Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~July 30, 2021,~~May 2, 2022, the registrant had ~~38,006,493~~39,305,377 shares of common stock, $0.01 par value per share, outstanding.

This Quarterly Report on Form 10-Q (“Form 10-Q”), filed by Cerence Inc. together with its consolidated subsidiaries, “Cerence,” the “Company,” “we,” “us” or “our” unless the context indicates otherwise, contains “forward-looking statements” that involve risks and uncertainties. These statements can be identified by the fact that they do not relate strictly to historical or current facts, but rather are based on current expectations, estimates, assumptions and projections about our industry and our business and financial results. Forward-looking statements often include words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “continues,” “believes,” “may,” “will,” “goals” and words and terms of similar substance in connection with discussions of future operating or financial performance. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by us or on our behalf. Although we believe that the forward-looking statements contained in this Form 10-Q are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:

These and other factors are more fully discussed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020~~2021 and elsewhere in this Form 10-Q, including Part II, “Item 1A, Risk Factors”. These risks could cause actual results to differ materially from those implied by forward-looking statements in this Form 10-Q. Even if our results of operations, financial condition and liquidity and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods.

Any forward-looking statements made by us in this Form 10-Q speak only as of the date on which they are made. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise, except as required by law.

	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended March 31,						Six Months Ended March 31,
	2021			2020			2021			2020			2022			2021			2022			2021
Revenues:
License	$	49,980		$	32,454		$	150,765		$	117,843		$	46,308		$	54,371		$	93,158		$	100,785
Connected services		30,283			25,383			83,949			72,109			19,326			27,736			47,485			53,666
Professional services		16,538			17,360			54,392			49,773			20,646			16,555			40,063			37,854
Total revenues		96,801			75,197			289,106			239,725			86,280			98,662			180,706			192,305
Cost of revenues:
License		863			820			2,718			2,344			386			1,181			1,107			1,855
Connected services		6,108			7,191			19,960			24,742			5,651			6,839			11,375			13,852
Professional services		14,985			17,529			48,632			48,773			17,372			16,325			33,275			33,647
Amortization of intangible assets		1,879			2,063			5,637			6,408			897			1,879			2,776			3,758
Total cost of revenues		23,835			27,603			76,947			82,267			24,306			26,224			48,533			53,112
Gross profit		72,966			47,594			212,159			157,458			61,974			72,438			132,173			139,193
Operating expenses:
Research and development		30,370			22,041			83,365			66,898			29,976			28,864			55,768			52,995
Sales and marketing		9,534			9,180			28,097			24,829			8,309			9,555			14,188			18,563
General and administrative		13,173			14,261			38,563			36,456			13,800			12,956			21,327			25,390
Amortization of intangible assets		3,180			3,120			9,521			9,376			3,135			3,183			6,289			6,341
Restructuring and other costs, net		1,760			3,301			2,777			13,725			474			537			5,389			1,017
Total operating expenses		58,017			51,903			162,323			151,284			55,694			55,095			102,961			104,306
Income (loss) from operations		14,949			(4,309	)		49,836			6,174
Income from operations														6,280			17,343			29,212			34,887
Interest income		34			38			68			563			83			16			173			34
Interest expense		(3,294	)		(5,546	)		(10,569	)		(19,043	)		(3,360	)		(3,476	)		(6,787	)		(7,275	)
Other income (expense), net		173			(20,446	)		1,432			(20,366	)		(34	)		3,496			(286	)		1,259
Income (loss) before income taxes		11,862			(30,263	)		40,767			(32,672	)
Income before income taxes														2,969			17,379			22,312			28,905
Provision for (benefit from) income taxes		6,064			(2,211	)		2,865			(6,149	)		3,445			6,216			3,744			(3,199	)
Net income (loss)	$	5,798		$	(28,052	)	$	37,902		$	(26,523	)
Net income (loss) per share:
Net (loss) income													$	(476	)	$	11,163		$	18,568		$	32,104
Net (loss) income per share:
Basic	$	0.15		$	(0.77	)	$	1.01		$	(0.73	)	$	(0.01	)	$	0.30		$	0.48		$	0.85
Diluted	$	0.15		$	(0.77	)	$	0.97		$	(0.73	)	$	(0.01	)	$	0.28		$	0.47		$	0.82
Weighted-average common share outstanding:
Basic		37,825			36,509			37,664			36,315			39,189			37,743			39,013			37,583
Diluted		39,296			36,509			39,135			36,315			39,189			39,177			39,586			43,730

Refer to accompanying Notes to the unaudited condensed consolidated financial statements.

Three Months Ended June 30,

Nine Months Ended June 30,

2021

2020

2021

2020

Net income (loss)

$
5,798

$
(28,052
)

$
37,902

$
(26,523
)
Other comprehensive income:

Foreign currency translation adjustments

3,937

6,382

5,786

4,002

Pension adjustments, net

22

16

96

1,032

Net unrealized loss on available-for-sale securities

(14
)

—

(14
)

—

Total other comprehensive income

3,945

6,398

5,868

5,034

Comprehensive income (loss)

$
9,743

$
(21,654
)

$
43,770

$
(21,489
)

	Three Months Ended March 31,						Six Months Ended March 31,
	2022			2021			2022			2021

Net (loss) income	$	(476	)	$	11,163		$	18,568		$	32,104
Other comprehensive (loss) income:
Foreign currency translation adjustments		(5,295	)		(12,321	)		(10,684	)		1,849
Pension adjustments, net		61			104			134			74
Net unrealized loss on available-for-sale securities		(132	)		—			(167	)		—
Total other comprehensive (loss) income		(5,366	)		(12,217	)		(10,717	)		1,923
Comprehensive (loss) income	$	(5,842	)	$	(1,054	)	$	7,851		$	34,027

Refer to accompanying Notes to the unaudited condensed consolidated financial statements.

		June 30, 2021		September 30, 2020				March 31, 2022			September 30, 2021
		(Unaudited)						(Unaudited)
ASSETS	ASSETS						ASSETS
Current assets:
Cash and cash equivalents		$	120,840	$	136,067			$	111,819		$	128,428
Marketable securities			29,100		11,662				29,810			30,435
Accounts receivable, net of allowances of $404 and $1,394			53,141		50,900
Accounts receivable, net of allowances of $178 and $395									48,029			45,560
Deferred costs			7,330		7,256				7,418			6,095
Prepaid expenses and other current assets			61,328		44,220				68,924			76,530
Total current assets			271,739		250,105				266,000			287,048
Long-term marketable securities			7,348		-				4,457			7,339
Property and equipment, net			30,723		29,529				37,184			31,505
Deferred costs			33,446		38,161				26,511			31,702
Operating lease right of use assets			16,837		20,096				18,654			14,901
Goodwill			1,132,897		1,128,198				1,123,561			1,128,511
Intangible assets, net			30,618		45,616				15,947			25,348
Deferred tax assets			165,077		160,974				155,763			159,293
Other assets			20,354		14,938				54,450			20,081
Total assets		$	1,709,039	$	1,687,617			$	1,702,527		$	1,705,728
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY						LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	11,187	$	8,447			$	18,165		$	11,636
Deferred revenue			84,993		112,156				78,895			78,394
Short-term operating lease liabilities			5,497		5,700				5,844			4,562
Short-term debt			6,250		6,250				7,813			6,250
Accrued expenses and other current liabilities			60,955		66,078				45,768			64,467
Total current liabilities			168,882		198,631				156,485			165,309
Long-term debt			265,372		266,872				263,000			265,093
Deferred revenue, net of current portion			204,790		212,573				182,823			198,343
Long-term operating lease liabilities			13,157		17,821				14,749			12,216
Other liabilities			34,989		31,649				29,284			32,822
Total liabilities			687,190		727,546				646,341			673,783
Commitments and contingencies (Note 13)
Commitments and contingencies (Note 12)
Stockholders' Equity:
Common stock, $0.01 par value, 560,000 shares authorized; 37,828 shares issued and outstanding as of June 30, 2021; 36,842 shares issued and outstanding as of September 30, 2020.			379		369
Accumulated other comprehensive income			9,579		3,711
Common stock, $0.01 par value, 560,000 shares authorized; 39,305 and 38,025 shares issued and outstanding, respectively									393			381
Accumulated other comprehensive (loss) income									(9,083	)		1,634
Additional paid-in capital			992,305		974,307				1,018,731			1,002,353
Retained earnings (accumulated deficit)			19,586		(18,316	)
Retained earnings									46,145			27,577
Total stockholders' equity			1,021,849		960,071				1,056,186			1,031,945
Total liabilities and stockholders' equity		$	1,709,039	$	1,687,617			$	1,702,527		$	1,705,728

Refer to accompanying Notes to the unaudited condensed consolidated financial statements.

Three Months Ended June 30, 2021

Common Stock

Shares

Amount

Additional
Paid-In
Capital

Retained Earnings

Net
Parent
Investment

Accumulated
Other
Comprehensive
Income

Total

Balance at March 31, 2021

37,780

$
379

$
983,640

$
13,788

$
-

$
5,634

$
1,003,441

Net income

-

-

-

5,798

-

-

5,798

Other comprehensive income

-

-

-

-

-

3,945

3,945

Issuance of common stock

51

-

1,637

-

-

-

1,637

Stock withheld to cover tax withholdings requirements upon stock vesting

(3
)

-

(1,889
)

-

-

-

(1,889
)
Stock-based compensation

-

-

8,917

-

-

-

8,917

Balance at June 30, 2021

37,828

$
379

$
992,305

$
19,586

$
—

$
9,579

$
1,021,849

Three Months Ended March 31, 2022
	Common Stock
	Shares			Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance at December 31, 2021		39,162		$	392	$	1,006,205		$	46,621		$	(3,717	)	$	1,049,501
Net loss		-			-		-			(476	)		-			(476	)
Other comprehensive loss		-			-		-			-			(5,366	)		(5,366	)
Issuance of common stock		144			1		2,700			-			-			2,701
Stock withheld to cover tax withholdings requirements upon stock vesting		(1	)		-		(1,538	)		-			-			(1,538	)
Stock-based compensation		-			-		11,364			-			-			11,364
Balance at March 31, 2022		39,305		$	393	$	1,018,731		$	46,145		$	(9,083	)	$	1,056,186

Three Months Ended June 30, 2020

Common Stock

Shares

Amount

Additional
Paid-In
Capital

Retained Earnings (Accumulated Deficit)

Net
Parent
Investment

Accumulated
Other
Comprehensive
Loss

Total

Balance at March 31, 2020

36,458

$
365

$
949,916

$
1,529

$
-

$
(14,635
)

$
937,175

Net loss

-

-

-

(28,052
)

-

-

(28,052
)
Other comprehensive income

-

-

-

-

-

6,398

6,398

Issuance of common stock

96

1

-

-

-

-

1

Stock withheld to cover tax withholdings requirements upon stock vesting

(34
)

-

(696
)

-

-

-

(696
)
Convertible Senior Notes conversion feature (net of taxes of $4,678 and issuance costs of $629)

14,369

14,369

Stock-based compensation

-

-

10,423

-

-

-

10,423

Balance at June 30, 2020

36,520

$
366

$
974,012

$
(26,523
)

$
-

$
(8,237
)

$
939,618

Three Months Ended March 31, 2021
	Common Stock
	Shares			Amount		Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income			Total
Balance at December 31, 2020		37,685		$	378	$	974,866		$	2,625	$	17,851		$	995,720
Net income		-			-		-			11,163		-			11,163
Other comprehensive loss		-			-		-			-		(12,217	)		(12,217	)
Issuance of common stock		114			1		1,381			-		-			1,382
Stock withheld to cover tax withholdings requirements upon stock vesting		(19	)		-		(1,942	)		-		-			(1,942	)
Stock-based compensation		-			-		9,335			-		-			9,335
Balance at March 31, 2021		37,780		$	379	$	983,640		$	13,788	$	5,634		$	1,003,441

Nine Months Ended June 30, 2021
Six Months Ended March 31, 2022																				Six Months Ended March 31, 2022
	Common Stock																				Common Stock
	Shares			Amount			Additional Paid-In Capital			(Accumulated Deficit) Retained Earnings			Net Parent Investment		Accumulated Other Comprehensive Income		Total				Shares			Amount			Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total
Balance at September 30, 2020		36,842		$	369		$	974,307		$	(18,316	)	$	—	$	3,711	$	960,071
Balance at September 30, 2021																						38,025		$	381		$	1,002,353		$	27,577	$	1,634		$	1,031,945
Net income		-			-			-			37,902			-		-		37,902				-			-			-			18,568		-			18,568
Other comprehensive income		-			-			-			-			-		5,868		5,868
Other comprehensive loss																						-			-			-			-		(10,717	)		(10,717	)
Issuance of common stock		1,441			14			6,668			-			-		-		6,682				1,425			13			34,827			-		-			34,840
Stock withheld to cover tax withholdings requirements upon stock vesting		(455	)		(4	)		(34,085	)		-			-		-		(34,089	)			(145	)		(1	)		(47,825	)		-		-			(47,826	)
Stock-based compensation		-			-			45,415			-			-		-		45,415				-			-			29,376			-		-			29,376
Balance at June 30, 2021		37,828		$	379		$	992,305		$	19,586		$	—	$	9,579	$	1,021,849
Balance at March 31, 2022																						39,305		$	393		$	1,018,731		$	46,145	$	(9,083	)	$	1,056,186

Nine Months Ended June 30, 2020

Common Stock

Shares

Amount

Additional
Paid-In
Capital

(Accumulated Deficit)

Net
Parent
Investment

Accumulated
Other
Comprehensive
Loss

Total

Balance at September 30, 2019

-

$
-

$
-

$
-

$
1,097,127

$
(28,999
)

$
1,068,128

Net loss

-

-

-

(26,523
)

-

-

(26,523
)
Other comprehensive income

-

-

-

-

-

5,034

5,034

Distribution to Parent

-

-

-

-

(152,978
)

-

(152,978
)
Net (decrease) increase in net parent investment

-

-

-

-

(4,275
)

15,728

11,453

Reclassification of net parent investment in Cerence

-

-

939,874

-

(939,874
)

-

—

Issuance of common stock at separation

36,391

364

(364
)

-

-

-

—

Issuance of common stock

207

2

-

-

-

-

2

Stock withheld to cover tax withholdings requirements upon stock vesting

(78
)

(0
)

(1,615
)

-

-

-

(1,615
)
Convertible Senior Notes conversion feature (net of taxes of $4,678 and issuance costs of $629)

14,369

14,369

Stock-based compensation

-

-

21,748

-

-

-

21,748

Balance at June 30, 2020

36,520

$
366

$
974,012

$
(26,523
)

$
—

$
(8,237
)

$
939,618

Six Months Ended March 31, 2021
	Common Stock
	Shares			Amount			Additional Paid-In Capital			(Accumulated Deficit) Retained Earnings			Accumulated Other Comprehensive Income		Total
Balance at September 30, 2020		36,842		$	369		$	974,307		$	(18,316	)	$	3,711	$	960,071
Net income		-			-			-			32,104			-		32,104
Other comprehensive income		-			-			-			-			1,923		1,923
Issuance of common stock		1,390			14			5,031			-			-		5,045
Stock withheld to cover tax withholdings requirements upon stock vesting		(452	)		(4	)		(32,196	)		-			-		(32,200	)
Stock-based compensation		-			-			36,498			-			-		36,498
Balance at March 31, 2021		37,780		$	379		$	983,640		$	13,788		$	5,634	$	1,003,441

Refer to accompanying Notes to the unaudited condensed consolidated financial statements.

	Nine Months Ended June 30,						Six Months Ended March 31,
	2021			2020			2022			2021
Cash flows from operating activities:
Net income (loss)	$	37,902		$	(26,523	)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Net income							$	18,568		$	32,104
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		22,276			22,704			13,574			14,947
(Benefit from) provision for credit loss reserve		(412	)		525
Benefit from credit loss reserve								(418	)		(261	)
Stock-based compensation		42,179			32,954			16,767			27,469
Non-cash interest expense		3,730			4,025			2,595			2,454
Loss on debt extinguishment		—			19,279
Deferred tax benefit		(3,812	)		(12,535	)		(2,162	)		(7,653	)
Other		(1,590	)		—			2,504			(1,481	)
Changes in operating assets and liabilities:
Accounts receivable		(1,698	)		3,164			(3,557	)		(8,206	)
Prepaid expenses and other assets		(17,065	)		(21,328	)		(36,354	)		(7,608	)
Deferred costs		5,078			(749	)		2,896			3,835
Accounts payable		2,906			(170	)		6,293			(4,129	)
Accrued expenses and other liabilities		(4,026	)		19,283			(2,115	)		(2,970	)
Deferred revenue		(34,400	)		(22,052	)		(11,848	)		(21,492	)
Net cash provided by operating activities		51,068			18,577			6,743			27,009
Cash flows from investing activities:
Capital expenditures		(8,055	)		(16,075	)		(9,985	)		(5,181	)
Purchases of marketable securities		(33,800	)		—			(13,115	)		(9,067	)
Sale and maturities of marketable securities		9,000			—			16,453			2,700
Payments for equity investments		(2,563	)		—			(584	)		(2,563	)
Other investing activities		702			—			1,266			264
Net cash used in investing activities		(34,716	)		(16,075	)		(5,965	)		(13,847	)
Cash flows from financing activities:
Net transaction with Parent		—			12,964
Distribution to Parent		—			(152,978	)
Proceeds from long-term debt, net of discount		—			547,719
Payments for long-term debt issuance costs		(520	)		(5,765	)		—			(520	)
Principal payments of long-term debt		(4,689	)		(270,000	)		(3,126	)		(3,126	)
Common stock repurchases for tax withholdings for net settlement of equity awards		(34,089	)		(1,613	)		(46,423	)		(32,200	)
Principal payment of lease liabilities arising from a finance lease		(326	)		(96	)		(246	)		(238	)
Proceeds from the issuance of common stock		6,682			—			33,459			5,045
Net cash (used in) provided by financing activities		(32,942	)		130,231
Net cash used in financing activities								(16,336	)		(31,039	)
Effects of exchange rate changes on cash and cash equivalents		1,363			111			(1,051	)		1,356
Net change in cash and cash equivalents		(15,227	)		132,844			(16,609	)		(16,521	)
Cash and cash equivalents at beginning of period		136,067			—			128,428			136,067
Cash and cash equivalents at end of period	$	120,840		$	132,844		$	111,819		$	119,546
Supplemental information:
Cash paid for income taxes	$	1,946		$	931		$	6,594		$	1,446
Cash paid for interest	$	8,817		$	14,344		$	4,151		$	5,403

Refer to accompanying Notes to the unaudited condensed consolidated financial statements.

