of September 30, 2025, we had $87.5 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 $87.5 million of cash, cash equivalents and marketable securities as of September 30, 2025, we believe that we will be able to meet our liquidity needs over the next 12 months. We that believe we will meet longer-term expected future cash requirements and obligations, through a combination of cash flows from operating activities and available cash balances. The following table presents our material cash requirements for future periods (dollars in thousands): Material Cash Requirements Due by the Year Ended September 30, 2026 2027 - 2028 2029 - 2030 Thereafter Total 2028 Notes $ — $ 122,500 $ — $ — $ 122,500 Cash interest payable on the 2028 Notes (a) 1,838 3,675 — — 5,513 2025 Modified Notes — 87,500 — — 87,500 Cash interest payable on the 2025 Modified Notes (a) 1,313 2,625 — — 3,938 Operating leases 5,581 10,102 4,293 110 20,086 Finance leases 53 — — — 53 Total material cash requirements $ 8,784 $ 226,402 $ 4,293 $ 110 $ 239,589 (a)Interest per annum is due and payable semiannually and is determined based on the outstanding principal as of September 30, 2025. We sponsor certain defined benefit plans that are offered primarily by certain of our foreign subsidiaries. Many of these plans are required by local regulatory requirements. We may deposit funds for these plans with insurance companies, third-party trustees, or into government-managed accounts consistent with local regulatory requirements, as applicable. The aggregate net liability of our defined benefit plans as of September 30, 2025 was $6.2 million. 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 44 Table of Contents 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. A holder of 2028 Notes may convert all or any portion of its 2028 Notes at its option at any time prior to the close of business on the business day immediately preceding April 3, 2028 only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on September 30, 2023 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the 2028 Indenture) per $1,000 principal amount of 2028 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call such 2028 Notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after April 3, 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2028 Notes at any time, regardless of the foregoing circumstances. The conversion rate is 24.5586 shares of our common stock per $1,000 principal amount of 2028 Notes (equivalent to an initial conversion price of approximately $40.72 per share of our common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2028 Notes in connection with such a corporate event or convert its 2028 Notes called for redemption in connection with such notice of redemption, as the case may be. We may not redeem the 2028 Notes prior to July 6, 2026. We may redeem for cash all or any portion of the 2028 Notes (subject to certain limitations), at our option, on a redemption date occurring on or after July 6, 2026 and on or before the 31st scheduled trading day immediately before the maturity date, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2028 Notes. If we undergo a “fundamental change”, subject to certain conditions, holders may require us to repurchase for cash all or any portion of their 2028 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2028 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The 2028 Indenture contains customary terms and covenants, including that upon certain events of default occurring, and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the 2028 Notes then outstanding may declare the entire principal amount of all the 2028 Notes plus accrued special interest, if any, to be immediately due and payable. In connection with the offering of the 2028 Notes, we repurchased $87.5 million in aggregate principal amount of the 2025 Notes in a privately negotiated transaction. We specifically negotiated the repurchase of the 2025 45 Table of Contents Notes with investors who concurrently purchased the 2028 Notes. We evaluated the transaction to determine whether the exchange should be accounted for as a modification or extinguishment under the provisions of ASC 470-50, which allows for an exchange of debt instruments between the same debtor and creditor to be accounted for as a modification so long as the instruments do not have substantially different terms. Because the concurrent redemption of the 2025 Notes and a portion of issuance of the 2028 Notes were executed with the same investors, we evaluated the transaction as a debt modification, on a creditor by creditor basis. The repurchase of the 2025 Notes and issuance of the 2028 Notes were deemed to not have substantially different terms on the basis that (1) the present value of the cash flows under the terms of the new debt instrument were less than 10% different from the present value of the remaining cash flows under the terms of the original instrument and (2) the fair value of the conversion feature did not change by more than 10% of the carrying value of the 2025 Notes, and therefore, the repurchase of the 2025 Notes was accounted for as a debt modification. As a result, $87.5 million of the 2028 Notes are considered a modification of the 2025 Notes and are included in the balances of the 2025 Notes (the “2025 Modified Notes” and together with the 2028 Notes, the “Notes”) that were not repurchased as part of the transaction. We recorded $14.3 million of fees paid directly to the lenders as deferred debt issuance costs, and $3.8 million of fees paid to third-parties were expensed in the period. As of September 30, 2025, the carrying amount of the 2025 Modified Notes was $78.5 million, net of unamortized costs of $9.0 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 September 30, 2025, the carrying amount of the 2028 Notes was $121.2 million and unamortized issuance costs of $1.3 million. As of September 30, 2025, the 2028 Notes were not convertible. As of September 30, 2025 and September 30, 2024, the if-converted value of the 2028 Notes was $85.0 million and $113.0 million, respectively, less than its principal amount. 