Cerence Inc.

Previous wording

You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements, and the related notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”), and our consolidated financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025, filed with the Securities and Exchange Commission (“SEC”) on November 20, 2025. Some of the information contained in this discussion and analysis or elsewhere in this Quarterly Report, including, but not limited to, information with respect to our plans and strategy for our business, our performance and future success, our liquidity and capital resources, including our ability to meet our liquidity needs, macroeconomic conditions, volatility in the political, legal and regulatory environment in which we operate including trade, tariffs and other policies implemented by the United States or actions taken by other countries in response, trends in the global auto industry and adjacent markets, including shipping and production issues, new products, process optimization efforts and cost management, litigation, and tax estimates and other tax matters, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Concerning Forward-Looking Statements.” You should review the “Risk Factors” sections in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2025 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Note that the results of operations for the three months ended December 31, 2025 are not necessarily indicative of what our operating results for the full fiscal year will be. In this Item, “we,” “us,” “our,” “Cerence” and the “Company” refer to Cerence Inc. and its consolidated subsidiaries, collectively.

Current wording

You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements, and the related notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”), and our consolidated financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025, filed with the Securities and Exchange Commission (“SEC”) on November 20, 2025. Some of the information contained in this discussion and analysis or elsewhere in this Quarterly Report, including, but not limited to, information with respect to our plans and strategy for our business, our performance and future success, our liquidity and capital resources, including our ability to meet our liquidity needs, macroeconomic conditions, volatility in the political, legal and regulatory environment in which we operate including trade, tariffs and other policies implemented by the United States or actions taken by other countries in response, trends in the global auto industry and adjacent markets, including shipping and production issues, new products, process optimization efforts and cost management, litigation, and tax estimates and other tax matters, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Concerning Forward-Looking Statements.” You should review the “Risk Factors” sections in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2025 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Note that the results of operations for the three and six months ended March 31, 2026 are not necessarily indicative of what our operating results for the full fiscal year will be. In this Item, “we,” “us,” “our,” “Cerence” and the “Company” refer to Cerence Inc. and its consolidated subsidiaries, collectively.

Previous wording

We generate revenue primarily by selling software or intellectual property (“IP”) licenses and cloud-connected services. Our edge software components are typically sold under a traditional per unit perpetual software license model, in which a per unit fee is charged on a variable basis for each software instance installed on an automotive head unit. We typically license cloud-connected software components in the form of a service to the vehicle end user, which is paid for in advance. In addition, we generate professional services revenue from our work with our customers during the design, development and deployment phases of the vehicle model lifecycle and through maintenance and enhancement projects. We have existing relationships with nearly all major automotive OEMs or their tier 1 suppliers, and while our customer contracts vary, they generally represent multi-year engagements, giving us some visibility into future revenue; however, such revenue may not materialize as expected due to delays in automobile production, volatility in the political, legal and regulatory environment in which we operate including trade, tariffs and other policies implemented by the administration in the United States or actions taken by other countries in response, automotive production curtailment or delays related thereto, changing customer forecasts, macroeconomic conditions or other factors discussed elsewhere in this Quarterly Report.

Current wording

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.

Previous wording

The condensed consolidated balance sheet data as of September 30, 2025 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations. The operating results for the three months ended December 31, 2025 are not necessarily indicative of the results expected for the full fiscal year ending September 30, 2026.

Current wording

The condensed consolidated balance sheet data as of September 30, 2025 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations. The operating results for the three and six months ended March 31, 2026 are not necessarily indicative of the results expected for the full fiscal year ending September 30, 2026.

Previous wording

•Operating margin increased 58.7 percentage points to positive 25.5% from negative 33.3%.

Current wording

•Operating margin increased 14.7 percentage points to positive 15.0% from positive 0.3%.

Previous wording

•Cash provided by operating activities was $37.9 million, an increase of $28.6 million, or 309.5%, from cash provided by operating activities of $9.3 million.

Current wording

•Cash provided by operating activities was $52.0 million, an increase of $27.3 million, or 110.4%, from cash provided by operating activities of $24.7 million.

