CRNC 10-K & 10-Q changes, risk factors and insider trading

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. Some of the risks relate to our business, others to our intellectual property and technology, the consequences of the Spin-Off, the securities markets, our indebtedness and ownership of our securities. 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.

There are a number of companies that develop or may develop products that compete in the automotive voice assistance market. 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. 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. 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. 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. Alternatively, given the increased availability and effectiveness of AI technologies and other open-source development tools, existing or prospective customers may decide to develop competitive solutions entirely in-house which compete with our product offerings. 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.

Our business depends on, and is directly affected by, the global automobileautomotive industry. 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, trade restrictions, customs regulations, tariffs and price or exchange controls, preferences by nations for domestically manufactured products and political volatility, especially in energy-producing countries and large or high growth markets. Such factors have in the past and may in the future also negatively impact consumer demand for automobiles that include features such as our products. 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. For example, the U.S. government and governments of other countries recently adopted tariffs that apply to the automotive industry and may affect the business of our customers, which in turn could impact our own business. In addition, U.S. trade legislation continues to evolve related to barriers on the use of various products and technology from around the world including but not limited to the Securing the Information and Communications Technology and Services Supply Chain: Connected Vehicles regulation promulgated by the U.S. Department of Commerce in December 2024. The Company can provide no assurance that any strategies we implement to mitigate the impact of any trade actions will be successful. 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. Moreover, the automotive industry has recently experienced, and may continue to experience, a semiconductor shortage, which has negatively impacted the production of new vehicles. Any significant adverse change in any of these factors, including, but not limited to, general economic conditions and the resulting bankruptcy of a customer, the closure of a customer manufacturing facility or the ability of a customer manufacturing facility to obtain supplies to manufacture automobiles and to ship or receive shipments of parts, supplies or finished product,product on prices that are acceptable to them, or imposition of tariffs that affect the prices at which end consumers purchase automobiles, 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.

•falling overall demand for goods and services, leading to reduced profitability;

•reduced credit availability;

•higher borrowing costs;

•reduced liquidity;

•volatility in credit, equity and foreign exchange markets; and bankruptcies.

These developments, along with continued uncertainty about economictariffs stabilityand relatedtrade to the global outbreak of COVID-19,policies, and the ongoing conflicts in Ukraine and the Middle East, have resulted in supply chain disruption, inflation, higher interest rates, fluctuations in currency exchange rates, and uncertainty about business continuity, which may adversely affect our business and our results of operations. As our customers react to global political, trade and economic conditions and the potential for a global recession, we may see them increase pricing pressure on us, reduce spending on our products and take additional precautionary measures to limit or delay expenditures and preserve capital and liquidity. Reductions in spending on our solutions, delays in automobile production or purchasing decisions, lack of renewals or the inability to attract new customers, as well as pressure for extended billing terms or pricing discounts, would limit our ability to grow our business and negatively affect our operating results and financial condition.

InFrom time to time, we take actions focused on process optimization and reducing operational costs. For instance, in September 2025, we announced the 2025 Plan with respect to certain foreign operations intended to streamline certain operations and simplify our organizational structure. Similarly, in August 2024, we announced athe restructuring2024 planPlan intended to reduce operating expenses and position us for profitable growthgrowth, (which plan was substantially complete by the “Plan”).end of the first quarter of fiscal year 2025. The implementation of thethese Plantypes of plans may be disruptive to our operations, result in higher than anticipated restructuring charges, including severance payments, payments in lieu of notice, employee benefits and related costs, and otherwise adversely affect our results of operations and financial condition. Additional risks associated with the continuing impact of thethese Planplans include employee attrition, the ability to hire new employees in the future, diversion of management attention, and adverse effects on employee morale.

In addition, our ability to complete the 2025 Plan or any plan we may announce in the future and achieve the anticipated benefits from thesuch Planplan within the expected time frame, or at all, is subject to management’s estimates and assumptions and may vary materially from our expectations, including as a result of factors that are beyond our control. If we do not realize the expected benefits of the 2025 Plan or any plan we may announce in the future on a timely basis, or at all, our business, results of operations and financial condition could be adversely affected. Furthermore, following completion of the Plan,2025 Plan or any plan we may announce in the future, our business may not be more efficient or effective than prior to the implementation of thesuch Plan.plan. Our failure to successfully control our expenses could materially impact our results of operations, financial condition and cash flows.

The loss of business from any of our major customers, including as a result of lower overall demand for vehicles, automotive production curtailment or delays, cancellation of existing contracts or the failure to award us new business, has in the past and could in the future have a material adverse effect on our business, results of operations and financial condition. 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. 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. In addition, certain of our customers that are tier 1 suppliers exclusively sell to certain OEMs, including some of our other customers. A bankruptcy of, or other significant disruption to, any of these OEMs could intensify any adverse impact on our business and results of operations.

•given our limited customer base, the volume, timing and fulfillment of large customer contracts;

•renewals of existing customer contracts and wins of new customer programs;

•our mix of variable, fixed prepaid or fixed minimum purchase commitment license contracts;

•increased expenditures incurred pursuing new product or market opportunities;

•the timing of the receipt and accuracy of royalty reports;

•fluctuating sales by our customers to their end-users;

•contractual counterparties failing to meet their contractual commitments to us;

•introduction of new products by us or our competitors;

•cybersecurity or data breaches;

•reduction in the prices of our products in response to competition, market conditions or contractual obligations;

•impairment of goodwill or intangible assets;

•accounts receivable that are not collectible;

•higher than anticipated costs related to fixed-price contracts with our customers;

•change in costs and demand for our products due to tariffs, or regulatory or trade restrictions;

•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;

•changes in our stock compensation practices, as it relates to employee short-term incentive payments; and general economic trends as they affect the customer bases into which we sell.