On October 1, 2019 (the “Distribution Date”), Nuance Communications, Inc. (“Nuance”), a leading provider of speech and language solutions for businesses and consumers around the world, completed the legal and structural separation and distribution to its stockholders of all of the outstanding shares of our common stock, and its consolidated subsidiaries, in a tax free spin-off (which we refer to as the “Spin-Off”). The distribution was made in the amount of one share of our common stock for every ~~eight~~ ~~shares of Nuance common stock (which we refer to as the “Distribution”) owned by Nuance’s stockholders as of 5:00 p.m. Eastern Time on September 17, 2019, the record date of the Distribution.~~

In connection with the Distribution, on September 30, 2019, we filed an Amended and Restated Certificate of Incorporation (the “Charter”) with the Secretary of State of the State of Delaware, which became effective on October 1, 2019. Our Amended and Restated By-laws also became effective on October 1, 2019. On October 2, 2019, our common stock began regular-way trading on the Nasdaq Global Select Market under the ticker symbol CRNC.

Cerence Inc. (referred to in this Quarterly Report on Form 10-Q as “we,” “our,” “us,” “ourselves,” the “Company” or “Cerence”) is a global, premier provider of AI-powered assistants and innovations for connected and autonomous vehicles. Our customers include all major automobile original equipment manufacturers (“OEMs”), or their tier 1 suppliers worldwide. We deliver our solutions on a white-label basis, enabling our customers to deliver customized virtual assistants with unique, branded personalities and ultimately strengthening the bond between automobile brands and end users. We generate revenue primarily by selling software licenses and cloud-connected services. In addition, we generate professional services revenue from our work with OEMs and suppliers during the design, development and deployment phases of the vehicle model lifecycle and through maintenance and enhancement projects.

In March 2020, the World Health Organization characterized COVID-19 as a pandemic. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, some of which have been subsequently rescinded, modified or reinstated, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing.

We have taken numerous steps in our approach to addressing the COVID-19 pandemic, as described in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020.~~2021. We continue to closely monitor ongoing developments in connection with the COVID-19 pandemic and its impact on our business.

The COVID-19 pandemic ~~could also~~has resulted in, and may continue to result in, additional governmental restrictions and regulations, which ~~could~~has adversely affected, and may continue to adversely affect our business and financial results. For example, pandemic related lockdowns were experienced in China throughout March 2022, which resulted in loss of automotive production. We have seen, and anticipate that we will continue to see, supply chain challenges in the automotive industry related to semiconductor devices that are used in automobiles. The current macroeconomic conditions have also increased competition for qualified employees in our industry, particularly for members of our professional service teams, and we, along with automotive OEMs, face significant competition in hiring and retaining them. In addition, a recession, depression or other sustained adverse market impact resulting from COVID-19 could materially and adversely affect our business, our access to needed capital and liquidity, and the value of our common stock. Even after the COVID-19 pandemic has lessened or subsided, we may continue to experience adverse impacts on our business and financial performance as a result of its global economic impact.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, as well as those of our wholly owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements.

The condensed consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the consolidated results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for the three and ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 are not necessarily indicative of the results to be expected for any other interim period or for the fiscal year ending September 30, ~~2021.~~2022. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated and combined financial statements and notes contained in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020.~~

During the second quarter of fiscal 2021, we identified and corrected immaterial errors related to previously issued consolidated financial statements. In order to present the impact of the resulting adjustments, previously issued financial statements have been revised. See ~~Note 16 – Impact on Previously Issued Financial Statements for Immaterial Adjustments~~ ~~for additional details, including a summary of the revisions to certain previously reported financial information presented herein for comparative purposes.~~2021.

The financial statements are prepared in accordance with GAAP, which requires management to make estimates and assumptions. These estimates, judgments and assumptions can affect the reported amounts in the financial statements and the footnotes thereto. Actual results could differ materially from these estimates.

On an ongoing basis, we evaluate our estimates, assumptions and judgments. Significant estimates inherent to the preparation of financial statements include: revenue recognition; allowance for credit losses; accounting for deferred costs; accounting for internally developed software; the valuation of goodwill and intangible assets; accounting for business combinations; accounting for stock-based compensation; accounting for income taxes; accounting for leases; accounting for convertible debt; and loss contingencies. We base our estimates on historical experience, market participant fair value considerations, projected future cash flows, and various other factors that are believed to be reasonable under the circumstances. Actual amounts could differ significantly from these estimates.

Cash and cash equivalents include cash on hand and highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. As of June 30, 2021, the estimated fair value of our money-market funds was $56.2 million. We estimated the fair value of our money-market funds from quoted prices for identical assets in active markets on the last trading day of the reporting period (Level 1).

Financial instruments that potentially subject us to significant concentrations of credit risk primarily consist of trade accounts receivable. We perform ongoing credit evaluations of our customers’ financial condition and limit the amount of credit extended when deemed appropriate. NaN ~~customers~~customer accounted for ~~19.3%, 11.6%, and 10.3%~~ 11.6% of our Accounts receivable, net balance at ~~June 30, 2021.~~March 31, 2022. NaN ~~customers~~customer accounted for ~~14.8% and 10.9%~~12.1% of our Accounts receivable, net balance at September 30, ~~2020.~~2021.

We ~~use derivative instruments, including forward contracts,~~are exposed to ~~help manage foreign currency exposures. Derivative instruments are viewed as risk management tools by us~~credit losses primarily through our sales of software licenses and ~~are not used~~services to customers. We determine credit ratings for trading or speculative purposes. Derivatives that qualify for hedge accounting can be designated as either cash flow hedges, net investment hedges, or fair value hedges. We may enter into derivative contracts that economically hedge certain risks, even when hedge accounting does not apply, or we elect not to apply hedge accounting.

~~Derivatives are recognized~~each customer in ~~the Condensed Consolidated Balance Sheet at fair value on a gross basis as either assets or liabilities and classified as current or noncurrent~~our portfolio based upon ~~whether the maturity~~public information and information obtained directly from our customers. A credit limit for each customer is established and in certain cases we may require collateral or prepayment to mitigate credit risk. Our expected loss methodology is developed using historical collection experience, current customer credit information, current and future economic and market conditions and a review of the ~~instrument is less than or greater than 12 months.~~

~~Changes~~current status of the customer's account balances. We monitor our ongoing credit exposure through reviews of customer balances against contract terms and due dates, current economic conditions, and dispute resolution. Estimated credit losses are written off in the fair value of derivatives not designated as hedges are reported in earnings primarily in Other income (expense), net. The cash flows associated with derivatives not designated as hedges are reported in cash flows from investing activities in the Condensed Consolidated Statement of Cash Flows.

~~In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13,~~ ~~Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~, (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including trade receivables. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. This standard is effective for interim and annual reporting periods beginning after December 15, 2019. This standard is required to be adopted using the modified retrospective basis, with a cumulative-effect adjustment to Accumulated deficit as of the beginning of the first reporting period in which the ~~guidance of this standard~~financial asset is ~~effective.~~no longer collectible.

~~We adopted ASU 2016-13 using~~The change in the ~~modified retrospective approach~~allowance for credit losses for the six months ended March 31, 2022 is as ~~of October 1, 2020. The effects of applying ASU 2016-13 as a cumulative-effect adjustment to retained earnings was immaterial.~~follows (dollars in thousands):

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, (“ASU 2020-04”). This update provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) contract modifications on financial reporting, caused by reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and

Contracts in an Entity’s Own Equity, (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for debt with conversion options, revises the criteria for applying the derivatives scope exception for contracts in an entity’s own equity, and improves the consistency for the calculation of earnings per share. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2021, our fiscal year 2023. Early adoption is permitted for annual periods and interim periods within those annual periods beginning after December 15, 2020, our fiscal year 2022. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements.

We primarily derive revenue from the following sources: (1) royalty-based software 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 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 ~~consider~~contract type, in instances where the SSP is not directly observable, we estimate SSP by considering a number of data points, ~~including:~~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. We reduce transaction prices for estimated returns and other allowances that represent variable consideration under Accounting Standards Codification (“ASC”) 606, which we estimate based on historical return experience and other relevant factors, and record a corresponding refund liability as a component of accrued expenses and other current liabilities. Other forms of contingent revenue or variable consideration are infrequent.

Revenue is recognized when control of these products or services are 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. Revenue from reimbursed out-of-pocket costs is accounted for as variable consideration.

Embedded software and technology licenses operate without access to the 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 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 minimum purchase commitment deals, the fixed consideration is recognized when the software is made available to the customer.

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. Subscription basis revenue represents a single promise to stand-ready to provide access to our connected services. 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 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).

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 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.

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.

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.

~~Judgments are~~We allocate the transaction price of the arrangement based on the relative estimated standalone selling price (“SSP”) of each distinct performance obligation. Judgment is required to determine the SSP for each distinct performance obligation. ~~When the~~In determining SSP, ~~is directly~~we maximize observable ~~we estimate the SSP~~inputs, when possible. Since our prices vary from customer to customer based ~~upon the historical transaction prices, adjusted for geographic considerations, customer classes, and~~on customer relationship, ~~profiles. In~~volume discount and contract type, there are in instances where the SSP is not directly observable, we determine the SSP using information that may include market conditions and other observable inputs. We may have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances.observable. In ~~these~~such instances, we ~~may use information~~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 ~~size of the customer~~unique facts and ~~geographic region in determining the SSP. Determining~~circumstances related to each deliverable. We review the SSP for each distinct performance ~~obligations which we never sell separately also requires significant judgment. In estimating~~obligation on a periodic basis, or when the ~~SSP, we consider the likely price that would~~underlying factors are deemed to have ~~resulted from established pricing practices had the deliverable been offered separately~~changed, and the prices a customer would likely be willing to pay. For contracts that contain future royalties, the allocation of SSP is determined using any fixed payments as well as the forecasted volume usage associated with royalties.make updates when appropriate.

Revenues, classified by the major geographic region in which our customers are located, for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (dollars in thousands):

	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020		2022		2021		2022		2021
Revenues:
United States	$	31,632	$	27,969	$	100,507	$	99,907	$	21,955	$	36,781	$	57,084	$	68,875
Other Americas		37		8		105		16		35		25		37		68
Germany		24,519		21,082		81,230		61,401		23,131		24,667		42,640		56,711
Other Europe, Middle East and Africa		10,574		6,868		27,239		20,093		2,567		13,196		6,530		16,665
Japan		19,032		11,727		45,484		38,656		25,413		13,779		51,489		26,452
Other Asia-Pacific		11,007		7,543		34,541		19,652		13,179		10,214		22,926		23,534
Total net revenues	$	96,801	$	75,197	$	289,106	$	239,725	$	86,280	$	98,662	$	180,706	$	192,305

Revenues within the United States, Germany, and Japan accounted for more than 10% of revenue, respectively, for all periods presented.

Revenues relating to 2 customers accounted for ~~$19.3~~$21.9 million, or ~~20.0%~~25.4%, and ~~$12.7~~$10.2 million, or ~~13.1%~~11.8%, of revenues for the three months ended ~~June 30,~~March 31, 2022. Revenues relating to 2 customers accounted for $46.2 million, or 25.5%, and $28.1 million, or 15.6%, of revenues for the six months ended March 31, 2022. During the three and six months ended March 31, 2022, certain existing variable long-term contracts with our largest customer were converted into minimum purchase commitment deals. The estimated future revenue related to these long-term contracts was previously included in our variable backlog, which includes estimated future revenue from variable forecasted royalties related to our embedded and connected businesses. These minimum purchase commitment deals accounted for $19.9 million and $40.1 million of revenue for the three and six months ended March 31, 2022, respectively. The cash associated with these deals is expected to be collected over the distribution period, which could be up to five years.

Revenues relating to 2 customers accounted for $17.4 million, or 17.7%, and $17.3 million, or 17.5%, of revenues for the three months ended March 31, 2021. Revenues relating to 2 customers accounted for ~~$54.5~~$35.2 million, or ~~18.8%~~18.3%, and ~~$37.4~~$24.8 million, or 12.9%, of revenues for the ~~nine~~six months ended ~~June 30,~~March 31, 2021. Revenues relating to 3 customers accounted for $19.2 million, or 25.6%, $8.0 million, or 10.6%, and $7.8 million, or 10.4%, of revenues for the three months ended June 30, 2020. Revenues relating to 1 customer accounted for $56.4 million, or 23.5%, of revenues for the nine months ended June 30, 2020.

In conjunction with the adoption of ASC 606, 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, on average, 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~~Prepaid expenses and other current assets and ~~in other~~Other assets, respectively. As of ~~June~~March 31, 2022 and September 30, 2021, we had ~~$6.1~~$7.6 million and $6.9 million of contract acquisition ~~costs.~~costs, respectively. We had amortization expense of ~~$0.6~~$0.5 million and ~~$0.3~~$0.4 million related to these costs during the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, and ~~$1.5~~$1.1 million and ~~$0.9~~$0.8 million for the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. There was 0 impairment related to contract acquisition 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~~Deferred costs. ~~As of June 30, 2021, we had $40.8 million of capitalized contract costs.~~

We had amortization expense of ~~$3.0~~$2.7 million and ~~$4.0~~$3.1 million related to these costs during the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, and ~~$10.5~~$5.5 million and ~~$9.3~~$7.4 million for the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. There was 0 impairment related to contract costs capitalized.

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~~Accounts receivable, net at their net estimated realizable value. We maintain an allowance for credit losses to provide for the estimated amount of receivables and contract assets that may not be collected.

Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.

Contract assets include unbilled amounts from long-term contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not solely subject to the passage of time. ~~Contract~~The current and noncurrent portions of contract assets are included in ~~prepaid~~Prepaid expenses and other current ~~assets.~~assets and Other assets, respectively. The table below shows significant changes in contract assets (dollars in thousands):

Our contract liabilities, which we present as ~~deferred~~Deferred revenue, consist of advance payments and billings in excess of revenues recognized. We classify deferred revenue as current or noncurrent based on when we expect to recognize the revenues. The table below shows significant changes in deferred revenue (dollars in thousands):

	Deferred revenue			Deferred revenue
Balance as of September 30, 2020	$	324,729
Balance as of September 30, 2021				$	276,737
Amounts billed but not recognized		80,683			50,996
Revenue recognized		(115,629	)		(62,557	)
Balance as of June 30, 2021	$	289,783
Foreign exchange impact on ending balance					(3,458	)
Balance as of March 31, 2022				$	261,718

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at ~~June 30, 2021~~March 31, 2022 (dollars in thousands):

The table above includes fixed backlogs and does not include variable backlogs derived from contingent usage-based activities, such as royalties and usage-based connected services.

Basic earnings per share is computed by dividing net (loss) income ~~(loss)~~ by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period, increased to include the number of shares of common stock that would have been outstanding had potential dilutive shares of common stock been issued. The dilutive effect of restricted stock units is reflected in diluted net income per share by applying the treasury stock method.

The dilutive effect of the Notes (as defined in Note ~~15)~~14) is reflected in net income per share by application of the “if-converted” method. The “if-converted” method is only assumed in periods where such application would be dilutive. In applying the “if-converted” method for diluted net income per share, we would assume conversion of the Notes at a ratio of 26.7271 shares of our common stock per $1,000 principal amount of the Notes. Assumed converted shares of our common stock are weighted for the period the Notes were outstanding. ~~The shares of common stock underlying the conversion option of our Notes were not included in the calculation of diluted income per share for the three and nine months ended June 30, 2021.~~

The following table presents the reconciliation of the numerator and denominator for calculating net (loss) income ~~(loss)~~ per share:

	Three Months Ended June 30,					Nine Months Ended June 30,					Three Months Ended March 31,					Six Months Ended March 31,
in thousands, except per share data	2021		2020			2021		2020			2022			2021		2022		2021

Numerator:
Net income (loss) - basic and diluted	$	5,798	$	(28,052	)	$	37,902	$	(26,523	)
Net (loss) income - basic and diluted											$	(476	)	$	11,163	$	18,568	$	32,104
Interest on Convertible Senior Notes, net of tax												-			-		-		3,614
Net (loss) income - diluted											$	(476	)	$	11,163	$	18,568	$	35,718

Denominator:
Weighted average common shares outstanding - basic		37,825		36,509			37,664		36,315			39,189			37,743		39,013		37,583
Dilutive effect of restricted stock awards		1,471		-			1,471		-			-			1,434		573		1,470
Dilutive effect of the Convertible Senior Notes												-			-		-		4,677
Weighted average common shares outstanding - diluted		39,296		36,509			39,135		36,315			39,189			39,177		39,586		43,730

Net income (loss) per common share:
Net (loss) income per common share:
Basic	$	0.15	$	(0.77	)	$	1.01	$	(0.73	)	$	(0.01	)	$	0.30	$	0.48	$	0.85
Diluted	$	0.15	$	(0.77	)	$	0.97	$	(0.73	)	$	(0.01	)	$	0.28	$	0.47	$	0.82

We exclude weighted-average potential shares from the calculations of diluted net (loss) income ~~(loss)~~ per share during the applicable periods when their inclusion is anti-dilutive. The following table sets forth potential shares that were considered anti-dilutive during the three and ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended March 31,				Six Months Ended March 31,
in thousands	2021		2020		2021		2020		2022		2021		2022		2021
Restricted stock unit awards		-		1,531		-		828		292		-		-		-
Contingently issuable stock awards		-		77		-		26
Conversion option of our Notes		4,677		1,439		4,677		480
Conversion option of our Convertible Senior Notes										4,677		4,677		4,677		-

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques must maximize the use of observable inputs and minimize the use of unobservable inputs. When determining fair value measurements for assets and liabilities recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use in pricing the asset or liability.

The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement as of the measurement date as follows:

The following table presents information about our financial assets that are measured at fair value and indicates the fair value hierarchy of the valuation inputs used (dollars in thousands) as of:

	June 30, 2021						March 31, 2022
	Fair Value		Cash and Cash Equivalents		Marketable Securities		Fair Value		Cash and Cash Equivalents		Marketable Securities
Level 1:
Money market funds ^(a)	$	56,229	$	56,229	$	-	$	67,558	$	67,558	$	-
Level 2:
Commercial paper, $23,730 at cost ^{(a) (b)}		23,730		7,999		15,731
Corporate bonds, $25,734 at cost ^{(a) (b)}		25,719		5,002		20,717
Time deposits, $1,191 at cost ^(a)								1,191		1,191		-
Commercial paper, $19,371 at cost ^(b)								19,373		-		19,373
Corporate bonds, $15,074 at cost ^(b)								14,894		-		14,894
Debt securities, $2,000 at cost ^(c)								2,000		-		-
Total assets	$	105,678	$	69,230	$	36,448	$	105,016	$	68,749	$	34,267

	September 30, 2020						September 30, 2021
	Fair Value		Cash and Cash Equivalents		Marketable Securities		Fair Value		Cash and Cash Equivalents		Marketable Securities
Level 1:
Money market funds ^(a)	$	101,437	$	101,437	$	-	$	75,873	$	75,873	$	-
Level 2:
Commercial paper, $9,883 at cost ^{(a) (b)}		9,883		-		9,883
Corporate bonds, $1,780 at cost ^{(a) (b)}		1,779		-		1,779
Time deposits, $2,965 at cost ^(a)								2,965		2,965		-
Commercial paper, $18,080 at cost ^(b)								18,080		-		18,080
Corporate bonds, $19,704 at cost ^(b)								19,694		-		19,694
Debt securities, $2,000 at cost ^(c)								2,000		-		-
Total assets	$	113,099	$	101,437	$	11,662	$	118,612	$	78,838	$	37,774

During the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022, we recorded unrealized losses related to our marketable securities of $0.1 million and $0.2 million, respectively, within Accumulated other comprehensive income. During the three and six months ended March 31, 2021, we recorded an immaterial amount of unrealized losses related to our marketable securities within Accumulated other comprehensive income. ~~During the three and nine months ended June 30, 2020, we did 0t possess any marketable securities.~~

The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, and accounts payable, approximate fair value due to their short-term maturities and are excluded from the fair value tables above.