3.00% Senior Convertible Notes due 2025 On June 2, 2020, we issued $175.0 million in aggregate principal amount of 3.00% Convertible Senior Notes due 2025 (the “2025 Notes”), including the initial purchasers’ exercise in full of their option to purchase $25.0 million principal amount of the 2025 Notes, which are governed by an indenture (the “2025 Indenture”), between us and the Trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. 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. During the year ended September 30, 2025, we repurchased $27.4 million aggregate principal amount of our 2025 Notes for $27.0 million million in cash, including accrued interest and fees, via privately negotiated transactions with certain holders. The repurchased notes were subsequently cancelled and retired, resulting in a gain on extinguishment of debt of $0.3 million. 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. See “1.50% Senior Convertible Notes due 2028” section above for discussion on modification of the 2025 Notes as part of the offering of the 2028 Notes. The interest expense recognized related to the Notes for the fiscal years ended September 30, 2025, 2024 and 2023 was as follows (dollars in thousands): Year Ended September 30, 2025 2024 2023 Contractual interest expense $ 4,547 $ 5,776 $ 5,383 Amortization of debt discount 916 1,019 258 Amortization of issuance costs 4,289 4,936 2,119 Total interest expense related to the Notes $ 9,752 $ 11,731 $ 7,760 46 Table of Contents Senior Credit Facilities On June 12, 2020, we entered into the Term Loan Facility. The net proceeds from the issuance of the Term Loan Facility were $123.0 million. We also entered into the Revolving Facility, which could have been drawn on in the event that our working capital and other cash needs were not supported by our operating cash flow. In connection with the issuance of the 2028 Notes, in the third quarter of fiscal year 2023, we borrowed $24.7 million under our Revolving Facility and paid $106.3 million towards our Term Loan Facility. As a result, we recorded $104.9 million extinguishment of debt and $1.3 million loss on the extinguishment of debt. All principal and interest on the Term Loan Facility have been paid in full. 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 fiscal years ended September 30, 2025, 2024 and 2023 were 0.4 million, $0.4 million, $6.7 million, respectively, reflecting the coupon and accretion of the discount. Cash Flows Cash flows from operating, investing and financing activities for the fiscal years ended September 30, 2025, 2024, and 2023, as reflected in the audited Consolidated Statements of Cash Flows included in Item 8 of this Form 10-K, are summarized in the following table (dollars in thousands): Year Ended September 30, % Change % Change 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Net cash provided by operating activities $ 61,173 $ 17,196 $ 7,498 255.7 % 129.4 % Net cash (used in) provided by investing activities (10,554) 4,379 5,820 (341.0) % (24.8) % Net cash (used in) provided by financing activities (87,001) 225 (5,334) (38767.1) % (104.2) % Effect of foreign currency exchange rates on cash and cash equivalents (1,086) (1,469) (1,677) (26.1) % (12.4) % Net changes in cash and cash equivalents $ (37,468) $ 20,331 $ 6,307 (284.3) % 222.4 % Net Cash Provided By Operating Activities Fiscal Year 2025 Compared with Fiscal Year 2024 Net cash provided by operating activities for fiscal year 2025 was $61.2 million, a net change of $44.0 million, or 255.7%, from net cash provided by operating activities of $17.2 million for fiscal year 2024. The change in cash flows were primarily due to: •A decrease of $34.2 million from income before non-cash charges; •A decrease of $6.2 million due to changes in working capital primarily related to prepaid expenses and other assets and accrued expenses and other liabilities; and •An increase of $84.3 million from changes in deferred revenue. Deferred revenue represents a significant portion of our net cash 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. 47 Table of Contents Fiscal Year 2024 Compared with Fiscal Year 2023 Net cash provided by operating activities for fiscal year 2024 was $17.2 million, a net change of $9.7 million, or 129.4%, from net cash provided by operating activities of $7.5 million for fiscal year 2023. The change in cash flows were primarily due to: •An increase of $49.6 million from income before non-cash charges; •A decrease of $0.4 million due to changes in working capital primarily related to accounts receivable and prepaid expenses and other assets and accounts payable; and •A decrease of $39.5 million from changes in deferred revenue. Net Cash (Used In) Provided By Investing Activities Fiscal Year 2025 Compared with Fiscal Year 2024 Net cash used in investing activities for the fiscal year 2025 was $10.6 million, a net change of $14.9 million, or 341.0%, from net cash provided by investing activities of $4.4 million for fiscal year 2024. The change in cash flows were driven by an increase in