Company Quick10K Filing
Cerence
10-Q 2020-12-31 Filed 2021-02-08
10-K 2020-09-30 Filed 2020-11-19
10-Q 2020-06-30 Filed 2020-08-05
10-Q 2020-03-31 Filed 2020-05-08
10-Q 2019-12-31 Filed 2020-02-13
S-1 2019-10-15 Public Filing
8-K 2021-02-11 Shareholder Vote
8-K 2021-02-08 Earnings, Exhibits
8-K 2020-12-17 Enter Agreement, Exhibits
8-K 2020-11-16
8-K 2020-08-04
8-K 2020-06-12
8-K 2020-06-02
8-K 2020-05-29
8-K 2020-05-27
8-K 2020-05-07
8-K 2020-02-20
8-K 2020-02-11
8-K 2019-12-17
8-K 2019-09-29
8-K 2019-09-09

CRNC 10Q Quarterly Report

Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements.
Note 1. Business Overview
Note 2. Significant Accounting Policies
Note 3. Revenue Recognition
Note 4. Earnings per Share
Note 5. Fair Value Measurements
Note 6. Derivative Financial Instruments
Note 7. Credit Losses
Note 8. Goodwill and Other Intangible Assets
Note 9. Leases
Note 10. Accrued Expenses and Other Liabilities
Note 11. Restructuring and Other Costs, Net
Note 12. Stockholder's Equity
Note 13. Commitments and Contingencies
Note 14. Income Taxes
Note 15. Long - Term Debt
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 6. Exhibits.
EX-10.2 crnc-ex102_66.htm
EX-31.1 crnc-ex311_9.htm
EX-31.2 crnc-ex312_6.htm
EX-32.1 crnc-ex321_8.htm
EX-32.2 crnc-ex322_7.htm

Cerence Earnings 2020-12-31

Balance SheetIncome StatementCash Flow

crnc-10q_20201231.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-39030

 

CERENCE INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

83-4177087

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

15 Wayside Road

Burlington, Massachusetts

01803

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (857) 362-7300

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

CRNC

 

The Nasdaq Global Select Market

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

As of January 26, 2021, the registrant had 37,712,708 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

3

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

3

 

Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2020 and 2019

3

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended December 31, 2020 and 2019

4

 

Condensed Consolidated Balance Sheets as of December 31, 2020 and September 30, 2020

5

 

Consolidated Statements of Stockholders' Equity for the Three Months Ended December 31, 2020 and 2019

6

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2020 and 2019

7

 

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

PART II.

OTHER INFORMATION

39

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 6.

Exhibits

40

Signatures

41

 

 

i


 

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

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

 

the duration and severity of the COVID-19 pandemic and its impact on our business and financial performance;

 

adverse conditions in the automotive industry or the global economy more generally, including as a result of the COVID-19 pandemic;

 

the highly competitive and rapidly changing market in which we operate;

 

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.;

 

our strategy to increase cloud services and fluctuations in our operating results;

 

escalating pricing pressures from our customers;

 

our failure to win, renew or implement service contracts;

 

the cancellation or postponement of service contracts after a design win;

 

the loss of business from any of our largest customers;

 

inability to recruit and retain qualified personnel;

 

cybersecurity and data privacy incidents that damage client relations;

 

interruptions or delays in our services or services from data center hosting facilities or public clouds;

 

economic, political, regulatory, foreign exchange and other risks of international operations;

 

unforeseen U.S. and foreign tax liabilities;

 

impairment of our goodwill and other intangible assets;

 

the failure to protect our intellectual property or allegations that we have infringed the intellectual property of others;

 

defects in our software products that result in lost revenue, expensive corrections or claims against us;

 

our inability to quickly respond to changes in technology and to develop our intellectual property into commercially viable products;

 

our inability to successfully introduce new products, applications or services;

 

a significant interruption in the supply or maintenance of our third-party hardware, software, services or data;

 

restrictions on our current and future operations under the terms of our debt and the use of cash to service our debt; and

 

certain factors discussed elsewhere in this Form 10-Q.

