UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
Form 10-K
(Mark One)
☑
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2019
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 001-27038
NUANCE COMMUNICATIONS, INC.
(Exact name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
1 Wayside Road
Burlington, Massachusetts
(Address of Principal Executive Offices)
94-3156479
(I.R.S. Employer
Identification No.)
01803
(Zip Code)
Registrant’s telephone number, including area code: (781) 565-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class
Common stock, $0.001 par value
Trading Symbol(s)
Name of Each Exchange on Which Registered
NUAN
Nasdaq Stock Market LLC
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
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 þ
No o
Indicate by check mark whether the registrant has submitted electronically and every Interactive Data File required to be submitted and posted 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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
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.
(Check one):
Large accelerated filer
Non-accelerated filer
þ
¨
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
As of March 31, 2019, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $3.4 billion based on the closing sale price as
reported on the Nasdaq Global Select Market for such date.
The number of shares of the registrant’s common stock, outstanding as of October 31, 2019, was 282,635,321.
Portions of the registrant’s definitive Proxy Statement to be delivered to stockholders in connection with the registrant’s 2020 Annual Meeting of Stockholders are incorporated
by reference into Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
NUANCE COMMUNICATIONS, INC.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
PART IV
Page
1
7
16
16
16
17
18
20
20
43
44
97
98
98
99
99
99
99
99
99
Table of Contents
PART I
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve
risks, uncertainties and assumptions that, if they never materialize or if they prove incorrect, could cause our consolidated results to differ materially from those
expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-
looking, including statements pertaining to: our future revenue, cost of revenue, research and development expense, selling, general and administrative expenses,
amortization of intangible assets and gross margin, earnings, cash flows and liquidity; our strategy relating to our segments; the potential of future product releases;
our product development plans and investments in research and development; future acquisitions and anticipated benefits from acquisitions; international
operations and localized versions of our products; our contractual commitments; our fiscal year 2020 revenue and expense expectations and legal proceedings and
litigation matters. You can identify these and other forward-looking statements by the use of words such as “may,” “will,” “should,” “expects,” “plans,”
“anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue” or the negative of such terms, or other comparable terminology. Forward-
looking statements also include the assumptions underlying or relating to any of the foregoing statements. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors, including those set forth in Item 1A of this Annual Report under the heading “Risk
Factors.” All forward-looking statements included in this document are based on information available to us on the date hereof. The forward-looking statements do
not include the potential impact of any mergers, acquisitions, divestitures, securities offerings or business combinations that may be announced or closed after the
date hereof. We will not undertake and specifically decline any obligation to update any forward-looking statements, except to the extent required by law.
Item 1.
Business
Overview
We are a pioneer and leader in conversational artificial intelligence ("AI") innovations that bring intelligence to everyday work and life. We deliver solutions that
understand, analyze, and respond to people - amplifying human intelligence to increase productivity and security. With decades of domain and AI expertise, we
work with thousands of organizations globally across healthcare, financial services, telecommunications, government, and retail - to create stronger relationships
and better experiences for their customers and workforce. We offer our customers high accuracy in automated speech recognition ("ASR"), natural language
understanding ("NLU") capabilities, dialog and information management, biometric speaker authentication, text-to-speech ("TTS"), and domain knowledge, along
with professional services and implementation support. In addition, our solutions increasingly utilize our innovations in AI, including cognitive sciences and
machine learning to create smarter, more natural experiences with technology. Using advanced analytics and algorithms, our technologies create personalized
experiences and transform the way people interact with information and the technology around them. We market and sell our solutions and technologies around the
world directly through a dedicated sales force, and also through a global network of resellers, including system integrators, independent software vendors, value-
added resellers, distributors, hardware vendors, telecommunications carriers and e-commerce websites.
We are a global organization steeped in research and development ("R&D"). We have approximately 2,000 language scientists, developers, and engineers
dedicated to continually refining our technologies and advancing our portfolio to better meet our customers’ diverse and changing needs. As of September 30,
2019, we had more than 80 international operating locations and a sales presence in more than 85 countries. Our corporate headquarters is in Burlington,
Massachusetts, and our international headquarters is in Dublin, Ireland. In fiscal year 2019, our revenue was approximately $1.8 billion.
In fiscal 2018, our Board of Directors and management undertook a comprehensive review of our long-term strategy and our business and developed a strategic
plan to simplify our operations and focus on our Healthcare and Enterprise segments. In fiscal 2019, we continued to execute on this plan, including by means of
the sale of the Imaging business segment, the sale of our Mobile Operator Services business, and the continued wind-down of our Devices business. On October 1,
2019, we completed the previously announced spin-off of our Automotive business segment.
Our Strategy
With the sale of our Imaging segment, the spin-off our Automotive segment, the exit of our Mobile Operator Services business and the wind-down of Devices, we
are positioned to be simpler and more growth-oriented company, which enables us to prioritize and execute our conversational AI strategies on Healthcare ad
Enterprise. The key elements of our strategy include:
1
Table of Contents
•
•
•
•
•
Transitioning to cloud-based solutions in Healthcare. We are transitioning our Healthcare solutions to the cloud, enabling us to shift our revenue mix
to a more subscription-based, higher-value recurring model. We’ve established Nuance as a cloud platform in all our solution areas within Healthcare.
During the year, we made significant progress migrating incremental Dragon Medical on-premise customers to the cloud with Dragon Medical One
(DMO). We launched the new cloud solutions, including PowerScribe One for our radiology base, and CDE One for clinical documentation improvement
programs. We have created a go-to-market approach that aligns sales compensation to our cloud models, and have enabled our channel to sell Dragon
Medical cloud. We also launched new Dragon Medical cloud offerings in certain international markets, including Canada, United Kingdom and Australia.
Expanding our Intelligent Engagement portfolio in Enterprise, with a focus on cloud. While we maintain leadership in Voice IVR offerings, we are
increasing our focus on Intelligent Engagement growth opportunies, which includes live and virtual engagement offerings, as well as Security and
Biometrics. We recently launched Nuance Gatekeeper, a new cloud-native voice biometrics and authentication solution. We expanded the cloud-native
stack with the roll-out of Intelligent Engagement Services for Conversational AI, Messaging, and Agent AI. These solutions offer customers more flexible
integration with third-party systems and the ability to deploy across hosted, public, or private cloud. It gives large enterprises more options for
deployment while making Nuance technology available to smaller organizations via the cloud model.
Expanding our go-to-market presence. We are increasing sales coverage in new markets and developing new solutions to increase our customer
lifetime value. In Healthcare, we are pursuing under-served markets, including community hospitals, ambulatory clinics, and surgery centers. We also are
launching new solutions for specialty areas such as pediatrics, the emergency department, and surgical, as well as increasing our federal and other
government customer offerings. In Enterprise, we are expanding our Intelligent Engagement solutions into our existing IVR customer base and delivering
new rapid AI development tools that will allow us to increase our penetration into mid-market accounts.
Expanding internationally. In Healthcare, we continue to expand our international presence in the UK, France, DACH region, Nordics, Australia, and
Canada with a growing direct sales force and new offerings. In Enterprise, we continue to expand our international presence in the UK, France, Spain,
Germany, Italy, Japan, Australia, New Zealand, Mexico, Brazil, Argentina, and Canada with expanded Intelligent Engagement offerings and sales focus.
Accelerating our innovation activities. We are accelerating investment in research and development, with a focus on new AI products, including our
development of ambient clinical intelligence (“ACI”), sub-specialty solutions, and the AI Marketplace for Diagnostic Imaging in Healthcare. In
Enterprise, we launched Nuance Gatekeeper, a new cloud-native voice biometrics solution for authentication and fraud prevention across voice and digital
channels and rapid AI development tools for large and mid-market enterprises. In addition, we launched Nuance Lightning Engine, within our Security
Suite, which combines NLU with voice biometrics to personalize responses and validate individuals faster than before.
• Growing through targeted acquisitions and strategic investments. While organic growth is our priority, we also expect to selectively pursue
acquisitions and investments in businesses and technologies that advance the strategies described above.
Segments
As of September 30, 2019, we had four reportable segments: Healthcare, Enterprise, Automotive, and Other. See Note 22 to the consolidated financial statements
for additional information about our reportable segments. We offer our solutions and technologies to our customers in a variety of ways, including via hosted
cloud-based solutions, perpetual and term software licenses, implementation and custom solution development services and maintenance and support. Our product
revenues include embedded original equipment manufacturer ("OEMs") royalties, traditional perpetual licensing, term-based licensing and consumer sales. Our
hosting, royalty, term license and maintenance and support revenues are recurring in nature as our customers use our products on an ongoing basis to handle their
needs in medical transcription, medical coding and compliance, enterprise customer service and automotive connected services. Our professional services offer a
continuing revenue stream, whether it is provided in connection with our software solutions or on a standalone basis, as we have a backlog of engagements that
take time to complete.
Healthcare
Our healthcare segment provides intelligent systems that support a more natural and insightful approach to clinical documentation, freeing clinicians to spend more
time caring for patients. Our healthcare solutions capture, improve, and communicate more than
2
Table of Contents
300 million patient stories each year, helping more than 500,000 clinicians in 10,000 global healthcare organizations to drive meaningful clinical and financial
outcomes. Our award-winning clinical speech recognition, medical transcription, CDI, coding, quality, and medical imaging solutions provide a more complete and
accurate view of patient care.
Our Healthcare segment revenues were $950.6 million, $984.8 million, and $899.3 million in fiscal years 2019, 2018 and 2017, respectively. Healthcare segment
revenues represented 52.0%, 53.0% and 51.1% of total segment revenue in fiscal years 2019, 2018 and 2017, respectively.
Our principal solutions for the Healthcare segment include the following:
•
•
•
•
•
Dragon Medical One: Our cloud-based speech solution provides a consistent and personalized clinical documentation experience across solutions,
platforms, and devices, regardless of physical location. Dragon Medical One allows clinicians to use their voice to securely capture the patient story and
control applications more naturally and efficiently - anywhere, anytime. Dragon Medical One is HITRUST CSF-certified and uses a secure desktop app to
keep data private and protected. It helps increase productivity and offers more flexibility and personalization while establishing a firm foundation for
organizations to take advantage of new and future innovations, including virtual assistants and ambient clinical intelligence (“ACI”).
Computer-Assisted Physician Documentation (“CAPD”): Backed by AI, our solutions give physicians in-workflow guidance to drive better data
outcomes across the continuum of care. Our CAPD solutions apply workflow and knowledge automation, proven clinical strategies and point-of-care
advice to capture complete and accurate documentation while improving productivity and satisfaction. We make it easier to add specificity to existing
diagnoses, discover evidence of undocumented diagnoses and support various specialties and care settings. Details are extracted from patient narratives
for fast and accurate translation into discrete data, while coding assistance helps capture professional charges, improve quality and reduce retrospective
queries.
Clinical Documentation Improvement (“CDI”) and Coding: Our comprehensive portfolio of cloud-based technologies is designed to help increase the
productivity and effectiveness of CDI teams. Our clinically focused program and services deliver documentation guidance, AI-powered encounter
prioritization, workflow management, denials support and analytics to drive better documentation across the care continuum. Designed with scale and
reliability in mind, these solutions require lower installation, deployment and maintenance costs and are hosted on Microsoft Azure, a HITRUST CSF-
certified infrastructure to support privacy, security and compliance. We provide real-time insights that promote a performance-driven program, allow peer
comparisons and identify opportunities for improvement. Our Coding solutions offer cloud-based, enterprise-wide products and services that are designed
to improve coder productivity and maintain the highest levels of accuracy and compliance. These solutions effectively manage and monitor the types of
compliance coding challenges that can put a health system at risk for delayed and reduced reimbursement. We help manage the workflow by bringing
together the tools needed to provide better visibility into key coding performance indicators. Coder productivity can be enhanced by enabling a more
complete and accurate review of both inpatient and outpatient encounters that are associated with facility and professional service fees.
Diagnostic Solutions: Our solutions continuously improve the efficiency and effectiveness of the radiologists’ work to improve clinical and financial
outcomes across the continuum of care. Driving both speed and precision in how radiology is applied to patient care to maximize reimbursement, we
reduce duplications and errors and alleviate burnout. Using AI, we help automate time-consuming, non-value-added tasks, freeing radiologists to perform
more important tasks. By focusing more on integrating patients’ clinical and imaging information and collaborating better with peers, we help radiologists
uplift their role within the care team.
Transcriptions Solutions: These solutions offer cloud-based transcription capabilities for clinical documentation that use background speech recognition
to increase Medical Language Specialists’ productivity and reduce costs. Helping organizations simplify the documentation process by offering users an
automated and flexible workflow with options designed to meet a facility’s specific needs, our solutions and services offer fast, accurate, and usable
documentation with more seamless and fully automated processes that can identify discrete information and securely upload data directly into the
electronic health record (“EHR”). Clinicians using EHRs can accurately document entire patient encounters using a mobile device or their standard
dictation methods.
The channels for distribution in the Healthcare segment utilize our direct sales force to address the market and our professional services organization to support the
implementation requirements of the healthcare industry. Direct distribution is supplemented by distributors, resellers, and partnerships with a variety of healthcare
IT providers. Our Healthcare customers and partners include
3
Table of Contents
Cleveland Clinic, Johns Hopkins, Partners Healthcare, Vanderbilt University Medical Center (“VUMC”), and National Health Services (“NHS”). Our partners
include Cerner, Epic, MEDITECH, Microsoft, and NVIDIA.
Areas of expansion and focus for our Healthcare segment include providing customers deeper integration with our clinical documentation solutions; investing in
our cloud-based offerings, operations, and network security; entering new and adjacent markets such as ambulatory care; and expanding our international
capabilities. Also, we are enabling the journey to ACI through Dragon Medical One, core AI technologies, and our rich clinical knowledge base. ACI takes
advantage of our cloud‑based speech recognition technology and benefits from increasing levels of workflow, task, and knowledge automation.
Enterprise
Our Enterprise segment is a leading provider of AI-powered intelligent customer engagement solutions and services, which enable enterprises and contact centers
to enhance and automate customer service and sales engagement.
Our market-leading Intelligent Engagement platforms powered by conversational AI are recognized and awarded by independent industry research firms like
Forrester, Gartner and Opus. We are also differentiated by our ability to enable enterprises to implement voice and text-based virtual assistants and to provide
automated service across voice and digital channels, as well as the ability of our solutions to seamlessly transition to agent-assisted engagement to complete a
customer service request. Our intelligent self-service solutions are highly accurate and dependable, resulting in increased customer satisfaction levels while
simultaneously reducing the costs associated with delivering customer service for the enterprise.
Our solutions and services portfolio now span voice biometrics, digital virtual assistant capabilities, voice, mobile, web and messaging channels, with inbound and
outbound customer service and engagement in over 30 speech recognition, 100 text to speech, and 40 NLU and dialog languages.
Enterprise segment revenues were $510.8 million, $483.2 million, and $474.3 million in fiscal years 2019, 2018 and 2017, respectively. Enterprise segment
revenues represented 27.9%, 26.0% and 27.0% of total segment revenue in fiscal years 2019, 2018 and 2017, respectively.
Our principal solutions for the Enterprise segment include the following:
•
•
•
IVR Voice Solutions: These solutions add automated customer service to phone calls into a contact center. They are integrated with interactive voice
response ("IVR") systems provided to the customer by us or by a wide range of third-party IVR and contact center vendors, who often resell our IVR Voice
Solutions. Our solutions in this category include ASR, TTS, NLU and dialog engines, which are sold as perpetual licenses with maintenance and support
("M&S"), or volume-based transactional pricing. We also offer a cloud hosted IVR and voice automation platform which is largely sold direct through
multi-year agreements with volume-based transactional pricing and associated professional services.
Intelligent Engagement Solutions: We have an open, modular cloud platform that provides enterprises with the ability to implement virtual- and live-
engagement across nearly all digital voice and text channels. The platform supports virtual assistant, live engagement and proactive outbound services,
using our conversational AI and engagement AI capabilities. Our intelligent engagement cloud is sold both direct and through partners, and are largely
multi-year agreements with volume-based transactional pricing and associated professional services.
Security & Biometrics Solutions: These solutions enable organizations to automate the identification & verification (ID&V) of their customers using voice,
face or behavioral biometrics, replacing time consuming security questions with either a simple phase - “At Big Bank my voice is my password” or simply
by having the system listen to the conversation between the customer and agent. The system also can detect potential fraud using voice biometrics in real
time or in batch, providing enterprises with an effective way of preventing fraud. We license this solution via perpetual M&S, on-premise transactional and
cloud transactional models.
Our Enterprise segment utilizes a hybrid go-to-market model, selling both direct and through reseller partners. Those partners include traditional IVR vendors such
as Avaya, Cisco, Enghouse Interactive and Genesys; system integrators like IBM, Telstra, and Verizon Business; and specialty vendors like Verint. Thousands of
organizations worldwide utilize Nuance technologies or solutions, including Fortune 1000 companies, such as Allied Irish Banks, American Airlines, Amtrak,
Australian Government Department of Human Services, Barclays, Blue Cross Blue Shield, Coca-Cola, Delta Airlines, Deutsche Bank, Esurance, FedEx, HSBC,
Jetstar, Royal Bank of Scotland, Santander, TD Bank, Telstra, USAA, Vision Service Plan, Virginia Credit Unit, Vodafone and Windstream.
4
Table of Contents
Areas of focus and expansion for our Enterprise segment include increasing the penetration of our full portfolio into our large existing customer base; bringing our
Intelligent Engagement cloud to new customers and new international markets, especially Western Europe, Japan and Australia; launch of our security &
biometrics cloud solution; and continued investment in our AI-powered solutions to ensure we retain leadership throughout our solutions.
Automotive
Our Automotive segment provides automotive manufacturers and their suppliers intuitive, personalized, branded, virtual assistants and connected services for cars
that are safer, easier, and more enjoyable. Our ASR, NLU and TTS technologies and deep domain experience, integration capabilities and independence make us a
preferred vendor to the world’s largest automotive manufacturers and suppliers. Our automotive solutions are generally sold as on-demand models that are
typically priced on a per-unit basis for multi-year service terms. We have a worldwide professional services team to provide custom solution development services
and sell our technologies through a traditional perpetual software license model, including a royalty-based model. Our Automotive customers include major
automotive OEMs, such as Ford, Daimler, BMW, Toyota, Fiat Chrysler, Volkswagen, and Geely.
Automotive segment revenues were $306.6 million, $279.4 million, and $252.2 million in fiscal years 2019, 2018 and 2017, respectively. Automotive segment
revenues represented 16.8%, 15.1% and 14.3% of total segment revenue in fiscal years 2019, 2018 and 2017, respectively.
In connection with our strategic business transformation, on November 19, 2018, we announced our intent to spin off our Automotive business into an independent
publicly traded company through a pro rata distribution to our common stockholders. The spin-off was completed on October 1, 2019.
Other
Our Other segment includes our Subscriber Revenue Services ("SRS") and Devices businesses. Our SRS business has two components: (1) the provision of value-
added services to mobile operators in India and Brazil (“Mobile Operator Services”) and (2) the provision of voicemail transcription services to mobile operators in
the rest of the world (“Voicemail-to-Text ”). Our Devices business provides speech recognition solutions and predictive text technologies for handset devices.
Within our SRS business, our Mobile Operator Services business experienced dramatic market disruptions during fiscal year 2018. In addition, the revenue of our
Devices business has been declining due to the ongoing consolidation of our handset manufacturer customer base and continued erosion of our penetration of the
remaining market. Therefore, during the fourth quarter of fiscal 2018, in connection with our comprehensive portfolio and business review efforts, we commenced
a wind-down of our Devices and Mobile Operator Services businesses, which, when completed, will leave our Voicemail-to-Text business in our Other segment. In
May 2019, we completed the sale of our Mobile Operator Services business in Brazil, and in July 2019, we completed the sale of our Mobile Operator Services
business in India. The sale prices and any gains or losses were immaterial.
Other segment revenues were $61.5 million, $109.1 million, and $133.8 million in fiscal years 2019, 2018 and 2017, respectively. As a percentage of total segment
revenue, Other segment revenues represented 3.4%, 5.9% and 7.6% in fiscal years 2019, 2018 and 2017, respectively.
Discontinued Operations
Our previous Imaging segment provides software solutions and expertise that help professionals and organizations gain optimal control of their document and
information processes by enabling customers to achieve measurable business and productivity benefits as they securely create, use and share documents. The
Imaging portfolio of products and services helps business customers achieve compliance with information security policies and regulations while enabling
organizations to streamline and eliminate gaps across their document work flows. Imaging revenues were $67.4 million, $209.4 million, and $211.2 million in
fiscal years 2019, 2018 and 2017, respectively.
On November 11, 2018, we entered into a definitive sale agreement with Project Leopard AcquireCo Limited (an affiliate of Kofax, Inc.) (the "Agreement"),
pursuant to which we agreed to sell our Imaging business and associated assets. On February 1, 2019, we completed the sale of the business and received
approximately $400.0 million, after estimated transaction expenses, and subject to post-closing finalization of those adjustments as set forth in the sale agreement,
Imaging's results of operations have been included within discontinued operations and its assets and liabilities within held for sale on our consolidated financial
statements.
5
Table of Contents
Intellectual Property
Over our history, we have developed and acquired extensive technology assets, intellectual property, and industry expertise in ASR and NLU technologies that
provide us with a competitive advantage in our markets. Our technologies are based on complex algorithms that require extensive amounts of acoustic and
language models, and recognition and understanding techniques. A significant investment in capital and time would be necessary to replicate our current
capabilities.
We continue to invest in technologies to maintain our market-leading position and to develop new applications. We rely on a portfolio of patents, copyrights,
trademarks, services marks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect our intellectual property and proprietary
rights. As of September 30, 2019, we held approximately 3,550 patents and 450 patent applications. As of October 1, 2019, following the spin-off of our
Automotive business segment, we held approximately 2,450 patents and 350 patent applications. Our intellectual property is critical to our success and competitive
position.
Competition
The markets in which we compete are highly competitive and are subject to rapid technology changes. There are a number of companies that develop or may
develop solutions and technologies that compete in our target markets; however, currently no company directly competes with us across all of our solutions and
technologies. While we expect competition to continue to increase both from existing competitors and new market entrants, we believe that we will compete
effectively based on many factors, including:
•
•
•
•
Specialized Professional Services. Our superior technology, when coupled with the high quality and domain knowledge of our professional services
organization, allows our customers and partners to place a high degree of confidence and trust in our ability to deliver results. We support our customers in
designing and building powerful innovative solutions that specifically address their needs and requirements.
International Coverage. The international reach of our solutions and technologies is due to the broad language coverage of our offerings, including our
ASR and NLU solutions, which provide recognition for approximately 90 languages and dialects and natural-sounding synthesized speech in over 160
voices, and support a broad range of hardware platforms and operating systems.
Technological Superiority. We have deep domain expertise and our conversational AI technologies, applications and solutions are often recognized as the
most innovative and proficient in their respective categories. Our ASR and NLU solutions have industry-leading recognition accuracy and provide a natural,
voice-enabled interaction with systems, devices and applications. Technology publications, analyst research and independent benchmarks have consistently
indicated that our solutions and technologies rank at or above performance levels of alternative solutions.
Broad Distribution Channels. Our ability to address the needs of specific markets, such as financial, law, healthcare and government, and to introduce new
solutions and technologies quickly and effectively is provided by our direct sales force, our extensive global network of resellers, comprising system
integrators, independent software vendors, value-added resellers, hardware vendors, telecommunications carriers and distributors, and our e-commerce
website.
Our Healthcare segment competes primarily with Optum, 3M and other smaller providers. Our former Automotive business competed with Amazon, Google,
iFlyTek and Microsoft as well as with other, smaller vendors, particularly in China. Also, some of our partners such as Avaya, Cisco, and Genesys develop and
market products that might be considered substitutes for our Enterprise solutions. Additionally, a number of smaller companies in voice recognition, natural
language understanding, and text input offer technologies or products that are competitive with our solutions.
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.
Some of our competitors or potential competitors, such as Adobe, Google, and 3M, have significantly greater financial, technical and marketing resources than we
do. These competitors may be able to respond more rapidly than we can to new or emerging technologies or changes in customer requirements. They may also
devote greater resources to the development, promotion and sale of their products than we do.
6
Table of Contents
Employees
As of September 30, 2019, we had approximately 8,100 full-time employees, including approximately 900 in sales and marketing, approximately 2,400 in
professional services, approximately 2,000 in research and development, approximately 800 in general and administrative, and approximately 2,000 who provide
transcription and editing services. Approximately 62% of our employees are based outside of the United States ("U.S."), approximately 33% of whom provide
transcription and editing services and are based in India.
As of October 1, 2019, after the spin-off, we had approximately 6,700 full-time employees, including approximately 800 in sales and marketing, approximately
1,900 in professional services, approximately 1,300 in research and development, and approximately 700 in general and administrative, and approximately 2,000
who provide transcription and editing services. Approximately 57% of our employees are based outside of the United States ("U.S."), approximately 42% of whom
provide transcription and editing services and are based in India.
None of our employees in the U.S. is represented by a labor union. Employees of certain of our foreign subsidiaries are presented by labor unions or workers’
councils. We believe that our relationships with our employees are satisfactory.
Information About Geographic Areas
We have offices in a number of international locations including Australia, Austria, Belgium, Brazil, Canada, Germany, Hungary, India, Ireland, Italy, Japan, and
the United Kingdom ("U.K."). The responsibilities of our international operations include research and development, healthcare transcription and editing, customer
support, sales and marketing and general and administrative. Additionally, we maintain smaller sales, services and support offices throughout the world to support
our international customers and to expand international revenue opportunities.
Geographic revenue classification is based on the geographic areas in which our customers are located. For fiscal years 2019, 2018 and 2017, 75%, 75% and 72%
of revenue from continuing operations was generated in the United States and 25%, 25% and 28% was generated by our international customers, respectively.
Corporate Information and Website
We were incorporated under the laws of the State of Delaware in 1992. Our website is located at www.nuance.com and we trade under the ticker symbol NUAN.
We are not including the information contained in our website as part of, or incorporating it by reference into, this annual report on Form 10-K. We make available
free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these
reports, as soon as reasonably practicable after we electronically file these materials with, or otherwise furnish them to, the Securities and Exchange Commission
("SEC").
Item 1A.
Risk Factors
You should carefully consider the risks and uncertainties described below when evaluating the company and when deciding whether to invest in the company. The
risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we do not currently
believe are important to an investor may also harm our business operations. If any of the events, contingencies, circumstances or conditions described below
actually occurs, our business, financial condition or our results of operations could be seriously harmed. If that happens, the trading price of our common stock
could decline.
Risks Related to Our Business
The markets in which we operate are highly competitive and rapidly changing and we may be unable to compete successfully.
There are a number of companies that develop or may develop products that compete in our targeted markets. The markets for our products and services are
characterized by intense competition, evolving industry and regulatory standards, emerging business and distribution models, disruptive software and hardware
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. 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, there has been a trend toward industry consolidation in our markets for several years. We expect this trend to continue as
companies attempt to strengthen or hold their market positions.
7
Table of Contents
The competition in our targeted markets 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. Some of our current or potential competitors have significantly greater financial, technical and marketing resources than we do. These
competitors may be able to respond more rapidly than we can to new or emerging technologies or changes in customer requirements. 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. To the extent they do so, market acceptance and penetration of our products, and therefore our revenue and bookings, may be adversely affected.
Our success depends substantially upon our ability to enhance our products and technologies and to develop and introduce, on a timely and cost-effective basis,
new products and features that meet changing customer requirements and incorporate technological enhancements. If we are unable to develop or acquire new
products and enhance functionalities or technologies to adapt to these changes our business will suffer.
Our operating results may fluctuate significantly from period to period, and this may cause our stock price to decline.
Our revenue, bookings and operating results have fluctuated materially in the past and we expect such fluctuations to continue in the future. These fluctuations may
cause our results of operations not to meet the expectations of securities analysts or investors which would likely cause the price of our stock to decline. Factors
that may contribute to fluctuations in operating results include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
volume, timing and fulfillment of customer orders and receipt of royalty reports;
fluctuating sales by our channel partners to their customers;
customers delaying their purchasing decisions in anticipation of new versions of our products;
contractual counterparties failing to meet their contractual commitments to us;
introduction of new products by us or our competitors;
cybersecurity or data breaches;
seasonality in purchasing patterns of our customers;
reduction in the prices of our products in response to competition, market conditions or contractual obligations;
returns and allowance charges in excess of accrued amounts;
timing of significant marketing and sales promotions;
impairment of goodwill or intangible assets;
the pace of the transition to an on-demand and transactional revenue model;
delayed realization of synergies resulting from our acquisitions;
accounts receivable that are not collectible and write-offs of excess or obsolete inventory;
increased expenditures incurred pursuing new product or market opportunities;
higher than anticipated costs related to fixed-price contracts with our customers;
change in costs due to 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; and
general economic trends as they affect the customer bases into which we sell.
Due to the foregoing factors, among others, our revenue, bookings and operating results are difficult to forecast. 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. Therefore, our
failure to meet revenue expectations would seriously harm our operating results, financial condition and cash flows.
A significant portion of our revenue and bookings are derived, and a significant portion of our research and development activities are based, outside the
United States. Our results could be harmed by economic, political, regulatory, foreign currency fluctuation and other risks associated with these international
regions.
Because we operate worldwide, our business is subject to risks associated with doing business internationally. We generate most of our international revenue and
bookings in Europe and Asia, and we anticipate that revenue and bookings from international operations could increase in the future. In addition, some of our
products are developed outside the United States and we have a large number of employees in India who provide transcription and development services, and we
also have a large number of employees in Canada, Germany and the United Kingdom who provide professional services. We conduct a significant portion of the
development of our voice recognition and natural language understanding solutions in Canada and Germany. We also have significant research and development
resources in Austria, Belgium, Italy, and the United Kingdom. We are exposed to fluctuating exchange rates of foreign currencies including the Euro, British
pound, Brazilian real, Canadian dollar, Japanese yen, and Indian rupee. Accordingly, our future results could be harmed by a variety of factors associated with
international sales and operations, including:
•
adverse political and economic conditions, or changes to such conditions, in a specific region or country;
8
Table of Contents
•
•
•
•
•
•
•
•
•
•
•
trade protection measures, including tariffs and import/export controls, imposed by the United States and/or by other countries or regional authorities such
as Canada or the European Union;
the impact on local and global economies of the United Kingdom leaving the European Union;
changes in foreign currency exchange rates or the lack of ability to hedge certain foreign currencies;
compliance with laws and regulations in many countries and any subsequent changes in such laws and regulations;
geopolitical turmoil, including terrorism and war;
changing data privacy regulations and customer requirements to locate data centers in certain jurisdictions;
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;
changes in applicable tax laws;
difficulties in staffing and managing operations in multiple locations in many countries;
longer payment cycles of foreign customers and timing of collections in foreign jurisdictions; and
less effective protection of intellectual property outside the United States.
If we are unable to attract and retain key personnel, our business could be harmed.
To execute our business strategy, we must attract and retain highly qualified personnel. 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. 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. We cannot assure you that one or more key employees will not leave in the future. In particular, we compete with many other
companies for software developers with high levels of experience in designing, developing and managing software, as well as for skilled information technology,
marketing, sales and operations professionals, and we may not be successful in attracting and retaining the professionals we need. We have from time to time in the
past experienced, and we expect to continue to experience in the future, difficulty in hiring and difficulty in retaining highly skilled employees with appropriate
qualifications. In particular, we have experienced a competitive hiring environment in the Greater Boston area, where we are headquartered. Many of the
companies with which we compete for experienced personnel have greater resources than we do. In addition, in making employment decisions, particularly in the
software industry, job candidates often consider the value of the equity incentives they are to receive in connection with their employment. If the price of our stock
declines, or experiences significant volatility, our ability to attract or retain key employees will be adversely affected. 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.
Cybersecurity and data privacy incidents or breaches may damage client relations and inhibit our growth.
The confidentiality and security of our information, and that of third parties, is critical to our business. Our services involve the transmission, use, and storage of
our customers’ and their customers' confidential information. We were the victim of a cybercrime in 2017, and future cybersecurity or data privacy incidents could
have a material adverse effect on our results of operations and financial condition. 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; disabling or degrading service; or sabotaging systems or information. In addition,
hardware, software, 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. 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. 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. We will continue to incur significant costs to continuously enhance our information security measures to defend
against the threat of cybercrime. Any cybersecurity or data privacy incident or breach may result in:
•
loss of revenue resulting from the operational disruption;
•
loss of revenue or increased bad debt 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 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;
•
costs associated with any required notices of a data breach;
•
9
Table of Contents
•
•
costs associated with the potential loss of critical business data; and
other consequences of which we are not currently aware but will discover through the remediation process.
Our business is subject to a variety of domestic and international laws, rules, policies and other obligations including data protection, anticorruption and
health care reimbursement.
We are subject to U.S. 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 and personal health information, with additional laws applicable in some
jurisdictions where the information is collected from children. In many cases, these laws apply not only to transfers between unrelated third parties but also to
transfers between us and our subsidiaries. Many jurisdictions have passed laws in this area, and other jurisdictions are considering imposing additional restrictions.
For instance, the European Commission adopted the European General Data Protection Regulation (the “GDPR”), which went into effect in May 2018 and China
adopted a new cybersecurity law in June 2017. There is also an increase in regulation of biometric data globally, which may include voiceprints. In addition,
California adopted significant new consumer privacy laws in June 2018 that will be effective beginning in January 2020. Complying with the GDPR, the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"), the Health Information Technology for Economic and Clinical Health ("HITECH"), and other
requirements may cause us to incur substantial costs and may require us to change our business practices.
Any failure by us, our customers, suppliers 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. Any alleged or actual failure to
comply with applicable privacy laws and regulations may:
•
•
•
•
cause our customers to lose confidence in our solutions;
harm our reputation;
expose us to litigation, regulatory investigations and to resulting liabilities including reimbursement of customer costs, damages penalties or fines imposed
by regulatory agencies; and
require us to incur significant expenses for remediation.
We are also subject to a variety of anticorruption laws in respect of our international operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery
Act and the Canadian Corruption of Foreign Public Officials Act, and regulations issued by the U.S. Customs and Border Protection, the U.S Bureau of Industry
and Security, the U.S Treasury Department’s Office of Foreign Assets Control, and various other foreign governmental agencies. 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. Actual or alleged violations of these laws and regulations could lead to enforcement actions and financial penalties that could result in substantial
costs.
Interruptions or delays in our services, including from data center hosting facilities, could impair the delivery of our services and harm our business.
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. We have from time to time, found defects in our services, and new errors in
our services may be detected in the future. In addition, we currently serve our customers from data center hosting facilities we directly manage and from third party
public cloud facilities. Any damage to, or failure of, the systems that serve our customers in whole or in part could result in interruptions in our service.
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.
We may be unable to fully capture the expected value from strategic transactions.
As part of our business strategy, we have in the past acquired and divested, and expect to continue to acquire and may divest, other businesses and technologies.
We also expect to from time to time pursue other strategic transactions including divestitures, joint ventures, minority stakes and strategic alliances. Our
acquisitions and divestitures have required substantial integration and management efforts, and we expect future acquisitions, divestitures and other strategic
transactions to require similar efforts. Successfully realizing the benefits of acquisitions, divestitures and other strategic transactions involves a number of risks,
including:
•
•
•
difficulty in transitioning and integrating the operations and personnel of the acquired businesses;
difficulty in separating the operations, personnel and systems of divested businesses:
potential negative impact on our profitability as a result of losses that may result from a divestiture, including the loss of sales and operating income or
decrease in cash flows;
10
Table of Contents
•
•
•
•
•
•
•
•
•
•
•
•
retained exposure on financial guarantee leases, real estate and other contractual, employment, pension and severance obligations of divested business, and
potential liabilities that may arise under law as a result of the disposition or the subsequent failure of an acquirer;
potential disruption of our ongoing business and distraction of management;
difficulty in incorporating acquired products and technologies into our products and technologies;
potential difficulties in completing projects associated with in-process research and development;
unanticipated expenses and delays in completing acquired development projects and technology integration and upgrades;
challenges associated with managing additional, geographically remote businesses;
impairment of relationships with partners and customers;
assumption of unknown material liabilities of acquired companies;
the accuracy of revenue and bookings projections of acquired companies;
customers delaying purchases of our products pending resolution of product integration between our existing and our newly acquired products;
entering markets or types of businesses in which we have limited experience; and
potential loss of key employees of the acquired business or loss of key employees of a divested business.
As a result of these and other risks, we may not realize the anticipated benefits from our acquisitions, divestitures, and other strategic transactions. Any failure to
achieve these benefits or failure to successfully integrate acquired businesses and technologies or disaggregate divested businesses and technologies could
seriously harm our business.
The spin-off of our Automotive business may not achieve some or all of the intended benefits and may adversely affect our business.
On October 1, 2019, we completed the spin off our Automotive business into an independent, publicly-traded company called Cerence Inc. ("Cerence"). We may
not achieve the full strategic, operational and financial benefits that we anticipated from the spin-off, or such benefits may be delayed. In fact, the spin-off may
adversely affect our business. Following the spin-off, we are a smaller company with a less diversified product portfolio and a narrower business focus. As a result,
we may be more vulnerable to changing market conditions, which could materially and adversely affect our business, financial condition and results of operations.
Although Nuance and Cerence are now two independent companies, our long joint history may cause consumers and investors to continue to associate the
companies with each other, either positively or negatively. Separating the businesses may also eliminate or reduce synergies or economies of scale that existed
prior to the spin-off, which could harm our business.
We may be exposed to claims and liabilities as a result of the spin-off of our Automotive business segment.
We entered into a separation and distribution agreement and various other agreements with Cerence to govern the spin-off and the relationship between the two
companies going forward. These agreements provide for specific indemnity and liability obligations and could lead to disputes between us and Cerence. For
example, in the Tax Matters Agreement, dated September 30, 2019, between Nuance and Cerence, Cerence agreed to indemnify Nuance for resulting taxes and
related expenses if, as a result of any of Cerence’s breach of certain of its representations or covenants, the spin-off and certain related reorganization transactions
are determined not to qualify for non-recognition of gain or loss under Section 355 and related provisions of the Internal Revenue Code of 1986, as amended. The
indemnity rights we have against Cerence under the agreements may not be sufficient to protect us, for example if our losses exceed our indemnity rights or if
Cerence did not have the financial resources to meet its indemnity obligations. In addition, our indemnity obligations to Cerence may be significant, and these risks
could negatively affect our results of operations and financial condition.
Charges to earnings as a result of our acquisitions may adversely affect our operating results in the foreseeable future, which could have a material and
adverse effect on the market value of our common stock.
Under accounting principles generally accepted in the United States, we record the market value of our common stock and other forms of consideration issued in
connection with an acquisition as the cost of acquiring the company or business. We allocate that cost to the individual assets acquired and liabilities assumed,
including various identifiable intangible assets such as acquired technology, acquired trade names and acquired customer relationships, based on their respective
fair values. We base our estimates of fair value upon assumptions believed to be reasonable, but which are inherently uncertain. After we complete an acquisition,
the following factors could result in material charges and may adversely affect our operating results and cash flows:
•
•
•
•
costs incurred to integrate the operations of businesses we acquire, such as transitional employee expenses and employee retention, redeployment or
relocation expenses;
impairment of goodwill or intangible assets;
amortization of intangible assets acquired;
a reduction in the useful lives of intangible assets acquired;
11
Table of Contents
•
•
•
•
identification of or changes to assumed contingent liabilities, both income tax and non-income tax related, after our final determination of the amounts for
these contingencies or the conclusion of the measurement period (generally up to one year from the acquisition date), whichever comes first;
charges to our operating results to eliminate certain duplicative pre-merger activities, to restructure our operations or to reduce our cost structure;
charges to our operating results arising from expenses incurred to effect the acquisition; and
charges to our operating results due to the expensing of stock awards assumed in acquisitions.
Intangible assets are generally amortized over three to ten years. Goodwill is not subject to amortization but is subject to an impairment analysis, at least annually,
which may result in an impairment charge if the carrying value exceeds its implied fair value. As of September 30, 2019, we recorded goodwill of $3,243.5 million
and intangible assets of $356.9 million, net of accumulated amortization and impairment charges. In addition, purchase accounting limits our ability to recognize
certain revenue that otherwise would have been recognized by the acquired company as an independent business. As a result, the combined company may delay
revenue recognition or recognize less revenue than we and the acquired company would have recognized as independent companies.
Impairment of our intangible assets could result in significant charges that would adversely impact our future operating results.
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. The most significant intangible assets are customer relationships, patents and core technologies, technologies and trademarks.
Customer relationships are amortized on an accelerated basis based upon the pattern in which the economic benefits of customer relationships are being utilized.
Other identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives. We assess the potential impairment of intangible assets
on an annual basis, as well as whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an
impairment of such assets include the following:
•
•
•
•
•
•
•
significant adjustments to our multi-year operating plans, in connection with our ongoing portfolio review;
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;
significant under performance relative to historical or projected future operating results;
significant changes in the manner of or use of the acquired assets or the strategy for our overall business;
significant negative industry or economic trends;
significant decline in our stock price for a sustained period; and
our market capitalization declining to below net book value.