Derivative financial instruments are recognized at fair value and are classified within Level 2 of the fair value hierarchy. See Note 6 – Derivative Financial Instruments for additional details.

The estimated fair value of our Long-term debt is determined by Level 2 inputs and is based on observable market data including prices for similar instruments. As of ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020,~~2021, the estimated fair value of our Notes was ~~$521.5~~$228.8 million and ~~$271.0~~$469.0 million, respectively. The Notes are recorded at face value less unamortized debt discount and transaction costs on our Condensed Consolidated Balance Sheets. The carrying amount of the Senior Credit Facilities (as defined in Note ~~15)~~14) approximates fair value given the underlying interest rate applied to such amounts outstanding is currently set to the prevailing market rate.

~~During the second quarter of fiscal 2021, we made a~~We have non-controlling equity ~~investment~~investments in a privately held ~~company.~~companies. We evaluated the equity ~~investment~~investments under the voting model and concluded consolidation was not applicable. We accounted for the ~~investment~~investments by electing the measurement alternative for investments without readily determinable fair values and for which we do not have the ability to exercise significant

influence. The non-marketable equity securities are carried at cost less any impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, which is recorded within the Condensed Consolidated Statements of Operations. We hold ~~$2.6~~$3.2 million of investments without readily determinable fair values as of ~~June 30, 2021.~~March 31, 2022. The ~~investment is~~investments are included within Other assets on the Condensed Consolidated Balance Sheets. There have been no adjustments to the carrying value of the ~~investment~~investments resulting from impairments or observable price changes.

We operate internationally and, in the normal course of business, are exposed to fluctuations in foreign currency exchange rates related to third-party vendor and intercompany payments for goods and services within our non-U.S. subsidiaries. We use foreign exchange forward contracts that are not designated as hedges to manage currency risk. The contracts can have maturities up to three years. At ~~June 30, 2021,~~March 31, 2022, the total notional amount of forward contracts was ~~$61.8~~$70.9 million. At ~~June 30, 2021,~~March 31, 2022, the weighted-average remaining maturity of these instruments was approximately ~~11.9~~12.0 months.

The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheet for derivative instruments as of ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020~~2021 (dollars in thousands):

		Fair Value					Fair Value
Derivatives not designated as hedges	Classification	June 30, 2021		September 30, 2020		Classification	March 31, 2022		September 30, 2021
Foreign currency forward contracts	Prepaid expenses and other current assets	$	1,300	$	-	Prepaid expenses and other current assets	$	1,993	$	1,235
Foreign currency forward contracts	Other assets		428		-	Other assets		636		365
Foreign currency forward contracts	Accrued expenses and other current liabilities		32		-	Accrued expenses and other current liabilities		93		131
Foreign currency forward contracts	Other liabilities	$	56	$	-	Other liabilities	$	96	$	148

The following tables display a summary of the income (loss) related to foreign currency forward contracts for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (dollars in thousand):

		Gain recognized in earnings									Gain recognized in earnings
		Three Months Ended				Nine Months Ended					Three Months Ended March 31,				Six Months Ended March 31,
Derivatives not designated as hedges	Classification	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020		Classification		2022		2021		2022		2021
Foreign currency forward contracts	Other income (expense), net	$	649	$	-	$	2,419	$	-	Other income (expense), net	$	1,347	$	1,384	$	2,464	$	1,770

We are exposed to credit losses primarily through our sales of software licenses and services to customers. We determine credit ratings for each customer in our portfolio based upon public information and information obtained directly from our customers. A credit limit for each customer is established and in certain cases we may require collateral or prepayment to mitigate credit risk. Our expected loss methodology is developed using historical collection experience, current customer credit information, current and future economic and market conditions and a review of the current status of the customer's account balances. We monitor our ongoing credit exposure through reviews of customer balances against contract terms and due dates, current economic conditions, and dispute resolution. Estimated credit losses are written off in the period in which the financial asset is no longer collectible.

~~The change in the allowance for credit losses for the nine months ended June 30, 2021 is as follows (dollars in thousands):~~

We believe our Chief Executive Officer (“CEO”) is our chief operating decision maker (“CODM”). Our CEO approves all major decisions, including reorganizations and new business initiatives. Our CODM reviews routine consolidated operating information and makes decisions on the allocation of resources at this level, as such, we have concluded that we have 1 operating segment.

All goodwill is assigned to one or more reporting units. A reporting unit represents an operating segment or a component within an operating segment for which discrete financial information is available and is regularly reviewed by segment management for performance assessment and resource allocation. Upon consideration of our components, we have concluded that our goodwill is associated with 1 reporting unit.

On ~~June 30, 2021,~~March 31, 2022, we concluded that 0 goodwill impairment indicators were present. We will continue to monitor the impacts of the COVID-19 pandemic on our reporting unit fair value. The full extent to which the ongoing COVID-19 pandemic could adversely affect our financial performance will depend on future developments, many of which are outside of our control.

The changes in the carrying amount of goodwill for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 are as follows (dollars in thousands):

As of ~~June 30, 2021,~~March 31, 2022, there were 0 indicators of impairment present related to our long-lived asset group.

The following tables summarizes the gross carrying amounts and accumulated amortization of intangible assets by major class (dollars in thousands):

	June 30, 2021									March 31, 2022
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Remaining Life (Years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Remaining Life (Years)
Customer relationships	$	111,403	$	(86,165	)	$	25,238		2.4	$	109,202	$	(93,979	)	$	15,223	$	1.9
Technology and patents		91,142		(85,762	)		5,380		1.0	$	90,332	$	(89,608	)	$	724	$	1.7
Total	$	202,545	$	(171,927	)	$	30,618			$	199,534	$	(183,587	)	$	15,947

	September 30, 2020									September 30, 2021
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Remaining Life (Years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Remaining Life (Years)
Customer relationships	$	110,512	$	(75,915	)	$	34,597		3.0	$	110,485	$	(88,638	)	$	21,847		2.2
Technology and patents		90,658		(79,639	)		11,019		1.6		90,738		(87,237	)		3,501		0.9
Total	$	201,170	$	(155,554	)	$	45,616			$	201,223	$	(175,875	)	$	25,348

Amortization expense related to intangible assets in the aggregate was ~~$5.1~~$4.0 million and ~~$5.2~~$5.1 million for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, and ~~$15.2~~$9.1 million and ~~$15.8~~$10.1 million for the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. We expect amortization of intangible assets to be approximately ~~$5.0~~$5.5 million for the remainder of fiscal year ~~2021.~~2022.

We have entered into a number of facility and equipment leases which qualify as operating leases under GAAP. We also have a limited number of equipment leases that qualify as finance leases. We determine if contracts with vendors represent a lease or have a lease component under GAAP at contract inception. Our leases have remaining terms ranging from less than one year to seven years. Some of our leases include options to extend or terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.

Operating lease right of use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date. As our leases generally do not provide an implicit rate, we use an estimated incremental borrowing rate in determining the present value of future payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular location and currency environment.

The following table presents certain information related to lease term and incremental borrowing rates for leases as of ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020:~~2021:

	June 30, 2021			September 30, 2020			March 31, 2022			September 30, 2021
Weighted-average remaining lease term (in months):
Operating leases		50.5			55.9			50.2			52.2
Finance leases		50.1			55.8			41.6			47.1
Weighted-average discount rate:
Operating leases		6.8	%		7.4	%		3.9	%		5.1	%
Finance leases		4.4	%		4.4	%		4.4	%		4.4	%

Lease costs for minimum lease payments is recognized on a straight-line basis over the lease term. For operating leases, costs are included within Cost of revenues, Research and development, Sales and marketing, and General and administrative lines on the Condensed Consolidated Statements of Operations. For financing leases, amortization of the finance ~~right-of-use~~right of use assets is included within Research and development, Sales and marketing, and General and administrative lines on the Condensed Consolidated Statements of Operations, and interest expense is included within Interest expense.

The following table presents lease expense for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (dollars in thousands):

	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended March 31,						Six Months Ended March 31,
	2021			2020			2021			2020			2022			2021			2022			2021
Finance lease costs:
Amortization of right of use asset	$	87		$	33		$	301		$	102		$	109		$	73		$	218		$	214
Interest on lease liability		16			1			48			3			13			17			27			32
Operating lease cost		1,885			2,209			5,825			6,059			1,949			1,869			3,507			3,940
Variable lease cost		801			347			1,271			1,021			812			292			1,689			470
Sublease income		(53	)		(47	)		(157	)		(157	)		(47	)		(51	)		(95	)		(104	)
Total lease cost	$	2,736		$	2,543		$	7,288		$	7,028		$	2,836		$	2,200		$	5,346		$	4,552

For operating leases, the related cash payments are included in the operating cash flows on the Condensed Consolidated Statements of Cash Flows. For the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ cash payments related to operating leases were $1.8 million and ~~$2.1~~$1.9 million, respectively, and ~~$5.9~~$3.4 million and ~~$5.7~~$4.1 million for the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. For financing leases, the related cash payments for the principal portion of the lease liability are included in the financing cash flows on the Condensed Consolidated Statement of Cash Flows and the related cash payments for the interest portion of the lease liability are included within the operating section of the Condensed Consolidated Statement of Cash Flows. For the three and ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, cash payments related to financing leases were $0.1 million and $0.3 million, respectively, of which an immaterial amount related to the interest portion of the lease liability. For the three and six months ended March 2021, cash payments related to finance leases were $0.1 million and $0.2 million, of which an immaterial amount related to the interest portion of the lease liability. For the three months ended ~~June 30, 2020, cash payments related to financing leases~~March 31, 2022 and 2021, right of use assets obtained in exchange for lease obligations were ~~immaterial. For~~$3.9 million and $0.5 million, respectively, and $7.0 million and $2.5 million for the ~~nine~~six months ended ~~June 30, 2020, cash payments related to financing leases were $0.1 million, of which an immaterial amount was related to the interest portion of the lease liability.~~March 31, 2022 and 2021, respectively.

The table below reconciles the undiscounted future minimum lease payments under non-cancelable leases to the total lease liabilities recognized on the Condensed Consolidated Balance Sheet as of ~~June 30, 2021~~March 31, 2022 (dollars in thousands):

Year Ending September 30,	Operating Leases			Financing Leases			Total			Operating Leases			Financing Leases			Total
2021 (excluding nine months ended June 30, 2021)	$	1,830		$	118		$	1,948
2022		6,250			469			6,719		$	3,525		$	208		$	3,733
2023		4,145			469			4,614			5,855			469			6,324
2024		3,800			417			4,217			5,091			417			5,508
2025		2,351			362			2,713			3,326			362			3,688
2026											1,892			52			1,944
Thereafter		3,125			53			3,178			2,470			—			2,470
Total future minimum lease payments	$	21,501		$	1,888		$	23,389		$	22,159		$	1,508		$	23,667
Less effects of discounting		(2,847	)		(131	)		(2,978	)		(1,566	)		(89	)		(1,655	)
Total lease liabilities	$	18,654		$	1,757		$	20,411		$	20,593		$	1,419		$	22,012
Reported as of June 30, 2021
Reported as of March 31, 2022
Short-term lease liabilities	$	5,497		$	429		$	5,926		$	5,844		$	425		$	6,269
Long-term lease liabilities		13,157			1,328			14,485			14,749			994			15,743
Total lease liabilities	$	18,654		$	1,757		$	20,411		$	20,593		$	1,419		$	22,012

Accrued expenses and other current liabilities consisted of the following (dollars in thousands):

	June 30, 2021		September 30, 2020		March 31, 2022		September 30, 2021

Compensation	$	37,121	$	37,960	$	23,206	$	39,536
Sales and other taxes payable		11,621		14,688		4,362		8,574
Professional fees		3,974		2,458		4,121		3,604
Cost of revenue related liabilities		3,946		3,683		3,398		4,634
Interest payable		622		2,703		1,883		1,919
Other		3,671		4,586		8,798		6,200
Total	$	60,955	$	66,078	$	45,768	$	64,467

Restructuring and other costs, net includes restructuring expenses as well as other charges that are unusual in nature, are the result of unplanned events, and arise outside of the ordinary course of our business. The following table sets forth accrual activity relating to restructuring reserves for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 (dollars in thousands):

	Personnel			Facilities			Restructuring Subtotal			Other			Total			Personnel			Facilities			Restructuring Subtotal			Other			Total
Balance at September 30, 2020	$	764		$	10		$	774		$	1,928		$	2,702
Balance at September 30, 2021																$	1,620		$	1,881		$	3,501		$	1,534		$	5,035
Restructuring and other costs, net		381			1,012			1,393			1,384			2,777			250			367			617			4,772			5,389
Non-cash adjustments		—			2,749			2,749			—			2,749			—			(393	)		(393	)		(4,000	)		(4,393	)
Cash payments		(719	)		(852	)		(1,571	)		(1,985	)		(3,556	)
Cash (payments) receipts																	(1,219	)		(64	)		(1,283	)		(1,504	)		(2,787	)
Foreign exchange impact on ending balance		6			(45	)		(39	)		—			(39	)		—			15			15			—			15
Balance at June 30, 2021	$	432		$	2,874		$	3,306		$	1,327		$	4,633
Balance at March 31, 2022																$	651		$	1,806		$	2,457		$	802		$	3,259

The following table sets forth restructuring and other costs, net recognized for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (dollars in thousands):

	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020		2022		2021		2022		2021

Personnel	$	—	$	2,452	$	381	$	3,133	$	13	$	45	$	250	$	381
Facilities		447		—		1,012		—		170		447		367		565
Restructuring subtotal		447		2,452		1,393		3,133		183		492		617		946
Other		1,313		849		1,384		10,592		291		45		4,772		71
Restructuring and other costs, net	$	1,760	$	3,301	$	2,777	$	13,725	$	474	$	537	$	5,389	$	1,017

For the three months ended ~~June 30,~~March 31, 2022, we recorded restructuring and other charges, net of $0.5 million, which included $0.3 million related to one-time charges and a $0.2 million charges resulting from the closure of facilities that will no longer be utilized.

For the six months ended March 31, 2022, we recorded restructuring and other charges, net of $5.4 million, which included $4.0 million, net of $5.0 million in forfeitures, in stock-based compensation due to the resignation of our former CEO and the resulting modification of certain stock-based awards, $0.3 million severance charge related to the elimination of personnel, and $0.4 million charge resulting from the closure of facilities that will no longer be utilized.

For the three months ended March 31, 2021, we recorded restructuring and other charges, net of ~~$1.8~~$0.5 million, which ~~resulted from~~included a $0.4 million charge resulting from the closure of facilities that will no longer be ~~utilized and $1.3 million related to other one-time charges.~~utilized.

For the ~~nine~~six months ended ~~June 30,~~March 31, 2021, we recorded restructuring and other charges, net of ~~$2.8~~$1.0 million, which included a $0.4 million severance charge related to the elimination of personnel ~~$1.0~~and a $0.6 million charge resulting from the closure of facilities that will no longer be ~~utilized, and $1.4 million related to other one-time charges.~~

For the three months ended June 30, 2020, we recorded restructuring charges of $3.3 million, which included a $2.5 million severance charge related to the elimination of personnel, and $0.8 million related to costs incurred to establish the Cerence business as a standalone public company.

For the nine months ended June 30, 2020, we recorded restructuring charges of $13.7 million, which included a $3.1 million severance charge related to the elimination of personnel, and $10.6 million related to costs incurred to establish the Cerence business as a standalone public company.utilized.

Per the Amended and Restated Certificate of Incorporation, which was adopted on October 1, 2019, 600,000,000 shares of capital stock have been authorized, consisting of 40,000,000 shares of Preferred Stock, par value $0.01 per share, or Preferred Stock, and 560,000,000 shares of Common Stock, par value $0.01 per share (“Common Stock”).

On October 2, 2019, we registered the issuance of 6,350,000 shares of Common Stock, par value $0.01 per share (“Common Stock”), consisting of 5,300,000 shares of Common Stock reserved for issuance upon the exercise of options granted, or in respect of awards granted, under the Cerence 2019 Equity Incentive Plan, (“Equity Incentive Plan”), and 1,050,000 shares of Common Stock that are reserved for issuance under the Cerence 2019 Employee Stock Purchase Plan. On January 1, 2021, in accordance with the automatic annual increase provisions of the Equity Incentive Plan, an aggregate of 1,130,547 shares of our Common Stock were added to the shares available for issuance under the Equity Incentive Plan.

The Equity Incentive Plan provides for the grant of incentive stock options, stock awards, stock units, stock appreciation rights, and certain other stock-based awards. The shares available for issuance will automatically increase on January 1st of each year, by the lesser of (A) three percent (3%) of the number of shares of Common Stock outstanding as of the close of business on the immediately preceding December 31st; and (B) the number of shares of Common Stock determined by the Board on or prior to such date for such year.

~~Awards issued under the Plan may not have a term greater than ten years from the date of grant.~~

Information with respect to our non-vested restricted stock units for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 was as follows:

	Non-Vested Restricted Stock Units															Non-Vested Restricted Stock Units
	Time-Based Shares			Performance- Based Shares			Total Shares			Weighted- Average Grant-Date Fair Value		Weighted- Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)		Time-Based Shares			Performance- Based Shares			Total Shares			Weighted- Average Grant-Date Fair Value		Weighted- Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)
Non-vested at September 30, 2020		2,042,918			771,387			2,814,305		$	18.63
Non-vested at September 30, 2021																	1,420,532			654,619			2,075,151		$	44.20
Granted		676,883			290,035			966,918		$	61.32						593,686			301,239			894,925		$	75.72
Vested		(1,006,553	)		(403,502	)		(1,410,055	)	$	37.85						(917,483	)		(474,681	)		(1,392,164	)	$	59.71
Forfeited		(22,844	)		(2,287	)		(25,131	)	$	45.21						(71,666	)		(95,588	)		(167,254	)	$	55.93
Non-vested at June 30, 2021		1,690,404			655,633			2,346,037		$	42.34		1.24	$	250,322
Non-vested at March 31, 2022																	1,025,069			385,589			1,410,658		$	64.64
Expected to vest								2,346,037		$	42.34		1.24	$	250,322								1,410,658		$	64.64		1.12	$	50,911

Stock-based compensation was included in the following captions in our Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in thousands):

	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020		2022		2021		2022		2021
Cost of connected services	$	165	$	423	$	937	$	963	$	197	$	481	$	343	$	772
Cost of professional services		1,543		1,718		4,008		3,022		1,373		1,164		2,319		2,465
Research and development		4,774		5,001		13,377		9,924		4,146		4,465		6,141		8,603
Sales and marketing		2,774		3,223		8,351		6,589		1,422		2,938		844		5,577
General and administrative		5,454		7,060		15,506		12,456		3,788		5,096		3,120		10,052
Restructuring and other costs, net										—		—		4,000		—
	$	14,710	$	17,425	$	42,179	$	32,954	$	10,926	$	14,144	$	16,767	$	27,469

For the six months ended March 31, 2022, we decreased stock-based compensation expense relating to our performance-based restricted stock units. Compensation cost for our performance-based restricted stock units is recognized based on the number of units expected to vest upon the achievement of the performance conditions. During the three months ended December 31, 2021, we recorded $4.0 million, net of $5.0 million in forfeitures, in stock-based compensation due to the resignation of our former CEO and the resulting modification of certain stock-based awards in Restructuring and other costs, net. During the three months ended March 31, 2022, we recorded $2.4 million, net of $0.2 million in forfeitures, in stock-based compensation due to the retirement of our former CFO and resignation of our former General Counsel and the resulting modification of certain stock-based awards.

