You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements, and the related notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”), and our consolidated financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025, filed with the Securities and Exchange Commission (“SEC”) on November 20, 2025. Some of the information contained in this discussion and analysis or elsewhere in this Quarterly Report, including, but not limited to, information with respect to our plans and strategy for our business, our performance and future success, our liquidity and capital resources, including our ability to meet our liquidity needs, potential stock repurchases, expectations regarding fixed license contracts, macroeconomicmic conditions, volatility in the political, legal and regulatory environment in which we operate including trade, tariffs and other policies implemented by the United States or actions taken by other countries in response, trends in the global auto industry and adjacent markets, including shipping and production issues, new products, process optimization efforts and cost management, litigation, and tax estimates and other tax matters, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Concerning Forward-Looking Statements.” You should review the “Risk Factors” sections in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2025 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Note that the results of operations for the three and nine months ended June 30, 2026 are not necessarily indicative of what our operating results for the full fiscal year will be. In this Item, “we,” “us,” “our,” “Cerence” and the “Company” refer to Cerence Inc. and its consolidated subsidiaries, collectively.
Overview
Cerence builds conversational and agentic AI solutions for the mobility/transportation market. Our primary target is the automobile market, but our solutions can apply to all forms of transportation including, but not limited to, two-wheel vehicles, planes, tractors, cruise ships and elevators as well as the Internet of Things industry as a whole, including televisions, smart watches, voice-powered kiosks, and more. Our solutions power natural conversational and intuitive interactions between automobiles, drivers and passengers, and the broader digital world. We possess one of the leading software platforms for building automotive virtual assistants. Our automotive customers include nearly all major automobile original equipment manufacturers (“OEMs”) or their tier 1 suppliers worldwide. We deliver our solutions on a white-label basis, enabling our customers to deliver customized virtual assistants with unique, branded personalities and ultimately strengthening the bond between automobile brands and end users. Our vision is to enable a more enjoyable, safer journey for everyone.
Our principal offering is our software platform, which our customers use to build virtual assistants that can communicate, find information and take action across an expanding variety of categories. Our software platform has a hybrid architecture combining edge software components with cloud-connected components. Edge software components are installed on a vehicle’s head unit and can operate without access to external networks and information. Cloud-connected components are comprised of certain speech and natural language understanding related technologies, AI-enabled personalization and context-based response frameworks, and content integration platform.
We generate revenue primarily by selling software or intellectual property (“IP”) licenses embedded in and developed in connection with our operating software platform and cloud-connected services. Our edge software components are typically sold under a traditional per unit perpetual software license model, in which a per unit fee is charged on a variable basis for each software instance installed on an automotive head unit. We typically license cloud-connected software components in the form of a service to the vehicle end user, which is paid for in advance. In addition, we generate professional services revenue from our work with our customers during the design, development and deployment phases of the vehicle model lifecycle and through maintenance and enhancement projects. We have existing relationships with nearly all major automotive OEMs or their tier 1 suppliers, and while our customer contracts vary, they generally represent multi-year engagements, giving us some visibility into future revenue; however, such revenue may not materialize as expected due to delays in automobile production, volatility in the political, legal and regulatory environment in which we operate including trade, tariffs and other policies implemented by the administration in the United States or actions taken by other countries in response, automotive production curtailment or delays related thereto, changing customer forecasts, macroeconomic conditions or other factors discussed elsewhere in this Quarterly Report.
On August 5, 2026, our Board of Directors authorized a program to repurchase up to $30 million of our outstanding common stock. The program has a term of 12 months, expiring in August 2027 unless extended, renewed,
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or earlier terminated, and it may be suspended, modified, or discontinued at any time without prior notice. See “Liquidity and Capital Resources – Share Repurchase Program” below.
Basis of Presentation
The financial information presented in the accompanying unaudited condensed consolidated financial statements has been prepared in accordance with U.S. GAAP and in accordance with rules and regulations of the SEC regarding interim financial reporting. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
The condensed consolidated balance sheet data as of September 30, 2025 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations. The operating results for the three and nine months ended June 30, 2026 are not necessarily indicative of the results expected for the full fiscal year ending September 30, 2026.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, as well as those of its wholly owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation.
Key Financial Metrics
In evaluating our financial condition and operating performance, we focus on revenue, operating margins, and cash flow from operations.
For the three months ended June 30, 2026 as compared to the three months ended June 30, 2025:
•Total revenue increased by $7.4 million, or 11.8%, to $69.6 million from $62.2 million.
•Operating margin increased 4.2 percentage points to positive 2.7% from negative 1.5%.
•Cash provided by operating activities was $20.0 million, a reduction of $3.7 million, or 15.8%, from cash provided by operating activities of $23.7 million.
For the nine months ended June 30, 2026 as compared to the nine months ended June 30, 2025:
•Total revenue increased by $57.7 million, or 30.2%, to $248.9 million from $191.1 million.
•Operating margin increased 11.8 percentage points to positive 11.6% from negative 0.3%.
•Cash provided by operating activities was $72.0 million, an increase of $23.5 million, or 48.6%, from cash provided by operating activities of $48.4 million.