If any of our management or other 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. 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 management and other key employees leave in the past. We cannot assure you that one or more management or other key employees will not leave in the future. The departure of key leadership personnel, in particular, can take significant knowledge and experience from the Company. While this loss of knowledge and experience can be mitigated through a successful transition, there can be no assurance that we will be successful in such efforts. If we do not successfully manage the transition of management positions, it could be viewed negatively by our customers, employees or investors and could have an adverse impact on our business and strategic direction. A change in senior management, such as we experienced over the past few years, also could result in our future strategy and plans differing from those of the past. In August 2024,2024 and September 2025, we announced a restructuring plan,plans, including a reductionreductions in force, intended to reduce operating expenses and position us for profitable growth. These reductions and any additional measures we might take to reduce costs could yield unanticipated consequences, such as straining our workforce, diverting management attention, yielding attrition beyond our intended workforce reduction, or reducing employee morale. Further, 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. Any failure to attract, integrate, motivate and retain these employees could harm our business.

•loss of revenue resulting from the operational disruption;

•loss of revenue or increased credit loss expense due to the inability to invoice properly or to customer dissatisfaction resulting in collection issues;

•loss of revenue due to loss of customers;

•material remediation costs to recreate or restore systems;

•material investments in new or enhanced systems in order to enhance our information security posture;

•cost of incentives offered to customers to restore confidence and maintain business relationships;

•reputational damage resulting in the failure to retain or attract customers;

•costs associated with potential litigation or governmental investigations, enforcement actions or regulatory fines;

•claims by third parties asserting that we have breached our privacy, confidentiality, data security or similar obligations;

•costs associated with any required notices of a data breach;

•costs associated with the potential loss of critical business data;

•difficulties enhancing or creating new products due to loss of data or data integrity issues; and other consequences of which we are not currently aware of but will discover through the remediation process.

Notably, for example, on May 25, 2018, the European General Data Protection Regulation 2016/679, which is commonly referred to as GDPR, took effect. The GDPR applies to any company established in the European Economic Area (“EEA”) as well as any company outside the EEA that collects or otherwise processes personal data in connection with the offering of goods or services to individuals in the EEA or the monitoring of their behavior. The GDPR enhances data protection obligations for processors and controllers of personal data, including,including providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, requirements to conduct data protection impact assessments and taking certain measures when engaging third-party processors. The GDPR imposes additional obligations and risk upon our business and substantially increases the penalties to which we could be subject in the event of any non-compliance. Failure to comply with the requirements of the GDPR may result in potential fines. The GDPR also confers a private right of action on data subjects and nonprofit organizations, acting subject to a mandate granted by the data subject, to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR.

The development and use of artificial intelligence or (“AI (AI”) presents risks and challenges that can impact our business including by posing security risks to our confidential information, proprietary information, and personal data and could give rise to legal and/or regulatory actions, damage our reputation or otherwise materially harm our business.

We develop and incorporate AI technology in certain of our products and services and plan to develop and incorporate additional AI technology in future products and services. Issues in the development and use of AI, including generative AI tools and large language models, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business operations. AI presents risks, challenges, and unintended consequences that could affect our and our customers’ adoption and use of this technology. AI algorithms and training methodologies may be flawed. Additionally, AI technologies are complex and rapidly evolving, and we face significant competition in the market and from other companies regarding such technologies. Our vendors may incorporate generative AI tools into their offerings without disclosing this use to us, and the providers of these generative AI tools may not meet existing or rapidly evolving regulatory or industry standards with respect to privacy and data protection and may inhibit our or our vendors’ ability to maintain an adequate level of service and experience. If we, our vendors, or our third-party partners experience an actual or perceived breach of privacy or security incident because of the use of AI, we may lose valuable intellectual property and confidential information and our reputation and the public perception of the effectiveness of our security measures could be harmed. Further, bad actors around the world use increasingly sophisticated methods, including the use of AI, to engage in illegal activities involving the theft and misuse of personal information, confidential information, and intellectual property. While we aim to develop and use AI responsibly and attempt to identify and mitigate ethical and legal issues presented by its use, we may be unsuccessful in identifying or resolving issues before they arise. AI-related issues, deficiencies and/or failures could (i) give rise to legal and/or regulatory actions, including with respect to legislation regulating AI in jurisdictions such as the EEA, and as a result of new applications of existing data protection, privacy, intellectual property, and other laws; (ii) damage our reputation; or (iii) otherwise materially harm our business.

•adverse political and economic conditions, or changes to such conditions, in a specific region or country;

Cerence builds conversational and agentic AI powered virtual assistantssolutions for the mobility/transportation market. Our primary target is the automobile market, but our solutions can apply to all forms of transportation including, but not limited to, two-wheel vehicles, planes, tractors, cruise ships and elevators.elevators as well as the Internet of Things industry as a whole, including televisions, smart watches, voice-powered kiosks, and more. Our solutions power natural conversational and intuitive interactions between automobiles, drivers and passengers, and the broader digital world. We possess one of the world’s most popularleading software platforms for building automotive virtual assistants. Our automotive customers include nearly all major automobile original equipment manufacturers (“OEMs”) or their tier 1 suppliers worldwide. We deliver our solutions on a white-label basis, enabling our customers to deliver customized virtual assistants with unique, branded personalities and ultimately strengthening the bond between automobile brands and end users. Our vision is to enable a more enjoyable, safer journey for everyone.