For example, as more fully described in Note 6 to the accompanying consolidated financial statements, during the second quarter of fiscal year 2018, we
reorganized our former Mobile business into three discrete lines of business - Automotive, Dragon TV, and Devices. In connection with this reorganization, and
the review of goodwill and other intangible assets for impairment that was triggered by recent financial results and rapidly changing business conditions for our
SRS business, we recorded a total of $137.9 million of goodwill impairment charge related to the Devices and SRS businesses for the second quarter of fiscal
2018. Additionally, in connection with our comprehensive portfolio and business review efforts, management decided to commence a wind-down of our Mobile
Operator Services (within our SRS business) and Devices businesses during the fourth quarter of fiscal 2018. As a result, we recorded additional impairment
charges of goodwill and other intangible assets of approximately $33.0 million. For more information, please see Note 6 of the accompanying consolidated
financial statements. 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.
We have grown, and may continue to grow, through acquisitions, which could dilute our existing stockholders and/or increase our debt levels.
In connection with past acquisitions, we have in the past issued a substantial number of shares of our common stock as transaction consideration, including
contingent consideration, and also incurred significant debt to finance the cash consideration used for our acquisitions. We may continue to issue equity securities
for future acquisitions, which would dilute existing stockholders, perhaps significantly, depending on the terms of such acquisitions. We may also incur additional
debt in connection with future acquisitions, which, if available at all, may place additional restrictions on our ability to operate our business.
12
Table of Contents
Our strategy to increase cloud services, term licensing and transaction-based recurring revenue may adversely affect our near-term revenue growth and results
of operations.
We expect our ongoing shift from software license model to cloud services and transaction-based recurring revenue models to create a recurring revenue stream
that is more predictable. The transition, however, creates risks related to the timing of revenue recognition. We also incur certain expenses associated with the
infrastructures and selling efforts of our hosting offerings in advance of our ability to recognize the revenues associated with these offerings, which may adversely
affect our near-term reported revenues, results of operations and cash flows. A decline in renewals of recurring revenue offerings in any period may not be
immediately reflected in our results for that period but may result in a decline in our revenue and results of operations in future quarters.
We have a history of operating losses, and may incur losses in the future, which may require us to raise additional capital on unfavorable terms.
We reported total net losses of $159.9 million and $151.0 million in fiscal years 2018 and 2017, respectively, and have a total accumulated deficit of $293.6
million as of September 30, 2019. If we are unable to return to profitability, the market price for our stock may decline, perhaps substantially. We cannot assure
you that our revenue or bookings will grow or that we will return to profitability in the future. If we do not achieve profitability, we may be required to raise
additional capital to maintain or grow our operations. Additional capital, if available at all, may be highly dilutive to existing investors or contain other unfavorable
terms, such as a high interest rate and restrictive covenants.
Tax matters may cause significant variability in our financial results.
Our businesses are subject to income taxation in the United States, as well as in many tax jurisdictions throughout the world. Tax rates in these jurisdictions may be
subject to significant change. If our effective tax rate increases, our operating results and cash flow could be adversely affected. Our effective income tax rate can
vary significantly between periods due to a number of complex factors including:
•
•
•
•
•
•
•
•
projected levels of taxable income;
pre-tax income being lower than anticipated in countries with lower statutory rates or higher than anticipated in countries with higher statutory rates;
increases or decreases to valuation allowances recorded against deferred tax assets;
tax audits conducted and settled by various tax authorities;
adjustments to income taxes upon finalization of income tax returns;
the ability to claim foreign tax credits;
the repatriation of non-U.S. earnings for which we have not previously provided for income taxes; and
changes in tax laws and their interpretations in countries in which we are subject to taxation.
During 2014, Ireland enacted changes to the taxation of certain Irish incorporated companies effective as of January 2021. On October 5, 2015, the Organization
for Economic Cooperation and Development released the Final Reports for its Action Plan on Base Erosion and Profit Shifting. The implementation of one or more
of these reports in jurisdictions in which we operate, together with the 2014 enactment by Ireland, could result in an increase to our effective tax rate. In addition,
in December 2017, the United States enacted the Tax Cut and Jobs Act of 2017. We expect this to continue having a material impact on our tax financial results
under United States generally accepted accounting principles. Future changes in U.S. and non-U.S. tax laws and regulations could have a material effect on our
results of operations in the periods in which such laws and regulations become effective as well as in future periods.
The failure to successfully maintain the adequacy of our system of internal control over financial reporting could have a material adverse impact on our ability
to report our financial results in an accurate and timely manner.
Under the Sarbanes-Oxley Act of 2002, we were required to develop and are required to maintain an effective system of disclosure controls and internal control
over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. In addition, our
management is required to assess and certify the adequacy of our controls on a quarterly basis, and our independent auditors must attest and report on the
effectiveness of our internal control over financial reporting on an annual basis. Any failure in the effectiveness of our system of internal control over financial
reporting could have a material adverse impact on our ability to report our financial statements in an accurate and timely manner. Inaccurate and/or untimely
financial statements could subject us to regulatory actions, civil or criminal penalties, stockholder litigation, or loss of customer confidence, which could result in
an adverse reaction in the financial marketplace and ultimately could negatively impact our stock price due to a loss of investor confidence in the reliability of our
financial statements.
13
Table of Contents
Our sales to government clients subject us to risks, including early termination, audits, investigations, sanctions and penalties.
We derive a portion of our revenues and bookings from arrangements with governmental users in the U.S., the U.K. and elsewhere, contracts with the government
in the U.S., the U.K. and elsewhere, as well as various state and local governments, and their respective agencies. Government contracts are generally subject to
oversight, including audits and investigations which could identify violations of these agreements. Government contract violations could result in a range of
consequences including, but not limited to, contract price adjustments, civil and criminal penalties, contract termination, forfeiture of profit and/or suspension of
payment, and suspension or debarment from future government contracts. We could also suffer serious harm to our reputation if we were found to have violated
the terms of our government contracts.
Risks Related to Our Intellectual Property and Technology
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.
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. We may be unaware of intellectual property rights of others that may cover some of our technologies and products. If it
appears necessary or desirable, we may seek licenses for these intellectual property rights. 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. 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.
Intellectual property disputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us
from manufacturing or 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 to our customers. Any of these could seriously harm our business.
Unauthorized use of our proprietary technology and intellectual property could adversely affect our business and results of operations.
Our success and competitive position depend in large part on our ability to obtain and maintain intellectual property rights protecting our products and services. 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. 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. Policing unauthorized use of our products is difficult and we may not be able to protect our technology from
unauthorized use. Additionally, our competitors may independently develop technologies that are substantially the same or superior to our technologies and that do
not infringe our rights. In these cases, we would be unable to prevent our competitors from selling or licensing these similar or superior technologies. 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. 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. Litigation,
regardless of the outcome, can be very expensive and can divert management efforts.
Our software products may have bugs, which could result in delayed or lost revenue and bookings, expensive correction, liability to our customers and claims
against us.
Complex software products such as ours may contain errors, defects or bugs. 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 and bookings, adverse customer reaction and negative publicity about us or our products and
services. 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. Such claims could harm our reputation, financial results and competitive
position.
Risks Related to our Corporate Structure, Organization and Common Stock
Our debt agreements contain covenant restrictions that may limit our ability to operate our business.
Our debt agreements contain, and any of our other future debt agreements or arrangements may contain, covenant restrictions that limit our ability to operate our
business, including restrictions on our ability to:
incur additional debt or issue guarantees;
create liens;
•
•
• make certain investments;
14
Table of Contents
enter into transactions with our affiliates;
sell certain assets;
repurchase capital stock or make other restricted payments;
declare or pay dividends or make other distributions to stockholders; and
•
•
•
•
• merge or consolidate with any entity.
Our ability to comply with these limitations is dependent on our future performance, which will be subject to many factors, some of which are beyond our control,
including prevailing economic conditions. As a result of these limitations, our ability to respond to changes in business and economic conditions and to obtain
additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that might otherwise be beneficial to us. In
addition, our failure to comply with our debt covenants could result in a default under our debt agreements, which could permit the holders to accelerate our
obligation to repay the debt. If any of our debt is accelerated, we may not have sufficient funds available to repay the accelerated debt.
Our significant debt could adversely affect our financial health and prevent us from fulfilling our obligations under our credit facility and our convertible
debentures.
We have a significant amount of debt. As of September 30, 2019, we had $2,137.0 million outstanding principal of debt, including $300.0 million of senior notes
due in 2024, and $500.0 million of senior notes due in 2026, $46.6 million of 2.75% 2031 Convertible Debentures redeemable in November 2021, $263.9 million
of 1.5% 2035 Convertible Debentures redeemable in November 2021, $676.5 million of 1.0% 2035 Convertible Debentures redeemable in December 2022, and
$350.0 million of 1.25% 2025 Convertible Debentures redeemable in April 2025. Investors may require us to redeem these convertible debentures earlier than the
dates indicated if the closing sale price of our common stock is more than 130% of the then current conversion price of the respective debentures for certain
specified periods. If a holder elects to convert, we will be required to pay the principal amount in cash and any amounts payable in excess of the principal amount
in cash or shares of our common stock, at our election. For example, on November 1, 2017, holders of $331.2 million of our 2.75% 2031 Convertible Debentures
exercised their rights to require us to repurchase such debentures. We also have a $242.5 million Revolving Credit Facility under which $5.9 million was
committed to backing outstanding letters of credit issued and $236.6 million was available for borrowing at September 30, 2019. Our debt level could have
important consequences. For example, it could:
•
•
•
require us to use a large portion of our cash flow to pay principal and interest on debt, including the convertible debentures and the credit facility, which will
reduce the availability of our cash flow to fund working capital, capital expenditures, acquisitions, research and development, exploit business opportunities,
and undertake other business activities;
place us at a competitive disadvantage compared to our competitors that have less debt; and
limit, along with the financial and other restrictive covenants related to our debt, our ability to borrow additional funds, dispose of assets or pay cash
dividends.
Our ability to meet our payment and other obligations under our debt instruments depends on our ability to generate significant cash flow in the future. This, to
some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We
cannot assure you that our business will generate cash flow from operations, or that additional capital will be available to us, in an amount sufficient to enable us to
meet our payment obligations under the convertible debentures and our other debt and to fund other liquidity needs. If we are not able to generate sufficient cash
flow to service our debt obligations, we may need to refinance or restructure our debt, including the convertible debentures, sell assets, reduce or delay capital
investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may not be able to meet our payment
obligations under the convertible debentures and our other debt.
The market price of our common stock has been and may continue to be subject to wide fluctuations, and this may make it difficult for you to resell the
common stock when you want or at prices you find attractive.
Our stock price historically has been, and may continue to be, volatile. Various factors contribute to the volatility of our stock price, including, for example,
quarterly variations in our financial results, new product introductions by us or our competitors and general economic and market conditions. Sales of a substantial
number of shares of our common stock by our largest stockholders, or the perception that such sales could occur, could also contribute to the volatility or our stock
price. While we cannot predict the individual effect that any of these factors may have on the market price of our common stock, these factors, either individually
or in the aggregate, could result in significant volatility in our stock price. Moreover, companies that have experienced volatility in the market price of their stock
may be subject to securities class action litigation. Any such litigation could result in substantial costs and divert management's attention and resources.
15
Table of Contents
Current uncertainty in the global financial markets and the global economy may negatively affect the value of our investment portfolio.
Our investment portfolios, which include investments in money market funds, bank deposits and separately managed investment portfolios, are generally subject to
credit, liquidity, counterparty, market and interest rate risks that may be exacerbated by a global financial crisis or by uncertainty surrounding the United
Kingdom's exit from the European Union or recent changes in tariffs and trade agreements. If the banking system or the fixed income, credit or equity markets
deteriorate or remain volatile, our investment portfolio may be impacted, and the values and liquidity of our investments could be adversely affected
Future issuances of our common stock could adversely affect the trading price of our common stock and our ability to raise funds in new stock offerings.
Future issuances of substantial amounts of our common stock, whether in the public market or through private placements, including issuances in connection with
acquisition activities, or the perception that such issuances could occur, could adversely affect prevailing trading prices of our common stock and could impair our
ability to raise capital through future offerings of equity or equity-related securities. In connection with past acquisitions, we issued a substantial number of shares
of our common stock as transaction consideration or contingent consideration. We may continue to issue equity securities for future acquisitions, which would
dilute existing stockholders, perhaps significantly depending on the terms of such acquisitions. No prediction can be made as to the effect, if any, that future sales
of shares of common stock, or the availability of shares of common stock for future sale, will have on the trading price of our common stock.
Our business could be negatively affected by the actions of activist stockholders.
In the past, certain stockholders have publicly and privately expressed concerns with our performance and with certain governance matters. Responding to actions
by activist stockholders can be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees. Furthermore,
any perceived uncertainties as to our future direction could result in the loss of potential business opportunities, and may make it more difficult to attract and retain
qualified personnel and business partners. In addition, we have enacted certain changes to our bylaws in the past year that may weaken our ability to prevent an
unsolicited takeover.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
Our corporate headquarters are located in Burlington, Massachusetts. As of September 30, 2019, we leased approximately 1.6 million square feet of building space,
primarily in the United States, and to a lesser extent, in the Asia-Pacific regions, Europe and Canada, of which, approximately 0.4 million square feet was related to
our Automotive business. Larger leased sites include properties located in: Montreal, Canada; and Bangalore, India. In addition, we own 130,000 square feet of
building space located in Melbourne, Florida.
We also include in the total square feet leased space leased in specialized data centers in Massachusetts, Washington, Texas, China and smaller facilities around the
world.
We believe our existing facilities and equipment are in good operating condition and are suitable for the conduct of our business.
Item 3.
Legal Proceedings
Similar to many companies in the software industry, we are involved in a variety of claims, demands, suits, investigations and proceedings that arise from time to
time relating to matters incidental to the ordinary course of our business, including actions with respect to contracts, intellectual property, employment, benefits
and securities matters. We evaluate the probability of adverse outcomes and, as applicable, estimate the amount of probable losses that may result from pending
matters. Probable losses that can be reasonably estimated are reflected in our consolidated financial statements. These recorded amounts are not material to our
consolidated financial statements for any of the periods presented in the accompanying consolidated financial statements. While it is not possible to predict the
outcome of these matters with certainty, we do not expect the results of any of these actions to have a material adverse effect on our results of operations or
financial position. However, each of these matters is subject to uncertainties, the actual losses may prove to be larger or smaller than the accruals reflected in our
consolidated financial statements, and we could incur judgments or enter into settlements of claims that could adversely affect our financial position, results of
operations or cash flows.
16
Table of Contents
Item 4. Mine Safety Disclosures
Not applicable.
17
Table of Contents
PART II
Item 5.
Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded on the Nasdaq Global Select Market under the symbol “NUAN”.
As of October 31, 2019, there were 577 stockholders of record of our common stock. Because many of our shares of common stock are held by brokers and other
institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners represented by these record holders.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. We currently expect to retain future earnings, if any, to finance the growth and
development of our business, or to purchase common stock under our share repurchase program and do not anticipate paying any cash dividends in the foreseeable
future. Furthermore, the terms of our debt agreements place restrictions on our ability to pay dividends.
Stock Performance Graph
The following performance graph compares the Company’s cumulative total return on its common stock between September 30, 2014 and September 30, 2019 to
the cumulative total return of the Russell 2000, and to the S&P Information Technology indices assuming $100 was invested in the Company’s common stock and
each of the indices upon the closing of trading on September 30, 2014 and assuming the reinvestment of dividends, if any. The Company has have never declared
or paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future.
The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance shown in the graph below is not necessarily
indicative of, nor is it intended to forecast, the potential future performance of our common stock.
* $100 invested on September 30, 2014 in stock or index, including reinvestment of dividends, for each of the fiscal years below.
9/14
9/15
9/16
9/17
9/18
9/19
Nuance Communications, Inc.
Russell 2000
S&P Software & Services Select
100.00
100.00
100.00
106.20
101.25
109.82
94.06
116.91
131.33
101.98
141.15
156.88
112.36
162.66
218.07
105.81
148.20
225.09
18
Table of Contents
Issuer Purchases of Equity Securities
The following is a summary of our share repurchases for the three months ended September 30, 2019:
Period
July 1, 2019 - July 31, 2019
August 1, 2019 - August 31, 2019
September 1, 2019 - September 30, 2019
Total
Total Number of
Shares Purchased
—
Average Price
Paid per Share
—
391,114 $
—
391,114
15.34
—
Total Number of Shares
Purchased as Part of
Publicly Announced
Program (1)
Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Program(1)
— $
391,114 $
— $
391,114
436,384,658
430,383,689
430,383,689
(1) On April 29, 2013, our Board of Directors approved a share repurchase program for up to $500.0 million, which was increased by $500.0 million on April 29, 2015. On
August 1, 2018, our Board of Directors approved an additional $500.0 million under our share repurchase program. The program has no expiration date. As of September 30,
2019, approximately $430.4 million remained available for future repurchases under the program.
For the majority of restricted stock units granted to employees, the number of shares issued on the date the restricted stock units vest is net of the minimum statutory income
withholding tax requirements that we pay in cash to the applicable taxing authorities on behalf of our employees. We do not consider these transactions to be common stock
repurchases.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
19
Table of Contents
Item 6.
Selected Consolidated Financial Data
The following selected consolidated financial data is not necessarily indicative of the results of future operations and should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included
elsewhere in this Annual Report on Form 10-K.
(In millions, except per share amounts)
2019
2018
2017
2016
2015
(ASC 606)
(ASC 605)
(ASC 605)
(ASC 605)
(ASC 605)
Fiscal Year Ended September 30,
Continuing Operations (a):
Total revenues
Gross profit
Income (loss) from operations
(Benefit) provision for income taxes
Net income (loss) from continuing operations
Net Income (Loss) Per Share - continuing operations:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Financial Position:
Cash and cash equivalents and marketable securities
Total assets
Total debt
Total deferred revenue (a)
Total stockholders’ equity
Selected Data and Ratios (a):
Working capital
Depreciation of property and equipment
Amortization of intangible assets
Gross margin percentage
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,823.1
1,043.2
132.7
(88.6)
114.3
0.40
0.39
286.3
290.1
764.8
5,365.8
1,936.4
701.7
2,173.2
553.0
55.2
103.6
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,842.3
1,016.9
(117.5)
(62.3)
(184.9)
$
$
$
$
$
1,728.2
924.3
16.5
23.7
(178.3)
$
$
$
$
$
1,720.3
945.4
88.1
10.2
(58.7)
$
$
$
$
$
(0.63)
(0.63)
$
$
(0.62)
(0.62)
$
$
(0.20)
(0.20)
$
$
291.3
291.3
473.5
5,302.4
2,185.4
765.0
1,717.5
199.1
60.4
124.9
$
$
$
$
$
$
$
$
289.3
289.3
874.1
5,931.9
2,617.4
670.5
1,931.4
254.6
53.3
150.7
$
$
$
$
$
$
$
$
292.1
292.1
608.1
5,661.5
2,433.2
615.0
1,931.3
378.9
59.6
139.8
$
$
$
$
$
$
$
$
1,721.5
948.4
54.9
29.4
(140.3)
(0.44)
(0.44)
317.0
317.0
568.8
5,511.9
2,103.1
555.4
2,265.3
378.5
59.4
146.7
57.2%
55.2%
53.5%
55.0%
55.1%
(a) Amounts exclude those related to our Imaging business, which was included in discontinued operations for all the periods presented.
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis is intended to help the reader understand the results of operations and financial condition of our business.
The Management’s Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the
accompanying notes to the consolidated financial statements.
Overview
Business Overview
We are a pioneer and leader in conversational and cognitive AI innovations that bring intelligence to everyday work and life. Our solutions and technologies can
understand, analyze and respond to human language to increase productivity and amplify human intelligence. Our solutions are used by businesses in the
healthcare, automotive, financial services, telecommunications and travel industries, among others. We see several trends in our markets, including (i) the growing
adoption of cloud-based, connected services and highly interactive mobile applications, (ii) deeper integration of virtual assistant capabilities and services, and (iii)
the continued expansion of our core technology portfolio including ASR, NLU, semantic processing, domain-specific reasoning, dialog management capabilities,
AI, and voice biometric speaker authentication. We report our business in four segments, Healthcare, Enterprise, Automotive, and Other.
20
Table of Contents
Trends in Our Businesses
•
•
•
•
•
Healthcare. Customers in our healthcare segment are broadly implementing EHR systems and are working to improve clinical documentation, improve quality
of care, minimize physician burnout, integrate quality measures and aid reimbursement. These trends are driving a shift towards more integrated solutions
that combine both Dragon Medical cloud-based solutions and transcription services. Recently, higher demand for more integrated solutions have offset
declines in legacy, hosted transcription services. Additionally, we have been able to capitalize on healthcare providers’ shift towards hosted, or cloud-
based solutions, and away from perpetual licenses, by adding new innovations to our Dragon Medical cloud solutions including new clinical language
understanding and AI capabilities designed to increase productivity and improve clinical documentation at the point of care and within existing electronic
medical work flow.
Enterprise. Consumer demand for 24/7, multi-channel access to customer service from the businesses they interact with is driving demand for our AI-powered
omni-channel engagement solutions. We continue to enhance our technology capabilities with intelligent self-service and AI for customer service, and to
extend the market for our on-demand omni-channel enterprise solutions into international markets, expand our sales and solutions for biometrics, and
expand our core products and services portfolio.
Automotive. Demand for our embedded and cloud-based automotive solutions is being driven by the growth in personalized, automotive virtual assistants and
connected services for cars and by auto manufacturers' desire to create a branded and personalized experience, capable of intelligently integrating users' smart
phone and home device preferences and technologies.
On November 19, 2018, we announced our intent to spin off our Automotive business into an independent publicly traded company through a pro rata
distribution to our common stockholders. The spin-off was completed on October 1, 2019. Effective the first quarter of fiscal year 2020, the historical results
of our Automotive business will be included within discontinued operations for all the historical periods presented.
Other. Our Other segment includes our SRS and Devices businesses. Our SRS business provides value-added services to mobile operators in India and Brazil
(“Mobile Operator Services”) and voicemail transcription services to mobile operators in the rest of the world (“Voicemail-to-Text”). Our Devices business
provides speech recognition solutions and predictive text technologies for handset devices. Our Mobile Operator Services has experienced dramatic market
disruptions during fiscal year 2018. Our Devices revenue has been declining due to the ongoing consolidation of our handset manufacturer customer base and
continued erosion of our penetration of the remaining market. During the fourth quarter of fiscal 2018, in connection with our comprehensive portfolio and
business review efforts, we commenced a wind-down of our Devices and Mobile Operator Services businesses. In May 2019, we completed the sale of our
Mobile Operator Services business in Brazil, and in July 2019, we completed the sale of our Mobile Operator Services business in India. The sale prices and
any gains or losses were immaterial.
Discontinued Operations - Imaging. On November 11, 2018, we entered into a definitive stock purchase agreement, pursuant to which we agreed to sell our
Imaging business and associated assets. On February 1, we completed the sale of the business and we received proceeds approximately $400.0 million, net of
related fees and expenses, and subject to certain customary post-closing adjustments. As a result, for fiscal years 2019, 2018, and 2017, Imaging's results of
operations have been included within discontinued operations for all the historical periods presented and its assets and liabilities within held for sale in our
consolidated financial statements as of September 30, 2018.
Key Metrics
Effective the first quarter of fiscal year 2019, we implemented ASC 606 using the modified retrospective approach, which requires the results for the current
reporting periods be presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting
policies in accordance with ASC 605, with a cumulative adjustment recorded to accumulated deficit.
In evaluating the financial condition and operating performance of our business, management focuses on revenue, net income, gross margins, operating margins,
cash flow from operations, and changes in deferred revenue. A summary of these key financial metrics for our continuing operations is as follows:
For the fiscal year 2019, as compared to the fiscal year 2018:
•
Total revenues under ASC 606 was $1,823.1 million for the year ended September 30, 2019, as compared to $1,842.3 million under ASC 605 for the year
ended September 30, 2018;
21
Table of Contents
•
•
•
•
Net income from continuing operations under ASC 606 for the year ended September 30, 2019 was $114.3 million, compared to a net loss from continuing
operations of $184.9 million under ASC 605 the year ended September 30, 2018;
Gross margins under ASC 606 for the year ended September 30, 2019 was 57.2%, compared to 55.2% under ASC 605 for the year ended September 30, 2018;
Operating margins under ASC 606 for the year ended September 30, 2019 was 7.3%, compared to (6.4)% under ASC 605 for year ended September 30, 2018;
and
Operating cash flows from continuing operations increased by $4.7 million to $397.0 million for the year ended September 30, 2019, compared to $392.3
million for the year ended September 30, 2018.
As of September 30, 2019, as compared to September 30, 2018:
•
Total deferred revenue decreased by 8% to $701.7 million, primarily as a result of the ASC 606 implementation, offset in part by the continued growth of our
Automotive connected solutions and Healthcare bundled offerings.
Total Revenues
RESULTS OF OPERATIONS
The following tables show total revenues by product type and revenue by geographic location, based on the location of our customers, in dollars and percentage
change (dollars in millions):
Fiscal Year
2019
Fiscal Year
2019
Fiscal Year
2018
Fiscal Year
2017
% Change 2019 vs.
2018
% Change 2018 vs.
2017
(ASC 606)
(ASC 605)
(ASC 605)
(ASC 605)
(ASC 605)
(ASC 605)
Professional services and hosting
$
1,044.7 $
1,082.0 $
1,045.7 $
Product and licensing
Maintenance and support
Total Revenues
United States
International
Total Revenues
509.2
269.2
533.1
243.7
544.0
252.6
966.6
493.9
267.7
$
$
$
1,823.1 $
1,858.8 $
1,842.3 $
1,728.2
1,367.8 $
1,399.9 $
1,374.9 $
1,244.9
455.3
458.9
467.4
483.3
1,823.1 $
1,858.8 $
1,842.3 $
1,728.2
3.5 %
(2.0)%
(3.5)%
0.9 %
1.8 %
(1.8)%
0.9 %
8.2 %
10.1 %
(5.6)%
6.6 %
10.4 %
(3.3)%
6.6 %
Fiscal Year 2019 compared to Fiscal Year 2018
For fiscal year 2019, the geographic split under ASC 606 was 75% of total revenues in the United States and 25% internationally. The geographic split for fiscal
year 2019 under ASC 605 was 75% of total revenues in the United States and 25% internationally, as compared to 75% of total revenues in the United States and
25% internationally for fiscal year 2018.
Fiscal Year 2018 compared to Fiscal Year 2017
The geographic split for fiscal year 2018 was 75% of total revenue in the United States and 25% internationally, as compared to 72% of total revenue in the United
States and 28% internationally for fiscal year 2017.
Professional Services and Hosting Revenue
Hosting revenue primarily relates to delivering on-demand hosted services, such as medical transcription, automated customer care applications, mobile operator
services, and mobile infotainment and search and transcription, over a specified term. Professional services revenue primarily consists of consulting,
implementation and training services for customers. The following table shows hosting and professional services revenue, in dollars, percentage change, and as a
percentage of total revenues (dollars in millions):
22
Table of Contents
Hosting revenue
Professional services revenue
Hosting and professional services revenue
As a percentage of total revenues
Fiscal Year 2019 compared to Fiscal Year 2018
Fiscal Year 2019 Fiscal Year 2019 Fiscal Year 2018 Fiscal Year 2017
% Change 2019 vs.
2018
% Change 2018 vs.
2017
(ASC 606)
(ASC 605)
(ASC 605)
(ASC 605)
(ASC 605)
(ASC 605)
$
$
826.4
$
850.6
$
771.1
$
218.3
231.3
274.6
1,044.7
$
1,081.9
$
1,045.7
$
733.8
232.7
966.6
10.3 %
(15.8)%
3.5 %
5.1%
18.0%
8.2%
57.3%
58.2%
56.8%
55.9%
Hosting revenue under ASC 606 for the year ended September 30, 2019 is $24.3 million lower than revenue under ASC 605 for the same period, primarily as a
result of the re-allocation of contract consideration to multiple performance obligations based on standalone selling prices and the timing of revenue recognition for
transactions with extended payment terms. Under ASC 605, hosting revenue increased by $79.5 million, or 10.3%, primarily due to a $52.3 million increase in
Healthcare, a $29.8 million increase in Enterprise segment, and a $19.5 million increase in our Automotive segment, which was partially offset by a $22.1 million
decrease in our Other segment. Healthcare hosting revenue increased primarily due to the continued growth in our Dragon Medical cloud-based solutions, offset in
part by a decline in our medical transcription services. Enterprise hosting revenue increased primarily due to the strength in our omni-channel hosting solutions.
Automotive hosting revenue increased primarily due to the continued market penetration of our speech recognition and infotainment platform services. Other
segment hosting revenue decreased due to the wind-down of Devices and the sale of Mobile Operator Services business in Brazil and India in fiscal year 2019.
As a percentage of total revenue, hosting revenue under ASC 605 increased from 41.9% for fiscal 2018 to 45.8% for fiscal 2019.
Professional services revenue under ASC 606 for the year ended September 30, 2019 is $13.0 million lower compared to revenue under ASC 605 for the same
period, primarily due to the loss of deferred revenue upon the ASC 606 implementation as a result of change from completed contract method to the percentage of
completion method. Under ASC 605, Professional services revenue decreased by $43.3 million, or 15.8%, primarily due to a $58.9 million decrease in Healthcare,
offset in part by a $6.5 million increase in Enterprise and a $9.3 million increase in Automotive. Healthcare professional services revenue decreased primarily due
to lower revenue from the EHR implementation and optimization services. Enterprise professional services revenue increased primarily due to higher contact
center service revenue as a result of the timing of the services rendered. Automotive professional services revenue increased primarily due to the timing of the
services rendered.
As a percentage of total revenue, professional services revenue under ASC 605 decreased from 14.9% for fiscal 2018 to 12.4% for fiscal 2019.
Fiscal Year 2018 compared to Fiscal Year 2017
Hosting revenue increased by $37.3 million, or 5.1%, primarily driven by a $41.9 million increase in Healthcare, a $14.5 million increase in Automotive, and a
$6.7 million increase in Enterprise, offset in part by a $25.8 million decrease in Other. Healthcare hosting revenue increased as the segment recovered from the
2017 Malware Incident throughout the year; also contributing to the increase was the continued market penetration and growth of our Dragon Medical cloud-based
solutions, offset by in part by the continued erosion of our transcription services. Automotive hosting revenue increased primarily due to the continued growth in
our ASR and infotainment platform services. Enterprise hosting revenue increased primarily due to the growth in our omni-channel hosting solutions. Other
segment hosting revenue decreased primarily driven by the declines in both of our SRS and Devices businesses. As a percentage of total revenue, hosting revenue
decreased from 42.5% for fiscal year 2017 to 41.9% for fiscal year 2018.
Professional services revenue increased by $41.9 million, or 18.0%, primarily driven by a $49.4 million increase in Healthcare, offset in part by a $4.2 million
decrease in Automotive. Healthcare professional services revenue increased primarily due to higher revenue from EHR implementation and optimization services.
Automotive professional services revenue decreased primarily due to a shift towards connected services. As a percentage of total revenue, professional services
increased from 13.5% for fiscal year 2017 to 14.9% for fiscal year 2018.
Product and Licensing Revenue
Product and licensing revenue primarily consists of sales and licenses of our technology. The following table shows product and licensing revenue, in dollars,
percentage change, and as a percentage of total revenues (dollars in millions):
23
Table of Contents
Fiscal Year 2019 Fiscal Year 2019 Fiscal Year 2018 Fiscal Year 2017
% Change 2019 vs.
2018
% Change 2018 vs.
2017
(ASC 606)
(ASC 605)
(ASC 605)
(ASC 605)
(ASC 605)
(ASC 605)
Product and licensing revenue
$
509.2
$
533.1
$
544.0
$
493.9
(2.0)%
10.1%
As a percentage of total revenues
27.9%
28.7%
29.5%
28.6%
Fiscal Year 2019 compared to Fiscal Year 2018
Product and licensing revenue under ASC 606 for the year ended September 30, 2019 is $23.9 million lower compared to revenue under ASC 605 for the same
period, primarily due to the loss of revenue as a result of the upfront recognition of term license revenue on the opening balance sheet under ASC 606. Under ASC
605, product and licensing revenue decreased by $10.9 million, or 2.0%, primarily due to a $23.7 million decrease in Other and a $12.3 million decrease in
Enterprise, offset in part by a $20.7 million increase in Healthcare and a $4.4 million increase in Automotive. Other segment product and licensing revenue
decreased primarily due to the wind-down of Devices and the sale of Mobile Operator Services business in Brazil and India in fiscal year 2019. Enterprise product
and licensing revenue decreased primarily due to the timing of contact center license deals signed in fiscal year 2018. Automotive product and licensing revenue
increased primarily due to higher royalties from existing and new customers. Healthcare product and licensing revenue increased primarily driven by higher
Dragon Medical software license revenue from international markets.
As a percentage of total revenue, product and licensing revenue under ASC 605 decreased from 29.5% for fiscal year 2018 to 28.7% for fiscal year 2019.
Fiscal Year 2018 compared to Fiscal Year 2017
Product and licensing revenue increased by $50.1 million, or 10.1%, primarily driven by a $16.3 million increase in Automotive, a $14.5 million increase in
Healthcare, and a $12.8 million increase in Enterprise. Automotive product and licensing revenue increased primarily due to higher royalties from existing and new
customers. Healthcare product and licensing revenue increased primarily due to higher revenue from diagnostics solutions due to recent acquisitions. Enterprise
product and licensing revenue increased primarily due to higher contact center license revenue.
As a percentage of total revenue, product and licensing revenue increased from 28.6% for fiscal year 2017 to 29.5% for fiscal year 2018.
Maintenance and Support Revenue
Maintenance and support revenue primarily consists of technical support and maintenance services. The following table shows maintenance and support revenue,
in dollars, percentage change, and as a percentage of total revenues (dollars in millions):
Fiscal Year 2019 Fiscal Year 2019 Fiscal Year 2018 Fiscal Year 2017
% Change 2019 vs.
2018
% Change 2018 vs.
2017
(ASC 606)
(ASC 605)
(ASC 605)
(ASC 605)
(ASC 605)
(ASC 605)
Maintenance and support revenue
$
269.2
$
243.7
$
252.6
$
267.7
(3.5)%
(5.6)%
As a percentage of total revenues
14.8%
13.1%
13.7%
15.5%
Fiscal Year 2019 compared to Fiscal Year 2018
Maintenance and support revenue on ASC 606 basis for the year ended September 30, 2019 is $25.5 million higher compared to revenue under ASC 605 for the
same period, primarily as a result of the re-allocation of contract consideration to multiple performance obligations based on standalone selling prices. Under ASC
605, maintenance and support revenue decreased by $8.9 million, or 3.5%, primarily due to customers' continued transition from licenses to cloud-based solutions
in Healthcare.
As a percentage of total revenue, maintenance and support revenue under ASC 605 decreased from 13.7% to 13.1% for the year ended September 30, 2019.
Fiscal Year 2018 compared to Fiscal Year 2017
Maintenance and support revenue decreased by $15.1 million, or 5.6%, primarily due to a $18.1 million decrease in Healthcare, offset in part by a $4.6 million
increase in Enterprise. The decrease in Healthcare was primarily driven by the continuing customer
24
Table of Contents
transition from product licenses to cloud-based solutions. The increase in Enterprise was primarily driven by higher volume of contact center license transactions
with maintenance and support. As a percentage of total revenue, maintenance and support revenue under ASC 605 decreased from 15.5% for fiscal year 2017 to
13.7% for the fiscal year 2018.
Cost of Hosting and Professional Services Revenue
COSTS AND EXPENSES
Cost of professional services and hosting revenue primarily consists of compensation for services personnel, outside consultants and overhead, as well as the
hardware, infrastructure and communications fees that support our hosting solutions. The following table shows the cost of professional services and hosting
revenue, in dollars, percentage change, and as a percentage of professional services and hosting revenue (dollars in millions):
Cost of hosting and professional services revenue
Fiscal Year
2019
Fiscal Year
2019
Fiscal Year
2018
Fiscal Year
2017
% Change 2019
vs. 2018
% Change 2018
vs. 2017
(ASC 606)
636.2
$
(ASC 605)
639.1
$
(ASC 605)
678.4
$
(ASC 605)
654.6
$
(ASC 605)
(ASC 605)
(5.8)%
3.6%
As a percentage of hosting and professional services revenue
60.9%
59.1%
64.9%
67.7%
Fiscal Year 2019 compared to Fiscal Year 2018
Cost of hosting and professional services revenue under ASC 606 for the year ended September 30, 2019 is $2.9 million lower than the amount under ASC 605 for
the same period, primarily due to the upfront recognition of costs upon the ASC 606 implementation as a result of change from completed contract method to the
percentage of completion method. Under ASC 605, cost of hosting and professional services revenue decreased by $39.3 million, or 5.8%, primarily due to lower
revenue related to EHR implementation and optimization services, offset in part by higher costs related to our Dragon Medical cloud-based software. Under ASC
605, gross margin increased by 5.8 percentage points, primarily due to lower revenue from EHR implementation and optimization services, which carries lower
margins. Also contributing to the margin improvement was the favorable shift in revenue mix towards higher-margin Dragon Medical cloud-based software from
lower-margin transcription services.
Fiscal Year 2018 compared to Fiscal Year 2017
The increase in cost of professional services and hosting revenue was primarily due to higher professional services costs in our Healthcare segment related to EHR
implementation, optimization services and higher hosting costs related to the growth of our automotive connected car services, offset in part by lower costs of
medical transcription services. Gross margins increased by 2.8 percentage points as our Healthcare segment recovered from the 2017 Malware Incident throughout
the year. Also contributing to the margin improvement was a favorable shift in revenue mix towards higher margin Dragon Medical cloud-based software, offset in
part by margin compression in our medical transcription services and the increase in EHR implementation and optimization services which carried lower margins.
Cost of Product and Licensing Revenue
Cost of product and licensing revenue primarily consists of material and fulfillment costs, manufacturing and operations costs and third-party royalty expenses.
The following table shows the cost of product and licensing revenue, in dollars, percentage change, and as a percentage of product and licensing revenue (dollars in
millions):
Cost of product and licensing revenue
Fiscal Year
2019
Fiscal Year
2019
Fiscal Year
2018
Fiscal Year
2017
% Change 2019 vs.
2018
% Change 2018 vs.
2017
(ASC 606)
73.3
$
(ASC 605)
67.4
$
(ASC 605)
56.8
$
(ASC 605)
54.1
$
(ASC 605)
(ASC 605)
18.7%
5.0%
As a percentage of product and licensing revenue
14.4%
12.7%
10.4%
11.0%
25
Table of Contents
Fiscal Year 2019 compared to Fiscal Year 2018
Cost of product and licensing revenue under ASC 606 for the year ended September 30, 2019 is $5.9 million higher than the amount under ASC 605 for the same
period, primarily due to the upfront recognition of third-party license royalties in connection with the upfront recognition of term license revenue. Under ASC 605,
cost of product and licensing revenue increased by $10.6 million, or 18.7% primarily due to higher royalty costs in Healthcare. As a result, under ASC 605, gross
margin decreased by 2.3 percentage points.
Fiscal Year 2018 Compared to Fiscal Year 2017
Cost of product and licensing revenue increased by $2.7 million, or 5.0%, primarily due to higher costs related to our clinical documentation and diagnostic
solutions. Gross margins increased by 0.6 percentage points, primarily due to higher margins on Dragon Medical software license revenue.
Cost of Maintenance and Support Revenue
Cost of maintenance and support revenue primarily consists of compensation for product support personnel and overhead. The following table shows cost of
maintenance and support revenue, in dollars, percentage change, and as a percentage of maintenance and support revenue (dollars in millions):
Cost of maintenance and support revenue
Fiscal Year
2019
Fiscal Year
2019
Fiscal Year
2018
Fiscal Year
2017
% Change 2019
vs. 2018
% Change 2018
vs. 2017
(ASC 606)
33.6
$
(ASC 605)
33.8
$
(ASC 605)
39.3
$
(ASC 605)
37.2
$
(ASC 605)
(ASC 605)
(14.0)%
5.6%
As a percentage of maintenance and support revenue
12.5%
13.9%
15.6%
13.9%
Fiscal Year 2019 compared to Fiscal Year 2018
Cost of maintenance and support revenue under ASC 606 for the year ended September 30, 2019 is $0.2 million lower than the amount under ASC 605 for the
same period, primarily due to the timing of recognition of third-party service costs. Under ASC 605, cost of maintenance and support revenue decreased by $5.5
million, or 14.0%, primarily due to customers' continued transition from licenses to cloud-based solutions in Healthcare. Under ASC 605, gross margins increased
by 1.7 percentage points, primarily driven by higher margin on Dragon Medical maintenance and support services in Healthcare.