Previous wording

The following table shows the Condensed Consolidated Statements of Operations for the three months ended December 31, 2025 and 2024 (dollars in thousands):

Current wording

The following table shows the Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2026 and 2025 (dollars in thousands):

Previous wording

Our revenue consists primarily of license revenue, connected services revenue and revenue from professional services. License revenue primarily consists of license royalties associated with our edge software components and revenue associated with the licensing of our Intellectual Property or “IP”. Our edge software components are typically sold under a traditional per unit perpetual software license model, in which a per unit fee is charged for each software instance installed on an automotive head unit. Our contracts contain variable, fixed prepaid or fixed minimum purchase commitment components. Revenue is recognized and cash is collected for variable contracts over the license distribution period. The fixed contracts typically provide the customer with a price discount and can include the conversion of a variable contract that is already in our variable backlog. Revenue for fixed contracts is recognized when the software is made available to the customer, which has typically occurred at the time the contract is signed. Cash is typically expected to be collected for a fixed prepaid deal at the inception of the contract. Cash is expected to be collected for a fixed minimum commitment deal over the license distribution period. Going forward, we will continue to assess the levels of fixed license contracts and make adjustments, as necessary. The timing and amount of revenue recognized from IP or patent licensing depends upon a variety of factors, including the specific terms of each agreement and the nature of the deliverables and obligations. These agreements could include, without limitation, performance obligations related to consideration for past patent royalties, patent licensing royalties on covered products sold by licensees, access to a portfolio of technology as it exists at a point in time, and access to a portfolio of technology at a point in time along with promises to provide any technology updates to the portfolio during the term on a when-and-if basis. Such licenses could be fixed and non-refundable in nature and/or variable over time. Certain components of revenue recognized with respect to IP license agreements may require the use of estimates, which may be significant. Related revenue is recognized at the point in time 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.

Current wording

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 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.

Previous wording

We expect our revenue to continue to be impacted by the changing dynamics in the global automotive industry which has experienced production delays and slowdowns. Volatility in the political, legal and regulatory environment in which we operate, including trade, tariffs and related policies also has resulted in increased pricing pressure from customers and delays in program timelines. Macroeconomic conditions such as high interest rates and lack of credit availability have contributed to these production delays and slowdowns. In addition, the software and technology systems in automobiles have become increasingly complex, leading to substantial challenges and delays in production for some of our customers. Our business in adjacent markets, such as two-wheeled vehicles, trucks and AIoT, is also developing slower than anticipated due to the challenges of introducing different technology into a new market. In light of these challenges, we intend to make efforts to streamline our operations, and we continue to focus on our cost management and have taken, and expect to continue to take, cost reduction actions, which may result in additional restructuring costs. In particular, in September 2025, we announced the 2025 Plan intended to streamline certain foreign operations. In August 2024, we announced the 2024 Plan intended to reduce operating expenses and position us for profitable growth. The implementation of the 2024 Plan was substantially complete by the end of the first quarter of fiscal year 2025 and is formally concluded as of December 31, 2025. The implementation of the 2025 Plan was substantially completed during the three months ended December 31, 2025. Potential position eliminations are subject to legal requirements that vary by jurisdiction, which may extend this process beyond the first quarter of fiscal year 2026 in certain cases. The charges that we expect to incur from the implementation of the 2025 Plan are subject to a number of assumptions, including legal requirements in various jurisdictions, and actual expenses and charges may differ materially from the estimates disclosed above. For additional details, refer to the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025.