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Operating Results
The following table shows the Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2026 and 2025 (dollars in thousands):
Three Months Ended June 30, Nine Months Ended June 30,
2026 2025 2026 2025
Revenues:
License $ 41,600 $ 34,176 $ 166,935 $ 108,361
Connected services 15,465 12,842 45,307 39,197
Professional services 12,522 15,218 36,613 43,584
Total revenues 69,587 62,236 248,855 191,142
Cost of revenues:
License 1,362 1,074 4,291 5,288
Connected services 4,906 4,805 14,860 16,095
Professional services 10,405 10,469 30,144 30,618
Total cost of revenues 16,673 16,348 49,295 52,001
Gross profit 52,914 45,888 199,560 139,141
Operating expenses:
Research and development 29,237 27,152 84,235 71,353
Sales and marketing 5,829 5,916 17,905 15,612
General and administrative 14,714 12,340 59,497 36,293
Amortization of intangible assets — 578 — 1,668
Restructuring and other costs, net 1,259 850 9,180 14,744
Total operating expenses 51,039 46,836 170,817 139,670
Income (loss) from operations 1,875 (948) 28,743 (529)
Interest income 710 895 2,230 3,250
Interest expense (1,450) (2,409) (4,592) (8,518)
Other income, net 413 1,673 2,250 2,444
Income (loss) before income taxes 1,548 (789) 28,631 (3,353)
Provision for income taxes 15 1,932 30,664 2,000
Net income (loss) $ 1,533 $ (2,721) $ (2,033) $ (5,353)
Our revenue consists primarily of license revenue, connected services revenue and revenue from professional services. License revenue primarily consists of license royalties associated with our edge software components and revenue associated with the licensing of our Intellectual Property or “IP” that underpins and is deployed as part of our products and services. Our edge software components are typically sold under a traditional per unit perpetual software license model, in which a per unit fee is charged for each software instance installed on an automotive head unit. Our contracts contain variable, fixed prepaid or fixed minimum purchase commitment components. Revenue is recognized and cash is collected for variable contracts over the license distribution period. The fixed contracts typically provide the customer with a price discount and can include the conversion of a variable contract that is already in our variable backlog. Revenue for fixed contracts is recognized when the software is made available to the customer, which has typically occurred at the time the contract is signed. Cash is typically expected to be collected for a fixed prepaid deal at the inception of the contract. Cash is expected to be collected for a fixed minimum commitment deal over the license distribution period. Going forward, we will continue to assess the levels of fixed license contracts and make adjustments, as necessary. The timing and amount of revenue recognized from IP or patent licensing relating to technology developed and commercialized in the ordinary course of our business depends upon a variety of factors, including the specific terms of each agreement and the nature of the deliverables and obligations. These agreements could include, without limitation, performance obligations related to consideration for past patent royalties, patent licensing royalties on covered products sold by licensees, access to a portfolio of technology as it exists at a point in time, and access to a portfolio of technology at a point in time along with promises to provide any technology updates to the portfolio during the term on a when-and-if basis. Such licenses could be fixed and non-refundable in nature and/or variable over time. Certain components of revenue
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recognized with respect to IP license agreements may require the use of estimates, which may be significant. Related revenue is recognized at the point in time when the software and technology is made available to the customer and control is transferred and, if applicable, according to usage. See Note 3 to the accompanying unaudited condensed consolidated financial statements for further discussion of our revenue, deferred revenue performance obligations and the timing of revenue recognition. Costs of license revenue primarily consists of third-party royalty expenses for certain external technologies we leverage and costs associated with our Cerence Link product.
Connected services revenue primarily represents the subscription fee that provides access to our connected services components, including the customization and construction of our connected services solutions. We also derive revenue within our connected services business from usage contracts and there can be instances where a customer purchases a software license that allows them to take possession of the software to enable hosting by the customer or a third-party. Subscription and usage contracts typically have a term of one to five years. Subscription revenue is recognized over the subscription period and cash is expected to be collected at the start of the subscription period. Usage based revenue is recognized and cash is collected as the service is used. If the customer takes possession of the software to have it hosted by the customer or a third-party, revenue is recognized, and cash is collected at the time the license is delivered.
Professional services revenue is primarily comprised of porting, integrating, and customizing our embedded solutions, with costs primarily consisting of compensation for services personnel, contractors and overhead.
Our operating expenses include R&D, sales and marketing and general and administrative expenses. R&D expenses primarily consist of salaries, benefits, and overhead relating to research and engineering staff. Sales and marketing expenses includes salaries, benefits, and commissions related to our sales, product marketing, product management, and business unit management teams. General and administrative expenses primarily consist of personnel costs for administration, legal, finance, human resources, general management, fees for external professional advisers including accountants and attorneys, and provisions for credit losses.
Amortization of acquired patents and core technology are included within cost of revenues whereas the amortization of other intangible assets, such as acquired customer relationships, trade names and trademarks, are included within operating expenses. Customer relationships are amortized over their estimated economic lives based on the pattern of economic benefits expected to be generated from the use of the asset. Other identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives.
Restructuring and other costs, net include restructuring expenses, as well as charges relating to our transformation initiatives, and other charges that are unusual in nature, are the result of unplanned events, and arise outside the ordinary course of our business.
Total other expense, net consists primarily of foreign exchange gains (losses), interest income and interest expense related to the Notes.
We expect our revenue to continue to be impacted by the changing dynamics in the global automotive industry which has experienced production delays and slowdowns. Volatility in the political, legal and regulatory environment in which we operate, including trade, tariffs and related policies, also has resulted in increased pricing pressure from customers and delays in program timelines. Macroeconomic conditions such as high interest rates and lack of credit availability have contributed to these production delays and slowdowns. In addition, the software and technology systems in automobiles have become increasingly complex, leading to substantial challenges and delays in production for some of our customers. Our business in adjacent markets, such as two-wheeled vehicles, trucks and AIoT, is also developing slower than anticipated due to the challenges of introducing different technology into a new market. In light of these challenges, we intend to make efforts to streamline our operations, and we continue to focus on our cost management and have taken, and expect to continue to take, cost reduction actions, which may result in additional charges to restructuring and other costs, net. For example, in September 2025, we announced a restructuring plan (the “2025 Plan”) intended to streamline certain foreign operations, and in August 2024, we announced a restructuring plan (the “2024 Plan”) intended to reduce operating expenses and position us for profitable growth. The implementation of the 2024 Plan was substantially complete by the end of the first quarter of fiscal year 2025 and was formally concluded as of December 31, 2025. The implementation of the 2025 Plan was substantially completed during the three months ended December 31, 2025. Potential position eliminations are subject to legal requirements that vary by jurisdiction, which may extend this process beyond the third quarter of fiscal year 2026 in certain cases. The charges that are incurred as a result of implementing a restructuring plan are subject to a number of assumptions, including legal requirement in various jurisdictions, the outcome of negotiations with third parties or former employees, or other contingencies, as a result, actual expenses and charges may differ materially from estimates previously disclosed. For additional details, refer to the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
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Three Months Ended June 30, 2026 Compared with Three Months Ended June 30, 2025
Total Revenues
The following table shows total revenues by product type, including the corresponding percentage change, for the three months ended June 30, 2026 and 2025 (dollars in thousands):
Three Months Ended June 30, % Change
2026 % of Total 2025 % of Total 2026 vs. 2025
License $ 41,600 59.8% $ 34,176 54.9% 21.7 %
Connected services 15,465 22.2% 12,842 20.6% 20.4 %
Professional services 12,522 18.0% 15,218 24.5% (17.7) %
Total revenues $ 69,587 $ 62,236 11.8 %
Total revenues for the three months ended June 30, 2026 were $69.6 million, an increase of $7.4 million, or 11.8%, from $62.2 million for the three months ended June 30, 2025. Increases in revenue were attributable to higher fixed license revenue and higher connected services revenue, partially offset by lower variable license revenue resulting primarily from reduced production volumes reported, and lower professional services revenue compared to the three months ended June 30, 2025.