Fiscal Year 2018 compared to Fiscal Year 2017
Cost of maintenance and support revenue increased by $2.1 million, or 5.6%, primarily driven by higher compensation costs in Healthcare. Gross margins
decreased by 1.7%, primarily due to lower margin on Dragon Medical software maintenance and support services in Healthcare.
Research and Development Expenses
Research and development expenses primarily consist of salaries, benefits, and overhead relating to third party engineering costs. The following table shows
research and development expense, in dollars, percentage change, and as a percentage of total revenues (dollars in millions):
Research and development expenses
As a percentage of total revenues
Fiscal Year 2019 compared to Fiscal Year 2018
Fiscal Year
2019
Fiscal Year
2019
Fiscal Year
2018
Fiscal Year
2017
% Change 2019
vs. 2018
% Change 2018
vs. 2017
(ASC 606)
275.9
$
(ASC 605)
275.9
$
(ASC 605)
278.7
(ASC 605)
239.9
$
$
(ASC 605)
(ASC 605)
(1.0)%
16.2%
15.1%
14.8%
15.1%
13.9%
R&D expense decreased by $2.8 million, or 1.0%, primarily driven by lower compensation costs due to our recent costs saving initiatives, offset in part by our
continued investment in product development and new technologies to support our long-term growth.
26
Table of Contents
Fiscal Year 2018 compared to Fiscal Year 2017
R&D expenses increased by $38.8 million, or 16.2%, primarily due to higher compensation expenses as we continue to invest in product innovation and new
technologies to support our long-term growth.
Sales and Marketing Expenses
Sales and marketing expenses include salaries and benefits, commissions, advertising, direct mail, public relations, tradeshow costs and other costs of marketing
programs, travel expenses associated with our sales organization and overhead. The following table shows sales and marketing expense, in dollars, percentage
change, and as a percentage of total revenues (dollars in millions):
Sales and marketing expenses
As a percentage of total revenues
Fiscal Year 2019 compared to Fiscal Year 2018
Fiscal Year
2019
Fiscal Year
2019
Fiscal Year
2018
Fiscal Year
2017
% Change 2019
vs. 2018
% Change 2018
vs. 2017
(ASC 606)
303.5
$
(ASC 605)
309.4
$
(ASC 605)
311.7
$
(ASC 605)
324.4
$
(ASC 605)
(ASC 605)
(0.8)%
(3.9)%
16.6%
16.6%
16.9%
18.8%
Sales and marketing expense under ASC 606 for the year ended September 30, 2019 is $5.9 million lower than the amount under ASC 605 for the same period,
primarily due to the amortization of capitalized sales commission expenses over the period of benefit. Under ASC 605, sales and marketing expense decreased by
$2.3 million, or 0.8%, primarily driven by lower sales headcount as a result of ongoing portfolio review and optimization.
Fiscal Year 2018 compared to Fiscal Year 2017
Sales and marketing expenses decreased by $12.7 million, or 3.9%, primarily driven by lower commission expenses due to recent changes in our commission plans
in fiscal year 2018.
General and Administrative Expenses
General and administrative expenses primarily consist of personnel costs for administration, finance, human resources, general management, fees for external
professional advisers including accountants and attorneys, and provisions for doubtful accounts.
The following table shows general and administrative expense, in dollars, percentage change, and as a percentage of total revenues (dollars in millions):
General and administrative expenses
As a percentage of total revenues
Fiscal Year 2019 compared to Fiscal Year 2018
Fiscal Year
2019
Fiscal Year
2019
Fiscal Year
2018
Fiscal Year
2017
% Change 2019
vs. 2018
% Change 2018
vs. 2017
(ASC 606)
175.0
$
(ASC 605)
175.0
$
(ASC 605)
225.9
(ASC 605)
163.1
$
$
(ASC 605)
(ASC 605)
(22.5)%
38.5%
9.6%
9.4%
12.3%
9.4%
General and administrative expense decreased by $50.9 million, or 22.5%, primarily due to higher professional services costs incurred in fiscal year 2018 in
connection with establishing Automotive as a separate reportable segment. Also contributing to the decrease was lower employee-related costs as a result of
ongoing business review and other cost saving initiatives.
Fiscal Year 2018 compared to Fiscal Year 2017
General and administrative expenses increased by $62.8 million, or 38.5%, primarily due to professional services fees related to evaluating strategic alternatives for
certain businesses, establishing the Automotive business as a separate operating segment, and legal expenses related to enforcing our intellectual property rights.
27
Table of Contents
Amortization of Intangible Assets
Amortization of acquired patents and core technology are included within cost of revenues whereas the amortization of other intangible assets, such as acquired
customer relationships, trade names and trademarks, are included within operating expenses. Customer relationships are amortized on an accelerated basis based
upon the pattern in which the economic benefits of the customer relationships are being realized. Other identifiable intangible assets are amortized on a straight-
line basis over their estimated useful lives. Amortization expense was recorded as follows (dollars in millions):
Cost of revenues
Operating expenses
Total amortization expenses
As a percentage of total revenues
Fiscal Year 2019 compared to Fiscal Year 2018
Fiscal Year 2019 Fiscal Year 2018 Fiscal Year 2017
$
50.9
36.8
57.9
$
$
66.7
74.0
$
103.5
$
124.9
$
92.8
150.7
5.7%
6.8%
8.7%
% Change 2019
vs. 2018
% Change 2018
vs. 2017
(27.6)%
(9.8)%
(17.1)%
(12.1)%
(20.3)%
(17.1)%
Amortization of intangible assets expense for fiscal year 2019 decreased by $21.4 million, as certain intangible assets became fully amortized in fiscal years 2018
and 2019.
Fiscal Year 2018 compared to Fiscal Year 2017
Amortization of intangible assets expense for fiscal year 2018 decreased by $25.8 million, as certain intangible assets became fully amortized in fiscal years 2017
and 2018.
Acquisition-Related Costs, Net
Acquisition-related costs, net include costs related to business and other acquisitions, including potential acquisitions. These costs consist of (i) transition and
integration costs, including retention payments, transitional employee costs, earn-out payments, and other costs related to integration activities; (ii) professional
service fees, including financial advisory, legal, accounting, and other outside services incurred in connection with acquisition activities, and disputes and
regulatory matters related to acquired entities; and (iii) fair value adjustments to acquisition-related contingencies. A summary of the acquisition-related costs is as
follows (dollars in millions):
Transition and integration costs
Professional service fees
Acquisition-related adjustments
Total acquisition-related costs, net
As a percentage of total revenue
Fiscal Year 2019 compared to Fiscal Year 2018
Fiscal Year
2019
Fiscal Year
2018
Fiscal Year
2017
% Change 2019
vs. 2018
% Change 2018
vs. 2017
$
$
8.1
2.3
(1.5)
$
16.1
$
3.5
(3.4)
8.9
$
16.1
$
15.2
12.6
(0.1)
27.7
0.5%
0.9%
1.6%
(49.4)%
(32.7)%
(54.8)%
(44.7)%
5.9 %
(72.2)%
3,300.0 %
(41.9)%
Acquisition-related costs, net decreased by $7.2 million, primarily due to reduced acquisition activities during fiscal year 2019.
Fiscal Year 2018 compared to Fiscal Year 2017
Acquisition-related costs, net decreased by $11.6 million, primarily due to reduced acquisition activities during fiscal year 2018.
28
Table of Contents
Restructuring and Other Charges, Net
While restructuring and other charges, net are excluded from our calculation of segment profit, the table below presents the restructuring and other charges, net
associated with each segment (dollars in thousands):
Personnel
Facilities
Total
Restructuring
Expenses
Other Charges
Total
Fiscal Year 2019
Healthcare
Enterprise
Automotive
Other
Corporate
Total fiscal year 2019
Fiscal Year 2018
Healthcare
Enterprise
Automotive
Other
Corporate
Total fiscal year 2018
Fiscal Year 2017
Healthcare
Enterprise
Automotive
Other
Corporate
Total fiscal year 2017
Fiscal Year 2019
$
$
$
$
$
4,679 $
5,037
5,159
1,457
3,039
191
933
1,706
337
764
4,870 $
5,970
6,865
1,794
3,803
—
—
44,453
3,306
9,404
19,371 $
3,931 $
23,302 $
57,163 $
4,870
5,970
51,318
5,100
13,207
80,465
11,563 $
25 $
11,588 $
— $
11,588
4,217
4,160
1,473
10,107
2,243
20
647
953
6,460
4,180
2,120
11,060
—
—
7,103
14,515
31,520 $
3,888 $
35,408 $
21,618 $
6,460
4,180
9,223
25,575
57,026
4,283 $
870 $
5,153 $
8,758 $
13,911
2,141
1,838
2,954
1,337
3,480
—
(15)
2,013
5,621
1,838
2,939
3,350
—
—
10,773
21,491
$
12,553 $
6,348 $
18,901 $
41,022 $
5,621
1,838
13,712
24,841
59,923
For the fiscal year 2019, we recorded restructuring charges of $23.3 million, which included $19.4 million related to the termination of approximately 391
employees and $3.9 million charge related to closing certain excess facilities. These actions were part of our strategic initiatives focused on investment
rationalization, process optimization and cost reduction. We expect the remaining outstanding severance of $4.0 million to be substantially paid by the end of the
first quarter of fiscal year 2020, and the remaining of balance of $3.6 million for the excess facilities to be made through fiscal year 2027, in accordance with the
terms of the applicable leases.
Additionally, for the year ended September 30, 2019, we recorded $8.8 million of professional services fees related to our corporate transformational efforts, $45.6
million costs related to the separation of our Imaging business and the stand-up of our Automotive business, and $3.3 million accelerated depreciation related to
our Mobile Operator Services, offset in part by a $0.5 million cash receipt from insurance claims related to the malware incident that occurred in the third quarter
of fiscal year 2017 (the "2017 Malware Incident").
Fiscal Year 2018
For fiscal year 2018, we recorded restructuring charges of $35.4 million, which included $31.5 million related to the termination of approximately 1,318
employees and $3.9 million charge related to closing certain excess facilities, including adjustment to sublease assumptions associated with these facilities. These
actions were part of our strategic initiatives focused on investment rationalization, process optimization and cost reduction.
Additionally, during fiscal year 2018, we recorded $5.7 million for costs related to the transition agreement of our former CEO, $4.8 million professional services
fees related to assessment and establishment of our corporate transformational efforts, $4.0 million related to our remediation and restoration effort after the 2017
Malware Incident, and fixed asset impairment charges of $7.1 million for SRS and Devices, as more fully described in Note 6.
29
Table of Contents
Fiscal Year 2017
For fiscal year 2017, we recorded restructuring charges of $18.9 million, which included $12.6 million related to the termination of approximately 792 terminated
employees and $6.3 million charge related to closing certain excess facilities, including adjustment to sublease assumptions associated with these facilities. These
actions were part of our initiatives to reduce costs and optimize processes.
Additionally, during fiscal year 2017, we recorded $8.1 million for costs related to the transition agreement of our former CEO, $18.1 million of professional
services fees and $4.0 million of fixed asset and inventory write-down as a result of the 2017 Malware Incident, and an impairment charge of $10.8 million related
to an internally developed software.
Impairment of Goodwill and Other Intangible Assets
As more fully described in Note 6 of the accompanying consolidated financial statements, we recorded $170.9 million impairment charges of goodwill and other
intangible assets for Devices and Mobile Operator Services for fiscal year 2018. There was no impairment for goodwill or other intangible assets for fiscal year
2019.
Other Expenses, Net
Other expenses, net consists primarily of interest income, interest expense, foreign exchange gains (losses), and net gain (loss) from other non-operating activities.
A summary of other income (expense), net is as follows (dollars in millions):
Interest income
Interest expense
Other expense, net
Total other expenses, net
Fiscal Year 2019 compared to Fiscal Year 2018
Fiscal Year
2019
Fiscal Year
2018
Fiscal Year
2017
% Change 2019
vs. 2018
% Change 2018
vs. 2017
$
$
13.7 $
9.3 $
(120.1)
(137.3)
(0.5)
(1.8)
6.9
(156.9)
(21.2)
(106.9) $
(129.7) $
(171.2)
46.9 %
(12.5)%
(70.5)%
34.7 %
(12.5)%
(91.4)%
The decrease in interest expense was primarily due to the repurchase of $150.0 million of outstanding 5.375% Senior Notes due 2020 in September 2018, and the
redemption of the $331.2 million then outstanding 2.75% convertible debentures in November 2017. Additionally, in March 2019, we redeemed $300.0 million of
our 5.375% Senior Notes due 2020 with the net proceeds from the sale of Imaging.
Fiscal Year 2018 compared to Fiscal Year 2017
The decrease in interest expense was primarily due to the repurchase of $331.2 million of our outstanding 2.75% convertible debentures in November 2017. Other
expense, net decreased by $19.4 million primarily due to an $18.6 million loss on extinguishment of debt resulting from the repurchase of our 2020 Senior Notes in
fiscal year 2017.
(Benefit) Provision for Income Taxes
The following table shows the (benefit) provision for income taxes and the effective income tax rate (dollars in millions):
(Benefit) provision for income taxes
Effective income tax rate
Fiscal Year 2019 compared to Fiscal Year 2018
Fiscal Year 2019
$
(88.6)
$
Fiscal Year
2018
(62.3)
Fiscal Year 2017
$
23.7
% Change 2019
vs. 2018
% Change 2018
vs. 2017
42.2%
(363.3)%
(344.1)%
25.2%
(15.3)%
The effective income tax rate in fiscal year 2019 differs from the U.S. federal statutory rate of 21.0% primarily due to a net tax benefit of $112.1 million related to
intangible property transfers, partially offset by an uncertain tax position. The net tax benefit is also partially offset by a base erosion and anti-abuse tax ("BEAT")
expense of $11.2 million and a GILTI tax expense of $7.5 million. As part of the restructuring for the spin-off of our Automotive business, the Company
recognized an $896.8 million gross
30
Table of Contents
U.S. capital loss with a potential tax benefit of $188.3 million. We believe that it is not more likely than not that the tax benefit from the U.S. capital loss will be
realized. As a result, we recorded a full valuation allowance against the capital loss.
Benefit for income taxes increased by $26.3 million in fiscal year 2019, primarily due to a net tax benefit of $112.1 million related to the intangible property
transfers in fiscal year 2019, offset in part by the deferred tax benefit of $87.1 million related to the Tax Cuts and Jobs Act ("TCJA") in fiscal year 2018.
Fiscal Year 2018 compared to Fiscal Year 2017
Our effective income tax rate was 25.2% in fiscal year 2018, compared to (15.3%) in fiscal year 2017. The effective income tax rate of 25.2% in fiscal year 2018
differed from the U.S. statutory rate, primarily due to the net tax benefits resulting from the TCJA remeasurement of deferred tax assets and liabilities at the lower
enacted rate, and our foreign earnings being subject to lower tax rates, offset by in part by additional valuation allowance related to current period losses, the tax
effect of goodwill impairment charges that are not deductible, and the provision for the deemed repatriation of foreign cash and earnings. The effective tax rate of
(15.3%) in fiscal year 2017 differed from the U.S. statutory rate, primarily due to additional valuation allowance related to current period losses in the United
States and an increase in deferred tax liabilities related to goodwill, partially offset by our earnings in foreign operations that are subject to significantly lower tax
rates than the U.S. statutory tax rate.
Provision for income taxes decreased by $86.0 million in fiscal year 2018, primarily due to the lower valuation allowance provided related to the losses incurred
for the current fiscal year, the net tax benefits resulting from the TCJA remeasurement of deferred tax assets and liabilities at the lower enacted rate, offset in part
by the tax effect of goodwill impairment charges that are not deductible, and the provision for the deemed repatriation of foreign cash and earnings.
Net Income from Discontinued Operations
As more fully described in Note 4 to the accompanying consolidated financial statements, on November 11, 2018, we entered into a definitive sale agreement,
pursuant to which we agreed to sell our Imaging business and associated assets for a total cash consideration of approximately $400.0 million. The transaction
closed on February 1, 2019. Imaging's results of operations have been included within discontinued operations for all historical periods presented.
As more fully described in Note 23 to the accompanying consolidated financial statements, on October 1, 2019, we completed the previously announced spin-off of
our Automotive business as an independent public company. Effective the first quarter of fiscal year 2020, the historical results of our Automotive business will be
included within discontinued operations for all the historical periods presented.
SEGMENT ANALYSIS
As more fully described in Note 4, the results of our Imaging segment, previously a reportable segment, have been included within discontinued operations due to
the completion of the sale on February 1, 2019. As a result, effective the first quarter of fiscal year 2019, we changed our corporate overhead allocation
methodology to re-allocate the stranded costs related to our Imaging business to the remaining operating segments included within continuing operations. Our
segment presentation for fiscal years 2019, 2018, and 2017 have been restated to reflect the re-allocation of stranded costs. Stranded costs of $7.0 million for fiscal
years 2019, $7.8 million for 2018, and $7.1 million 2017, have been included within total segment profits and re-allocated to Healthcare, Enterprise, Automotive,
and Other, respectively. As a result, segment information for fiscal years 2018 and 2017 have been recast to reflect the above changes in segment reporting
structure.
For further details of financial information about our operating segments, see Note 22 to the accompanying consolidated financial statements included in Item 8 of
this Annual Report on Form 10-K. The following table presents certain financial information about our operating segments (dollars in millions):
31
Table of Contents
Fiscal Year
2019
Fiscal Year
2019
Fiscal Year
2018
Fiscal Year
2017
% Change 2019
vs. 2018
% Change 2018
vs. 2017
(ASC 606)
(ASC 605)
(ASC 605)
(ASC 605)
(ASC 605)
(ASC 605)
Segment Revenues (a)
Healthcare
Enterprise
Automotive
Other
Total segment revenues
Less: acquisition related revenue adjustments
$
950.6
$
984.4
$
984.8
$
510.8
306.6
61.5
1,829.5
(6.3)
507.4
312.7
61.8
1,866.3
(7.5)
483.2
279.4
109.1
1,856.5
(14.2)
899.3
474.3
252.2
133.8
1,759.6
(31.5)
1,823.2
$
1,858.8
$
1,842.3
$
1,728.1
Total revenues
Segment Profit
Healthcare
Enterprise
Automotive
Other
Total segment profit
Segment Profit Margin
Healthcare
Enterprise
Automotive
Other
Total segment profit margin
$
$
337.5
$
364.5
$
326.7
$
141.5
110.6
23.4
141.8
116.3
23.9
140.5
109.1
28.0
$
613.0
$
646.5
$
604.3
$
35.5%
27.7%
36.1%
38.1%
33.5%
37.0%
28.0%
37.2%
38.7%
34.6%
33.2%
29.1%
39.1%
25.7%
32.5%
257.8
133.9
118.2
41.2
551.1
28.7%
28.2%
46.9%
30.8%
31.3%
— %
5.0 %
11.9 %
(43.3)%
0.5 %
(46.8)%
0.9 %
11.6 %
1.0 %
6.6 %
(14.7)%
7.0 %
3.9
(1.1)
(1.8)
13.0
2.1
9.5 %
1.9 %
10.8 %
(18.5)%
5.5 %
(54.9)%
6.6 %
26.7 %
4.9 %
(7.7)%
(32.0)%
9.7 %
4.5
0.9
(7.8)
(5.1)
1.2
(a) Segment revenues differ from reported revenues due to certain revenue adjustments related to acquisitions that would otherwise have been recognized but for the purchase
accounting treatment of the business combinations. These revenues are included to allow for more complete comparisons to the financial results of historical operations and
in evaluating management performance.
Segment Revenues
Fiscal Year 2019 compared to Fiscal Year 2018
•
Healthcare segment revenue for the year ended September 30, 2019 reflected the up-front recognition of term license revenue from Clintegrity, Dragon
Medical, and Diagnostic solutions under ASC 606. Under ASC 605, Healthcare segment revenue decreased by $0.4 million or 0.0%, primarily driven by:
•
•
•
Revenue from Dragon Medical cloud offerings increased by $74.6 million, or 54.0%, to $212.7 million for fiscal year 2019 from $138.1 million for fiscal
year 2018, primarily due to the continued market penetration and customer transition to our cloud-based offering.
Revenue from transcription services decreased by $43.0 million, or 16.3%, to $220.5 million for fiscal year 2019 from $263.5 million for fiscal year 2018,
primarily due to the continued erosion of our medical transcription services revenue and customer's transition to Dragon Medical cloud-based software.
Professional services revenue decreased by $59.1 million or 40.8%, to $85.8 million for fiscal year 2019 from $144.9 million for fiscal year 2018,
primarily driven by lower revenue from EHR implementation and optimization services.
Enterprise segment revenue for the year ended September 30, 2019 reflected the allocation of contract consideration to multiple performance obligations
based on standalone selling prices, and the up-front recognition of term license revenue and related costs under ASC 606. Under ASC 605, Enterprise segment
revenue increased by $24.2 million, or 5.0%, primarily due to the growth in our omni-channel hosting solutions.
Automotive segment revenue for the year ended September 30, 2019 reflected the allocation of contract consideration to multiple performance obligations
based on standalone selling prices under ASC 606. Under ASC 605, Automotive segment revenue increased by $33.3 million, or 11.9%, primarily due to
higher royalties and hosting revenue driven by the continued growth in our speech recognition and infotainment platform services.
•
•
32
Table of Contents
•
Other segment revenue for the year ended September 30, 2019 reflected the allocation of contract consideration to multiple performance obligations based on
standalone selling prices under ASC 606. Under ASC 605, Other segment revenue decreased by $47.3 million, or 43.3%, primarily due to the wind-down of
Devices and the sale of Mobile Operator Services business in Brazil and India in fiscal year 2019.
Fiscal Year 2018 compared to Fiscal Year 2017
•
Healthcare segment revenues increased by $85.5 million, or 9.5%, primarily driven by:
•
•
•
Revenue from Dragon Medical cloud offerings increased by $74.0 million, or 115.5%, to $138.1 million for fiscal year 2018 from $64.1 million for fiscal
year 2017, primarily due to the continued market penetration and customer transition to our cloud-based offering, as well as the revenue loss in fiscal year
2017 due to the Malware Incident.
Revenue from transcription services decreased by $50.6 million, or 16.1%, to $263.5 million for fiscal year 2018 from $314.1 million for fiscal year 2017,
primarily due to the continued erosion of our medical transcription services revenue and customer's transition to Dragon Medical cloud-based software.
Professional services revenue increased by $49.0 million or 51.0%, to $144.9 million for fiscal year 2018 from $96.0 million for fiscal year 2017,
primarily driven by higher revenue from EHR implementation and optimization services.
Enterprise segment revenues increased by $8.9 million, or 1.9%, during fiscal year 2018 primarily due to higher contact center license and services revenue,
offset in part by lower revenue from our inbound and outbound on-demand solutions.
Automotive segment revenues increased by $27.2 million, or 10.8%, during fiscal year 2018 primarily due to higher royalties and revenues from our hosting
solutions driven by continued growth in our ASR and infotainment platform services.
Other segment revenue decreased by $24.7 million, or 18.5%, primarily due to the accelerated declines in both SRS and Devices businesses during fiscal year
2018. The decline in SRS was primarily due to the recent market disruptions in India and Brazil. These markets have experienced a dramatic recent disruption
as a result of accelerated change in competition and business models for our SRS mobile operator customers, which has reduced demand for our services. The
decline in our Devices business was primarily due to the ongoing consolidation of our handset manufacturer customer base, as well as continued erosion of our
penetration of the remaining market.
As more fully described in Note 4 to the accompanying consolidated financial statements, during the fourth quarter of fiscal 2018, in connection with our
comprehensive portfolio and business review efforts, we commenced a wind-down of our Devices and Mobile Operator Services businesses.
•
•
•
Segment Profit
Fiscal Year 2019 compared to Fiscal Year 2018
•
•
•
Healthcare segment profit for the year ended September 30, 2019 reflected the upfront recognition of term license revenue and related costs for Clintegrity,
Dragon Medical, and Diagnostic solutions under ASC 606. Under ASC 605, Healthcare segment profit increased by $37.8 million, or 11.6%, primarily due to
higher gross margin. The gross margin improvement was primarily due to a favorable shift in mix to higher margin Dragon Medical cloud-based solution from
lower margin medical transcription services, and lower revenue from EHR implementation and optimization services which carried lower margins. As a result,
segment profit margin under ASC 605 increased by 3.9 percentage points to 37.0%.
Enterprise segment profit for the year ended September 30, 2019 reflected the allocation of contract consideration to multiple performance obligations based
on standalone selling prices and the up-front recognition of term license revenue and related costs under ASC 606. Under ASC 605, Enterprise segment profit
increased by $1.4 million, or 1.0%, primarily due to higher segment revenue and lower sales and marketing expense, offset in part by lower gross margin.
Gross margin decline was primarily due to lower licensing revenue, which carries higher margins. The decrease in sales and marketing expenses was primarily
due to lower compensation expenses. As a result, segment profit margin under ASC 605 decreased by 1.1 percentage points to 28.0%.
Automotive segment profit for the year ended September 30, 2019 reflected the allocation of contract consideration to multiple performance obligations based
on standalone selling prices and the upfront recognition of term license costs under ASC 606. Under ASC 605, Automotive segment profit increased by $7.2
million, or 6.6%, primarily due to higher revenue, offset in part by lower gross margin, and higher operating expenses. Lower gross margin was primarily
driven by the continued pricing
33
Table of Contents
shift from up-front professional services to per unit license and hosting revenue. Higher operating expenses was primarily driven by higher sales commission
expense and our continued investment in R&D. As a result, segment profit margin under ASC 605 decreased by 1.8 percentage points to 37.2%.
•
Other segment profit for the year ended September 30, 2019 reflected the allocation of contract consideration to multiple performance obligations based on
standalone selling prices and the upfront recognition of term license costs under ASC 606. Under ASC 605, Other segment profit decreased by $4.1 million, or
14.7%, primarily driven by our costs saving initiatives related to the wind-down of our Devices and Mobile Operator Services businesses, offset in part by
lower segment revenue.
Fiscal Year 2018 compared to Fiscal Year 2017
•
•
•
•
Healthcare segment profit increased by $68.8 million, or 26.7%, primarily due to higher segment revenue and higher gross margin. Healthcare operating
results for fiscal year 2017 was negatively impacted by the 2017 Malware Incident. The gross margin for fiscal year 2018 reflected a favorable shift in revenue
mix towards higher margin Dragon Medical cloud-based offerings, offset in part by the increase in EHR implementation and optimization services which
carried lower margins. As a result, segment profit margin increased by 4.5 percentage points, to 33.2% for fiscal year 2018.
Enterprise segment profit increased by $6.6 million, or 4.9%, primarily due to higher segment revenue, offset in part by lower gross margin. The lower gross
margin was primarily due to higher infrastructure costs and increased headcount to support future growth. As a result, segment profit margin increased by 0.9
percentage points to 29.1% for fiscal year 2018 from 28.2% for fiscal year 2017.
Automotive segment profit decreased by $9.1 million, or 7.7%, primarily due to lower gross margin and higher R&D expenses, offset in part by higher
revenue. The lower gross margin was primarily driven by increased professional services headcount to support implementation of our connected solutions
across existing and new customer base. The higher R&D expense was primarily driven by our increased investment in new technologies. As a result, segment
profit margin decreased by 7.8 percentage points to 39.1% for fiscal year 2018 from 46.9% for fiscal year 2017.
Other segment profit decreased by $13.2 million, or 32.0%, primarily due to lower revenue and the margin compression in SRS and Devices. Segment profit
margin declined primarily due to lower revenues and relatively fixed costs and expenses structure. As more fully described in Note 4 to the accompanying
consolidated financial statements, during the fourth quarter of fiscal 2018, in connection with our comprehensive portfolio and business review efforts, we
commenced a wind-down of our Devices and Mobile Operator Services businesses.
34
Table of Contents
Liquidity
LIQUIDITY AND CAPITAL RESOURCES
We had cash and cash equivalents and marketable securities of $764.8 million as of September 30, 2019, an increase of $291.3 million from $473.5 million as of
September 30, 2018. Our working capital, defined as total current assets for continuing operations less total current operating liabilities of continuing operations,
was $553.0 million as of September 30, 2019, compared to $199.1 million as of September 30, 2018. The increase in our working capital was primarily due to the
proceeds from the sale of Imaging and the adoption of ASC 606. We had $236.6 million available for borrowing under our revolving credit facility as of
September 30, 2019. We believe that our existing sources of liquidity are sufficient to support our operating needs, capital requirements and any debt service
requirements for the next twelve months.
Cash and cash equivalents and marketable securities held by our international operations totaled $135.9 million as of September 30, 2019 and $112.8 million as of
September 30, 2018. We utilize a variety of financing strategies to ensure that our worldwide cash is available to meet our liquidity needs. We expect the cash held
overseas to be permanently invested in our international operations, and our U.S. operation to be funded through its own operating cash flows, cash and marketable
securities within the U.S., and if necessary, borrowing under our revolving credit facility.
Imaging Sale and Automotive Spin-Off
On February 1, 2019, we completed the sale of our Imaging business and received approximately $400 million in cash, after estimated transaction expenses, and
subject to post-closing finalization of the adjustments set forth in the Agreement. As a result, we recorded a gain of $102.4 million, which is included within net
income from discontinued operations. There are a number of working capital and other adjustments under the Agreement and related ancillary agreements. The
post-closing adjustments under the Agreement did not have a material impact on our consolidated financial statements. Additionally, in March 2019, we redeemed
$300.0 million of our 5.375% Senior Notes due 2020 with the net proceeds from the sale.
On November 19, 2018, we announced our intent to spin off our Automotive business into an independent publicly traded company through a pro rata distribution
to our common stockholders. The spin-off was completed on October 1, 2019.
In connection with the spin-off of our Automotive business, we issued a notice to all holders on September 5, 2019, pursuant to which, the holders had the right to
convert all or any portion of their debentures at the aforementioned conversion ratio until the close of business on October 1, 2019. As of September 30 2019, the
net carrying amounts of the convertible notes were included within the current portion of long-term debt. Upon the conclusion of the conversion period on October
1, 2019, none of the holders exercised their right to convert. As a result, the net carrying amounts of the convertible notes were reclassified back to long-term debt.
Additionally, on August 30, 2019, we issued a conditional notice of full redemption pursuant to the indenture governing its 2024 Senior Notes, which was
conditioned upon the incurrence of indebtedness by Cerence. On October 1, 2019, we redeemed all the $300.0 million outstanding principal amount of the 2024
Senior Notes for $313.5 million, plus accrued and unpaid interest of $4.5 million. As a result of the redemption, we will record a $15.0 million loss on
extinguishment of debt for the first quarter of fiscal year 2020, including a $13.5 million redemption premium and a $1.5 million write-off of unamortized debt
issuance costs.
For the year ended September 30, 2019, we incurred approximately $47.0 million to effect the separation of our Imaging business and the separation and stand-up
of our Automotive business.
Net cash provided by operating activities
Fiscal Year 2019 compared to Fiscal Year 2018
Cash provided by operating activities for fiscal year 2019 was $401.4 million, a decrease of $43.1 million from $444.4 million for fiscal year 2018. The net
decrease was primarily due to:
•
•
•
•
A decrease of $74.7 million from changes in deferred revenue. Deferred revenue had a positive effect of $22.3 million on operating cash flows for the year
ended September 30, 2019, as compared to $97.0 million for the year ended September 30, 2018, primarily due to the ASC 606 implementation using the
modified retrospective approach in the current period;
A decrease of $47.8 million from operating cash flows from discontinued operations; offset in part by,
An increase of $56.6 million due to higher income before non-cash charges;
An increase of $22.8 million due to favorable changes in working capital, primarily due to the timing of cash payments.
35
Table of Contents
Fiscal Year 2018 Compared to Fiscal Year 2017
Cash provided by operating activities for fiscal year 2018 was $392.3 million, an increase of $91.4 million, or 30%, from $300.8 million for fiscal year 2017. The
net increase was primarily due to:
•
•
An increase of $33.0 million driven by favorable changes in working capital excluding deferred revenue, primarily due to the timing of billing and
collections; and
An increase of cash inflows of $45.9 million from deferred revenue. Deferred revenue contributed cash inflow of $97.0 million in fiscal year 2018, as
compared to $51.0 million in fiscal year 2017, primarily driven by continued growth of our Automotive connected solutions and bundled offerings within
our Healthcare segment.
Net cash provided by (used in) investing activities
Fiscal Year 2019 compared to Fiscal Year 2018
Cash provided by investing activities for fiscal year 2019 was $296.0 million, an increase of $333.3 million from $37.3 million used for fiscal year 2018. The net
increase was primarily due to:
•
•
•
•
Net proceeds of $407.0 million from the dispositions of businesses, net of transaction fees;
A decrease of $89.3 million in payments for business and asset acquisitions;
A decrease of $4.7 million in capital expenditures; offset in part by,
A decrease of $167.7 million in net proceeds from the sale and purchase of marketable securities and other investments.
Fiscal Year 2018 Compared to Fiscal Year 2017
Cash used in investing activities for fiscal year 2018 was $37.3 million, a decrease of $296.9 million, or 89%, from $334.2 million for fiscal year 2017. The net
decrease was primarily due to:
•
•
An increase of $280.3 million in net proceeds from the sale and purchase of marketable securities and other investments; and
A decrease of $13.0 million in capital expenditures.
Net cash (used in) provided by financing activities
Fiscal Year 2019 compared to Fiscal Year 2018
Cash used in financing activities for fiscal year 2019 was $452.0 million, a decrease of $228.3 million from $680.3 million for fiscal year 2018. The net decrease
was primarily due to:
•
•
•
•
•
A decrease of $181.2 million in repayment and redemption of debt. During fiscal year 2019, we redeemed $300.0 million in aggregate principal of our
5.375% Senior Notes due 2020 with the net proceeds from the sale of Imaging. During fiscal year 2018, we redeemed approximately $331.2 million in
aggregate principal of the 2.75% 2031 Debentures, and repurchased $150.0 million in aggregate principal amount of our 2020 Senior Notes.
A decrease of $24.8 million related to acquisition payments with extended payment terms;
A decrease of $6.0 million related to payments for taxes related to net share settlement of equity awards;
A decrease of $9.2 million for share repurchases; offset in part by,
An increase of $9.9 million due to the proceeds from sale of noncontrolling interests in a subsidiary.
Fiscal Year 2018 Compared to Fiscal Year 2017
Cash used by financing activities for fiscal year 2018 was $680.3 million, an increase of $747.4 million, or 1,115%, from cash provided by financing activities of
$67.1 million for fiscal year 2017. The net increase was primarily due to:
•
•
A decrease in cash inflows of $837.5 million from debt issuance. During fiscal year 2017, the cash inflows from debt activities includes $495.0 million net
proceeds from the issuance of 5.625% Senior Notes due 2026; and $343.6 million net proceeds from the issuance of our 1.25% 2025 Convertible
Debentures;
An increase in cash outflows of $37.0 million related to share repurchases; and
36
Table of Contents
•
•
An increase in cash outflows of $24.8 million related to acquisition payments with extended payment terms, offset in part by,
A decrease in cash outflows of $152.9 million from the redemption and repayment of debt. During fiscal year 2018, we redeemed approximately $331.2
million in aggregate principal of the 2.75% 2031 Debentures, and repurchased $150.0 million in aggregate principal of our 2020 Senior Notes. During fiscal
year 2017, we repurchased $600.0 million in aggregate principal of our 2020 Senior Notes and $17.8 million in aggregate principal of our 2031 Convertible
Debentures.
Debt
For a detailed description of the terms and restrictions of the debt and revolving credit facility, see Note 10 to the accompanying consolidated financial statements.
We expect to incur cash interest payment of $49.0 million in fiscal year 2020, based on the outstanding balance as of September 30, 2019, giving effect to the
redemption of the 2024 Senior Notes discussed above. We expect to fund our debt service requirements through existing sources of liquidity and our operating
cash flows.
Share Repurchases
On April 29, 2013, our Board of Directors approved a share repurchase program for up to $500.0 million, which was increased by $500.0 million on April 29,
2015. On August 1, 2018, our Board of Directors approved additional $500.0 million under our share repurchase program. Under the terms of the share repurchase
program, we have the ability to repurchase shares through a variety of methods, which may include open market purchases, privately negotiated transactions, block
trades, accelerated stock repurchase transactions, or any combination of such methods. The share repurchase program does not require us to acquire any specific
number of shares and may be modified, suspended, extended or terminated by us at any time without prior notice. The timing and the amount of any purchases will
be determined by management based on an evaluation of market conditions, capital allocation alternatives, and other factors.
We repurchased 8.2 million shares, 9.7 million shares and 5.8 million shares for $126.9 million, $136.1 million and $99.1 million during the fiscal years ended
September 30, 2019, 2018 and 2017, respectively, under the program. Since the commencement of the program, we have repurchased 64.3 million shares for
$1,070.0 million. Approximately $430.4 million remained available for share repurchases as of September 30, 2019 pursuant to our share repurchase program.
Off-Balance Sheet Arrangements, Contractual Obligations, Contingent Liabilities and Commitments
Contractual Obligations
The following table outlines our contractual payment obligations for continuing operations as of September 30, 2019 (dollars in millions):
Contractual Obligations
Convertible Debentures (1)
Senior Notes (2)
Interest payable on long-term debt (3)
Letter of Credit (4)
Lease obligations and other liabilities:
Operating leases (5)
Operating leases under restructuring
Purchase commitments for inventory, property and
equipment (6)
Payments Due by Fiscal Year Ended September 30,
Total
2020
2021 and 2022
2023 and 2024
Thereafter
$
1,337.0 $
— $
310.5 $
676.5 $
800.0
344.0
5.9
164.2
16.7
45.3
—
62.5
5.9
34.3
5.0
34.5
142.2 $
—
120.2
—
52.1
4.6
10.8
300.0
98.2
—
29.5
3.9
—
498.2 $
1,108.1 $
350.0
500.0
63.1
—
48.3
3.2
—
964.6
Total contractual cash obligations
$
2,713.1 $
(1) The repayment schedule above assumes that payment is due on the first mandatory redemption date after September 30, 2019. As more fully described below, as of
September 30, 2019, the holders had the right to convert all or any portion of their debentures until the close of business on October 1, 2019. As a result, the net carrying
amounts of our convertible notes were included in current liabilities as of September 30, 2019. Upon the conclusion of the conversion period on October 1, 2019, none of
the holders exercised their right to convert. As a result, the net carrying amounts of the convertible notes were reclassified back to long-term debt.
(2) The repayment schedule reflects all the senior notes outstanding as of September 30, 2019. As more fully described below, on October 1, 2019, we redeemed all of the
$300 million outstanding principal of the 2024 Senior Notes.
37
Table of Contents
(3)
Interest per annum is due and payable semi-annually and is determined based on the outstanding principal as of September 30, 2019, the stated interest rate of each debt
instrument and the assumed redemption dates discussed above.
(4) Letters of Credit are in place primarily to secure future operating lease payments.
(5) Obligations include contractual lease commitments related to facilities that have subsequently been subleased. As of September 30, 2019, we have subleased certain
facilities with total sublease income of $15.2 million through fiscal year 2027.
(6) These amounts include non-cancelable purchase commitments for property and equipment as well as inventory in the normal course of business to fulfill customer
backlog.
As of September 30, 2019, $85.6 million of the unrecognized tax benefits, if recognized, would impact our effective income tax rate. In fiscal year 2019, there was
an increase in unrecognized tax benefits of $58.9 million related to intangible property transfers. Within the next 12 months, we expect the unrecognized tax
benefits to decrease by $56.6 million as it is transferred to Cerence as part of the spin-off on October 1, 2019. We recognized interest and penalties related to
uncertain tax positions in our provision for income taxes of $1.9 million, $1.3 million, and $2.0 million during fiscal years 2019, 2018, and 2017, respectively. We
recorded interest and penalties of $12.7 million and $10.8 million as of September 30, 2019 and 2018, respectively.
Contingent Liabilities and Commitments
Certain acquisition payments to selling stockholders were contingent upon the achievement of pre-determined performance targets over a period of time after the
acquisition. Such contingent payments were recorded at estimated fair values upon the acquisition and re-measured in subsequent reporting periods. As of
September 30, 2019, we may be required to pay the selling stockholders up to $4.8 million contingent upon achieving specified performance goals, including the
achievement of future bookings and sales targets related to the products of the acquired entities. In addition, certain deferred compensation payments to selling
stockholders contingent upon their continued employment after the acquisition were recorded as compensation expense over the requisite service period.
Additionally, as of September 30, 2019, the remaining deferred payment obligations of $18.1 million to certain former stockholders, which are contingent upon
their continued employment, will be recognized ratably as compensation expense over the remaining requisite service periods.
Financial Instruments
We use financial instruments to manage our foreign exchange risk. We operate our business in countries throughout the world and transact business in various
foreign currencies. Our foreign currency exposures typically arise from transactions denominated in currencies other than the functional currency of our operations.
We have a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effect of certain foreign currency exposures.