Current wording

We expect our revenue to continue to be impacted by the changing dynamics in the global automotive industry which has experienced production delays and slowdowns. Volatility in the political, legal and regulatory environment in which we operate, including trade, tariffs and related policies also has resulted in increased pricing pressure from customers and delays in program timelines. Macroeconomic conditions such as high interest rates and lack of credit availability have contributed to these production delays and slowdowns. In addition, the software and technology systems in automobiles have become increasingly complex, leading to substantial challenges and delays in production for some of our customers. Our business in adjacent markets, such as two-wheeled vehicles, trucks and AIoT, is also developing slower than anticipated due to the challenges of introducing different technology into a new market. In light of these challenges, we intend to make efforts to streamline our operations, and we continue to focus on our cost management and have taken, and expect to continue to take, cost reduction actions, which may result in additional restructuring costs. In particular, in September 2025, we announced the 2025 Plan intended to streamline certain foreign operations. In August 2024, we announced the 2024 Plan intended to reduce operating expenses and position us for profitable growth. The implementation of the 2024 Plan was substantially complete by the end of the first quarter of fiscal year 2025 and 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 second quarter of fiscal year 2026 in certain cases. The charges that we expect to incur from the implementation of the 2025 Plan are subject to a number of assumptions, including legal requirements in various jurisdictions, and actual expenses and charges may differ materially from 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.

Previous wording

Professional services revenue for the three months ended December 31, 2025 was $12.8 million, a decrease of $1.7 million, or 11.6%, from $14.5 million for the three months ended December 31, 2024. This decrease was primarily driven by the increased standardization of our software product offerings, which requires less professional services effort to implement, other efficiencies in our professional services processes and, in some cases, customers opting to perform these activities internally. As a percentage of total revenues, professional services revenue decreased by 17.3 percentage points from 28.4% for the three months ended December 31, 2024 to 11.1% for the three months ended December 31, 2025.

Current wording

Professional services revenue for the three months ended March 31, 2026 was $11.3 million, a decrease of $2.6 million, or 18.7%, from $13.9 million for the three months ended March 31, 2025. This decrease was primarily driven by the increased standardization of our software product offerings, which requires less professional services effort to implement, other efficiencies in our professional services processes and, in some cases, customers opting to perform these activities internally. As a percentage of total revenues, professional services revenue decreased by 0.2 percentage points from 17.8% for the three months ended March 31, 2025 to 17.6% for the three months ended March 31, 2026.

Previous wording

Total revenues for the three months ended December 31, 2025 were $115.1 million, an increase of $64.2 million, or 126.1%, from $50.9 million for the three months ended December 31, 2024. The increase in revenue was primarily driven by our IP license agreement with Samsung, resulting in $49.5 million of one-time revenue. Additional increases in revenue were attributable to higher volume of both license volumes and connected services, and an increase of $7.8 million of fixed contracts.

Current wording

Total revenues for the six months ended March 31, 2026 were $179.3 million, an increase of $50.4 million, or 39.1%, from $128.9 million for the six months ended March 31, 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.

Previous wording

License revenue for the three months ended December 31, 2025 was $87.8 million, an increase of $65.0 million, or 286.2%, from $22.7 million for the three months ended December 31, 2024. The increase in revenue was primarily driven by our IP license agreement with Samsung, resulting in $49.5 million of one-time revenue, recognized in accordance with ASC 606. The additional increase in license revenue was primarily driven by a $7.8 million increase in fixed contracts and a $7.8 million increase in variable license revenue due to higher volume of licensing royalties. As a percentage of total revenues, license revenue increased 31.6 percentage points from 44.6% for the three months ended December 31, 2024 to 76.3% for the three months ended December 31, 2025.

Current wording

License revenue for the six months ended March 31, 2026 was $125.3 million, an increase of $51.2 million, or 68.9%, from $74.2 million for the six months ended March 31, 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 $9.6 million increase associated with variable contract revenue attributable to higher reported volumes, partially offset by a $8.0 million decrease in fixed license contracts as the timing of fixed license contracts between quarters differs year over year. As a percentage of total revenues, license revenue increased 12.4 percentage points from 57.5% for the six months ended March 31, 2025 to 69.9% for the six months ended March 31, 2026.

Previous wording

Total cost of revenues for the three months ended December 31, 2025 were $15.7 million, a decrease of $2.1 million, or 11.8%, from $17.8 million for the three months ended December 31, 2024.

Current wording

Total cost of revenues for the three months ended March 31, 2026 were $16.9 million, a decrease of $0.9 million, or 5.2%, from $17.8 million for the three months ended March 31, 2025.