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

We experienced a 12.6%24.0% increasedecrease in total revenue during fiscal year 2024.2025. The increasedecrease in revenues was driven by a decrease in connected services revenue due to the early termination of a legacy contract acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer. The increaseeffect of this change was to accelerate $67.8 million of deferred revenue into the first quarter of fiscal year 2024. The decrease was partially offset by decreasesan increase in license revenue primarily due to loweran increase in volume of licensing royalties. Our license revenue is highly dependent on vehicle production, the timing and volume of which continues to be impacted by the changing dynamics in the global automotive industry. Macroeconomic conditions such as high interest rates and lack of credit availability have contributed to production delays and slowdowns. The decrease in our professional services revenues was primarily driven by our arrangements and the relatedincreased timingstandardization of fulfillingour performancesoftware obligationsproduct underofferings, thewhich contracts.requires less professional services effort to implement, other efficiencies in our professional services processes and, in some cases, customers opting to perform these activities internally.

During fiscal year 2024,2025, total cost of revenues decreased by 8.3%21.3% compared to fiscal year 2023,2024, primarily driven by the declines in licenseconnected services and professional services revenues. Total operating expenses increaseddecreased by 263.9%77.5% during fiscal year 2024,2025, primarily driven by a goodwillthe impairment charge of $609.2 milliongoodwill recognized in fiscal year 2024.2024 Totaland operatingour expensesongoing excludingbusiness thetransformation goodwill charge decreased 5.1%, primarily driven byand cost savingsreduction initiatives intended to reduce operating expenses and position us for profitable growth.efforts. Restructuring and other costs, net increaseddecreased $5.2$1.7 million, driven by severance charges related to the eliminationwind-down of personnelrestructuring andefforts consultinginitiated costsin relating to our transformation initiatives.2024.

Key Financial Metrics

•Total revenue increaseddecreased by $37.0$79.7 million, or 12.6%,24.0%, from $294.5$331.5 million to $331.5$251.8 million.

•Operating margin increased by 47.0174.0 percentage points from negative 56.2%174.9% to negative 9.2%.0.9%.

•Cash from operating activities changed by $9.6$44.0 million, or 450.7%,255.7%, from cash usedprovided inby operating activities of $2.1$17.2 million to cash provided by operating activities of $7.5$61.2 million.

Our revenue consists primarily of license revenue, connected services revenue and revenue from professional services. License revenue primarily consists of license royalties associated with our edge software components. Our edge software components are typically sold under a traditional per unit perpetual software license model, in which a per unit fee is charged for each software instance installed on an automotive head unit. Our contracts contain variable, fixed prepaid or fixed minimum purchase commitment components. Revenue is recognized and cash is collected for variable contracts over the license distribution period. The fixed contracts typically provide the customer with a price discount and can include the conversion of a variable contract that wasis previously includedalready in our estimated future revenues from variable forecasted royalties.backlog. Revenue for fixed contracts is recognized when the software is made available to the customer, which has typically occurred at the time the contract is signed. Cash is typically expected to be collected for a fixed prepaid deal at the inception of the contract. Cash is expected to be collected for a fixed minimum commitment deal over the license distribution period. During fiscal year 2023, we had a reduction in contributions from our fixed license contracts due to our decision to limit the level of such contracts on a go-forward basis which contributed to a decline in reported license revenue for fiscal years 20232023, 2024 and 2024.2025. Going forward, we will continue to assess the levels of fixed license contracts and make adjustments, as necessary. See Note 3 to the accompanying consolidated financial statements for further discussion of our revenue, deferred revenue performance obligations and the timing of revenue recognition. Costs of license revenue primarily consistconsists of third-party royalty expenses for certain external technologies we leverage.leverage and costs associated with our Cerence Link product.

Connected services revenue primarily represents the subscription fee that provides access to our connected services components, including the customization and construction of our connected services solutions. We also derive revenue within our connected services business from usage contracts and there can be instances where a customer purchases a software license that allows them to take possession of the software to enable hosting by the customer or a third-party. Subscription and usage contracts typically have a term of one to five years. Subscription revenue is recognized over the subscription period and cash is expected to be collected at the start of the subscription period. Usage based revenue is recognized and cash is collected as the service is used. If the customer takes possession of the software to have it hosted by the customer or a third-party, revenue is recognized, and cash is collected at the time the license is delivered. On October 31, 2023, we entered into an early termination agreement relating to a legacy contract acquired by Nuance through a 2013 acquisition. Previously, the term of the contract ended on December 31, 2025, whereas the agreement signed on October 31, 2023 updated the termination date to December 31, 2023. The effect of this change was to accelerate $67.8 million of deferred revenue into the first quarter of fiscal year 2024. There was no cash flow associated with this legacy contract. We provided services to a separate customer, who in turn provided services to our legacy customer. This separate customer terminated services on October 31, 2023. There was no cash flow associated with this contract. The effect of this termination was to accelerate $9.9 million of deferred revenue into the first quarter of fiscal year 2024. See Note 3 to the accompanying consolidated financial statements for further discussion of our revenue, deferred revenue performance obligations and the timing of revenue recognition. Cost of connected service revenue primarily consists of labor costs of software delivery services, infrastructure, and communications fees that support our connected services solutions. During the first quarter of fiscal year 2024, we had an acceleration of $2.0 million of expenses associated with the termination of the legacy contract acquired by Nuance through a 2013 acquisition.

Our operating expenses include R&D, sales and marketing and general and administrative expenses. R&D expenses primarily consist of salaries, benefits, and overhead relating to research and engineering staff. Sales and marketing expenses includeincludes salaries, benefits, and commissions related to our sales, product marketing, product management, and business unit management teams. General and administrative expenses primarily consist of personnel costs for administration, legal, finance, human resources, general management, fees for external professional advisers including accountants and attorneys, and provisions for credit losses.

Total other expense, net consists primarily of foreign exchange gains (losses), losses on our investments in convertible notes, gains (losses) on the extinguishment of debt and interest expense related to the Notes and Senior Credit Facilities.Notes.