Our program is designed so that increases or decreases in our foreign currency exposures are offset by gains or losses on the foreign currency forward contracts in
order to mitigate the risks and volatility associated with our foreign currency transactions. Generally, we enter into such contracts for less than 90 days and have no
cash requirements until maturity. At September 30, 2019 and 2018, we had outstanding contracts with a total notional value of $189.6 million and $117.1 million,
respectively.
Defined Benefit Plans
We sponsor certain defined benefit plans that are offered primarily by certain of our foreign subsidiaries. Many of these plans were assumed through our
acquisitions or are required by local regulatory requirements. We may deposit funds for these plans with insurance companies, third party trustees, or into
government-managed accounts consistent with local regulatory requirements, as applicable. Our total defined benefit plan pension (income) expenses were $(0.1)
million, $(0.3) million and $0.4 million for fiscal years 2019, 2018 and 2017, respectively. The aggregate projected benefit obligation as of September 30, 2019
and September 30, 2018 was $39.9 million and $34.7 million, respectively. The aggregate net liability of our defined benefit plans as of September 30, 2019 and
September 30, 2018 was $16.8 million and $11.1 million, respectively.
Off-Balance Sheet Arrangements
Through September 30, 2019, we have not entered into any off-balance sheet arrangements or material transactions with unconsolidated entities or other persons.
38
Table of Contents
CRITICAL ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
The preparation of financial statements in conformity with U.S. generally accepted accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, assumptions and judgments, including
those related to revenue recognition; allowance for doubtful accounts and sales returns; accounting for deferred costs; accounting for internally developed software;
the valuation of goodwill and intangible assets; accounting for business combinations, including contingent consideration; accounting for stock-based
compensation; accounting for derivative instruments; accounting for income taxes and related valuation allowances; and loss contingencies. Our management
bases its estimates on historical experience, market participant fair value considerations, projected future cash flows and various other factors that are believed to
be reasonable under the circumstances. Actual results could differ from these estimates.
We believe the following critical accounting policies most significantly affect the portrayal of our financial condition and results of operations and require our most
difficult and subjective judgments.
Revenue Recognition
We derive revenue from the following sources: (1) hosting services, (2) software licenses, including royalties, (3) M&S, (4) professional services, and (5) sale of
hardware. Revenue is reported net of applicable sales and use tax, value-added tax and other transaction taxes imposed on the related transaction including
mandatory government charges that are passed through to our customers. We account for a contract when both parties have approved and committed to the
contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and the collectibility of the consideration is
probable.
The majority of our arrangements with customers typically contain multiple products and services. We account for individual products and services separately if
they are distinct--that is, if a product or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with
other resources that are readily available to the customer.
In fiscal year 2019, we implemented ASC 606 using the modified retrospective approach, which requires the results for the current reporting periods be presented
under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies in accordance with
ASC 605, with a cumulative adjustment recorded to accumulated deficit. We currently recognize revenue after applying the following five steps:
•
•
•
•
•
identification of the contract, or contracts, with a customer;
identification of the performance obligations in the contract, including whether they are distinct within the context of the contract;
determination of the transaction price, including the constraint on variable consideration;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when, or as, performance obligations are satisfied.
We allocate the transaction price of the arrangement based on the relative estimated standalone selling price ("SSP") of each distinct performance obligation. In
determining SSP, we maximize observable inputs and consider a number of data points, including:
•
•
•
•
the pricing of standalone sales (in the instances where available);
the pricing established by management when setting prices for deliverables that are intended to be sold on a standalone basis;
contractually stated prices for deliverables that are intended to be sold on a standalone basis; and
other pricing factors, such as the geographical region in which the products are sold and expected discounts based on the customer size and type.
We only include estimated amounts of variable consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue
recognized will not occur when the uncertainty associated with the variable consideration is resolved. We reduce transaction prices for estimated returns and other
allowances that represent variable consideration under ASC 606, which we estimate based on historical return experience and other relevant factors, and record a
reduction to revenue and accounts receivable. Other forms of contingent revenue or variable consideration are infrequent.
Revenue is recognized when control of these products and services is transferred to our customers, in an amount that reflects the consideration we expect to be
entitled to in exchange for those services.
39
Table of Contents
We assess the timing of the transfer of products or services to the customer as compared to the timing of payments to determine whether a significant financing
component exists. In accordance with the practical expedient in ASC 606-10-32-18, we do not assess the existence of a significant financing component when the
difference between payment and transfer of deliverables is a year or less. If the difference in timing arises for reasons other than the provision of finance to either
the customer or us, no financing component is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable
ways of purchasing our services, not to receive or provide financing from or to customers. We do not consider set-up fees nor other upfront fees paid by our
customers to represent a financing component.
Certain products are sold through distributors or resellers. Certain distributors and resellers have been granted right of return and selling incentives which are
accounted for as variable consideration when estimating the amount of revenue to be recognized. Returns and credits are estimated at the contract inception and
updated at the end of each reporting period as additional information becomes available. In accordance with the practical expedient in ASC 606-10-10-4, we apply
a portfolio approach to estimate the variable consideration associated with this group of customers.
Reimbursements for out-of-pocket costs generally include, but are not limited to, costs related to transportation, lodging and meals. Revenue from reimbursed out-
of-pocket costs is accounted for as variable consideration.
Shipping and handling activities are not considered a contract performance obligation. We record shipping and handling costs billed to customers as revenue with
offsetting costs recorded as cost of revenue.
Performance Obligations
Hosting
Hosting services, which allow our customers to use the hosted software over the contract period without taking possession of the software, are provided on a usage
basis as consumed or on a fixed fee subscription basis. Our hosting contract terms generally range from one to five years.
As each day of providing services is substantially the same and the customer simultaneously receives and consumes the benefits as access is provided, we have
determined that our hosting services arrangements are a single performance obligation comprised of a series of distinct services. These services include variable
consideration, which is typically a function of usage. We recognize revenue as each distinct service period is performed (i.e., recognized as incurred).
Subscription basis revenue represents a single promise to stand-ready to provide access to our hosting services. Revenue is recognized over time on a ratable basis
over the hosting contract term, which generally ranges from one to five years.
Software Licenses
On-premise software licenses sold with non-distinct professional services to customize and/or integrate the underlying software are accounted for as a combined
performance obligation. Revenue from the combined performance obligation is recognized over time based upon the progress towards completion of the project,
which is measured based on the labor hours already incurred to date as compared to the total estimated labor hours.
Revenue from distinct on-premise software licenses, which do not require professional services to customize and/or integrate the software license, is recognized at
the point in time when the software is made available to the customer and control is transferred.
Revenue from software licenses sold on a royalty basis, where the license of intellectual property is the predominant item to which the royalty relates, is recognized
in the period the usage occurs in accordance with the practical expedient in ASC 606-10-55-65(A).
Maintenance and Support
Our M&S contracts generally include telephone support and the right to receive unspecified upgrades and updates on a when-and-if available basis. M&S revenue
is recognized over time on a ratable basis over the contract period because we transfer control evenly by providing a stand-ready service.
Professional Services
Revenue from distinct professional services, including training, is recognized over time based upon the progress towards completion of the project, which is
measured based on the labor hours already incurred to date as compared to the total estimated labor hours.
Hardware
Hardware revenue is recognized at the point in time when control is transferred to the customer, which is typically upon delivery.
40
Table of Contents
Significant Judgments
Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require
significant judgment. Our license contracts often include professional services to customize and/or integrate the licenses into the customer’s environment.
Judgment is required to determine whether the license is considered distinct and accounted for separately, or not distinct and accounted for together with
professional services.
Judgments are required to determine the SSP for each distinct performance obligation. When SSP is directly observable, we estimate SSP based upon the historical
transaction prices, adjusted for geographic considerations, customer classes, and customer relationship profiles. In instances where SSP is not directly observable,
we determine SSP using information that may include market conditions and other observable inputs. We may have more than one SSP for individual products and
services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the
customer and geographic region in determining SSP. Determining SSP for performance obligations which we never sell separately also requires significant
judgment. In estimating the SSP, we consider the likely price that would have resulted from established pricing practices had the deliverable been offered
separately and the prices a customer would likely be willing to pay.
From time to time, we may enter into arrangements with third party suppliers to resell products or services. In such cases, we evaluate whether we are the principal
(i.e. report revenues on a gross basis) or agent (i.e. report revenues on a net basis). In doing so, we first evaluate whether we control the good or service before it is
transferred to the customer. If we control the good or service before it is transferred to the customer, we are the principal; if not, we are the agent. Generally, we
control a promised good or service before transferring that good or service to the customer and act as the principal to the transaction. Determining whether we
control the good or service before it is transferred to the customer may require judgment.
Goodwill Impairment Analysis
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill and
intangible assets with indefinite lives are not amortized, but rather the carrying amounts of these assets are assessed for impairment at least annually or whenever
events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Goodwill is tested for impairment annually on July 1,
the first day of the fourth quarter of the fiscal year. In fiscal year 2017, we elected to early adopt ASU 2017-04, “Simplifying the Test for Goodwill Impairment”
for its annual goodwill impairment test. ASU 2017-04 removes Step 2 of the goodwill impairment test requiring a hypothetical purchase price allocation. Goodwill
impairment, if any, is determined by comparing the reporting unit's fair value to its carrying value. An impairment loss is recognized in an amount equal to the
excess of the reporting unit's carrying value over its fair value, up to the amount of goodwill allocated to the reporting unit. There is no goodwill impairment for
fiscal years 2019 and 2018. See Note 5 to the accompanying consolidated financial statements for the impairment losses recorded in fiscal year 2018.
For the purpose of testing goodwill for impairment, all goodwill acquired in a business combination is assigned to one or more reporting units. A reporting unit
represents an operating segment or a component within an operating segment for which discrete financial information is available and is regularly reviewed by
segment management for performance assessment and resource allocation. Components of similar economic characteristics are aggregated into one reporting unit
for the purpose of goodwill impairment assessment. Reporting units are identified annually and re-assessed periodically for recent acquisitions or any changes in
segment reporting structure.
Corporate assets and liabilities are allocated to each reporting unit based on the reporting unit’s revenue, total operating expenses or operating income as a
percentage of the consolidated amounts. Corporate debt and other financial liabilities that are not directly attributable to the reporting unit's operations and would
not be transferred to hypothetical purchasers of the reporting units are excluded from a reporting unit's carrying amount.
The fair value of a reporting unit is generally determined using a combination of the income approach and the market approach. For the income approach, fair
value is determined based on the present value of estimated future after-tax cash flows, discounted at an appropriate risk-adjusted rate. We use our internal
forecasts to estimate future after-tax cash flows and estimate the long-term growth rates based on our most recent views of the long-term outlook for each reporting
unit. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates
for industries relevant to our reporting units to estimate the weighted average cost of capital. We adjust the discount rates for the risks and uncertainty inherent in
the respective businesses and in our internally developed forecasts. For the market approach, we use a valuation technique in which values are derived based on
valuation multiples of comparable publicly traded companies. We assess each valuation methodology based upon the relevance and availability of the data at the
time we perform the valuation and weight the methodologies appropriately.
41
Table of Contents
Intangible Assets and long-lived Asset groups
Long-lived assets with definite lives are tested for impairment whenever events or changes in circumstances indicate the carrying value of a specific asset or asset
group may not be recoverable. We assess the recoverability of long-lived assets with definite-lives at the asset group level. Asset groups are determined based upon
the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. When the asset group is also a reporting
unit, goodwill assigned to the reporting unit is also included in the carrying amount of the asset group. For the purpose of the recoverability test, we compare the
total undiscounted future cash flows from the use and disposition of the assets with its net carrying amount. When the carrying value of the asset group exceeds the
undiscounted future cash flows, the asset group is deemed to be impaired. The amount of the impairment loss represents the excess of the asset or asset group’s
carrying value over its estimated fair value, which is generally determined based upon the present value of estimated future pre-tax cash flows that a market
participant would expect from use and disposition of the long-lived asset or asset group. See Note 5 for the impairment charges recorded in fiscal year 2018.
Income Taxes
Deferred Taxes
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying
amounts of assets and liabilities and their respective tax bases. This method also requires the recognition of future tax benefits such as net operating loss
carryforwards, to the extent that realization of such benefits is more likely than not after consideration of all available evidence. As the income tax returns are not
due and filed until after the completion of our annual financial reporting requirements, the amounts recorded for the current period reflect estimates for the tax-
based activity for the period. In addition, estimates are often required with respect to, among other things, the appropriate state and foreign income tax rates to use,
the potential utilization of operating loss carry-forwards and valuation allowances required, if any, for tax assets that may not be realizable in the future. Tax laws
and tax rates vary substantially in these jurisdictions, and are subject to change given the political and economic climate. We report and pay income tax based on
operational results and applicable law. Our tax provision contemplates tax rates currently in effect to determine both our current and deferred tax provisions.
Any significant fluctuation in rates or changes in tax laws could cause our estimates of taxes we anticipate either paying or recovering in the future to change. Such
changes could lead to either increases or decreases in our effective tax rate.
We have historically estimated the future tax consequence of certain items, including bad debts, inventory valuation, and accruals that cannot be deducted for
income tax purposes until such expenses are paid or the related assets are disposed. We believe the procedures and estimates used in our accounting for income
taxes are reasonable and in accordance with established tax law. The income tax estimates used have not resulted in material adjustments to income tax expense in
subsequent periods when the estimates are adjusted to the actual filed tax return amounts.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences
are expected to be recovered or settled. With respect to earnings expected to be indefinitely reinvested offshore, we do not accrue tax for the repatriation of such
foreign earnings.
Valuation Allowance
We regularly review our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the
reversals of existing temporary differences and tax planning strategies. In assessing the need for a valuation allowance, we consider both positive and negative
evidence related to the likelihood of realization of the deferred tax assets. The weight given to the positive and negative evidence is commensurate with the extent
to which the evidence may be objectively verified. If positive evidence regarding projected future taxable income, exclusive of reversing taxable temporary
differences, existed it would be difficult for it to outweigh objective negative evidence of recent financial reporting losses. Generally, cumulative loss in recent
years is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is not needed.
As of September 30, 2019, we have $303.4 million of valuation allowances recorded against all U.S. deferred tax assets and certain foreign deferred tax assets. If
we are subsequently able to utilize all or a portion of the deferred tax assets for which the remaining valuation allowance has been established, then we may be
required to recognize these deferred tax assets through the reduction of the valuation allowance which could result in a material benefit to our results of operations
in the period in which the benefit is determined.
Uncertain Tax Positions
We operate in multiple jurisdictions through wholly-owned subsidiaries and our global structure is complex. The estimates of our uncertain tax positions involve
judgments and assessment of the potential tax implications related to legal entity restructuring,
42
Table of Contents
intercompany transfer and acquisition or divestiture. We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the technical merits of the position.
Our tax positions are subject to audit by taxing authorities across multiple global jurisdictions and the resolution of such audits may span multiple years. Tax law is
complex and often subject to varied interpretations, accordingly, the ultimate outcome with respect to taxes we may owe may differ from the amounts recognized.
See Note 2 to the accompanying consolidated financial statements for a description of recently adopted accounting standards.
RECENTLY ADOPTED ACCOUNTING STANDARDS
See Note 2 to the accompanying consolidated financial statements for a description of certain issued accounting standards that have not been adopted and may
impact our financial statements in future reporting periods.
ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in foreign currency exchange rates, interest rates and equity prices which could affect operating results, financial
position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when appropriate, through the
use of derivative financial instruments.
Exchange Rate Sensitivity
We are exposed to changes in foreign currency exchange rates. Any foreign currency transaction, defined as a transaction denominated in a currency other than the
local functional currency, will be reported in the functional currency at the applicable exchange rate in effect at the time of the transaction. A change in the value of
the functional currency compared to the foreign currency of the transaction will have either a positive or negative impact on our financial position and results of
operations.
Assets and liabilities of our foreign entities are translated into U.S. dollars at exchange rates in effect at the balance sheet date and income and expense items are
translated at average rates for the applicable period. Therefore, the change in the value of the U.S. dollar compared to foreign currencies will have either a positive
or negative effect on our financial position and results of operations. Historically, our primary exposure has related to transactions denominated in the euro, British
pound, Brazilian real, Canadian dollar, Japanese yen, and Indian rupee.
Periodically, we enter into forward exchange contracts to hedge against foreign exchange rate fluctuations. As of September 30, 2019, we had not designated any
contracts as fair value or cash flow hedges. The contracts generally have a maturity of less than 90 days. As of September 30, 2019, the notional contract amount of
outstanding foreign currency exchange contracts was $189.6 million.
Interest Rate Sensitivity
We are exposed to interest rate risk as a result of our cash and cash equivalents and marketable securities.
At September 30, 2019, we held approximately $764.8 million of cash and cash equivalents and marketable securities consisting of cash, money-market funds,
bank deposits and a separately managed investment portfolio. Assuming a one percentage point increase in interest rates, our interest income on our investments
classified as cash and cash equivalents and marketable securities would increase by approximately $7.6 million per annum, based on the September 30, 2019
reported balances of our investment accounts.
At September 30, 2019, we had no outstanding debt exposed to variable interest rates.
Convertible Debentures
The fair values of our convertible debentures are dependent on the price and volatility of our common stock as well as movements in interest rates. The fair market
values of these debentures will generally increase as the market price of our common stock increases and will decrease as the market price of our common stock
decreases. The fair market values of these debentures will generally increase as interest rates fall and decrease as interest rates rise. The market value and interest
rate changes affect the fair market values of these debentures, but do not impact our financial position, results of operations or cash flows due to the fixed nature of
the debt obligations. However, increases in the value of our common stock above the stated trigger price for each issuance for a specified period of time may
provide the holders of these debentures the right to convert each bond using a conversion ratio and payment method as defined in the debenture agreement.
43
Table of Contents
The following tables summarizes the fair value and conversion value of our convertible debentures, and the estimated increase in the fair value and conversion
value with a hypothetical 10% increase in the stock price of $16.31 as of September 30, 2019 (dollars in millions):
September 30, 2019
Conversion
value
$23.5
$185.1
$405.3
$256.9
Increase to
fair value
$0.6
$5.0
$12.5
$18.7
Increase to
conversion
value
$2.4
$18.5
$40.5
$25.7
Fair value
$45.2
$264.8
$641.8
$346.9
2.75% 2031 Debentures
1.5% 2035 Debentures
1.0% 2035 Debentures
1.25 % 2025 Debentures
Item 8.
Financial Statements and Supplementary Data
Nuance Communications, Inc. Consolidated Financial Statements
44
Table of Contents
NUANCE COMMUNICATIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
45
Page
46
50
51
52
53
54
55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
Nuance Communications, Inc.
Boston, MA
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Nuance Communications, Inc. (the “Company”) and subsidiaries as of September 30, 2019 and
2018, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period
ended September 30, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company and its subsidiaries at September 30, 2019 and 2018, and the results of their
operations and their cash flows for each of the three years in the period ended September 30, 2019, in conformity with accounting principles generally accepted in
the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal
control over financial reporting as of September 30, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated November 26, 2019 expressed an unqualified opinion
thereon.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenues and certain contract costs in fiscal
2019 due to the adoption of Accounting Standards Update 2014-09, "Revenue from Contracts with Customers" ("ASC 606").
Auto Segment Spin-off
As discussed in Note 23 to the consolidated financial statements, on October 1, 2019, the Company completed the spin-off of its Auto segment (now known as
Cerence Inc.) through the distribution of the shares of Cerence Inc. to the Company’s shareholders. The operating results of Cerence, Inc. and its subsidiaries will
be reclassified as discontinued operations in the quarter ending December 31, 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated
or were required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements
and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the consolidated financial
46
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Adoption of ASC 606 Revenue from Contracts with Customers
As described in Note 2 to the Company’s consolidated financial statements, the Company adopted ASC 606 on October 1, 2018 using the modified retrospective
approach with a cumulative adjustment to retained earnings. Upon adoption on October 1, 2018, the Company recorded a decrease to the accumulated deficit of
approximately $233 million, net of tax.
We identified the adoption of ASC 606 as a critical audit matter. The Company’s processes related to the adoption of ASC 606 included the following: (i)
evaluating the new accounting standard and establishing new policies and practices, (ii) identifying and evaluating completeness and accuracy of relevant historical
data for open contracts at the date of adoption, (iii) implementing and configuring the new revenue management system including relevant controls and testing the
related inputs and outputs from the system, (iv) analyzing historical data using the new revenue management system, and (v) recording the impact of the adoption.
Auditing the Company’s adoption was challenging and complex due to the effort required to analyze the effect of ASC 606 on the Company’s significant number
of open revenue contracts upon adoption as part of the Company’s implementation using the modified retrospective approach.
The primary procedures we performed to address this critical audit matter included:
•
•
•
•
•
Evaluating the design and testing operating effectiveness of controls relating to management’s adoption of ASC 606 including controls over: (i)
evaluating the impact of the new accounting standard, (ii) evaluating the completeness and accuracy of relevant historical data for open contracts at the
date of adoption, (iii) assessing the results and recording the impact of the adoption, and (iv) evaluating the design and testing the operating effectiveness
of certain IT general controls relating to management’s implementation of the new revenue management system.
Evaluating management’s accounting policies and practices, including the reasonableness of management’s judgments and assumptions related to: (i)
evaluation of performance obligations and whether they are distinct or non-distinct, (ii) consideration of income tax implications, and (iii) capitalization
of contract costs including commissions.
Utilizing BDO technical specialists to assist in evaluating the technical merits of management’s accounting policies used as a basis of management’s ASC
606 adoption.
Testing of a sample of revenue contracts and underlying order documents recorded by management to evaluate proper processing within the new revenue
management system.
Testing the completeness and accuracy of relevant inputs and outputs used in the adoption of ASC 606, identification of performance obligations and
determination of standalone selling prices.
Determination of Distinct Performance Obligations in Customer Revenue Contracts
As described in Note 2 to the Company’s consolidated financial statements, the Company adopted ASC 606 on October 1, 2018. The Company derives revenue
from the following sources: (i) hosting services, (ii) software licenses, including royalties, (iii) M&S, (iv) professional services, and (v) sale of hardware. The
Company enters into contracts with its customers, which frequently contain multiple performance obligations. The Company accounts for individual products and
services separately if they are distinct, that is, if a product or service is separately identifiable from other items in the contract and if a customer can benefit from it
on its own or with other resources that are readily available to the customer.
We identified the determination of distinct performance obligations as a critical audit matter. Significant judgment can be required to determine the performance
obligations in a contract and whether they are distinct. Auditing these aspects involved especially challenging auditor judgment due to the nature and extent of
audit effort required to address these matters.
The primary procedures we performed to address this critical audit matter included:
•
•
Evaluating the design and testing operating effectiveness of certain controls relating to management’s identification and assessment of distinct
performance obligations in customer revenue contracts.
Evaluating management’s accounting policies and practices including the reasonableness of management’s judgments and assumptions relating to the
evaluation of performance obligations and whether they are distinct or non-distinct.
47
•
Testing a sample of revenue contracts and underlying order documents to evaluate management’s identification of distinct performance obligations in
revenue contracts.
Uncertain Tax Positions
As described in Note 20 to the Company’s consolidated financial statements, the Company’s total uncertain tax positions (“UTPs”) for the fiscal year ended
September 30, 2019 were $85.6 million. The Company operates in multiple jurisdictions through its wholly-owned subsidiaries and its global structure is complex.
The Company’s tax positions are subject to audit by taxing authorities across multiple global jurisdictions and the resolution of such audits may span multiple
years. Tax law is complex and often subject to varied interpretations, accordingly, the ultimate outcome with respect to taxes the Company may owe may differ
from the amounts recognized.
We identified the assessment of uncertain tax positions as a critical audit matter. The Company’s tax provision processes related to the UTPs involved significant
management judgment in the assessment of the potential tax implications related to legal entity restructuring, intercompany transfers and acquisition or divestiture.
Auditing these aspects involved especially challenging auditor judgment due to the nature and extent of auditor judgement required in evaluating the Company’s
interpretation of, and compliance with global tax laws across its multiple subsidiaries, including the extent of specialized skill or knowledge needed.
The primary procedures we performed to address this critical audit matter included:
•
•
•
•
Evaluating the design and testing the operating effectiveness of controls relating to management’s assessment of: (i) completeness and accuracy of the
identified uncertain tax positions, (ii) evaluation of the technical merits of positions, and (iii) reasonableness of assumptions used in the determinations.
Evaluating management’s judgments and assessing the reasonableness of assumptions used in determining the units of account, recognition,
measurement, and technical merits of UTPs.
Assessing management’s application of new and updated regulatory and legislative guidance in various jurisdictions and evaluating implications on the
Company’s UTPs due to changes in legal structure of certain subsidiaries.
Utilizing BDO Tax and valuation specialists to assist in evaluating technical merits, reasonableness of management’s judgments and assumptions used in
UTPs calculations and the overall reasonableness of conclusions reached.
BDO USA, LLP
Boston, MA
November 26, 2019
We have served as the Company's auditor since 2004.
/s/ BDO USA, LLP
BDO USA, LLP
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
Nuance Communications, Inc.
Burlington, Massachusetts
Opinion on Internal Control over Financial Reporting
We have audited Nuance Communication, Inc.’s (the “Company’s”) internal control over financial reporting as of September 30, 2019, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO
criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2019 based on
the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance
sheets of the Company as of September 30, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash
flows for each of the three years in the period ended September 30, 2019, and the related notes and our report dated November 26, 2019 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Boston, MA
November 26, 2019
/s/ BDO USA, LLP
BDO USA, LLP
49
Table of Contents
NUANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended September 30,
2019
2018
2017
(ASC 606)
(ASC 605)
(In thousands, except per share amounts)
(ASC 605)
Revenues:
Hosting and professional services
Product and licensing
Maintenance and support
Total revenues
Cost of revenues:
Hosting and professional services
Product and licensing
Maintenance and support
Amortization of intangible assets
Total cost of revenues
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Amortization of intangible assets
Acquisition-related costs, net
Restructuring and other charges, net
Impairment of goodwill and other intangible assets
Total operating expenses
Income (loss) from operations
Other income (expense):
Interest income
Interest expense
Other expense, net
Income (loss) before income taxes
(Benefit) provision for income taxes
Net income (loss) from continuing operations
Net income from discontinued operations
Net income (loss)
Net income (loss) per common share - basic:
Continuing operations
Discontinued operations
Total net income (loss) per basic common share
Net income (loss) per common share - diluted:
Continuing operations
Discontinued operations
Total net income (loss) per diluted common share
Weighted average common shares outstanding:
Basic
Diluted
$
1,044,670 $
1,045,722 $
509,226
269,196
544,019
252,557
966,566
493,911
267,698
1,823,092
1,842,298
1,728,175
636,189
73,333
33,564
36,833
779,919
1,043,173
275,886
303,503
175,008
66,730
8,909
80,465
—
910,501
132,672
13,705
(120,095)
(538)
25,744
(88,594)
114,338
99,472
678,378
56,799
39,324
50,886
825,387
1,016,911
278,735
311,712
225,884
73,997
16,093
57,026
170,941
1,134,388
(117,477)
9,327
(137,253)
(1,821)
(247,224)
(62,320)
(184,904)
24,976
$
$
$
$
$
213,810 $
(159,928) $
0.40 $
0.35
0.75 $
0.39 $
0.35
0.74 $
(0.63) $
0.08
(0.55) $
(0.63) $
0.08
(0.55) $
654,599
54,104
37,243
57,892
803,838
924,337
239,925
324,370
163,065
92,839
27,708
59,923
—
907,830
16,507
6,922
(156,889)
(21,210)
(154,670)
23,671
(178,341)
27,345
(150,996)
(0.62)
0.10
(0.52)
(0.62)
0.10
(0.52)
286,347
290,125
291,318
291,318
289,348
289,348
See accompanying notes.
50
Table of Contents
NUANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income (loss)
Other comprehensive (loss) income:
Foreign currency translation adjustment
Reclassification of currency translation differences into earnings as a result of business disposition
Pension adjustments
Unrealized gains (losses) on marketable securities
Total other comprehensive (loss) income, net
Comprehensive income (loss)
Year Ended September 30,
2019
(ASC 606)
2018
(ASC 605)
(In thousands)
2017
(ASC 605)
$
213,810 $
(159,928) $
(150,996)
(11,993)
(23,973)
5,605
(3,768)
246
(9,910)
—
2,644
(192)
(21,521)
13,027
—
1,774
(9)
14,792
$
203,900 $
(181,449) $
(136,204)
See accompanying notes.
51
NUANCE COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2019
September 30, 2018
(ASC 606)
(ASC 605)
(In thousands, except per share amounts)
ASSETS
$
560,961 $
Accounts receivable, less allowances for doubtful accounts of $10,662 and $9,823
Prepaid expenses and other current assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
$
5,365,793 $
5,302,379
Table of Contents
Current assets:
Cash and cash equivalents
Marketable securities
Current assets held for sale
Total current assets
Marketable securities
Land, buildings and equipment, net
Goodwill
Intangible assets, net
Other assets
Long-term assets held for sale
Total assets
Current liabilities:
Current portion of long-term debt
Contingent and deferred acquisition payments
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue
Current liabilities held for sale
Total current liabilities
Long-term debt
Deferred revenue, net of current portion
Deferred tax liabilities
Other liabilities
Long-term liabilities held for sale
Total liabilities
Commitments and contingencies (Note 18)
Stockholders’ equity:
186,555
308,601
199,096
—
1,255,213
17,287
141,316
3,243,464
356,932
351,581
—
315,963
135,579
347,873
94,814
34,402
928,631
21,932
153,452
3,247,105
450,001
141,761
359,497
1,142,870
17,470
104,865
276,999
302,872
—
1,845,076
793,536
398,834
54,216
100,981
—
—
14,211
80,912
269,339
330,689
69,013
764,164
2,185,361
434,316
49,931
93,593
57,518
3,192,643
3,584,883
290
2,597,889
(16,788)
(132,773)
(293,612)
2,155,006
18,144
2,173,150
$
5,365,793 $
291
2,597,693
(16,788)
(122,863)
(740,837)
1,717,496
—
1,717,496
5,302,379
Common stock, $0.001 par value per share; 560,000 shares authorized; 289,680 and 291,504 shares issued and
285,930 and 287,753 shares outstanding, respectively
Additional paid-in capital
Treasury stock, at cost (3,751 shares)
Accumulated other comprehensive loss
Accumulated deficit
Total Nuance Communications, Inc. stockholders' equity
Noncontrolling interests
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes.
52
Table of Contents
NUANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Treasury Stock
Shares Amount
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Noncontrolling
Interests
Total
Stockholders'
Equity
Balance at September 30, 2016
291,384 $ 291 $2,492,992 3,751 $(16,788) $
(116,134) $ (429,031) $
— $
1,931,330
10,709
11
17,372
—
—
—
—
—
17,383
Issuance of common stock under
employee stock plans
Cancellation of restricted stock, and
repurchase of common stock at cost
for employee tax withholding
Stock-based compensation
Repurchase and retirement of
common stock
Net issuance of common stock in
connection with acquisitions and
collaboration agreements
Equity portion of convertible debt
issuance/retirement, net of tax effect
Net loss
Other comprehensive income
(3,377)
—
(3)
—
(55,129)
160,575
—
—
—
—
(5,797)
(6)
(99,071)
—
—
1,019
1
16,346
—
—
—
—
—
—
—
—
96,160
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(150,996)
14,792
—
Balance at September 30, 2017
293,938
294 2,629,245 3,751
(16,788)
(101,342)
(580,027)
Prior period adjustment related to
early adoption of ASU 2016-16
Issuance of common stock under
employee stock plans
Cancellation of restricted stock, and
repurchase of common stock at cost
for employee tax withholding
Stock-based compensation
Repurchase and retirement of
common stock
Net loss
Other comprehensive loss
—
—
—
—
—
—
(882)
10,568
10
18,374
—
—
—
—
(3,304)
—
(3)
—
(52,333)
138,487
(9,698)
(10)
(136,080)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(159,928)
(21,521)
—
Balance at September 30, 2018
291,504
291 2,597,693 3,751
(16,788)
(122,863)
(740,837)
Accumulated adjustment related to
the adoption of ASC 606
Issuance of common stock under
employee stock plans
Cancellation of restricted stock, and
repurchase of common stock at cost
for employee tax withholding
Stock-based compensation
Repurchase and retirement of
common stock
Noncontrolling interests
Net income
Other comprehensive loss
—
—
—
—
—
—
233,415
8,981
9
16,588
—
—
—
—
(2,645)
—
(2)
—
(42,552)
161,371
(8,160)
(8)
(126,930)
—
—
—
—
—
—
(8,281)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
213,810
(9,910)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
18,144
—
—
(55,132)
160,575
(99,077)
16,347
96,160
(150,996)
14,792
1,931,382
(882)
18,384
(52,336)
138,487
(136,090)
(159,928)
(21,521)
1,717,496
233,415
16,597
(42,554)
161,371
(126,938)
9,863
213,810
(9,910)
Balance at September 30, 2019
289,680 $ 290 $2,597,889 3,751 $(16,788) $
(132,773) $ (293,612) $
18,144 $
2,173,150
See accompanying notes.
53
Table of Contents
NUANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income (loss) from continuing operations
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation
Amortization
Stock-based compensation
Non-cash interest expense
Deferred tax (benefit) provision
Loss (gain) on extinguishment of debt
Impairment of goodwill and other intangible assets
Impairment of fixed assets
Other
Changes in operating assets and liabilities, excluding effects of acquisitions:
Accounts receivable
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other liabilities
Deferred revenue
Net cash provided by operating activities - continuing operations
Net cash provided by operating activities - discontinued operations
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from dispositions of businesses, net of transaction fees
Capital expenditures
Payments for business and asset acquisitions, net of cash acquired
Purchases of marketable securities and other investments
Proceeds from sales and maturities of marketable securities and other investments
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Repayment and redemption of debt
Proceeds from issuance of long-term debt, net of issuance costs
Payments for repurchase of common stock
Acquisition payments with extended payment terms
Proceeds from issuance of common stock from employee stock plans
Payments for taxes related to net share settlement of equity awards
Proceeds from sale of noncontrolling interests in a subsidiary
Other financing activities
Net cash (used in) provided by financing activities
Effects of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See accompanying notes.
54
Year Ended September 30,
2019
(ASC 606)
2018
2017
(ASC 605)
(In thousands)
(ASC 605)
$
114,338 $
(184,904) $
(178,341)
55,227
103,563
141,212
49,488
(123,763)
910
—
—
4,462
1,058
(25,076)
22,922
30,344
22,317
397,002
4,355
401,357
407,043
(44,185)
(20,873)
(349,125)
303,171
296,031
60,355
124,883
142,909
49,091
(86,841)
(348)
170,941
10,550
2,230
16,996
(20,555)
(14,458)
24,451
96,977
392,277
52,149
444,426
—
(48,845)
(110,170)
(201,995)
323,695
(37,315)
53,268
150,731
142,901
59,295
5,226
18,565
—
16,351
8,403
(15,403)
(14,858)
109
3,557
51,041
300,845
78,022
378,867
—
(61,835)
(113,769)
(332,470)
173,864
(334,210)
(300,000)
(481,172)
(634,055)
—
—
(126,938)
(136,090)
—
16,597
(49,428)
9,863
(2,131)
(24,842)
18,384
(55,396)
—
(1,232)
(452,037)
(680,348)
(353)
244,998
315,963
(3,099)
(276,336)
592,299
$
560,961 $
315,963 $
837,482
(99,077)
—
17,383
(54,099)
—
(583)
67,051
(1,029)
110,679
481,620
592,299
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Presentation
Nuance Communications, Inc. ("We","Nuance", or the "Company") is a pioneer and leader in conversational and cognitive AI innovations that bring intelligence to
everyday work and life. Our solutions and technologies can understand, analyze and respond to human language to increase productivity and amplify human
intelligence. Our solutions are used by businesses in the healthcare, automotive, financial services, telecommunications and travel industries, among others. We
had four reportable segments: Healthcare, Enterprise, Automotive, and Other as of September 30, 2019. See Note 22 for a description of each of these segments.
As more fully described in Note 23, on October 1, 2019, we completed the previously announced spin-off of our Automotive business as an independent public
company, or Cerence Inc. ("Cerence"). Effective the first quarter of fiscal year 2020, the historical results of our Automotive business will be included within
discontinued operations for all the historical periods presented.
In connection with the spin-off of our Automotive business, we issued a notice to all holders on September 5, 2019, pursuant to which, the holders had the right to
convert all or any portion of their debentures at the aforementioned conversion ratio until the close of business on October 1, 2019. As of September 30 2019, the
net carrying amounts of the convertible notes were included within the current portion of long-term debt. Upon the conclusion of the conversion period on October
1, 2019, none of the holders exercised their right to convert. As a result, the net carrying amounts of the convertible notes were reclassified back to long-term debt.
2. Summary of Significant Accounting Policies
Use of Estimates
The consolidated financial statements are prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP"), which requires
management to make estimates and assumptions. These estimates, judgments and assumptions can affect the reported amounts in the financial statements and the
footnotes thereto. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, assumptions and judgments.
Significant estimates inherent to the preparation of financial statements include: revenue recognition; the allowances for doubtful accounts and sales returns;
contract assets; internally developed software; goodwill and intangible assets; business combinations, including contingent consideration; and income taxes,
including valuation allowance and uncertain tax positions. We base our estimates on historical experience, market participant fair value considerations, projected
future cash flows, and various other factors that are believed to be reasonable under the circumstances. Actual amounts could differ significantly from these
estimates.
Basis of Consolidation
The consolidated financial statements include the accounts Nuance and our subsidiaries. Intercompany transactions and balances have been eliminated.
Revenue Recognition under ASC 605 for fiscal years 2018 and 2017
We derive revenue from the following sources: (1) software license agreements, including royalty and other usage-based arrangements, (2) professional services,
(3) hosting services and (4) post-contract customer support ("PCS"). Our hosting services are generally provided through on-demand, usage-based or per
transaction fee arrangements. Generally, we recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is
fixed or determinable and (iv) collectibility is probable.
The sale and/or license of software solutions and technology is deemed to have occurred when a customer either has taken possession of or has access to take
immediate possession of the software or technology. Revenue from royalties on sales of our software products by original equipment manufacturers (“OEMs”),
where no services are included, is recognized in the quarter earned so long as we have been notified by the OEM that such royalties are due, and provided that all
other revenue recognition criteria are met.
Software arrangements generally include PCS, which includes telephone support and the right to receive unspecified upgrades/enhancements on a when-and-if-
available basis, typically for one to five years. Revenue from PCS is generally recognized ratably on a straight-line basis over the term that the maintenance service
is provided. When PCS renews automatically, we provide a reserve based on historical experience for contracts expected to be canceled for non-payment. All
known and estimated cancellations are recorded as a reduction to revenue and accounts receivable.
55
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
When we provide professional services considered essential to the functionality of the software, we recognize revenue from the professional services as well as any
related software licenses on a percentage-of-completion basis whereby the arrangement consideration is recognized as the services are performed, as measured by
an observable input. In these circumstances, we separate license revenue from professional service revenue for income statement presentation by allocating
Vendor-Specific Objective Evidence ("VSOE") of fair value of the professional services as professional services and hosting revenue and the residual portion as
product and licensing revenue. We generally determine the percentage-of-completion by comparing the labor hours incurred to-date to the estimated total labor
hours required to complete the project. Adjustments to estimates to complete are made in the periods in which facts resulting in a change become known. When the
estimate indicates that a loss will be incurred, such loss is recorded in the period identified.
In a hosting arrangement, we recognize the up-front setup fees ratably over the longer of the contract lives or the expected lives of the customer relationships. The
usage-based or individual transaction fees are due and payable as each individual transaction is processed through the hosting service and is recognized as revenue
in the period the services are provided. The on-demand service fees are recognized ratably over our estimate of the useful life of the devices on which the hosting
service is provided.
We enter into multiple-element arrangements that may include a combination of our various software related and non-software related products and services
offerings, for example, software licenses, PCS, professional services, and hosting services. In such arrangements, we allocate total arrangement consideration to
software or software-related elements and any non-software element separately based on the selling price hierarchy group following our policies. Where possible,
we determine the selling price for each deliverable using VSOE of selling price, if it exists, or Third Party Evidence (“TPE”) of selling price. Typically, we are
unable to determine TPE of selling price. Therefore, when neither VSOE nor TPE of selling price exist for a deliverable, we use our Estimate of Selling Price
(“ESP”) for the purposes of allocating the arrangement consideration. We determine ESP for a product or service by considering multiple factors including, but not
limited to, major project groupings, market conditions, competitive landscape, price list and discounting practices. We have established VSOE of fair value for the
majority of our PCS, professional services, and training. Revenue allocated to each element is then recognized when the basic revenue recognition criteria are met
for each element.
See Note 3 for revenue recognition under ASC 606 for fiscal year 2019.