Similar to many companies in the software industry, we are involved in a variety of claims, demands, suits, investigations and proceedings that arise from time to time relating to matters incidental to the ordinary course of our business, including at times actions with respect to contracts, intellectual property, employment, benefits and securities matters. At each balance sheet date, we evaluate contingent liabilities associated with these matters in accordance with ASC 450 “Contingencies.” If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgments are required for the determination of probability and the range of the outcomes, and estimates are based only on the best information available at the time. Due to the inherent uncertainties involved in claims and legal proceedings and in estimating losses that may arise, actual outcomes may differ from our estimates. Contingencies deemed not probable or for which losses were not estimable in one period may become probable, or losses may become estimable in later periods, which may have a material impact on our results of operations and financial position. As of ~~June 30, 2021,~~March 31, 2022, accrued losses were not material to our condensed consolidated financial statements, and we do not expect any pending matter to have a material impact on our condensed consolidated financial statements.

On February 25, 2022, a purported shareholder class action captioned as City Of Miami Fire Fighters’ And Police Officers’ Retirement Trust v. Cerence Inc. et al. was filed in the United States District Court for the District of Massachusetts, naming the Company and two of its former officers as defendants. The plaintiff claims to be suing on behalf of anyone who purchased the Company’s common stock between February 8, 2021 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 February 8, 2021 to February 4, 2022, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The plaintiff seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including attorney’s fees. We intend to continue to defend the remaining claims vigorously. Given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, class certification and success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from this action.

We include indemnification provisions in the contracts we enter with customers and business partners. Generally, these provisions require us to defend claims arising out of our products’ infringement of third-party intellectual property rights, breach of contractual obligations and/or unlawful or otherwise culpable conduct. The indemnity obligations generally cover damages, costs and attorneys’ fees arising out of such claims. In most, but not all cases, our total liability under such provisions is limited to either the value of the contract or a specified, agreed-upon amount. In some cases, our total liability under such provisions is unlimited. In many, but not all cases, the term of the indemnity provision is perpetual. While the maximum potential amount of future payments we could be required to make under all the indemnification provisions is unlimited, we believe the estimated fair value of these provisions is minimal due to the low frequency with which these provisions have been triggered.

We indemnify our directors and officers to the fullest extent permitted by Delaware law, which provides among other things, indemnification to directors and officers for expenses, judgments, fines, penalties and settlement amounts incurred by such persons in their capacity as a director or officer of the Company, regardless of whether the individual is serving in any such capacity at the time the liability or expense is incurred. Additionally, in connection with certain acquisitions, we agreed to indemnify the former officers and members of the boards of directors of those companies, on similar terms as described above, for a period of six years from the acquisition date. In certain cases, we purchase director and officer insurance policies related to these obligations, which fully cover the six-year period. To the extent that we do not purchase a director and officer insurance policy for the full period of any contractual indemnification, and such directors and officers do not have coverage under separate insurance policies, we would be required to pay for costs incurred, if any, as described above.

As of ~~June 30, 2021,~~March 31, 2022, we have a $1.7 million letter of credit that is used as a security deposit in connection with our leased Bellevue, Washington office space. In the event of default on the underlying lease, the landlord would be eligible to draw against the letter of credit. The letter of credit is subject to aggregate reductions, provided that we are not in default under the underlying lease. We also have letters of credit in connection with security deposits for other facility leases totaling $0.6 million in the aggregate. These letters of credit have various terms and expire during fiscal year ~~2021~~2022 and beyond, while some of the letters of credit may automatically renew based on the terms of the underlying agreements.

The components of income ~~(loss)~~ before income taxes are as follows (dollars in thousands):

	Three Months Ended June 30,					Nine Months Ended June 30,					Three Months Ended March 31,					Six Months Ended March 31,
	2021		2020			2021		2020			2022			2021		2022		2021

Domestic	$	4,895	$	(37,511	)	$	19,139	$	(42,187	)	$	(3,009	)	$	10,930	$	14,199	$	14,244
Foreign		6,967		7,248			21,628		9,515			5,978			6,449		8,113		14,661
Income (loss) before income taxes	$	11,862	$	(30,263	)	$	40,767	$	(32,672	)
Income before income taxes											$	2,969		$	17,379	$	22,312	$	28,905

The components of the provision for (benefit from) income taxes are as follows (dollars in thousands):

	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended March 31,						Six Months Ended March 31,
	2021			2020			2021			2020			2022			2021			2022			2021

Domestic	$	2,661		$	(5,899	)	$	6,414		$	(6,841	)	$	233		$	4,191		$	1,670		$	3,753
Foreign		3,403			3,688			(3,549	)		692			3,212			2,025			2,074			(6,952	)
Provision for (benefit from) income taxes	$	6,064		$	(2,211	)	$	2,865		$	(6,149	)	$	3,445		$	6,216		$	3,744		$	(3,199	)
Effective income tax rate		51.1	%		7.3	%		7.0	%		18.8	%		116.0	%		35.8	%		16.8	%		(11.1	)%

The effective tax rates for the periods presented are based upon estimated income for the fiscal year and the statutory tax rates enacted in the jurisdictions in which we operate. For all periods presented, the effective tax rate differs from the 21.0% statutory U.S. tax rate due to the impact of the nondeductible stock-based compensation ~~U.S. inclusions of global intangible low-taxed income (GILTI),~~ and our mix of jurisdictional earnings and related differences in foreign statutory tax rates.

Our effective tax rate for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~51.1%~~116.0% compared to ~~7.3%~~35.8% for the three months ended ~~June 30, 2020.~~March 31, 2021. Consequently, our provision for income taxes for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~$6.1~~$3.4 million, a net ~~change~~decrease of ~~$8.3~~$2.8 million from a provision for income taxes of $6.2 million for the three months ended March 31, 2021. This difference was attributable to our composition of jurisdiction earnings and U.S. inclusions of foreign taxable income as a result of 2017 tax law changes.

Our effective tax rate for the six months ended March 31, 2022 was 16.8% compared to negative 11.1% for the six months ended March 31, 2021. Consequently, our provision for income taxes for the six months ended March 31, 2022 was $3.7 million, a net increase of $6.9 million from a benefit from income taxes of ~~$2.2~~$3.2 million for the ~~three~~six months ended ~~June 30, 2020.~~March 31, 2021. This difference was attributable to our composition of jurisdiction earnings, U.S. inclusions of foreign taxable income as a result of 2017 tax law changes, ~~non-deductible compensation expenses.~~

Our effective tax rate for the nine months ended June 30, 2021 was 7.0% compared to 18.8% for the nine months ended June 30, 2020. Consequently, our provision for income taxes for the nine months ended June 30, 2021 was $2.9 million, a net change of $9.0 million from a benefit from income taxes of $6.1 million for the nine months ended June 30, 2020. This difference was attributable toand a $15.8 million tax benefit recorded as a result of an increase to the enacted Netherlands tax rate in the first quarter of fiscal 2021 ~~and the realization of~~partially offset by a ~~$3.9~~$3.5 million tax benefit ~~related~~recorded as result of an increase to ~~stock-based compensation~~the enacted Netherlands tax rate in the ~~period. This compares to a $5.0 million tax benefit realized during the nine months ended June 30, 2020, which was the result~~first quarter of ~~a previous change to the Netherlands enacted tax rate.~~fiscal 2022.

Deferred tax assets and liabilities are measured using the statutory tax rates and laws expected to apply to taxable income in the years in which the temporary differences are expected to reverse. Valuation allowances are provided against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the timing of the temporary differences becoming deductible. Management considers, among other available information, scheduled reversals of deferred tax liabilities, projected future taxable income, limitations of availability of net operating loss carryforwards, and other matters in making this assessment.

	June 30, 2021			September 30, 2020			March 31, 2022			September 30, 2021
3.00% Convertible Senior Notes due 2025, net of unamortized discount of $15,929 and deferred issuance costs of $4,005 at June 30, 2021. Effective interest rate 6.29%.	$	155,066		$	151,791
Senior Credit Facilities, net of unamortized discount of $1,958 and deferred issuance costs of $236 at June 30, 2021. Effective interest rate 2.91%.		116,556			121,331
3.00% Convertible Senior Notes due 2025, net of unamortized discount of $13,176 and $15,019, respectively, and deferred issuance costs of $3,313 and $3,776, respectively. Effective interest rate 6.29%.							$	158,511		$	156,205
Senior Credit Facilities, net of unamortized discount of $1,571 and $1,829, respectively, and deferred issuance costs of $190 and $221, respectively. Effective interest rate 3.25% and 2.86%, respectively.								112,302			115,138
Total debt	$	271,622		$	273,122		$	270,813		$	271,343
Less: current portion		(6,250	)		(6,250	)		(7,813	)		(6,250	)
Total long-term debt	$	265,372		$	266,872		$	263,000		$	265,093

The following table summarizes the maturities of our borrowing obligations as of ~~June 30, 2021~~March 31, 2022 (in thousands):

Fiscal Year	Convertible Senior Notes			Senior Facilities			Total			Convertible Senior Notes			Senior Facilities			Total
2021	$	—		$	1,562		$	1,562
2022		—			6,250			6,250		$	—		$	3,125		$	3,125
2023		—			10,938			10,938			—			10,938			10,938
2024		—			12,500			12,500			—			12,500			12,500
2025		175,000			87,500			262,500			175,000			87,500			262,500
Thereafter		—			—			—
Total before unamortized discount and issuance costs and current portion	$	175,000		$	118,750		$	293,750		$	175,000		$	114,063		$	289,063
Less: unamortized discount and issuance costs		(19,934	)		(2,194	)		(22,128	)		(16,489	)		(1,761	)		(18,250	)
Less: current portion of long-term debt		—			(6,250	)		(6,250	)		—			(7,813	)		(7,813	)
Total long-term debt	$	155,066		$	110,306		$	265,372		$	158,511		$	104,489		$	263,000

On June 2, 2020, ~~in an effort to refinance our debt structure,~~ we issued $175.0 million in aggregate principal amount of 3.00% Convertible Senior Notes due 2025 (the “Notes”), including the initial purchasers’ exercise in full of their option to purchase an additional $25.0 million principal amount of the Notes, between ~~the Company~~us and U.S. Bank 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 net proceeds from the issuance of the Notes were $169.8 million after deducting transaction costs. We used net proceeds from the issuance of the Notes to repay a portion of our indebtedness under the Credit Agreement, dated October 1, 2019, by and among the Company, the lenders and issuing banks party thereto and Barclays Bank PLC, as administrative agent (the “Existing Facility”).

The Notes are senior, unsecured obligations and will accrue interest payable semiannually in arrears on June 1 and December 1 of each year ~~beginning on December 1, 2020,~~ at a rate of 3.00% per year. The Notes will mature on June 1, 2025, unless earlier converted, redeemed, or repurchased. The Notes are convertible into cash, shares of ~~Common Stock~~our common stock or a combination of cash and shares of ~~Common Stock,~~our common stock, at our election. As of March 31, 2022, the ~~Company’s election.~~if-converted value of the Notes is $6.2 million less than its principal amount.

The conversion rate will initially be 26.7271 shares of our ~~Common Stock~~common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $37.42 per share of our ~~Common Stock)~~common stock).

As of ~~June 30, 2021,~~March 31, 2022, the carrying amount of the equity component, net of taxes and transaction costs was $14.4 million.

The interest expense recognized related to the Notes for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021 was as follows (dollars in thousands):

	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020		2022		2021		2022		2021
Contractual interest expense	$	1,308	$	431	$	3,924	$	431	$	1,294	$	1,294	$	2,616	$	2,616
Amortization of debt discount		886		276		2,617		276		919		863		1,843		1,731
Amortization of issuance costs		223		70		658		70		231		217		463		435
Total interest expense related to the Notes	$	2,417	$	777	$	7,199	$	777	$	2,444	$	2,374	$	4,922	$	4,782

The conditional conversion feature of the Notes was triggered during the ~~nine~~three and six months ended ~~June 30, 2021, and~~March 31, 2022. As of March 31, 2022, the Notes were ~~convertible during the fiscal quarter ended June 30, 2021, with~~not convertible. As of this Quarterly Report, no Notes ~~being converted.~~have been converted by the holders. Whether any of the Notes will be convertible in future quarters will depend on the satisfaction of one or more of the conversion conditions in the future. If one or more holders elect to convert their Notes at a time when any such Notes are convertible, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.

On June 12, 2020 (the “Financing Closing Date”), ~~in connection with our effort to refinance our existing indebtedness,~~ we entered into a Credit Agreement, by and among the Borrower, the lenders and issuing banks party thereto and Wells Fargo Bank, N.A., as administrative agent (the “Credit Agreement”), consisting of a four-year senior secured term loan facility in the aggregate principal amount of $125.0 million (the “Term Loan Facility”). The net proceeds from the issuance of the Term Loan Facility were $123.0 million, which together with proceeds from the Convertible Senior Notes was intended to pay in full all indebtedness under the Existing Facility, and paid fees and expenses in connection with the Senior Credit Facilities.million. We also entered into a senior secured first-lien revolving credit facility in an aggregate principal amount of $50.0 million (the “Revolving Facility” and, together with the Term Loan Facility, the “Senior Credit Facilities”), which ~~shall~~may be drawn on in the event that our working capital and other cash needs are not supported by our operating cash flow. As of ~~June 30, 2021,~~March 31, 2022, there were 0 amounts outstanding under the Revolving Facility.

On December 17, 2020 (the “Amendment No. 1 Effective Date”), we entered into Amendment No. 1 to the Credit Agreement (the “Amendment”). The Amendment extended the scheduled maturity date of the revolving credit and term facilities from June 12, 2024 to April 1, 2025. The Amendment was accounted for as a debt modification, and therefore, $0.5 million of the refinancing fees paid directly to lender were recorded as deferred debt issuance costs, and $0.1 million of the refinancing fees paid to third parties were expensed in the period.

The Amendment, among other things, revised certain interest rates in the Credit Agreement. Following delivery of a compliance certificate for the first full fiscal quarter after the Amendment No. 1 Effective Date, the applicable margins for the revolving credit and term facilities is subject to a pricing grid based upon the net total leverage ratio as follows (i) if the net total leverage ratio is greater than 3.00 to 1.00, the applicable margin is LIBOR plus 3.00% or ABR plus 2.00%; (ii) if the net total leverage ratio is less than or equal to 3.00 to 1.00 but greater than 2.50 to 1.00, the applicable margin is LIBOR plus 2.75% or ABR plus 1.75%; (iii) if the net total leverage ratio is less than or equal to 2.50 to 1.00 but greater than 2.00 to 1.00, the applicable margin is LIBOR plus 2.50% or ABR plus 1.50%; (iv) if the net total leverage ratio is less than or equal to 2.00 to 1.00 but greater than 1.50 to 1.00, the applicable margin is LIBOR plus 2.25% or ABR plus 1.25%; and (v) if the net total leverage ratio is less than or equal to 1.50 to 1.00, the applicable margin is LIBOR plus 2.20% or ABR plus 1.00%. As a result of the Amendment, the applicable LIBOR floor was reduced from 0.50% to 0.00%. From the Amendment No. 1 Effective Date until the fiscal quarter ended December 31, 2020, the interest rate was LIBOR plus 2.50%. For the three months ended March 31, 2021, the interest rate was LIBOR plus 2.25%. For the three and six months ended ~~June 30, 2021,~~March 31, 2022, the interest rate was LIBOR plus 2.25%. Total interest expense relating to the Senior Credit Facilities for the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ was ~~$0.8~~$0.9 million and ~~$0.3~~$1.0 million, respectively, and ~~$3.2~~$1.8 million and ~~$0.3~~$2.4 million for the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, reflecting~~respectively. Amounts reflect the coupon and accretion of the discount.

In addition, the quarterly commitment fee required to be paid based on the unused portion of the revolving facility is subject to a pricing grid based upon the net total leverage ratio as follows (i) if the net total leverage ratio is greater than 3.00 to 1.00, the unused line fee is 0.500%; (ii) if the net total leverage ratio is less than or equal to 3.00 to 1.00 but greater than 2.50 to 1.00, the unused line fee is 0.450%; (iii) if the net total leverage ratio is less than or equal to 2.50 to 1.00 but greater than 2.00 to 1.00, the unused line fee is 0.400%; (iv) if the net total leverage ratio is less than or equal to 2.00 to 1.00 but greater than 1.50 to 1.00, the unused line fee is 0.350%; and (v) if the net total leverage ratio is less than or equal to 1.50 to 1.00, the unused line fee is 0.300%.

~~The Amendment also revised the amount by which we are obligated to make quarterly principal payments.~~ Through the fiscal quarter ending December 31, 2022, we are obligated to make quarterly principal payments in an aggregate amount equal to 1.25% of the original principal amount of the Term Loan Facility. From the fiscal quarter ending March 31, 2023 and for each fiscal quarter thereafter, we are obligated to make quarterly principal payments in an aggregate amount equal to 2.50% of the original principal amount of the Term Loan Facility, with the balance payable at the maturity date thereof.

The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to designate subsidiaries as unrestricted, to make certain investments, to prepay certain indebtedness and to pay dividends, or to make other distributions or redemptions/repurchases, in respect of our and our subsidiaries’ equity interests. In addition, the Credit Agreement contains financial covenants, each tested quarterly, (1) a net secured leveraged ratio of not greater than 3.25 to 1.00; (2) a net total leverage ratio of not greater than 4.25 to 1.00; and (3) minimum liquidity of at least $75 million. The Credit Agreement also contains events of default customary for financings of this type, including certain customary change of control events. As of ~~June 30, 2021,~~March 31, 2022, we were in compliance with all Credit Agreement covenants.

~~Note~~ ~~16. Impact on Previously Issued Financial Statements for Immaterial Adjustments~~

~~During the quarter ended March 31, 2021, we identified three immaterial errors and made adjustments to correct those errors that affected previously issued consolidated financial statements.~~

~~We also recorded certain adjustments to income taxes reflecting the tax effect of the aforementioned adjustments.~~

We assessed the materiality, both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 99 and SAB No. 108, and concluded that these identified errors were not material to any of the previously issued financial statements. In order to present the impact of these resulting adjustments, previously issued financial statements have been revised and are presented as “As Revised” in the tables presented below.

