−Removed: Cerence builds automotive cognitive assistance solutions to power natural and intuitive interactions between automobiles, drivers and passengers, and the broader digital world.
+Added: Cerence builds AI powered virtual assistants for the mobility/transportation market.
+Added: 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.
+Added: Our solutions power natural conversational and intuitive interactions between vehicles, drivers and passengers, and the broader digital world.
We are a premier provider of AI-powered assistants and innovations for connected and autonomous vehicles, including one of the world’s most popular software platforms for building automotive virtual assistants, such as “ Hey BMW ” and “ Ni hao Banma ”.
Our customers include all major automobile original equipment manufacturers, or OEMs, or their tier 1 suppliers worldwide, including BMW, Daimler, FCA Group, Ford, Geely, GM, Renault-Nissan, SAIC, Toyota, Volkswagen Group, Aptiv, Bosch, Continental, DENSO TEN and Harman.
−Removed: 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.
+Added: 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 their brands and end users.
Our vision is to enable a more enjoyable, safer journey for everyone.
−Removed: Our platform utilizes industry-leading speech recognition, natural language understanding, speech signal enhancement and acoustic modeling technology.
−Removed: Automotive virtual assistants built with our platform can enable a wide variety of modes of human-vehicle interaction, including speech, touch, handwriting, gaze tracking and gesture recognition, and can support the integration of third-party virtual assistants into the in-vehicle experience.
−Removed: The market for automotive cognitive assistance is rapidly expanding.
−Removed: The proliferation of smartphones and smart speakers has encouraged consumers to rely on a growing number of virtual assistants and special-purpose bots for various tasks such as controlling entertainment systems and checking the news.
−Removed: Automobile drivers and passengers increasingly expect hands-free access to virtual assistants as part of the mobility experience, with common use cases in a variety of categories including mobility domains such as navigation, voice-activated texts, and telephone communication, automobile domains, such as automobile user guides, and ignition on-off, and generic domains, such as entertainment.
−Removed: To meet the increasing demand for automotive cognitive assistance and to offer differentiated mobility experiences, OEMs and suppliers are building proprietary virtual assistants into an increasing proportion of their vehicles.
−Removed: We believe that this trend will continue and that consumer appetite for automotive cognitive assistance will grow further as vehicles become more autonomous and drivers pursue new forms of human-vehicle engagement previously not feasible during vehicle operation.
+Added: Our platform utilizes industry-leading speech recognition, natural language understanding, speech signal enhancement, text-to-speech, and acoustic modeling technology to provide a conversational AI-based solution.
+Added: Virtual assistants built with our platform can enable a wide variety of modes of human-vehicle interaction, including speech, touch, handwriting, gaze tracking and gesture recognition, and can support the integration of third-party virtual assistants into the in-vehicle experience.
Our software platform is a market leader for building integrated, branded and differentiated virtual assistants for automobiles.
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We implement our software platform for our customers through our professional services organization, which works with OEMs and suppliers to optimize our software for the requirements, configurations and acoustic characteristics of specific vehicle models.
+Added: The market for automotive cognitive assistance is rapidly expanding.
+Added: The proliferation of smartphones and smart speakers has encouraged consumers to rely on a growing number of virtual assistants and special-purpose bots for various tasks such as controlling entertainment systems and checking the news.
+Added: Automobile drivers and passengers increasingly expect hands-free access to virtual assistants as part of the mobility experience, with common use cases in a variety of categories including mobility domains such as navigation, voice-activated texts, and telephone communication, automobile domains, such as automobile user guides, and ignition on-off, and generic domains, such as entertainment.
+Added: To meet the increasing demand for automotive cognitive assistance and to offer differentiated mobility experiences, OEMs and suppliers are building proprietary virtual assistants into an increasing proportion of their vehicles.
+Added: We believe that this trend will continue and that consumer appetite for automotive cognitive assistance will grow further as vehicles become more autonomous and drivers pursue new forms of human-vehicle engagement previously not feasible during vehicle operation.
We generate revenue primarily by selling software licenses and cloud-connected services.
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We have master agreements or similar commercial arrangements in place with many of our customers, supporting customer retention over the long term.
−Removed: Our fixed backlog includes $353.3 million of future revenue related to remaining performance obligations and $55.6 million of contractual commitments which have not yet been invoiced, was $408.9 million as of September 30, 2019.
−Removed: Our variable backlog includes estimated future revenue from variable forecasted royalties related to our embedded and connected businesses, was $955.7 million as of September 30, 2019.
+Added: As of September 30, 2020, we had fixed backlog of $387.5 million, which includes $325.1 million of estimated future revenue related to remaining performance obligations and $62.4 million of contractual commitments which have not yet been invoiced.
+Added: As of September 30, 2020, we had variable backlog of $1.42 billion, which includes estimated future revenue from variable forecasted royalties related to our embedded and connected businesses.
Our estimation of forecasted royalties is based on our royalty rates for embedded and connected technologies from expected car shipments under our existing contracts over the term of the programs.
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The revenue we actually recognize is subject to several factors, including the number and timing of vehicles our customers ship, potential terminations or changes in scope of customer contracts, and currency fluctuations.
−Removed: As of September 30, 2019, we estimate that our adjusted backlog includes $408.9 million of fixed backlog and $955.7 million of variable backlog, was approximately $1.36 billion, with approximately 50% of revenue expected to be recognized over the next three years.
+Added: As of September 30, 2020, we estimate our total backlog to be $1.81 billion, including $387.5 million of fixed backlog and $1.42 billion of variable backlog.
Our solutions have been installed in more than 3 25 million automobiles to date, including over 3 8 million new vehicles in fiscal 20 20 alone.
−Removed: Based on royalty reports provided by our customers and third-party reports of total vehicles shipped worldwide, we estimate that approximately 52 % of all shipped cars during the fiscal year ended September 30, 2019 included Cerence technologies, co mpared to approximately 48% for the fiscal year ended September 30, 2018.
+Added: Based on royalty reports provided by our customers and third-party reports of total vehicle production worldwide, we estimate that approximately 5 3 % of all shipped cars during the fiscal year ended September 30, 20 20 included Cerence technologies .
Cerence hybrid solutions shipped on approximately 7 .
−Removed: 8 million vehicles during the fiscal year ended September 30, 2019, an increase of approximately 37 % compared to approximately 5.7 million vehicles for the fiscal year ended September 30, 2018 .
+Added: 4 million v ehicles during the fiscal year ended September 30, 20 20 .
In aggregate, over 6 5 automobile brands worldwide use our solutions, covering over 70 languages and dialects, including English, German, Spanish, French, Mandarin, Cantonese and Shanghainese.
In fiscal 2020, we generated revenue of $329.6 million, an increase of 8.7% compared to $303.3 million for the fiscal year ended September 30, 2019.
−Removed: We recorded net income of $100.3 million for the fiscal year ended September 30, 2019, an increase of 1604.9% compared to $5.9 million for the fiscal year ended September 30.
−Removed: For each of the periods presented, our business was wholly-owned by Nuance Communications, Inc.
−Removed: The financial information included herein may not necessarily reflect our results of operations in the future or what our results of operations would have been had we been an independent, publicly traded company during the periods presented.
+Added: We recorded a net loss of $20.6 million for the fiscal year ended September 30, 2020, a decrease of 120.6% compared to net income of $100.3 million recorded for the fiscal year ended September 30.
+Added: For fiscal years 2019 and 2018, our business was wholly-owned by Nuance Communications, Inc., (“Nuance”), and our results for those fiscal years may not reflect what our results would have been had we been an independent, publicly traded company during those fiscal years.
+Added: In addition, the financial information included herein may not necessarily reflect our results of operations in the future.
History and Corporate Information
−Removed: On October 1, 2019, or the Distribution Date, Nuance, a leading provider of speech and language solutions for businesses and consumers around the world, completed the legal and structural separation and distribution to its stockholders of all of the outstanding shares of our common stock, and its consolidated subsidiaries, in a tax free spin-off (which we refer to as the Spin-Off).
+Added: On October 1, 2019 (which we refer to as the “Distribution Date”), Nuance, a leading provider of speech and language solutions for businesses and consumers around the world, completed the legal and structural separation and distribution to its stockholders of all of the outstanding shares of our common stock, and its consolidated subsidiaries, in a tax free spin-off (which we refer to as the Spin-Off).
The distribution was made in the amount of one share of our common stock for every eight shares of Nuance common stock (which we refer to as the “Distribution”) owned by Nuance’s stockholders as of 5:00 p.m.
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Our Capabilities
−Removed: Our mission is to empower the automotive ecosystem with digital platform solutions for connected and autonomous vehicles.
−Removed: We deliver automotive cognitive assistance solutions that are natural and intuitive and that enable OEMs to strengthen the emotional connection with their end users through a distinct, consistent, branded experience.
+Added: Our mission is to empower the transportation ecosystem with digital platform solutions for connected and autonomous vehicles.
+Added: We deliver automotive cognitive assistance solutions that are conversational and intuitive and that enable OEMs to strengthen the emotional connection with their end users through a distinct, consistent, branded experience.
+Added: We continue to extend these solutions to two-wheel vehicles and tractors and other transportation means.
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, including navigation, control, media, communication, information and tools.
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Depending on the complexity of the request and other factors, engagement may consist of multiple rapid voice interactions with the user and may combine assistance in multiple domains.
−Removed: Our software platform has a hybrid architecture combining edge software components, which are embedded in a vehicle’s head unit and integrated with onboard systems, with cloud-connected components, which access data and content on external networks and support over-the-air updates.
+Added: Our software platform offers a hybrid architecture combining edge software components, which are embedded in a vehicle’s head unit and integrated with onboard systems, with cloud-connected components, which access data and content on external networks and support over-the-air updates.
This hybrid architecture enables our software platform to combine the performance, reliability, efficiency, security and tight vehicular integration of embedded software with the flexibility that cloud connectivity provides.
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Our software platform includes a common programming framework including toolkits and applications for its edge and cloud-connected components, and our customers can choose the software components that are necessary to power the experiences that they want to build and offer.
−Removed: Cerence Platform Framework - Hybrid Architecture
+Added: Cerence Platform F ramework - Hybrid Architecture
We deliver our software platform through our professional services organization, which works with OEMs and suppliers to tailor it to the desired requirements, configurations and acoustic characteristics of specific vehicle models.
−Removed: For an initial implementation, our professional services engagements typically begin with the porting of our key technologies to the customer’s specific hardware platform and the development of specific dialogues and grammar libraries.
+Added: For an initial implementation, our professional services engagements typically begin with the porting of our key technologies to the customer’s specific hardware and software platforms and the development of specific dialogues and grammar libraries.
Our professional services teams also work with OEMs on acoustic optimization of a system and application of our audio signal processing technologies.
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We tailor our edge software components to a customer’s desired use cases and a vehicle model’s unique systems, sensors and data interfaces.