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

1


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


2


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

CERENCE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended December 31,

 

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

License

 

$

46,414

 

 

$

40,767

 

Connected services

 

 

27,251

 

 

 

23,021

 

Professional services

 

 

21,299

 

 

 

13,671

 

Total revenues

 

 

94,964

 

 

 

77,459

 

Cost of revenues:

 

 

 

 

 

 

 

 

License

 

 

674

 

 

 

681

 

Connected services

 

 

7,013

 

 

 

8,675

 

Professional services

 

 

17,315

 

 

 

14,491

 

Amortization of intangible assets

 

 

1,879

 

 

 

2,087

 

Total cost of revenues

 

 

26,881

 

 

 

25,934

 

Gross profit

 

 

68,083

 

 

 

51,525

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

24,091

 

 

 

23,511

 

Sales and marketing

 

 

8,898

 

 

 

7,943

 

General and administrative

 

 

11,617

 

 

 

11,483

 

Amortization of intangible assets

 

 

3,158

 

 

 

3,131

 

Restructuring and other costs, net

 

 

47

 

 

 

7,554

 

Total operating expenses

 

 

47,811

 

 

 

53,622

 

Income (loss) from operations

 

 

20,272

 

 

 

(2,097

)

Interest income

 

 

18

 

 

 

281

 

Interest expense

 

 

(3,799

)

 

 

(6,798

)

Other income (expense), net

 

 

(2,237

)

 

 

(146

)

Income (loss) before income taxes

 

 

14,254

 

 

 

(8,760

)

(Benefit from) provision for income taxes

 

 

(7,384

)

 

 

3,002

 

Net income (loss)

 

$

21,638

 

 

$

(11,762

)

Net income (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.58

 

 

$

(0.33

)

Diluted

 

$

0.54

 

 

$

(0.33

)

Weighted-average common share outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

37,180

 

 

 

35,995

 

Diluted

 

 

43,363

 

 

 

35,995

 

 

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

3


CERENCE INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

(unaudited)

 

 

 

Three Months Ended December 31,

 

 

 

2020

 

 

2019

 

Net income (loss)

 

$

21,638

 

 

$

(11,762

)

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

14,170

 

 

 

4,904

 

Pension adjustments, net

 

 

(30

)

 

 

926

 

Total other comprehensive income

 

 

14,140

 

 

 

5,830

 

Comprehensive income (loss)

 

$

35,778

 

 

$

(5,932

)

 

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

4


CERENCE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

 

 

 

December 31, 2020

 

 

September 30, 2020

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

110,360

 

 

$

136,067

 

Marketable securities

 

 

17,088

 

 

 

11,662

 

Accounts receivable, net of allowances of $579 and $1,394

 

 

60,426

 

 

 

49,943

 

Deferred costs

 

 

7,748

 

 

 

7,256

 

Prepaid expenses and other current assets

 

 

43,703

 

 

 

44,220

 

Total current assets

 

 

239,325

 

 

 

249,148

 

Property and equipment, net

 

 

29,708

 

 

 

29,529

 

Deferred costs

 

 

36,913

 

 

 

38,161

 

Operating lease right of use assets

 

 

20,630

 

 

 

20,096

 

Goodwill

 

 

1,136,356

 

 

 

1,128,198

 

Intangible assets, net

 

 

41,070

 

 

 

45,616

 

Deferred tax assets

 

 

180,166

 

 

 

161,759

 

Other assets

 

 

16,580

 

 

 

14,938

 

Total assets

 

$

1,700,748

 

 

$

1,687,445

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,806

 

 

$

8,447

 

Deferred revenue

 

 

104,577

 

 

 

112,520

 

Short-term operating lease liabilities

 

 

6,259

 

 

 

5,700

 

Short-term debt

 

 

6,250

 

 

 

6,250

 

Accrued expenses and other current liabilities

 

 

52,200

 

 

 

67,857

 

Total current liabilities

 

 

174,092

 

 

 

200,774

 

Long-term debt

 

 

266,019

 

 

 

266,872

 

Deferred revenue, net of current portion

 

 

215,692

 

 

 

212,573

 

Long-term operating lease liabilities

 

 

16,823

 

 

 

17,821

 

Other liabilities

 

 

34,994

 

 

 

31,649

 

Total liabilities

 

 

707,620

 

 

 

729,689

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, 560,000 shares authorized; 37,685 shares issued and outstanding as of December 31, 2020; 36,842 shares issued and outstanding as of September 30, 2020.

 

 

378

 

 

 

369

 

Accumulated other comprehensive income

 

 

17,851

 

 

 

3,711

 

Additional paid-in capital

 

 

973,892

 

 

 

974,307

 

Retained earnings (accumulated deficit)

 

 

1,007

 

 

 

(20,631

)

Total stockholders' equity

 

 

993,128

 

 

 

957,756

 

Total liabilities and stockholders' equity

 

$

1,700,748

 

 

$

1,687,445

 

 

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

5


CERENCE INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

 

 

Three Months Ended December 31, 2020

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

(Accumulated Deficit) Retained Earnings

 

 

Net

Parent

Investment

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

 

Balance at September 30, 2020

 

 