Previous wording

Cost of license revenue for the three months ended December 31, 2025 was $1.3 million, a decrease of $0.5 million, or 25.8%, from $1.8 million for the three months ended December 31, 2024. Cost of license revenues decreased due to lower hardware costs attributable to decreased volume of our Cerence Link product revenue. As a percentage of total cost of revenues, cost of license revenue decreased by 1.6 percentage points from 10.0% for the three months ended December 31, 2024 to 8.4% for the three months ended December 31, 2025.

Current wording

Cost of license revenue for the three months ended March 31, 2026 was $1.6 million, a decrease of $0.8 million, or 34.0%, from $2.4 million for the three months ended March 31, 2025. Cost of license revenues decreased due to lower hardware costs attributable to decreased volume of our Cerence Link product revenue. As a percentage of total cost of revenues, cost of license revenue decreased by 4.1 percentage points from 13.6% for the three months ended March 31, 2025 to 9.5% for the three months ended March 31, 2026.

Previous wording

License gross profit increased by $65.5 million, or 312.7%, for the three months ended December 31, 2025 when compared to the three months ended December 31, 2024, primarily driven by the Samsung patent license revenue.

Current wording

License gross profit decreased by $13.1 million, or 26.6%, for the three months ended March 31, 2026 when compared to the three months ended March 31, 2025, primarily driven by a decrease in fixed license revenue of $15.7 million, offset by an increase in variable license revenue of $1.9 million.

Previous wording

Connected services gross profit increased $2.2 million, or 30.1%, from $7.4 million for the three months ended December 31, 2024 to $9.6 million for the three months ended December 31, 2025, primarily due to higher reported volumes resulting in increased revenue, and lower overall costs associated with the delivery of connected services.

Current wording

Connected services gross profit increased $2.6 million, or 33.9%, from $7.7 million for the three months ended March 31, 2025 to $10.3 million for the three months ended March 31, 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.

Previous wording

Professional services gross profit decreased $1.4 million, or 30.4%, from $4.7 million for the three months ended December 31, 2024 to $3.3 million for the three months ended December 31, 2025, which was primarily due to a decrease in related revenues.

Current wording

Professional services gross profit decreased $2.4 million, or 69.6%, from $3.5 million for the three months ended March 31, 2025 to $1.1 million for the three months ended March 31, 2026, which was primarily due to a decrease in related revenues.

Previous wording

We experienced an increase in total gross profit of $66.3 million, or 200.4%, from $33.1 million for the three months ended December 31, 2024 to $99.4 million for the three months ended December 31, 2025. The increase was primarily driven by the Samsung patent license revenue.

Current wording

We experienced an increase in total gross profit of $53.4 million, or 57.3%, from $93.3 million for the six months ended March 31, 2025 to $146.6 million for the six months ended March 31, 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.

Previous wording

Historically, R&D expenses are our largest operating expense as we continue to build on our existing software platforms and develop new technologies. R&D expenses for the three months ended December 31, 2025 were $24.7 million, an increase of $3.8 million, or 18.4%, from $20.9 million for the three months ended December 31, 2024. The increase was primarily attributable to $2.1 million of international tax credit catch-ups recorded in three months ended December 31, 2024 which did not recur in three months ended December 31, 2025, a $0.9 million increase in employee compensation costs, a $0.4 million increase in third-party contractor costs, and a $0.4 million increase in depreciation and amortization related to facilities and equipment required to support our AI infrastructure. As a percentage of total operating expenses, R&D expenses decreased by 6.5 percentage points from 41.7% for the three months ended December 31, 2024 to 35.3% for the three months ended December 31, 2025.

Current wording

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 March 31, 2026 were $30.3 million, an increase of $7.0 million, or 29.9%, from $23.3 million for the three months ended March 31, 2025. The increase was primarily attributable to $2.1 million of international tax credit catch-ups recorded in three months ended March 31, 2025 which did not recur in the three months ended March 31, 2026, a $2.2 million increase in personnel related costs, a $1.7 million increase due to lower capitalization of internal-use software development costs, and a $0.8 million increase in amortization of capitalized internal-use software recently placed in service. As a percentage of total operating expenses, R&D expenses increased by 6.4 percentage points from 54.5% for the three months ended March 31, 2025 to 60.9% for the three months ended March 31, 2026.