Business Combinations
We determine and allocate the purchase price of an acquired company to the tangible and intangible assets acquired and liabilities assumed as of the date of
acquisition. Results of operations and cash flows of acquired companies are included in our operating results from the date of acquisition. The purchase price
allocation process requires us to use significant estimates and assumptions, which include:
•
•
•
•
•
•
estimated fair values of intangible assets;
estimated fair values of legal performance commitments to customers, assumed from the acquiree under existing contractual obligations (classified as
deferred revenue);
estimated fair values of stock awards assumed from the acquiree that are included in the purchase price;
estimated fair value of required payments under contingent consideration provisions;
estimated income tax assets and liabilities assumed from the acquiree; and
estimated fair value of pre-acquisition contingencies assumed from the acquiree.
The fair value of any contingent consideration is established at the acquisition date and included in the total purchase price. The contingent consideration is then
adjusted to fair value, with any measurement-period adjustment recorded against goodwill. Adjustments identified subsequent to the measurement period are
recorded within Acquisition-related costs, net.
While we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the
business combination date, our estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the measurement period, which is
generally one year from the acquisition date, any adjustment to the assets acquired and liabilities assumed is recorded against goodwill in the period in which the
amount is determined. Any adjustment identified subsequent to the measurement period is included in operating results in the period in which the amount is
determined.
56
Table of Contents
Goodwill
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill and
intangible assets with indefinite lives are not amortized, but rather the carrying amounts of these assets are assessed for impairment at least annually or whenever
events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Goodwill is tested for impairment annually on July 1,
the first day of the fourth quarter of the fiscal year. Goodwill impairment, if any, is determined by comparing the reporting unit's fair value to its carrying value. An
impairment loss is recognized in an amount equal to the excess of the reporting unit's carrying value over its fair value, up to the amount of goodwill allocated to
the reporting unit. There was no goodwill impairment for fiscal year 2019. See Note 6 for the impairment charges recorded in fiscal year 2018.
For the purpose of testing goodwill for impairment, all goodwill acquired in a business combination is assigned to one or more reporting units. A reporting unit
represents an operating segment or a component within an operating segment for which discrete financial information is available and is regularly reviewed by
segment management for performance assessment and resource allocation. Components of similar economic characteristics are aggregated into one reporting unit
for the purpose of goodwill impairment assessment. Reporting units are identified annually and re-assessed periodically for recent acquisitions or any changes in
segment reporting structure.
Corporate assets and liabilities are allocated to each reporting unit based on the reporting unit’ revenue, total operating expenses or operating income as a
percentage of the consolidated amounts. Corporate debt and other financial liabilities that are not directly attributable to the reporting unit's operations and would
not be transferred to hypothetical purchasers of the reporting units are excluded from a reporting unit's carrying amount.
The fair value of a reporting unit is generally determined using a combination of the income approach and the market approach. For the income approach, fair
value is determined based on the present value of estimated future after-tax cash flows, discounted at an appropriate risk-adjusted rate. We use our internal
forecasts to estimate future after-tax cash flows and estimate the long-term growth rates based on our most recent views of the long-term outlook for each reporting
unit. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates
for industries relevant to our reporting units to estimate the weighted average cost of capital. We adjust the discount rates for the risks and uncertainty inherent in
the respective businesses and in our internally developed forecasts. For the market approach, we use a valuation technique in which values are derived based on
valuation multiples of comparable publicly traded companies. We assess each valuation methodology based upon the relevance and availability of the data at the
time we perform the valuation and weight the methodologies appropriately.
Long-Lived Assets with Definite-Lives
Our long-lived assets consist principally of technology, customer relationships, internally developed software, land, and building and equipment. Customer
relationships are amortized over their estimated economic lives based on the pattern of economic benefits expected to be generated from the use of the asset. Other
definite-lived assets are amortized over their estimated economic lives using the straight-line method. The remaining useful lives of long-lived assets are re-
assessed periodically for any events and circumstances that may change the future cash flows expected to be generated from the long-lived asset or asset group.
Internally developed software consists of capitalized costs incurred during the application development stage, which include costs related design of the software
configuration and interfaces, coding, installation and testing. Costs incurred during the preliminary project stage and post-implementation stage are expensed as
incurred. Internally developed software is amortized over the estimated useful life, commencing on the date when the asset is ready for its intended use. Land,
building and equipment are stated at cost and depreciated over their estimated useful lives. Leasehold improvements are depreciated over the shorter of the related
lease term or the estimated useful life. Depreciation is computed using the straight-line method. Repair and maintenance costs are expensed as incurred. The cost
and related accumulated depreciation of sold or retired assets are removed from the accounts and any gain or loss is included in the results of operations for the
period.
Long-lived assets with definite lives are tested for impairment whenever events or changes in circumstances indicate the carrying value of a specific asset or asset
group may not be recoverable. We assess the recoverability of long-lived assets with definite-lives at the asset group level. Asset groups are determined based upon
the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. When the asset group is also a reporting
unit, goodwill assigned to the reporting unit is also included in the carrying amount of the asset group. For the purpose of the recoverability test, we compare the
total undiscounted future cash flows from the use and disposition of the assets with its net carrying amount. When the carrying value of the asset group exceeds the
undiscounted future cash flows, the asset group is deemed to be impaired. The amount of the
57
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
impairment loss represents the excess of the asset or asset group’s carrying value over its estimated fair value, which is generally determined based upon the
present value of estimated future pre-tax cash flows that a market participant would expect from use and disposition of the long-lived asset or asset group. There
was no intangible assets impairment for fiscal year 2019. See Note 6 for the impairment charges recorded in fiscal year 2018.
Cash and Cash Equivalents
Cash and cash equivalents consists of cash on hand, including money market funds and time deposits with original maturities of 90 days or less.
Marketable Securities
Marketable securities consist of time deposits and high-quality corporate debt instruments with stated maturities of more than 90 days. Investments are classified as
available-for-sale and are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other
comprehensive income (loss), net of tax.
Accounts Receivable Allowances
Allowances for Doubtful Accounts. We record allowances for doubtful accounts for the estimated probable losses on uncollectible accounts receivable. The
allowance is based upon the credit worthiness of our customers, our historical experience, the age of the receivable and current market and economic conditions.
Receivables are written off against these allowances in the period they are determined to be uncollectible.
Allowances for Sales Returns. We reduce transaction price for estimated returns and other allowances that represent variable considerations based on historical
experience and other relevant factors. The returns allowance is recorded as a reduction to revenue and accounts receivable at the time the related revenue is
recorded. Receivables are written off against the allowance in the period the return is received.
For the years ended September 30, 2019, 2018 and 2017, the activity related to accounts receivable allowances was as follows (dollars in thousands):
Balance at September 30, 2016
Bad debt provision
Write-offs, net of recoveries
Revenue adjustments, net (a)
Balance at September 30, 2017
Bad debt provisions
Write-offs, net of recoveries
Revenue adjustments, net (b)
Balance at September 30, 2018
Bad debt provisions
Write-offs, net of recoveries
Revenue adjustments, net
Balance at September 30, 2019
Allowance for
Doubtful Accounts
$
8,349 $
3,333
256
—
11,938
2,377
(4,492)
—
9,823
2,375
(1,536)
—
$
10,662 $
Allowance
for Sales
Returns
3,166
—
—
26,375
29,541
—
—
(23,396)
6,145
—
—
(765)
5,380
(a) The increase in provisions primarily relates to accommodations made to our customers in connection with our Healthcare transcription service interruption due to the global
NotPetya malware incident (the "2017 Malware Incident")
(b) The decrease in provisions was primarily due to the resolution of the reserves related to the 2017 Malware Incident.
Software Development Costs
We expense software development costs, including costs to develop software products or the software component of products to be sold, leased, or marketed to
external users, before technological feasibility is reached. Technological feasibility is typically
58
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
reached shortly before the release of such products and as a result, development costs that meet the criteria for capitalization were not material for the periods
presented.
Software development costs also include costs to develop software to be used solely to meet internal needs and cloud based applications used to deliver our
services. We capitalize development costs related to these software applications once the preliminary project stage is complete and it is probable that the project
will be completed and the software will be used to perform the function intended. As of September 30, 2019 and 2018, the net book value of capitalized internal-
use software costs was $28.5 million and $12.7 million, respectively, which are included within Land, buildings and equipment, net.
Acquisition-Related Costs, Net
Acquisition-related costs, net include costs related to business and other acquisitions, including potential acquisitions. These costs consist of (i) transition and
integration costs, including retention payments, transitional employee costs and earn-out payments, and other costs related to integration activities; (ii) professional
service fees, including financial advisory, legal, accounting, and other outside services incurred in connection with acquisition activities, and disputes and
regulatory matters related to acquired entities; and (iii) fair value adjustments to acquisition-related contingencies.
The components of acquisition-related costs, net are as follows (dollars in thousands):
Transition and integration costs
Professional service fees
Acquisition-related adjustments
Total
Advertising Costs
Year Ended September 30,
2019
2018
2017
$
$
8,131 $
16,059 $
2,321
(1,543)
3,450
(3,416)
8,909 $
16,093 $
15,192
12,622
(106)
27,708
Advertising costs are expensed as incurred and recorded within sales and marketing expenses. The advertising costs capitalized as of September 30, 2019 and 2018
are de minimis. We incurred advertising costs of $17.2 million, $16.5 million and $19.4 million for fiscal years 2019, 2018 and 2017, respectively.
Convertible Debt
We bifurcate the debt and equity (the contingently convertible feature) components of our convertible debt instruments in a manner that reflects our nonconvertible
debt borrowing rate at the time of issuance. The equity components of our convertible debt instruments are recorded within stockholders’ equity with an allocated
issuance premium or discount. The debt issuance premium or discount is amortized to interest expense in our consolidated statement of operations using the
effective interest method over the expected term of the convertible debt.
We assess the short-term and long-term classification of our convertible debt on each balance sheet date. Whenever the holders have a contractual right to convert,
the carrying amount of the convertible debt is reclassified to current liabilities, with the corresponding equity component classified from additional paid-in capital
to mezzanine equity.
Income Taxes
We account for income taxes using the asset and liability method, under which we recognize the amount of taxes payable or refundable for the current year and
deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. We measure current
and deferred tax assets and liabilities based on provisions of enacted tax law. We evaluate the realization of our deferred tax assets based on all available evidence
and establish a valuation allowance to reduce deferred tax assets when it is more likely than not that they will not be realized.
We recognize the financial statement effects of a tax position when it is more likely than not that, based on technical merits, the position will be sustained upon
examination. The tax benefits of the position recognized in the financial statements are then measured based on the largest amount of benefit that is greater than
50% likely to be realized upon settlement with a taxing authority. In addition, we recognize interest and penalties related to unrecognized tax benefits as a
component of the income tax provision.
59
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, reflected in the consolidated statements of stockholders’ equity, consisted of the following (dollars in
thousands):
Foreign currency translation adjustment
Net unrealized losses on post-retirement benefits
Unrealized gains (losses) on marketable securities
Accumulated other comprehensive loss
September 30, 2019 September 30, 2018
(118,220)
$
(124,608) $
(8,296)
131
(4,528)
(115)
$
(132,773) $
(122,863)
No income tax provisions or benefits are recorded for foreign currency translation adjustment as the undistributed earnings in our foreign subsidiaries are expected
to be indefinitely reinvested.
Concentration of Risk
Financial instruments that are potentially subject to significant concentrations of credit risk principally consist of cash, cash equivalents, marketable securities and
trade accounts receivable. We place our cash and cash equivalents and marketable securities with financial institutions with high credit ratings. As part of our cash
and investment management processes, we perform periodic evaluations of the credit standing of the financial institutions with whom we maintain deposits, and
have not recorded any credit losses to-date. For trade accounts receivable, we perform ongoing credit evaluations of our customers’ financial condition and limit
the amount of credit extended when deemed appropriate. No customer accounted for more than 10% of our net accounts receivable balance at September 30, 2019
and 2018 or 10% of our revenue for fiscal years 2019, 2018 or 2017.
Foreign Currency Translation
The functional currency of a foreign subsidiary is generally the local currency. We translate the financial statements of foreign subsidiaries to U.S. dollars using
month-end exchange rates for assets and liabilities, and average rates for the reporting period for revenues, costs, and expenses. We record translation gains and
losses in accumulated other comprehensive loss as a component of stockholders’ equity. We record net foreign exchange transaction gains and losses resulting
from the conversion of the transaction currency to the functional currency within in other expense, net. Foreign currency transaction (gains) losses for fiscal years
2019, 2018 and 2017 were $(0.8) million, $1.1 million and $1.4 million, respectively.
Financial Instruments and Hedging Activities
We use forward currency exchange contracts to manage our exposure to fluctuations in foreign currency for certain transactions. In order for instruments to be
designated as hedges, specific criteria must be met, including (i) formal documentation must exist for both the hedging relationship and our risk management
objectives and strategies for undertaking the hedging activities, (ii) at the inception and on an ongoing basis, the hedging relationship is expected to be highly
effective in offsetting changes in fair value attributed to the hedged risk during the period that the hedge is designated, and (iii) an assessment of effectiveness is
required whenever financial statements or earnings are reported.
The effective portion of changes in the fair values of contracts designated as cash flow hedges is recorded in equity as a component of accumulated other
comprehensive income (loss) until the hedged item effects earnings. Once the underlying forecasted transaction is realized, the changes of fair vales of instruments
designated as hedges reclassified from accumulated other comprehensive loss to the statement of operations, in the appropriate income statement line items. Any
ineffective portion of the instruments designated as cash flow hedges is recognized in current earnings. We report cash flows arising from derivative financial
instruments designated as fair value or cash flow hedges consistent with the classification of the cash flows from the underlying hedged items that these derivatives
are hedging.
No forward exchange contracts are designated as hedges for fiscal year 2019, 2018, or 2017. Changes in the fair values of the forward currency exchange contracts
are recorded within other expense, net. Cash flows related to investments and settlements of forward currency exchange contracts are included within cash flows
from investing activities.
Stock-Based Compensation
Stock-based compensation primarily consists of restricted stock units with service, or market/performance conditions. Equity awards are measured at the fair
market value of the underlying stock at the grant date.We recognize stock compensation expense
60
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
using the straight-line attribution method over the requisite service period and account for forfeitures based on our estimates. Shares are issued on the vesting dates
net of the applicable statutory tax withholding to be paid by us on behalf of our employees. As a result, fewer shares are issued than the number of awards
outstanding. We record a liability for the tax withholding to be paid by us as a reduction to additional paid-in capital. We record any income tax effect related to
stock-based awards through the consolidated statements of operations. Excess tax benefits are recognized as deferred tax assets upon settlement and are subject to
regular review for valuation allowance.
Net Income (Loss) Per Share
Basic net income or loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share
is computed using the weighted-average number of common shares, giving effect to potentially dilutive securities outstanding during the period. Potentially
dilutive securities consist of stock options, restricted stock units, contingently issuable shares under earn-out agreements, and potential issuance of stock upon
conversion of our convertible debentures, as more fully described in Note 10. In the event of conversion, each convertible debenture entitles the holder to receive in
cash the principal amount with any accrued interest, and in cash or common stock, at our election, any excess of conversion value over the principal amount plus
accrued interest. Therefore, only the shares of common stock potentially issuable upon conversion, if any, are considered dilutive to the weighted average common
shares calculation.
Recently Adopted Accounting Standards
Revenue Recognition
In May 2014, the Financial Accounting Standard Board ("FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers: Topic 606" ("ASC 606"),
under which revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to
receive for those goods or services. ASC 606 supersedes nearly all existing revenue recognition guidance under U.S. GAAP. We adopted ASC 606 on October 1,
2018 using the modified retrospective approach, with a cumulative adjustment to retained earnings as opposed to retrospectively adjusting prior periods.
Results for reporting periods beginning after October 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be
reported in accordance with our historic accounting policies under "Revenue Recognition: Topic 605"("ASC 605"). For contracts that were modified before the
effective date, the Company aggregated the effect of all contract modifications prior to identifying performance obligations and allocation transaction price in
accordance with practical expedient ASC 606-10-5-1-(f)-4.
Upon adoption of ASC 606 on October 1, 2018, we recorded a decrease to accumulated deficit of approximately $233 million as a result of the transition. The
impact of the adoption primarily relates to the cumulative effect of (1) approximately $70 million decrease in deferred revenue from the upfront recognition of
term licenses and the general requirement to allocate the transaction price on a relative stand-alone selling price, (2) approximately $180 million increase in
contract assets, (3) approximately $30 million decrease in accounts receivable, (4) $30 million increase in deferred costs, and (5) approximately $20 million
increase in deferred tax liabilities related to the above items.
61
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables summarize the impact of adopting ASC 606 on the Company’s consolidated statement of operations for the year ended September 30,
2019 and the consolidated balance sheet as of September 30, 2019 (dollars in thousands):
Revenues:
Hosting and professional services
Product and licensing
Maintenance and support
Total revenues
Cost of revenues:
Hosting and professional services
Product and licensing
Maintenance and support
Amortization of intangible assets
Total cost of revenues
Sales and marketing
(Benefit) provision for income taxes
Assets:
Accounts receivable
Prepaid expenses and other current assets
Other assets
Liabilities:
Deferred revenue, current
Deferred revenue, net of current portion
Deferred tax liabilities
Other long-term liabilities
Stockholders' Equity:
Accumulated Deficit
For the Year Ended September 30, 2019
As reported, ASC
606
Effect of
Implementation
As adjusted, ASC
605
1,044,670
509,226
269,196
1,823,092
636,189
73,333
33,564
36,833
779,919
303,503
(88,594)
37,294
23,870
(25,531)
35,633
1,081,964
533,096
243,665
1,858,725
2,948
(5,891)
253
—
(2,690)
5,863
1,963
639,137
67,442
33,817
36,833
777,229
309,366
(86,631)
For the Year Ended September 30, 2019
As reported, ASC
606
Effect of
Implementation
As adjusted, ASC
605
308,601
199,096
351,581
302,872
398,834
54,216
100,981
31,072
(74,582)
(129,760)
20,704
16,122
(16,635)
(10,331)
339,673
124,514
221,821
323,576
414,956
37,581
90,650
(293,612)
(181,496)
(475,108)
Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments", which is
effective for fiscal years beginning after December 15, 2017 and the interim periods therein. We adopted this guidance on October 1, 2018 and applied it
retrospectively. The adoption did not have a material impact on our consolidated statement of cash flows.
Financial Instruments
In January 2016, the FASB issued ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"). ASU 2016-
01 amends the guidance on the classification and measurement of financial instruments. We adopted ASU 2016-01 as of January 1, 2018 using the modified
retrospective method. The adoption did not have a material impact on our consolidated financial statements.
62
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Issued Accounting Standards Not Yet Adopted
From time to time, new accounting pronouncements are issued by the FASB and are adopted by us as of the specified effective dates. Unless otherwise discussed,
such pronouncements did not have or will not have a significant impact on our consolidated financial position, results of operations or cash flows, or do not apply
to our operations.
Leases
In February 2016, the FASB issued ASU 2016-02, "Leases" ("ASC 842"), which will become effective for fiscal years beginning after December 15, 2018 and
interim periods therein, with early adoption permitted. ASC 842 requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use
the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative
disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective
transition approach, which includes a number of optional practical expedients that entities may elect to apply. ASC 842 is effective for us in the first quarter of
fiscal year 2020, and early application is permitted.
In July 2018, the FASB issued ASU 2018-10, "Codification Improvements to "Topic 842, Leases" and ASU 2018-11, "Leases Topic 842 Targeted Improvements",
which provides an additional (and optional) transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to
retained earnings. Additionally, in March 2019, the FASB issued ASU 2019-01, "Codification Improvements to Topic 842", which provides guidance in the
following areas: (1) determining the fair value of the underlying asset by lessors that are not manufacturers or dealers and (2) clarification of interim disclosure
requirements during transition. We adopted the guidance as of October 1, 2019 under the modified retrospective approach and elect the package of practical
expedients under the transition guidance.
We are currently evaluating the impact of ASC 842 and expect to recognize $122 million to $156 million of operating lease right-of-use assets and $143 million to
$183 million operating lease obligations. We estimate that 10% of the right-of use assets and lease obligations will be included in the assets and liabilities
transferred to Cerence Inc. as part of the spin-off of our Automotive business. We do not expect the adoption of the guidance to have a material impact on our
consolidated statement of operations or consolidated statement of cash flows.
Other Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract", which is effective for fiscal year beginning after December 15,
2019, and interim periods within those fiscal years, with early adoption permitted. The guidance requires that implementation costs related to a hosting
arrangement that is a service contract be capitalized and amortized over the term of the hosting arrangement, starting when the module or component of the hosting
arrangement is ready for its intended use. The guidance will be applied retrospectively to each period presented. We do not expect the implementation to have a
material impact on our consolidated financial statements.
In January 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income ("AOCI"), which is effective for fiscal years beginning after December 15, 2018 and interim periods therein, with
early adoption permitted. The guidance gives entities the option to reclassify to retained earnings the tax effects resulting from the Tax Cuts and Jobs Act ("TCJA")
related to items in AOCI. The new guidance may be applied retrospectively to each period in which the effect of the Act is recognized in the period of adoption.
We do not expect the implementation to have a material impact on our consolidated financial statements.
3. Revenue Recognition
We derive revenue from the following sources: (1) hosting services, (2) software licenses, including royalties, (3) maintenance and support ("M&S"), (4)
professional services, and (5) sale of hardware. Revenue is reported net of applicable sales and use tax, value-added tax and other transaction taxes imposed on the
related transaction including mandatory government charges that are passed through to our customers. We account for a contract when both parties have approved
and committed to the contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and the collectibility of
the consideration is probable.
The majority of our arrangements with customers typically contain multiple products and services. We account for individual products and services separately if
they are distinct--that is, if a product or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with
other resources that are readily available to the customer.
63
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We recognize revenue after applying the following five steps:
•
•
•
•
•
identification of the contract, or contracts, with a customer;
identification of the performance obligations in the contract, including whether they are distinct within the context of the contract;
determination of the transaction price, including the constraint on variable consideration;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when, or as, performance obligations are satisfied.
We allocate the transaction price of the arrangement based on the relative estimated standalone selling price ("SSP") of each distinct performance obligation. In
determining SSP, we maximize observable inputs and consider a number of data points, including:
•
•
•
•
the pricing of standalone sales (in the instances where available);
the pricing established by management when setting prices for deliverables that are intended to be sold on a standalone basis;
contractually stated prices for deliverables that are intended to be sold on a standalone basis; and
other pricing factors, such as the geographical region in which the products are sold and expected discounts based on the customer size and type.
We only include estimated amounts of variable consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue
recognized will not occur when the uncertainty associated with the variable consideration is resolved. We reduce transaction prices for estimated returns and other
allowances that represent variable consideration under ASC 606, which we estimate based on historical return experience and other relevant factors, and record a
reduction to revenue and accounts receivable. Other forms of contingent revenue or variable consideration are infrequent.
Revenue is recognized when control of these products and services is transferred to our customers, in an amount that reflects the consideration we expect to be
entitled to in exchange for those services.
We assess the timing of the transfer of products or services to the customer as compared to the timing of payments to determine whether a significant financing
component exists. In accordance with the practical expedient in ASC 606-10-32-18, we do not assess the existence of a significant financing component when the
difference between payment and transfer of deliverables is a year or less. If the difference in timing arises for reasons other than the provision of finance to either
the customer or us, no financing component is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable
ways of purchasing our services, not to receive or provide financing from or to customers. We do not consider set-up fees nor other upfront fees paid by our
customers to represent a financing component.
Certain products are sold through distributors or resellers. Certain distributors and resellers have been granted right of return and selling incentives which are
accounted for as variable consideration when estimating the amount of revenue to be recognized. Returns and credits are estimated at the contract inception and
updated at the end of each reporting period as additional information becomes available. In accordance with the practical expedient in ASC 606-10-10-4, we apply
a portfolio approach to estimate the variable consideration associated with this group of customers.
Reimbursements for out-of-pocket costs generally include, but are not limited to, costs related to transportation, lodging and meals. Revenue from reimbursed out-
of-pocket costs is accounted for as variable consideration.
Shipping and handling activities are not considered a contract performance obligation. We record shipping and handling costs billed to customers as revenue with
offsetting costs recorded as cost of revenue.
Performance Obligations
Hosting
Hosting services, which allow our customers to use the hosted software over the contract period without taking possession of the software, are provided on a usage
basis as consumed or on a fixed fee subscription basis. Our hosting contract terms generally range from one to five years.
As each day of providing services is substantially the same and the customer simultaneously receives and consumes the benefits as access is provided, we have
determined that our hosting services arrangements are a single performance obligation comprised
64
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of a series of distinct services. These services include variable consideration, which is typically a function of usage. We recognize revenue as each distinct service
period is performed (i.e., recognized as incurred).
Subscription basis revenue represents a single promise to stand-ready to provide access to our hosting services. Revenue is recognized over time on a ratable basis
over the hosting contract term, which generally ranges from one to five years.
Software Licenses
On-premise software licenses sold with non-distinct professional services to customize and/or integrate the underlying software are accounted for as a combined
performance obligation. Revenue from the combined performance obligation is recognized over time based upon the progress towards completion of the project,
which is measured based on the labor hours already incurred to date as compared to the total estimated labor hours.
Revenue from distinct on-premise software licenses, which do not require professional services to customize and/or integrate the software license, is recognized at
the point in time when the software is made available to the customer and control is transferred.
Revenue from software licenses sold on a royalty basis, where the license of intellectual property is the predominant item to which the royalty relates, is recognized
in the period the usage occurs in accordance with the practical expedient in ASC 606-10-55-65(A).
Maintenance and Support
Our M&S contracts generally include telephone support and the right to receive unspecified upgrades and updates on a when-and-if available basis. M&S revenue
is recognized over time on a ratable basis over the contract period because we transfer control evenly by providing a stand-ready service.
Professional Services
Revenue from distinct professional services, including training, is recognized over time based upon the progress towards completion of the project, which is
measured based on the labor hours already incurred to date as compared to the total estimated labor hours.
Hardware
Hardware revenue is recognized at the point in time when control is transferred to the customer, which is typically upon delivery.
Significant Judgments
Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require
significant judgment. Our license contracts often include professional services to customize and/or integrate the licenses into the customer’s environment.
Judgment is required to determine whether the license is considered distinct and accounted for separately, or not distinct and accounted for together with
professional services.
Judgments are required to determine the SSP for each distinct performance obligation. When SSP is directly observable, we estimate SSP based upon the historical
transaction prices, adjusted for geographic considerations, customer classes, and customer relationship profiles. In instances where SSP is not directly observable,
we determine SSP using information that may include market conditions and other observable inputs. We may have more than one SSP for individual products and
services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the
customer and geographic region in determining SSP. Determining SSP for performance obligations which we never sell separately also requires significant
judgment. In estimating the SSP, we consider the likely price that would have resulted from established pricing practices had the deliverable been offered
separately and the prices a customer would likely be willing to pay.
From time to time, we may enter into arrangements with third party suppliers to resell products or services. In such cases, we evaluate whether we are the principal
(i.e. report revenues on a gross basis) or agent (i.e. report revenues on a net basis). In doing so, we first evaluate whether we control the good or service before it is
transferred to the customer. If we control the good or service before it is transferred to the customer, we are the principal; if not, we are the agent. Generally, we
control a promised good or service before transferring that good or service to the customer and act as the principal to the transaction. Determining whether we
control the good or service before it is transferred to the customer may require judgment.
Disaggregated Revenue
We disaggregate revenue from contracts with customers by the reportable segment, products, and services provided. The following presentation depicts the timing,
risks, and uncertainty of our revenue streams, which is also in line with how we manage our
65
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
businesses, assess performance, and determine management compensation. Our disaggregated revenue from continuing operations is as follows (dollars in
thousands):
Healthcare
Enterprise
Automotive
Other
Total revenues
For the Year Ended September 30, 2019
Hosting and
professional
services
Product and
licensing
Maintenance
and support
$
546,037 $
246,788 $
156,905 $
316,247
131,027
51,359
82,073
170,532
9,833
111,758
262
271
Total
949,730
510,078
301,821
61,463
$
1,044,670 $
509,226 $
269,196 $
1,823,092
Hardware revenue comprised of approximately $30.0 million of total product and license revenue for the year ended September 30, 2019.
Contract Acquisition Costs
Following our adoption of ASC 606, we are required to capitalize certain contract acquisition costs. The capitalized costs primarily relate to paid commissions and
other direct, incremental costs to acquire customer contracts. In accordance with the practical expedient in ASC 606-10-10-4, we apply a portfolio approach to
estimate contract acquisition costs for groups of customer contracts. We elect to apply the practical expedient in ASC 340-40-25-4 and will expense contract
acquisition costs as incurred where the expected period of benefit is one year or less. Sales commissions paid on renewal maintenance and support are not
commensurate with sales commissions paid on the initial maintenance and support contract. Contract acquisition costs are deferred and amortized on a straight-line
basis over the period of benefit, which we have estimated to be between one and five years. The period of benefit was determined based on an average customer
contract term, expected contract renewals, changes in technology and our ability to retain customers including canceled contracts. Contract acquisition costs are
classified as current or noncurrent assets based on when the expense will be recognized. The current and noncurrent portions of contract acquisition costs are
included in Prepaid expenses and other current assets, and Other assets, respectively. As of September 30, 2019, we had $20.7 million of current contract
acquisition costs and $31.1 million of noncurrent contract acquisition costs. Commission expense is primarily included in Sales and marketing expense on the
consolidated statements of operations. We also had amortization expense of $16.2 million related to contract acquisition costs for the year ended September 30,
2019. There was no impairment related to commission costs capitalized.
Capitalized Contract Costs
We capitalize incremental costs incurred to fulfill our contracts that (1) relate directly to the contract, (2) are expected to generate resources that will be used to
satisfy our performance obligation under the contract, and (3) are expected to be recovered through revenue generated under the contract. Our capitalized costs
consist primarily of setup costs, such as costs to standup, customize, and develop applications for each customer. These costs are incurred to satisfy our stand-ready
obligation to provide access to our connected offerings. The contract costs are expensed to cost of revenue as we satisfy our stand-ready obligation over the
contract term, which we estimate to be between one and five years. The contract term estimation was determined based on an average customer contract term,
expected contract renewals, changes in technology, and our ability to retain customers including canceled contracts. We classify capitalized contract costs as
current or noncurrent based on the timing of when we expect to recognize the expense. The current and noncurrent portions of capitalized contract fulfillment costs
are included in Prepaid expenses and other current assets, and Other assets, respectively. At September 30, 2019, we had $26.4 million of short-term contract costs
included with Prepaid expenses and other current assets and $70.9 million of long-term costs included within Other assets.
Trade Accounts Receivable and Contract Balances
We classify our right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is
unconditional (i.e. only the passage of time is required before payment is due). We present such receivables in Accounts receivable, net in our consolidated balance
sheets at their net estimated realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that may not be
collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and other
applicable factors.
66
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.
Contract assets include unbilled amounts from long-term contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not
solely subject to the passage of time. The current and noncurrent portions of contract assets are included in Prepaid expenses and other current assets, and Other
assets. As of September 30, 2019, we had $67.8 million of current contract assets and $108.7 million of noncurrent contract assets. The table below shows
significant changes in contract assets of continuing operations (dollars in thousands):
Balance October 1, 2018
Revenues recognized but not billed
Amounts reclassified to accounts receivable
Balance September 30, 2019
$
$
Contract assets
168,595
326,818
(318,969)
176,444
Our contract liabilities, or Deferred revenue, consist of advance payments and billings in excess of revenues recognized. We classify Deferred revenue as current or
noncurrent based on when we expect to recognize the revenues. At September 30, 2019, we had $701.7 million of Deferred revenue. The table below shows
significant changes in Deferred revenue of continuing operations (dollars in thousands):
Balance October 1, 2018
Amounts bill but not recognized
Revenue recognized
Balance September 30, 2019
Deferred revenue
693,272
913,306
(904,872)
701,706
$
$
Remaining Performance Obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially
unsatisfied at September 30, 2019 (dollars in thousands):
Total revenue
$
Within One
Year
767,407 $ 1,155,910 $
Two to Five
Years
Greater than
Five Years
Total
176,498 $ 2,099,815
The table above includes fixed backlogs and does not include variable backlog derived from continent usage-based activities, such as royalties and usage-based
hosting revenue.
4. Disposition of Business
Sale of Imaging Business
On November 7, 2018, our Board of Directors approved the divestiture of our Imaging business. On November 11, 2018, we entered into a sale agreement (the
“Agreement”) with Project Leopard AcquireCo Limited, a private limited company incorporated under the laws of England and Wales (and an affiliate of Kofax,
Inc.), relating to the sale of our Imaging business.
On February 1, 2019, we completed the sale of the business and received approximately $400 million, after estimated transaction expenses, and subject to post-
closing finalization of those adjustments as set forth in the Agreement. As a result, we recorded a gain of approximately $102.4 million, which is included within
net income from discontinued operations. There are a number of working capital and other adjustments under the agreement and related ancillary agreements. The
post-closing adjustments under the agreement did not have a material impact on our consolidated financial statements.
67
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For all periods presented, Imaging's results of operations have been included within discontinued operations and its assets and liabilities within held for sale on our
consolidated financial statements.
The following table summarizes the results of the discontinued operations (dollars in thousands):
Major line items constituting net income of Imaging:
Revenue (a)
Cost of revenue
Research and development
Sales and marketing (a)
General and administrative
Amortization of intangible assets
Acquisition-related costs, net
Restructuring and other related charges
Other
(Loss) income from discontinued operations before income taxes(a)
(Benefit) provision for income taxes
Gain on disposition
Net income from discontinued operations
Supplemental Information:
Depreciation
Amortization
Stock compensation
From October 1,
2018 to February 1,
2019
Fiscal Year 2018
Fiscal Year 2017
(ASC 606)
(ASC 605)
(ASC 605)
$
67,430 $
209,363 $
211,187
16,946
7,557
28,433
1,997
5,219
(386)
13,251
—
(5,587)
(2,688)
102,371
48,183
26,588
76,593
3,890
17,096
8
6,472
44
30,489
5,513
—
99,472 $
24,976 $
49,962
26,172
73,760
3,612
21,056
32
1,131
(193)
35,655
8,310
—
27,345
391 $
6,569 $
7,103 $
1,995 $
23,083 $
7,876 $
2,397
28,017
11,371
$
$
$
$
Capital expenditures for all periods presented were de minimis.
(a) As more fully described in Note 2, as a result of the adoption of ASC 606 using the modified retrospective approach, Revenue for fiscal year 2019 reflected an increase of $2.4
million due to the upfront recognition of term licenses and the re-allocation of contract consideration to performance obligations based upon standalone selling prices; Sales
and marketing expense for fiscal year, 2019 reflected a decrease of $1.4 million due to the capitalization and amortization of commission expense; and the provision for
income taxes for fiscal year 2019 reflected an increase in tax benefit of $1.6 million related to the tax effect of the ASC 606 adjustments.
The following table summarizes the assets and liabilities included within discontinued operations (dollars in thousands):
Major classes of Imaging assets:
Accounts receivable, net
Prepaid expenses and other current assets
Land, building and equipment, net
Goodwill
Intangible assets, net
Other assets
Total assets classified as held for sale
Major classes of Imaging liabilities:
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue
Other
Total liabilities classified as held for sale
September 30,
2018
(ASC 605)
30,959
3,443
2,442
257,352
99,507
196
393,899
3,604
12,304
107,965
2,658
126,531
$
$
$
$
68
Table of Contents
Spin-off of Automotive
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As more fully disclosed in Note 23, on November 19, 2018, we announced our intent to spin off our Automotive business into an independent publicly traded
company through a pro rata distribution to our common stockholders. The spin-off was completed on October 1, 2019.
The results of operations for our Automotive business was included within continuing operations for all the historical periods presented as the held-for-sale
criterion was not met until the spin-off occurred on October 1, 2019. Effective the first quarter of fiscal year 2020, the historical results of our Automotive business
will be included within discontinued operations for all the historical periods presented.
Other Dispositions
In connection with our comprehensive portfolio and business review efforts, we commenced a wind-down of our Devices and Mobile Operator Services businesses
during the fourth quarter of fiscal year 2018. In May 2019, we completed the sale of our Mobile Operator Services business in Brazil, and in July 2019, we
completed the sale of our Mobile Operator Services business in India. The sale prices and any gain or loss were immaterial to our consolidated financial
statements.
5. Business Acquisitions
As part of our business strategy, we have acquired, and may acquire in the future, certain businesses and technologies primarily to expand our products and service
offerings.
Fiscal Year 2019 Acquisitions
In fiscal year 2019, we completed one acquisition in our Healthcare segment for a total consideration of $19.7 million, including $17.8 million in cash, $1.5 million
estimated fair value for future contingent payments, and $0.3 million related to the carrying value of existing warrants. As a result, we recognized goodwill of $8.8
million and other intangible assets of $10.5 million related to technology with a useful life of 5.0 years. The results of operations of the acquired entity has been
included within our consolidated results of operations from the acquisition date. The acquisition was not material to our consolidated financial statements.
Fiscal Year 2018 Acquisitions
In fiscal year 2018, we completed several acquisitions in our Healthcare and Automotive segments for a total consideration of $129.5 million, including $114.6
million in cash, $2.0 million estimated fair value for future contingent payments, and effective settlement of preexisting relationship with the acquiree of $12.9
million. As a result, we recognized goodwill of $62.9 million, including immaterial measurement-period adjustments through September 30, 2018 and other
intangible assets of $60.8 million, with a weighted average life of 6.0 years. The results of operations of the acquired entities have been included within our
consolidated results of operations from the acquisition dates. Such acquisitions were not material, individually or in the aggregate to our consolidated financial
statements.
Fiscal Year 2017 Acquisitions
In fiscal year 2017, we acquired several businesses in our Enterprise, Healthcare and Other segments for a total consideration of $97.4 million, including $75.7
million in cash, issuance of 0.8 million shares of our common stock valued at $13.4 million, and $8.3 million estimated fair value for future contingent payments.
As a result, we recognized goodwill of $62.3 million and other intangible assets of $39.1 million, with a weighted average life of 5.9 years. The results of
operations of the acquired entities have been included within our consolidated results of operations from the acquisition dates. Such acquisitions were not material,
individually or in the aggregate to our consolidated financial statements.
69
Table of Contents
6. Goodwill and Intangible Assets
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The changes in the carrying amount of goodwill for our reportable segments for fiscal years 2019 and 2018 were as follows (dollars in thousands):
Balance as of September 30, 2017
$
1,418,334 $
673,472 $
1,241,010 $
— $
— $
Healthcare
Enterprise
Former Mobile
Automotive
Other
Acquisitions
Purchase accounting adjustments
Reorganization (Note 23)
Impairment charge (a)
Effect of foreign currency translation
Balance as of September 30, 2018
Acquisitions
Purchase accounting adjustments
Effect of foreign currency translation
—
—
—
2,697
50,193
(3,275)
—
—
11,991
(1,249,051)
1,080,453
156,607
Total
3,332,816
65,129
(1,283)
—
—
5,344
—
—
—
—
—
(141,781)
(141,781)
(7,424)
(1,340)
(7,776)
1,119,947
13,486
3,247,105
—
(171)
—
—
8,785
(58)
(4,208)
(637)
(12,368)
14,936
(705)
—
—
—
(2,240)
(2,116)
1,430,325
683,347
8,785
113
(4,079)
—
—
(3,444)
Balance as of September 30, 2019
$
1,435,144 $
679,903 $
— $
1,115,568 $
12,849 $
3,243,464
(a) Represents accumulated impairment charge as of September 30, 2019 and 2018.
Intangible assets consist of the following as of September 30, 2019 and 2018 (dollars in thousands):
September 30, 2019
Customer relationships
Technology and patents
Trade names, trademarks, and other
Total
Customer relationships
Technology and patents
Trade names, trademarks, and other
Total
$
$
$
$
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying Amount
255,041
97,481
4,410
356,932
605,736 $
264,151
28,961
(350,695) $
(166,670)
(24,551)
898,848 $
(541,916) $
September 30, 2018
Gross Carrying
Amount
Accumulated
Amortization
605,784 $
292,766
28,985
Net Carrying Amount
316,566
(289,218) $
(169,806)
(18,510)
122,960
10,475
927,535 $
(477,534) $
450,001
Weighted Average
Remaining Life
(Years)
5.0
3.5
1.2
Weighted Average
Remaining Life
(Years)
5.9
3.8
1.9
Amortization expense for acquired technology and patents is included in the cost of revenue in the accompanying statements of operations and was $36.8 million,
$50.9 million and $57.9 million in fiscal 2019, 2018 and 2017, respectively. Amortization expense for customer relationships, trade names, trademarks, and other,
and non-competition agreements is included in operating expenses and was $66.7 million, $74.0 million and $92.8 million in fiscal 2019, 2018 and 2017,
respectively.
70
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated amortization expense for each of the five succeeding years as of September 30, 2019, is as follows (dollars in thousands):
Year Ending September 30,
2020
2021
2022
2023
2024
Thereafter
Total
Cost of Revenue
Other Operating
Expenses
Total
$
33,628 $
60,680 $
25,286
20,019
13,507
5,041
—
55,891
51,830
39,585
22,809
28,656
94,308
81,177
71,849
53,092
27,850
28,656
$
97,481 $
259,451 $
356,932
Fiscal Year 2019 Annual Goodwill Impairment Analysis
For Fiscal year 2019 goodwill impairment analysis, we had four reporting units with goodwill assigned: Healthcare, Enterprise, Automotive, and Voicemail-to-
Text. The estimated fair value of each reporting unit significantly exceeded its carrying amount. There was no impairment of goodwill or other intangible assets in
fiscal year 2019.