−Removed: Capabilities of our edge software components include automatic speech recognition, natural language understanding, noise cancellation, driver and passenger voice isolation, voice biometrics, wake-up word and text-to-speech synthesis, as well as certain non-speech technologies such as touch and text input.
+Added: Capabilities of our edge software components include automatic speech recognition, natural language understanding, noise cancellation, driver and passenger voice isolation, voice biometrics, wake-up word and text-to-speech synthesis, as well as certain non-speech technologies such as gaze, gesture and touch input.
+Added: Our software can support more than 70 languages.
Edge deployment suits these technologies as it provides the following functionality and benefits:
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The use of wake-up words like “ Hey BMW ” and “ Ni hao Banma ” require constant listening and signal processing to identify instances when a virtual assistant should activate and respond.
−Removed: Sending a constant stream of audio from the car interior to the cloud for processing would require enormous amounts of bandwidth and potentially create privacy concerns.
−Removed: The same requirements apply to our new JustTalk technology, which constantly listens to spoken conversation, determines speaker intent, and invokes assistance appropriately without requiring a specific invocation phrase.
+Added: The same requirements apply to our new JustTalk technology, which constantly listens to spoken conversation, determines speaker intent, and invokes assistance appropriately without requiring a specific invocation phase.
+Added: The alternative of sending a constant stream of audio from the car interior to the cloud for processing would require enormous amounts of bandwidth and potentially create privacy concerns.
We typically sell our edge software components 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.
−Removed: Our customers generally provide estimates of the units to be shipped for a particular program, and we review third-party market studies and work with our customers to refine and understand these projections.
−Removed: While these projections provide us with some reasonable visibility into future revenue, the number of units to be shipped for a particular program is not committed upfront.
+Added: Our customers generally provide estimates of the units to be shipped for a particular program, and we review third-party market studies and work with our customers to refine and
+Added: understand these projections.
+Added: While these projections provide us with some reasonable visibility into future revenue, the number of units to be shipped for a part icular program is not committed upfront.
Cloud-Connected Components
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Our cloud-connected speech-related technologies perform many of the same tasks as our speech-related edge components while offering enhanced functionality through increased computational power and access to external content.
−Removed: Our principal content platform offering is Content Services, a data aggregation system which supports access to a wide range of live information such as news, traffic and weather.
Cloud-connected components also support the replication of personalized settings such as voice profiles and preferences across multiple vehicles.
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At the same time, drivers and passengers often prefer to use familiar Internet-based virtual assistants for more general domains such as entertainment.
−Removed: To enable our customers to provide a consistent automotive cognitive assistance experience across multiple coexisting virtual assistants, our software platform can support the integration of third-party virtual assistants, providing a uniform interface for virtual assistant engagement.
+Added: To enable drivers and passengers to extend their digital life from outside the vehicle to inside the vehicle, our software platform can support the integration of third-party virtual assistants, providing a uniform interface for virtual assistant engagement.
We have invested in our platform to develop the technology and capabilities necessary to integrate third party virtual assistants with vehicles’ systems.
−Removed: To make integration as seamless as possible, we have built cognitive arbitration technology that is capable of inferring user intent, determining which within a set of virtual assistants would be best suited to address a request, and sending the request to the selected assistant.
+Added: To make integration as seamless as possible, we have built cognitive arbitration technology that is capable of inferring user intent, determining which within a set of virtual assistants would be best suited to address a request, and sending the request to the selected assistant thus enabling users to extend their digital life into the automobile.
Depending on a system’s configuration and the virtual assistants to which it is connected, output can be presented back to the user through a vehicle-specific personality or through the virtual assistant’s own interface.
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Our professional services team is globally distributed to serve our customers in their primary design and production jurisdictions.
−Removed: We typically charge manufacturers for our design and consulting work, although we have recently observed an industry shift towards connected services solutions and have changed our pricing strategy, both of which have moved fees from the professional services portion of our business to the license and connected services portion of our business.
−Removed: Our professional services contracts are primarily project-based, in line with customary non-recurring engineering industry practices.
+Added: We typically charge manufacturers for our design and consulting work, which are primarily project-based, in line with customary non-recurring engineering industry practices.
Our Competitive Strengths
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Nevertheless, they are often frustrated with speech recognition solutions that misunderstand spoken language or require users to speak rigid, pre-defined commands associated with a limited set of functions.
−Removed: Developing speech-based automotive virtual assistants that users will perceive as natural is challenging as a matter of artificial intelligence technology, acoustic engineering and user interface design.
+Added: Developing conversation-based automotive virtual assistants that users will perceive as natural is challenging as a matter of artificial intelligence technology, acoustic engineering and user interface design.
We believe our software platform, as tailored for a specific vehicle model by our professional services organization, represents one of the most technologically advanced and highest-performing human-vehicle speech interaction systems available today.
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Virtual assistants from large technology companies have become popular with consumers.
−Removed: We believe that consumers want to use these assistants while traveling in their vehicles and that a comprehensive automotive cognitive assistance system requires the coexistence of multiple virtual assistants.
+Added: We believe that consumers want to extend the use of these assistants while traveling in their vehicles and that a comprehensive automotive cognitive assistance system requires the coexistence of multiple virtual assistants.
To accommodate their end user preferences while still providing a unique and brand-specific experience, OEMs seek to offer a common in-vehicle interface with seamless integration across various virtual assistants.
−Removed: To this end, our software platform can support the integration of multiple third-party virtual assistants and provide a uniform interface for virtual assistant engagement.
+Added: To this end, our software platform can support the coexistence of multiple third-party virtual assistants and provide a uniform interface for virtual assistant engagement.
Our market-leading position, our focus on the automotive market and the large size of our installed base create incentives for third party virtual assistant providers to work with us and support this integration.
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We believe that our portfolio of languages and multi-lingual capabilities represent an important competitive advantage, as the development of capabilities to support a new language is expensive and time-consuming.
−Removed: Broad, global network of deep relationships with OEMs and tier 1 suppliers.
−Removed: We have supplied speech recognition systems to OEMs and suppliers for over 20 years, working closely with our customers through our global professional services organization to design and integrate our solutions into their brands .
+Added: Broad, global network of deep relat ionships with OEMs and tier 1 suppliers.
+Added: We have supplied speech recognition systems to OEMs and suppliers for over 20 years, working closely with our customers through our global professional services organization to design and integrate our solutions int o their brands.
Today, we work with all major OEMs or their tier 1 suppliers worldwide, leveraging the geographic breadth and industry experience of our professional services teams.
−Removed: Our long history in the automotive industry and the global reach and experience of our o ver 450 professional services employees across 10 countries gives us credibility with OEMs as we seek new business with OEMs, either directly or through their tier 1 suppliers.
−Removed: We believe that OEMs who sell globally will value our experience in servicing a nd deploying solutions on a global basis.
+Added: Our long history in the automotive industry and the global reach and exper ience of our over 4 0 0 professional services employees across 1 2 countries gives us credibility with OEMs as we seek new business with OEMs, either directly or through their tier 1 suppliers.
+Added: We believe that OEMs who sell globally will value our experience in servicing and deploying solutions on a global basis.
We often have master agreements or similar commercial arrangements with our customers.
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We believe our growth opportunity has three key facets:
−Removed: the penetration of our offerings and key enabling technologies throughout the vehicle market;
−Removed: the revenue we are able to capture per vehicle;
−Removed: and our market share relative to competitors.
+Added: continued investment in expending our core technology, development of new applications that extend our core technology into innovative applications, and expansion of our target market beyond automobiles.
+Added: Successful execution of these key objectives could lead to the greater penetration of our offerings and key enabling technologies throughout our target markets, resulting in an increase in the revenue we are able to capture per vehicle and expansion of our market share relative to competitors.
Our primary strategies for pursuing our growth include the following:
Maintain and extend product leadership .
−Removed: We intend to continue investing in developing our product functionality and expanding the breadth of categories and domains our software platform is able to address, particularly with a view toward maintaining our market share in edge software components and growing our share in cloud-connected software functionalities.
+Added: We intend to continue investing in developing our core product functionality and expanding the breadth of categories and domains our software platform is able to address, particularly with a view toward maintaining our market share in edge software components and growing our share in cloud-connected software functionalities.
Our existing relationship with, and our proximity in the design process to, OEMs provides us with insight into the needs of the end-users and roadmaps for innovation.
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We also believe that complete automotive cognitive assistance requires the coexistence of multiple virtual assistants.
−Removed: We intend to continue to invest to develop our software platform’s interoperability with third-party virtual assistants and its cognitive arbitration capabilities to maintain its position as a neutral automotive cognitive assistance platform.
−Removed: We believe a neutral automotive cognitive assistance platform will increasingly be valued by OEMs that prioritize maintaining their unique and branded in-car experience and the ability to control the mobility experience overall.
−Removed: Increase penetration in key geographic markets, including China .
−Removed: We operate worldwide today, including in emerging markets.
−Removed: However, our presence in certain large geographic automobile markets, such as India and Southeast Asia, is relatively small today primarily as a result of lower penetration of automobile cognitive assistance in those markets.
−Removed: We specifically developed localized language support in emerging markets such as Indonesia and Thailand in fiscal year 2018 and made investments in India in fiscal 2019.
−Removed: As these markets grow, we intend to continue to invest in manufacturer relationships and the development of localized technology to maintain and expand our local market share.
−Removed: We currently serve the Chinese market through a combination of domestic OEMs and suppliers, such as Geely, Proton, Roewe, SAIC, and Banma Network Technology, and global non-Chinese manufacturers and suppliers who sell into the Chinese market, such as Audi, BMW, Daimler, Aptiv and Harman.
−Removed: We offer cognitive assistance in all the primary Chinese languages and dialects, including Mandarin, Cantonese and Shanghainese.
−Removed: Our current presence in China includes approximately 240 R&D, professional services, and sales and marketing professionals across three R&D centers and professional services hubs.
−Removed: We intend to continue to expand our presence in the Chinese market through the ongoing development of language capabilities and investment in relationships with manufacturers and suppliers that sell into that market.
+Added: We intend to continue to invest to develop our software platform’s interoperability with third-party virtual assistants and its cognitive
+Added: arbitration capabilities to maintain its position as a neutral automotive cognitive assistance platform.
+Added: We believe a neutral automotive cognitive assistance platform will increasingly be valued by OEMs that prioritize mai ntaining their unique and branded in-car experience and the ability to control the mobility experience overall.
Deliver new functionality to existing installed base.
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Depending on system capabilities, we are able to deliver updated functionality to our users in the form of embedded software upgrades performed by dealers and over-the-air updates delivered from the cloud.
+Added: Develop products that leverage our expertise in new applications.
+Added: We have developed are developing new products that leverage our expertise in voice-AI into new applications that will be distinct from our Edge or Cloud-connected product offerings.
+Added: These new applications are expected to generate revenue using either a subscription or transaction-based model extending the company’s market opportunity into new areas.