We expect our revenue to continue to be impacted by the changing dynamics in the global automotive industry which havehas resulted inexperienced production delays and slowdowns. Volatility in the political, legal and regulatory environment in which we operate, including trade, tariffs and related policies also has resulted in increased pricing pressure from customers and delays in program timelines. Macroeconomic conditions such as high interest rates and lack of credit availability have contributed to these production delays and slowdowns. In addition, the software and technology systems in automobiles have become increasingly complex, leading to substantial challenges and delays in production for some of our customers. Our business in adjacent markets, such as two-wheeled vehicles, trucks and AIoT, is also developing slower than anticipated due to the challenges of introducing different technology into a new market. In light of these challenges, we intend to make efforts to streamline our operations, and we continue to focus on our cost structuremanagement and have taken, and expect to continue to take, cost reduction actions, which may result in additional restructuring costs and impairment charges.costs. In particular, in September 2025, we announced the 2025 Plan intended to streamline certain operations. In August 2024, we announced athe restructuring2024 planPlan intended to reduce operating expenses and position us for profitable future growth (the “Plan”).growth. During the fourth quarter of fiscal year 2024,2025, we incurred approximately $8.1$15.4 million of restructuring charges as part of the 2024 Plan and expectcurrently estimate cash charges of approximately $7.4 million to incur approximately $4.4$7.6 million during fiscal year 2025.2026, as part of the 2025 Plan. The implementation of the 2024 Plan willwas substantially complete by the end of the first quarter of fiscal year 2025 and the implementation of the 2025 Plan is expected to be substantially complete by the end of the first quarter of fiscal year 2025.2026. Potential position eliminations are subject to legal requirements that vary by jurisdiction, which may extend this process beyond the first quarter of fiscal year 20252026 in certain cases. The charges that we expect to incur from the implementation of the 2025 Plan are subject to a number of assumptions, including legal requirements in various jurisdictions, and actual expenses and charges may differ materially from the estimates disclosed above. For additional details, refer to Item 1A. Risk Factors.

Total revenues for fiscal year 20242025 were $331.5$251.8 million, ana increasedecrease of $37.0$79.7 million, or 12.6%,24.0%, from $294.5$331.5 million from fiscal year 2023.2024. The increasedecrease in revenues was driven by connected services revenue due to the early termination of a legacy contract in fiscal year 2024 acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer.customer (hereinafter the "2013 Nuance Legacy Contract Termination"). The increasedecrease was partially offset by decreasesincreases in license revenue primarily due to lowerhigher volume of licensing royalties.

Connected services revenue for fiscal year 2024 was $133.4 million, an increase of $58.3 million, or 77.8%, from $75.1 million for fiscal year 2023. This increase was primarily driven by the early termination of a legacy contract acquired by2013 Nuance throughLegacy aContract 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer.Termination. The effect of these changes was an acceleration of $67.8 million and $9.9 million of deferred revenue, respectively, into the first quarter of fiscal year 2024. As a percentage of total revenue, connected services revenue increased by 14.8 percentage points from 25.5% for fiscal year 2023 to 40.3% for fiscal year 2024.

We experienced ana increasedecrease in total gross profit of $45.0$61.1 million, or 22.6%,25.0%, from $199.3$244.3 million to $244.3$183.1 million. The increasedecrease was primarily driven by the increase in connected service revenue due to the early termination of a legacy contract acquired by2013 Nuance throughLegacy aContract 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer.Termination.

Cost of license revenue for fiscal year 20242025 was $6.1$6.9 million, aan decreaseincrease of $2.4$0.9 million, or 28.9%,14.5%, from $8.5$6.1 million for fiscal year 2023.2024. Cost of license revenues decreasedincreased primarily due to costs associated with our Cerence Link product. As a percentage of total cost of revenue, cost of license revenue decreasedincreased by 2.13.2 percentage points from 9.0% for fiscal year 2023 to 6.9% for fiscal year 2024.2024 to 10.1% for fiscal year 2025.

License gross profit decreasedincreased by $17.9$15.0 million, or 13.1%,12.6%, primarily due to declines inincreased license revenues.

Connected services gross profit increased $56.6 million, or 108.7%, from $52.1 million to $108.7 million which was primarily driven by the early termination of a legacy contract acquired by2013 Nuance throughLegacy aContract 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer.Termination.

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

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

For the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025:

•Operating margin increased 14.74.2 percentage points to positive 15.0%2.7% from positivenegative 0.3%.1.5%.

•Cash provided by operating activities was $52.0$20.0 million, ana increasereduction of $27.3$3.7 million, or 110.4%,15.8%, from cash provided by operating activities of $24.7$23.7 million.

The following table shows the Condensed Consolidated Statements of Operations for the three and sixnine months ended MarchJune 31,30, 2026 and 2025 (dollars in thousands):

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

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

The following table shows total revenues by product type, including the corresponding percentage change, for the three months ended MarchJune 31,30, 2026 and 2025 (dollars in thousands):

Total revenues for the three months ended MarchJune 31,30, 2026 were $64.2$69.6 million, aan decreaseincrease of $13.8$7.4 million, or 17.7%,11.8%, from $78.0$62.2 million for the three months ended MarchJune 31,30, 2025. DecreasesIncreases in revenue were attributable to lowerhigher fixed license contractsrevenue and higher connected services revenue, partially offset by lower variable license revenue resulting primarily from reduced production volumes reported, and lower professional services revenue compared to the three months ended MarchJune 31,30, 2025, and lower volume of professional services, partially offset by increased connected services revenue.2025.