Fiscal Year 2018 Goodwill Impairment Analysis
Effective the second quarter of fiscal year 2018, our Automotive business, which was previously included within our former Mobile segment, became a standalone
operating segment. As a result of the reorganization, the former Mobile reporting unit was separated into three discrete lines of business comprised of Automotive,
Dragon TV, and Devices. Dragon TV was merged within our Enterprise segment, and Devices was included within Other segment. We assigned $1,080.5 million,
$12.0 million, and $36.0 million of goodwill to Automotive, Dragon TV and Devices, respectively, based on their relative fair values as of March 31, 2018, and
assessed the assigned goodwill for impairment by comparing each component’s fair value to its carrying amount. As a result, we recorded a $35.1 million goodwill
impairment for devices during the second quarter of fiscal 2018.
Also during the second quarter of fiscal year 2018, our Subscriber Revenue Services ("SRS") reporting unit, originally included within our Mobile operating
segment, recorded significantly lower revenue and profitability due to recent market disruptions in certain markets that we serve. We concluded that these financial
results coupled with the rapid market shifts being experienced in the industry were factors that represented impairment indicators, triggering a review of goodwill
and indefinite-lived intangible assets for impairment during the second quarter of fiscal year 2018. As a result, we recorded a goodwill impairment charge of
$102.8 million related to SRS for the second quarter of fiscal 2018. The assessment did not result in any impairment charge of other intangible assets.
During the fourth quarter of fiscal year 2018, in connection with our strategic business review announced in our earnings release issued on May 9, 2018, we
restructured our SRS business by separating the voicemail transcription services business ("Voicemail-to-Text"), which continued to operate as part of the Other
Segment, and commenced a wind-down of our SRS Mobile Operator Services in India and Brazil, and our Devices businesses. The wind-down decision resulted in
significantly lower estimated future cash flows over a considerably shorter time horizon, which triggered a review of goodwill and long-lived asset groups for
impairment.
As a result of the impairment review, we recorded an additional $15.0 million impairment charge for Devices for the fourth quarter of fiscal year 2018, including
$7.6 million related to acquired trade names and customer relationships, $0.8 million related to acquired technology assets, $6.2 million related to fixed assets, and
$0.4 million related to its remaining goodwill; we also recorded a $25.1 million impairment charge for our Mobile Operator Services business for the fourth quarter
of fiscal year 2018, including $12.9 million related to acquired trade names and customer relationships, $7.9 million related to acquired technology assets, $0.9
million related to fixed assets, and $3.4 million related to goodwill.
The fair value of a reporting unit is generally determined using a combination of the income approach and the market approach, where the income approach is
weighted 50% and the market approach 50%. Determining the fair value of a long-lived asset group or a reporting unit requires the use of significant estimates and
assumptions, all of which we believe are reasonable but nevertheless inherently uncertain. These estimates and assumptions include revenue growth rates and
operating margins used to estimate future cash flows, risk-adjusted discount rates, future economic and market conditions, and the use of market comparables.
Also, if we experience lower-than-expected growth or fail to sustain our profitability due to changing market dynamics, competition or technological obsolescence,
it could adversely impact the long-term assumptions used in our impairment analysis. Such changes in assumptions and estimates may result in additional
impairment of our goodwill and/or other long-lived assets, which could
71
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
materially impact our future results of operations and financial conditions. Additionally, as we continue our product portfolio review and implement organizational
changes to better align with our long-term strategies, decisions from such efforts may trigger additional impairment reviews of goodwill and other long-lived
assets, which may result in additional impairment charges in the future periods.
7. Accounts Receivable, Net
Accounts receivable, net consisted of the following (dollars in thousands):
Trade accounts receivable
Unbilled accounts receivable under long-term contracts
Gross accounts receivable
Less: allowance for doubtful accounts
Less: allowance for sales returns
Accounts receivable, net
8. Land, Buildings and Equipment, Net
Land, building and equipment, net consisted of the following (dollars in thousands):
Land
Building
Machinery and equipment
Computers, software and equipment
Leasehold improvements
Furniture and fixtures
Construction in progress
Subtotal
Less: accumulated depreciation
Land, building and equipment, net
September 30, 2019
September 30, 2018
(ASC 606)
(ASC 605)
$
$
324,643 $
—
324,643
(10,662)
(5,380)
308,601 $
330,515
33,326
363,841
(9,823)
(6,145)
347,873
Useful Life (In
Years)
September 30, 2019
— $
30
3-5
3-5
2-15
5-7
—
2,400 $
6,696
167,789
163,906
36,759
17,222
21,751
416,523
(275,207)
$
141,316 $
September 30, 2018
2,400
5,409
163,359
179,461
34,970
17,249
2,088
404,936
(251,484)
153,452
Depreciation expense for fiscal years 2019, 2018 and 2017 was $55.2 million, $60.4 million and $53.3 million, respectively, which included amortization expense
of $6.7 million, $11.0 million and $11.9 million, respectively, for internally developed software costs.
9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (dollars in thousands):
Compensation
Accrued interest payable
Cost of revenue related liabilities
Consulting and professional fees
Facilities related liabilities
Sales and marketing incentives
Sales and other taxes payable
Other
Total
September 30, 2019
$
132,887 $
September 30, 2018
174,984
19,302
58,049
24,297
4,595
2,692
6,948
28,229
21,326
30,432
21,220
4,621
1,889
5,983
8,884
$
276,999 $
269,339
72
Table of Contents
10. Debt
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At September 30, 2019 and 2018, we had the following borrowing obligations (dollars in thousands):
5.625% Senior Notes due 2026, net of deferred issuance costs of $4.5 million and $5.1 million, respectively. Effective
interest rate 5.625%.
September 30, 2019
495,518
$
September 30, 2018
494,915
$
5.375% Senior Notes due 2020, net of deferred issuance costs of $1.2 million. Effective interest rate 5.375%.
—
6.000% Senior Notes due 2024, net of deferred issuance costs of $1.5 million and $1.8 million, respectively. Effective
298,529
interest rate 6.000%.
1.00% Convertible Debentures due 2035, net of unamortized discount of $91.6 million and $116.9 million,
580,639
respectively, and deferred issuance costs of $4.3 million and $5.6 million, respectively. Effective interest rate
5.622%.
2.75% Convertible Debentures due 2031. Effective interest rate 7.432%.
1.25% Convertible Debentures due 2025, net of unamortized discount of $71.6 million and $82.4 million,
respectively, and deferred issuance costs of $3.1 million and $3.7 million, respectively. Effective interest rate
5.578%.
46,568
275,257
298,759
298,220
553,973
46,568
263,863
1.50% Convertible Debentures due 2035, net of unamortized discount of $22.7 million and $32.8 million,
240,406
229,906
respectively, and deferred issuance costs of $0.8 million and $1.1 million, respectively. Effective interest rate
5.394%.
Deferred issuance costs related to our Revolving Credit Facility
Total debt
Less: current portion
Total long-term debt
(511)
1,936,406
(1,142,870)
(843)
2,185,361
—
$
793,536 $
2,185,361
The following table summarizes the maturities of our borrowing obligations as of September 30, 2019 (dollars in thousands):
Fiscal Year
2020
2021
2022
2023
2024
Thereafter
Total before unamortized discount
Less: unamortized discount and issuance costs
Total long-term debt
Convertible
Debentures (1)
$
— $
—
310,464
676,488
—
350,000
1,336,952
(194,082)
Senior Notes (2)
Total
— $
—
—
—
300,000
500,000
800,000
(6,464)
—
—
310,464
676,488
300,000
850,000
2,136,952
(200,546)
$
1,142,870 $
793,536
$
1,936,406
(1) The repayment schedule above assumes that payment is due on the first contractual redemption date after September 30, 2019. As more fully described below, as of
September 30, 2019, the holders had the right to convert all or any portion of their debentures until the close of business on October 1, 2019. As a result, the net carrying
amounts of our convertible notes were included in current liabilities as of September 30, 2019. Upon the conclusion of the conversion period on October 1, 2019, none of the
holders exercised their right to convert. As a result, the net carrying amounts of the convertible notes were reclassified back to long-term debt.
(2) The repayment schedule reflects all the senior notes outstanding as of September 30, 2019. As more fully described below, on October 1, 2019, we redeemed all of the $300
million outstanding principal of the 2024 Senior Notes.
5.625% Senior Notes due 2026
In December 2016, we issued $500.0 million aggregate principal amount of 5.625% Senior Notes due on December 15, 2026 (the "2026 Senior Notes") in a private
placement. The proceeds from the 2026 Senior Notes were approximately $495.0 million, net of issuance costs, and we used the proceeds to repurchase a portion
of our 2020 Senior Notes. The 2026 Senior Notes bear interest at 5.625% per year, payable in cash semi-annually in arrears.
73
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The 2026 Senior Notes are unsecured senior obligations and are guaranteed on an unsecured senior basis by certain of our domestic subsidiaries ("Subsidiary
Guarantors"). The 2026 Senior Notes and the guarantees rank equally in right of payment with all of our and the Subsidiary Guarantors’ existing and future
unsecured senior debt and rank senior in right of payment to all of our and the Subsidiary Guarantors’ future unsecured subordinated debt. The 2026 Senior Notes
and guarantees effectively rank junior to all our secured debt and that of the Subsidiary Guarantors to the extent of the value of the collateral securing such debt
and to all liabilities, including trade payables, of our subsidiaries that have not guaranteed the 2026 Senior Notes.
At any time before December 15, 2021, we may redeem all or a portion of the 2026 Senior Notes at a redemption price equal to 100% of the aggregate principal
amount of the 2026 Senior Notes to be redeemed, plus a “make-whole” premium and accrued and unpaid interest to, but excluding, the redemption date. At any
time on or after December 15, 2021, we may redeem all or a portion of the 2026 Senior Notes at certain redemption prices expressed as percentages of the principal
amount, plus accrued and unpaid interest to, but excluding, the redemption date. At any time and from time to time before December 15, 2021, we may redeem up
to 35% of the aggregate outstanding principal amount of the 2026 Senior Notes with the net cash proceeds received by us from certain equity offerings at a price
equal to 105.625% of the aggregate principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided that the redemption occurs
no later than 120 days after the closing of the related equity offering, and at least 50% of the original aggregate principal amount of the 2026 Senior Notes remains
outstanding immediately thereafter.
Upon the occurrence of certain asset sales or a change in control, we must offer to repurchase the 2026 Senior Notes at a price equal to 100% in the case of an asset
sale, or 101% in the case of a change of control, of the principal amount plus accrued and unpaid interest to, but excluding, the repurchase date.
5.375% Senior Notes due 2020
On August 14, 2012, we issued $700.0 million aggregate principal amount of 5.375% Senior Notes due on August 15, 2020 in a private placement. The net
proceeds were approximately $689.1 million, net of issuance costs, and bear interest at 5.375% per year, payable in cash semi-annually in arrears. On October 22,
2012, we issued, in a private placement, an additional $350.0 million aggregate principal amount of our 5.375% Senior Notes due 2020 (collectively the "Notes").
The Notes were issued pursuant to the indenture agreement dated August 14, 2012. Total proceeds received, net of issuance costs, were $351.7 million.
The Notes are our unsecured senior obligations and are guaranteed (the “Guarantees”) on an unsecured senior basis by Subsidiary Guarantors. The Notes and
Guarantees rank equally in right of payment with all of our and the Subsidiary Guarantors' existing and future unsecured senior debt and rank senior in right of
payment to all of our and the Subsidiary Guarantors' future unsecured subordinated debt. The Notes and Guarantees effectively rank junior to all secured debt of
our and the Subsidiary Guarantors to the extent of the value of the collateral securing such debt and to all liabilities, including trade payables, of our subsidiaries
that have not guaranteed the Notes.
At any time, we may redeem all or a portion of the Notes at certain redemption prices expressed as percentages of the principal amount, plus accrued and unpaid
interest to, but excluding, the redemption date.
Upon the occurrence of certain asset sales or a change in control, we must offer to repurchase the Notes at a price equal to 100%, in the case of an asset sale, or
101%, in the case of a change of control, of the principal amount plus accrued and unpaid interest to, but excluding, the repurchase date.
In January 2017, we repurchased $600.0 million in aggregate principal amount of our 2020 Senior Notes using cash and cash equivalents and the net proceeds from
our 2026 Senior Notes issued in December 2016. As a result, we recorded an extinguishment loss of $18.6 million in fiscal year 2017.
In September 2018, we repurchased $150.0 million in aggregate principal amount of our 2020 Senior Notes at par. As a result, we wrote off the remaining
unamortized premium and deferred issuance costs related to the repayment and recorded an extinguishment gain of $0.3 million in fiscal year 2018. Following this
activity, $300.0 million in aggregate principal amount of our 2020 Senior Notes remained outstanding.
In March 2019, we repurchased the remaining $300.0 million in aggregate principal amount of our 2020 Senior Notes at par using the proceeds from the sale of our
Imaging business. As a result, we wrote off the remaining unamortized deferred issuance costs related to the repayment and recorded an extinguishment loss of
$0.9 million for the three months ended March 31, 2019. Following this activity, we have fully repaid our 2020 Senior Notes and no amount remains outstanding.
74
Table of Contents
6.0% Senior Notes due 2024
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In June 2016 , we issued $300.0 million aggregate principal amount of 6.0% Senior Notes due on July 1, 2024 (the "2024 Senior Notes") in a private placement.
The proceeds from the 2024 Senior Notes were approximately $297.5 million, net of issuance costs. The 2024 Senior Notes bear interest at 6.0% per year, payable
in cash semi-annually in arrears.
The 2024 Senior Notes are unsecured senior obligations and are guaranteed on an unsecured senior basis by our Subsidiary Guarantors. The 2024 Senior Notes and
the guarantees rank equally in right of payment with all of our and the Subsidiary Guarantors’ existing and future unsecured senior debt, including our obligations
and those of each such Subsidiary Guarantor under our senior credit facility, and rank senior in right of payment to all of our and the Subsidiary Guarantors’ future
unsecured subordinated debt. The 2024 Senior Notes and guarantees effectively rank junior to all our secured debt and that of the Subsidiary Guarantors to the
extent of the value of the collateral securing such debt and to all liabilities, including trade payables, of our subsidiaries that have not guaranteed the 2024 Senior
Notes.
At any time before July 1, 2019, we may redeem all or a portion of the 2024 Senior Notes at a redemption price equal to 100% of the aggregate principal amount of
the 2024 Senior Notes to be redeemed, plus a “make-whole” premium and accrued and unpaid interest to, but excluding, the redemption date. At any time on or
after July 1, 2019, we may redeem all or a portion of the 2024 Senior Notes at certain redemption prices expressed as percentages of the principal amount, plus
accrued and unpaid interest to, but excluding, the redemption date. At any time and from time to time before July 1, 2019, we may redeem up to 35% of the
aggregate outstanding principal amount of the 2024 Senior Notes with the net cash proceeds received by us from certain equity offerings at a price equal to 106%
of the aggregate principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided that the redemption occurs no later than 120
days after the closing of the related equity offering, and at least 50% of the original aggregate principal amount of the 2024 Senior Notes remains outstanding
immediately thereafter.
Upon the occurrence of certain asset sales or a change in control, we must offer to repurchase the 2024 Senior Notes at a price equal to 100% in the case of an asset
sale, or 101% in the case of a change of control, of the principal amount plus accrued and unpaid interest to, but excluding, the repurchase date.
On August 30, 2019, we issued a conditional notice of full redemption pursuant to the indenture governing its 2024 Senior Notes, which was conditioned upon the
incurrence of indebtedness by Cerence. On October 1, 2019, we redeemed all the $300.0 million outstanding principal amount of the 2024 Senior Notes for $313.5
million, plus accrued and unpaid interest of $4.5 million. As a result of the redemption, we will record a $15.0 million loss on extinguishment of debt for the first
quarter of fiscal year 2020, including a $13.5 million redemption premium and a $1.5 million write-off of unamortized debt issuance costs.
1.0% Convertible Debentures due 2035
In December 2015, we issued $676.5 million in aggregate principal amount of 1.0% Senior Convertible Debentures due in 2035 (the “1.0% 2035 Debentures”) in a
private placement. Total proceeds were $663.8 million, net of issuance costs, and we used a portion to repurchase $38.3 million in aggregate principal on our
2.75% Senior Convertible Debentures due in 2031 (the “2031 Debentures”) and to repay the aggregate principal balance of $472.5 million on our term loan under
the amended and restated credit agreement. The 1.0% 2035 Debentures bear interest at 1.0% per year, payable in cash semi-annually in arrears. In addition to
ordinary interest and default additional interest, beginning with the semi-annual interest period commencing on December 15, 2022, contingent interest will accrue
during any regular semi-annual interest period where the average trading price of our 1.0% 2035 Debentures for the ten trading day period immediately preceding
the first day of such semi-annual period is greater than or equal to $1,200 per $1,000 principal amount of our 1.0% 2035 Debentures, in which case, contingent
interest will accrue at a rate of 0.50% per annum of such average trading price. The 1.0% 2035 Debentures mature on December 15, 2035, subject to the right of
the holders to require us to redeem the 1.0% 2035 Debentures on December 15, 2022, 2027, or 2032. The 1.0% 2035 Debentures are general senior unsecured
obligations and rank equally in right of payment with all of our existing and future unsecured, unsubordinated indebtedness and senior in right of payment to any
indebtedness that is contractually subordinated to the 1.0% 2035 Debentures. The 1.0% 2035 Debentures will be effectively subordinated to indebtedness and other
liabilities of our subsidiaries.
We account separately for the liability and equity components of the 1.0% 2035 Debentures in accordance with authoritative guidance for convertible debt
instruments that may be settled in cash upon conversion. The guidance requires the carrying amount of the liability component to be estimated by measuring the
fair value of a similar liability that does not have an associated conversion feature and record the remainder in stockholders’ equity. At issuance, we allocated
$495.4 million to long-term debt, and $181.1 million has been recorded as additional paid-in capital, which is being amortized to interest expense using the
effective interest rate method through December 2022.
75
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
If converted, the principal amount of the 1.0% 2035 Debentures is payable in cash and any amounts payable in excess of the principal amount will (based on an
initial conversion rate, which represents an initial conversion price of approximately $27.22 per share, subject to adjustment) be paid in cash or shares of our
common stock, at our election. Conversion is only allowed in the following circumstances and to the following extent: (i) prior to June 15, 2035, on any date
during any fiscal quarter (and only during such fiscal quarter) if the closing sale price of our common stock was more than 130% of the then current conversion
price for at least 20 trading days in the period of the 30 consecutive trading days ending on the last trading day of the previous fiscal quarter; (ii) during the five
consecutive business-day period following any five consecutive trading-day period in which the trading price for $1,000 principal amount of the 1.0% 2035
Debentures for each day during such five trading-day period was less than 98% of the closing sale price of our common stock multiplied by the then current
conversion rate; (iii) upon the occurrence of specified corporate transactions, as described in the indenture for the 1.0% 2035 Debentures; or (iv) at the option of
the holder at any time on or after June 15, 2035. Additionally, we may redeem the 1.0% 2035 Debentures, in whole or in part, on or after December 20, 2022 for
cash at a price equal to 100% of the principal amount of the 1.0% 2035 Debentures to be purchased plus any accrued and unpaid interest, including any additional
interest to, but excluding, the repurchase date. Each holder shall have the right, at such holder’s option, to require us to repurchase all or any portion of the 1.0%
2035 Debentures held by such holder on December 15, 2022, December 15, 2027, or December 15, 2032 at par plus accrued and unpaid interest. If we undergo a
fundamental change or non-stock change of control (as described in the indenture for the 1.0% 2035 Debentures) prior to maturity, holders will have the option to
require us to repurchase all or any portion of their debentures for cash at a price equal to 100% of the principal amount of the 1.0% 2035 Debentures to be
purchased plus any accrued and unpaid interest.
If we distribute to all holders of our common stock a per share dividend exceeding 10% of the closing sale price of our common stock on the trading day preceding
the declaration date for such distribution (e.g. a spin-off), the holders will have the right to convert all or any portion of their debentures at the conversion ratio of
36.7360 shares per $1,000 principal amount, multiplied by the then current stock price.
In connection with the spin-off of our Automotive business, we issued a notice to all holders on September 5, 2019, pursuant to which, the holders had the right to
convert all or any portion of their debentures at the aforementioned conversion ratio until the close of business on October 1, 2019. As of September 30 2019, the
net carrying amount of the 1.0% 2035 Debentures was included within the current portion of long-term debt. Upon the conclusion of the conversion period on
October 1, 2019, none of the holders exercised their right to convert. As a result, the net carrying amount of the 1.0% 2035 Debentures was reclassified back to
long-term debt.
Additionally, in accordance with the terms of the indentures governing the debentures and due to the completion of the spin-off of our Automotive business, the
conversion ratio of the 1.0% 2035 Debentures has been adjusted to 41.4576 shares per $1,000 principal amount, effective immediately after the end of October 15,
2019.
2.75% Convertible Debentures due 2031
On October 24, 2011, we sold $690.0 million of 2.75% Convertible Debentures due in 2031 in a private placement. Total proceeds, net of issuance costs, were
$676.1 million. The 2031 Debentures bear interest at 2.75% per year, payable in cash semi-annually in arrears. The 2031 Debentures mature on November 1, 2031,
subject to the right of the holders to require us to redeem the 2031 Debentures on November 1, 2017, 2021, and 2026. The 2031 Debentures are general senior
unsecured obligations and rank equally in right of payment with all of our existing and future unsecured, unsubordinated indebtedness and senior in right of
payment to any indebtedness that is contractually subordinated to the 2031 Debentures. The 2031 Debentures will be effectively subordinated to indebtedness and
other liabilities of our subsidiaries.
We account separately for the liability and equity components of the 2031 Debentures in accordance with authoritative guidance for convertible debt instruments
that may be settled in cash upon conversion. At issuance, we allocated $533.6 million to long-term debt, and $156.4 million has been recorded as additional paid-in
capital, which was amortized to interest expense using the effective interest rate method through November 2017.
In June 2015, we entered into separate privately negotiated agreements with certain holders of our 2031 Debentures to exchange, in a private placement, $256.2
million in aggregate principal amount of our 2031 Debentures for approximately $263.9 million in aggregate principal amount of our 1.5% 2035 Debentures. Upon
repurchase we recorded an extinguishment loss of $17.7 million in other expense, net, in the accompanying consolidated statements of operations. In December
2015, we entered into separate privately negotiated agreements with certain holders of our 2031 Debentures to repurchase $38.3 million in aggregate principal with
proceeds received from the issuance of our 1.0% 2035 Debentures. Upon repurchase we recorded an extinguishment loss of $2.4 million in other expense, net, in
the accompanying consolidated statements of operations. In accordance with the authoritative guidance for convertible debt instruments, a loss on extinguishment
is equal to the difference between the reacquisition
76
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
price and the net carrying amount of the extinguished debt for our 2031 Debentures, including any unamortized debt discount or issuance costs. Following this
activity, $395.5 million in aggregate principal amount of our 2031 Debentures remain outstanding. The aggregate debt discount was amortized to interest expense
using the effective interest rate method through November 2017.
If converted, the principal amount of the 2031 Debentures is payable in cash and any amounts payable in excess of the principal amount will (based on an initial
conversion rate, which represents an initial conversion price of approximately $32.30 per share, subject to adjustment) be paid in cash or shares of our common
stock, at our election. Conversion is only allowed in the following circumstances and to the following extent: (i) on any date during any fiscal quarter (and only
during such fiscal quarter) if the closing sale price of our common stock was more than 130% of the then current conversion price for at least 20 trading days in the
period of the 30 consecutive trading days ending on the last trading day of the previous fiscal quarter; (ii) during the 5 consecutive business-day period following
any 5 consecutive trading-day period in which the trading price for $1,000 principal amount of the 2031 Debentures for each day during such five trading-day
period was less than 98% of the closing sale price of our common stock multiplied by the then current conversion rate; (iii) upon the occurrence of specified
corporate transactions, as described in the indenture for the 2031 Debentures; or (iv) at the option of the holder at any time on or after May 1, 2031. Additionally,
we may redeem the 2.75% 2031 Debentures, in whole or in part, at par plus accrued and unpaid interest. Each holder shall have the right, at such holder's option, to
require us to repurchase all or any portion of the 2.75% 2031 Debentures held by such holder on November 1, 2021 and November 1, 2026 at par plus accrued and
unpaid interest. If we undergo a fundamental change (as described in the indenture for the 2031 Debentures) prior to maturity, holders will have the option to
require us to repurchase all or any portion of their debentures for cash at a price equal to 100% of the principal amount of the debentures to be purchased plus any
accrued and unpaid interest.
In November 2017, holders of approximately $331.2 million in aggregate principal amount of the outstanding 2.75% 2031 Debentures exercised their right to
require us to repurchase such debentures. Following the repurchase, $46.6 million in aggregate principal amount of the 2031 Debentures remains outstanding. We
have the right to call for redemption of some or all of the remaining outstanding 2031 Debentures.
If we distribute to all holders of our common stock a per share dividend exceeding 10% of the closing sale price of our common stock on the trading day preceding
the declaration date for such distribution (e.g. a spin-off), the holders will have the right to convert all or any portion of their debentures at the conversion ratio of
30.9610 shares per $1,000 principal amount, multiplied by the then current stock price.
In connection with the spin-off of our Automotive business, we issued a notice to all holders on September 5, 2019, pursuant to which, the holders had the right to
convert all or any portion of their debentures at the aforementioned conversion ratio until the close of business on October 1, 2019. As of September 30 2019, the
net carrying amount of the 2.75% 2031 Debentures was included within the current portion of long-term debt. Upon the conclusion of the conversion period on
October 1, 2019, none of the holders exercised their right to convert. As a result, the net carrying amount of the 2.75% 2031 Debentures was reclassified back to
long-term debt.
Additionally, in accordance with the terms of the indentures governing the debentures and due to the completion of the spin-off of our Automotive business, the
conversion ratio of the 2.75% 2031 Debentures has been adjusted to 34.9385 shares per $1,000 principal amount, effective immediately after the end of October
15, 2019.
1.25% Convertible Debentures due 2025
In March 2017, we issued $350.0 million in aggregate principal amount of 1.25% Senior Convertible Debentures due in 2025 (the “1.25% 2025 Debentures”) in a
private placement. The proceeds were approximately $343.6 million, net of issuance costs. We used a portion of the proceeds to repurchase 5.8 million shares of
our common stock for $99.1 million and $17.8 million in aggregate principal on our 2031 Debentures. The 1.25% 2025 Debentures bear interest at 1.25% per year,
payable in cash semi-annually in arrears, beginning on October 1, 2017. The 1.25% 2025 Debentures mature on April 1, 2025. The 1.25% 2025 Debentures are
general senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured, unsubordinated indebtedness and senior in
right of payment to any indebtedness that is contractually subordinated to the 1.25% 2025 Debentures. The 1.25% 2025 Debentures will be effectively
subordinated to indebtedness and other liabilities of our subsidiaries.
We account separately for the liability and equity components of the 1.25% 2025 Debentures in accordance with authoritative guidance for convertible debt
instruments that may be settled in cash upon conversion. The guidance requires the carrying amount of the liability component to be estimated by measuring the
fair value of a similar liability that does not have an associated conversion feature and record the remainder in stockholders’ equity. At issuance, we allocated
$252.1 million to long-term debt,
77
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and $97.9 million has been recorded as additional paid-in capital, which is being amortized to interest expense using the effective interest rate method through
April 1, 2025.
If converted, the principal amount of the 1.25% 2025 Debentures is payable in cash and any amounts payable in excess of the principal amount will (based on an
initial conversion rate, which represents an initial conversion price of approximately $22.22 per share, subject to adjustment under certain circumstances) be paid
in cash or shares of our common stock, at our election. Conversion is only allowed in the following circumstances and to the following extent: (i) prior to October
1, 2024, on any date during any fiscal quarter (and only during such fiscal quarter) if the closing sale price of our common stock was more than 130% of the then
current conversion price for at least 20 trading days in the period of the 30 consecutive trading days ending on the last trading day of the previous fiscal quarter; (ii)
at any time on or after October 1, 2024, (iii) during the five consecutive business-day period immediately following any five consecutive trading-day period in
which the trading price for $1,000 principal amount of the 1.25% 2025 Debentures for each day during such five trading-day period was less than 98% of the
closing sale price of our common stock multiplied by the then current conversion rate; or (iv) upon the occurrence of specified corporate transactions, as described
in the indenture for the 1.25% 2025 Debentures. We may not redeem the 1.25% 2025 Debentures prior to the maturity date. If we undergo a fundamental change or
non-stock change of control (as described in the indenture for the 1.25% 2025 Debentures) prior to maturity, holders will have the option to require us to
repurchase all or any portion of their debentures for cash at a price equal to 100% of the principal amount of the 1.25% 2025 Debentures to be purchased plus any
accrued and unpaid interest.
If we distribute to all holders of our common stock a per share dividend exceeding 10% of the closing sale price of our common stock on the trading day preceding
the declaration date for such distribution (e.g. a spin-off), the holders will have the right to convert all or any portion of their debentures at the conversion ratio of
45.0106 shares per $1,000 principal amount, multiplied by the then current stock price.
In connection with the spin-off of our Automotive business, we issued a notice to all holders on September 5, 2019, pursuant to which, the holders had the right to
convert all or any portion of their debentures at the aforementioned conversion ratio until the close of business on October 1, 2019. As of September 30 2019, the
net carrying amount of the 1.25% 2025 Debentures was included within the current portion of long-term debt. Upon the conclusion of the conversion period on
October 1, 2019, none of the holders exercised their right to convert. As a result, the net carrying amount of the 1.25% 2025 Debentures was reclassified back to
long-term debt.
Additionally, in accordance with the terms of the indentures governing the debentures and due to the completion of the spin-off of our Automotive business, the
conversion ratio of the 1.25% 2025 Debentures has been adjusted to 50.7957 shares per $1,000 principal amount, effective immediately after the end of October
15, 2019.
1.50% Convertible Debentures due 2035
In June 2015, we issued $263.9 million in aggregate principal amount of 1.50% Senior Convertible Debentures due in 2035 (the “1.5% 2035 Debentures”) in
exchange for $256.2 million in aggregate principal amount of our 2031 Debentures. Total proceeds, net of issuance costs, were $253.2 million. The 1.5% 2035
Debentures were issued at 97.09% of the principal amount, which resulted in a discount of $7.7 million. The 1.5% 2035 Debentures bear interest at 1.50% per year,
payable in cash semi-annually in arrears. In addition to ordinary interest and default additional interest, beginning with the semi-annual interest period commencing
on November 1, 2021, contingent interest will accrue during any regular semi-annual interest period where the average trading price of our 1.5% 2035 Debentures
for the ten trading day period immediately preceding the first day of such semi-annual period is greater than or equal to $1,200 per $1,000 principal amount of our
1.5% 2035 Debentures, in which case, contingent interest will accrue at a rate of 0.50% per annum of such average trading price. The 1.5% 2035 Debentures
mature on November 1, 2035, subject to the right of the holders to require us to redeem the 1.5% 2035 Debentures on November 1, 2021, 2026, or 2031. The 1.5%
2035 Debentures are general senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured, unsubordinated
indebtedness and senior in right of payment to any indebtedness that is contractually subordinated to the 1.5% 2035 Debentures. The 1.5% 2035 Debentures will be
effectively subordinated to indebtedness and other liabilities of our subsidiaries.
We account separately for the liability and equity components of the 1.5% 2035 Debentures in accordance with authoritative guidance for convertible debt
instruments that may be settled in cash upon conversion. At issuance, we allocated $208.6 million to long-term debt, and $55.3 million has been recorded as
additional paid-in capital, which is being amortized to interest expense using the effective interest rate method through November 2021.
78
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
If converted, the principal amount of the 1.5% 2035 Debentures is payable in cash and any amounts payable in excess of the principal amount, will (based on an
initial conversion rate, which represents an initial conversion price of approximately $23.26 per share, subject to adjustment) be paid in cash or shares of our
common stock, at our election. Conversion is only allowed in the following circumstances and to the following extent: (i) prior to May 1, 2035, on any date during
any fiscal quarter beginning after September 30, 2015 (and only during such fiscal quarter) if the closing sale price of our common stock was more than 130% of
the then current conversion price for at least 20 trading days in the period of the 30 consecutive trading days ending on the last trading day of the previous fiscal
quarter; (ii) during the five consecutive business-day period following any five consecutive trading-day period in which the trading price for $1,000 principal
amount of the 1.5% 2035 Debentures for each day during such five trading-day period was less than 98% of the closing sale price of our common stock multiplied
by the then current conversion rate; (iii) upon the occurrence of specified corporate transactions, as described in the indenture for the 1.5% 2035 Debentures; or
(iv) at the option of the holder at any time on or after May 1, 2035. Additionally, we may redeem the 1.5% 2035 Debentures, in whole or in part, on or after
November 5, 2021 for cash at a price equal to 100% of the principal amount of the 1.5% 2035 Debentures to be purchased plus any accrued and unpaid interest,
including any additional interest to, but excluding, the repurchase date. Each holder shall have the right, at such holder’s option, to require us to repurchase all or
any portion of the 1.5% 2035 Debentures held by such holder on November 1, 2021, November 1, 2026, or November 1, 2031 at par plus accrued and unpaid
interest. If we undergo a fundamental change (as described in the indenture for the 1.5% 2035 Debentures) prior to maturity, holders will have the option to require
us to repurchase all or any portion of their debentures for cash at a price equal to 100% of the principal amount of the 1.5% 2035 Debentures to be purchased plus
any accrued and unpaid interest.
If we distribute to all holders of our common stock a per share dividend exceeding 10% of the closing sale price of our common stock on the trading day preceding
the declaration date for such distribution (e.g. a spin-off), the holders will have the right to convert all or any portion of their debentures at the conversion ratio of
42.9978 shares per $1,000 principal amount, multiplied by the then current stock price.
In connection with the spin-off of our Automotive business, we issued a notice to all holders on September 5, 2019, pursuant to which, the holders had the right to
convert all or any portion of their debentures at the aforementioned conversion ratio until the close of business on October 1, 2019. As of September 30 2019, the
net carrying amount of the 1.5% 2035 Debentures was included within the current portion of long-term debt. Upon the conclusion of the conversion period on
October 1, 2019, none of the holders exercised their right to convert. As a result, the net carrying amount of the 1.5% 2035 Debentures was reclassified back to
long-term debt.
Additionally, in accordance with the terms of the indentures governing the debentures and due to the completion of the spin-off of our Automotive business, the
conversion ratio of the 1.5% 2035 Debentures has been adjusted to 48.5216 shares per $1,000 principal amount, effective immediately after the end of October 15,
2019.
Revolving Credit Facility
Our revolving credit agreement (the “Revolving Credit Facility”), which expires on April 15, 2021, provides for aggregate borrowing commitments of $242.5
million, including the revolving facility loans, the swingline loans and issuance of letters of credit. As of September 30, 2019, after taking into account the
outstanding letters of credit of $5.9 million, we had $236.6 million available for additional borrowing under the Revolving Credit Facility. The borrowing
outstanding under the Revolving Credit Facility bears interest at either (i) LIBOR plus an applicable margin of 1.50% or 1.75%, or (ii) the alternative base rate plus
an applicable margin of 0.50% or 0.75%. The Revolving Credit Facility is secured by substantially all our assets. The Revolving Credit Facility contains customary
affirmative and negative covenants and conditions to borrowing, as well as customary events of default. As of September 30, 2019, we were in compliance with all
the debt covenants.
11. Financial Instruments and Hedging Activities
Derivatives not Designated as Hedges
Forward Currency Contracts
We have operations in a number of international locations, including certain developing markets where currency exchange rates can be volatile. We utilize foreign
currency forward contracts to mitigate the risks associated with changes in foreign currency exchange rates so that our exposure to foreign currencies will be
mitigated or offset by the gains or losses on the foreign currency forward contracts. Generally, we enter into such contracts for less than 90 days and have no cash
requirements until maturity. As of September 30, 2019 and 2018, we had outstanding contracts with a total notional value of $189.6 million and $117.1 million,
respectively.
79
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We did not designate any forward contracts as hedging instruments for fiscal years 2019, 2017 and 2016. Therefore, changes in fair value of foreign currency
forward contracts were recognized within other expense, net in our consolidated statements of operations. The cash flows related to the settlement of forward
contracts not designated as hedging instruments are included in cash flows from investing activities within our consolidated statement of cash flows.
A summary of our derivative instruments is as follows (dollars in thousands):
Derivatives Not Designated as Hedges:
Foreign currency contracts
Foreign currency contracts
Balance Sheet Classification
Prepaid expenses and other current assets
Accrued expenses and other liabilities
September 30, 2019
$
$
597 $
(327) $
September 30, 2018
143
(1,192)
A summary of gains (losses) recognized from the derivative instruments is as follows (dollars in thousands):
Derivatives Not Designated as Hedges:
Foreign currency contracts
12. Fair Value Measures
Income Statement Classification Income
(loss) recognized
September 30,
2019
2018
2017
Other income (expense)
$
1,816 $
(3,616) $
6,811
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the
measurement date. Valuation techniques must maximize the use of observable inputs and minimize the use of unobservable inputs. When determining the fair
value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would
transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of
nonperformance.
The determination of the applicable level within the hierarchy of a particular financial asset or liability depends on the lowest level of inputs that are significant to
the fair value measurement as of the measurement date as follows:
•
•
•
Level 1: Quoted prices for identical assets or liabilities in active markets.
Level 2: Observable inputs other than those described as Level 1.
Level 3: Unobservable inputs that are supportable by little or no market activities and are based on significant assumptions and estimates.
Assets and liabilities measured at fair value on a recurring basis at September 30, 2019 and 2018 consisted of (dollars in thousands):
Assets:
Money market funds (a)
Time deposits(b)
Commercial paper, $77,089 at cost(b)
Corporate notes and bonds, $37,504 at cost(b)
Foreign currency exchange contracts(b)
Total assets at fair value
Liabilities:
Foreign currency exchange contracts(b)
Contingent acquisition payments(c)
Total liabilities at fair value
Level 1
Level 2
Level 3
Total
September 30, 2019
217,861 $
— $
— $
—
115,913
77,494
37,566
597
217,861 $
231,570 $
$
(327)
— $
(327) $
—
—
—
—
— $
$
(2,925)
(2,925) $
217,861
115,913
77,494
37,566
597
449,431
(327)
(2,925)
(3,252)
$
$
$
80
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Assets:
Money market funds(a)
Time deposits(b)
Commercial paper, $27,194 at cost(b)
Corporate notes and bonds, $57,563 at cost(b)
Foreign currency exchange contracts(b)
Total assets at fair value
Liabilities:
Foreign currency exchange contracts(b)
Contingent acquisition payments(c)
Total liabilities at fair value
Level 1
Level 2
Level 3
Total
September 30, 2018
$
$
$
$
200,004 $
— $
— $
200,004
—
—
—
—
88,158
27,363
57,417
143
—
—
—
—
88,158
27,363
57,417
143
200,004 $
173,081 $
— $
373,085
— $
—
— $
(1,192) $
—
(1,192) $
— $
(4,000)
(4,000) $
(1,192)
(4,000)
(5,192)
(a) Money market funds and time deposits with original maturity of 90 days or less are included within cash and cash equivalents in the consolidated balance sheets and are
valued at quoted market prices in active markets.
(b) Time deposits, commercial paper, corporate notes and bonds, and foreign currency exchange contracts are recorded at fair market values, which are determined based on the
most recent observable inputs for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or
indirectly observable. Time deposits are generally for terms of one year or less. Commercial paper and corporate notes and bonds generally mature within three years and
had a weighted average maturity of 0.53 years and 0.61 years as of September 30, 2019 and September 30, 2018, respectively.
(c) The fair values of our contingent consideration arrangements were determined using either the option pricing model with Monte Carlo simulation or the probability-weighted
discounted cash flow method.
The estimated fair value of our long-term debt approximated $2,143.4 million (face value $2,137.0 million) as of September 30, 2019 and $2,423.6 million (face
value $2,437.0 million) as of September 30, 2018, based on Level 2 measurements. The fair value of each borrowing was estimated using the average of the bid
and ask trading quotes at the end of the reporting periods. There was no balance outstanding under our revolving credit agreement as of September 30, 2019 and
September 30, 2018.
Additionally, contingent acquisition payments are recorded at fair values upon the acquisition, and are remeasured in subsequent reporting periods with the
changes in fair values recorded within acquisition-related costs, net. Such payments are contingent upon the achievement of specified performance targets and are
valued using the option pricing model with Monte Carlo simulation or the probability-weighted discounted cash flow model (Level 3 measurement).