License Revenue
License revenue for the three months ended June 30, 2026 was $41.6 million, an increase of $7.4 million, or 21.7%, from $34.2 million for the three months ended June 30, 2025. The increase in license revenue was primarily driven by a $12.5 million increase in fixed license contracts, which vary quarter over quarter based on the timing of contract execution. There was no revenue from fixed license contracts entered into during the three months ended June 30, 2025. The increase in fixed license revenue was offset by a decrease in variable license revenue of $5.1 million, driven primarily by lower production volumes reported for the period. The decrease reflects both a particularly strong prior-year comparative period and lower production levels among certain customers and regions that represent a significant portion of our revenue base, as well as the timing of vehicle program lifecycle transitions. As a percentage of total revenues, license revenue increased 4.9 percentage points from 54.9% for the three months ended June 30, 2025 to 59.8% for the three months ended June 30, 2026.
Connected Services Revenue
Connected services revenue for the three months ended June 30, 2026 was $15.5 million, an increase of $2.6 million, or 20.4%, from $12.8 million for the three months ended June 30, 2025. This increase was primarily driven by continued expansion of our connected installed base and a higher attach rate. As a percentage of total revenues, connected services revenue increased by 1.6 percentage points from 20.6% for the three months ended June 30, 2025 to 22.2% for the three months ended June 30, 2026.
Professional Services Revenue
Professional services revenue for the three months ended June 30, 2026 was $12.5 million, a decrease of $2.7 million, or 17.7%, from $15.2 million for the three months ended June 30, 2025. This decrease was primarily driven by the increased standardization of our software product offerings, which requires less professional services effort to implement and other efficiencies in our professional services processes. As a percentage of total revenues, professional services revenue decreased by 6.5 percentage points from 24.5% for the three months ended June 30, 2025 to 18.0% for the three months ended June 30, 2026.
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Nine Months Ended June 30, 2026 Compared with Nine Months Ended June 30, 2025
Total Revenues
The following table shows total revenues by product type, including the corresponding percentage change, for the nine months ended June 30, 2026 and 2025 (dollars in thousands):
Nine Months Ended June 30, % Change
2026 % of Total 2025 % of Total 2026 vs. 2025
License $ 166,935 67.1% $ 108,361 56.7% 54.1 %
Connected services 45,307 18.2% 39,197 20.5% 15.6 %
Professional services 36,613 14.7% 43,584 22.8% (16.0) %
Total revenues $ 248,855 $ 191,142 30.2 %
Total revenues for the nine months ended June 30, 2026 were $248.9 million, an increase of $57.7 million, or 30.2%, from $191.1 million for the nine months ended June 30, 2025. The increase in revenue was primarily driven by our IP license agreement with Samsung, resulting in $49.5 million of revenue recognized in the applicable period pursuant to ASC 606.
License Revenue
License revenue for the nine months ended June 30, 2026 was $166.9 million, an increase of $58.6 million, or 54.1%, from $108.4 million for the nine months ended June 30, 2025. The increase in revenue was primarily driven by our IP license agreement with Samsung, resulting in $49.5 million of one-time revenue, recognized in accordance with ASC 606. Other license revenue activity included a $4.6 million increase associated with variable contract revenue attributable to higher reported volume coupled with a $4.5 million increase in fixed license contracts as the timing of fixed license contracts between quarters differs year over year. There was $26.0 million of revenue from fixed license contracts entered into during the nine months ended June 30, 2026, as compared to $21.5 million of revenue from fixed license contracts entered into during the corresponding period in 2025. No fixed license revenue is expected in the fourth quarter of 2026. As a percentage of total revenues, license revenue increased 10.4 percentage points from 56.7% for the nine months ended June 30, 2025 to 67.1% for the nine months ended June 30, 2026.
Connected Services Revenue
Connected services revenue for the nine months ended June 30, 2026 was $45.3 million, an increase of $6.1 million, or 15.6%, from $39.2 million for the nine months ended June 30, 2025. This increase was primarily driven by continued expansion of our connected installed base and a higher attach rate. As a percentage of total revenues, connected services revenue decreased by 2.3 percentage points from 20.5% for the nine months ended June 30, 2025 to 18.2% for the nine months ended June 30, 2026.
Professional Services Revenue
Professional service revenue for the nine months ended June 30, 2026 was $36.6 million, a decrease of $7.0 million, or 16.0%, from $43.6 million for the nine months ended June 30, 2025. This decrease was primarily driven by the increased standardization of our software product offerings, which requires less professional services effort to implement and other efficiencies in our professional services processes. As a percentage of total revenues, professional services revenue decreased by 8.1 percentage points from 22.8% for the nine months ended June 30, 2025 to 14.7% for the nine months ended June 30, 2026.
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Three Months Ended June 30, 2026 Compared with Three Months Ended June 30, 2025
Total Cost of Revenues and Gross Profits
The following table shows total cost of revenues by product type and the corresponding percentage change (dollars in thousands):
Three Months Ended June 30, % Change
2026 2025 2026 vs. 2025
License $ 1,362 $ 1,074 26.8 %
Connected services 4,906 4,805 2.1 %
Professional services 10,405 10,469 (0.6) %
Total cost of revenues $ 16,673 $ 16,348 2.0 %
The following table shows total gross profit by product type and the corresponding percentage change (dollars in thousands):
Three Months Ended June 30, % Change
2026 2025 2026 vs. 2025
License $ 40,238 $ 33,102 21.6 %
Connected services 10,559 8,037 31.4 %
Professional services 2,117 4,749 (55.4) %
Total gross profit $ 52,914 $ 45,888 15.3 %
Total cost of revenues for the three months ended June 30, 2026 were $16.7 million, an increase of $0.3 million, or 2.0%, from $16.3 million for the three months ended June 30, 2025.
We experienced an increase in total gross profit of $7.0 million, or 15.3%, from $45.9 million for the three months ended June 30, 2025 to $52.9 million for the three months ended June 30, 2026. The increase was primarily driven by license gross profit of $7.1 million.
Cost of License Revenue
Cost of license revenue for the three months ended June 30, 2026 was $1.4 million, an increase of $0.3 million, or 26.8%, from $1.1 million for the three months ended June 30, 2025. Cost of license revenues increased primarily due to comparatively higher costs associated with our Cerence Link product. As a percentage of total cost of revenues, cost of license revenue increased by 1.6 percentage points from 6.6% for the three months ended June 30, 2025 to 8.2% for the three months ended June 30, 2026.
License gross profit increased by $7.1 million, or 21.6%, for the three months ended June 30, 2026 when compared to the three months ended June 30, 2025, primarily driven by the $7.4 million increase in license revenues recognized for the three months ended June 30, 2026.