License revenue for the three months ended MarchJune 31,30, 2026 was $37.6$41.6 million, aan decreaseincrease of $13.9$7.4 million, or 27.0%,21.7%, from $51.5$34.2 million for the three months ended MarchJune 31,30, 2025. The decreaseincrease in license revenue was primarily driven by a $15.7$12.5 million decreaseincrease in fixed license contracts, which vary quarter over quarter based on the timing of contract execution. There was no revenue from fixed license contracts entered into during the three months ended June 30, 2025. The increase in fixed license revenue was offset by ana increasedecrease in variable license revenue of $1.9$5.1 million, driven primarily by increasedlower production volumes reported.reported for the period. The decrease reflects both a particularly strong prior-year comparative period and lower production levels among certain customers and regions that represent a significant portion of our revenue base, as well as the timing of vehicle program lifecycle transitions. As a percentage of total revenues, license revenue decreasedincreased 7.44.9 percentage points from 66.0%54.9% for the three months ended MarchJune 31,30, 2025 to 58.5%59.8% for the three months ended MarchJune 31,30, 2026.

Connected services revenue for the three months ended MarchJune 31,30, 2026 was $15.3$15.5 million, an increase of $2.7$2.6 million, or 21.0%,20.4%, from $12.6$12.8 million for the three months ended MarchJune 31,30, 2025. This increase was primarily driven by continued expansion of our connected installed base.base and a higher attach rate. As a percentage of total revenues, connected services revenue increased by 7.61.6 percentage points from 16.2%20.6% for the three months ended MarchJune 31,30, 2025 to 23.9%22.2% for the three months ended MarchJune 31,30, 2026.

Professional services revenue for the three months ended MarchJune 31,30, 2026 was $11.3$12.5 million, a decrease of $2.6$2.7 million, or 18.7%,17.7%, from $13.9$15.2 million for the three months ended MarchJune 31,30, 2025. This decrease was primarily driven by the increased standardization of our software product offerings, which requires less professional services effort to implement,implement and other efficiencies in our professional services processes and, in some cases, customers opting to perform these activities internally.processes. As a percentage of total revenues, professional services revenue decreased by 0.26.5 percentage points from 17.8%24.5% for the three months ended MarchJune 31,30, 2025 to 17.6%18.0% for the three months ended MarchJune 31,30, 2026.

The following table shows total revenues by product type, including the corresponding percentage change, for the sixnine months ended MarchJune 31,30, 2026 and 2025 (dollars in thousands):

Total revenues for the sixnine months ended MarchJune 31,30, 2026 were $179.3$248.9 million, an increase of $50.4$57.7 million, or 39.1%,30.2%, from $128.9$191.1 million for the sixnine months ended MarchJune 31,30, 2025. The increase in revenue was primarily driven by our IP license agreement with Samsung, resulting in $49.5 million of revenue recognized in the applicable period pursuant to ASC 606.

License revenue for the sixnine months ended MarchJune 31,30, 2026 was $125.3$166.9 million, an increase of $51.2$58.6 million, or 68.9%,54.1%, from $74.2$108.4 million for the sixnine months ended MarchJune 31,30, 2025. The increase in revenue was primarily driven by our IP license agreement with Samsung, resulting in $49.5 million of one-time revenue, recognized in accordance with ASC 606. Other license revenue activity included a $9.6$4.6 million increase associated with variable contract revenue attributable to higher reported volumes,volume partiallycoupled offset bywith a $8.0$4.5 million decreaseincrease in fixed license contracts as the timing of fixed license contracts between quarters differs year over year. There was $26.0 million of revenue from fixed license contracts entered into during the nine months ended June 30, 2026, as compared to $21.5 million of revenue from fixed license contracts entered into during the corresponding period in 2025. No fixed license revenue is expected in the fourth quarter of 2026. As a percentage of total revenues, license revenue increased 12.410.4 percentage points from 57.5%56.7% for the sixnine months ended MarchJune 31,30, 2025 to 69.9%67.1% for the sixnine months ended MarchJune 31,30, 2026.

Connected services revenue for the sixnine months ended MarchJune 31,30, 2026 was $29.8$45.3 million, an increase of $3.5$6.1 million, or 13.2%,15.6%, from $26.4$39.2 million for the sixnine months ended MarchJune 31,30, 2025. This increase was primarily driven by continued expansion of our connected installed base.base and a higher attach rate. As a percentage of total revenues, connected services revenue decreased by 3.82.3 percentage points from 20.4%20.5% for the sixnine months ended MarchJune 31,30, 2025 to 16.6%18.2% for the sixnine months ended MarchJune 31,30, 2026.

Professional service revenue for the sixnine months ended MarchJune 31,30, 2026 was $24.1$36.6 million, a decrease of $4.3$7.0 million, or 15.1%,16.0%, from $28.4$43.6 million for the sixnine months ended MarchJune 31,30, 2025. This decrease was primarily driven by the increased standardization of our software product offerings, which requires less professional services effort to implement,implement and other efficiencies in our professional services processes and, in some cases, customers opting to perform these activities internally.processes. As a percentage of total revenues, professional services revenue decreased by 8.78.1 percentage points from 22.1%22.8% for the sixnine months ended MarchJune 31,30, 2025 to 13.4%14.7% for the sixnine months ended MarchJune 31,30, 2026.

Total cost of revenues for the three months ended MarchJune 31,30, 2026 were $16.9$16.7 million, aan decreaseincrease of $0.9$0.3 million, or 5.2%,2.0%, from $17.8$16.3 million for the three months ended MarchJune 31,30, 2025.

We experienced aan decreaseincrease in total gross profit of $12.9$7.0 million, or 21.4%,15.3%, from $60.2$45.9 million for the three months ended MarchJune 31,30, 2025 to $47.3$52.9 million for the three months ended MarchJune 31,30, 2026. The decreaseincrease was primarily driven by a decrease in fixed license revenuegross profit of $15.7$7.1 million.