+Added: Two of the new applications developed during fiscal year 2020 are Cerence Pay and Car Life.
+Added: Cerence Pay offers a secure, contactless payment experience for drivers via voice and facial biometrics.
+Added: Cerence Car Life is a suite of AI-powered, software-as-a-service (SaaS) offerings that provides drivers with up-to-date information about their cars via a companion application, voice output from the automotive assistant, and imagery displayed on the car’s infotainment system.
+Added: Expand into adjacent transportation markets.
+Added: Today we primarily target the automobile market.
+Added: However, our products and technology also have application to other modes of transportation.
+Added: Any type of vehicle that moves people are potential applications for our technology.
+Added: We have developed some initial business in the two-wheel vehicle and tractor markets and have explored opportunities in the cruise ship and elevator markets.
+Added: In total, we believe these adjacent markets represent an important growth opportunity.
The automobile cognitive assistance market is competitive.
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Small, focused competitors .
−Removed: We compete for business directly with certain companies focused on cognitive assistance, including SoundHound in the U.S., iFlyTek in China, and other regional and technology-focused competitors.
+Added: We compete for business directly with certain companies focused on voice-based virtual assistance, including SoundHound in the U.S., iFlyTek in China, and other regional and technology-focused competitors.
These companies have had some success selling into our customer base.
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Our speech recognition technology, built using neural networks and specifically designed for automotive applications, is recognized as the automotive industry leader in automatic speech recognition.
−Removed: We support over 70 languages and dialects, representing one of the largest language portfolios in the speech industry.
+Added: We support over 70 languages and dialects, representing the largest language portfolios in the speech industry.
Key features of our speech recognition technology include free-form conversational interpretation, as opposed to a rigid system of predefined commands, and barge-in capabilities, enabling users to correct and modify their requests in the middle of stating them.
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Text-to-Speech and Natural Language Generation .
−Removed: In many cases, the most useful result of a spoke n query or command is a spoken response back to the user.
+Added: In many cases, the most useful result of a spoken query or command is a spoken response back to the user.
To enable cognitive assistants to speak, we offer text-to-speech technology in more than 60 languages and dialects and over 140 distinct voices.
−Removed: We also develop custom voices for customers who wish to differentiate themselves through an exclusive personality representing their brand.
+Added: We also have developed the technology to read text using human-like inflection and emotion, as well as, offer custom voices for customers who wish to differentiate themselves through an exclusive personality representing their brand.
Voice Biometrics .
−Removed: Our software platform includes biometric functionality that can detect minute differences in humans’ voices and securely store and match users’ voiceprints.
−Removed: The voice biometrics enables personalization of the automotive experience by recognizing users based on their voice and automatically loading individual preferences and other automotive settings.
+Added: Our software platform includes biometric functionality which can authenticate and personalize the automotive experience by recognizing users based on their voice and automatically load individual preferences and other automotive settings.
Push-to-Talk, Wake-Up Words and Just Talk .
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Research and Development
−Removed: We were spun off from Nuance, a leader in the development of speech recognition, natural language understanding and conversational artificial intelligence for a variety of industrial applications.
−Removed: As part of Nuance, our research and development efforts have taken two forms.
−Removed: First, we have maintained technical engineering centers in major regions of the world that help develop our software platform and its underlying components and provide our customers with local engineering capabilities and design development.
−Removed: Second, we have collaborated with Nuance’s research and development efforts and participated in the development of various technologies beneficial to our company and the broader Nuance organization.
−Removed: Following the Spin-Off, our company remains responsible for its own research and development efforts.
−Removed: Nuance employees who have been engaged in research and development attributable to Cerence have become employees of our company.
+Added: We maintain technical engineering centers in major regions of the world that help develop our software platform and its underlying components and provide our customers with local engineering capabilities and design development.
We employ approximately 800 research and development personnel around the world, including scientists, engineers and technicians.
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Our customers include all major OEMs or their tier 1 suppliers worldwide.
−Removed: Our automobile manufacturer customers, commonly referred to as OEMs, include BMW, FCA Group, Ford, Daimler, Geely, Renault-Nissan, SAIC, Toyota, Volkswagen Group and many others and represented 39% of our sales in fiscal 2019.
−Removed: Our largest customer, Toyota, represented 21% of our revenue in fiscal 2019.
−Removed: Our tier 1 supplier customers, who typically sell automobile components to the OEMs, include Aptiv, Bosch, Continental, DENSO TEN, Harman and many others and represented 60% of our business in fiscal year 2019.
+Added: Our automobile manufacturer customers, commonly referred to as OEMs, include BMW, FCA Group, Ford, Daimler, Geely, Renault-Nissan, SAIC, Toyota, Volkswagen Group and many others and represented approximately 56% of our sales in fiscal 2020.
+Added: Our largest customer, Toyota, represented approximately 23% of our revenue in fiscal 2020.
+Added: Our tier 1 supplier customers, who typically sell automobile components to the OEMs, include Aptiv, Bosch, Continental, DENSO TEN, Harman and many others and represented approximately 44% of our business in fiscal year 2020.
Our revenue base is geographically diverse.
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Account managers typically have longstanding relationships with specific customers and are distributed worldwide to provide local customer coverage.
−Removed: We oftentimes utilize customer-specific demo days in which we showcase our technology and capabilities to OEMs and tier 1 suppliers on an individual basis.
+Added: We oftentimes utilize customer-specific demo days and proof-of-concepts (“POCs”) in which we showcase our technology and capabilities to OEMs and tier 1 suppliers on an individual basis.
These events help maintain our market presence and awareness of our platform’s offerings while also providing opportunities to solicit feedback and input from our customers on our roadmap and future technologies.
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Approximately 90% of our employees are based outside of the United States.
−Removed: None of our employees in the United States are represented by a labor union, however certain of our employees in Europe are represented by workers councils or labor unions.
+Added: None of our employees in the United States are represented by a labor union, however many of our employees in Europe are represented by workers councils or labor unions.
We believe that our relationships with our employees are satisfactory.
Intellectual Property
−Removed: Following the Spin-Off, we took ownership of approximately 1,250 patents and patent applications and other intellectual property previously owned by Nuance.
−Removed: We entered into the Intellectual Property Agreement, which provides us with certain non-exclusive rights with respect to patents that will continue to be held by Nuance.
+Added: We own approximately 1,035 patents and patent applications and other intellectual property.
+Added: Prior to our Spin-Off from Nuance, we entered into the Intellectual Property Agreement, which provides us with certain non-exclusive rights with respect to patents that will continue to be held by Nuance.
While no individual patent or group of patents, taken alone, is considered material to our business, in the aggregate, these patents and rights provide meaningful protection for our products, technologies, and technical innovations.
+Added: Ris k Factors.
+Added: You should carefully consider all of the information in this Form 10-K and each of the risks described below, which we believe are the material risks that we face.
+Added: Some of the risks relate to our business, others to our intellectual property and technology, and the consequences of the Spin-Off.
+Added: Some risks relate to the securities markets, our indebtedness and ownership of our common stock.
+Added: Any of the following risks could materially and adversely affect our business, financial condition and results of operations and the actual outcome of matters as to which forward-looking statements are made in this Form 10-K.
+Added: Risk Factor Summary
+Added: Risks Relating to Our Business
+Added: Pandemics or disease outbreaks, such as COVID-19, have disrupted, and may continue to disrupt, our business, which could adversely affect our financial performance.
+Added: The market in which we operate is highly competitive and rapidly changing and we may be unable to compete successfully.
+Added: Adverse conditions in the automotive industry or the global economy more generally could have adverse effects on our results of operations.
+Added: Our strategy to increase cloud connected services may adversely affect our near-term revenue growth and results of operations.
+Added: Pricing pressures from our customers may adversely affect our business.
+Added: We invest effort and money seeking OEMs’ validation of our technology, and there can be no assurance that we will win or be able to renew service contracts, which could adversely affect our future business, results of operations and financial condition.
+Added: Our business could be materially and adversely affected if we lost any of our largest customers.
+Added: Our operating results may fluctuate significantly from period to period, and this may cause our stock price to decline.
+Added: We may not be successful with the adoption of new applications.
+Added: Some of our employees represented by workers councils or unions or are subject to local laws that are less favorable to employers than the laws of the U.S.
+Added: Cybersecurity and data privacy incidents or breaches may damage client relations and inhibit our growth.
+Added: A significant portion of our revenues and research and development activities originate outside the United States.
+Added: Our results could be harmed by economic, political, regulatory, foreign currency fluctuations and other risks associated with these international regions.
+Added: Our business in China is subject to aggressive competition and is sensitive to economic, market and political conditions.
+Added: Interruptions or delays in our services or services from data center hosting facilities or public clouds could impair the delivery of our services and harm our business.
+Added: If our goodwill or other intangible assets become impaired, our operating results could be negatively impacted.
+Added: Tax matters may cause significant variability in our financial results and may impact our overall financial condition.
+Added: Risks Relating to our Intellectual Property and Technology
+Added: Third parties have claimed and may claim in the future that we are infringing their intellectual property, and we could be exposed to significant litigation or licensing expenses or be prevented from selling our products if such claims are successful.
+Added: Unauthorized use of our proprietary technology and intellectual property could adversely affect our business and results of operations.
+Added: Our software products may have bugs, which could result in delayed or lost revenue, expensive correction, liability to our customers and claims against us.
+Added: We may be unable to respond quickly enough to changes in technology and technological risks and to develop our intellectual property into commercially viable products.
+Added: We utilize certain key technologies, content and services from, and integrate certain of our solutions with, third parties and may be unable to replace those technologies, content and services if they become obsolete, unavailable or incompatible with our solutions.
+Added: Risks Relating to the Spin-Off
+Added: If the Spin-Off were determined not to qualify as tax-free for U.S.
+Added: federal income tax purposes, we could have an indemnification obligation to Nuance, which could adversely affect our business, financial condition and results of operations.
+Added: We have agreed to numerous restrictions to preserve the non-recognition treatment of the Spin-Off, which may reduce our strategic and operating flexibility.
+Added: We may be unable to achieve some or all of the benefits that we expect to achieve from the Spin-Off.
+Added: We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.
+Added: Our historical combined financial information is not necessarily representative of the results we would have achieved as an independent, publicly traded company.
+Added: We may have potential business conflicts of interest with Nuance with respect to our past and ongoing relationships.
+Added: A certain director may have actual or potential conflicts of interest because of their financial interests in Nuance.
+Added: The allocation of intellectual property rights and data between Nuance and Cerence as part of the Spin-Off, could adversely impact our reputation, our ability to enforce certain intellectual property rights that are important to us and our competitive position.
+Added: Risks Relating to Our Securities and Indebtedness
+Added: Our stock price may fluctuate significantly.
+Added: The terms of the Senior Credit Facilities restrict our current and future operations, particularly our ability to incur debt that we may need to fund initiatives in response to changes in our business, the industry in which we operate, the economy and governmental regulations.