capital expenditures of $9.4 million and a decrease of $5.6 million in net proceeds from the sale of marketable securities. Fiscal Year 2024 Compared with Fiscal Year 2023 Net cash provided by investing activities for fiscal year 2024 was $4.4 million, a net change of $1.4 million, or 24.8%, from net cash provided by investing activities of $5.8 million for fiscal year 2023. The change in cash flows were driven by a decrease of $1.2 million net proceeds from the purchase and sale of marketable securities. Net Cash (Used In) Provided By Financing Activities Fiscal Year 2025 Compared with Fiscal Year 2024 Net cash used in financing activities for the fiscal year 2025 was $87.0 million, a net change of $87.2 million, or 38767.1% from cash provided by financing activities of $0.2 million for fiscal year 2024. The change in cash flows were primarily due to: •An increase of $87.1 million in principal payments of short-term debt; •A decrease of $0.4 million in payments for long-term debt issuance costs; •A decrease of $8.0 million in proceeds from the issuance of our common stock; and •A decrease of $7.5 million in payments of tax related withholdings due to the net settlement of equity awards. Fiscal Year 2024 Compared with Fiscal Year 2023 Net cash provided by financing activities for fiscal year 2024 was $0.2 million, a net change of $5.5 million, or 104.2%, from cash used in financing activities of 5.3 million for fiscal year 2023. The change in cash flows were primarily due to: •A decrease of $210.0 million in proceeds from long-term debt; •A decrease of $198.4 million in principal payments of long-term debt; •A decrease of $16.8 million in payments for long-term debt issuance costs; •An increase of $5.3 million in proceeds from the issuance of our common stock; and •An increase of $5.0 million in payments of tax related withholdings due to the net settlement of equity awards. 48 Table of Contents Issued Accounting Standards Not Yet Adopted Refer to Note 2 to the accompanying audited Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a description of certain issued accounting standards that have not been adopted by us and may impact our results of operations in future reporting periods. Critical Accounting Estimates The preparation of financial statements in conformity with GAAP, requires management to make estimates and assumptions that have a material impact on the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including 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. Our management bases its 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 results could differ from these estimates. We believe the following critical accounting estimates most significantly affect the portrayal of our financial condition and the results of our operations. These estimates require our most difficult and subjective judgments. Revenue Recognition We primarily derive revenue from the following sources: (1) royalty-based software or 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. Our arrangements with customers may contain multiple products and services. We account for individual products and services separately if they are distinct—that is, if a product or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer. We recognize revenue after applying the following five steps for arrangements with customers within the scope of ASC 606: •identification of the contract, or contracts, with a customer; •identification of the performance obligations in the contract, including whether they are distinct within the context of the contract; •determination of the transaction price, including the constraint on variable consideration; •allocation of the transaction price to the performance obligations in the contract; and •recognition of revenue when, or as, the performance obligations are satisfied. We allocate the transaction price of the arrangement based on the relative estimated standalone selling price (“SSP”) of each distinct performance obligation. In determining SSP, we maximize observable inputs, when possible. Since prices vary from customer to customer based on customer relationship, volume discount and contract type, in instances where the SSP is not directly observable, we estimate SSP by considering a number of data points, including cost of developing and supplying each performance obligation; types of offerings; and gross margin objectives and pricing practices, such as contractually stated prices, discounts offered, and applicable price lists. We only include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. When allocating the transaction price under ASC 606, estimates related to variable consideration, which are typically related to usage-based volume estimates, are evaluated based on various assessments such as historical data, current market conditions and other relevant factors. Other forms of contingent revenue or variable consideration are infrequent. 