36,842

 

 

$

369

 

 

$

974,307

 

 

$

(20,631

)

 

$

-

 

 

$

3,711

 

 

$

957,756

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

21,638

 

 

 

-

 

 

 

-

 

 

 

21,638

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

14,140

 

 

 

14,140

 

Issuance of common stock

 

 

1,276

 

 

 

13

 

 

 

3,650

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,663

 

Stock withheld to cover tax withholdings requirements upon stock vesting

 

 

(433

)

 

 

(4

)

 

 

(30,254

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(30,258

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

26,189

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

26,189

 

Balance at December 31, 2020

 

 

37,685

 

 

$

378

 

 

$

973,892

 

 

$

1,007

 

 

$

 

 

$

17,851

 

 

$

993,128

 

 

 

Three Months Ended December 31, 2019

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated Deficit

 

 

Net

Parent

Investment

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

 

Balance at September 30, 2019

 

 

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

1,097,127

 

 

$

(28,999

)

 

$

1,068,128

 

Net (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(11,762

)

 

 

-

 

 

 

-

 

 

 

(11,762

)

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,830

 

 

 

5,830

 

Distribution to Parent

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(152,978

)

 

 

-

 

 

 

(152,978

)

Net (decrease) increase in net parent investment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,275

)

 

 

15,728

 

 

 

11,453

 

Reclassification of net parent investment in Cerence

 

 

-

 

 

 

-

 

 

 

939,874

 

 

 

-

 

 

 

(939,874

)

 

 

-

 

 

 

 

Issuance of common stock at separation

 

 

36,391

 

 

 

364

 

 

 

(364

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

Stock issued pursuant to employee stock plans

 

 

21

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

Stock withheld to cover tax withholdings requirements upon stock vesting

 

 

(9

)

 

 

(0

)

 

 

(141

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(141

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

5,685

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,685

 

Balance at December 31, 2019

 

 

36,403

 

 

$

364

 

 

$

945,054

 

 

$

(11,762

)

 

$

-

 

 

$

(7,441

)

 

$

926,215

 

 

 

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

6


CERENCE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)

 

 

 

Three Months Ended December 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

21,638

 

 

$

(11,762

)

Adjustments to reconcile net income (loss) to net cash provided by operations:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,624

 

 

 

7,359

 

Benefit from credit loss reserve

 

 

(410

)

 

 

 

Stock-based compensation

 

 

12,351

 

 

 

8,969

 

Non-cash interest expense

 

 

1,230

 

 

 

1,332

 

Deferred tax benefit

 

 

(14,106

)

 

 

(4,928

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(8,112

)

 

 

1,691

 

Prepaid expenses and other assets

 

 

1,025

 

 

 

(18,193

)

Deferred costs

 

 

2,051

 

 

 

(192

)

Accounts payable

 

 

(3,655

)

 

 

905

 

Accrued expenses and other liabilities

 

 

(1,960

)

 

 

22,210

 

Deferred revenue

 

 

(6,867

)

 

 

2,065

 

Net cash provided by operating activities

 

 

10,809

 

 

 

9,456

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(2,369

)

 

 

(3,612

)

Purchases of marketable securities

 

 

(6,358

)

 

 

 

Net cash used in investing activities

 

 

(8,727

)

 

 

(3,612

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net transaction with Parent

 

 

 

 

 

11,384

 

Distribution to Parent

 

 

 

 

 

(152,978

)

Proceeds from long-term debt, net of discount

 

 

 

 

 

249,705

 

Payments for long-term debt issuance costs

 

 

(520

)

 

 

(515

)

Principal payments of long-term debt

 

 

(1,563

)

 

 

 

Common stock repurchases for tax withholdings for net settlement of equity awards

 

 

(30,258

)

 

 

(141

)

Principal payment of lease liabilities arising from a finance lease

 

 

(101

)

 

 

(55

)

Proceeds from the issuance of common stock

 

 

3,663

 

 

 

 

Net cash (used in) provided by financing activities

 

 

(28,779

)

 

 

107,400

 

Effects of exchange rate changes on cash and cash equivalents

 

 

990

 

 

 

152

 

Net change in cash and cash equivalents

 

 

(25,707

)

 

 

113,396

 

Cash and cash equivalents at beginning of period

 

 

136,067

 

 

 

 

Cash and cash equivalents at end of period

 

$

110,360

 

 

$

113,396

 

Supplemental information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

563

 

 

$

1,472

 

Cash paid for interest

 

$

3,805

 

 

$

3,676

 

 

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

 

7


 

 

CERENCE INC.

Notes to Condensed Consolidated Financial Statements