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 (“~~Form 10-Q”~~Quarterly Report”), and our consolidated and combined 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, ~~2020,~~2021, filed with the Securities and Exchange Commission (“SEC”) on November ~~19, 2020.~~23, 2021. Some of the information contained in this discussion and analysis or elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, our performance and future success, our liquidity and capital resources, the impact of the COVID-19 pandemic on our business, results of operations and financial condition, macroeconomic conditions, the semiconductor shortage, and trends in the global auto industry, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Concerning Forward-Looking Statements.” You should review the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020,~~2021, as updated by Part II, Item 1A of this Quarterly Report, 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 ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 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.

~~We build automotive cognitive assistance~~Cerence builds AI powered virtual assistants for the mobility/transportation market. Our primary target is the automobile market, but our solutions can apply to all forms of transportation, including, but not limited to, two-wheel vehicles, planes, tractors, cruise ships and elevators. Our solutions power natural conversational and intuitive interactions between automobiles, drivers and passengers, and the broader digital world. We possess one of the world’s most popular software platforms for building automotive virtual assistants. Our customers include all major 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 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 all major OEMs or their tier 1 suppliers, and while our customer contracts vary, they generally represent multi-year engagements, giving us some level of visibility into future revenue.

The COVID-19 pandemic has resulted in, and may continue to result in, additional governmental restrictions and regulations, which has adversely affected, and may continue to adversely affect our business and financial results. For example, pandemic related lockdowns were experienced in China throughout March 2022, which resulted in loss of automotive production. We have seen, and anticipate that we will continue to see, supply chain challenges in the automotive industry related to semiconductor devices that are used in automobiles. The current macroeconomic conditions have also increased competition for qualified employees in our industry, particularly for members of our professional service teams, and we, along with automotive OEMs, face significant competition in hiring and retaining them. In addition, a recession, depression or other sustained adverse market impact resulting from COVID-19 could materially and adversely affect our business, our access to needed capital and liquidity, and the value of our common stock. Even after the COVID-19 pandemic has lessened or subsided, we may continue to experience adverse impacts on our business and financial performance as a result of its global economic impact.

As the full impact of the COVID-19 pandemic on our business continues to develop, we are closely monitoring the global situation. We are unable at this time to predict the full impact of COVID-19 on our operations, liquidity, and financial results, and, depending on the magnitude and duration of the COVID-19 pandemic, such impact may be material. Accordingly, current results and financial condition discussed herein may not be indicative of future operating results and trends. While we are unable to accurately predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, these measures have impacted, and may continue to impact, our business, as well as our customers and consumers. For further discussion of the business risks associated with COVID-19, see Item 1A, Risk Factors, within our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020,~~2021, as updated by Part II, Item 1A of this Quarterly Report.

The financial information presented in the accompanying unaudited condensed consolidated financial statements has been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and in accordance with rules and regulations of the SEC 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, ~~2020~~2021 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 ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 are not necessarily indicative of the results expected for the full fiscal year ending September 30, ~~2021.~~2022.

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.

In evaluating our financial condition and operating performance, we focus on revenue, operating margins, and cash flow from operations.

For the three months ended ~~June 30, 2021~~March 31, 2022 as compared to the three months ended ~~June 30, 2020:~~March 31, 2021:

•~~Total revenue increased by $21.6 million, or 28.7%, to $96.8 million from $75.2 million.~~

•~~Operating margin increased 21.1 percentage points to 15.4% from negative 5.7%.~~

•~~Cash provided by operating activities was $24.1 million, an increase of $4.8 million from cash provided by operating activities of $19.3~~

For the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 as compared to the ~~nine~~six months ended ~~June 30, 2020:~~March 31, 2021:

•~~Total revenue increased by $49.4 million, or 20.6%, to $289.1 million from $239.7 million.~~

•~~Cash provided by operating activities was $51.1 million, an increase of $32.5 million from cash provided by operating activities of $18.6 million.~~

The following table shows the Condensed Consolidated Statement of Operations for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (dollars in thousands):

	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended March 31,						Six Months Ended March 31,
	2021			2020			2021			2020			2022			2021			2022			2021
Revenue:
License	$	49,980		$	32,454		$	150,765		$	117,843		$	46,308		$	54,371		$	93,158		$	100,785
Connected services		30,283			25,383			83,949			72,109			19,326			27,736			47,485			53,666
Professional services		16,538			17,360			54,392			49,773			20,646			16,555			40,063			37,854
Total revenues		96,801			75,197			289,106			239,725			86,280			98,662			180,706			192,305
Cost of revenue:
License		863			820			2,718			2,344			386			1,181			1,107			1,855
Connected services		6,108			7,191			19,960			24,742			5,651			6,839			11,375			13,852
Professional services		14,985			17,529			48,632			48,773			17,372			16,325			33,275			33,647
Amortization of intangible assets		1,879			2,063			5,637			6,408			897			1,879			2,776			3,758
Total cost of revenues		23,835			27,603			76,947			82,267			24,306			26,224			48,533			53,112
Gross profit		72,966			47,594			212,159			157,458			61,974			72,438			132,173			139,193
Operating expenses:
Research and development		30,370			22,041			83,365			66,898			29,976			28,864			55,768			52,995
Sales and marketing		9,534			9,180			28,097			24,829			8,309			9,555			14,188			18,563
General and administrative		13,173			14,261			38,563			36,456			13,800			12,956			21,327			25,390
Amortization of intangible assets		3,180			3,120			9,521			9,376			3,135			3,183			6,289			6,341
Restructuring and other costs, net		1,760			3,301			2,777			13,725			474			537			5,389			1,017
Total operating expenses		58,017			51,903			162,323			151,284			55,694			55,095			102,961			104,306
Income (loss) from operations		14,949			(4,309	)		49,836			6,174
Income from operations														6,280			17,343			29,212			34,887
Interest income		34			38			68			563			83			16			173			34
Interest expense		(3,294	)		(5,546	)		(10,569	)		(19,043	)		(3,360	)		(3,476	)		(6,787	)		(7,275	)
Other income (expense), net		173			(20,446	)		1,432			(20,366	)		(34	)		3,496			(286	)		1,259
Income (loss) before income taxes		11,862			(30,263	)		40,767			(32,672	)
Income before income taxes														2,969			17,379			22,312			28,905
Provision for (benefit from) income taxes		6,064			(2,211	)		2,865			(6,149	)		3,445			6,216			3,744			(3,199	)
Net income (loss)	$	5,798		$	(28,052	)	$	37,902		$	(26,523	)
Net (loss) income													$	(476	)	$	11,163		$	18,568		$	32,104

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 ~~costs~~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. See Note 3 to the accompanying unaudited condensed consolidated financial statements for further discussion of our revenue, deferred revenue performance obligations and the timing of revenue recognition. Costs of license revenue primarily ~~consisting~~consists of third-party royalty expenses for certain external technologies we leverage.

Connected services revenue primarily represents the subscription fee that provides access to our connected services components, including the customization and construction of our connected services solutions. We also derive revenue within our connected services business from usage contracts and there can be instances where a customer purchases a software license that allows them to take possession of the software to enable hosting by the customer or a third-party. Subscription and usage contracts typically have a term of one to five years. Subscription revenue is recognized over the subscription period and cash is expected to be collected at the start of the subscription period. Usage based revenue is recognized and cash is collected as the service is used. If the customer takes possession of the software to have it hosted by the customer or a third-party, revenue is recognized, and cash is collected at the time the license is delivered. See Note 3 to the accompanying unaudited condensed consolidated financial statements for further discussion of our revenue, deferred revenue performance obligations and the timing of revenue recognition. Cost of connected service revenue primarily consists of labor costs of software delivery services, infrastructure, and communications fees that support our connected services solutions.

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, finance, human resources, general management, fees for external professional advisers including accountants and attorneys, and provisions for credit losses.

Amortization of acquired patents and core technology are included within cost of revenues whereas the amortization of other intangible assets, such as acquired customer relationships, trade names and trademarks, are included within operating expenses. Customer relationships are amortized over their estimated economic lives based on the pattern of economic benefits expected to be generated from the use of the asset. Other identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives.

Restructuring and other costs, net include restructuring expenses as well as other charges that are unusual in nature, are the result of unplanned events, and arise outside the ordinary course of our business.

Total other expense, net consists primarily of foreign exchange gains (losses), losses on the extinguishment of debt and interest expense related to the ~~Existing Facilities,~~ Notes, ~~and~~the Senior Credit ~~Facilities.~~Facilities, and the Credit Agreement, dated October 1, 2019, by and among the Company, the lenders and issuing banks party thereto and Barclays Bank PLC, as administrative agent, which we repaid using proceeds from the issuance of the Notes.

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared with Three Months Ended ~~June 30, 2020~~March 31, 2021

The following table shows total revenues by product type, including the corresponding percentage change, for the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (dollars in thousands):

	Three Months Ended June 30,						% Change			Three Months Ended March 31,						% Change
	2021		% of Total	2020		% of Total	2021 vs. 2020			2022		% of Total	2021		% of Total	2022 vs. 2021
License	$	49,980	51.6%	$	32,454	43.1%		54.0	%	$	46,308	53.7%	$	54,371	55.1%		(14.8	)%
Connected services		30,283	31.3%		25,383	33.8%		19.3	%		19,326	22.4%		27,736	28.1%		(30.3	)%
Professional services		16,538	17.1%		17,360	23.1%		(4.7	)%		20,646	23.9%		16,555	16.8%		24.7	%
Total revenues	$	96,801		$	75,197			28.7	%	$	86,280		$	98,662			(12.5	)%

Total revenues for the three months ended ~~June 30, 2021~~March 31, 2022 were ~~$96.8~~$86.3 million, an ~~increase~~decrease of ~~$21.6~~$12.4 million, or ~~28.7%~~12.5%, from ~~$75.2~~$98.7 million for the three months ended ~~June 30, 2020.~~March 31, 2021. The ~~increase~~decrease in revenues was driven by ~~increases~~decreases in licensing revenues and ~~increased~~decreased demand for our connected services. Our license revenue is highly dependent on vehicle production. Over the course of the past year, third-party light vehicle production forecasts for calendar year 2022 have decreased in response to the ongoing semiconductor shortage, conflict between Russia and Ukraine, and the growing effects of lockdowns in mainland China driven by COVID-19. While we cannot predict the full impact we will have from the forecasted decline in production, we do expect to be negatively impacted for the remainder of the fiscal year.

License revenue for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~$50.0~~$46.3 million, ~~an increase~~a decrease of ~~$17.5~~$8.1 million, or ~~54.0%~~14.8%, from ~~$32.5~~$54.4 million for the three months ended ~~June 30, 2020. The increase in~~March 31, 2021. Variable license revenue ~~was~~decreased by $16.9 million primarily due to ~~higher~~a lower volume of licensing ~~royalties as~~royalties. This decrease, which was due in part to consumption of fixed license contracts, was partially offset by an $8.4 million increase in minimum purchase commitment and prepaid deals with customers. During the ~~global auto industry recovered from~~three months ended March 31, 2022, an existing variable long-term contract with our largest customer was converted into a minimum purchase commitment deal that accounted for $19.9 million of revenue in the ~~COVID-19 pandemic and OEMs increased production.~~current quarter. The cash associated with this deal is expected to be collected over the distribution period, which could be up to five years. The estimated future revenue related to this long-term contract was previously included in our variable backlog. As a percentage of total revenues, license revenue ~~increased by 8.5~~decreased 1.4 percentage points from ~~43.1%~~55.1% for the three months ended ~~June 30, 2020~~March 31, 2021 to ~~51.6%~~53.7% for the three months ended June 30, 2021. Currently, the global automotive industry is experiencing a semiconductor shortage. As of the date of this Quarterly Report, we are unable to predict the full extent this will have on our business, including our license revenue.March 31, 2022.

Connected services revenue for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~$30.3~~$19.3 million, ~~an increase~~a decrease of ~~$4.9~~$8.4 million, or ~~19.3%~~30.3%, from ~~$25.4~~$27.7 million for the three months ended ~~June 30, 2020.~~March 31, 2021. This ~~increase~~decrease was primarily driven by ~~greater demand for our connected services solutions as our customers increasingly deploy hybrid solutions.~~the winding down of a legacy contract acquired by Nuance Communications, Inc. (“Nuance”) through a 2013 acquisition. As a percentage of total revenues, connected services revenue decreased by ~~2.5~~5.7 percentage point from ~~33.8%~~28.1% for the three months ended ~~June 30, 2020~~March 31, 2021 to ~~31.3%~~22.4% for the three months ended ~~June 30, 2021.~~March 31, 2022.

Professional service revenue for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~$16.5~~$20.6 million, ~~a decrease~~an increase of ~~$0.9~~$4.0 million, or ~~4.7%~~24.7%, from ~~$17.4~~$16.6 million for the three months ended June 30, 2020. This decrease was primarily driven by the composition of our arrangements and the related timing of fulfilling performance obligations under the contracts. As a percentage of total revenues, professional services revenue decreased by 6.0 percentage points from 23.1% for the three months ended June 30, 2020 to 17.1% for the three months ended June 30,March 31, 2021.

~~Nine Months Ended June 30, 2021 Compared with Nine Months Ended June 30, 2020~~

~~The following table shows total revenues by product type, including the corresponding percentage change, for the nine months ended June 30, 2021 and 2020 (dollars in thousands):~~

Total revenues for the nine months ended June 30, 2021 were $289.1 million, an increase of $49.4 million, or 20.6%, from $239.7 million for the nine months ended June 30, 2020. The increase in revenues occurred across all product types.

License revenue for the nine months ended June 30, 2021 was $150.8 million, an increase of $33.0 million, or 27.9%, from $117.8 million for the nine months ended June 30, 2020. The increase in license revenue was primarily due to higher volume of licensing royalties as the global auto industry recovered from the COVID-19 pandemic and OEMs increased production. As a percentage of total revenues, license revenue increased by 3.1 percentage points from 49.1% for the nine months ended June 30, 2020 to 52.2% for the nine months ended June 30, 2021. Currently, the global automotive industry is experiencing a semiconductor shortage. As of the date of this Quarterly Report, we are unable to predict the full extent this will have on our business, including our license revenue.

Connected services revenue for the nine months ended June 30, 2021 was $83.9 million, an increase of $11.8 million, or 16.4%, from $72.1 million for the nine months ended June 30, 2020. This increase was primarily driven by greater demand for our connected services solutions as our customers increasingly deploy hybrid solutions. As a percentage of total revenues, connected services revenue decreased by 1.1 percentage point from 30.1% for the nine months ended June 30, 2020 to 29.0% for the nine months ended June 30, 2021.

~~Professional service revenue for the nine months ended June 30, 2021 was $54.4 million, an increase of $4.6 million, or 9.3%, from $49.8 million for the nine months ended June 30, 2020.~~ This increase was primarily driven by our continued focus on integration and customization services related to our edge software and timing of services rendered. As a percentage of total revenues, professional services revenue ~~decreased 2.0~~increased by 7.1 percentage points from ~~20.8%~~16.8% for the ~~nine~~three months ended ~~June 30, 2020~~March 31, 2021 to ~~18.8%~~23.9% for the ~~nine~~three months ended ~~June 30, 2021.~~March 31, 2022.

The following table shows total revenues by product type, including the corresponding percentage change, for the six months ended March 31, 2022 and 2021 (dollars in thousands):

Total revenues for the six months ended March 31, 2022 were $180.7 million, an decrease of $11.6 million, or 6.0%, from $192.3 million for the six months ended March 31, 2021. The decrease in revenues was driven by decreases in licensing revenues and decreased demand for our connected services. Our license revenue is highly dependent on vehicle production. Over the course of the past year, third-party light vehicle production forecasts for calendar year 2022 have decreased in response to the ongoing semiconductor shortage, conflict between Russia and Ukraine, and the growing effects of lockdowns in mainland China driven by COVID-19. While we cannot predict the full impact we will have from the forecasted decline in production, we do expect to be negatively impacted for the remainder of the fiscal year.

License revenue for the six months ended March 31, 2022 was $93.2 million, a decrease of $7.6 million, or 7.6%, from $100.8 million for the six months ended March 31, 2021. Variable license revenue decreased by $31.7 million primarily due to a lower volume of licensing royalties. This decrease, which was due in part to consumption of fixed license contracts, was partially offset by an $18.4 million increase in minimum purchase commitment and prepaid deals and $5.2 million from a one-time volume commitment deal with a fitness customer. During the six months ended March 31, 2022, certain existing variable long-term contracts with our largest customer were converted into minimum purchase commitment deals that accounted for $40.1 million of revenue during such six-month period. The cash associated with these deals is expected to be collected over the distribution period, which could be up to five years. The estimated future revenue related to these long-term contracts was previously included in our variable backlog. As a percentage of total revenues, license revenue decreased by 0.8 percentage points from 52.4% for the six months ended March 31, 2021 to 51.6% for the six months ended March 31, 2022.

Connected services revenue for the six months ended March 31, 2022 was $47.5 million, a decrease of $6.2 million, or 11.5% from $53.7 million for the six months ended March 31, 2021. This decrease was primarily driven by the winding down of a legacy contract acquired by Nuance through a 2013 acquisition. As a percentage of total revenues, connected services revenue decreased by 1.6 percentage points from 27.9% for the six months ended March 31, 2021 to 26.3% for the six months ended March 31, 2022.

Professional service revenue for the six months ended March 31, 2022 was $40.1 million, an increase of $2.2 million, or 5.8%, from $37.9 million for the six months ended March 31, 2021. This increase was primarily driven by our continued focus on integration and customization services related to our edge software and timing of services rendered. As a percentage of total revenues, professional services revenue increased by 2.4 percentage points from 19.7% for the six months ended March 31, 2021 to 22.1% for the six months ended March 31, 2022.

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared with Three Months Ended ~~June 30, 2020~~March 31, 2021

The following table shows total cost of revenues by product type and the corresponding percentage change (dollars in thousands):

	Three Months Ended June 30,				% Change			Three Months Ended March 31,				% Change
	2021		2020		2021 vs. 2020			2022		2021		2022 vs. 2021
License	$	863	$	820		5.2	%	$	386	$	1,181		(67.3	)%
Connected services		6,108		7,191		(15.1	)%		5,651		6,839		(17.4	)%
Professional services		14,985		17,529		(14.5	)%		17,372		16,325		6.4	%
Amortization of intangibles		1,879		2,063		(8.9	)%		897		1,879		(52.3	)%
Total cost of revenues	$	23,835	$	27,603		(13.7	)%	$	24,306	$	26,224		(7.3	)%

The following table shows total gross profit by product type and the corresponding percentage change (dollars in thousands):

	Three Months Ended June 30,						% Change			Three Months Ended March 31,						% Change
	2021			2020			2021 vs. 2020			2022			2021			2022 vs. 2021
License	$	49,117		$	31,634			55.3	%	$	45,922		$	53,190			(13.7	)%
Connected services		24,175			18,192			32.9	%		13,675			20,897			(34.6	)%
Professional services		1,553			(169	)		(1018.9	)%		3,274			230			1323.5	%
Amortization of intangibles		(1,879	)		(2,063	)		8.9	%		(897	)		(1,879	)		52.3	%
Total gross profit	$	72,966		$	47,594			53.3	%

Total cost of revenues for the three months ended ~~June 30, 2021~~March 31, 2022 were ~~$23.8~~$24.3 million, a decrease of ~~$3.8~~$1.9 million, or ~~13.7%~~7.3%, from ~~$27.6~~$26.2 million for the three months ended ~~June 30, 2020. The decrease in cost of revenues resulted primarily from our cost savings initiatives implemented in the second half of fiscal 2020.~~March 31, 2021.