Cost of license revenue for the three months ended MarchJune 31,30, 2026 was $1.6$1.4 million, aan decreaseincrease of $0.8$0.3 million, or 34.0%,26.8%, from $2.4$1.1 million for the three months ended MarchJune 31,30, 2025. Cost of license revenues decreasedincreased primarily due to lowercomparatively hardwarehigher costs attributableassociated to decreased volume ofwith our Cerence Link product revenue.product. As a percentage of total cost of revenues, cost of license revenue decreasedincreased by 4.11.6 percentage points from 13.6%6.6% for the three months ended MarchJune 31,30, 2025 to 9.5%8.2% for the three months ended MarchJune 31,30, 2026.

License gross profit decreasedincreased by $13.1$7.1 million, or 26.6%,21.6%, for the three months ended MarchJune 31,30, 2026 when compared to the three months ended MarchJune 31,30, 2025, primarily driven by athe decrease$7.4 in fixed license revenue of $15.7 million, offset by anmillion increase in variable license revenuerevenues ofrecognized $1.9for million.the three months ended June 30, 2026.

Cost of connected services revenue for the three months ended MarchJune 31,30, 2026 was $5.0$4.9 million, an increase of $0.1 million, or 1.3%,2.1%, from $5.0$4.8 million for the three months ended MarchJune 31,30, 2025. Cost of connected services revenue increased primarily due to ahigher public cloud costs of $0.3 million and higher volumelabor allocation costs of connected service deliveries and related costs incurred of $0.4$0.1 million, partially offset by lower laborconnected costsprofessional services cost of goods sold of $0.2 million and lower allocation expenses of $0.1 million. AsCost of connected services revenue was flat as a percentage of total cost of revenues,revenues costat of connected services revenue increased by 1.9 percentage points from 27.9%29.4% for both the three months ended MarchJune 31,30, 2025 to 29.8% for the three months ended March 31,and 2026.

Connected services gross profit increased $2.6$2.5 million, or 33.9%,31.4%, from $7.7$8.0 million for the three months ended MarchJune 31,30, 2025 to $10.3$10.6 million for the three months ended MarchJune 31,30, 2026, primarily due to our continued expansion of our connected installed base resulting in increased revenue, and similar overall costs associated with the delivery of connected services.

Cost of professional services revenue for the three months ended MarchJune 31,30, 2026 was $10.2$10.4 million, a decrease of $0.2$0.1 million, or 1.6%,0.6%, from $10.4$10.5 million for the three months ended MarchJune 31,30, 2025. Cost of professional services revenue decreased primarily due to a decrease in allocated facilities and infrastructure costs of $0.4 million, offset by an increase in personnel related costs of $0.2 million. As a percentage of total cost of revenues, cost of professional services revenue increaseddecreased by 2.21.6 percentage points from 58.4%64.0% for the three months ended MarchJune 31,30, 2025 to 60.6%62.4% for the three months ended MarchJune 31,30, 2026.

Professional services gross profit decreased $2.4$2.6 million, or 69.6%,55.4%, from $3.5$4.7 million for the three months ended MarchJune 31,30, 2025 to $1.1$2.1 million for the three months ended MarchJune 31,30, 2026, which was primarily due to a decrease in related revenues.

Total cost of revenues for the sixnine months ended MarchJune 31,30, 2026 were $32.6$49.3 million, a decrease of $3.0$2.7 million, or 8.5%,5.2%, from $35.7$52.0 million for the sixnine months ended MarchJune 31,30, 2025.

We experienced an increase in total gross profit of $53.4$60.4 million, or 57.3%,43.4%, from $93.3$139.1 million for the sixnine months ended MarchJune 31,30, 2025 to $146.6$199.6 million for the sixnine months ended MarchJune 31,30, 2026. The increase was primarily driven by our IP license agreement with Samsung, resulting in $49.5 million revenue recognized in the applicable period pursuant to ASC 606.

Cost of license revenue for the sixnine months ended MarchJune 31,30, 2026 was $2.9$4.3 million, a decrease of $1.3$1.0 million, or 30.5%,18.9%, from $4.2$5.3 million for the sixnine months ended MarchJune 31,30, 2025. Cost of license revenue decreased due to lower costs attributable to lower volume of our Cerence Link product revenue. As a percentage of total cost of revenues, cost of license revenue decreased by 2.81.5 percentage points from 11.8%10.2% for the sixnine months ended MarchJune 31,30, 2025 to 9.0%8.7% for the sixnine months ended MarchJune 31,30, 2026.

License gross profit increased by $52.4$59.6 million, or 74.9%,57.8%, for the sixnine months ended MarchJune 31,30, 2026 when compared to the sixnine months ended MarchJune 31,30, 2025, primarily due to the increase in license revenues attributable to the IP license agreement with Samsung, as well as increased variable license revenue due to higher reported volumes.

Cost of connected services revenue for the sixnine months ended MarchJune 31,30, 2026 was $10.0$14.9 million, a decrease of $1.3$1.2 million, or 11.8%,7.7%, from $11.3$16.1 million for the sixnine months ended MarchJune 31,30, 2025. Cost of connected services revenue decreased primarily due to alower connected professional services cost of goods sold of $0.8 millionmillion, decreaselower inlabor amortizationallocation costs of costs$0.4 previouslymillion, deferredlower connected professional services cost of goods sold of $0.2 million and alower $0.5allocation millionexpenses decreaseof in$0.2 internallymillion, allocatedpartially laboroffset costs.by higher public cloud costs of $0.3 million. As a percentage of total cost of revenues, cost of connected services revenue decreased by 1.20.8 percentage points from 31.7%31.0% for the sixnine months ended MarchJune 31,30, 2025 to 30.5%30.1% for the sixnine months ended MarchJune 31,30, 2026.