Previous wording

Sales and marketing expenses for the three months ended December 31, 2025 were $5.6 million, an increase of $0.8 million, or 16.6%, from $4.8 million for the three months ended December 31, 2024. This increase was primarily driven by stock-based compensation expense of $0.3 million and other employee compensation costs of $0.3 million. As a percentage of total operating expenses, sales and marketing expenses decreased by 1.6 percentage points from 9.5% for the three months ended December 31, 2024 to 7.9% for the three months ended December 31, 2025.

Current wording

Sales and marketing expenses for the three months ended March 31, 2026 were $6.5 million, an increase of $1.6 million, or 32.2%, from $4.9 million for the three months ended March 31, 2025. This increase was primarily driven by increased employee compensation costs of $1.1 million and a $0.5 million increase in marketing costs associated primarily with trade shows. As a percentage of total operating expenses, sales and marketing expenses increased by 1.6 percentage points from 11.5% for the three months ended March 31, 2025 to 13.1% for the three months ended March 31, 2026.

Previous wording

General and administrative expenses for the three months ended December 31, 2025 were $32.0 million, an increase of $19.2 million, or 150.8%, from $12.8 million for the three months ended December 31, 2024. The increase in general and administrative expenses was primarily attributable to a $20.8 million increase in legal professional services driven by costs related to the Samsung IP license agreement. As a percentage of total operating expenses, general and administrative expenses increased by 20.2 percentage points from 25.5% for the three months ended December 31, 2024 to 45.7% for the three months ended December 31, 2025.

Current wording

General and administrative expenses for the six months ended March 31, 2026 were $44.8 million, an increase of $20.8 million, or 87.0%, from $24.0 million for the six months ended March 31, 2025. The increase in general and administrative expenses was primarily attributable to a $20.8 million increase in legal professional services driven by costs related to the Samsung IP license agreement, $2.0 million driven by other increased legal expenses as we continue our efforts to protect, enforce, and license our intellectual property portfolio. These increases were partially offset by lower depreciation of $0.7 million due to one-time acceleration of depreciation for facilities closures recognized during the six months ended March 31, 2025 which did not recur, lower insurance and other infrastructure costs of $0.6 million, and lower personnel related costs of $0.6 million. As a percentage of total operating expenses, general and administrative expenses increased by 11.6 percentage points from 25.8% for the six months ended March 31, 2025 to 37.4% for the six months ended March 31, 2026.

Previous wording

Amortization expense for acquired technology and patents is included in the cost of revenues in the accompanying Condensed Consolidated Statements of Operations. Acquired technology and patents were fully amortized as of December 31, 2024. Amortization expense for customer relationships is included in operating expenses in the accompanying Condensed Consolidated Statements of Operations. Customer relationships were fully amortized as of June 30, 2025.

Current wording

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.

Previous wording

As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses decreased by 1.1 percentage points from 1.1% for the three months ended December 31, 2024 as compared to zero percent for the three months ended December 31, 2025.

Current wording

As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses decreased by 1.3 percentage points from 1.3% for the three months ended March 31, 2025, as compared to zero percent for the three months ended March 31, 2026.

Previous wording

As a percentage of total operating expenses, restructuring and other costs, net decreased by 11.0 percentage points from 22.1% for the three months ended December 31, 2024 to 11.1% for the three months ended December 31, 2025.

Current wording

As a percentage of total operating expenses, restructuring and other costs, net decreased by 6.4 percentage points from 6.6% for the three months ended March 31, 2025 to 0.3% for the three months ended March 31, 2026.

Previous wording

For the three months ended December 31, 2025, we recorded restructuring and other costs, net of $7.8 million, which included a $7.5 million charge related to the elimination of personnel, a $0.3 million charge resulting from the closure of facilities that will no longer be utilized, and $0.1 million relating to our transformation initiatives and other one-time charges.

Current wording

For the six months ended March 31, 2026, we recorded restructuring and other costs, net of $7.9 million, which included a $7.6 million charge related to the elimination of personnel, a $0.3 million charge resulting from the closure of facilities that will no longer be utilized, and a $0.1 million charge relating to our transformation initiatives and other one-time charges.

