CRNC

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How CRNC rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

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New in FY2025

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.
This increase was primarily driven by the 2013 Nuance Legacy Contract Termination.
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.
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.
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.
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.
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.
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.

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Gone since FY2024

Governance Related to Cybersecurity Risks Our cybersecurity risk management program is managed by our Information Security Management Committee.
Led by our Chief Information Security Officer (“CISO”), the Information Security Management Committee is made up of cross-functional members of company management and works closely with our third-party information technology and security providers to develop and implement our cybersecurity strategy.
Our CISO is responsible for the day-to-day oversight of the assessment and management of cybersecurity risks.
The individual who is currently in this role has over 20 years of experience in information security.
Our audit committee has oversight over cybersecurity risks.
The audit committee reviews the enterprise risk management program quarterly, which includes the cybersecurity risk management program and any identified cybersecurity risks.
With the input of the Information Security Management Committee and our information technology providers, the CISO regularly reports to the audit committee on our cybersecurity risk management process, including updates related to security testing, assessments, cyber risk and related cyber strategy, as applicable.
In addition, the CISO makes annual cybersecurity reports to our board of directors.
Our corporate headquarters is located in Burlington, Massachusetts.
Other large, leased sites include properties located in: Aachen and Ulm, Germany; Heerlen, Netherlands; Montreal, Canada; Shanghai and Chengdu, China; Merelbeke, Belgium; Turin, Italy; and Pune, India.
We believe our existing facilities and equipment are in good operating condition and are suitable for the conduct of our business.
Following the court’s selection of a lead plaintiff and lead counsel, an amended complaint was filed on July 26, 2022.
The plaintiff claims to be suing on behalf of anyone who purchased the Company’s common stock between November 16, 2020 and February 4, 2022.
The lawsuit alleges that material misrepresentations and/or omissions of material fact regarding the Company’s operations, financial performance and prospects were made in the Company’s public disclosures during the period from November 16, 2020 to February 4, 2022, in violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.
The plaintiff seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including attorney’s fees.
On September 9, 2022, the defendants in the Securities Action moved to dismiss the action in its entirety.
On March 25, 2024, the court granted in part and denied in part the motion to dismiss, dismissing certain of the alleged misrepresentations and omissions while allowing claims challenging certain other alleged misrepresentations and omissions to proceed.
On April 15, 2024, the defendants filed their answer to the amended complaint.
On August 14, 2024, the parties conducted a mediation and thereafter the parties agreed to settle the matter for $ 30.0 million, subject to court approval.
On September 18, 2024, the Court granted preliminary approval of the settlement and scheduled a final settlement approval hearing on December 16, 2024.
The entire settlement amount is being funded by insurance proceeds.
As of September 30, 2024, we have recorded a $30.0 million receivable related to the insurance proceeds within Prepaid and other current assets and a $30.0 million liability related to the settlement within Accrued expenses and other current liabilities within the Consolidated Balance Sheets.
Derivative Actions On May 10 and 12, 2022, respectively, plaintiffs William Shafer and Peter Morse filed shareholder derivative complaints in the United States District Court for the District of Massachusetts on behalf of Cerence Inc. against defendants (and former officers) Sanjay Dwahan and Mark J.
Gallenberger as well as board members Arun Sarin, Thomas Beaudoin, Marianne Budnik, Sanjay Jha, Kristi Ann Matus, Alfred Nietzel and former CEO and board member Stefan Ortmanns.
On May 24, 2024, defendants filed a motion to dismiss under the forum selection clause in the Company’s charter, and on June 7, 2024, plaintiffs opposed the motion to dismiss.
The parties are awaiting the court’s decision on the motion to dismiss.
Three shareholder derivative complaints making factual and legal contentions substantially similar to those raised in the consolidated federal derivative action have been also filed in the Delaware Court of Chancery: the first filed on October 19, 2022 by plaintiff Melinda Hipp against the defendants named in the consolidated federal derivative action and board member Douglas Davis, the second filed on August 17, 2023 by plaintiff Catherine Fleming against the defendants named in the consolidated federal derivative action, and the third filed on July 10, 2024 by plaintiff Alberto Goncalves against the defendants named in the consolidated federal derivative action.
On June 26, 2024, the court stayed the Fleming action pending the outcome of mediation.
On August 12, 2024, the court stayed the Goncalves action pending the outcome of mediation.
Given the uncertainty of litigation, the preliminary stage of the cases, and the legal standards that must be met for, among other things, derivative standing and success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from these derivative actions.
Cerence has filed motions to dismiss both cases.
Thereafter, in exchange for Cerence withdrawing its motions to certify and stay, plaintiffs filed amended complaints in both the Circuit Court and Federal Court.
Cerence’s answers in the Federal Court and Circuit Court were due on July 15 and July 18, 2024, respectively, which the Company filed on such dates.
On March 15, 2024, Cerence filed its second patent infringement complaint against Samsung alleging infringement of four Cerence patents.
In its responsive pleading on July 10, 2024, Samsung asserted counterclaims, alleging infringement of U.S.
Samsung seeks damages, including trebled damages, and its costs and fees.
Cerence filed its answer denying the allegations and counterclaims of invalidity and noninfringement on September 4, 2024.
Trial is scheduled to begin in January 2026.
Given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from this action.
Other Legal Proceedings From time to time, we may become a party to other legal proceedings, including, without limitation, product liability claims, employment matters, commercial disputes, governmental inquiries and investigations (which may in some cases involve our entering into settlement arrangements or consent decrees), and other matters arising out of the ordinary course of our business.

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Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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