The following table provides a summary of changes in fair value of our Level 3 financial instruments for the years ended September 30, 2019 and 2018 (dollars in
thousands):
Balance as of September 30, 2017
Earn-out liability established at time of acquisition
Payments and foreign currency translation
Adjustments to fair value included in acquisition-related costs, net
Balance as of September 30, 2018
Earn-out liability established at time of acquisition
Payments and foreign currency translation
Adjustments to fair value included in acquisition-related costs, net
Balance as of September 30, 2019
Amount
8,648
2,000
(8,188)
1,540
4,000
1,500
(2,550)
(25)
2,925
$
$
Contingent acquisition payment liabilities are scheduled to be paid in periods through fiscal year 2021. As of September 30, 2019, we could be required to pay up
to $4.8 million if the specified performance targets are achieved.
81
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Restructuring and Other Charges, Net
Restructuring and other charges, net include restructuring expenses as well as other charges that are unusual in nature, are the result of unplanned events, and arise
outside the ordinary course of our business. Restructuring expenses consist of employee severance costs, charges for the closure of excess facilities and other
contract termination costs. Other charges include litigation contingency reserves, costs related to the transition agreement of our former CEO, asset impairment
charges, expenses associated with the malware incident that occurred in the third quarter of fiscal year 2017 (the "2017 Malware Incident") and gains or losses on
the sale or disposition of certain non-strategic assets or product lines.
The components of restructuring and other charges, net are as follows (dollars in thousands):
Personnel
Facilities
Total restructuring charges
Other charges
Total restructuring and other charges, net
Year Ended September 30,
2019
2018
2017
19,371 $
31,520 $
3,931
23,302
57,163
3,888
35,408
21,618
80,465 $
57,026 $
12,553
6,348
18,901
41,022
59,923
$
$
The following table sets forth accrual activity relating to restructuring reserves for fiscal years 2019, 2018 and 2017 (dollars in thousands):
Balance at September 30, 2016
Restructuring charges, net
Non-cash adjustment
Cash payments
Balance at September 30, 2017
Restructuring charges, net
Non-cash adjustment
Cash payments
Balance at September 30, 2018
Restructuring charges, net
Non-cash adjustment
Cash payments
Balance at September 30, 2019
Personnel
Facilities
Total
$
2,599 $
9,875 $
12,553
—
(13,678)
1,474
31,520
—
(22,438)
10,556
19,371
—
(25,971)
6,348
(1,374)
(6,580)
8,269
3,888
(998)
(4,658)
6,501
3,931
(102)
(6,681)
$
3,956 $
3,649 $
12,474
18,901
(1,374)
(20,258)
9,743
35,408
(998)
(27,096)
17,057
23,302
(102)
(32,652)
7,605
82
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restructuring and other charges, net by segment are as follows (dollars in thousands):
Personnel
Facilities
Total Restructuring
Other Charges
Total
Fiscal Year 2019
Healthcare
Enterprise
Automotive
Other
Corporate
Total fiscal year 2019
Fiscal Year 2018
Healthcare
Enterprise
Automotive
Other
Corporate
Total fiscal year 2018
Fiscal Year 2017
Healthcare
Enterprise
Automotive
Other
Corporate
Total fiscal year 2017
Fiscal Year 2019
$
$
$
$
$
$
4,679 $
191 $
4,870 $
5,037
5,159
1,457
3,039
933
1,706
337
764
5,970
6,865
1,794
3,803
— $
—
44,453
3,306
9,404
19,371 $
3,931 $
23,302 $
57,163 $
11,563 $
25 $
11,588 $
4,217
4,160
1,473
10,107
31,520 $
4,283 $
2,141
1,838
2,954
1,337
12,553 $
2,243
20
647
953
3,888 $
870 $
3,480
—
(15)
2,013
6,348 $
6,460
4,180
2,120
11,060
35,408 $
— $
—
—
7,103
14,515
21,618 $
5,153 $
8,758 $
5,621
1,838
2,939
3,350
—
—
10,773
21,491
18,901 $
41,022 $
4,870
5,970
51,318
5,100
13,207
80,465
11,588
6,460
4,180
9,223
25,575
57,026
13,911
5,621
1,838
13,712
24,841
59,923
For fiscal year 2019, we recorded restructuring charges of $23.3 million, which included $19.4 million related to the termination of approximately 391 employees
and $3.9 million charge related to closing certain excess facilities. These actions were part of our strategic initiatives focused on investment rationalization, process
optimization and cost reduction. We expect the remaining outstanding severance of $4.0 million to be substantially paid during the first quarter of fiscal year 2020,
and the remaining of $3.6 million for the facilities to be made through fiscal year 2027, in accordance with the terms of the applicable leases.
Additionally, for the year ended September 30, 2019, we recorded $8.8 million of professional services fees related to our corporate transformational efforts, $45.6
million costs related to the separation of our Imaging business and the stand-up of our Automotive business, and $3.3 million accelerated depreciation related to
our Mobile Operator Services, offset in part by a $0.5 million cash receipt from insurance claims related to the 2017 Malware Incident.
Fiscal Year 2018
For fiscal year 2018, we recorded restructuring charges of $35.4 million, which included $31.5 million related to the termination of approximately 1,318
employees and $3.9 million charge related to closing certain excess facilities, including adjustment to sublease assumptions associated with these facilities. These
actions were part of our strategic initiatives focused on investment rationalization, process optimization and cost reduction.
Additionally, during fiscal year 2018, we recorded $5.7 million for costs related to the transition agreement of our former CEO, $4.8 million professional services
fees related to assessment and establishment of our corporate transformational efforts, $4.0 million related to our remediation and restoration effort after the 2017
Malware Incident, and fixed asset impairment charges of $7.1 million for SRS and Devices, as more fully described in Note 6.
Fiscal Year 2017
For fiscal year 2017, we recorded restructuring charges of $18.9 million, which included $12.6 million related to the termination of approximately 792 terminated
employees and $6.3 million charge related to closing certain excess facilities, including adjustment
83
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to sublease assumptions associated with these facilities. These actions were part of our initiatives to reduce costs and optimize processes.
Additionally, during fiscal year 2017, we recorded $8.1 million for costs related to the transition agreement of our former CEO, $18.1 million of professional
services fees and $4.0 million of fixed asset and inventory write-down as a result of the 2017 Malware Incident, and an impairment charge of $10.8 million related
to an internally developed software.
14. Supplemental Cash Flow Information
Cash paid for Interest and Income Taxes
Interest paid
Income taxes paid
15. Stockholders' Equity
Share Repurchases
Year Ended September 30,
2019
2018
2017
(Dollars in thousands)
$
$
72,630 $
24,056 $
93,121 $
18,485 $
91,718
21,700
On April 29, 2013, our Board of Directors approved a share repurchase program for up to $500.0 million, which was increased by $500.0 million on April 29,
2015. On August 1, 2018, our Board of Directors approved an additional $500.0 million under our share repurchase program. Under the terms of the share
repurchase program, we have the ability to repurchase shares from time to time through a variety of methods, which may include open market purchases, privately
negotiated transactions, block trades, accelerated share repurchase transactions, or any combination of such methods. The share repurchase program does not
require us to acquire any specific number of shares and may be modified, suspended, extended or terminated by us at any time without prior notice. The timing and
the amount of any purchases will be determined by management based on an evaluation of market conditions, capital allocation alternatives, and other factors.
We repurchased 8.2 million shares, 9.7 million shares and 5.8 million shares for $126.9 million, $136.1 million and $99.1 million during the fiscal years ended
September 30, 2019, 2018 and 2017, respectively, under the program. The amount paid in excess of par value is recognized in additional paid in capital and these
shares were retired upon repurchase. Since the commencement of the program, we have repurchased 64.3 million shares for $1,070.0 million. The amount paid in
excess of par value is recognized in additional paid in capital. Shares were retired upon repurchase. As of September 30, 2019, approximately $430.4 million
remained available for share repurchases as of September 30, 2019 pursuant to our share repurchase program.
Stock Issuances
During the year ended September 30, 2017, we issued 844,108 shares of our common stock valued at $13.4 million in connection with a business acquisition and
175,000 shares of our common stock valued at $2.9 million associated with charitable contributions. There were no share issuances in connection with acquisitions
in fiscal years 2018 and 2019.
Preferred Stock
We are authorized to issue up to 40,000,000 shares of preferred stock, par value $0.001 per share. The undesignated shares of preferred stock will have rights,
preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be
determined by the Board of Directors upon issuance of the preferred stock. There were no outstanding shares of preferred stock as of September 30, 2019 or
September 30, 2018.
Series A Preferred Stock
We have designated 1,000,000 shares as Series A Preferred Stock, par value $0.001 per share. The Series A Preferred Stock is entitled to receive dividends equal to
the greater of $1.00 and 1,000 times the aggregate per share amount of all dividends declared on our Common Stock. Holders of each share of the Series A
Preferred Stock are entitled to 1,000 votes on all matters submitted to a vote of the stockholders of the Company, and shall vote as one class. The Series A
Preferred Stock is not redeemable, and has the right to certain liquidation preferences over our Common Stock. The Series A Preferred Stock ranks junior to all
other series
84
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of the Preferred Stock as to the payment of dividends and the distribution of assets. There were no outstanding shares of preferred stock as of September 30, 2019
or September 30, 2018.
Series B Preferred Stock
We have designated 15,000,000 shares as Series B Preferred Stock, par value $0.001 per share. The Series B Preferred Stock is convertible into shares of common
stock on a one-for-one basis and has a liquidation preference of $1.30 per share plus all declared but unpaid dividends. The holders of Series B Preferred Stock are
entitled to non-cumulative dividends at the rate of $0.05 per annum per share, payable when, and if, declared by the Board of Directors. To date, no dividends have
been declared by the Board of Directors. Holders of Series B Preferred Stock have no voting rights, except those rights provided under Delaware law. There were
no outstanding shares of preferred stock as of September 30, 2019 or September 30, 2018.
16. Net Income (Loss) Per Share
The following table sets forth the computation for basic and diluted net income (loss) per share (in thousands, except per share amounts):
Numerator:
Net income (loss) from continuing operations
Net income from discontinued operations
Net income (loss)
Denominator:
Weighted average common shares outstanding — Basic
Dilutive effect of employee stock compensation plans
(a)
Weighted average common shares outstanding — Diluted
Net income (loss) per common share - basic:
Continuing operations
Discontinued operations
Total net income (loss) per basic common share
Net income (loss) per common share - diluted:
Continuing operations
Discontinued operations
Total net income (loss) per diluted common share
Anti-dilutive equity instruments excluded from the calculation
Contingently issuable awards excluded from the calculation (a)
$
$
$
$
$
$
Year Ended September 30,
2019
(ASC 606)
2018
(ASC 605)
2017
(ASC 605)
114,338 $
99,472
213,810 $
286,347
3,778
290,125
0.40 $
0.35
0.75 $
0.39 $
0.35
0.74 $
1,047
1,786
(184,904) $
24,976
(159,928) $
291,318
—
291,318
(0.63) $
0.08
(0.55) $
(0.63) $
0.08
(0.55) $
528
4,434
(178,341)
27,345
(150,996)
289,348
—
289,348
(0.62)
0.10
(0.52)
(0.62)
0.10
(0.52)
328
1,721
(a) Certain performance-based awards were excluded from the determination of dilutive net income per share as the conditions were not met at the end of the reporting period.
17. Stock-Based Compensation
On January 17, 2019, our stockholders approved amendments to the Company’s amended and restated 2000 Stock Plan (the “Amended and Restated 2000 Stock
Plan”). The Amended and Restated 2000 Stock Plan (i) increases the number of shares issuable from 82,250,000 to 83,500,000 shares; (ii) permits the Company's
Board of Directors (the "Board") to make proportional adjustments to outstanding awards affected by a change in the Company's capital structure, and in addition
to or in lieu of such adjustments, to permit the Board to pay dividends, dividend equivalents, or similar rights in conjunction to any such changes in the Company's
capital structure; and (iii) contains certain updates to reflect changes in the law relating to Section 162(m).
85
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of September 30, 2019, we had 7.2 million shares available for future grants under the Amended and Restated 2000 Stock Plan. We recognize stock-based
compensation expenses over the requisite service periods. Our share-based awards are classified within equity. The amounts included in the consolidated
statements of operations related to stock-based compensation are as follows (dollars in thousands):
Cost of professional services and hosting
Cost of product and licensing
Cost of maintenance and support
Research and development
Sales and marketing
General and administrative
Total
Stock Options
Year Ended September 30,
2019
2018
2017
28,523 $
31,094 $
855
1,314
38,454
34,360
37,706
814
3,322
38,077
35,838
33,764
28,532
348
2,161
30,540
39,037
42,283
141,212 $
142,909 $
142,901
$
$
We have share-based award plans under which employees, officers and directors may be granted stock options to purchase our common stock, generally at the fair
market value of the grant date. Our plans do not allow for options to be granted at below fair market value, nor can they be re-priced at any time. Options granted
under our plans generally become exercisable over a period of two to four years and have a maximum term of ten years. We have also assumed options and option
plans in connection with certain of our acquisitions. These stock options are governed by the plans and agreements that they were originally issued under but are
now exercisable for shares of our common stock.
The table below summarizes activities related to stock options for the years ended September 30, 2019, 2018 and 2017:
Outstanding at September 30, 2016
Granted
Exercised/Repurchased(b)
Forfeited
Expired
Outstanding at September 30, 2017
Granted
Exercised
Forfeited
Expired
Outstanding at September 30, 2018
Granted
Exercised
Forfeited
Expired
Outstanding at September 30, 2019
Exercisable at September 30, 2019
Exercisable at September 30, 2018
Exercisable at September 30, 2017
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value(a)
15.01
—
14.98
—
20.01
15.39
—
2.61
—
15.99
17.31
—
7.22
—
17.89
20.04
20.04
2.6 years $
2.6 years $
0.1 million
0.1 million
Number of
Shares
1,965,826 $
—
(1,932,286) $
—
(9,733) $
23,807 $
—
(2,963) $
—
(1,700) $
19,144 $
— $
(3,314) $
—
(4,528) $
11,302 $
11,302 $
19,144
23,798
(a) The aggregate intrinsic value represents any excess of the closing price of our common stock of $16.31 on September 30, 2019 over the exercise price of the underlying
options.
(b) We repurchased 1.0 million shares owned directly or indirectly by our former Chief Executive Officer, including 649,649 outstanding shares and 800,000 vested stock
options with a net share equivalent of 350,351 shares, for an aggregate purchase price of $21.4 million.
86
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of September 30, 2019, there was no unamortized fair value of stock options. A summary of intrinsic value of stock options exercised is as follows:
Total intrinsic value of stock options exercised (in millions)
$
0.1 $
0.1 $
3.6
2019
2018
2017
Restricted Awards
We are authorized to issue equity incentive awards in the form of Restricted Awards, including Restricted Units and Restricted Stock, which are individually
discussed below. Unvested Restricted Awards may not be sold, transferred or assigned. The fair value of the Restricted Awards is measured based upon the market
price of the underlying common stock as of the date of grant, reduced by the purchase price of $0.001 per share of the awards. Restricted Awards generally vest
over a period of two to four years. We also issued certain Restricted Awards with vesting solely dependent on the achievement of specified performance targets.
The fair value of the Restricted Awards is amortized to expense over the awards’ applicable requisite service periods using the straight-line method. In the event
that the employees’ employment with us terminates, or in the case of awards with only performance goals, if those goals are not met, any unvested shares are
forfeited and revert to us.
In order to satisfy our employees’ withholding tax liability as a result of the vesting of Restricted Awards, we have historically repurchased shares upon the
employees’ vesting. In fiscal year 2019, we withheld payroll taxes totaling $42.6 million related to 2.6 million shares of common stock that were repurchased or
canceled.
Restricted Units
Restricted Units are not included in issued and outstanding common stock until the shares are vested and released. The table below summarizes activity relating to
Restricted Units:
Outstanding at September 30, 2016
Granted
Earned/released
Forfeited
Outstanding at September 30, 2017
Granted
Earned/released
Forfeited
Outstanding at September 30, 2018
Granted
Earned/released
Modification(a)
Forfeited
Outstanding at September 30, 2019
Weighted average remaining recognition period of outstanding Restricted Units
Unrecognized stock-based compensation expense of outstanding Restricted Units
Aggregate intrinsic value of outstanding Restricted Units(b)
Number of Shares
Underlying
Restricted Units —
Performance-Based
Awards
Number of Shares
Underlying
Restricted Units —
Time-Based
Awards
4,224,488
3,224,696
(1,790,514)
(614,739)
5,043,931
2,175,537
(2,092,862)
(2,087,038)
3,039,568
1,342,836
(1,405,485)
(296,759)
(688,835)
1,991,325
1.4 years
5,884,023
8,457,761
(7,150,783)
(713,837)
6,477,164
8,876,712
(7,156,468)
(1,325,321)
6,872,087
9,500,077
(6,383,908)
296,759
(1,286,071)
8,998,944
1.9 years
$24.5 million
$32.5 million
$84.0 million
$146.9 million
(a) 296,759 shares of performance-based awards were modified to time-based awards with only service conditions in December 2018.
(b) The aggregate intrinsic value represents any excess of the closing price of our common stock of $16.31 on September 30, 2019 over the exercise price of the underlying
Restricted Units.
87
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of the weighted-average grant-date fair value of Restricted Units granted, and the aggregate intrinsic value of Restricted Units vested for each fiscal
year is as follows:
Weighted-average grant-date fair value per share
Total intrinsic value of shares vested (in millions)
2019
2018
2017
$
$
16.52 $
125.2 $
15.47 $
146.5 $
16.31
146.0
Performance-based Restricted Units outstanding as of September 30, 2019 and issued in fiscal year 2019 include performance goals based on total shareholder
return relative to our peers during the performance period. The awards actually earned will be up to two hundred percent of the targeted number of the
performance-based stock units. Compensation expense is recorded ratably over the performance period of the award based on the estimated grant date fair value
estimated at the grant date using a Monte Carlo simulation model, which included the following assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected term (in years)
Restricted Stock Awards
2019
0.0%
27.3% - 30.9%
2.2% - 3.0%
1 - 3
Restricted stock awards ("Restricted Stock") are included within the issued and outstanding common stock at the date of the grant. The table below summarizes
activities related to Restricted Stock:
Outstanding at September 30, 2016
Granted
Vested
Outstanding at September 30, 2017
Outstanding at September 30, 2018
Outstanding at September 30, 2019
Number of
Shares
Underlying
Restricted Stock
Weighted
Average Grant
Date Fair
Value
—
250,000 $
(250,000) $
—
—
—
—
15.55
15.55
—
—
—
A summary of the weighted-average grant-date fair value of Restricted Stock granted, and the aggregate intrinsic value of Restricted Stock vested for each fiscal
year is as follows:
Weighted-average grant-date fair value per share
Total intrinsic value of shares vested (in millions)
1995 Employee Stock Purchase Plan
2019
2018
2017
$
$
— $
— $
— $
15.55
— $
3.9
Our 1995 Employee Stock Purchase Plan (the "Plan”), as amended and restated on January 27, 2015, authorizes the issuance of a maximum of 20,000,000 shares
of common stock in semi-annual offerings to employees at a price equal to the lower of 85% of the closing price on the applicable offering commencement date or
85% of the closing price on the applicable offering termination date. Stock-based compensation expense for the employee stock purchase plan is recognized for the
fair value benefit accorded to participating employees. At September 30, 2019, we have reserved 3.9 million shares for future issuance. A summary of the
weighted-average grant-date fair value, shares issued and total stock-based compensation expense recognized related to the Plan are as follows:
Weighted-average grant-date fair value per share
Total shares issued (in millions)
Total stock-based compensation expense (in millions)
2019
2018
2017
$
$
3.76 $
1.2
4.5 $
4.00 $
1.3
5.2 $
3.84
1.3
4.9
88
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair value of the purchase rights granted under this plan was estimated on the date of grant using the Black-Scholes option-pricing model that uses the
following weighted-average assumptions, which were derived in a manner similar to those discussed above relative to stock options:
Dividend yield
Expected volatility
Risk-free interest rate
Expected term (in years)
18. Commitments and Contingencies
Operating Leases
2019
2018
2017
0.0%
27.8%
2.2%
0.5
0.0%
32.1%
2.0%
0.5
0.0%
29.3%
0.9%
0.5
We have various operating leases for office space around the world. In connection with many of our acquisitions, we assumed facility lease obligations. Among
these assumed obligations are lease payments related to office locations that were vacated by certain of the acquired companies prior to the acquisition date.
Additionally, certain of our lease obligations have been included in various restructuring charges.
The following table outlines our gross future minimum payments under all non-cancelable operating leases for continuing operations as of September 30, 2019
(dollars in thousands):
Year Ending September 30,
2020
2021
2022
2023
2024
Thereafter
Total
Operating Leases
Operating leases under
restructuring
Total
$
34,279 $
4,968 $
28,740
23,357
16,289
13,209
48,259
2,470
2,170
2,222
1,629
3,189
39,247
31,210
25,527
18,511
14,838
51,448
$
164,133 $
16,648 $
180,781
As of September 30, 2019, we have subleased certain office space that is included in the above table to third parties. As of September 30, 2019, the aggregate
sublease income to be recognized during the remaining lease terms is $15.2 million, with approximately an average of $2.4 million annually for each of the next
five fiscal years and approximately $3.1 million thereafter.
Total rent expense, including rent expense for our data centers, was approximately $46.9 million, $43.9 million and $36.7 million for the years ended
September 30, 2019, 2018 and 2017, respectively.
Litigation and Other Claims
Similar to many companies in the software industry, we are involved in a variety of claims, demands, suits, investigations and proceedings that arise from time to
time relating to matters incidental to the ordinary course of our business, including actions with respect to contracts, intellectual property, employment, benefits
and securities matters. At each balance sheet date, we evaluate contingent liabilities associated with these matters in accordance with ASC 450 "Contingencies". If
the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated
loss. Significant judgments are required for the determination of probability and the range of the outcomes, and the estimates are based only on the information
available at the time. Due to the inherent uncertainties involved in claims, legal proceedings, and in estimating the losses that may arise, actual outcomes may
differ from our estimates. Contingencies deemed not probable or for which losses were not estimable in one period may become probable, or losses may become
estimable in later periods which may have a material impact on our results of operations and financial position. As additional information becomes available, we
reassess the potential liability related to our pending claims and litigation and may revise our estimates. As of September 30, 2019 and 2018, accrued losses were
not material to our consolidated financial statements, and we do not expect any pending matter to have a material impact on our consolidated financial statements.
89
Table of Contents
Guarantees and Other
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We include indemnification provisions in the contracts we enter into with customers and business partners. Generally, these provisions require us to defend claims
arising out of our products’ infringement of third-party intellectual property rights, breach of contractual obligations and/or unlawful or otherwise culpable
conduct. The indemnity obligations generally cover damages, costs and attorneys’ fees arising out of such claims. In most, but not all cases, our total liability under
such provisions is limited to either the value of the contract or a specified, agreed upon amount. In some cases, our total liability under such provisions is
unlimited. In many, but not all cases, the term of the indemnity provision is perpetual. While the maximum potential amount of future payments we could be
required to make under all the indemnification provisions is unlimited, we believe the estimated fair value of these provisions is minimal due to the low frequency
with which these provisions have been triggered.
We indemnify our directors and officers to the fullest extent permitted by Delaware law, which provides among other things, indemnification to directors and
officers for expenses, judgments, fines, penalties and settlement amounts incurred by such persons in their capacity as a director or officer of the company,
regardless of whether the individual is serving in any such capacity at the time the liability or expense is incurred. Additionally, in connection with certain
acquisitions, we agreed to indemnify the former officers and members of the boards of directors of those companies, on similar terms as described above, for a
period of six years from the acquisition date. In certain cases, we purchase director and officer insurance policies related to these obligations, which fully cover the
six-year period. To the extent that we do not purchase a director and officer insurance policy for the full period of any contractual indemnification, and such
directors and officers do not have coverage under separate insurance policies, we would be required to pay for costs incurred, if any, as described above.
19. Pension and Other Post-Retirement Benefits
Defined Contribution Plans
We have established a retirement savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan covers substantially all of
our U.S. employees who meet minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pre-tax basis.
Amended on January 25, 2019, we now match 50% of employee contributions up to 6% of eligible salaries. Employer's contributions vest one-third annually over
a three-year period. Our contributions to the 401(k) Plan that covers substantially all of our U.S. employees who meet the minimum requirements totaled $8.1
million, $6.7 million and $6.7 million for fiscal years 2019, 2018 and 2017, respectively. We make contributions to various other plans in certain of our foreign
operations; total contributions to these plans are not material.
Defined Benefit Plans
We sponsor certain defined benefit plans that are offered primarily by our foreign subsidiaries. Many of these plans were assumed through our acquisitions or are
required by local regulatory requirements. We may deposit funds for these plans with insurance companies, third party trustees, or into government-managed
accounts consistent with local regulatory requirements, as applicable. Our defined benefit pension (income) expenses were $(0.1) million, $(0.3) million and $0.4
million for fiscal years 2019, 2018 and 2017, respectively. The aggregate projected benefit obligation as of September 30, 2019 and September 30, 2018 was $39.9
million and $34.7 million, respectively. The aggregate net liability of our defined benefit plans as of September 30, 2019 and September 30, 2018 was $16.8
million and $11.1 million, respectively.
20. Income Taxes
Recent Tax Legislation
On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA") was signed into law. The TCJA significantly revises the U.S. corporate income tax by, among
other things, lowering corporate income tax rates, implementing a hybrid territorial tax system, and imposing a mandatory one-time repatriation tax on foreign cash
and earnings.
We are subject to additional requirements of the TCJA during the year ended September 30, 2019. Those provisions include a tax on global intangible low-taxed
income (“GILTI”), a limitation of certain executive compensation, a base erosion and anti-abuse tax (“BEAT”) and other immaterial provisions. We have elected
to account for GILTI as a period cost and therefore included GILTI expense in the effective tax rate calculation. Our fiscal year 2019 effective tax rate includes our
estimates of these new provisions. Our estimates may be revised in future period as we obtain additional data and as the IRS issues new guidance implementing the
law changes
90
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As a result of the TCJA, in fiscal year 2018 we remeasured certain deferred tax assets and liabilities at the lower rates and recorded approximately $92.9 million of
tax benefits. Additionally, as of September 30, 2018, we recorded a $5.8 million provision for the deemed repatriation of foreign cash and earnings, which is
estimated based upon estimated foreign earnings and foreign income taxes.
Provision for Income Taxes
The components of income (loss) before income taxes are as follows (dollars in thousands):
Domestic
Foreign
Income (loss) before income taxes
Year Ended September 30,
2019
2018
2017
$
$
(15,102) $
(198,525) $
40,846
25,744 $
(48,699)
(247,224) $
(245,636)
90,966
(154,670)
The components of the (benefit) provision for income taxes are as follows (dollars in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
(Benefit) provision for income taxes
Effective income tax rate
Year Ended September 30,
2019
2018
2017
$
11,294
$
1,542
$
1,020
22,855
35,169
(10,931)
1,477
(114,309)
(123,763)
(198)
23,177
24,521
(83,319)
2,302
(5,824)
(86,841)
$
(88,594)
$
(62,320)
$
(5,856)
1,105
23,196
18,445
7,291
1,133
(3,198)
5,226
23,671
(344.1)%
25.2%
(15.3)%
91
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The (benefit) provision for income taxes differed from the amount computed by applying the federal statutory rate to our income tax before income taxes as
follows (dollars in thousands):
Year Ended September 30,
2019
2018
2017
Federal tax provision (benefit) at statutory rate
State tax provision, net of federal benefit
Foreign tax rate and other foreign related tax items
Stock-based compensation
Non-deductible expenditures
Change in U.S. and foreign valuation allowance
Capital losses
Intangible property transfers
Uncertain tax positions
Global intangible low-taxed income
Base erosion and anti-abuse tax
TCJA impact
Goodwill impairment
Executive compensation
Other
$
5,407 $
(60,647) $
2,175
(1,341)
3,368
8,389
168,726
(187,822)
(171,040)
61,339
7,460
11,216
—
—
1,662
1,867
1,096
(10,695)
3,290
2,375
56,557
—
—
4,782
—
—
(87,058)
28,640
503
(1,163)
(Benefit) provision for income taxes
$
(88,594) $
(62,320) $
(54,138)
1,858
(15,768)
6,934
3,086
72,318
—
—
3,111
—
—
—
—
5,492
778
23,671
The effective income tax rate is based upon the income for the year, the composition of the income in different countries, changes relating to valuation allowances
for certain countries if and as necessary, and adjustments, if any, for the potential tax consequences, benefits or resolutions of audits or other tax contingencies. Our
aggregate income tax rate in foreign jurisdictions is lower than our effective income tax rate in the United States; the majority of our income before provision for
income taxes from foreign operations has been earned by subsidiaries in Ireland. Our effective income tax rate may be adversely affected by earnings being lower
than anticipated in countries where we have lower statutory tax rates and higher than anticipated in countries where we have higher statutory tax rates.
The effective income tax rate in fiscal year 2019 differs from the U.S. federal statutory rate of 21.0% primarily due to a net tax benefit of $112.1 million related to
intangible property transfers, partially offset by an uncertain tax position. The net tax benefit is also partially offset by a BEAT tax expense of $11.2 million and a
GILTI tax expense of $7.5 million. As part of the restructuring for the spin-off of our Automotive business, we recognized an $896.8 million gross U.S. capital loss
with a potential tax benefit of $188.3 million. We believe that it is not more likely than not that the tax benefit from the U.S. capital loss will be realized. As a
result, we recorded a full valuation allowance against the capital loss.
The effective income tax rate in fiscal year 2018 differs from the U.S. federal statutory rate of 24.5% primarily due to the net tax benefits resulting from the TCJA
remeasurement of deferred tax assets and liabilities at the lower enacted rate, and our foreign earnings subject to lower tax rates, offset in part by additional
valuation allowance related to current period losses, and the tax effect of goodwill impairment charges that are not deductible.
The effective income tax rate in fiscal year 2017 differs from the U.S. federal statutory rate of 35% primarily due to additional valuation allowance related to
current period losses in the United States, and an increase in deferred tax liabilities related to goodwill, partially offset by our earnings in foreign operations that
are subject to significantly lower tax rates than the U.S. statutory tax rate.
As of September 30, 2019, we have not provided taxes on $243.3 million of undistributed earnings of our foreign subsidiaries, which may be subject to foreign
withholding taxes upon repatriation, as we consider these earnings indefinitely reinvested. Our indefinite reinvestment determination is based on the future
operational and capital requirements of our domestic and foreign operations. We expect our international cash and cash equivalents and marketable securities of
$135.9 million will continue to be used for our foreign operations and therefore do not anticipate repatriating these funds. As of September 30, 2019, it is not
practicable to calculate the unrecognized deferred tax liability on these earnings due to the complexities of the utilization of foreign tax credits and other tax assets.
92
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred tax assets (liabilities) consist of the following as of September 30, 2019 and 2018 (dollars in thousands):
Deferred tax assets:
Net operating loss carryforwards
Capital loss carryforwards
Federal and state credit carryforwards
Accrued expenses and other reserves
Difference in timing of revenue related items
Deferred compensation
Other
Total deferred tax assets
Valuation allowance for deferred tax assets
Net deferred tax assets
Deferred tax liabilities:
Depreciation
Convertible debt
Acquired intangibles
Net deferred tax liabilities
Reported as:
Other assets
Long-term deferred tax liabilities
Net deferred tax liabilities
September 30, 2019
September 30, 2018
$
$
$
$
166,224 $
188,320
43,897
33,150
24,832
22,917
11,579
490,919
(303,378)
187,541
(16,833)
(87,046)
(7,517)
76,145 $
130,361 $
(54,216)
76,145 $
192,017
—
46,721
41,371
81,647
19,315
13,802
394,873
(183,295)
211,578
(15,729)
(92,452)
(131,959)
(28,562)
21,369
(49,931)
(28,562)
Deferred tax assets are reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not that some
portion or all the deferred tax assets will not be realized. During fiscal year 2019, the valuation allowance for deferred tax assets increased by $120.1 million. This
increase relates to the valuation allowance for the U.S. capital loss of $188.3 million, partially offset by reduction of revenue related deferred tax assets due to ASC
606 implementation and the reversal of valuation allowance related to current period earnings. As of September 30, 2019, we have $269.6 million and $33.8
million in valuation allowance against our net domestic and foreign deferred tax assets, respectively. As of September 30, 2018, we had $142.8 million and $40.5
million in valuation allowance against our net domestic and foreign deferred tax assets, respectively.
Other than the capital loss carryforward, the majority of domestic deferred tax assets relate to net operating losses, the use of which may not be available as a result
of limitations on the use of acquired losses. With respect to these operating losses, there is no assurance that they will be used given the current assessment of the
limitations on their use or our current projection of future taxable income in the entities for which these losses relate. Based on our analysis, we have concluded
that it is not more likely than not that the majority of our domestic deferred tax assets can be realized and therefore a valuation allowance has been assigned to
these deferred tax assets. If we are subsequently able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been established, then
we may be required to recognize these deferred tax assets through the reduction of the valuation allowance which could result in a material benefit to our results of
operations in the period in which the benefit is determined.
At September 30, 2019 and 2018, we had U.S. federal net operating loss carryforwards of $551.1 million and $692.9 million, respectively. At September 30, 2019
and 2018, we had state net operating loss carryforwards of $194.6 million and $259.1 million, respectively. The net operating loss and credit carryforwards are
subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986 and similar state tax provisions. As of
September 30, 2019 and 2018, we had foreign net operating loss carryforwards of $191.7 million and $164.9 million, respectively. These carryforwards will expire
at various dates beginning in 2019 and extending up to an unlimited period.
As of September 30, 2019 and 2018, we had federal research and development carryforwards and foreign tax credit carryforwards of $27.7 million and $30.2
million, respectively. As of September 30, 2019 and 2018, we had state research and development credit and investment tax credit carryforwards of $3.9 million
and $5.3 million, respectively. As of September 30, 2019 and 2018, we had foreign investment tax credit carryforwards of $14.3 million and $14.7 million,
respectively.
93
Table of Contents
Uncertain Tax Positions
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on
the largest benefit which is more likely than not to be realized upon ultimate settlement. We recognize interest and penalties related to uncertain tax positions in our
provision for income taxes line of our consolidated statements of operations.
The aggregate changes in the balance of our gross unrecognized tax benefits were as follows (dollars in thousands):
Balance at the beginning of the year
Increases related to tax positions from prior fiscal years
Decreases related to tax positions from prior fiscal years
Increases for tax positions taken during current period
Decreases for tax settlements and lapse in statutes
Cumulative translation adjustments
Balance at the end of the year
Year Ended September 30,
2019
2018
$
29,456 $
33,245
—
—
60,225
(1,803)
(2,291)
$
85,587 $
1,590
(2,281)
1,709
(4,083)
(724)
29,456
As of September 30, 2019, 85.6 million of the unrecognized tax benefits, if recognized, would impact our effective income tax rate. In fiscal year 2019, there was
an increase in unrecognized tax benefits of $58.9 million related to intercompany intangible property transfers. Within the next 12 months, we expect the
unrecognized tax benefits to decrease by $56.6 million as it is transferred to Cerence as part of the spin-off on October 1, 2019. We recognized interest and
penalties related to uncertain tax positions in our provision for income taxes of $1.9 million, $1.3 million, and $2.0 million during fiscal years 2019, 2018, and
2017, respectively. We recorded interest and penalties of $12.7 million and $10.8 million as of September 30, 2019 and 2018, respectively.
We are subject to U.S. federal income tax, various state and local taxes, and international income taxes in numerous jurisdictions. The federal tax returns for 2000
through 2016 remain subject to examination for the purpose of determining the amount of remaining tax NOL and other carryforwards. Additionally, the federal
tax returns for 2017 through 2019 years remain open for all purposes of examination by the IRS and other taxing authorities in material jurisdictions.
21. Related Party Transaction
In January 2018, we entered into a software and license agreement (the "License Agreement") with Magnet Systems, Inc. ("Magnet") which was pre-approved by
our Board of Directors. A member of the Magnet board of directors also served on our board of directors at the time of the transaction. Pursuant to the License
Agreement, Magnet granted us a perpetual software license to certain technology for a one-time payment of $5.0 million in cash, with $3.5 million paid
immediately upon the effective date of the License Agreement and $1.5 million payable upon the earlier of (i) the 120-day period following the effective date of
the License Agreement or (ii) signature of a statement of work for the engineering services described below.
Additionally, we entered into a service agreement (the "Service Agreement") with Magnet, pursuant to which, Magnet will provide engineering services to assist in
integrating the licensed technology into certain of our Enterprise solutions. Based upon the statement of work signed on April 19, 2018, total fees under the Service
Agreement should not exceed $2.0 million and are payable in six equal monthly installments upon the signature of the statement of work, which was finalized
within 90 days following the effective date of the License Agreement. We incurred $2.0 million service costs by the time the integration service was completed on
March 31, 2019.
22. Segment and Geographic Information
Our Chief Operating Decision Maker ("CODM") regularly reviews segment revenues and segment profits for performance evaluation and resources allocation.
Segment revenues include certain acquisition-related adjustments for revenues that would otherwise have been recognized without the acquisition. Segment profits
reflect controllable costs directly related to each segment and the allocation of certain corporate expenses such as, corporate sales and marketing expenses and
research and development project costs that benefit multiple segments. Certain items such as stock-based compensation, amortization of intangible assets,
94
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
acquisition-related costs, net, restructuring and other charges, net, other expenses, net and certain unallocated corporate expenses are excluded from segment
profits, which allow for more meaningful comparisons to the financial results of the historical operations for performance evaluation and resources allocation by
our CODM.
•
•
•
•
The Healthcare segment is primarily engaged in providing clinical speech and clinical language understanding solutions that improve the clinical
documentation process, from capturing the complete patient record to improving clinical documentation and quality measures for reimbursement.
The Enterprise segment is primarily engaged in using speech, natural language understanding, and artificial intelligence to provide automated customer
solutions and services for voice, mobile, web and messaging channels.
The Automotive segment is primarily engaged in providing automotive manufacturers and their suppliers branded and personalized virtual assistants and
connected car services built on our voice recognition and natural language understanding technologies. As more fully disclosed in Note 4, on November 19,
2018, we announced our intent to spin off our Automotive business into an independent publicly traded company through a pro rata distribution to our
common stockholders. On August 5, 2019, we further announced our plans to brand the Automotive spin-off as Cerence and the spin-off was completed on
October 1, 2019.
The Other segment includes our SRS and Devices businesses. Our SRS business provides value-added services to mobile operators in India and Brazil
(“Mobile Operator Services”) and voicemail transcription services to mobile operators in the rest of the world (“Voicemail-to-Text”). Our Devices business
provides speech recognition solutions and predictive text technologies for handset devices. Our Devices revenue has been declining due to the ongoing
consolidation of our handset manufacturer customer base and continued erosion of our penetration of the remaining market. During the fourth quarter of fiscal
2018, in connection with our comprehensive portfolio and business review efforts, we commenced a wind-down of our Devices and Mobile Operator Services
businesses. In May 2019, we completed the sale of our Mobile Operator Services business in Brazil, and in July 2019, we completed the sale of our Mobile
Operator Services business in India. The sale prices and any gain or loss were immaterial to our consolidated financial statement.
As more fully described in Note 4, effective the first quarter of fiscal year 2019, the results of our Imaging segment, previously a reportable segment, have been
included within discontinued operations due to the completion of the sale of Imaging on February 1, 2019. As a result, effective the first quarter of fiscal year 2019,
we changed our corporate overhead allocation methodology to re-allocate the stranded costs related to our Imaging business to the remaining operating segments
included within continuing operations. Stranded costs of $7.0 million for fiscal year 2019, $7.8 million for fiscal year 2018, and $7.1 million for fiscal year 2017
have been included within total segment profits and re-allocated to Healthcare, Enterprise, Automotive, and Other.
95
Table of Contents
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As we do not track our assets by operating segment, we do not include total assets or depreciation expenses by operating segment. The following table presents
segment results along with a reconciliation of segment profits to (loss) income before income taxes (dollars in thousands):
Segment revenues:
Healthcare
Enterprise
Automotive
Other
Total segment revenues
Acquisition related revenue adjustments (a)
Total consolidated revenue
Segment profit:
Healthcare
Enterprise
Automotive
Other
Total segment profit
Corporate expenses and other, net
Acquisition-related revenues and costs of revenues adjustment
Stock-based compensation
Amortization of intangible assets
Acquisition-related costs, net
Restructuring and other charges, net
Impairment of goodwill and other intangible assets
Other expenses, net
Income (loss) before income taxes
Year Ended September 30,
2019
2018
2017
(ASC 606)
(ASC 605)
(ASC 605)
$
950,593 $
984,819 $
510,753
306,580
61,461
1,829,387
(6,295)
1,823,092
337,471
141,479
110,559
23,413
612,922
(139,806)
(6,295)
(141,212)
(103,563)
(8,909)
(80,465)
—
(106,928)
483,194
279,402
109,064
1,856,479
(14,181)
1,842,298
326,658
140,478
109,111
28,013
604,260
(195,704)
(14,181)
(142,909)
(124,883)
(16,093)
(57,026)
(170,941)
(129,747)
$
25,744 $
(247,224) $
899,341
474,317
252,218
133,766
1,759,642
(31,467)
1,728,175
257,825
133,913
118,248
41,186
551,172
(121,935)
(31,467)
(142,901)
(150,731)
(27,708)
(59,923)
—
(171,177)
(154,670)
(a) Segment revenues differ from reported revenues due to certain revenue adjustments related to acquisitions that would otherwise have been recognized but for the purchase
accounting treatment of the business combinations. These revenues are included to allow for more complete comparisons to the financial results of historical operations and
in evaluating management performance.