49 Table of Contents Revenue is recognized when control of these products or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. We assess the timing of the transfer of products or services to the customer as compared to the timing of payments to determine whether a significant financing component exists. In accordance with the practical expedient in ASC 606-10-32-18, we do not assess the existence of a significant financing component when the difference between payment and transfer of deliverables is a year or less. If the difference in timing arises for reasons other than the provision of finance to either the customer or us, no financing component is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our services, not to receive or provide financing from or to customers. We do not consider set-up fees nor other upfront fees paid by our customers to represent a financing component. Reimbursements for out-of-pocket costs generally include, but are not limited to, costs related to transportation, lodging and meals. When applicable, revenue from reimbursed out-of-pocket costs is accounted for as variable consideration. Performance Obligations License Embedded software and technology licenses operate without access to external networks and information. Embedded licenses sold with non-distinct professional services to customize and/or integrate the underlying software and technology are accounted for as a combined performance obligation. Revenue from the combined performance obligation is recognized over time based upon the progress towards completion of the project, which is measured based on the labor hours already incurred to date as compared to the total estimated labor hours. Revenue from distinct embedded software and technology licenses, which do not require professional services to customize and/or integrate the software license, is recognized at the point in time when the software and technology is made available to the customer and control is transferred. For income statement presentation purposes, we separate distinct embedded license revenue from professional services revenue by allocating the transaction price based on their relative SSPs. Revenue from embedded software and technology licenses sold on a royalty basis, where the license of non-exclusive intellectual property is the predominant item to which the royalty relates, is recognized in the period the usage occurs in accordance with ASC 606-10-55-65(A). For royalty arrangements that include fixed consideration related to usage guarantees, the fixed consideration is recognized when the software is made available to the customer. Connected Services Connected services, which allow our customers to use the hosted software over the contract period without taking possession of the software, are provided on a usage basis as consumed or on a fixed fee subscription basis. Our connected services contract terms generally range from one to five years. As each day of providing services is substantially the same and the customer simultaneously receives and consumes the benefits as access is provided, we have determined that our usage basis connected services arrangements are a single performance obligation comprised of a series of distinct services. These services include variable consideration, typically a function of usage. We recognize revenue as each distinct service period is performed (i.e., recognized as incurred). Fixed fee subscription basis revenue represents a single promise to stand-ready to provide access to our connected services. We recognize revenue over time on a ratable basis over the respective hosting subscription term. Our connected service arrangements generally include services to develop, customize, and stand-up applications for each customer. In determining whether these services are distinct, we consider the dependence of the cloud service on the up-front development and stand-up, as well as availability of the services from other vendors. We have concluded that the up-front development, stand-up and customization services are not distinct performance obligations, and as such, revenue for these activities is recognized over the period during which the cloud-connected services are provided, and is included within connected services revenue. There can be instances where the customer purchases a software license that allows them to take possession of the software to enable hosting by the customer or a third-party. For such arrangements, the performance obligation of the license is completed at a point in time once the customer takes possession of the software. 50 Table of Contents Professional Services Revenue from distinct professional services, including training, is recognized over time based upon the progress towards completion of the project, which is measured based on the labor hours already incurred to date as compared to the total estimated labor hours. Significant Judgments Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Our license contracts often include professional services to customize and/or integrate the licenses into the customer’s environment. Judgment is required to determine whether the license is considered distinct and accounted for separately, or not distinct and accounted for together with professional services. Furthermore, hybrid contracts that contain both embedded and connected license and professional services are analyzed to determine if the products and services are distinct or have stand-alone functionality to determine the revenue treatment. We allocate the transaction price of the arrangement based on the relative estimated SSP of each distinct performance obligation. Judgment is required to determine the SSP for each distinct performance obligation. In determining SSP, we maximize observable inputs, when possible. Since our prices vary from customer to customer based on customer relationship, volume discount and contract type, there are instances where the SSP is not directly observable. In such instances, we estimate SSP by considering a number of data points, including cost of developing and supplying each performance obligation; types of offerings; and gross margin objectives and pricing practices, such as contractually stated prices, discounts offered, and applicable price lists. These