+Added: We may evaluate whether to pay cash dividends on our common stock in the future, and the terms of our Senior Credit Facilities limit our ability to pay dividends on our common stock.
+Added: Servicing our debt may require a significant amount of cash.
+Added: We may not have sufficient cash flow from our business to pay our indebtedness.
+Added: The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and results of operations and the value of our common stock.
+Added: The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financial results.
+Added: The commercial and credit environment may adversely affect our access to capital.
+Added: Certain provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws and Delaware law may discourage takeovers.
+Added: Our Amended and Restated Certificate of Incorporation will designate the courts of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes.
+Added: If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and investors’ views of us could be harmed.
+Added: Risks Relating to Our Business
+Added: Pandemics or disease outbreaks, such as COVID-19, have disrupted, and may continue to disrupt, our business, which could adversely affect our financial performance.
+Added: Our business depends on, and is directly affected by, the output and sales of the global automotive industry and the use of automobiles by consumers.
+Added: Pandemics or disease outbr eaks, such as COVID-19, have disrupted, and may continue to disrupt, global automotive industry customer sales and production volumes.
+Added: Vehicle production initially decreased significantly in China, which was first affected by COVID-19, then Europe and also the United States.
+Added: Subsequent events resulted in the shutdown of manufacturing operations in China, Europe and the United States, and even though manufacturing operations has begun, in part, the capacity of such global manufacturing operations remains unc ertain.
+Added: As a result, we have experienced, and may continue to experience, difficulties in entering into new contracts with our customers, a decline in revenues resulting from the decrease in the production and sale of automobiles by our customers, the use of automobiles, increased difficulties in collecting payment obligations from our customers and the possibility customers will continue with existing projects.
+Added: These all may be further exacerbated by the global economic downturn resulting from the pandemi c which could further decrease consumer demand for vehicles or result in the financial distress of one or more of our customers.
+Added: As the COVID-19 pandemic continues, our business operations could be further disrupted or delayed.
+Added: The pandemic has already resulted in, and may continue to result in, work stoppages, slowdowns and delays, travel restrictions, and other factors that cause a decrease in the production and sale of automobiles by our customers.
+Added: The production of automobiles with our products has been and may continue to be adversely affected with production delays and our ability to provide engineering support and implement design changes for customers may be impacted by restrictions on travel and quarantine policies put in place by businesses and governments.
+Added: The full extent to which the ongoing COVID-19 pandemic adversely affects our financial performance will depend on future developments, many of which are outside of our control, are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity, the effectiveness of actions to contain the virus or treat its impact and how quickly and to what extent normal economic and operating conditions can resume.
+Added: The COVID-19 pandemic could also result in additional governmental restrictions and regulations, which could adversely affect our business and financial results.
+Added: In addition, a recession, depression or other sustained adverse market impact resulting from COVID-19 could materially and adversely affect our business, our access to needed capital and liquidity, and the value of our common stock.
+Added: Even after the COVID-19 pandemic has lessened or subsided, we may continue to experience adverse impacts on our business and financial performance as a result of its global economic impact.
+Added: The market in which we operate is highly competitive and rapidly changing and we may be unable to compete successfully.
+Added: There are a number of companies that develop or may develop products that compete in the automotive voice assistance market.
+Added: The market for our products and services is characterized by intense competition, evolving industry and regulatory standards, emerging business and distribution models, disruptive software technology developments, short product and service life cycles, price sensitivity on the part of customers, and frequent new product introductions, including alternatives for certain of our products that offer limited functionality at significantly lower costs or free of charge.
+Added: In addition, some of our competitors have business objectives that may drive them to sell their alternative offerings at a significant discount to our offerings in the automotive voice assistant market.
+Added: Current and potential competitors have established, or may establish, cooperative relationships among themselves or with third parties to increase the ability of their technologies to address the needs of our prospective customers.
+Added: Furthermore, existing or prospective customers may decide to develop competing products or have established, or may in the future establish, strategic relationships with our competitors.
+Added: We also face significant competition with respect to cloud-based solutions in the automotive cognitive assistance market where existing and new competitors may have or have already established significant market share and product offerings.
+Added: The competition in the automotive cognitive assistance market could adversely affect our operating results by reducing the volume of the products and solutions we license or sell or the prices we can charge.
+Added: Some of our current or potential competitors are large technology companies that have significantly greater financial, technical and marketing resources than we do, and others are smaller specialized companies that possess automotive expertise or regional focus and may have greater price flexibility than we do.
+Added: These competitors may be able to respond more rapidly than we can to new or emerging technologies or changes in customer requirements, or may decide to offer products at low or unsustainable cost to win new business.
+Added: They may also devote greater resources to the development, promotion and sale of their products than we do, and in certain cases may be able to include or combine their competitive products or technologies with other of their products or technologies in a manner whereby the competitive functionality is available at lower cost or free of charge within the larger offering.
+Added: To the extent they do so, penetration of our products, and therefore our revenue, may be adversely affected.
+Added: Our large competitors may also have greater access to data, including customer data, which provides them with a competitive advantage in developing new products and technologies.
+Added: Our success depends substantially upon our ability to enhance our products and technologies, to develop and introduce, on a timely and cost-effective basis, new products and features that meet changing customer requirements and incorporate technological enhancements, and to maintain our alignment with the OEMs, their technology and market strategies.
+Added: If we are unable to develop new products and enhance functionalities or technologies to adapt to these changes and maintain our alignment with OEMs, our business will suffer.
+Added: Adverse conditions in the automotive industry or the global economy more generally could have adverse effects on our results of operations.
+Added: Our business depends on, and is directly affected by, the global automobile industry.
+Added: Automotive production and sales are highly cyclical and depend on general economic conditions and other factors, including consumer spending and preferences, changes in interest rate levels and credit availability, consumer confidence, fuel costs, fuel availability, environmental impact, governmental incentives and regulatory requirements, and political volatility, especially in energy-producing countries and growth markets.
+Added: Such factors may also negatively impact consumer demand for automobiles that include features such as our products.
+Added: In addition, automotive production and sales can be affected by our customers’ ability to continue operating in response to challenging economic conditions, and in response to labor relations issues, regulatory requirements, trade agreements and other factors.
+Added: The volume of global automotive production has fluctuated, sometimes significantly, from year to year, and such fluctuations give rise to fluctuations in the demand for our products.
+Added: Any significant adverse change in any of these factors, including, but not limited to, general economic conditions and the resulting bankruptcy of a customer or the closure of a customer manufacturing facility, may result in a reduction in automotive sales and production by our customers, and could have a material adverse effect on our business, results of operations and financial condition.
+Added: Our strategy to increase cloud connected services may adversely affect our near-term revenue growth and results of operations.
+Added: Our leadership position has historically been derived from our products and services based on edge software technology.
+Added: We have been and are continuing to develop new products and services that incorporate cloud-connected components.
+Added: The design and development of new cloud-connected components will involve significant expense.
+Added: Our research and development costs have greatly increased in recent years and, together with certain expenses associated with delivering our connected services, are projected to continue to escalate in the near future.
+Added: We may encounter difficulties with designing, developing and releasing new cloud-connected components, as well as integrating these components with our existing hybrid technologies.
+Added: These development issues may further increase costs and may affect our ability to innovate in a manner demanded by the market.
+Added: As a result, our strategy to incorporate more cloud-connected components may adversely affect our revenue growth and results of operations.
+Added: Pricing pressures from our customers may adversely affect our business.
+Added: We may experience pricing pressure from our customers in the future, which could result from the strong purchasing power of major OEMs.
+Added: As a developer of automotive cognitive assistance components, we may be expected to quote fixed prices or be forced to accept prices with annual price reduction commitments for long-term sales arrangements or discounted reimbursements for our work.
+Added: We may encounter customers unwilling to accept the terms of our software license or non-recurring engineering agreements.
+Added: Any price reductions could impact our sales and profit margins.
+Added: Our future profitability will depend upon, among other things, our ability to continuously reduce the costs for our components and maintain our cost structure.
+Added: Our profitability is also influenced by our success in designing and marketing technological improvements in automotive cognitive assistance systems.
+Added: If we are unable to offset any price reductions in the future, our business, results of operations and financial condition would be adversely affected.
+Added: We invest effort and money seeking OEMs’ validation of our technology, and there can be no assurance that we will win or be able to renew service contracts, which could adversely affect our future business, results of operations and financial condition.
+Added: We invest effort and money from the time an OEM or a tier 1 supplier begins designing for an upcoming program to the date on which the customer chooses our technology to be incorporated directly or indirectly into one or more specific vehicle models to be produced by the customer.
+Added: This selection process is known as a “design win.” We could expend our resources without success.
+Added: After a design win, it is typically quite difficult for a product or technology that did not receive the design win to displace the winner until the customer begins a new selection process because it is very unlikely that a customer will change complex technology until a vehicle model is revamped.
+Added: In addition, the company with the winning design may have an advantage with the customer going forward because of the established relationship between the winning company and such customer, which could make it more difficult for such company’s competitors to win the designs for other service contracts.
+Added: Even if we have an established relationship with a customer, any failure to perform under a service contract or innovate in response to their feedback may neutralize our advantage with that customer.
+Added: If we fail to win a significant number of customer design competitions in the future or to renew a significant number of existing service contracts, our business, results of operations and financial condition would be adversely affected.
+Added: Moreover, due to the evolution of our connected offerings and architecture, trending away from providing legacy infotainment and connected services and a change in our professional services pricing strategies, we expect our deferred revenue balances to decrease in the future, including due to a wind-down of a legacy connected service relationship with a major OEM, since the majority of the cash from the contract has been collected.
+Added: To the extent we are unable to renew existing service contracts, such decrease could intensify.
+Added: The period of time from winning a contract to implementation is long and we are subject to the risks of cancellation or postponement of the contract or unsuccessful implementation.
+Added: Our products are technologically complex and incorporate many technological innovations.
+Added: Prospective customers generally must make significant commitments of resources to test and validate our products before including them in any particular vehicle model.
+Added: The development cycles of our products with new customers are approximately six months to two years after a design win, depending on the customer and the complexity of th e product.
+Added: These development cycles result in us investing our resources prior to realizing any revenues from the customer contracts.
+Added: Further, we are subject to the risk that a customer cancels or postpones implementation of our technology, as well as that we will not be able to implement our technology successfully.
+Added: Further, our sales could be less than forecast if the vehicle model is unsuccessful, including reasons unrelated to our technology.
+Added: Long development cycles and product cancellations or postpone ments may adversely affect our business, results of operations and financial condition.
+Added: Our business could be materially and adversely affected if we lost any of our largest customers.
+Added: The loss of business from any of our major customers, whether by lower overall demand for vehicles, cancellation of existing contracts or the failure to award us new business, could have a material adverse effect on our business, results of operations and financial condition.
+Added: Alternatively, there is a risk that one or more of our major customers could be unable to pay our invoices as they become due or that a customer will simply refuse to make such payments given its financial difficulties.