We experienced ~~an increase~~a decrease in total gross profit of ~~$25.4~~$10.4 million, or ~~53.3%~~14.4%, from ~~$47.6~~$72.4 million for the three months ended ~~June 30, 2020~~March 31, 2021 to ~~$73.0~~$62.0 million for the three months ended ~~June 30, 2021.~~March 31, 2022. The ~~increase~~decrease was primarily driven by ~~our~~a decline in license and connected services ~~solutions.~~revenues.

Cost of license revenue for the three months ended ~~June 30,~~March 31, 2022 and 2021 was ~~$0.9~~$0.4 million, ~~an increase~~a decrease of ~~$0.1~~$0.8 million, or ~~5.2%~~67.3%, from ~~$0.8~~$1.2 million for the three months ended ~~June 30, 2020.~~March 31, 2021. Cost of license ~~revenue increased~~revenues decreased due to ~~increases in~~ third-party royalty ~~costs.~~expenses associated with external technologies we leverage in our edge software components. As a percentage of total cost of revenues, cost of license revenue ~~increased~~decreased by ~~0.6~~2.9 percentage points from ~~3.0%~~4.5% for the three months ended ~~June 30, 2020~~March 31, 2021 to ~~3.6%~~1.6% for the three months ended ~~June 30, 2021.~~March 31, 2022.

License gross profit ~~increased~~decreased by ~~$17.5~~$7.3 million, or ~~55.3%~~13.7%, for the three months ended ~~June 30, 2021~~March 31, 2022 when compared to the three months ended ~~June 30, 2020,~~March 31, 2021, primarily due to ~~increases~~decreases in license ~~revenues on relatively flat costs.~~revenues.

Cost of connected services revenue for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~$6.1~~$5.7 million, a decrease of $1.1 million, or ~~15.1%~~17.4%, from ~~$7.2~~$6.8 million for the three months ended ~~June 30, 2020.~~March 31, 2021. Cost of connected services revenue decreased primarily due to a ~~$0.5 million decrease in depreciation costs, $0.3~~$0.4 million decrease in salary-related expenditures, ~~and $0.1~~$0.4 million decrease in ~~third-party contractor~~amortization of costs previously deferred, and $0.3 million decrease in stock-based compensation. The decrease was partially offset by a $0.5 million increase in our cloud infrastructure costs. As a percentage of total cost of revenues, cost of connected service revenue decreased by ~~0.5~~2.9 percentage points from 26.1% for the three months ended ~~June 30, 2020~~March 31, 2021 to ~~25.6%~~23.2% for the three months ended ~~June 30, 2021.~~March 31, 2022.

Connected services gross profit ~~increased $6.0~~decreased $7.2 million, or ~~32.9%~~34.6%, from ~~$18.2~~$20.9 million for the three months ended ~~June 30, 2020~~March 31, 2021 to ~~$24.2~~$13.7 million for the three months ended ~~June 30, 2021,~~March 31, 2022, driven by ~~continued~~decreases in connected services revenue ~~growth and cost savings initiatives.~~due to the winding down of a legacy contract.

Cost of professional services revenue for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~$15.0~~$17.4 million, ~~a decrease~~an increase of ~~$2.5~~$1.1 million, or ~~14.5%~~6.4%, from ~~$17.5~~$16.3 million for the three months ended ~~June 30, 2020.~~March 31, 2021. Cost of professional services revenue ~~decreased~~increased primarily due to a ~~$2.1~~$2.4 million ~~decrease in project labor costs, $1.5 million decrease~~increase in third-party contractor ~~costs. The decrease was partly offset by a $1.0~~costs, $0.2 million increase in stock-based compensation costs, $0.2 million increase in salary-related ~~expenditures.~~expenditures and $0.2 million increase in amortization of costs previously deferred. The increase was partially offset by $2.1 million lower internal allocated costs. As a percentage of total cost of revenues, cost of professional services revenue ~~decreased~~increased by ~~0.6~~9.2 percentage points from ~~63.5%~~62.3% for the three months ended ~~June 30, 2020~~March 31, 2021 to ~~62.9%~~71.5% for the three months ended ~~June 30, 2021.~~March 31, 2022.

Professional services gross profit increased ~~$1.8~~$3.1 million, or ~~1018.9%~~1323.5%, from ~~negative~~ $0.2 million for the three months ended ~~June 30, 2020~~March 31, 2021 to ~~$1.6~~$3.3 million for the three months ended ~~June 30, 2021,~~March 31, 2022, which was due to an increase in professional services revenues and cost savings ~~initiatives.~~initiatives implemented during the first half of fiscal year 2022.

~~Nine~~Six Months Ended ~~June 30, 2021~~March 31, 2022 Compared with ~~Nine~~Six Months Ended ~~June 30, 2020~~March 31, 2021

The following table shows total cost of revenues by product type and the corresponding percentage change (dollars in thousands):

	Nine Months Ended June 30,				% Change			Six Months Ended March 31,				% Change
	2021		2020		2021 vs. 2020			2022		2021		2022 vs. 2021
License	$	2,718	$	2,344		16.0	%	$	1,107	$	1,855		(40.3	)%
Connected services		19,960		24,742		(19.3	)%		11,375		13,852		(17.9	)%
Professional services		48,632		48,773		(0.3	)%		33,275		33,647		(1.1	)%
Amortization of intangibles		5,637		6,408		(12.0	)%		2,776		3,758		(26.1	)%
Total cost of revenues	$	76,947	$	82,267		(6.5	)%	$	48,533	$	53,112		(8.6	)%

The following table shows total gross profit by product type and the corresponding percentage change (dollars in thousands):

	Nine Months Ended June 30,						% Change			Six Months Ended March 31,						% Change
	2021			2020			2021 vs. 2020			2022			2021			2022 vs. 2021
License	$	148,047		$	115,499			28.2	%	$	92,051		$	98,930			(7.0	)%
Connected services		63,989			47,367			35.1	%		36,110			39,814			(9.3	)%
Professional services		5,760			1,000			476.0	%		6,788			4,207			61.4	%
Amortization of intangibles		(5,637	)		(6,408	)		12.0	%		(2,776	)		(3,758	)		26.1	%
Total gross profit	$	212,159		$	157,458			34.7	%	$	132,173		$	139,193			(5.0	)%

Total cost of revenues for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 were ~~$76.9~~$48.5 million, a decrease of ~~$5.4~~$4.6 million, or ~~6.5%~~8.6%, from ~~$82.3~~$53.1 million for the ~~nine~~six months ended ~~June 30, 2020. The decrease in cost of revenues resulted primarily from our cost savings initiatives implemented in the second half of fiscal 2020.~~March 31, 2021.

We experienced ~~an increase~~a decrease in total gross profit of ~~$54.7~~$7.0 million, or ~~34.7%~~5.0%, from ~~$157.5~~$139.2 million for the ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 to ~~$212.2~~$132.2 million for the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022. The ~~increase~~decrease was primarily driven by ~~our~~a decline in license and connected ~~service solutions.~~services revenues.

Cost of license revenue for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 was ~~$2.7~~$1.1 million, ~~an increase~~a decrease of ~~$0.4~~$0.8 million, or ~~16.0%~~40.3%, from ~~$2.3~~$1.9 million for the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. Cost of license ~~revenue increased~~revenues decreased due to ~~increases in~~ third-party royalty ~~costs.~~expenses associated with external technologies we leverage in our edge software components. As a percentage of total cost of revenues, cost of license revenue ~~increased~~decreased by ~~0.7~~1.2 percentage points from ~~2.8% for the nine months ended June 30, 2020 to~~ 3.5% for the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2021 to 2.3% for the six months ended March 31, 2022.

License gross profit ~~increased~~decreased by ~~$32.5~~$6.9 million, or ~~28.2%~~7.0%, for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 when compared to the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, primarily due to ~~increases~~decreases in license ~~revenue on relatively flat costs.~~revenues.

Cost of connected services revenue for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 was ~~$20.0~~$11.4 million, a decrease of ~~$4.7~~$2.5 million, or ~~19.3%~~17.9%, from ~~$24.7~~$13.9 million for the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. Cost of connected services revenue decreased primarily due to a ~~$1.6~~$1.1 million decrease in internal allocated costs, $1.0 million decrease in salary-related expenditures, $0.4 million decrease in stock-based compensation, $0.2 million decrease in third-party contractor costs ~~$1.6~~and $0.2 million decrease in ~~salary-related expenditures, $1.4 million in~~ depreciation costs, ~~$0.4~~offset by $0.8 million ~~decrease~~increase in our cloud infrastructure ~~costs and $0.1 million decrease in travel-related expenditures.~~costs. As a percentage of total cost of revenues, cost of connected service revenue decreased by ~~4.2~~2.7 percentage points from ~~30.1%~~26.1% for the ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 to ~~25.9%~~23.4% for the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022.

Connected services gross profit ~~increased $16.6~~decreased $3.7 million, or ~~35.1%~~9.3%, from ~~$47.4~~$39.8 million for the ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 to ~~$64.0~~$36.1 million for the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, driven by ~~continued revenue growth and cost savings initiatives.~~declines in connected services revenue.

Cost of professional services revenue for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 was ~~$48.6~~$33.3 million, a decrease of ~~$0.2~~$0.3 million, or ~~0.3%~~1.1%, from ~~$48.8~~$33.6 million for the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. Cost of professional services revenue decreased primarily due to a ~~$2.5~~$3.7 million decrease in ~~third-party contractor~~internal allocated labor, $1.0 million decrease in amortization of costs previously deferred, and $0.1 million decrease in stock-based compensation costs. The decrease was ~~partly~~partially offset by a ~~$1.0~~$4.3 million increase in ~~stock-based compensation, $0.9~~third-party contractor costs and $0.4 million increase in salary-related ~~expenditures and $0.1 million increase in project labor.~~expenditures. As a percentage of total cost of revenues, cost of professional services revenue increased by ~~3.9~~5.2 percentage points from ~~59.3%~~63.4% for the ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 to ~~63.2%~~68.6% for the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022.

Professional services gross profit increased ~~$4.8~~$2.6 million, or ~~476.0%~~61.4%, from ~~$1.0~~$4.2 million for the ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 to ~~$5.8~~$6.8 million for the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, which was due to ~~the growth~~an increase in professional services revenues ~~in relation to decreasing costs.~~ and cost savings initiatives implemented during the first half of fiscal year 2022.

The tables below show each component of operating expense. Total other income (expense), net and provision for (benefit from) income taxes are non-operating expenses and presented in a similar format (dollars in thousands).

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared with Three Months Ended ~~June 30, 2020~~March 31, 2021

Historically, R&D expenses are our largest operating expense as we continue to build on our existing software platforms and develop new technologies. R&D expenses for the three months ended ~~June 30, 2021~~March 31, 2022 were ~~$30.4~~$30.0 million, an increase of ~~$8.4~~$1.1 million, or ~~37.8%~~3.9%, from ~~$22.0~~$28.9 million for the three months ended ~~June 30, 2020.~~March 31, 2021. The increase in R&D expenses was primarily attributable to a ~~$4.4 million increase in salary-related expenditures driven by headcount growth, as well as $3.2~~$2.2 million reduction in labor allocated to support our customer ~~projects and $1.7 million~~projects. The increase ~~in third party contractor costs~~was partially offset by a ~~$1.4~~$0.8 million increase in capitalized ~~cost~~costs associated with internally developed ~~software.~~ software and $0.6 million decrease in salary-related expenditures. As a percentage of total operating expenses, R&D expenses increased by ~~9.8~~1.4 percentage points from ~~42.5%~~52.4% for the three months ended ~~June 30, 2020~~March 31, 2021 to ~~52.3%~~53.8% for the three months ended ~~June 30, 2021.~~March 31, 2022.

~~Nine~~Six Months Ended ~~June 30, 2021~~March 31, 2022 Compared with ~~Nine~~Six Months Ended ~~June 30, 2020~~March 31, 2021

Historically, R&D expenses are our largest operating expense as we continue to build on our existing software platforms and develop new technologies. R&D expenses for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 were ~~$83.4~~$55.8 million, an increase of ~~$16.5~~$2.8 million, or ~~24.6%~~5.2%, from ~~$66.9~~$53.0 million for the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. The increase in R&D expenses was primarily attributable to a ~~$7.9 million increase in salary-related expenditures driven by headcount growth, as well as a~~ $4.6 ~~million increase in third-party contractor costs, a $3.5 million increase in stock-based compensation and a $3.3~~ million reduction in labor allocated to support our customer projects, $0.8 million increase in salary-related expenditures, $0.4 million increase in hardware and software costs, and $0.3 million increase in third party contractor costs. The increase was partially offset by a ~~$4.0~~$2.5 million decrease in stock-based compensation costs and $1.8 million increase ofin capitalized ~~cost~~costs associated with internally developed software. As a percentage of total operating expenses, R&D expenses increased by ~~7.2~~3.4 percentage points from ~~44.2%~~50.8% for the ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 to ~~51.4%~~54.2% for the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022.

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared with Three Months Ended ~~June 30, 2020~~March 31, 2021

Sales and marketing expenses for the three months ended ~~June 30, 2021~~March 31, 2022 were ~~$9.5~~$8.3 million, ~~an increase~~a decrease of ~~$0.3~~$1.3 million, or ~~3.9%~~13.0%, from ~~$9.2~~$9.6 million for the three months ended ~~June 30, 2020.~~March 31, 2021. The ~~increase~~decrease in sales and marketing expenses was primarily attributable to a ~~$0.8~~$1.5 million ~~increase~~decrease in stock-based compensation and $0.2 million decrease in salary-related expenses partially offset by ~~a reduction~~an increase of ~~$0.5~~$0.3 million ~~in stock-based compensation.~~related to travel-related expenditures. As a percentage of total operating expenses, sales and marketing expenses decreased by ~~1.3~~2.4 percentage points from ~~17.7%~~17.3% for the three months ended ~~June 30, 2020~~March 31, 2021 to ~~16.4%~~14.9% for the three months ended ~~June 30, 2021.~~March 31, 2022.

~~Nine~~Six Months Ended ~~June 30, 2021~~March 31, 2022 Compared with ~~Nine~~Six Months Ended ~~June 30, 2020~~March 31, 2021

Sales and marketing expenses for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 were ~~$28.1~~$14.2 million, ~~an increase~~a decrease of ~~$3.3~~$4.4 million, or ~~13.2%~~23.6%, from ~~$24.8~~$18.6 million for the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. The ~~increase~~decrease in sales and marketing expenses was primarily attributable to ~~$2.7~~a $4.7 million ~~increase~~decrease in ~~salary related expenses, $1.8 million increase related to~~ stock-based compensation and ~~$0.4~~$0.6 million ~~related to commission expenses. The increase was partly~~decrease in salary-related expenses partially offset by ~~a reduction~~an increase of ~~$1.0 million in marketing spending and~~ $0.5 million in travel-related expenditures, ~~as a result of COVID-19.~~and $0.3 million related to commission expense. As a percentage of total operating expenses, sales and marketing expenses ~~increased~~decreased by ~~0.9~~4.0 percentage points from ~~16.4%~~17.8% for the ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 to ~~17.3%~~13.8% for the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022.

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared with Three Months Ended ~~June 30, 2020~~March 31, 2021

General and administrative expenses for the three months ended ~~June 30, 2021~~March 31, 2022 were ~~$13.2~~$13.8 million, ~~a decrease~~an increase of ~~$1.1~~$0.8 million, or ~~7.6%~~6.5%, from ~~$14.3~~$13.0 million for the three months ended ~~June 30, 2020.~~March 31, 2021. The increase in general and administrative expenses was primarily attributable to $2.2 million increase in third-party professional services. The increase was partially offset by $1.3 million decrease in stock-based compensation costs. As a percentage of total operating expenses, general and administrative expenses increased by 1.3 percentage points from 23.5% for the three months ended March 31, 2021 to 24.8% for the three months ended March 31, 2022.

General and administrative expenses for the six months ended March 31, 2022 were $21.3 million, a decrease of $4.1 million, or 16.0%, from $25.4 million for the six months ended March 31, 2021. The decrease in general and administrative expenses was primarily attributable to ~~$1.6 million~~$6.9 decrease in stock-based ~~compensation.~~compensation costs. The decrease was ~~partly~~partially offset by a ~~$0.8~~$2.0 million increase in third-party professional services and $0.9 million increase in salary-related ~~expenses driven by headcount growth.~~expenditures. As a percentage of total operating expenses, general and administrative expenses decreased by ~~4.8~~3.6 percentage points from ~~27.5%~~24.3% for the ~~three~~six months ended ~~June 30, 2020~~March 31, 2021 to ~~22.7%~~20.7% for the ~~three~~six months ended ~~June 30, 2021.~~March 31, 2022.

~~Nine Months Ended June 30, 2021 Compared with Nine Months Ended June 30, 2020~~

General and administrative expenses for the nine months ended June 30, 2021 were $38.6 million, an increase of $2.1 million, or 5.8%, from $36.5 million for the nine months ended June 30, 2020. The increase in general and administrative expenses was primarily attributable to $3.0 million increase in stock-based compensation and a $0.5 million increase in professional service fees. The increase was partly offset by a $1.3 million decrease in third-party contractor costs and $0.6 million decrease in travel-related expenditures as a result of COVID-19. As a percentage of total operating expenses, general and administrative expenses decreased by 0.3 percentage points from 24.1% for the nine months ended June 30, 2020 to 23.8% for the nine months ended June 30, 2021.