Cost of Connected Services Revenue
Cost of connected services revenue for the three months ended June 30, 2026 was $4.9 million, an increase of $0.1 million, or 2.1%, from $4.8 million for the three months ended June 30, 2025. Cost of connected services revenue increased primarily due to higher public cloud costs of $0.3 million and higher labor allocation costs of $0.1 million, partially offset by lower connected professional services cost of goods sold of $0.2 million and lower allocation expenses of $0.1 million. Cost of connected services revenue was flat as a percentage of total cost of revenues at 29.4% for both the three months ended June 30, 2025 and 2026.
Connected services gross profit increased $2.5 million, or 31.4%, from $8.0 million for the three months ended June 30, 2025 to $10.6 million for the three months ended June 30, 2026, primarily due to our continued expansion of our connected installed base resulting in increased revenue, and similar overall costs associated with the delivery of connected services.
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Cost of Professional Services Revenue
Cost of professional services revenue for the three months ended June 30, 2026 was $10.4 million, a decrease of $0.1 million, or 0.6%, from $10.5 million for the three months ended June 30, 2025. As a percentage of total cost of revenues, cost of professional services revenue decreased by 1.6 percentage points from 64.0% for the three months ended June 30, 2025 to 62.4% for the three months ended June 30, 2026.
Professional services gross profit decreased $2.6 million, or 55.4%, from $4.7 million for the three months ended June 30, 2025 to $2.1 million for the three months ended June 30, 2026, which was primarily due to a decrease in related revenues.
Nine Months Ended June 30, 2026 Compared with Nine Months Ended June 30, 2025
Total Cost of Revenues and Gross Profits
The following table shows total cost of revenues by product type and the corresponding percentage change (dollars in thousands):
Nine Months Ended June 30, % Change
2026 2025 2026 vs. 2025
License $ 4,291 $ 5,288 (18.9 %)
Connected services 14,860 16,095 (7.7) %
Professional services 30,144 30,618 (1.5) %
Total cost of revenues $ 49,295 $ 52,001 (5.2) %
The following table shows total gross profit by product type and the corresponding percentage change (dollars in thousands):
Nine Months Ended June 30, % Change
2026 2025 2026 vs. 2025
License $ 162,644 $ 103,073 57.8 %
Connected services 30,447 23,102 31.8 %
Professional services 6,469 12,966 (50.1) %
Total gross profit $ 199,560 $ 139,141 43.4 %
Total cost of revenues for the nine months ended June 30, 2026 were $49.3 million, a decrease of $2.7 million, or 5.2%, from $52.0 million for the nine months ended June 30, 2025.
We experienced an increase in total gross profit of $60.4 million, or 43.4%, from $139.1 million for the nine months ended June 30, 2025 to $199.6 million for the nine months ended June 30, 2026. The increase was primarily driven by our IP license agreement with Samsung, resulting in $49.5 million revenue recognized in the applicable period pursuant to ASC 606.
Cost of License Revenue
Cost of license revenue for the nine months ended June 30, 2026 was $4.3 million, a decrease of $1.0 million, or 18.9%, from $5.3 million for the nine months ended June 30, 2025. Cost of license revenue decreased due to lower costs attributable to lower volume of our Cerence Link product revenue. As a percentage of total cost of revenues, cost of license revenue decreased by 1.5 percentage points from 10.2% for the nine months ended June 30, 2025 to 8.7% for the nine months ended June 30, 2026.
License gross profit increased by $59.6 million, or 57.8%, for the nine months ended June 30, 2026 when compared to the nine months ended June 30, 2025, primarily due to the increase in license revenues attributable to the IP license agreement with Samsung, as well as increased variable license revenue due to higher reported volumes.
Cost of Connected Services Revenue
Cost of connected services revenue for the nine months ended June 30, 2026 was $14.9 million, a decrease of $1.2 million, or 7.7%, from $16.1 million for the nine months ended June 30, 2025. Cost of connected services
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revenue decreased primarily due to lower connected professional services cost of goods sold of $0.8 million, lower labor allocation costs of $0.4 million, lower connected professional services cost of goods sold of $0.2 million and lower allocation expenses of $0.2 million, partially offset by higher public cloud costs of $0.3 million. As a percentage of total cost of revenues, cost of connected services revenue decreased by 0.8 percentage points from 31.0% for the nine months ended June 30, 2025 to 30.1% for the nine months ended June 30, 2026.
Connected services gross profit increased $7.3 million, or 31.8%, from $23.1 million for the nine months ended June 30, 2025 to $30.4 million for the nine months ended June 30, 2026, due to the combination of increased connected services revenues and decreased cost of connected services revenues.
Cost of Professional Services Revenue
Cost of professional services revenue for the nine months ended June 30, 2026 was $30.1 million, a decrease of $0.5 million, or 1.5%, from $30.6 million for the nine months ended June 30, 2025. Decreases were driven by lower temporary employee costs of $1.4 million, lower personnel related costs of $0.8 million, and higher tax credits offsetting expenses. Decreases were partially offset by higher labor allocation costs of $2.1 million. As a percentage of total cost of revenues, cost of professional services revenue increased by 2.3 percentage points from 58.9% for the nine months ended June 30, 2025 to 61.2% for the nine months ended June 30, 2026.
Professional services gross profit decreased $6.5 million, or 50.1%, from $13.0 million for the nine months ended June 30, 2025 to $6.5 million for the nine months ended June 30, 2026, which was primarily due to the reduction in professional services revenue.
Operating Expenses
The tables below show each component of operating expense. Total other expense, net and (benefit from) provision for income taxes are non-operating expenses and presented in a similar format (dollars in thousands).
R&D Expenses
Three Months Ended June 30, 2026 Compared with Three Months Ended June 30, 2025
Three Months Ended June 30, % Change
2026 2025 2026 vs. 2025
Research and development $ 29,237 $ 27,152 7.7 %
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, 2026 were $29.2 million, an increase of $2.1 million, or 7.7%, from $27.2 million for the three months ended June 30, 2025. The increase was primarily attributable to $1.9 million of lower capitalization of internally developed software, a $0.8 million increase in amortization costs of previously capitalized internally developed software, offset partially by a net decrease of $0.5 million driven primarily by international R&D tax credits and internal cost allocations. As a percentage of total operating expenses, R&D expenses decreased by 0.7 percentage points from 58.0% for the three months ended June 30, 2025 to 57.3% for the three months ended June 30, 2026.