factors may vary over time, depending upon the unique facts and circumstances related to each deliverable. We review the SSP for each distinct performance obligation on a periodic basis, or when the underlying factors are deemed to have changed, and make updates when appropriate. Contract Acquisition Costs We are required to capitalize certain contract acquisition costs. The capitalized costs primarily relate to paid commissions. In accordance with the practical expedient in ASC 606-10-10-4, we apply a portfolio approach to estimate contract acquisition costs for groups of customer contracts. We elect to apply the practical expedient in ASC 340-40-25-4 and will expense contract acquisition costs as incurred where the expected period of benefit is one year or less. Contract acquisition costs are deferred and amortized on a straight-line basis over the period of benefit, which we have estimated to be between one and eight years. The period of benefit was determined based on an average customer contract term, expected contract renewals, changes in technology and our ability to retain customers, including canceled contracts. We assess the amortization term for all major transactions based on specific facts and circumstances. Contract acquisition costs are classified as current or noncurrent assets based on when the expense will be recognized. The current and noncurrent portions of contract acquisition costs are included in Prepaid expenses and other current assets and in Other assets, respectively. 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. Our capitalized costs consist primarily of setup costs, such as costs to standup, customize and develop applications for each customer, which are incurred to satisfy our stand-ready obligation to provide access to our connected offerings. These contract costs are expensed to cost of revenue as we satisfy our stand-ready obligation over the contract term which we estimate to be between one and eight years, on average. The contract term was determined based on an average customer contract term, expected contract renewals, changes in technology, and our ability to retain customers, including canceled contracts. We classify these costs as current or noncurrent based on the timing of when we expect to recognize the expense. The current and noncurrent portions of capitalized contract fulfillment costs are presented as Deferred costs. 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 in our Consolidated Balance Sheets at their net estimated realizable value. We maintain an allowance for credit losses to provide for the estimated amount of receivables that may not be collected. 51 Table of Contents 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. Our contract liabilities, or 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. Goodwill Impairment Analysis Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill is not amortized but tested annually for impairment or when indicators of impairment are present. The test for goodwill impairment involves a qualitative assessment of impairment indicators. If indicators are present, a quantitative test of impairment is performed. Goodwill impairment, if any, is determined by comparing the reporting unit’s fair value to its carrying value. An impairment loss is recognized in an amount equal to the excess of the reporting unit’s carrying value over its fair value, up to the amount of goodwill allocated to the reporting unit. Goodwill is tested for impairment annually on July 1, the first day of the fourth quarter of the fiscal year. There was no goodwill impairment for the fiscal years ending September 30, 2025 and 2023. For the purpose of testing goodwill for impairment, all goodwill acquired in a business combination is assigned to one or more reporting units. 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. Components of similar economic characteristics are aggregated into one reporting unit for the purpose of goodwill impairment assessment. Reporting units are identified annually and re-assessed periodically for recent acquisitions or any changes in segment reporting structure. Upon consideration of our components, we have concluded that our goodwill is associated with one reporting unit. The fair value of a reporting unit is generally determined using a combination of the income approach and the market approach. For the income approach, fair value is determined based on the present value of estimated future after-tax cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future after-tax cash flows and estimate the long-term growth rates based on our most recent views of the long-term outlook for each reporting unit. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the weighted average cost of capital. We adjust the discount rates for the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. For the market approach, we use a valuation technique in which values are derived based on valuation multiples of comparable publicly traded companies. We assess each valuation methodology based upon the relevance and availability of the data at the time we perform the valuation and weight the methodologies appropriately. At March 31, 2024, we concluded indicators of impairment were present due to the current macroeconomic conditions, including declines in our stock price. The fair value of our reporting unit was determined using a combination of the income approach and the market approach. We weighted the methodologies appropriately to estimate a fair value of approximately $463.4 million as of March 31, 2024. The carrying value of our reporting