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared with Three Months Ended ~~June 30, 2020~~March 31, 2021

	Three Months Ended June 30,				% Change			Three Months Ended March 31,				% Change
	2021		2020		2021 vs. 2020			2022		2021		2022 vs. 2021
Cost of revenues	$	1,879	$	2,063		(8.9	)%	$	897	$	1,879		(52.3	)%
Operating expense		3,180		3,120		1.9	%		3,135		3,183		(1.5	)%
Total amortization	$	5,059	$	5,183		(2.4	)%	$	4,032	$	5,062		(20.3	)%

Intangible asset amortization for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~$5.1~~$4.0 million, a decrease of ~~$0.1~~$1.1 million, or ~~2.4%~~20.3%, from ~~$5.2~~$5.1 million for the three months ended ~~June 30, 2020.~~March 31, 2021. The decrease in amortization relates to certain intangible assets having been fully amortized during fiscal 2021. Amortization expense for acquired technology and patents is included in the cost of revenues in the accompanying Condensed Consolidated Statements of Operations. Amortization expense for customer relationships is included in operating expenses in the accompanying Condensed Consolidated Statements of Operations. ~~The decrease primarily relates to certain intangible assets having been fully amortized during fiscal year 2020.~~

As a percentage of total cost of revenues, intangible asset amortization within cost of revenues ~~increased~~decreased by ~~0.4~~3.5 percentage ~~point~~points from ~~7.5%~~7.2% for the three months ended ~~June 30, 2020~~March 31, 2021 to ~~7.9%~~3.7% for the three months ended ~~June 30, 2021.~~March 31, 2022. As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses decreased by ~~0.5~~0.2 percentage points from ~~6.0%~~5.8% for the three months ended ~~June 30, 2020~~March 31, 2021 as compared to ~~5.5%~~5.6% for the three months ended ~~June 30, 2021.~~March 31, 2022.

~~Nine~~Six Months Ended ~~June 30, 2021~~March 31, 2022 Compared with ~~Nine~~Six Months Ended ~~June 30, 2020~~March 31, 2021

	Nine Months Ended June 30,				% Change			Six Months Ended March 31,				% Change
	2021		2020		2021 vs. 2020			2022		2021		2022 vs. 2021
Cost of revenues	$	5,637	$	6,408		(12.0	)%	$	2,776	$	3,758		(26.1	)%
Operating expense		9,521		9,376		1.5	%		6,289		6,341		(0.8	)%
Total amortization	$	15,158	$	15,784		(4.0	)%	$	9,065	$	10,099		(10.2	)%

Intangible asset amortization for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 was ~~$15.2~~$9.1 million, a decrease of ~~$0.6~~$1.0 million, or ~~4.0%~~10.2%, from ~~$15.8~~$10.1 million for the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. The decrease in amortization relates to certain intangible assets having been fully amortized during fiscal 2021. Amortization expense for acquired technology and patents is included in the cost of revenues in the accompanying Condensed Consolidated Statements of Operations. Amortization expense for customer relationships is included in operating expenses in the accompanying Condensed Consolidated Statements of Operations. ~~The decrease primarily relates to certain intangible assets having been fully amortized during fiscal year 2020.~~

As a percentage of total cost of revenues, intangible asset amortization within cost of revenues decreased by ~~0.5~~1.4 percentage ~~point~~points from ~~7.8%~~7.1% for the ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 to ~~7.3%~~5.7% for the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022. As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses ~~decreased by 0.3 percentage points from 6.2%~~remained flat at 6.1% for the ~~nine~~six months ended ~~June 30, 2020 as compared to 5.9% for the nine months ended June 30,~~March 31, 2022 and 2021.

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared with Three Months Ended ~~June 30, 2020~~March 31, 2021

Restructuring and other costs, net for the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~were $1.8 million, a decrease of $1.5 million, or 46.7%, from $3.3 million for~~remained flat at $0.5 million. For the three months ended ~~June 30, 2020. The decrease in~~March 31, 2022, we recorded restructuring and other ~~costs,~~charges, net ~~was primarily driven by a decrease~~ of ~~$2.4~~$0.5 million, ~~in severance charges~~which included $0.3 million related to ~~our cost efficiency program implemented in response to~~one-time charges and a $0.2 million charge resulting from the ~~COVID-19 pandemic.~~closure of facilities that will no longer be utilized. As a percentage of total operating expenses, restructuring and other costs, net decreased by ~~3.4~~0.1 percentage points from ~~6.4%~~1.0% for the three months ended ~~June 30, 2020~~March 31, 2021 to ~~3.0%~~0.9% for the three months ended ~~June 30, 2021.~~March 31, 2022.

~~Nine~~Six Months Ended ~~June 30, 2021~~March 31, 2022 Compared with ~~Nine~~Six Months Ended ~~June 30, 2020~~March 31, 2021

Restructuring and other costs, net for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 were ~~$2.8~~$5.4 million, ~~a decrease~~an increase of ~~$10.9~~$4.4 million, or ~~79.8%~~429.9%, from ~~$13.7~~$1.0 million for the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. The ~~decrease~~increase in restructuring and other costs, net was primarily driven by ~~a $10.0~~$4.0 million, ~~decrease~~net of $5.0 million in ~~expenditures~~forfeitures, in stock-based compensation due to ~~establish~~ the ~~Cerence business as a standalone public company.~~resignation of our former CEO and the resulting modification of certain stock-based awards, $0.3 million severance charge related to the elimination of personnel, and $0.4 million charge resulting from the closure of facilities that will no longer be utilized. As a percentage of total operating expenses, restructuring and other costs, net ~~decreased~~increased by ~~7.4~~4.2 percentage points from ~~9.1%~~1.0% for the ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 to ~~1.7%~~5.2% for the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022.

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared with Three Months Ended ~~June 30, 2020~~March 31, 2021

	Three Months Ended June 30,						% Change			Three Months Ended March 31,						% Change
	2021			2020			2021 vs. 2020			2022			2021			2022 vs. 2021
Interest income	$	34		$	38			(10.5	)%	$	83		$	16			418.8	%
Interest expense		(3,294	)		(5,546	)		(40.6	)%		(3,360	)		(3,476	)		(3.3	)%
Other income (expense), net		173			(20,446	)		(100.8	)%		(34	)		3,496			(101.0	)%
Total other expense, net	$	(3,087	)	$	(25,954	)		(88.1	)%
Total other income (expense), net										$	(3,311	)	$	36			(9297.2	)%

Total other expense, net for the three months ended ~~June 30, 2021~~March 31, 2022 was expense of ~~$3.1~~$3.3 million, a decrease of ~~$22.9~~$3.3 million from ~~$26.0 million~~$36 thousand of ~~expense~~income for the three months ended ~~June 30, 2020.~~March 31, 2021. The ~~decrease~~change in ~~interest expense and~~ other income (expense), net iswas primarily ~~attributed to our debt refinancing in June 2020. During the three months ended June 30, 2020, we recognized a $19.3 million loss on the extinguishment of debt.~~driven by foreign exchange losses. For further information, see “Liquidity and Capital Resources” below.

~~Nine~~Six Months Ended ~~June 30, 2021~~March 31, 2022 Compared with ~~Nine~~Six Months Ended ~~June 30, 2020~~March 31, 2021

Total other expense, net for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 was expense of ~~$9.1~~$6.9 million, a decrease of ~~$29.7~~$0.9 million from ~~$38.8~~$6.0 million of expense for the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. The decrease in interest expense ~~and~~was primarily attributable to a lower applicable interest rate on Term Loan Facility. The change in other income (expense), net iswas primarily ~~attributed~~driven by foreign exchange gains offset by $1.3 million of expense related to ~~our debt refinancing~~a decrease in ~~June 2020. During~~an asset corresponding with the ~~nine months ended June 30, 2020, we recognized a $19.3 million loss on the extinguishment~~release of ~~debt.~~indemnified pre-spin-off liabilities for uncertain tax positions. For further information, see “Liquidity and Capital Resources” below.

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared with Three Months Ended ~~June 30, 2020~~

Our effective income tax rate for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~51.1%~~116.0%, compared to ~~7.3%~~35.8% for the three months ended ~~June 30, 2020.~~March 31, 2021. Consequently, our provision for income taxes for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~$6.1~~$3.4 million, a net change of ~~$8.3~~$2.8 million from a provision for income taxes of $6.2 million for the three months ended March 31, 2021. This difference was attributable to our composition of jurisdiction earnings and U.S. inclusions of foreign taxable income as a result of 2017 tax law changes.

Our effective income tax rate for the six months ended March 31, 2022 was 16.8%, compared to negative 11.1% for the six months ended March 31, 2021. Consequently, our provision for income taxes for the six months ended March 31, 2022 was $3.7 million, a net change of $6.9 million from a benefit from income taxes of ~~$2.2~~$3.2 million for the ~~three~~six months ended ~~June 30, 2020.~~March 31, 2021. This difference was attributable to our composition of jurisdiction earnings, U.S. inclusions of foreign taxable income as a result of 2017 tax law changes, ~~non-deductible compensation expenses.~~

~~Nine Months Ended June 30, 2021 Compared with Nine Months Ended June 30, 2020~~

Our effective income tax rate for the nine months ended June 30, 2021 was 7.0%, compared to 18.8% for the nine months ended June 30, 2020. Consequently, our provision for income taxes for the nine months ended June 30, 2021 was $2.9 million, a net change of $9.0 million from a benefit from income taxes of $6.1 million for the nine months ended June 30, 2020. This difference was attributable toand a $15.8 million tax benefit recorded as a result of ~~an increase~~a decrease to the enacted Netherlands tax rate in the first quarter of fiscal 2021, ~~and the realization of~~partially offset by a ~~$3.9~~$3.5 million tax benefit ~~related to stock-based compensation in that period. This compares to a $5.0 million tax benefit realized during the nine months ended June 30, 2020, which was the~~recorded as result of a ~~previous change~~decrease to the enacted Netherlands ~~enacted~~ tax ~~rate.~~rate in the first quarter of fiscal 2022.

As of March 31, 2022, we had $146.1 million in cash, cash equivalents, and marketable securities. Cash equivalents include highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. Marketable securities include commercial paper and corporate bonds. As of March 31, 2022, our net working capital, excluding deferred revenue and deferred costs, was $181.0 million. This balance is representative of the short-term net cash inflows based on the working capital at that date.

During the three and six months ended March 31, 2022, we converted existing variable long-term contracts into minimum purchase commitment deals with our largest customer. These minimum commitment deals accounted for $19.9 million and $40.1 million of revenue, respectively. The cash associated with these deals is expected to be collected over the distribution period, which could be up to five years. The estimated future revenue related to these long-term contracts was previously included in our variable backlog.

Our principal sources of liquidity are our cash, cash equivalents, and marketable securities, as well as the cash flows we generated 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 finance additional funding in the capital markets as needed. As of June 30, 2021, net working capital of our business, excluding current deferred revenue and deferred cost, was $180.5 million. This balance is representative of the short-term net cash inflows based on the working capital at that date. Based on ~~the~~our history of ~~the Cerence business~~ generating positive cash flows and the ~~$120.8~~$146.1 million of cash, ~~and~~ cash equivalents, and marketable securities as of ~~June 30, 2021,~~March 31, 2022, we believe that we will be able to meet our liquidity needs over the next 12 months. We believe that we will meet longer-term expected future cash requirements and obligations, through a combination of cash flows from operating activities, available cash balances, and available credit via our Revolving Facility. ~~Specifically, we anticipate~~

The following table presents our ~~cost of revenues, funding our R&D activities, and debt obligations to be our primary uses of~~material cash ~~during the year ending September 30, 2021.~~requirements for future periods (dollars in thousands):

~~However, as~~As the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. As a result of the pandemic and related economic uncertainty, we took actions to improve our liquidity position, including reducing working capital, reducing operating costs by delaying research and development programs, conducting a workforce reduction, and substantially reducing discretionary spending. 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 on ~~reasonable terms in the future.~~acceptable terms. The COVID-19 pandemic has negatively impacted the global economy and created significant volatility and disruption of financial markets. An extended period of economic disruption could materially affect our business, results of operations, ability to meet debt covenants, access to sources of liquidity and financial condition.

On June 2, 2020, ~~in an effort to refinance our debt structure,~~ we issued $175.0 million in aggregate principal amount of Notes, including the initial purchasers’ exercise in full of their option to purchase an additional $25.0 million principal amount of the Notes, between the Company 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 Notes were $169.8 million after deducting transaction costs. ~~We used net proceeds from the issuance of the Notes to repay a portion of our indebtedness related to the Existing Facility.~~

The Notes are senior, unsecured obligations and will accrue interest payable semiannually in arrears on June 1 and December 1 of each year ~~beginning on December 1, 2020,~~ at a rate of 3.00% per year. The Notes will mature on June 1, 2025, unless earlier converted, redeemed, or repurchased. The Notes are convertible into cash, shares of ~~the Company’s Common Stock~~our common stock or a combination of cash and shares of ~~the Company’s Common Stock,~~our common stock, at ~~the Company’s~~our election.

The interest expense recognized related to the Notes for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021 was as follows (dollars in thousands):

	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020		2022		2021		2022		2021
Contractual interest expense	$	1,308	$	431	$	3,924	$	431	$	1,294	$	1,294	$	2,616	$	2,616
Amortization of debt discount		886		276		2,617		276		919		863		1,843		1,731
Amortization of issuance costs		223		70		658		70		231		217		463		435
Total interest expense related to the Notes	$	2,417	$	777	$	7,199	$	777	$	2,444	$	2,374	$	4,922	$	4,782

The conditional conversion feature of the Notes was triggered in the ~~nine~~three and six months ended ~~June 30, 2021, and the Notes were convertible during the fiscal quarter ended June 30, 2021,~~March 31, 2022, with no Notes being converted. As of March 31, 2022, the Notes were not convertible. As of this Quarterly Report, no Notes have been converted by the holders. Whether any of the Notes will be convertible in future quarters will depend on the satisfaction of one or more of the conversion conditions in the future. If one or more holders elect to convert their Notes at a time when any such Notes are convertible, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.

On June 12, 2020, ~~in connection with our effort to refinance our existing indebtedness,~~ we entered into a Term Loan Facility. The net proceeds from the issuance of the Term Loan Facility were $123.0 million, which together with proceeds from the Notes was intended to pay in full all indebtedness under the Existing Facility, and paid fees and expenses in connection with the Senior Credit Facilities.million. We also entered the Revolving Facility, which shall be drawn on in the event that our working capital and other cash needs are not supported by our operating cash flow. As of ~~June 30, 2021,~~March 31, 2022, there were no amounts outstanding under the Revolving Facility.

The Amendment revised certain interest rates in the Credit Agreement. Following delivery of a compliance certificate for the first full fiscal quarter after the Amendment No. 1 Effective Date, the applicable margins for the revolving credit and term facilities is subject to a pricing grid based upon the net total leverage ratio as ~~follows~~follows: (i) if the net total leverage ratio is greater than 3.00 to 1.00, the applicable margin is LIBOR plus 3.00% or ABR plus 2.00%; (ii) if the net total leverage ratio is less than or equal to 3.00 to 1.00 but greater than 2.50 to 1.00, the applicable margin is LIBOR plus 2.75% or ABR plus 1.75%; (iii) if the net total leverage ratio is less than or equal to 2.50 to 1.00 but greater than 2.00 to 1.00, the applicable margin is LIBOR plus 2.50% or ABR plus 1.50%; (iv) if the net total leverage ratio is less than or equal to 2.00 to 1.00 but greater than 1.50 to 1.00, the applicable margin is LIBOR plus 2.25% or ABR plus 1.25%; and (v) if the net total leverage ratio is less than or equal to 1.50 to 1.00, the applicable margin is LIBOR plus 2.20% or ABR plus 1.00%. As a result of the Amendment, the applicable LIBOR floor was reduced from 0.50% to 0.00%.

From the Amendment No. 1 Effective Date until the fiscal quarter ended ~~December~~March 31, ~~2020,~~2021, the interest rate was LIBOR plus 2.50%. For the three months ended March 31, 2021, the interest rate was LIBOR plus 2.25%. For the three and six months ended ~~June 30, 2021,~~March 31, 2022, the interest rate was LIBOR plus 2.25%. Total interest expense relating to the Senior Credit Facilities for the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ was ~~$0.8~~$0.9 million and ~~$0.3~~$1.0 million, respectively, and ~~$3.2~~$1.8 million and ~~$0.3~~$2.4 million for the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, respectively, reflecting~~respectively. Amounts reflect the coupon and accretion of the discount.

In addition, the quarterly commitment fee required to be paid based on the unused portion of the Revolving Facility is subject to a pricing grid based upon the net total leverage ratio as follows (i) if the net total leverage ratio is greater than 3.00 to 1.00, the unused line fee is 0.500%; (ii) if the net total leverage ratio is less than or equal to 3.00 to 1.00 but greater than 2.50 to 1.00, the unused line fee is 0.450%; (iii) if the net total leverage ratio is less than or equal to 2.50 to 1.00 but greater than 2.00 to 1.00, the unused line fee is 0.400%; (iv) if the net total leverage ratio is less than or equal to 2.00 to 1.00 but greater than 1.50 to 1.00, the unused line fee is 0.350%; and (v) if the net total leverage ratio is less than or equal to 1.50 to 1.00, the unused line fee is 0.300%.

~~The Amendment revised the amount by which we are obligated to make quarterly principal payments.~~ Through the fiscal quarter ending December 31, 2022, we are obligated to make quarterly principal payments in an aggregate amount equal to 1.25% of the original principal amount of the Term Loan Facility. From the fiscal quarter ending March 31, 2023 and for each fiscal quarter thereafter, we are obligated to make quarterly principal payments in an aggregate amount equal to 2.50% of the original principal amount of the Term Loan Facility, with the balance payable at the maturity date thereof.

Cash flows from operating, investing and financing activities for the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ as reflected in the unaudited Condensed Consolidated Statements of Cash Flows included in Item 1 of this Form 10-Q, are summarized in the following table (dollars in thousands):

	Nine Months Ended June 30,						% Change			Six Months Ended March 31,						% Change
	2021			2020			2021 vs. 2020			2022			2021			2022 vs. 2021
Net cash provided by operating activities	$	51,068		$	18,577			174.9	%	$	6,743		$	27,009			(75.0	)%
Net cash used in investing activities		(34,716	)		(16,075	)		116.0	%		(5,965	)		(13,847	)		(56.9	)%
Net cash (used in) provided by financing activities		(32,942	)		130,231			(125.3	)%
Net cash used in financing activities											(16,336	)		(31,039	)		(47.4	)%
Effect of foreign currency exchange rates on cash and cash equivalents		1,363			111			1127.9	%		(1,051	)		1,356			(177.5	)%
Net changes in cash and cash equivalents	$	(15,227	)	$	132,844			(111.5	)%	$	(16,609	)	$	(16,521	)		0.5	%

Net cash provided by operating activities for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 was ~~$51.1~~$6.7 million, a net ~~increase~~decrease of ~~$32.5~~$20.3 million, or ~~174.9%~~75.0%, from net cash provided by operating activities of ~~$18.6~~$27.0 million for the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. The net ~~increase~~decrease in cash provided by operating activities was primarily due to:

Deferred revenue represents a significant portion of our net cash provided by operating activities and, depending on the nature of our contracts with customers, this balance can fluctuate significantly from period to period. Fluctuations in deferred revenue are not a reliable indicator of future performance and the related revenue associated with these contractual commitments. We expect our deferred revenue balances to decrease in the future, including due to a wind-down of a legacy connected service relationship with a major OEM, since the majority of cash from the contract has been collected. We do not expect any changes in deferred revenue to affect our ability to meet our obligations.