Nine Months Ended June 30, 2026 Compared with Nine Months Ended June 30, 2025
Nine Months Ended June 30, % Change
2026 2025 2026 vs. 2025
Research and development $ 84,235 $ 71,353 18.1 %
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 months ended June 30, 2026 were $84.2 million, an increase of $12.9 million, or 18.1%, from $71.4 million for the nine months ended June 30, 2025. The increase was primarily attributable to $4.6 million of higher compensation costs, $3.7 million of net unfavorable research and development tax credits, $3.4 million of lower capitalization of internally developed software, $1.9 million of higher amortization of previously capitalized software, $0.7 million of increased travel costs, partially offset by a total decrease of $1.3 million, driven primarily by lower internal allocations. As a percentage of total operating expenses, R&D expenses
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decreased by 1.8 percentage points from 51.1% for the nine months ended June 30, 2025 to 49.3% for the nine months ended June 30, 2026.
Sales & Marketing Expenses
Three Months Ended June 30, 2026 Compared with Three Months Ended June 30, 2025
Three Months Ended June 30, % Change
2026 2025 2026 vs. 2025
Sales and marketing $ 5,829 $ 5,916 (1.5) %
Sales and marketing expenses for the three months ended June 30, 2026 were $5.8 million, a decrease of $0.1 million, or 1.5%, from $5.9 million for the three months ended June 30, 2025. This decrease was not driven by any material changes between the periods presented. As a percentage of total operating expenses, sales and marketing expenses decreased by 1.2 percentage points from 12.6% for the three months ended June 30, 2025 to 11.4% for the three months ended June 30, 2026.
Nine Months Ended June 30, 2026 Compared with Nine Months Ended June 30, 2025
Nine Months Ended June 30, % Change
2026 2025 2026 vs. 2025
Sales and marketing $ 17,905 $ 15,612 14.7 %
Sales and marketing expenses for the nine months ended June 30, 2026 were $17.9 million, an increase of $2.3 million, or 14.7%, from $15.6 million for the nine months ended June 30, 2025. The increase in sales and marketing expenses was primarily driven by increased employee compensation costs of $1.4 million and a $0.7 million increase in marketing costs associated primarily with trade shows. As a percentage of total operating expenses, sales and marketing expenses decreased by 0.7 percentage points from 11.2% for the nine months ended June 30, 2025 to 10.5% for the nine months ended June 30, 2026.
General & Administrative Expenses
Three Months Ended June 30, 2026 Compared with Three Months Ended June 30, 2025
Three Months Ended June 30, % Change
2026 2025 2026 vs. 2025
General and administrative $ 14,714 $ 12,340 19.2 %
General and administrative expenses for the three months ended June 30, 2026 were $14.7 million, an increase of $2.4 million, or 19.2%, from $12.3 million for the three months ended June 30, 2025. The increase in general and administrative expenses was primarily driven by increased legal expenses as we continue our efforts to protect, enforce, and license our intellectual property portfolio. As a percentage of total operating expenses, general and administrative expenses increased by 2.5 percentage points from 26.3% for the three months ended June 30, 2025 to 28.8% for the three months ended June 30, 2026.
Nine Months Ended June 30, 2026 Compared with Nine Months Ended June 30, 2025
Nine Months Ended June 30, % Change
2026 2025 2026 vs. 2025
General and administrative $ 59,497 $ 36,293 63.9 %
General and administrative expenses for the nine months ended June 30, 2026 were $59.5 million, an increase of $23.2 million, or 63.9%, from $36.3 million for the nine months ended June 30, 2025. The increase in general and administrative expenses was primarily attributable to a $23.9 million increase in professional services and related fees, primarily comprised of legal professional services related to the Samsung IP license agreement and other efforts to protect, enforce, and license our intellectual property portfolio. These increases were offset by a net decrease of $0.6 million in
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personnel and compensation related expenses across the periods compared. As a percentage of total operating expenses, general and administrative expenses increased by 8.8 percentage points from 26.0% for the nine months ended June 30, 2025 to 34.8% for the nine months ended June 30, 2026.
Amortization of Intangible Assets
Three Months Ended June 30, 2026 Compared with Three Months Ended June 30, 2025
Three Months Ended June 30, % Change
2026 2025 2026 vs. 2025
Operating expense — 578 (100.0) %
Total amortization $ — $ 578 (100.0) %
Amortization expense for customer relationships is included in operating expenses in the accompanying Condensed Consolidated Statements of Operations. Customer relationships were fully amortized as of June 30, 2025.
As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses decreased by 1.2 percentage points from 1.2% for the three months ended June 30, 2025, as compared to zero percent for the three months ended June 30, 2026.
Nine Months Ended June 30, 2026 Compared with Nine Months Ended June 30, 2025
Nine Months Ended June 30, % Change
2026 2025 2026 vs. 2025
Operating expense — 1,668 (100.0) %
Total amortization $ — $ 1,668 (100.0) %
Amortization expense for customer relationships is included in operating expenses in the accompanying Condensed Consolidated Statements of Operations. Customer relationships were fully amortized as of June 30, 2025.
As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses decreased by 1.2 percentage points from 1.2% for the nine months ended June 30, 2025 as compared to zero percent for the nine months ended June 30, 2026.
Other Components of Operating Expense
Three Months Ended June 30, 2026 Compared with Three Months Ended June 30, 2025
Three Months Ended June 30, % Change
2026 2025 2026 vs. 2025
Restructuring and other costs, net $ 1,259 $ 850 48.1 %
Fiscal Year 2026
For the three months ended June 30, 2026, we recorded restructuring and other costs, net of $1.3 million, which included a $0.8 million charge related to our transformation initiatives and other one-time charges, a $0.4 million charge resulting from the closure of facilities that will no longer be utilized, and a $0.1 million charge related to the elimination of personnel.
Fiscal Year 2025
For the three months ended June 30, 2025, we recorded restructuring and other costs, net of $0.9 million, which included a $0.1 million charge related to the elimination of personnel and a $0.7 million charge relating to our transformation initiatives.
As a percentage of total operating expenses, restructuring and other costs, net increased by 0.7 percentage points from 1.8% for the three months ended June 30, 2025 to 2.5% for the three months ended June 30, 2026.
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Nine Months Ended June 30, 2026 Compared with Nine Months Ended June 30, 2025
Nine Months Ended June 30, % Change
2026 2025 2026 vs. 2025
Restructuring and other costs, net $ 9,180 $ 14,744 (37.7) %
Fiscal Year 2026
For the nine months ended June 30, 2026, we recorded restructuring and other costs, net of $9.2 million, which included a $7.7 million charge related to the elimination of personnel, a $0.6 million charge resulting from the closure of facilities that will no longer be utilized, and a $0.8 million charge relating to our transformation initiatives and other one-time charges.