unit exceeded the estimated fair value. Based upon the results of the impairment test, we recorded a goodwill impairment charge of $252.1 million during the three months ended March 31, 2024. At June 30, 2024, we concluded indicators of impairment were present due to the current macroeconomic conditions, including declines in our stock price. The fair value of our reporting unit was determined using a combination of the income approach and the market approach. We weighted the methodologies appropriately to estimate a fair value of approximately $154.2 million as of June 30, 2024. The carrying value of our reporting unit exceeded the estimated fair value. Based upon the results of the impairment test, we recorded a goodwill impairment charge of $357.1 million during the three months ended June 30, 2024. On July 1, 2024, we concluded that a quantitative goodwill impairment test is not necessary as of July 1, 2024, as the June 30, 2024 quantitative analysis is deemed applicable. Based upon the results of the above impairment tests, our goodwill impairment charges total $609.2 million on the Consolidated Statement of Operations for the fiscal year ended September 30, 2024. 52 Table of Contents Long-Lived Assets with Definite Lives Our long-lived assets consist principally of technology and patents, customer relationships, internally developed software, land, building, and equipment. 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 definite-lived assets are amortized over their estimated economic lives using the straight-line method. The remaining useful lives of long-lived assets are re-assessed periodically at the asset group level for any events and circumstances that may change the future cash flows expected to be generated from the long-lived asset or asset group. Internally developed software consists of capitalized costs incurred during the application development stage, which include costs related to the design of the software configuration and interfaces, coding, installation and testing. Costs incurred during the preliminary project stage and post-implementation stage are expensed as incurred. Internally developed software is amortized over the estimated useful life, commencing on the date when the asset is ready for its intended use. Land, building and equipment are stated at cost and depreciated over their estimated useful lives. Leasehold improvements are depreciated over the shorter of the related lease term or the estimated useful life. Depreciation is computed using the straight-line method. Repair and maintenance costs are expensed as incurred. The cost and related accumulated depreciation of sold or retired assets are removed from the accounts and any gain or loss is included in the results of operations for the period. Long-lived assets with definite lives are tested for impairment whenever events or changes in circumstances indicate the carrying value of a specific asset or asset group may not be recoverable. We assess the recoverability of long-lived assets with definite lives at the asset group level. Asset groups are determined based upon the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. When the asset group is also a reporting unit, goodwill assigned to the reporting unit is also included in the carrying amount of the asset group. For the purpose of the recoverability test, we compare the total undiscounted future cash flows from the use and disposition of the assets with its net carrying amount. When the carrying value of the asset group exceeds the undiscounted future cash flows, the asset group is deemed to be impaired. The amount of the impairment loss represents the excess of the asset or asset group’s carrying value over its estimated fair value, which is generally determined based upon the present value of estimated future pre-tax cash flows that a market participant would expect from use and disposition of the long-lived asset or asset group. There were no long-lived asset impairments in any of the periods presented. Stock-Based Compensation We grant equity awards to certain employees which include stock options and restricted stock unit awards in accordance with provisions of the Cerence 2019 Equity Incentive Plan (“Equity Incentive Plan”). We account for stock-based compensation through recognition of the fair value of the stock-based compensation as a charge against earnings. The fair value for time-based restricted stock units and performance-based restricted stock units is based on the closing share price of our common stock on the date of grant. For performance-based restricted stock units, the compensation cost is recognized based on the number of units expected to vest upon the achievement of the performance conditions. We recognize stock-based compensation as an expense on a straight-line basis, over the requisite service period. We account for forfeitures as they occur, rather than applying an estimated forfeiture rate. Income Taxes We account for income taxes using the assets and liabilities method, as prescribed by ASC No. 740, Income Taxes, or ASC 740. Deferred Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carry amount of assets and liabilities and their respective tax bases. The method also requires the recognition of future tax benefits such as net operating loss carryforwards, to the extent that realization of such benefits is more likely than not after consideration of all available evidence. As the income tax returns are not due and filed until after the completion of our annual financial reporting requirements, the amounts recorded for the current period reflect