Net cash used in investing activities for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 was ~~$34.7~~$6.0 million, ~~an increase~~a net change of $7.8 million, or 56.9%, from $13.8 million cash used in investing activities for the six months ended March 31, 2021. The change in cash ~~used of $18.6 million, or 116.0%, from $16.1 million for the nine months ended June 30, 2020. The increase in cash outflows~~flows were driven by:

Net cash used in financing activities for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 was ~~$32.9~~$16.3 million, a net change of ~~$163.1~~$14.7 million, from cash ~~provided by~~used in financing activities of ~~$130.2~~$31.0 million for the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. The change in ~~cashflows~~cash flows were primarily due to:

~~The following table outlines our contractual payment obligations as of June 30, 2021 (dollars in thousands):~~

~~As of June 30, 2021, there were no off-balance sheet arrangements that may have a material impact on the condensed consolidated financial statements.~~

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that ~~affect~~have a material impact on the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses. Actual results may differ from these estimates.

We believe that our critical accounting policies and estimates are those related to revenue recognition; allowance for credit losses; accounting for deferred costs; accounting for internally developed software; the valuation of goodwill and intangible assets; accounting for business combinations; accounting for stock-based compensation; accounting for income taxes; accounting for leases; accounting for convertible debt; and loss contingencies. We believe these policies and estimates are critical because they most significantly affect the portrayal of our financial condition and results of operations and involve our most complex and subjective estimates and judgments. A discussion of our critical accounting policies and estimates may be found in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020~~2021 in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting ~~Policies”~~Policies, Judgments and Estimates” and below.

See Note 3 to the accompanying unaudited condensed consolidated financial statements for further discussion of our revenue, deferred revenue performance obligations and the timing of revenue recognition.

Goodwill represents the excess of the purchase price in a business combination over the fair value of net assets acquired. Goodwill has been allocated to Cerence based upon its relative fair value as of March 31, 2018, when Cerence became a reporting unit of Nuance. Goodwill is reported at the reporting unit level. Upon consideration of the discrete financial information reviewed by our CODM, we have concluded that our goodwill is associated with one reporting unit.

Goodwill is not amortized but tested annually for impairment or when interim indicators of impairment are present. ~~Upon our adoption of ASU 2017-04, "Simplifying the Test for Goodwill Impairment”, the~~The test for goodwill impairment involves an assessment of impairment indicators. If indicators are present, a quantitative test of impairment is performed. During the quantitative test, the fair value of the reporting unit is compared to its carrying value. If the fair value of the reporting unit is less than the carrying value, the difference represents an impairment. If the fair value of the reporting unit is greater than the carrying value, no impairment is recognized.

On ~~June 30, 2021,~~March 31, 2022, we concluded that no goodwill impairment indicators were present.

See Note 87 to the accompanying unaudited condensed consolidated financial statements for further discussion of our ~~goodwill.~~goodwill.

Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements To Be Adopted

Refer to Note 2 to the accompanying unaudited condensed consolidated financial statements for a description of certain issued accounting standards that have been recently adopted and are expected to be adopted by us and may impact our results of operations in future reporting periods.

We are exposed to market risk from changes in foreign currency exchange rates and interest rates which could affect our operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities, and through the use of derivative financial instruments.

We are exposed to changes in foreign currency exchange rates. Any foreign currency transaction, defined as a transaction denominated in a currency other than the local functional currency, will be reported in the functional currency at the applicable exchange rate in effect at the time of the transaction. A change in the value of the functional currency compared to the foreign currency of the transaction will have either a positive or negative impact on our financial position and results of operations.

Assets and liabilities of our foreign entities are translated into U.S. dollars at exchange rates in effect at the balance sheet date and income and expense items are translated at average rates for the applicable period. Therefore, the change in the value of the U.S. dollar compared to foreign currencies will have either a positive or negative effect on our financial position and results of operations. Historically, our primary exposure has been related to transactions denominated in the Canadian dollar, Chinese yuan, Euro, and Japanese yen.

We use foreign currency forward contracts to hedge the foreign currency exchange risk associated with forecasted foreign denominated payments related to our ongoing business. The aggregate notional amount of our outstanding foreign currency forward contracts was ~~$61.8~~$70.9 million at ~~June 30, 2021.~~March 31, 2022. Foreign currency forward contracts are sensitive to changes in foreign currency exchange rates. A 10% unfavorable exchange rate movement in our portfolio of foreign currency contracts would have resulted in unrealized losses of ~~$5.4~~$6.2 million at ~~June 30, 2021.~~March 31, 2022. Such losses would be offset by corresponding gains in the remeasurement of the underlying transactions being hedged. We believe these foreign currency forward exchange contracts and the offsetting underlying commitments, when taken together, do not create material market risk.

We are exposed to interest rate risk as a result of our cash and cash equivalents and indebtedness related to the Senior Credit Facilities.

At ~~June 30, 2021,~~March 31, 2022, we held approximately ~~$120.8~~$111.8 million of cash and cash equivalents consisting of cash and highly liquid investments, including money-market ~~funds.~~funds and time deposits. Assuming a 1% increase in interest rates, our interest income on our money-market funds ~~classified as cash~~ and ~~cash equivalents~~time deposits would increase by ~~$0.6~~$0.7 million per annum, based on ~~June 30, 2021~~March 31, 2022 reported balances.

The borrowings under our Senior Credit Facilities are subject to interest rates based on LIBOR. As of ~~June 30, 2021,~~March 31, 2022, assuming a 1% increase in interest rates and our Revolving Facility being fully drawn, our interest expense on our Senior Credit Facilities would increase by approximately $~~1.7~~1.6 million per annum.

Evaluation of disclosure controls and procedures. Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this ~~quarterly report.~~Quarterly Report. Based on this evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of ~~June 30, 2021~~March 31, 2022 to ensure that all material information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to them as appropriate to allow timely decisions regarding required disclosure and that all such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations of the effectiveness of internal control. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

From time to time, we may become a party to other legal proceedings, including, without limitation, product liability claims, employment matters, commercial disputes, governmental inquiries and investigations (which may in some cases involve our entering into settlement arrangements or consent decrees), and other matters arising out of the ordinary course of our business. While the results of any legal proceeding cannot be predicted with certainty, in our opinion none of our pending matters are currently anticipated to have a material adverse effect on our consolidated financial position, liquidity or results of operations.

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020,~~2021, which could materially affect our business, financial condition or future ~~results.~~results of operations. The risks described in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020~~2021 are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There are no material changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020,~~2021, other than ~~as set forth below:~~the risks described below.

The transition in our chief executive officer position will be critical to our success and our business could be negatively impacted if we do not successfully manage this transition.

On December 15, 2021, Stefan Ortmanns succeeded Sanjay Dhawan, as CEO and as a member of the Company’s board of directors. The departure of key leadership personnel, such as a CEO, can take significant knowledge and experience from the Company. While this loss of knowledge and experience can be mitigated through a successful transition, there can be no assurance that we will be successful in such efforts. Further, if the Company’s new CEO formulates different or changed views, the future strategy and plans of the Company may differ materially from those of the past. If the Company does not successfully manage this transition, it could be viewed negatively by our customers, employees or investors and could have an adverse impact on our business and strategic direction.

Pandemics or disease outbreaks, such as COVID-19, have disrupted, and may continue to disrupt, our business, which could adversely affect our financial performance.

Our business depends on, and is directly affected by, the output and sales of the global automotive industry and the use of automobiles by consumers. Pandemics or disease outbreaks, such as COVID-19, have disrupted, and may continue to disrupt, global automotive industry customer sales and production volumes. Vehicle production initially decreased significantly in China, which was first affected by COVID-19, then Europe and also the United States. Subsequent events resulted in the shutdown of manufacturing operations in China, Europe and the United States, and even though manufacturing operations ~~has begun, in part,~~have resumed, the capacity of such global manufacturing operations remains uncertain. More recently, we have seen, and anticipate that we will continue to see, supply chain challenges in the automotive industry related to semiconductor devices that are used in automobiles. As a result, we have experienced, and may continue to experience, difficulties in entering into new contracts with our customers, a decline in revenues resulting from the decrease in the production and sale of automobiles by our customers, the use of automobiles, increased difficulties in collecting payment obligations from our customers and the possibility customers will stall or not continue ~~with~~ existing projects. These all may be further exacerbated by the global economic downturn resulting from the pandemic which could further decrease consumer demand for vehicles or result in the financial distress of one or more of our customers.

As the COVID-19 pandemic continues, given the elevated number of COVID-19 cases throughout the world as a result of the highly transmissible Delta and Omicron variants, our business operations could be further disrupted or delayed. The pandemic has already resulted in, and may continue to result in, work stoppages, slowdowns and delays, travel restrictions, and other factors that cause a decrease in the production and sale of automobiles by our customers. The production of automobiles with our products has been and may continue to be adversely affected with production delays and our ability to provide engineering support and implement design changes for customers may be impacted by restrictions on travel and quarantine policies put in place by businesses and governments.

The full extent to which the ongoing COVID-19 pandemic adversely affects our financial performance will depend on future developments, many of which are outside of our control, are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the ~~pandemic,~~COVID-19, including variants such as Delta and Omicron, its severity, the effectiveness of actions to treat or contain the virus ~~or treat~~and its impact and how quickly and to what extent normal economic and operating conditions can resume. The COVID-19 pandemic could also result in additional governmental restrictions and regulations, which could adversely affect our business and financial results. In addition, a recession, depression or other sustained adverse market impact resulting from COVID-19 could materially and adversely affect our business, our access to needed capital and liquidity, and the value of our common stock. Even after the COVID-19 pandemic has lessened or subsided, we may continue to experience adverse impacts on our business and financial performance as a result of its global economic impact.

The exhibits listed on the Exhibit Index are filed as part of this Quarterly Report on Form 10-Q.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Delaware	83-4177087
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
~~15 Wayside Road~~1 Burlington Woods Drive, Suite 301A Burlington, Massachusetts	01803
(Address of principal executive offices)	(Zip Code)

		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~	3
	Condensed Consolidated Statements of Comprehensive (Loss) Income ~~(Loss)~~ for the Three and ~~Nine~~Six Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~	4
	Condensed Consolidated Balance Sheets as of ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020~~2021	5
	Consolidated Statements of Stockholders' Equity for the Three and ~~Nine~~Six Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~	6
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2926
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4542
Item 4.	Controls and Procedures	4644
PART II.	OTHER INFORMATION	4745
Item 1.	Legal Proceedings	4745
Item 1A.	Risk Factors	4745
Item 6.	Exhibits	4847
Signatures		4948

	Contract assets
Balance as of September 30, 2020	$	30,277
Revenues recognized but not billed		58,161
Amounts reclassified to accounts receivable, net		(39,794	)
Balance as of June 30, 2021	$	48,644
Less: allowance for credit losses		(496	)
Balance as of June 30, 2021, net	$	48,148

	Contract assets
Balance as of September 30, 2021	$	59,143
Revenues recognized but not billed		63,284
Amounts reclassified to accounts receivable, net		(30,844	)
Foreign exchange impact on ending balance		(5,942	)
Balance as of March 31, 2022	$	85,641

Three Months Ended June 30, 2021
	Common Stock
	Shares			Amount		Additional Paid-In Capital			Retained Earnings		Net Parent Investment		Accumulated Other Comprehensive Income		Total
Balance at March 31, 2021		37,780		$	379	$	983,640		$	13,788	$	-	$	5,634	$	1,003,441
Net income		-			-		-			5,798		-		-		5,798
Other comprehensive income		-			-		-			-		-		3,945		3,945
Issuance of common stock		51			-		1,637			-		-		-		1,637
Stock withheld to cover tax withholdings requirements upon stock vesting		(3	)		-		(1,889	)		-		-		-		(1,889	)
Stock-based compensation		-			-		8,917			-		-		-		8,917
Balance at June 30, 2021		37,828		$	379	$	992,305		$	19,586	$	—	$	9,579	$	1,021,849

Three Months Ended June 30, 2020
	Common Stock
	Shares			Amount		Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Net Parent Investment		Accumulated Other Comprehensive Loss			Total
Balance at March 31, 2020		36,458		$	365	$	949,916		$	1,529		$	-	$	(14,635	)	$	937,175
Net loss		-			-		-			(28,052	)		-		-			(28,052	)
Other comprehensive income		-			-		-			-			-		6,398			6,398
Issuance of common stock		96			1		-			-			-		-			1
Stock withheld to cover tax withholdings requirements upon stock vesting		(34	)		-		(696	)		-			-		-			(696	)
Convertible Senior Notes conversion feature (net of taxes of $4,678 and issuance costs of $629)							14,369											14,369
Stock-based compensation		-			-		10,423			-			-		-			10,423
Balance at June 30, 2020		36,520		$	366	$	974,012		$	(26,523	)	$	-	$	(8,237	)	$	939,618

Nine Months Ended June 30, 2020
	Common Stock
	Shares			Amount			Additional Paid-In Capital			(Accumulated Deficit)			Net Parent Investment			Accumulated Other Comprehensive Loss			Total
Balance at September 30, 2019		-		$	-		$	-		$	-		$	1,097,127		$	(28,999	)	$	1,068,128
Net loss		-			-			-			(26,523	)		-			-			(26,523	)
Other comprehensive income		-			-			-			-			-			5,034			5,034
Distribution to Parent		-			-			-			-			(152,978	)		-			(152,978	)
Net (decrease) increase in net parent investment		-			-			-			-			(4,275	)		15,728			11,453
Reclassification of net parent investment in Cerence		-			-			939,874			-			(939,874	)		-			—
Issuance of common stock at separation		36,391			364			(364	)		-			-			-			—
Issuance of common stock		207			2			-			-			-			-			2
Stock withheld to cover tax withholdings requirements upon stock vesting		(78	)		(0	)		(1,615	)		-			-			-			(1,615	)
Convertible Senior Notes conversion feature (net of taxes of $4,678 and issuance costs of $629)								14,369												14,369
Stock-based compensation		-			-			21,748			-			-			-			21,748
Balance at June 30, 2020		36,520		$	366		$	974,012		$	(26,523	)	$	—		$	(8,237	)	$	939,618

	Allowance for Credit Losses
Balance as of September 30, 2021	$	879
Credit loss provision		(431	)
Write-offs, net of recoveries		14
Foreign exchange impact on ending balance		(42	)
Balance as of March 31, 2022	$	420

	Allowance for Credit Losses
Balance as of September 30, 2020	$	(1,394	)
Current period recovery for expected credit losses		521
Write-offs charged against the allowance for expected credit losses		(109	)
Foreign exchange impact on ending balance		82
Balance as of June 30, 2021	$	(900	)

	Three Months Ended December 31, 2019
Revised Consolidated Statement of Operations Amounts:	As Reported			Adjustment			As Revised
Total revenues		77,459			246			77,705
Gross profit		51,525			246			51,771
Loss from operations		(2,097	)		246			(1,851	)
Loss before income taxes		(8,760	)		246			(8,514	)
Provision for income taxes		3,002			(233	)		2,769
Net loss	$	(11,762	)	$	479		$	(11,283	)
Net loss per share:
Basic	$	(0.33	)				$	(0.31	)
Diluted	$	(0.33	)				$	(0.31	)

	Three Months Ended March 31, 2020
Revised Consolidated Statement of Operations Amounts:	As Reported			Adjustment		As Revised
Total revenues		86,495			328		86,823
Gross profit		57,765			328		58,093
Income from operations		12,006			328		12,334
Income before income taxes		5,777			328		6,105
Benefit from income taxes		(6,718	)		11		(6,707	)
Net income	$	12,495		$	317	$	12,812

	Year Ended September 30, 2020
Revised Consolidated Statement of Operations Amounts:	As Reported			Adjustment		As Revised
Total revenues		329,646			1,321		330,967
Gross profit		221,795			1,321		223,116
Income from operations		19,331			3,100		22,431
Loss before income taxes		(26,140	)		3,100		(23,040	)
Benefit from income taxes		(5,509	)		785		(4,724	)
Net loss	$	(20,631	)	$	2,315	$	(18,316	)
Net loss per share:
Basic	$	(0.57	)			$	(0.50	)
Diluted	$	(0.57	)			$	(0.50	)

	September 30, 2020
Revised Consolidated Balance Sheet Amounts:	As Reported		Adjustment			As Revised
ASSETS
Total current assets		249,148		957			250,105
Total assets	$	1,687,445	$	172		$	1,687,617
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities		200,774		(2,143	)		198,631
Total liabilities		729,689		(2,143	)		727,546
Total stockholders' equity		957,756		2,315			960,071
Total liabilities and stockholders' equity	$	1,687,445	$	172		$	1,687,617

	Three Months Ended December 31, 2020
Revised Condensed Consolidated Statement of Operations Amounts:	As Reported			Adjustment			As Revised
Total revenues		94,964			(1,321	)		93,643
Total cost of revenues		26,881			7			26,888
Gross profit		68,083			(1,328	)		66,755
Total operating expenses		47,811			1,400			49,211
Income from operations		20,272			(2,728	)		17,544
Income before income taxes		14,254			(2,728	)		11,526
Benefit from income taxes		(7,384	)		(2,031	)		(9,415	)
Net income	$	21,638		$	(697	)	$	20,941

Interest income	$	173		$	34		408.8	%
Interest expense		(6,787	)		(7,275	)	(6.7	)%
Other income (expense), net		(286	)		1,259		(122.7	)%
Total other expense, net	$	(6,900	)	$	(5,982	)	15.3	%

	Material Cash Requirements Due by Period
	2022			2023 - 2024		2025 - 2026		Thereafter		Total
Notes	$	-		$	-	$	175,000	$	-	$	175,000
Interest payable on the Notes (a)		2,631			10,507		3,507		-		16,645
Senior Credit Facilities		3,125			23,438		87,500		-		114,063
Interest payable on Senior Credit Facilities (b)		1,551			5,513		1,174		-		8,238
Operating leases		3,525			10,946		5,218		2,470		22,159
Operating leases under restructuring (c)		(20	)		30		402		201		613
Financing leases		208			886		414		-		1,508
Total material cash requirements	$	11,020		$	51,320	$	273,215	$	2,671	$	338,226

	Contractual Payments Due by Period
Contractual Obligations	2021		2022 - 2023		2024 - 2025		Thereafter		Total
Notes	$	-	$	-	$	175,000	$	-	$	175,000
Interest payable on the Notes (a)		1,322		10,493		8,768		-		20,583
Senior Credit Facilities		1,562		17,188		100,000		-		118,750
Interest payable on Senior Credit Facilities (b)		711		5,263		3,274		-		9,248
Operating leases		1,830		10,395		6,151		3,125		21,501
Operating leases under restructuring (c)		184		39		302		406		931
Financing leases		118		938		779		53		1,888
Total contractual cash obligations	$	5,727	$	44,316	$	294,274	$	3,584	$	347,901

	Cerence Inc.

Date: ~~August 9, 2021~~May 10, 2022	By:	/s/ ~~Sanjay Dhawan~~Stefan Ortmanns
		~~Sanjay Dhawan~~Stefan Ortmanns
		Chief Executive Officer (Principal Executive Officer)

Date: ~~August 9, 2021~~May 10, 2022	By:	/s/ ~~Mark Gallenberger~~Thomas L. Beaudoin
		~~Mark Gallenberger~~Thomas L. Beaudoin
		Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company