+Added: If a major customer becomes subject to bankruptcy or similar proceedings whereby contractual commitments are subject to stay of execution and the possibility of legal or other modification, or if a major customer otherwise successfully procures protection against us legally enforcing its obligations, it is likely that we will be forced to record a substantial loss.
+Added: In addition, certain of our customers that are tier 1 suppliers exclusively sell to certain OEMs, including some of our other customers.
+Added: A bankruptcy of, or other significant disruption to, any of these OEMs could intensify any adverse impact on our business and results of operations.
+Added: Our operating results may fluctuate significantly from period to period, and this may cause our stock price to decline.
+Added: Our revenue and operating results may fluctuate materially in the future.
+Added: These fluctuations may cause our results of operations to not meet the expectations of securities analysts or investors which would likely cause the price of our stock to decline.
+Added: Factors that may contribute to fluctuations in operating results include:
+Added: given our limited customer base, the volume, timing and fulfillment of large customer contracts;
+Added: renewals of existing customer contracts and wins of new customer programs;
+Added: increased expenditures incurred pursuing new product or market opportunities;
+Added: the timing of the receipt of royalty reports;
+Added: fluctuating sales by our customers to their end-users;
+Added: contractual counterparties failing to meet their contractual commitments to us;
+Added: introduction of new products by us or our competitors;
+Added: cybersecurity or data breaches;
+Added: reduction in the prices of our products in response to competition, market conditions or contractual obligations;
+Added: impairment of goodwill or intangible assets;
+Added: accounts receivable that are not collectible;
+Added: higher than anticipated costs related to fixed-price contracts with our customers;
+Added: change in costs due to regulatory or trade restrictions;
+Added: expenses incurred in litigation matters, whether initiated by us or brought by third-parties against us, and settlements or judgments we are required to pay in connection with disputes;
+Added: changes in our stock compensation practices, as relates to employee short term incentive payments;
+Added: general economic trends as they affect the customer bases into which we sell.
+Added: Due to the foregoing factors, among others, our revenue and operating results may fluctuate significantly from period to period.
+Added: Our expense levels are based in significant part on our expectations of future revenue, and we may not be able to reduce our expenses quickly to respond to near-term shortfalls in projected revenue.
+Added: Therefore, our failure to meet revenue expectations would seriously harm our operating results, financial condition and cash flows.
+Added: We may not be successful with the adoption of new a pplications.
+Added: Part of our growth strategy includes the successful introduction of new products that will rely on subscription or transactional-based revenue generation.
+Added: These represent new applications and we cannot assure the introduction of these new products, the level of adoption of these new products, or how quickly they can ramp to generate meaningful revenue.
+Added: The development and launch of new products will require maintaining adequate resources, such as the appropriate personnel and technology to develop such products.
+Added: We may experience delays between the time we incur expenses associated with the development and launch of new products and the revenue generated from the products.
+Added: In addition, anticipated demand for the new products could decrease after we have spent time and resources on the development of the new product, or our efforts may not lead to the successful introduction of new products that are competitive, which would harm our business, results of operations and financial condition.
+Added: If we are unable to attract and retain key personnel, our business could be harmed.
+Added: If any of our key employees were to leave, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience.
+Added: Although we have arrangements with some of our executive officers designed to promote retention, our employment relationships are generally at-will and we have had key employees leave in the past.
+Added: We cannot assure you that one or more key employees will not leave in the future.
+Added: We intend to continue to hire additional highly qualified personnel, including research and development and operational personnel, but may not be able to attract, assimilate or retain qualified personnel in the future.
+Added: Any failure to attract, integrate, motivate and retain these employees could harm our business.
+Added: We depend on skilled employees and could be impacted by a shortage of critical skills.
+Added: Much of our future success depends on the continued service and availability of skilled employees, particularly with respect to technical areas.
+Added: Skilled and experienced personnel in the areas where we compete are in high demand, and competition for their talents is intense.
+Added: We expect that many of our key employees will receive a total compensation package that includes equity awards.
+Added: New regulations or volatility in the stock market could diminish our use, and the value, of our equity awards.
+Added: This would place us at a competitive disadvantage in attracting qualified personnel or force us to offer more cash compensation.
+Added: Some of our employees are represented by workers councils or unions or are subject to local laws that are less favorable to employers than the laws of the U.S.
+Added: Most of our employees in Europe are represented by workers councils or unions.
+Added: Although we believe we have a good working relationship with our employees and their legal representatives, they must approve any changes in terms which may impede efforts to restructure our workforce.
+Added: Cybersecurity and data privacy incidents or breaches may damage client relations and inhibit our growth.
+Added: The confidentiality and security of our information, and that of third parties, is critical to our business.
+Added: Our services involve the transmission, use, and storage of customers’ and their customers’ information, which may be confidential or contain personally identifiable information.
+Added: Any cybersecurity or data privacy incidents could have a material adverse effect on our results of operations and financial condition.
+Added: While we maintain a broad array of information security and privacy measures, policies and practices, our networks may be breached through a variety of means, resulting in someone obtaining unauthorized access to our information, to information of our customers or their customers, or to our intellectual property;
+Added: disabling or degrading service;
+Added: or sabotaging systems or information.
+Added: In addition, hardware, software, systems, or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security.
+Added: Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud or other forms of deceiving our employees, contractors, and vendors.
+Added: Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
+Added: We will continue to incur significant costs to continuously enhance our information security measures to defend against the threat of cybercrime.
+Added: Any cybersecurity or data privacy incident or breach may result in:
+Added: loss of revenue resulting from the operational disruption;
+Added: loss of revenue or increased bad debt expense due to the inability to invoice properly or to customer dissatisfaction resulting in collection issues;
+Added: loss of revenue due to loss of customers;
+Added: material remediation costs to recreate or restore systems;
+Added: material investments in new or enhanced systems in order to enhance our information security posture;
+Added: cost of incentives offered to customers to restore confidence and maintain business relationships;
+Added: reputational damage resulting in the failure to retain or attract customers;
+Added: costs associated with potential litigation or governmental investigations;
+Added: costs associated with any required notices of a data breach;
+Added: costs associated with the potential loss of critical business data;
+Added: difficulties enhancing or creating new products due to loss of data or data integrity issues;
+Added: other consequences of which we are not currently aware but will discover through the remediation process.
+Added: Our business is subject to a variety of domestic and international laws, rules, policies and other obligations.
+Added: We are subject to U.S.
+Added: and international laws and regulations in multiple areas, including data protection, anticorruption, labor relations, tax, foreign currency, anti-competition, import, export and trade regulations, and we are subject to a complex array of federal, state and international laws relating to the collection, use, retention, disclosure, security and transfer of personally identifiable information.
+Added: In many cases, these laws apply not only to transfers between unrelated third-parties but also to transfers between us and our subsidiaries.
+Added: Many jurisdictions have passed laws in this area, and other jurisdictions are considering imposing additional restrictions.
+Added: The European Commission adopted the European General Data Protection Regulation, or GDPR, which went into effect on May 25, 2018.
+Added: China adopted a new cybersecurity law as of June 2017.
+Added: In addition, California adopted significant new consumer privacy laws in June 2018 that went into effect in January 2020.
+Added: Complying with the GDPR and other requirements may cause us to incur substantial costs and may require us to change our business practices.
+Added: Any failure by us, our customers or other parties with whom we do business to comply with our privacy policy or with federal, state or international privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others.
+Added: Any alleged or actual failure to comply with applicable privacy laws and regulations may:
+Added: cause our customers to lose confidence in our solutions;
+Added: harm our reputation;
+Added: expose us to litigation, regulatory investigations and to resulting liabilities including reimbursement of customer costs, damages, penalties or fines imposed by regulatory agencies;
+Added: require us to incur significant expenses for remediation.
+Added: We are also subject to a variety of anticorruption laws in respect of our international operations, including the U.S.
+Added: Foreign Corrupt Practices Act, the U.K.
+Added: Bribery Act and the Canadian Corruption of Foreign Public Officials Act, and regulations issued by the U.S.
+Added: Customs and Border Protection, the U.S.
+Added: Bureau of Industry and Security, the U.S.
+Added: Treasury Department’s Office of Foreign Assets Control, and various other foreign governmental agencies.
+Added: We cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.
+Added: Actual or alleged violations of these laws and regulations could lead to enforcement actions and financial penalties that could result in substantial costs.
+Added: A significant portion of our revenues are derived, and a significant portion of our research and development activities are based, outside the United States.
+Added: Our results could be harmed by economic, political, regulatory, foreign currency fluctuations and other risks associated with these international regions.
+Added: Because we operate worldwide, our business is subject to risks associated with doing business internationally.
+Added: We generate most of our international revenue in Europe and Asia, and we anticipate that revenue from international operations could increase in the future.
+Added: In addition, some of our products are developed outside the United States.
+Added: We conduct a significant portion of the development of our voice recognition and natural language understanding solutions in Canada and Germany.
+Added: We also have significant research and development resources in Belgium, China, India, Italy, and the United Kingdom.
+Added: We are exposed to fluctuating exchange rates of foreign currencies including the euro, British pound, Canadian dollar, Chinese RMB, Japanese yen, Indian rupee and South Korean won.
+Added: Accordingly, our future results could be harmed by a variety of factors associated with international sales and operations, including:
+Added: adverse political and economic conditions, or changes to such conditions, in a specific region or country;
+Added: trade protection measures, including tariffs and import/export controls, imposed by the United States and/or by other countries or regional authorities such as China, Canada or the European Union;
+Added: the impact on local and global economies of the United Kingdom leaving the European Union;
+Added: changes in foreign currency exchange rates or the lack of ability to hedge certain foreign currencies;
+Added: compliance with laws and regulations in many countries and any subsequent changes in such laws and regulations;
+Added: geopolitical turmoil, including terrorism and war;
+Added: changing data privacy regulations and customer requirements to locate data centers in certain jurisdictions;
+Added: evolving restrictions on cross-border investment, including recent enhancements to the oversight by the Committee on Foreign Investment in the United States pursuant to the Foreign Investment Risk Preview Modernization Act and substantial restrictions on investment from China;
+Added: changes in applicable tax laws;
+Added: difficulties in staffing and managing operations in multiple locations in many countries;
+Added: longer payment cycles of foreign customers and timing of collections in foreign jurisdictions;
+Added: less effective protection of intellectual property than in the United States.
+Added: Our business in China is subject to aggressive competition and is sensitive to economic, market and political conditions.
+Added: We operate in the highly competitive automotive cognitive assistance market in China and face competition from both international and smaller domestic manufacturers.
+Added: We anticipate that additional competitors, both domestic and international, may seek to enter the Chinese market resulting in increased competition.
+Added: Increased competition may result in price reductions, reduced margins and our inability to gain or hold market share.
+Added: There have been periods of increased market volatility and moderation in the levels of economic growth in China, which resulted in periods of lower automotive production growth rates in China than those previously experienced.