Fiscal Year 2025
For the nine months ended June 30, 2025, we recorded restructuring and other costs, net of $14.7 million, which included a $12.1 million charge related to the elimination of personnel, of which $3.0 million related to the stock-based compensation expense related to the termination of former senior management employees, and a $2.6 million charge relating to our transformation initiatives.
As a percentage of total operating expenses, restructuring and other costs, net decreased by 5.2 percentage points from 10.6% for the nine months ended June 30, 2025 to 5.4% for the nine months ended June 30, 2026.
Total Other (Expense) Income, Net
Three Months Ended June 30, 2026 Compared with Three Months Ended June 30, 2025
Three Months Ended June 30, % Change
2026 2025 2026 vs. 2025
Interest income $ 710 $ 895 (20.7) %
Interest expense (1,450) (2,409) (39.8) %
Other income, net 413 1,673 (75.3) %
Total other (expense) income, net $ (327) $ 159 (305.7) %
Total other (expense) income, net for the three months ended June 30, 2026 was expense of $0.3 million, a change of $0.5 million from $0.2 million of income for the three months ended June 30, 2025. The slight decrease in interest income was primarily attributable to lower average interest generating deposit and marketable securities balances and a lower interest rate environment when compared to the three months ended June 30, 2025. The decrease in interest expense was primarily attributable to a lower overall principal balance outstanding coupled with a lower applicable interest rate on our Notes. The decrease in other income, net was primarily driven by comparatively unfavorable foreign exchange movements. For further information, see “Liquidity and Capital Resources” below.
Nine Months Ended June 30, 2026 Compared with Nine Months Ended June 30, 2025
Nine Months Ended June 30, % Change
2026 2025 2026 vs. 2025
Interest income $ 2,230 $ 3,250 (31.4) %
Interest expense (4,592) (8,518) (46.1) %
Other income, net 2,250 2,444 (7.9) %
Total other income (expense), net $ (112) $ (2,824) (96.0 %)
Total other income (expense), net for the nine months ended June 30, 2026 was expense of $0.1 million, a change of $2.7 million from $2.8 million of expense for the nine months ended June 30, 2025. The decrease in interest income was primarily attributable to lower average interest generating deposit and marketable securities balances and a lower interest rate environment when compared to the nine months ended June 30, 2025. The decrease in interest expense was primarily attributable to a lower overall principal balance outstanding coupled with a lower applicable interest rate on our Notes. The decrease in other income, net of $0.2 million was driven primarily by comparatively unfavorable
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foreign exchange movements during the nine months ended June 30, 2026. For further information, see “Liquidity and Capital Resources” below.
Provision for Income Taxes
Three Months Ended June 30, 2026 Compared with Three Months Ended June 30, 2025
Three Months Ended June 30, % Change
2026 2025 2026 vs. 2025
Provision for income taxes $ 15 $ 1,932 (99.2) %
Effective income tax rate % 1.0 % (244.9) %
Our effective income tax rate for the three months ended June 30, 2026 was positive 1.0% compared to negative 244.9% for the three months ended June 30, 2025. Our provision for income taxes for the three months ended June 30, 2026 was $15.0 thousand, a net change of $1.9 million from a provision for income taxes of $1.9 million for the three months ended June 30, 2025. This difference was attributable to the tax impacts of valuation allowances, foreign income inclusions, stock-based compensation, and our composition of jurisdictional earnings.
Nine Months Ended June 30, 2026 Compared with Nine Months Ended June 30, 2025
Nine Months Ended June 30, % Change
2026 2025 2026 vs. 2025
Provision for income taxes $ 30,664 $ 2,000 1433.2 %
Effective income tax rate % 107.1 % (59.6) %
Our effective income tax rate for the nine months ended June 30, 2026 was positive 107.1% compared to negative 59.6% for the nine months ended June 30, 2025. Our provision for income taxes for the nine months ended June 30, 2026 was $30.7 million, a net change of $28.7 million from a provision for income taxes of $2.0 million for the nine months ended June 30, 2025. This difference was attributable to the tax impacts of valuation allowances, foreign income inclusions, stock-based compensation, and our composition of jurisdictional earnings.
Liquidity and Capital Resources
Financial Condition
As of June 30, 2026, we had $127.6 million in cash and cash equivalents. 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 have historically included corporate bonds and government securities. As of March 31, 2026, all marketable securities were fully matured, and the Company did not hold any marketable securities as of June 30, 2026.
Sources and Material Cash Requirements
Our principal sources of liquidity are our cash and cash equivalents, as well as the cash flows we generate from our operations. The primary uses of cash include costs of revenues, funding of R&D activities, capital expenditures and debt obligations.
Our ability to fund future operating needs will depend on our ability to generate positive cash flows from operations and access additional funding in the capital and debt markets as needed. Based on our expectations to generate positive cash flows and the $127.6 million of cash and cash equivalents as of June 30, 2026, we believe that we will be able to meet our liquidity needs over the next 12 months.
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The following table presents our material cash requirements for future periods (dollars in thousands):
Material Cash Requirements Due by Period
2026 2027-2028 2029-2030 Thereafter Total
2028 Notes $ — $ 105,000 $ — $ — $ 105,000
Cash interest payable on the 2028 Notes (a) - 3,150 — — 3,150
2025 Modified Notes — 75,000 — — 75,000
Cash interest payable on the 2025 Modified Notes (a) - 2,250 — — 2,250
Operating leases 1,504 9,818 4,107 110 15,539
Financing leases — — — — —
Total material cash requirements $ 1,504 $ 195,218 $ 4,107 $ 110 $ 200,939
(a)Interest per annum is due and payable semiannually and is determined based on the outstanding principal as of June 30, 2026.
Should we need to secure additional sources of liquidity, we believe that we could finance our needs through the issuance of equity securities or debt offerings. However, we cannot guarantee that we will be able to obtain financing through the issuance of equity securities or debt offerings or that, if such financing is obtained, that it will be on acceptable terms. Our ability to issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers or if there are other significantly unfavorable changes in economic conditions. For instance, inflation and higher interest rates, changes in the political, legal and regulatory environment, including trade policies and tariffs, and disruptions have negatively impacted the global economy and created significant volatility and disruption of financial markets. An extended period of economic disruption or market volatility, could materially affect our business, results of operations, access to sources of liquidity and financial condition.
1.50% Senior Convertible Notes due 2028
On June 26, 2023, we issued $190.0 million in aggregate principal amount of 1.50% Convertible Senior Notes due 2028 (the “2028 Notes”), which are governed by an indenture (the “2028 Indenture”), between us and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). On July 3, 2023, we issued an additional $20.0 million in aggregate principal amount of 2028 Notes. The initial net proceeds from the issuance of the 2028 Notes were $193.2 million after deducting transaction costs.