Previous wording

For the three months ended December 31, 2024, we recorded restructuring and other costs, net of $11.1 million, which included a $10.2 million charge related to the elimination of personnel, of which $3.0 million related to the stock-based compensation expense related to the termination of our former senior management employees, and a $0.9 million charge relating to our transformation initiatives.

Current wording

For the six months ended March 31, 2025, we recorded restructuring and other costs, net of $13.9 million, which included a $12.0 million charge related to the elimination of personnel, of which $3.0 million related to the stock-based compensation expense related to the termination of our former senior management employees, and a $1.9 million charge relating to our transformation initiatives.

Previous wording

Total other income (expense), net for the three months ended December 31, 2025 was income of $0.8 million, a change of $2.4 million from $1.7 million of expense for the three months ended December 31, 2024. The decrease in interest income was primarily attributable to lower balances of marketable securities and a generally lower interest rate environment when compared to the three months ended December 31, 2024. The decrease in interest expense was primarily attributable to a lower applicable interest rate on our Notes and a lower overall principal balance outstanding. The change in Other income, net was driven primarily by the gain on debt repurchase of the Notes. For further information, see “Liquidity and Capital Resources” below.

Current wording

Total other income (expense), net for the six months ended March 31, 2026 was income of $0.2 million, a change of $3.2 million from $3.0 million of expense for the six months ended March 31, 2025. The decrease in interest income was primarily attributable to a lower balance of cash, cash equivalents and marketable securities, and a lower interest rate environment when compared to the six months ended March 31, 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 increase in other income, net was driven primarily by the gain on debt repurchase of the Notes during the six months ended March 31, 2026. For further information, see “Liquidity and Capital Resources” below.

Previous wording

Our effective income tax rate for the three months ended December 31, 2025 was positive 117.4%, compared to negative 30.5% for the three months ended December 31, 2024. Our provision for income taxes for the three months ended December 31, 2025 was $35.3 million, a net change of $29.6 million from a provision for income taxes of $5.7 million for the three months ended December 31, 2024. This difference was attributable to the tax impacts of foreign valuation allowances, stock-based compensation, research credits, and our composition of jurisdictional earnings.

Current wording

Our effective income tax rate for the six months ended March 31, 2026 was 113.2%, compared to negative 2.7% for the six months ended March 31, 2025. Our provision for income taxes for the six months ended March 31, 2026 was $30.6 million, a net change of $30.6 million from a provision for income taxes of $0.1 million for the six months ended March 31, 2025. This difference was attributable to the tax impacts of valuation allowances, stock-based compensation, research credits, and our composition of jurisdictional earnings.

Previous wording

As of December 31, 2025, we had $94.7 million in cash, cash equivalents, and marketable securities. Cash equivalents include highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. Marketable securities include corporate bonds and government securities.

Current wording

As of March 31, 2026, we had $108.3 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.

Previous wording

Our principal sources of liquidity are our cash, cash equivalents, and marketable securities, as well as the cash flows we generate from our operations. The primary uses of cash include costs of revenues, funding of R&D activities, capital expenditures and debt obligations.

Current wording

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.

Previous wording

Our ability to fund future operating needs will depend on our ability to generate positive cash flows from operations and access additional funding in the capital and debt markets as needed. Based on our expectations to generate positive cash flows and the $94.7 million of cash, cash equivalents, and marketable securities as of December 31, 2025, we believe that we will be able to meet our liquidity needs over the next 12 months.

Current wording

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 $108.3 million of cash and cash equivalents as of March 31, 2026, we believe that we will be able to meet our liquidity needs over the next 12 months.

Previous wording

During the three months ended December 31, 2025, we repurchased $30.0 million aggregate principal amount of our 2028 Notes for $28.0 million in cash, including accrued interest and fees, via privately negotiated transactions with certain holders. The repurchased notes were subsequently cancelled and retired, resulting in a gain on extinguishment of debt of $1.1 million.

Current wording

During the six months ended March 31, 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.