+Added: In addition, political tensions between China and the United States may negatively impact our ability to conduct business in China.
+Added: If we are unable to grow or maintain our position in the Chinese market, the pace of growth slows or vehicle sales in China decrease, our business, results of operations and financial condition could be materially adversely effected.
+Added: Government regulations and business considerations may also require us to conduct business in China through joint ventures with Chinese companies.
+Added: Our participation in joint ventures would limit our control over Chinese operations and may expose our proprietary technologies to misappropriation by joint venture partners.
+Added: The above risks, if realized, could have a material adverse effect on our business, results of operations and financial condition.
+Added: Interruptions or delays in our services or services from data center hosting facilities or public clouds could impair the delivery of our services and harm our business.
+Added: Because our services are complex and incorporate a variety of third-party hardware and software, our services may have errors or defects that could result in unanticipated downtime for our customers and harm to our reputation and our business.
+Added: We have from time to time, found defects in our services, and new errors in our services may be detected in the future.
+Added: In addition, we currently serve our customers from data center hosting facilities or third-party public clouds we directly manage.
+Added: Any damage to, or failure of, the systems and facilities that serve our customers in whole or in part could result in interruptions in our service.
+Added: Interruptions in our service may reduce our revenue, cause us to issue credits or pay service level agreement penalties, cause customers to terminate their on-demand services, and adversely affect our renewal rates and our ability to attract new customers.
+Added: If our goodwill or other intangible assets become impaired, our operating results could be negatively impacted.
+Added: We have significant intangible assets, including goodwill and other intangible assets, which are susceptible to valuation adjustments as a result of changes in various factors or conditions.
+Added: The most significant intangible assets are goodwill, customer relationships and patents and core technologies.
+Added: 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.
+Added: Technologies and patents are amortized on a straight-line basis over their estimated useful lives.
+Added: We assess the potential impairment of goodwill on an annual basis.
+Added: Whenever events or changes in circumstances indicate that the carrying value may not be recoverable, we will be required to assess the potential impairment of goodwill and other intangible assets.
+Added: Factors that could trigger an impairment of such assets include the following:
+Added: changes in our organization or management reporting structure that could result in additional reporting units, which may require alternative methods of estimating fair values or greater disaggregation or aggregation in our analysis by reporting unit;
+Added: significant under performance relative to historical or projected future operating results;
+Added: significant changes in the strategy for our overall business;
+Added: significant negative industry or economic trends;
+Added: significant decline in our stock price for a sustained period;
+Added: our market capitalization declining to below net book value.
+Added: Future adverse changes in these or other unforeseeable factors could result in an impairment charge that would impact our results of operations and financial position in the reporting period identified.
+Added: Tax matters may cause significant variability in our financial results and may impact our overall financial condition.
+Added: Our businesses are subject to income taxation in the United States, as well as in many tax jurisdictions throughout the world.
+Added: Tax rates in these jurisdictions may be subject to significant change.
+Added: If our effective tax rate increases, our operating results and cash flow could be adversely affected.
+Added: Our effective income tax rate can vary significantly between periods due to a number of complex factors including:
+Added: projected levels of taxable income;
+Added: pre-tax income being lower than anticipated in countries with lower statutory rates or higher than anticipated in countries with higher statutory rates;
+Added: increases or decreases to valuation allowances recorded against deferred tax assets;
+Added: tax audits conducted and settled by various tax authorities;
+Added: adjustments to income taxes upon finalization of income tax returns;
+Added: the ability to claim foreign tax credits;
+Added: the repatriation of non-U.S.
+Added: earnings for which we have not previously provided for income taxes;
+Added: changes in tax laws and their interpretations in countries in which we are subject to taxation;
+Added: changes to assessments of uncertain tax positions.
+Added: We regularly evaluate the need for a valuation allowance on deferred tax assets, considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies.
+Added: This analysis is heavily dependent upon our current and projected operating results.
+Added: A decline in future operating results could provide substantial evidence that a full or partial valuation allowance for deferred tax assets is necessary, which could have a material adverse effect on our results of operations and financial condition.
+Added: Risks Relating to our Intellectual Property and Technology
+Added: Third parties have claimed and may claim in the future that we are infringing their intellectual property, and we could be exposed to significant litigation or licensing expenses or be prevented from selling our products if such claims are successful.
+Added: From time to time, we are subject to claims and legal actions alleging that we or our customers may be infringing or contributing to the infringement of the intellectual property rights of others.
+Added: We may be unaware of intellectual property rights of others that may cover some of our technologies and products.
+Added: If it appears necessary or desirable, we may seek licenses for these intellectual property rights.
+Added: However, we may not be able to obtain licenses from some or all claimants, the terms of any offered licenses may not be acceptable to us, and we may not be able to resolve disputes without litigation.
+Added: Any litigation regarding intellectual property could be costly and time-consuming and could divert the attention of our management and key personnel from our business operations.
+Added: Intellectual property disputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from licensing certain of our products, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfy indemnification commitments with our customers including contractual provisions under various arrangements.
+Added: Any of these could seriously harm our business, financial condition or operations.
+Added: Unauthorized use of our proprietary technology and intellectual property could adversely affect our business and results of operations.
+Added: Our success and competitive position depend in large part on our ability to obtain and maintain intellectual property rights protecting our products and services.
+Added: We rely on a combination of patents, copyrights, trademarks, service marks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect our intellectual property and proprietary rights.
+Added: Unauthorized parties may attempt to copy or discover aspects of our products or to obtain, license, sell or otherwise use information that we regard as proprietary.
+Added: Policing unauthorized use of our products is difficult and we may not be able to protect our technology from unauthorized use.
+Added: Additionally, our competitors may independently develop technologies that are substantially the same or superior to our technologies and that do not infringe our rights.
+Added: In these cases, we would be unable to prevent our competitors from selling or licensing these similar or superior technologies.
+Added: In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States.
+Added: Although the source code for our proprietary software is protected both as a trade secret and as a copyrighted work, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity.
+Added: Litigation, regardless of the outcome, can be very expensive and can divert management’s efforts.
+Added: Our software products may have bugs, which could result in delayed or lost revenue, expensive correction, liability to our customers and claims against us.
+Added: Complex software products such as ours may contain errors, defects or bugs.
+Added: Defects in the solutions or products that we develop and sell to our customers could require expensive corrections and result in delayed or lost revenue, adverse customer reaction and negative publicity about us or our products and services.
+Added: Customers who are not satisfied with any of our products may also bring claims against us for damages, which, even if unsuccessful, would likely be time-consuming to defend, and could result in costly litigation and payment of damages.
+Added: Such claims could harm our reputation, financial results and competitive position.
+Added: We may be unable to respond quickly enough to changes in technology and technological risks and to develop our intellectual property into commercially viable products.
+Added: Changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our products obsolete or less attractive to our customers, which could adversely affect our results of operations.
+Added: Our ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely basis will be a significant factor in our ability to be competitive.
+Added: There is a risk that we will not be able to achieve the technological advances that may be necessary for us to be competitive or that certain of our products will become obsolete.
+Added: Moreover, restrictions on the use of our technology over the next four years under the Intellectual Property Agreement which we entered into with Nuance in connection with the Spin-Off may limit our ability to adapt to technology and regulatory developments and thereby compete effectively in the market.
+Added: We are also subject to the risks generally associated with new product introductions and applications, including lack of market acceptance, delays in product development and failure of products to operate properly.
+Added: These risks could have a material adverse effect on our business, results of operations and financial condition.
+Added: We utilize certain key technologies, content and services from, and integrate certain of our solutions with, third parties and may be unable to replace those technologies, content and services if they become obsolete, unavailable or incompatible with our solutions.
+Added: We utilize certain key technologies and content from, and/or integrate certain of our solutions with, hardware, software, services and content of third parties.
+Added: Some of these vendors are also our competitors in various respects.
+Added: These third-party vendors could, in the future, seek to charge us cost prohibitive fees for such use or integration or may design or utilize their solutions in a manner that makes it more difficult for us to continue to utilize their solutions, or integrate their technologies with our solutions, in the same manner or at all.
+Added: Any significant interruption in the supply or maintenance of such third-party hardware, software, services or content could negatively impact our ability to offer our solutions unless and until we replace the functionality provided by this third-party hardware, software and/or content.
+Added: In addition, we are dependent upon these third parties’ ability to enhance their current products, develop new products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes.
+Added: There can be no assurance that we would be able to replace the functionality or content provided by third-party vendors in the event that such technologies become obsolete or incompatible with future versions of our solutions or are otherwise not adequately maintained or updated.
+Added: Any delay in or inability to replace any such functionality could have a material adverse effect on our business, results of operations and financial condition.
+Added: Furthermore, delays in the release of new and upgraded versions of third-party software applications could have a material adverse effect on our business, results of operations and financial condition.
+Added: Risks Relating to the Spin-Off
+Added: If the Spin-Off were determined not to qualify as tax-free for U.S.
+Added: federal income tax purposes, we could have an indemnification obligation to Nuance, which could adversely affect our business, financial condition and results of operations.
+Added: On October 1, 2019, we were spun off from Nuance.
+Added: Completion of the Spin-Off was conditioned on Nuance’s receipt of a written opinion from its tax counsel to the effect that the Distribution will qualify for non-recognition of gain and loss under Section 355 and related provisions of the Internal Revenue Code of 1986, as amended, or the Code.
+Added: The opinion of counsel does not address any U.S.
+Added: state or local or foreign tax consequences of the Spin-Off.
+Added: The opinion assumed that the Spin-Off was completed according to the terms of the Separation and Distribution Agreement and relied on the facts as stated in the Separation and Distribution Agreement, the Tax Matters Agreement, the other ancillary agreements, Information Statement included as part of our registration statement on Form 10 and a number of other documents related to the Spin-Off.
+Added: In addition, the opinion was based on certain assumptions as well as certain representations as to factual matters from, and certain covenants by, Nuance and us.
+Added: The opinion cannot be relied on if any of the assumptions, representations or covenants are incorrect, incomplete or inaccurate or are violated in any material respect.
+Added: If, as a result of any of our representations being untrue or our covenants being breached, the Spin-Off, and certain related transactions or certain transactions, were determined not to qualify for non-recognition of gain or loss under Section 355 and related provisions of the Code, we could be required to indemnify Nuance for the resulting taxes and related expenses.
+Added: Those amounts could be material.
+Added: Any such indemnification obligation could adversely affect our business, financial condition and results of operations.
+Added: In addition, if we or our stockholders were to engage in transactions that resulted in a 50% or greater change by vote or value in the ownership of our stock during the four-year period beginning on the date that begins two years before the date of the Spin-Off, the Spin-Off would generally be taxable to Nuance, but not to stockholders, under Section 355(e) of the Code, unless it were established that such transactions and the Spin-Off were not part of a plan or series of related transactions.