The 2028 Notes are senior, unsecured obligations and accrue interest payable semiannually in arrears on January 1 and July 1 of each year at a rate of 1.50% per year. The 2028 Notes will mature on July 1, 2028, unless earlier converted, redeemed, or repurchased. The 2028 Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.
The conversion rate is 24.5586 shares of our common stock per $1,000 principal amount of 2028 Notes (equivalent to an initial conversion price of approximately $40.72 per share of our common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2028 Notes in connection with such a corporate event or convert its 2028 Notes called for redemption in connection with such notice of redemption, as the case may be.
During the nine months ended June 30, 2026, we repurchased $30.0 million aggregate principal amount of our 2028 Notes for $28.0 million in cash, including accrued interest and fees, via privately negotiated transactions with certain holders. The repurchased notes were subsequently cancelled and retired, resulting in a gain on extinguishment of debt of $1.1 million.
In connection with the offering of the 2028 Notes, we repurchased $87.5 million in aggregate principal amount of the 2025 Notes in a privately negotiated transaction. We specifically negotiated the repurchase of the 2025 Notes with investors who concurrently purchased the 2028 Notes. We evaluated the transaction to determine whether the exchange should be accounted for as a modification or extinguishment under the provisions of ASC 470-50, which allows for an exchange of debt instruments between the same debtor and creditor to be accounted for as a modification so long as
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the instruments do not have substantially different terms. Because the concurrent redemption of the 2025 Notes and a portion of issuance of the 2028 Notes were executed with the same investors, we evaluated the transaction as a debt modification, on a creditor by creditor basis. The repurchase of the 2025 Notes and issuance of the 2028 Notes were deemed to not have substantially different terms on the basis that (1) the present value of the cash flows under the terms of the new debt instrument were less than 10% different from the present value of the remaining cash flows under the terms of the original instrument and (2) the fair value of the conversion feature did not change by more than 10% of the carrying value of the 2025 Notes, and therefore, the repurchase of the 2025 Notes was accounted for as a debt modification.
As a result, $87.5 million of the 2028 Notes are considered a modification of the 2025 Notes and are included in the balances of the 2025 Notes (the “2025 Modified Notes” and together with the 2028 Notes, the “Notes”). We recorded $14.3 million of fees paid directly to the lenders as deferred debt issuance costs, and $3.8 million of fees paid to third-parties were expensed in the period. As of June 30, 2026, the carrying amount of the 2025 Modified Notes was $69.3 million, net of unamortized costs of $5.7 million.
If a convertible debt instrument is modified or exchanged in a transaction that is not accounted for as an extinguishment, an increase in the fair value of the embedded conversion option shall reduce the carrying amount of the debt instrument with a corresponding increase in Additional paid-in capital. We recognized the increase in the fair value of the embedded conversion feature of $4.1 million as Additional paid-in capital and an equivalent discount that reduced the carrying value of the 2025 Modified Notes.
We accounted for $122.5 million of the 2028 Notes, that were not negotiated with the investors of the 2025 Notes, as a single liability. We incurred transaction costs of $2.4 million relating to the issuance of the 2028 Notes, which were recorded as a direct deduction from the face amount of the 2028 Notes and are being amortized as interest expense over the term of the 2028 Notes using the interest method. As of June 30, 2026, the carrying amount of the 2028 Notes was $104.2 million and had unamortized issuance costs of $0.8 million. As of June 30, 2026, the 2028 Notes were not convertible. As of June 30, 2026 and September 30, 2025, the if-converted value of the 2028 Notes was $75.8 million and $85.0 million, respectively, less than its principal amount.
3.00% Senior Convertible Notes due 2025
On June 2, 2020, we issued $175.0 million in aggregate principal amount of 3.00% Convertible Senior Notes due June 1, 2025 (the “2025 Notes”), including the initial purchasers’ exercise in full of their option to purchase $25.0 million principal amount of the 2025 Notes, which were governed by an indenture (the “2025 Indenture”), between us and the Trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The net proceeds from the issuance of the 2025 Notes were $169.8 million after deducting transaction costs.
The 2025 Notes were senior, unsecured obligations and accrued interest payable semiannually in arrears on June 1 and December 1 of each year at a rate of 3.00% per year. For a complete description of the 2025 Notes, please refer to Footnote 17, Long-Term Debt as disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
During the year ended September 30, 2025, we repurchased $27.4 million aggregate principal amount of our 2025 Notes for $27.0 million in cash, including accrued interest and fees, via privately negotiated transactions with certain holders. The repurchased 2025 Notes were subsequently cancelled and retired, resulting in a gain on extinguishment of debt of $0.3 million. The remaining outstanding principal balance on the 2025 Notes and accrued interest of $61.0 million was repaid in its entirety at maturity during the three months ended June 30, 2025.
The interest expense recognized related to the Notes for the three and nine months ended June 30, 2026 and 2025 was as follows (dollars in thousands):
Three Months Ended June 30, Nine Months Ended June 30,
2026 2025 2026 2025
Contractual interest expense $ 675 $ 1,097 $ 2,134 $ 3,743
Amortization of debt discount 139 231 434 759
Amortization of issuance costs 633 1,068 1,983 3,573
Total interest expense related to the Notes $ 1,447 $ 2,396 $ 4,551 $ 8,075
Senior Credit Facilities
On June 12, 2020 (the “Financing Closing Date”), we entered into a Credit Agreement, by and among Cerence as the Borrower, the lenders and issuing banks party thereto and Wells Fargo Bank, N.A., as administrative agent
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(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. We also entered into a senior secured first-lien revolving credit facility in an aggregate principal amount of $50.0 million (the “Revolving Facility” and, together with the Term Loan Facility, the “Senior Credit Facilities”), which could have been drawn on in the event that our working capital and other cash needs were not supported by our operating cash flow.
In connection with the issuance of the 2028 Notes, in the third quarter of fiscal year 2023, we borrowed $24.7 million under our Revolving Facility and paid $106.3 million towards our Term Loan Facility. As a result, we recorded $104.9 million extinguishment of debt and $1.3 million loss on the extinguishment of debt. All principal and interest on the Term Loan Facility have been paid in full. As of June 30, 2026 and September 30, 2025, there were no amounts outstanding under the Revolver Facility.
On December 31, 2024, we terminated the Credit Agreement. On the date of termination, there were no revolving loans outstanding under the Credit Agreement. As a result of the Credit Agreement termination, we will not have access to the Revolving Facility and we will not be subject to the applicable Credit Agreement covenants.