Connected services gross profit increased $4.8$7.3 million, or 32.0%,31.8%, from $15.1$23.1 million for the sixnine months ended MarchJune 31,30, 2025 to $19.9$30.4 million for the sixnine months ended MarchJune 31,30, 2026, due to the combination of increased connected services revenues and decreased cost of connected services revenues.

Cost of professional services revenue for the sixnine months ended MarchJune 31,30, 2026 was $19.7$30.1 million, a decrease of $0.4$0.5 million, or 2.0%,1.5%, from $20.1$30.6 million for the sixnine months ended MarchJune 31,30, 2025. Decreases were driven by lower directtemporary employee costs of professional$1.4 servicemillion, deliverylower personnel related costs of $0.8 million, and lowerhigher infrastructuretax costs,credits offsetting expenses. Decreases were partially offset by higher personnellabor relatedallocation costs.costs of $2.1 million. As a percentage of total cost of revenues, cost of professional services revenue increased by 4.02.3 percentage points from 56.5%58.9% for the sixnine months ended MarchJune 31,30, 2025 to 60.5%61.2% for the sixnine months ended MarchJune 31,30, 2026.

Professional services gross profit decreased $3.9$6.5 million, or 47.0%,50.1%, from $8.2$13.0 million for the sixnine months ended MarchJune 31,30, 2025 to $4.4$6.5 million for the sixnine months ended MarchJune 31,30, 2026, which was primarily due to the reduction in professional services revenue.

Historically, R&D expenses are our largest operating expense as we continue to build on our existing software platforms and develop new technologies. R&D expenses for the three months ended MarchJune 31,30, 2026 were $30.3$29.2 million, an increase of $7.0$2.1 million, or 29.9%,7.7%, from $23.3$27.2 million for the three months ended MarchJune 31,30, 2025. The increase was primarily attributable to $2.1$1.9 million of international tax credit catch-ups recorded in three months ended March 31, 2025 which did not recur in the three months ended March 31, 2026, a $2.2 million increase in personnel related costs, a $1.7 million increase due to lower capitalization of internal-useinternally softwaredeveloped development costs, andsoftware, a $0.8 million increase in amortization costs of previously capitalized internal-useinternally softwaredeveloped recentlysoftware, placedoffset inpartially service.by a net decrease of $0.5 million driven primarily by international R&D tax credits and internal cost allocations. As a percentage of total operating expenses, R&D expenses increaseddecreased by 6.40.7 percentage points from 54.5%58.0% for the three months ended MarchJune 31,30, 2025 to 60.9%57.3% for the three months ended MarchJune 31,30, 2026.

Historically, R&D expenses are our largest operating expense as we continue to build on our existing software platforms and develop new technologies. R&D expenses for the sixnine months ended MarchJune 31,30, 2026 were $55.0$84.2 million, an increase of $10.8$12.9 million, or 24.4%,18.1%, from $44.2$71.4 million for the sixnine months ended MarchJune 31,30, 2025. The increase was primarily attributable to $4.4$4.6 million of internationalhigher taxcompensation credit catch-ups recorded in six months ended March 31, 2025 which did not recur in the six months ended March 31, 2026, acosts, $3.7 million increaseof innet personnelunfavorable relatedresearch costs,and adevelopment $1.5tax credits, $3.4 million increase due toof lower capitalization of internalinternally softwaredeveloped developmentsoftware, costs, and a $1.0$1.9 million increaseof inhigher amortization of previously capitalized internal-usesoftware, software$0.7 recentlymillion placedof inincreased service.travel costs, partially offset by a total decrease of $1.3 million, driven primarily by lower internal allocations. As a percentage of total operating expenses, R&D expenses decreased by 1.71.8 percentage points from 47.6%51.1% for the sixnine months ended MarchJune 31,30, 2025 to 45.9%49.3% for the sixnine months ended MarchJune 31,30, 2026.

Sales and marketing expenses for the three months ended MarchJune 31,30, 2026 were $6.5$5.8 million, ana increasedecrease of $1.6$0.1 million, or 32.2%,1.5%, from $4.9$5.9 million for the three months ended MarchJune 31,30, 2025. This increasedecrease was primarilynot driven by increasedany employeematerial compensationchanges costsbetween ofthe $1.1periods million and a $0.5 million increase in marketing costs associated primarily with trade shows.presented. As a percentage of total operating expenses, sales and marketing expenses increaseddecreased by 1.61.2 percentage points from 11.5%12.6% for the three months ended MarchJune 31,30, 2025 to 13.1%11.4% for the three months ended MarchJune 31,30, 2026.

Sales and marketing expenses for the sixnine months ended MarchJune 31,30, 2026 were $12.1$17.9 million, an increase of $2.4$2.3 million, or 24.5%,14.7%, from $9.7$15.6 million for the sixnine months ended MarchJune 31,30, 2025. The increase in sales and marketing expenses was primarily driven by increased employee compensation costs of $1.7$1.4 million and a $0.7 million increase in marketing costs associated primarily with trade shows. As a percentage of total operating expenses, sales and marketing expenses decreased by 0.40.7 percentage points from 10.4%11.2% for the sixnine months ended MarchJune 31,30, 2025 to 10.1%10.5% for the sixnine months ended MarchJune 31,30, 2026.

General and administrative expenses for the three months ended MarchJune 31,30, 2026 were $12.8$14.7 million, an increase of $1.6$2.4 million, or 14.3%,19.2%, from $11.2$12.3 million for the three months ended MarchJune 31,30, 2025. The increase in general and administrative expenses was primarily driven by increased legal expenses as we continue our efforts to protect, enforce, and license our intellectual property portfolio. As a percentage of total operating expenses, general and administrative expenses decreasedincreased by 0.42.5 percentage points from 26.1%26.3% for the three months ended MarchJune 31,30, 2025 to 25.7%28.8% for the three months ended MarchJune 31,30, 2026.