Previous wording

As a result, $87.5 million of the 2028 Notes are considered a modification of the 2025 Notes and are included in the balances of the 2025 Notes (the “2025 Modified Notes” and together with the 2028 Notes, the “Notes”). We recorded $14.3 million of fees paid directly to the lenders as deferred debt issuance costs, and $3.8 million of fees paid to third-parties were expensed in the period. As of December 31, 2025, the carrying amount of the 2025 Modified Notes was $68.0 million, net of unamortized costs of $7.0 million.

Current wording

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 March 31, 2026, the carrying amount of the 2025 Modified Notes was $68.6 million, net of unamortized costs of $6.4 million.

Previous wording

We accounted for $122.5 million of the 2028 Notes, that were not negotiated with the investors of the 2025 Notes, as a single liability. We incurred transaction costs of $2.4 million relating to the issuance of the 2028 Notes, which were recorded as a direct deduction from the face amount of the 2028 Notes and are being amortized as interest expense over the term of the 2028 Notes using the interest method. As of December 31, 2025, the carrying amount of the 2028 Notes was $104.0 million and had unamortized issuance costs of $1.0 million. As of December 31, 2025, the 2028 Notes were not convertible. As of December 31, 2025 and September 30, 2025, the if-converted value of the 2028 Notes was $77.4 million and $85.0 million, respectively, less than its principal amount.

Current wording

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 March 31, 2026, the carrying amount of the 2028 Notes was $104.1 million and had unamortized issuance costs of $1.0 million. As of March 31, 2026, the 2028 Notes were not convertible. As of March 31, 2026 and September 30, 2025, the if-converted value of the 2028 Notes was $88.7 million and $85.0 million, respectively, less than its principal amount.

Previous wording

The interest expense recognized related to the Notes for the three months ended December 31, 2025 and 2024 was as follows (dollars in thousands):

Current wording

The interest expense recognized related to the Notes for the three and six months ended March 31, 2026 and 2025 was as follows (dollars in thousands):

Previous wording

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.

Current wording

On June 12, 2020 (the “Financing Closing Date”), we entered into a Credit Agreement, by and among the Borrower, the lenders and issuing banks party thereto and Wells Fargo Bank, N.A., as administrative agent (the “Credit 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.

Previous wording

Total interest expense relating to the Senior Credit Facilities for the three months ended December 31, 2025 and 2024 was none and $0.4 million, respectively. Amounts reflect the coupon and accretion of the discount.

Current wording

Total interest expense relating to the Senior Credit Facilities was none and $0.4 million for the six months ended March 31, 2026 and 2025, respectively. There was no interest expense incurred relating to the Senior Credit Facilities during the three months ended March 31, 2026 and 2025. Amounts reflect the coupon and accretion of the discount.

Previous wording

Cash flows from operating, investing and financing activities for the three months ended December 31, 2025 and 2025, as reflected in the unaudited Condensed Consolidated Statements of Cash Flows included in Item 1 of this Form 10-Q, are summarized in the following table (dollars in thousands):

Current wording

Cash flows from operating, investing and financing activities for the six months ended March 31, 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):

Previous wording

Net cash provided by operating activities for the three months ended December 31, 2025 was $37.9 million, a net change of $28.6 million, or 309.5%, from net cash provided by operating activities of $9.3 million for the three months ended December 31, 2024. The change in cash flows were primarily due to:

Current wording

Net cash provided by operating activities for the six months ended March 31, 2026 was $52.0 million, a net change of $27.3 million, or 110.4%, from net cash provided by operating activities of $24.7 million for the six months ended March 31, 2025. The change in cash flows was primarily due to:

Previous wording

•An increase of $30.2 million from income before non-cash charges primarily driven by the net impact of the lump sum payment, net of taxes, received from Samsung and related legal expenses;

Current wording

•An increase of $16.0 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;

Previous wording

•A increase of $1.9 million due to favorable changes in working capital primarily related to accrued expenses and other liabilities, accounts receivable, prepaid expenses and other assets; and

Current wording

•An increase of $12.1 million due to favorable changes in working capital primarily related to accrued expenses and other liabilities, accounts receivable, prepaid expenses and other assets; and