+Added: If the Spin-Off were taxable to Nuance due to such a 50% or greater change in ownership of our stock, Nuance would recognize gain equal to the excess of the fair market value on the Distribution Date of our common stock distributed to Nuance stockholders over Nuance’s tax basis in our common stock and would also recognize gain in respect of certain reorganization transactions undertaken by Nuance to effect the separation, and we generally would be required to indemnify Nuance for the tax on such gain and related expenses.
+Added: Those amounts could be material.
+Added: Any such indemnification obligation could adversely affect our business, financial condition and results of operations.
+Added: We have agreed to numerous restrictions to preserve the non-recognition treatment of the Spin-Off, which may reduce our strategic and operating flexibility.
+Added: We have agreed in the Tax Matters Agreement to covenants and indemnification obligations that address compliance with Section 355 and related provisions of the Code and are intended to preserve the tax-free nature of the Spin-Off.
+Added: These covenants include certain restrictions on our activity for a period of two years following the Spin-Off, unless we or Nuance obtain a private letter ruling from the U.S.
+Added: Internal Revenue Service, or the IRS, or an opinion of counsel, in each case acceptable to Nuance in its reasonable discretion, that the restricted action would not impact the non-recognition treatment of the Spin-Off, or unless Nuance otherwise gives its consent for us to take a restricted action.
+Added: These covenants and indemnification obligations limit our ability to pursue strategic transactions or engage in new businesses or other transactions that may maximize the value of our business, and might discourage or delay a strategic transaction that our stockholders may consider favorable.
+Added: We may be unable to achieve some or all of the benefits that we expect to achieve from the Spin-Off.
+Added: We believe that, as an independent, publicly traded company, we will be able to, among other things, design and implement corporate strategies and policies and develop partnerships that are better targeted to our business’s areas of strength and differentiation, better focus our financial and operational resources on those specific strategies, create effective incentives for our management and employees that are more closely tied to our business performance, provide investors more flexibility and enable us to achieve alignment with a more natural stockholder base and implement and maintain a capital structure designed to meet our specific needs.
+Added: We may be unable to achieve some or all of the benefits that we expect to achieve as an independent company in the time we expect, if at all, for a variety of reasons, including:
+Added: as an independent, publicly traded company, we may be more susceptible to market fluctuations and other adverse events than if it were still a part of Nuance;
+Added: as an independent, publicly traded company, our businesses are less diversified than Nuance’s businesses prior to the separation.
+Added: If we fail to achieve some or all of the benefits that we expect to achieve as an independent company, or do not achieve them in the time we expect, our business, financial condition and results of operations could be adversely affected.
+Added: We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requir ements applicable to emerging growth companies could make our common stock less attractive to investors and may make it more difficult to compare our performance with other public companies.
+Added: We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
+Added: We could be an emerging growth company for up to five years following the effectiveness of our registration statement on Form 10.
+Added: We will cease to be an emerging growth company upon the earliest of:
+Added: the end of the fiscal year following the fifth anniversary of the effectiveness of our registration statement on Form 10,
+Added: the first fiscal year after our annual gross revenues are $1.07 billion or more,
+Added: the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities or
+Added: the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year.
+Added: We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions.
+Added: If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.
+Added: Under the Jumpstart Our Business Startups Act, or JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies.
+Added: The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable.
+Added: We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
+Added: This may make comparison of our financial statements with other public companies that are not emerging growth companies or emerging growth companies that have opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
+Added: We intend to continue to improve our internal controls over financial reporting and ensure we are able to produce accurate and timely financial statements.
+Added: However, no assurance can be given that our actions will be successful.
+Added: Our historical combined financial information is not necessarily representative of the results we would have achieved as an independent, publicly traded company.
+Added: For fiscal 2019 and fiscal 2018, we derived the historical combined financial information included in this Form 10-K from Nuance’s consolidated financial statements, and this information does not necessarily reflect the results of operations and financial position we would have achieved as an independent, publicly traded company during the periods presented.
+Added: This is primarily because of the following factors:
+Added: Prior to the Spin-Off, we operated as part of Nuance’s broader organization, and Nuance performed various corporate functions for us.
+Added: Our historical combined financial information for fiscal 2019 and fiscal 2018 reflects allocations of corporate expenses from Nuance for these and similar functions.
+Added: These allocations may not reflect the costs we would have incurred for similar services as an independent publicly traded company.
+Added: We have entered into transactions with Nuance that did not exist prior to the Spin-Off, such as Nuance’s provision of transition and other services, and undertaken indemnification obligations, which have caused us to incur new costs after the Spin-Off.
+Added: Our historical c ombined financial information for fiscal 2019 and fiscal 2018 does not reflect changes that we experienced as a result of our separation from Nuance, including changes in the financing, cash management, operations, cost structure and personnel needs of our business.
+Added: As part of Nuance, we enjoyed certain benefits from Nuance’s operating diversity, size, purchasing power, borrowing leverage and available capital for investments that we can no longer enjoy after the Spin-Off.
+Added: As an independent entity, we may b e unable to purchase goods, services and technologies, such as insurance and health care benefits and computer software licenses, or access capital markets, on terms as favorable to us as those we obtained as part of Nuance prior to the Spin-Off, and our r esults of operations may be adversely affected.
+Added: In addition, our historical combined financial data for fiscal 2019 and fiscal 2018 does not include an allocation of interest expense comparable to the interest expenses we incurred as a result of the Spin-O ff and related transactions .
+Added: We may have potential business conflicts of interest with Nuance with respect to our past and ongoing relationships.
+Added: Conflicts of interest may arise between Nuance and us in a number of areas relating to our past and ongoing relationships, including:
+Added: labor, tax, employee benefit, indemnification and other matters arising from our separation from Nuance;
+Added: intellectual property matters;
+Added: employee recruiting and retention;
+Added: business combinations involving our company.
+Added: We may not be able to resolve any potential conflicts, and, even if we do so, the resolution may be less favorable to us than if we were dealing with an unaffiliated party.
+Added: A certain director may have actual or potential conflicts of interest because of their financial interests in Nuance.
+Added: Because of his current position with Nuance, a certain director owns equity interests in Nuance.
+Added: Continuing ownership of Nuance shares and equity awards could create, or appear to create, potential conflicts of interest if we and Nuance face decisions that could have implications for both of us.
+Added: The allocation of intellectual property rights and data between Nuance and Cerence as part of the Spin-Off, the shared use of certain intellectual property rights and data following the Spin-Off and restrictions on the use of intellectual property rights, could adversely impact our reputation, our ability to enforce certain intellectual property rights that are important to us and our competitive position.
+Added: In connection with the Spin-Off, we are entered into agreements with Nuance governing the allocation of intellectual property rights and data related to our business.
+Added: These agreements include restrictions on our use of Nuance’s intellectual property rights and data licensed to us, including limitations on the field of use in which we can exercise our license rights.
+Added: As a result, we may not be able to pursue opportunities that require use of these license rights in industries other than the automotive industry and certain ancillary fields.
+Added: Moreover, the licenses granted to us under Nuance’s intellectual property rights and data are non-exclusive, so Nuance may be able to license the rights and data to third parties that may compete with us.
+Added: These agreements could adversely affect our position and options relating to intellectual property enforcement, licensing negotiations and monetization and access to data used in our business.
+Added: We also may not have sufficient rights to grant sublicenses of intellectual property or data used in our business, and we may be subject to third party rights pertaining to the underlying intellectual property or data.
+Added: These circumstances could adversely affect our ability to protect our competitive position in the industry and otherwise adversely affect our business, financial condition and results of operations.
+Added: Risks Relating to Our Securities and Indebtedness
+Added: Our stock price may fluctuate significantly.
+Added: The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including:
+Added: actual or anticipated fluctuations in our results of operations due to factors related to our business;
+Added: success or failure of our business strategies;
+Added: competition and industry capacity;
+Added: changes in interest rates and other factors that affect earnings and cash flow;
+Added: our level of indebtedness, our ability to make payments on or service our indebtedness and our ability to obtain financing as needed;
+Added: our ability to retain and recruit qualified personnel;
+Added: our quarterly or annual earnings, or those of other companies in our industry;
+Added: announcements by us or our competitors of significant acquisitions or dispositions;
+Added: changes in accounting standards, policies, guidance, interpretations or principles;
+Added: the failure of securities analysts to cover, or positively cover, our common stock;
+Added: changes in earnings estimates by securities analysts or our ability to meet those estimates;
+Added: the operating and stock price performance of other comparable companies;
+Added: investor perception of our company and our industry;
+Added: overall market fluctuations unrelated to our operating performance;
+Added: results from any material litigation or government investigation;
+Added: changes in laws and regulations (including tax laws and regulations) affecting our business;
+Added: changes in capital gains taxes and taxes on dividends affecting stockholders;
+Added: general economic conditions and other external factors.
+Added: Low trading volume for our stock would amplify the effect of the above factors on our stock price volatility.
+Added: Should the market price of our shares drop significantly, stockholders may institute securities class action lawsuits against us.
+Added: A lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management and other resources.
+Added: The terms of the Senior Credit Facilities restrict our current and future operations, particularly our ability to incur debt that we may need to fund initiatives in response to changes in our business, the industry in which we operate, the economy and governmental regulations.
+Added: The terms of the Senior Credit Facilities include a number of restrictive covenants that impose significant operating and financial restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our long-term best interests.
+Added: These restrict our and our subsidiaries’ ability to take some or all of the following actions:
+Added: incur or guarantee additional indebtedness or sell disqualified or preferred stock;
+Added: pay dividends on, make distributions in respect of, repurchase or redeem capital stock;
+Added: make investments or acquisitions;
+Added: create liens;
+Added: enter into sale/leaseback transactions;
+Added: enter into agreements restricting the ability to pay dividends or make other intercompany transfers;
+Added: enter into transactions with affiliates;
+Added: prepay, repurchase or redeem certain kinds of indebtedness;
+Added: consolidate, merge, sell or otherwise dispose of assets or sell stock of our subsidiaries;
+Added: significantly change the nature of our business.
+Added: Furthermore, the lenders under the Senior Credit Facilities have required that we pledge our assets as collateral as security for our repayment obligations and that we abide by certain financial or operational covenants.
+Added: Our ability to comply with such cov enants and restrictions may be affected by events beyond our control, including prevailing economic, financial and industry conditions.
+Added: If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired.
+Added: A breach of any of these covenants, if applicable, could result in an event of default under the terms of the Senior Credit Facilities.
+Added: If an event of default occurred, the lenders would have the right to accelerate the repayment of such debt, and the event of def ault or acceleration could result in the acceleration of the repayment of any other debt to which a cross-default or cross-acceleration provision applies.
+Added: We might not have, or be able to obtain, sufficient funds to make these accelerated payments, and len ders could then proceed against any collateral.
+Added: Any subsequent replacement of the agreements governing the Senior Credit Facilities or any new indebtedness could have similar or greater restrictions.