There was no interest expense relating to the Senior Credit Facilities during the three months ended June 30, 2026 and 2025 was none and $0.1 million was none and $0.4 million for the nine months ended June 30, 2026 and 2025, respectively. Amounts reflect the coupon and accretion of the discount.
Cash Flows
Cash flows from operating, investing and financing activities for the nine months ended June 30, 2026 and 2025, as reflected in the unaudited Condensed Consolidated Statements of Cash Flows included in Item 1 of this Form 10-Q, are summarized in the following table (dollars in thousands):
Nine Months Ended June 30, % Change
2026 2025 2026 vs. 2025
Net cash provided by operating activities $ 71,961 $ 48,421 48.6 %
Net cash used in investing activities (519) (9,005) (94.2 %)
Net cash used in financing activities (27,106) (87,416) (69.0 %)
Effects of exchange rate changes on cash and cash equivalents (746) 187 (498.9 %)
Net changes in cash and cash equivalents $ 43,590 $ (47,813) (191.2) %
Net Cash Provided by Operating Activities
Net cash provided by operating activities for the nine months ended June 30, 2026 was $72.0 million, a net change of $23.5 million, or 48.6%, from net cash provided by operating activities of $48.4 million for the nine months ended June 30, 2025. The change in cash flows was primarily due to:
•An increase of $23.8 million from income before non-cash charges primarily driven by the net impact of the lump sum payment, net of taxes, received from Samsung and related legal expenses;
•An increase of $6.4 million due to favorable changes in working capital primarily related to accrued expenses and other liabilities, accounts receivable, prepaid expenses and other assets; and
•A decrease of $6.7 million from changes in deferred revenue.
Deferred revenue represents a significant portion of our net cash used in or provided by operating activities and, depending on the nature of our contracts with customers and foreign currency exchange rates, this balance can fluctuate significantly from period to period. Fluctuations in deferred revenue are not a reliable indicator of future performance and the related revenue associated with these contractual commitments. We do not expect any changes in deferred revenue to affect our ability to meet our obligations.
Net Cash Used in Investing Activities
Net cash used in investing activities for the nine months ended June 30, 2026 was $0.5 million, a net change of $8.5 million, or 94.2%, from $9.0 million of cash used in investing activities for the nine months ended June 30, 2025. The change in cash flows was primarily related to lower capital expenditures of $8.3 million.
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Net Cash Used in Financing Activities
Net cash used in financing activities for the nine months ended June 30, 2026 was $27.1 million, a net change of $60.3 million, or 69.0% from cash used in financing activities of $87.4 million for the nine months ended June 30, 2025. The change in cash flows was primarily due to:
•A decrease of $87.1 million in cash used for principal payments for short-term debt;
•An increase of $27.6 million in cash used for principal payments for long-term debt;
•An increase of $5.9 million in cash provided by proceeds from the issuance of our common stock; and
•An increase of $5.4 million in cash used for payments of tax related withholdings due to the net settlement of equity awards.
Share Repurchase Program
On August 5, 2026, our Board of Directors authorized a program to repurchase up to $30 million of our outstanding common stock. The program has a term of 12 months, expiring in August 2027 unless extended, renewed, or earlier terminated, and it may be suspended, modified, or discontinued at any time without prior notice. Repurchases may be made from time to time in the open market in compliance with Rule 10b‑18 under the Securities Exchange Act of 1934, pursuant to Rule 10b5-1 trading plans, in privately negotiated transactions, through accelerated share repurchase arrangements, or by other means. The Company may repurchase shares under this program depending on a variety of factors, including, among other things, capital availability, our financial condition, earnings, the impact of dilution from employee stock awards, market conditions, stock price, applicable legal and regulatory requirements, and other factors. Because the program is discretionary, the program does not obligate us to acquire any particular number of shares or any specific dollar amount, and there is no assurance as to the timing or amount of any repurchases.
We intend to fund repurchases under the program primarily with existing cash and cash equivalents and, secondarily, free cash flow generated by operations. As of June 30, 2026, we had cash and cash equivalents of $127.6 million.
We expect that any repurchases under the program will reduce cash otherwise available for other purposes. We intend to balance potential repurchases of common stock against our other capital allocation priorities. Repurchases under the program will also be subject to the 1% excise tax on net stock repurchases enacted under the Inflation Reduction Act of 2022, which will represent an additional cash cost of the program.
As of June 30, 2026, and through the date of this filing, no shares had been repurchased under the program. Accordingly, the program did not affect our liquidity, capital resources, or shares outstanding during the three and nine months ended June 30, 2026.
Critical Accounting Estimates
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that have a material impact on the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses. Actual results may differ from these estimates.
We believe that our critical accounting estimates are those related to revenue recognition; allowance for credit losses; accounting for deferred costs; accounting for internally developed software; the valuation of goodwill and intangible assets; accounting for stock-based compensation; accounting for income taxes; accounting for convertible debt; and loss contingencies. We believe these estimates are critical because they most significantly affect the portrayal of our financial condition and results of operations and involve our most complex and subjective estimates and judgments. A discussion of our critical accounting estimates may be found in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025 in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Estimates” and below.
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Stock-Based Compensation
We grant equity awards to certain employees which include restricted stock unit awards in accordance with the Cerence 2019 Equity Incentive Plan. The fair value for time-based and performance-based restricted stock units is based on the closing share price of our common stock on the date of grant. For performance-based restricted stock units, compensation cost is recognized based on the number of units expected to vest upon the achievement of the applicable performance conditions. We recognize stock-based compensation as an expense on a straight-line basis over the requisite service period and account for forfeitures as they occur.
We consider stock-based compensation to be a critical accounting estimate due to the significant judgment required in assessing the probability of achievement of certain performance conditions associated with our performance-based restricted stock units awards. Certain of these awards vest upon the achievement of strategic milestones that are subject to factors largely outside of our control, including the actions and decisions of third parties. As a result, we may not be able to conclude that achievement of certain performance conditions is probable until certain underlying milestone outcomes are substantially complete.
No compensation cost is recognized for these awards until the performance condition is deemed probable. If and when the performance condition becomes probable, we would recognize a cumulative catch-up adjustment for stock-based compensation expense in the period of the probability determination, the magnitude of which would depend on the level of achievement, the grant-date fair value of the underlying awards, and the proportion of the requisite service period completed at that time. The resulting charge could be significant to our results of operations in the period of recognition. If the performance condition is not achieved within the specified time frame, the awards would expire unvested and no compensation cost would be recognized.
We reassess the probability of achievement at each reporting date. Changes in our assessment could result in material adjustments to stock-based compensation expense in the period of such reassessment.
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.