General and administrative expenses for the sixnine months ended MarchJune 31,30, 2026 were $44.8$59.5 million, an increase of $20.8$23.2 million, or 87.0%,63.9%, from $24.0$36.3 million for the sixnine months ended MarchJune 31,30, 2025. The increase in general and administrative expenses was primarily attributable to a $20.8$23.9 million increase in professional services and related fees, primarily comprised of legal professional services driven by costs related to the Samsung IP license agreement,agreement $2.0 million driven byand other increased legal expenses as we continue our efforts to protect, enforce, and license our intellectual property portfolio. These increases were partially offset by lowera depreciationnet of $0.7 million due to one-time acceleration of depreciation for facilities closures recognized during the six months ended March 31, 2025 which did not recur, lower insurance and other infrastructure costsdecrease of $0.6 million,million in personnel and lower personnelcompensation related costsexpenses ofacross $0.6the million.periods compared. As a percentage of total operating expenses, general and administrative expenses increased by 11.68.8 percentage points from 25.8%26.0% for the sixnine months ended MarchJune 31,30, 2025 to 37.4%34.8% for the sixnine months ended MarchJune 31,30, 2026.

As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses decreased by 1.31.2 percentage points from 1.3%1.2% for the three months ended MarchJune 31,30, 2025, as compared to zero percent for the three months ended MarchJune 31,30, 2026.

As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses decreased by 1.2 percentage points from 1.2% for the sixnine months ended MarchJune 31,30, 2025 as compared to zero percent for the sixnine months ended MarchJune 31,30, 2026.

For the three months ended MarchJune 31,30, 2026, we recorded restructuring and other costs, net of $1.3 million, which included a $0.8 million charge related to our transformation initiatives and other one-time charges, a $0.4 million charge resulting from the closure of facilities that will no longer be utilized, and a $0.1 million,million charge related to the elimination of personnel.

For the three months ended MarchJune 31,30, 2025, we recorded restructuring and other costs, net of $2.8$0.9 million, which included a $1.8$0.1 million charge related to the elimination of personnel and a $1.0$0.7 million charge relating to our transformation initiatives.

As a percentage of total operating expenses, restructuring and other costs, net decreasedincreased by 6.40.7 percentage points from 6.6%1.8% for the three months ended MarchJune 31,30, 2025 to 0.3%2.5% for the three months ended MarchJune 31,30, 2026.

For the sixnine months ended MarchJune 31,30, 2026, we recorded restructuring and other costs, net of $7.9$9.2 million, which included a $7.6$7.7 million charge related to the elimination of personnel, a $0.3$0.6 million charge resulting from the closure of facilities that will no longer be utilized, and a $0.1$0.8 million charge relating to our transformation initiatives and other one-time charges.

For the sixnine months ended MarchJune 31,30, 2025, we recorded restructuring and other costs, net of $13.9$14.7 million, which included a $12.0$12.1 million charge related to the elimination of personnel, of which $3.0 million related to the stock-based compensation expense related to the termination of our former senior management employees, and a $1.9$2.6 million charge relating to our transformation initiatives.

As a percentage of total operating expenses, restructuring and other costs, net decreased by 8.45.2 percentage points from 15.0%10.6% for the sixnine months ended MarchJune 31,30, 2025 to 6.6%5.4% for the sixnine months ended MarchJune 31,30, 2026.

Total other (expense) income, net for the three months ended MarchJune 31,30, 2026 was expense of $0.5$0.3 million, a change of $0.8$0.5 million from $1.3$0.2 million of expenseincome for the three months ended MarchJune 31,30, 2025. The slight decrease in interest income was primarily attributable to a lower balanceaverage ofinterest cash,generating cash equivalentsdeposit and marketable securities,securities balances and a lower interest rate environment when compared to the three months ended MarchJune 31,30, 2025. The decrease in interest expense was primarily attributable to a lower overall principal balance outstanding coupled with a lower applicable interest rate on our Notes. The decrease in other income, net was primarily driven by comparatively unfavorable foreign exchange movements. For further information, see “Liquidity and Capital Resources” below.

Total other income (expense), net for the sixnine months ended MarchJune 31,30, 2026 was incomeexpense of $0.2$0.1 million, a change of $3.2$2.7 million from $3.0$2.8 million of expense for the sixnine months ended MarchJune 31,30, 2025. The decrease in interest income was primarily attributable to a lower balanceaverage ofinterest cash,generating cash equivalentsdeposit and marketable securities,securities balances and a lower interest rate environment when compared to the sixnine months ended MarchJune 31,30, 2025. The decrease in interest expense was primarily attributable to a lower overall principal balance outstanding coupled with a lower applicable interest rate on our Notes. The increasedecrease in other income, net of $0.2 million was driven primarily by thecomparatively gainunfavorable onforeign debtexchange repurchase of the Notesmovements during the sixnine months ended MarchJune 31,30, 2026. For further information, see “Liquidity and Capital Resources” below.

Our effective income tax rate for the three months ended MarchJune 31,30, 2026 was positive 156.2%,1.0% compared to negative 34.9%244.9% for the three months ended MarchJune 31,30, 2025. Our benefitprovision fromfor income taxes for the three months ended MarchJune 31,30, 2026 was $4.7$15.0 million,thousand, a net change of $1.0$1.9 million from a benefitprovision fromfor income taxes of $5.6$1.9 million for the three months ended MarchJune 31,30, 2025. This difference was attributable to the tax impacts of valuation allowances, foreign income inclusions, stock-based compensation, research credits, and our composition of jurisdictional earnings.