estimates for the tax-based activity for the period. In addition, estimates are often required with respect to, among other things, the appropriate state and foreign income tax rates to use, the potential utilization of operating loss carry-forwards and valuation allowance required, if any, for tax assets that may not be realizable in the future. Tax laws and tax rates vary substantially in these jurisdictions and are subject to change given the political and economic climate. We report 53 Table of Contents and pay income tax based on operational results and applicable law. Our tax provision contemplates tax rates currently enacted to determine both our current and deferred tax positions. Any significant fluctuations in rates or changes in tax laws could cause our estimates of taxes we anticipate either paying or recovering in the future to change. Such changes could lead to either increases or decreases in our effective tax rates. We have historically estimated the future tax consequences of certain items, including credit losses and accruals that cannot be deducted for income tax purposes until such expenses are paid or the related assets are disposed. We believe the procedures and estimates used in our accounting for income taxes are reasonable and in accordance with established tax law. The income tax estimates used have not resulted in material adjustments to income tax expense in subsequent period when the estimates are adjusted to the actual filed tax return amounts. Deferred tax assets and liabilities are measured used enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. With respect to earnings expected to be indefinitely reinvested offshore, we do not accrue tax for the repatriations of such foreign earnings. Valuation Allowance We regularly review our deferred tax assets for recoverability considering historically profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. If positive evidence regarding projected future taxable income, exclusive of reversing taxable temporary differences, existed it would be difficult for it to outweigh objective negative evidence of recent financial reporting losses. We will continue to maintain a valuation allowance against these deferred tax assets until we believe it is more likely than not that they will be realized. If sufficient positive evidence arises in the future indicating that all or a portion of the deferred tax assets meet the more likely than not standard, the valuation allowance would be reversed accordingly in the period that such determination is made. Uncertain Tax Positions We operate in multiple jurisdictions through wholly owned subsidiaries and our global structure is complex. The estimates of our uncertain tax positions involve judgments and assessment of the potential tax implications related to legal entity restructuring, intercompany transfers and acquisitions or divestitures. We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Our tax positions are subject to audit by taxing authorities across multiple global jurisdictions and the resolution of such audits may span multiple years. Tax laws are complex and often subject to varied interpretations, accordingly, the ultimate outcome with respect to taxes we may own may differ from the amounts recognized. Convertible Debt We adopted ASU 2020-06 on October 1, 2022. Since the adoption of ASU 2020-06, we record our convertible debt at face value less unamortized issuance costs. Issuance costs are amortized to Interest expense in our Consolidated Statements of Operations using the effective interest method over the contractual term of the convertible debt. We assess the short-term and long-term classification of our convertible debt on each balance sheet date. Whenever the holders have a contractual right to convert, the carrying amount of the convertible debt is reclassified to current liabilities. Prior to the adoption of ASU 2020-06: (i) we bifurcate the debt and equity (the contingently convertible feature) components of our convertible debt instruments in a manner that reflects our nonconvertible debt borrowing rate at the time of issuance; (ii) the equity components of our convertible debt instruments were recorded within stockholders’ equity with an allocated issuance premium or discount; and (iii) the debt issuance premium or discount was amortized to Interest expense in our Consolidated Statements of Operations using the effective interest method over the contractual term of the convertible debt. We assess the short-term and long-term classification of our convertible debt on each balance sheet date. Whenever the holders have a contractual right to convert, the carrying amount of the convertible debt is reclassified to current liabilities, with the corresponding equity component classified from additional paid-in capital to mezzanine equity, as needed. 54 Table of Contents Loss Contingencies We may be subject to legal proceedings, lawsuits and other claims relating to labor, service, intellectual property, and other matters that arise from time to time in the ordinary course of business. On a quarterly basis, we review the status of each significant matter and assess our potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgments are required for the determination of probability and the range of the outcomes. Due to the inherent uncertainties, estimates are based only on the best information available at the time. Actual outcomes may differ from our estimates. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Such revisions may have a material impact on our results of operations and financial position.