+Added: The occurrence and ramifications of an event of default could adversely affect our business, financial condition and results of operations.
+Added: Moreover, as a result of all of these restrictions, we may be limited in how we conduct our business and pursue our strategy, unable to raise additional debt financing to o perate during general economic or business downturns or unable to compete effectively or to take advantage of new business opportunities.
+Added: We may evaluate whether to pay cash dividends on our common stock in the future, and the terms of our Senior Credit Facilities limit our ability to pay dividends on our common stock.
+Added: Our Board of Directors’, or our Board, decisions regarding the payment of dividends depends on consideration of many factors, such as our financial condition, earnings, sufficiency of distributable reserves, opportunities to retain future earnings for use in the operation of our business and to fund future growth, capital requirements, debt service obligations, legal requirements, regulatory constraints and other factors that our Board deems relevant.
+Added: Additionally, the terms of the Senior Credit Facilities limit our ability to pay cash dividends.
+Added: There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence paying dividends .
+Added: Servicing our debt may require a significant amount of cash.
+Added: We may not have sufficient cash flow from our business to pay our indebtedness, and we may not have the ability to raise the funds necessary to settle for cash conversions of the Notes or to repurchase the Notes for cash upon a fundamental change, which could adversely affect our business and results of operations.
+Added: In June 2020, we issued an aggregate principal amount of $175 million 3.00% convertible senior notes due 2025, or the Notes.
+Added: The interest rate is fixed at 3.00% per annum and is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020.
+Added: Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness, including the Notes, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control.
+Added: Our business may not generate cash flows from operations in the future that are sufficient to service our debt and make necessary capital expenditures.
+Added: If we are unable to generate such cash flows, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining additional debt financing or equity capital on terms that may be onerous or highly dilutive.
+Added: Our ability to refinance any future indebtedness will depend on the capital markets and our financial condition at such time.
+Added: We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
+Added: In addition, any of our future debt agreements may contain restrictive covenants that may prohibit us from adopting any of these alternatives.
+Added: Holders of the Notes have the right to require us to repurchase their Notes upon the occurrence of a fundamental change (as defined in the indenture governing the Notes) at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any.
+Added: Upon conversion, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted.
+Added: We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases in connection with such conversion and our ability to pay may additionally be limited by law, by regulatory authority, or by agreements governing our existing and future indebtedness.
+Added: Our failure to repurchase the Notes at a time when the repurchase is required by the indenture governing the Notes or to pay any cash payable on future conversions as required by such indenture would constitute a default under such indenture.
+Added: A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our existing and future indebtedness.
+Added: If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversions thereof.
+Added: In addition, our indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences.
+Added: For example, it could:
+Added: make us more vulnerable to adverse changes in general U.S.
+Added: and worldwide economic, industry, and competitive conditions and adverse changes in government regulations;
+Added: limit our flexibility in planning for, or reacting to, changes in our business and our industry;
+Added: place us at a disadvantage compared to our competitors who have less debt;
+Added: limit our ability to borrow additional amounts for funding acquisitions, for working capital, and for other general corporate purposes;
+Added: make an acquisition of our company less attractive or more difficult.
+Added: Any of these factors could harm our business, results of operations, and financial condition.
+Added: In addition, if we incur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase.
+Added: The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and results of operations and the value of our common stock.
+Added: In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to convert the Notes at any time during specified periods at their option.
+Added: If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.
+Added: In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
+Added: The conversion of some or all of the Notes would dilute the ownership interests of existing stockholders to the extent we satisfy our conversion obligation by delivering shares of our common stock upon any conversion of such Notes.
+Added: Our Notes may become in the future convertible at the option of their holders under certain circumstances.
+Added: If holders of our Notes elect to convert their Notes, we may settle our conversion obligation by delivering to them a significant number of shares of our common stock, which would cause dilution to our existing stockholders.
+Added: The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financial results.
+Added: Under FASB ASC Subtopic 470-20, Debt with Conversion and Other Options, or ASC 470-20, an entity must separately account for the liability and equity components of convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost.
+Added: ASC 470-20 requires the value of the conversion options of the Notes, representing the equity component, to be recorded as additional paid-in capital within stockholders’ equity in our consolidated balance sheet and as a discount to the Notes, which reduces their initial carrying value.
+Added: The carrying value of the Notes, net of the applicable discount recorded, will be accreted up to the principal amount of the Notes, as the case may be, from the issuance date until maturity, which will result in non-cash charges to interest expense in our consolidated statement of operations.
+Added: Accordingly, we will report lower net income or higher net loss in our financial results because ASC 470-20 requires interest to include both the current period’s accretion of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock, and the respective trading price of the Notes.
+Added: In August 2020, the FASB issued Accounting Standards Update ASU 2020-06, or ASU 2020-06, with the intent to simplify ASC 470-20 and ASC subtopic 815-40, Contracts in Entity’s Own Equity, or ASC 815-40.
+Added: Among the changes, ASU 2020-06 removed the requirement to bifurcate the liability and equity components of convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion.
+Added: The removal of the bifurcation of liability and equity components would eliminate non-cash interest expense corresponding to the amounts recorded within equity.
+Added: In addition, ASU 2020-06 precludes the use of the treasury stock method, when calculating diluted earnings per s hare, for convertible debt instruments that may be settled entirely or partially in cash upon conversion.
+Added: The FASB has specified that public companies should adopt ASU 2020-06 as of the beginning of its annual fiscal year, for fiscal years beginning after December 15, 2021.
+Added: Early adoption is permitted for fiscal years beginning after December 15, 2020, including interim periods.
+Added: We currently already apply the “if-converted” method for calculating any potential dilutive effect of the conversion options embedded in the Notes on diluted net income per share, which assumes that all of the Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive.
+Added: The commercial and credit environment may adversely affect our access to capital.
+Added: 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.
+Added: Volatility in the world financial markets could increase borrowing costs or affect our ability to access the capital markets.
+Added: These conditions may adversely affect our ability to obtain targeted credit ratings.
+Added: Your percentage ownership in Cerence may be diluted in the future.
+Added: Your percentage ownership in Cerence may be diluted in the future because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that we will be granting to our directors, officers, employees and other service providers.
+Added: Shares of our common stock are issuable upon the future vesting of certain Nuance equity awards held by our employees that are convertible into Cerence equity awards in connection with the Spin-Off.
+Added: In addition, our Board has adopted the Cerence 2019 Equity Incentive Plan, or the Equity Plan, for the benefit of certain of our current and future employees, service providers and non-employee directors.
+Added: Such awards will have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock.
+Added: In addition, our Amended and Restated Certificate of Incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock with respect to dividends and distributions, as our Board may generally determine.
+Added: The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock.
+Added: For example, we could grant the holders of preferred stock the right to elect some number of the members of our Board in all events or upon the happening of specified events, or the right to veto specified transactions.
+Added: Similarly, the repurchase or redemption rights or liquidation preferences that we could assign to holders of preferred stock could affect the residual value of our common stock.
+Added: From time-to-time, Cerence may opportunistically evaluate and pursue acquisition opportunities, including acquisitions for which the consideration thereof may consist partially or entirely of newly-issued shares of Cerence common stock and, therefore, such transactions, if consummated, would dilute the voting power and/or reduce the value of our common stock.
+Added: Certain provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws and Delaware law may discourage takeovers.
+Added: Several provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated By-Laws and Delaware law may discourage, delay or prevent a merger or acquisition.
+Added: These include, among others, provisions that:
+Added: provide for staggered terms for directors on our Board for a period following the Spin-Off;
+Added: do not permit our stockholders to act by written consent and require that stockholder action must take place at an annual or special meeting of our stockholders, in each case except as such rights may otherwise be provided to holders of preferred stock;
+Added: provide for the removal of directors only for cause for a period following the Spin-Off;
+Added: establish advance notice requirements for stockholder nominations and proposals;
+Added: provide that a special meeting of our stockholders may only be called by our Board, the Chairman of our Board or our Chief Executive Officer, or at the request of holders of not less than 20% of the outstanding shares of the common stock of Cerence;
+Added: limit our ability to enter into business combination transactions.
+Added: These and other provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated By-Laws and Delaware law may discourage, delay or prevent certain types of transactions involving an actual or a threatened acquisition or change in control of Cerence, including unsolicited takeover attempts, even though the transaction may offer our stockholders the opportunity to sell their shares of our common stock at a price above the prevailing market price.
+Added: Our Amended and Restated Certificate of Incorporation will de signate the courts of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for dispute s with us or our directors, officers or other employees.
+Added: Our Amended and Restated Certificate of Incorporation provides, in all cases to the fullest extent permitted by law, unless we consent in writing to the selection of an alternative forum, the Court of Chancery located within the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of Cerence, any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee or stockholder of Cerence to Cerence or Cerence’s stockholders, any action asserting a claim arising pursuant to the Delaware General Corporate Law, or DGCL, or as to which the DGCL confers jurisdiction on the Court of Chancery located in the State of Delaware or any action asserting a claim governed by the internal affairs doctrine or any other action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL.
+Added: However, if the Court of Chancery within the State of Delaware does not have jurisdiction, the action may be brought in any other state or federal court located within the State of Delaware.
+Added: Further, this exclusive forum provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or the Securities Act of 1933, as amended, or the Securities Act, except that it may apply to such suits if brought derivatively on behalf of Cerence.
+Added: There is, however, uncertainty as to whether a court would enforce such provision in connection with suits to enforce a duty or liability created by the Exchange Act or the Securities Act if brought derivatively on behalf of Cerence, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
+Added: Any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock will be deemed to have notice of and to have consented to these provisions.
+Added: This provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits.
+Added: Alternatively, if a court were to find this provision of our Amended and Restated Certificate of Incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions.
+Added: If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and investors’ views of us could be harmed.
+Added: The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures.
+Added: In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, with auditor attestation of the effectiveness of our internal controls, beginning with our Annual Report on Form 10-K for the year in which we cease to qualify as an emerging growth company.
+Added: If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of shares of common stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
+Added: Our ability to successfully implement our business plan and comply with Section 404 of the Sarbanes-Oxley Act requires us to be able to prepare timely and accurate financial statements.
+Added: Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls may cause our operations to suffer, and we may be unable to conclude that our internal control over financial reporting is effective and, once we cease to qualify as an emerging growth company, to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act.
+Added: Moreover, we cannot be certain that these measures would ensure that we implement and maintain adequate controls over our financial processes and reporting in the future.
+Added: Even if we were to conclude, and our auditors were to concur, that our internal control over financial reporting provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States Generally Accepted Accounting Principles, or GAAP, because of its inherent limitations, internal control over financial reporting might not prevent or detect fraud or misstatements.
+Added: This, in turn, could have an adverse impact on trading prices for our shares of common stock, and could adversely affect our ability to access the capital markets.
+Added: Unresolved Staff Comments.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.