No country outside of the United States provided greater than 10% of our total revenue. Revenue, classified by the major geographic areas in which our customers
are located, was as follows (dollars in thousands):
United States
International
Total
Year Ended September 30,
2019
1,367,752 $
455,340
2018
1,374,877 $
467,421
1,823,092 $
1,842,298 $
2017
1,244,900
483,275
1,728,175
$
$
No country outside of the United States held greater than 10% of our long-lived or total assets. Our long-lived assets from continuing operations, including
intangible assets and goodwill, were located as follows (dollars in thousands):
United States
International
Total
September 30,
2019
3,279,186 $
831,394
4,110,580 $
$
$
September 30,
2018
3,031,714
982,537
4,014,251
96
Table of Contents
23. Automotive Spin-Off
NUANCE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On October 1, 2019, we completed the previously announced complete legal and structural separation and distribution to our stockholders of all of the outstanding
shares of Cerence, in a tax free spin-off (the"Spin-Off"). The distribution was made in the amount of one share of Cerence common stock for every eight shares of
Nuance common stock owned by Nuance’s stockholders of record as of 5:00 p.m. Eastern Time on September 17, 2019.
In connection with the Spin-Off, on September 30, 2019, we sold 1.8% of our equity interest in Cerence to a non-affiliated third party for a total cash consideration
of $9.8 million. The difference between the consideration received and the carrying amount of the non-controlling interest was recognized in additional paid-in
capital. The remaining 98.2%, or 35,740,709 shares of Cerence common stock held by us were distributed to our stockholders upon the completion of the spin-off.
Additionally, on October 1, 2019, prior to the consummation of the Spin-Off, Cerence entered into senior secured credit facilities (the “Senior Facilities”), which
consisted of a $270.0 million aggregate principal amount senior secured term loan, of which approximately $153 million of the net proceeds were transferred to us,
and a $75.0 million senior secured revolving credit facility, of which nothing was drawn at the time of the Spin-Off. We do not have any obligations under the
Senior Facilities subsequent to the Spin-Off. Additionally, on October 1, 2019, pursuant to the redemption notice issued on August 30, 2019, we redeemed all the
$300.0 million outstanding principal amount of the 2024 Senior Notes for $313.5 million, plus accrued and unpaid interest of $4.5 million. As a result of the
redemption, we will record a $15.0 million loss on extinguishment of debt for the first quarter of fiscal year 2020, including a $13.5 million redemption premium
and a $1.5 million write-off of unamortized debt issuance costs.
24. Quarterly Data (Unaudited)
The following information has been derived from unaudited consolidated financial statements that, in the opinion of management, include all recurring adjustments
necessary for a fair statement of such information (dollars in thousands, except per share amounts):
2019
Total revenue
Gross profit
Net income (loss) from continuing operations
Net income (loss) per share - continuing operations:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
2018
Total revenue
Gross profit
Net income (loss) from continuing operations
Net income (loss) per share - continuing operations:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
$
$
$
$
$
$
$
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal Year
493,654 $
409,583 $
449,197 $
470,658 $
1,823,092
280,216 $
227,992 $
258,506 $
276,459 $
1,043,173
17,699 $
(20,749) $
9,259 $
108,129 $
114,338
0.06 $
0.06 $
(0.07) $
(0.07) $
0.03 $
0.03 $
0.38 $
0.37 $
0.40
0.39
287,796
292,359
285,866
285,866
285,942
288,648
285,754
291,598
286,347
290,125
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal Year
447,224 $
466,193 $
449,449 $
479,432 $
1,842,298
238,986 $
249,173 $
248,118 $
280,634 $
1,016,911
47,465 $
(167,141) $
(20,720) $
(44,508) $
(184,904)
0.16 $
0.16 $
(0.57) $
(0.57) $
(0.07) $
(0.07) $
(0.16) $
(0.16) $
(0.63)
(0.63)
291,367
295,995
294,103
294,103
292,663
292,663
287,052
287,052
291,318
291,318
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
97
Table of Contents
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and
procedures. Our disclosure controls and procedures are designed (i) to ensure that information required to be disclosed by us in the reports that we file or submit
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed and summarized and reported within the time periods
specified in the SEC’s rules and forms and (ii) to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2019, our disclosure
controls and procedures were effective.
Management Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. Our internal control over financial
reporting includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and,
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and that the degree of compliance with
the policies or procedures may deteriorate.
Management has assessed the effectiveness of our internal control over financial reporting as of September 30, 2019, utilizing the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the 2013 Internal Control-Integrated Framework. Based on the results of this
assessment, management (including our Chief Executive Officer and our Chief Financial Officer) has concluded that, as of September 30, 2019, our internal
control over financial reporting was effective.
The attestation report concerning the effectiveness of our internal control over financial reporting as of September 30, 2019 issued by BDO USA, LLP, an
independent registered public accounting firm, appears in Item 8 of this Annual Report on Form 10-K.
Changes in Internal Controls Over Financial Reporting
There have been no material changes in our internal controls over financial reporting during the fourth quarter of fiscal 2019 that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B. Other Information
None
Certain information required by Part III is omitted from this Annual Report on Form 10-K since we intend to file our definitive Proxy Statement for our next
Annual Meeting of Stockholders, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended (the “Proxy Statement”), within 120 days of the
end of the fiscal year covered by this report, and certain information to be included in the Proxy Statement is incorporated herein by reference.
PART III
98
Table of Contents
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item concerning our directors is incorporated by reference to the information set forth in the section titled “Election of Directors”
in our Proxy Statement. Information required by this item concerning our executive officers is incorporated by reference to the information set forth in the section
entitled “Executive Compensation, Management and Other Information” in our Proxy Statement. Information regarding Section 16 reporting compliance is
incorporated by reference to the information set forth in the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement.
Our Board of Directors adopted a Code of Business Conduct and Ethics for all of our directors, officers and employees effective on November 25, 2019. Our Code
of Business Conduct and Ethics, as well as any amendments thereto, can be found at our website: www.nuance.com. We will provide to any person without charge,
upon request, a copy of our Code of Business Conduct and Ethics. Such a request should be made in writing and addressed to Investor Relations, Nuance
Communications, Inc., 1 Wayside Road, Burlington, MA 01803.
To date, there have been no waivers under our Code of Business Conduct and Ethics. We will post any waivers, if and when granted, of our Code of Business
Conduct and Ethics on our website at www.nuance.com.
Item 11. Executive Compensation
The information required by this item regarding executive compensation is incorporated by reference to the information set forth in the section titled “Executive
Compensation, Management and Other Information” in our Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference to the information
set forth in the sections titled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our Proxy
Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
It is the policy of the Board that all transactions required to be reported pursuant to Item 404 of Regulation S-K be subject to approval by the Audit Committee of
the Board. In furtherance of relevant Nasdaq rules and our commitment to corporate governance, the charter of the Audit Committee provides that the Audit
Committee shall review and approve any proposed related party transactions including, transactions required to be reported pursuant to Item 404 of Regulation S-K
for potential conflict of interest situations. The Audit Committee reviews the material facts of all transactions that require the committee’s approval and either
approves or disapproves of the transaction. In determining whether to approve a transaction, the Audit Committee will take into account, among other factors it
deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar
circumstances.
The additional information required by this item regarding certain relationships and related party transactions is incorporated by reference to the information set
forth in the sections titled “Transactions with Related Persons” and “Corporate Governance-Board Independence” in our Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required by this section is incorporated by reference from the information in the section entitled “Ratification of Appointment of Independent
Registered Public Accounting Firm” in our Proxy Statement.
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as a part of this Report:
(1) Financial Statements — See Index to Financial Statements in Item 8 of this Report.
PART IV
(2) Financial Statement Schedules — All schedules have been omitted as the requested information is inapplicable or the information is presented in the
financial statements or related notes included as part of this Report.
(3) Exhibits — See Item 15(b) of this Report below.
99
Table of Contents
(b) Exhibits.
EXHIBIT INDEX
Exhibit
Index #
2.1
3.1
3.2
Exhibit Description
Separation and Distribution Agreement, dated as of September 30,
2019, between Nuance Communications, Inc. and Cerence Inc.
Amended and Restated Certificate of Incorporation of the
Registrant.
Certificate of Amendment of the Amended and Restated Certificate
of Incorporation of the Registrant.
3.3
Certificate of Ownership and Merger.
3.4
3.5
3.6
4.1
4.2
4.3
4.4
4.5
Certificate of Amendment of the Amended and Restated Certificate
of Incorporation of the Registrant, as amended.
Certificate of Designation of Rights, Preferences and Privileges of
Series A Participating Preferred Stock.
Amended and Restated Bylaws of the Registrant.
Specimen Common Stock Certificate.
Indenture, dated as of October 24, 2011, between Nuance
Communications, Inc. and U.S. Bank National Association as
Trustee relating to 2.75% Senior Convertible Debentures due 2031.
Indenture, dated June 16, 2015, between Nuance Communications,
Inc., and U.S. Bank National Association as Trustee, relating to
1.50% Senior Convertible Debentures due 2035
Indenture, dated December 7, 2015, between Nuance
Communications, Inc., and U.S. Bank National Association as
Trustee, relating to 1.00% Senior Convertible Debentures due 2035.
Description of Registrant’s Securities Registered Pursuant to
Section 12 of the Securities Exchange Act.
10.1 Form of Indemnification Agreement.*
10.2
10.3
10.4
10.5
Nuance Communications, Inc. 2000 Stock Plan (as amended and
restated January 17, 2019).*
Form of Restricted Stock Purchase Agreement for use under
Nuance Communications, Inc. 2000 Stock Plan (time-vesting
awards).*
Form of Restricted Stock Unit Purchase Agreement for use under
Nuance Communications, Inc. 2000 Stock Plan (performance-based
awards).*
Amended and Restated 1995 Directors Stock Plan (as amended and
restated June 25, 2018).*
Incorporated by Reference
Form
File No.
Exhibit
Filing Date
Filed Herewith
8-K
001-36056
10-Q
0-27038
10-Q
0-27038
8-K
0-27038
S-3
8-K
333-142182
0-27038
8-K
8-A
001-36056
0-27038
8-K
0-27038
2.1
3.2
3.1
3.1
3.3
3.2
3.1
4.1
4.1
10/2/2019
5/11/2001
8/9/2004
10/19/2005
4/18/2007
8/20/2013
11/7/2019
12/6/1995
10/24/2011
8-K
001-36056
4.1
6/22/2015
8-K
001-36056
4.1
12/7/2015
10-Q
001-36056
8-K
001-36056
10.1
10.1
5/9/2019
1/17/2019
X
X
X
10.6 Form of Executive Officer Employment Offer Letter.*
10-K
001-36056
10.7
Form of Change of Control and Severance Agreement for
Executive Officers.*
10-Q
001-36056
100
10-Q
001-36056
10.3
10.9
10.2
8/9/2018
11/22/2016
8/9/2018
Table of Contents
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
Revolving Credit Agreement, dated April 15, 2016, among Nuance
Communications, Inc., the lenders party thereto and Barclays Bank
PLC, as Administrative Agent.
Amendment No. 1, dated as of October 4, 2016, to the Revolving
Credit Agreement, dated April 15, 2016, among Nuance
Communications, Inc., the lender’s party thereto, Barclays Bank
PLC, as Administrative Agent, and the other parties named therein.
Amendment No. 2, dated as of September 12, 2019, to the
Revolving Credit Agreement, dated April 15, 2016, among Nuance
Communications, Inc., the lender’s party thereto, Barclays Bank
PLC, as Administrative Agent, and the other parties named therein.
Guarantee and Collateral Agreement, dated April 15, 2016, among
Nuance Communications, Inc., certain Nuance subsidiaries and
Barclays Bank PLC, as Administrative Agent.
Change of Control and Severance Agreement between Nuance
Communications, Inc. and Daniel Tempesta, dated August 8,
2018.*
Employment Agreement between Nuance Communications, Inc.
and Mark D. Benjamin, dated March 19, 2018.*
Tax Matters Agreement, dated as of September 30, 2019, between
Nuance Communications, Inc. and Cerence Inc.
Transition Services Agreement, dated as of September 30, 2019,
between Nuance Communications, Inc. and Cerence Inc.
Employee Matters Agreement, dated as of September 30, 2019,
between Nuance Communications, Inc. and Cerence Inc.
Intellectual Property Agreement, dated as of September 30, 2019,
between Nuance Communications, Inc. and Cerence Inc.
Transitional Trademark License Agreement, dated as of September
30, 2019, between Nuance Communications, Inc. and Cerence Inc.
21.1 Subsidiaries of the Registrant.
23.1 Consent of BDO USA, LLP.
24.1 Power of Attorney. (See Signature Page).
31.1
31.2
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
or 15d-14(a).
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
or 15d-14(a).
32.1 Certification Pursuant to 18 U.S.C. Section 1350.
Incorporated by Reference
Filed Herewith
8-K
001-36056
10.1
4/19/2016
8-K
001-36056
10.1
9/13/2019
8-K
001-36056
10.2
4/19/2016
10-K
001-36056
10.16
11/20/2018
8-K
8-K
8-K
8-K
8-K
8-K
001-36056
001-36056
001-36056
001-36056
001-36056
001-36056
10.1
10.1
10.2
10.3
10.4
10.5
3/22/2018
10/2/2019
10/2/2019
10/2/2019
10/2/2019
10/2/2019
101
X
X
X
X
X
X
X
Incorporated by Reference
Filed Herewith
Table of Contents
101
The following materials from Nuance Communications, Inc.’s
Annual Report on Form 10-K for the fiscal year ended September
30, 2019, formatted in iXBRL (Inline Extensible Business Reporting
Language): (i) the Consolidated Statements of Operations, (ii) the
Consolidated Statements of Comprehensive Loss, (iii) the
Consolidated Balance Sheets, (iv) the Consolidated Statements of
Cash Flows, and (v) Notes to Unaudited Consolidated Financial
Statements.
104
The cover page of this Annual Report on Form 10-K for the year
ended September 30, 2019, formatted in Inline XBRL.
*
Denotes management compensation plan or arrangement
102
Table of Contents
Item 16. Form 10-K Summary
Not applicable.
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
NUANCE COMMUNICATIONS, INC.
By:
/s/ Mark Benjamin
Mark Benjamin
Chief Executive Officer
Table of Contents
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Mark Benjamin and Daniel D.
Tempesta, and each of them acting individually, as his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the
same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and
purposes as he or she might or could do in person, and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in the capacities
and on the dates indicated.
Table of Contents
Date: 11/26/2019
Date: 11/26/2019
Date: 11/26/2019
Date: 11/26/2019
Date: 11/26/2019
Date: 11/26/2019
Date: 11/26/2019
Date: 11/26/2019
Date: 11/26/2019
Date: 11/26/2019
Date: 11/26/2019
/s/ Mark Benjamin
Mark Benjamin, Chief Executive Officer
(Principal Executive Officer)
/s/ Daniel D. Tempesta
Daniel D. Tempesta
Executive Vice President and Chief Financial Officer (Principal Financial
Officer)
/s/ Arthur Giterman
Arthur Giterman
Senior Vice President, Chief Accounting Officer and Corporate Controller
(Principal Accounting Officer)
/s/ Daniel J. Brennan
Daniel J. Brennan, Director
/s/ Lloyd A. Carney
Lloyd A. Carney, Chairman of the Board
/s/ Thomas D. Ebling
Thomas D. Ebling, Director
/s/ Robert J. Finocchio
Robert J, Finocchio, Jr., Director
/s/ Laura S. Kaiser
Laura S. Kaiser, Director
/s/ Michal Katz
Michal Katz, Director
/s/ Mark R. Laret
Mark R. Laret, Director
/s/ Sanjay N. Vaswani
Sanjay N. Vaswani, Director
Description of the Company’s Capital Stock
Exhibit 4.5
The following is a description of the authorized capital stock of Nuance Communications, Inc. (the “Company”). This summary is qualified by reference to the
actual provisions of the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Charter”), and Amended and Restated Bylaws (the
“Bylaws”), copies of which have been filed with the Securities and Exchange Commission, and to the provisions of the Delaware statutes described herein.
Common Stock
The Company’s authorized common stock consists of 560,000,000 shares of Common Stock, $0.001 par value per share (the “Common Stock”). The Common
Stock is registered under Section 12(b) of the Securities Exchange Act of 1934, as amended, and is listed for trading on the Nasdaq Global Select Market under the
trading symbol “NUAN”.
Holders of the Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. Holders of Common Stock are entitled
to receive ratably such dividends, if any, as may be declared by the Company’s Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of preferred stock that may be issued in the future.
In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior rights of preferred stock then outstanding, if any. Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions available to Common Stock. The rights, preferences, and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of holders of shares of the Preferred Stock, as discussed below.
Preferred Stock
The Company’s Board of Directors is authorized, subject to any limitations prescribed by law, without further stockholder approval, to issue from time to time up
to an aggregate of 40,000,000 shares of preferred stock, $0.001 par value (“Preferred Stock”), in one or more series.
No shares of Preferred Stock are outstanding.
The Charter currently designates two series of preferred stock: 1,000,000 shares as Series A Participating Preferred Stock and 15,000,000 shares as Series B
Preferred Stock.
The Series A Participating Preferred Stock, if issued, have no conversion or redemption rights and upon a liquidation would entitle holders to the greater of
$1,000.00 per share or an amount equal to the payment made on one share of the Common Stock. The holders of Series A Participating Preferred Stock are entitled
to cumulative dividends at the rate of the greater of (x) $1.00 per quarter per share and (y) 1,000 times the amount of all cash and 1,000 times the amount of all
non-cash dividends declared on the Common Stock since the prior dividend payment, payable when, and if declared by the Company’s Board of Directors. The
Series A Participating Preferred Stock ranks junior to all other series of Preferred Stock as to the payment of dividends and the distribution of assets.
The Series B Preferred Stock is convertible into shares of Common Stock on a one-for-one basis. The Series B Preferred Stock has a liquidation preference of
$1.30 per share plus all declared but unpaid dividends. The holders of Series B Preferred Stock are entitled to non-cumulative dividends at the rate of $0.05 per
annum per share, payable when, and if declared by the Company’s Board of Directors.
The undesignated shares of Preferred Stock will have rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be
determined by the Company’s Board of Directors upon issuance of the Preferred Stock. The Company’s right to issue shares of Preferred Stock may have the effect
of delaying, deferring or preventing a change in control of the Company without further action by the stockholders. Additionally, the issuance of Preferred Stock
may adversely affect the rights of the holders of Common Stock as follows:
• Dividends. Preferred Stock is entitled to receive dividends out of any legally available assets, when and if declared by the Company’s Board of
Directors and prior and in preference to any declaration or payment of any dividend on the Common Stock. In addition, after the first issuance of the
Series A Participating Preferred Stock, the Company cannot declare a dividend or make any distribution on the Common Stock unless the Company
concurrently declares a dividend on such Series A Participating Preferred Stock. Moreover, the Company cannot pay dividends or make any distribution
on the Common Stock as long as dividends payable to the Series A Participating Preferred Stock are in arrears. With respect to the Series B Preferred
Stock, the Company cannot declare a dividend or make any distribution on the Common Stock unless full dividends on the Series B Preferred Stock
have been paid or declared and the sum sufficient for the payment set apart.
• Voting Rights. Each share of Series A Participating Preferred Stock entitles its holder to 1,000 votes on all matters submitted to a vote of Company
stockholders. In addition, the Series A Participating Preferred Stock and the holders of Common Stock vote together as one class on all matters
submitted to a vote of our stockholders. The holders of Series B Preferred Stock are not entitled to vote on any matter (except as provided in Delaware
law in connection with amendments to the Charter that, among other things, would alter or change the rights and preferences of the class, in which case
each share of Series B Preferred Stock would be entitled to one vote). However, the Series B Preferred Stock is convertible into Common Stock, and as
a result, may dilute the voting power of the common stock.
• Liquidation, Dissolution or Winding Up. The Preferred Stock is entitled to certain liquidation preferences upon the occurrence of a liquidation,
dissolution or winding up of the Company. If there are insufficient assets or funds to permit this preferential amount, then the Company’s entire assets
and all of our funds legally available for distribution will be distributed ratably among the holders of Preferred Stock. The remaining assets, if any, will
be distributed to the holders of Common Stock on a pro rata basis.
• Preemptive Rights. The Series A Participating Preferred Stock and Series B Preferred Stock do not have any preemptive rights.
Anti-Takeover Provisions of Delaware Law and the Charter and Bylaws
Certain provisions of Delaware law and the Charter and Bylaws could make the acquisition of the Company by means of a tender offer, or the acquisition of
control of the Company by means of a proxy contest or otherwise more difficult. These provisions, summarized below, are intended to discourage certain types of
coercive takeover practices and inadequate takeover bids, and are designed to encourage persons seeking to acquire control of the Company to negotiate with the
Company’s Board of Directors. The Company believes that the benefits of increased protection against an unfriendly or unsolicited proposal to acquire or
restructure the Company outweigh the disadvantages of discouraging such proposals. Among other things, negotiation of such proposals could result in an
improvement of their terms.
Delaware Anti-Takeover Law. The Company is subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly-held Delaware corporation from engaging in a
“business combination” with an “interested stockholder” for a period of three years following the date the person became an interested stockholder, unless the
“business combination” or the transaction in which the person became an interested stockholder is approved by the Company’s Board of Directors in a prescribed
manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested
stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns or, within three years prior to the determination of
interested stockholder status, did own, 15% or more of a corporation’s voting stock. The existence of this provision may have an anti-takeover effect with respect
to transactions not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price for the
shares of common stock held by stockholders.
Other Provisions in the Charter and Bylaws. The Company’s Charter and Bylaws provide other mechanisms that may help to delay, defer or prevent a change in
control. For example, the Charter provides that stockholders may not take action by written consent without a meeting, but must take any action at a duly called
annual or special meeting. This provision makes it more difficult for stockholders to take action opposed by the Company’s Board of Directors.
The Charter does not provide for cumulative voting in the election of directors. Cumulative voting provides for a minority stockholder to vote a portion or all of its
shares for one or more candidates for seats on the board of directors. Without cumulative voting, a minority stockholder will not be able to gain as many seats on
the Company’s Board of Directors based on the number of shares of Common Stock that such stockholder holds than if cumulative voting were permitted. The
elimination of cumulative voting makes it more difficult for a minority stockholder to gain a seat on the Company’s Board of Directors to influence the Board of
Directors’ decision regarding a takeover.
Under the Charter, 24,000,000 shares of Preferred Stock remain undesignated. The authorization of undesignated Preferred Stock makes it possible for the Board
of Directors, without stockholder approval, to issue Preferred Stock with voting or other rights or preferences that could impede the success of any attempt to
obtain control of the Company.
The Bylaws contain advance notice procedures that apply to stockholder proposals and the nomination of candidates for election as directors by stockholders other
than nominations made pursuant to the notice given by the Company with respect to such meetings or nominations made by or at the direction of the Company’s
Board of Directors.
Lastly, the Bylaws do not provide for right of stockholders to act by written consent without a meeting.
These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of the Company.
Transfer Agent and Registrar
American Stock Transfer & Trust Company, LLC, is the transfer agent and registrar for the Common Stock.
NUANCE COMMUNICATIONS, INC.
2000 STOCK PLAN
(Amended and Restated January 17, 2019)
RESTRICTED STOCK UNIT AGREEMENT
(A) Name of Grantee:
(B) Number of Restricted Stock Units:
(C) Grant Date:
(D) Vesting Commencement Date:
(E) Award Number:
This Restricted Stock Unit Agreement, including any exhibit, appendix or addendum hereto (the “Agreement”), is made and
entered into as of the date set forth in Item C above between Nuance Communications, Inc., a Delaware corporation (the
“Company”) and the person named in Item A above (“Grantee”).
THE PARTIES AGREE AS FOLLOWS:
1. Restricted Stock Units. Pursuant to the Company’s 2000 Stock Plan, as amended from time to time (the “Plan”), a copy of
which is attached to this Agreement as Exhibit A, the Company hereby grants to Grantee the number of Restricted Stock Units
listed in Item B above on the terms and conditions set forth herein and in the Plan, the terms and conditions of the Plan being
hereby incorporated into this Agreement by reference. In the event of a conflict between the terms and conditions of the Plan and
the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail. Capitalized terms used and not
defined in this Agreement will have the meanings set forth in the Plan.
2. Company’s Obligation to Pay. Each Restricted Stock Unit represents the right to receive one share of Common Stock of the
Company, par value $0.001 (“Share”) after the Restricted Stock Unit has vested. Unless and until the Restricted Stock Units will
have vested in the manner set forth in Section 3, Grantee will have no right to receive the Shares subject to the Restricted Stock
Units. Prior to the actual issuance of any Shares subject to the Restricted Stock Units, such Restricted Stock Units will represent
an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.
3. Vesting. Except as provided in Section 4, and subject to Section 5, the Restricted Stock Units shall vest in accordance with the
provisions set forth on Exhibit B, subject to Grantee’s continuing to be an employee, director or consultant of the Company or of
an Affiliate (a “Service Provider”) through each vesting date. For the avoidance of doubt, Grantee would no longer be
considered a Service Provider if Grantee’s employer ceases to be controlled or majority-owned by the Company, in which case
the Restricted Stock Units will be forfeited unless otherwise determined by the Administrator, in its discretion.
4. Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion
of the balance, of the unvested Restricted Stock Units at any time, subject to the terms of the Plan. If so accelerated, such
Restricted Stock Units will be considered as having vested as of the date specified by the Administrator.
5. Forfeiture upon Termination as Service Provider. If Grantee terminates service as a Service Provider, for any or no reason,
prior to vesting, Grantee’s right to acquire Shares pursuant to such unvested Restricted Stock Units awarded by this Agreement
will immediately terminate.
6. Payment After Vesting. Any Restricted Stock Units that vest in accordance with Sections 3 or 4, or otherwise vest in accordance
with the terms of the Plan, will be settled by the Company issuing Shares to Grantee, subject to the provisions of Section 8
below. The settlement of vested Restricted Stock Units will be completed by the issuance of the appropriate number of Shares as
soon as practicable after vesting, but in each such case no later than the 15th day of the third month following the end of the
Company’s tax year that includes each applicable vesting date.
Any distribution or delivery to be made to Grantee under this Agreement will, if Grantee is then deceased, be made to
Grantee’s designated beneficiary (if Grantee is permitted to and designates a beneficiary under the Plan). If no beneficiary is
designated (including if the Company does not permit Grantee to make a beneficiary designation) or if the Company
determines, in its discretion, that the beneficiary designation is not valid or enforceable under any applicable laws or
regulations, or if no beneficiary survives Grantee, then such distribution or delivery will be made to the administrator or
executor of Grantee’s estate. Any such beneficiary, administrator or executor must furnish the Company with (a) written
notice of his or her status as a beneficiary, administrator or executor, and (b) evidence satisfactory to the Company to
establish the validity of the distribution or delivery to be made to such beneficiary, administrator or executor and compliance
with any laws or regulations pertaining thereto.
7. Rights as Stockholder. Neither Grantee nor any person claiming under or through Grantee will have any of the rights or
privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates
representing such Shares will have been issued, recorded on the records of the Company or its transfer agents or registrars, and
delivered to Grantee.
8. Taxes.
a. Responsibility for Taxes. Grantee acknowledges that, regardless of any action taken by the Company or, if different,
Grantee’s employer (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe
benefits tax, payment on account or other tax-related items related to Grantee’s participation in the Plan and legally
applicable to Grantee as a result of participation in the Plan (“Tax-Related
2
Items”) is and remains Grantee’s responsibility and may exceed the amount (if any) withheld by the Company or the
Employer. Grantee further acknowledges that Company and the Employer (i) make no representations or undertakings
regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, including,
but not limited to, the grant of the Restricted Stock Units, the vesting and settlement of the Restricted Stock Units, the
delivery of Shares, the subsequent sale of any Shares acquired at vesting / settlement and the receipt of any dividend
equivalents or dividends, if applicable; and (ii) do not commit to and are under no obligation to structure the terms of the
grant or any aspect of the Restricted Stock Units to reduce or eliminate Grantee’s liability for Tax-Related Items or
achieve any particular tax result. Further, if Grantee is subject to Tax-Related Items in more than once jurisdiction,
Grantee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to
withhold or account for Tax-Related Items in more than once jurisdiction.
b. Withholding. Prior to the relevant taxable or tax withholding event, as applicable, Grantee agrees to make arrangements
satisfactory to the Company to satisfy all Tax-Related Items. In this regard, Grantee authorizes the Company and/or the
Employer, or their respective agents, at their discretion, to satisfy their withholding obligations with regard to all Tax-
Related Items by one or a combination of the following:
i. withholding from Grantee’s wages or other cash compensation otherwise payable to Grantee by the Company
and/or the Employer; and/or
ii.
requiring Grantee to tender a payment in cash (or the cash equivalent) in an amount equal to the Tax-Related
Items to the Company or its designee; and/or
iii. withholding from the proceeds from the sale of Shares acquired upon settlement of the Restricted Stock Units,
either through a voluntary sale or through a mandatory sale arranged by the Company (on Grantee’s behalf
pursuant to this authorization without further consent); and/or
iv. withholding in Shares to be issued upon settlement of the Restricted Stock Units, provided, however, that if
Grantee is an officer of the Company within the meaning of Section 16 of the Exchange Act, the Company will
withhold in Shares to be issued upon settlement of the Restricted Stock Units, unless the use of such withholding
method is problematic under applicable tax or securities law or has materially adverse accounting consequences,
in which case, the Committee (as constituted to satisfy Rule 16b-3 of the Exchange Act) will determine which of
the other withholding methods set out in this Section 8(b) will be used; and/or
v. any other method determined by the Company and permitted under applicable laws.
3
Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering
applicable minimum statutory withholding rates or other applicable withholding rates, including applicable maximum
rates in Grantee’s jurisdiction, in which case Grantee may receive a refund of any over-withheld amount in cash and will
not be entitled to the equivalent amount in Shares. If the obligation for Tax-Related Items is satisfied by withholding in
Shares, for tax purposes, Grantee will be deemed to have been issued the full number of Shares subject to the vested
Restricted Stock Units, notwithstanding that a number of Shares that are held back solely for the purpose of paying the
Tax-Related Items.
The Company may refuse to deliver the Shares or the proceeds from the sale of the Shares if Grantee fails to comply with
Grantee’s obligations in connection with the Tax-Related Items as described in this section.
c. Section 409A. This Agreement and the Restricted Stock Units granted hereunder are intended to meet the “short-term
deferral” exception to the provisions of Section 409A of the Code and U.S. Department of Treasury regulations issued
thereunder or to otherwise comply with Section 409A of the Code and the U.S. Department of Treasury regulations and
guidance issued thereunder, to the extent applicable. Notwithstanding any provision of the Plan or this Agreement to the
contrary, this Agreement and the Restricted Stock Units granted hereunder shall be interpreted and construed consistent
with this intent. Notwithstanding the foregoing, the Company and its affiliates shall not be required to assume any
increased economic burden in connection therewith. Neither the Company or any of its Affiliates, nor any of their
respective directors, officers, managers, employees or advisers shall be liable to Grantee (or any other individual claiming
a benefit through Grantee) for any tax, interest, or penalties Grantee might owe as a result of this Agreement and the
Restricted Stock Units granted hereunder, or otherwise. Notwithstanding anything to the contrary in the Plan or this
Agreement, the Company reserves the right, but is not obligated, to revise this Agreement as it deems necessary or
advisable, in its sole discretion and without the consent of Grantee, to comply with Section 409 of the Code or to
otherwise avoid imposition of any additional tax or income recognition under Section 409A of the Code in connection
with this grant of Restricted Stock Units; provided, however, that the Company makes no representation that this
Agreement and the Restricted Stock Units granted hereunder will be exempt from, or will comply with, Section 409A of
the Code, and makes no undertakings to preclude Section 409A of the Code from applying to this Agreement and the
Restricted Stock Units granted hereunder or to ensure that it complies with Section 409A of the Code.
9. Assignment; Binding Effect. Subject to the limitations set forth in this Agreement, this Agreement shall be binding upon and
inure to the benefit of the executors, administrators, heirs, legal representatives, and successors of the parties hereto; provided,
however, that except to the limited extent that may be provided in Section 6, Grantee may not assign any of Grantee’s rights
under this Agreement.
4
10. Damages. Grantee shall be liable to the Company for all costs and damages, including incidental and consequential damages,
resulting from a disposition of the Restricted Stock Units which is not in conformity with the provisions of this Agreement.
11. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of
Massachusetts, U.S.A., without regard to conflict of laws principles.
12. Notices. Except as provided in Section 21, all notices and other communications under this Agreement shall be in writing. Unless
and until Grantee is notified in writing to the contrary, all notices, communications, and documents directed to the Company and
related to the Agreement, if not delivered by hand, shall be mailed, addressed as follows:
Nuance Communications, Inc.
1 Wayside Road
Burlington, MA 01803
Attention: HR Director
Except as provided in Section 21, all notices, communications, and documents intended for Grantee and related to this
Agreement, if not delivered by hand, shall be mailed to Grantee’s last known address as shown on the Company’s books.
Except as provided in Section 21, notices and communications shall be mailed by first class mail, postage prepaid; documents
shall be mailed by registered mail, return receipt requested, postage prepaid. All mailings and deliveries related to the
Agreement shall be deemed received when actually received, if by hand delivery, and two business days after mailing, if by
mail.
13. Arbitration. Any controversy, dispute, or claim arising out of or relating to this Agreement shall be finally settled and binding
arbitration administered by JAMS pursuant to its Employment Arbitration Rules and Procedures and subject to JAMS Policy on
Employment Arbitration Minimum Standards of Procedural Fairness. A copy of the current JAMS Employment Arbitration
Rules & Procedures are available from Human Resources upon request (including concurrently with your review and execution
of this Agreement), online in English and Spanish at http://www.jamsadr.com/rules-employment-arbitration/, or by calling
JAMS at 800.352.5267. If the JAMS rules are inconsistent with the terms of this Section 13, the terms of this Section shall
govern, unless prohibited by applicable law. Any arbitration shall be before a single arbitrator and shall be held in the jurisdiction
where Grantee works for the Company or an Affiliate or last worked for the Company or an Affiliate. Judgment on the
arbitrator’s award may be entered in any court having jurisdiction. Grantee expressly agrees to waive any right to pursue or
participate in any dispute on behalf of, or as part of, any class, representative or collective action, except to the extent such
waiver is expressly prohibited by law. Accordingly, to the extent permitted by law, no dispute by the parties hereto shall be
brought, heard or arbitrated as a class or collective action, and no party hereto shall serve as a member of any purported class,
representative or collective proceeding, including without limitation pending but not certified class actions. Both the Company
and Grantee agree that this Section 13 is enforceable under the Federal Arbitration Act, 9 U.S.C.
5
§ 1 et seq. (the “FAA”), and that if the FAA is found not to apply, then this Section 13 is enforceable under the laws of the state
in which Grantee is employed at the time Grantee receives this Agreement.
GRANTEE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT GRANTEE IS WAIVING ANY RIGHT GRANTEE MAY
OTHERWISE HAVE TO A JURY TRIAL FOR ANY DISPUTES ARISING OUT OF OR RELATING TO THIS AGREEMENT.
14. No Rights to Restricted Stock Units, Shares, or Employment. Other than with respect to the Restricted Stock Units granted
pursuant to, and subject to, this Agreement, neither Grantee nor any other person shall have any claim or right to be issued
Shares. Having received a grant of Restricted Stock Units under the Plan shall not give Grantee any right to receive any other
grant under the Plan. This grant of Restricted Stock Units is not an employment contract and nothing in this grant of Restricted
Stock Units shall be deemed to create in any way whatsoever any obligation on Grantee’s part to continue in the employ or
service of the Company or an Affiliate (as applicable) or the Company or an Affiliate (as applicable) to continue Grantee’s
employment or service relationship.
15. Entire Agreement; Modifications. The Company and Grantee agree that this Agreement is the complete and exclusive statement
between the Company and Grantee regarding its subject matter and supersedes all prior proposals, communications, and
agreements of the parties, whether oral or written, regarding the grant Restricted Stock Units to Grantee. Grantee expressly
warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than
those contained herein. Modifications to this Agreement or the Plan can be made only in an express written contract executed by
a duly authorized officer of the Company. This grant of Restricted Stock Units and any Shares subject to the Restricted Stock
Units, and the income from and value of same, are not part of normal or expected compensation for any purpose, including, but
not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service
awards, holiday pay, pension or retirement or welfare benefits or similar mandatory payments.
16. Additional Conditions to Issuance of Shares. If at any time the Company will determine, in its discretion, that the listing,
registration or qualification of the Shares upon any securities exchange or under any law (including any U.S. federal or state or
any non-U.S. law), or the consent or approval of any governmental regulatory authority is necessary or desirable as a condition
to the issuance of Shares to Grantee, such issuance will not occur unless and until such listing, registration, qualification, consent
or approval will have been effected or obtained free of any conditions not acceptable to the Company.
17. Administrator Authority. The Administrator will have the power to interpret the Plan and this Agreement and to adopt such rules
for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such
rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions
taken and all interpretations and determinations made by the
6
Administrator in good faith will be final and binding upon Grantee, the Company and all other interested persons. No member of
the Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the
Plan or this Agreement.
18. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of
this Agreement.
19. Agreement Severable. In the event that any provision in this Agreement will be held invalid or unenforceable, such provision
will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining
provisions of this Agreement.
20. Language. Grantee acknowledges and represents that Grantee is sufficiently proficient in the English language or has consulted
with an advisor who is sufficiently proficient in English as to allow Grantee to understand the terms and conditions of this
Agreement and any other documents related to the Plan. If Grantee has received this Agreement or any other document related to
the Plan translated into a language other than English and if the meaning of the translated version is different from the English
version, the English version will control.
21. Electronic Delivery and Participation. The Company may, in its sole discretion, deliver any documents related to this
Agreement or to participation in the Plan or to future awards that may be granted under the Plan by electronic means or to
request Grantee’s consent to participate in the Plan by electronic means. Grantee hereby consents to receive such documents by
electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the
Company or a third party designated by the Company.
22. Insider Trading Restrictions/Market Abuse Laws. Grantee acknowledges that he or she may be subject to insider trading
restrictions and/or market abuse laws in applicable jurisdictions including, but not limited to, the United States and Grantee’s
country of residence, which may affect Grantee’s ability to directly or indirectly acquire, sell or attempt to sell Shares or rights to
Shares (e.g., Restricted Stock Units) under the Plan during such times as Grantee is considered to have “insider information”
regarding the Company (as defined by the laws in the applicable jurisdictions). Any restrictions under these laws or regulations
are separate from and in addition to any restrictions that may be imposed under any applicable insider trading policy of the
Company. Grantee is responsible for ensuring compliance with any applicable restrictions and should consult his or her personal
legal advisor on this matter.
23. Non-U.S. and Country-Specific Provisions. The Restricted Stock Units and any Shares subject to the Restricted Stock Units
shall be subject to any special terms and conditions set forth in Exhibit C to this Agreement. Moreover, if Grantee relocates to
one of the countries included in Exhibit C, the special terms and conditions for such country will apply to Grantee, to the extent
the Company determines that the application of such terms and
7
conditions is necessary or advisable for legal or administrative purposes. Exhibit C constitutes part of this Agreement.
24. Imposition of Other Requirements. The Company reserves the right to impose other requirements on Grantee’s participation in
the Plan, on the Restricted Stock Units and on any Shares subject to the Restricted Stock Units, to the extent the Company
determines it is necessary or advisable for legal or administrative reasons, and to require Grantee to sign any additional
agreements or undertakings that may be necessary to accomplish the foregoing.
25. Waiver. Grantee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or
be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by Grantee or any other grantee.
8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date below.
Nuance Communications, Inc.
By: Mark Benjamin, Chief Executive Officer
By signing below or accepting the Restricted Stock Units through the Company’s electronic acceptance procedure, Grantee
hereby accepts and agrees to be bound by all of the terms and conditions of this Agreement and the Plan.
Grantee
Date
9
EXHIBITS
Exhibit A
Exhibit B
Exhibit C
2000 Stock Plan (as Amended and Restated January 17, 2019)
Vesting Schedule
Non-U.S. and Country-Specific Provisions
10
EXHIBIT A
2000 Stock Plan (as Amended and Restated January 17, 2019)
11
EXHIBIT B
Vesting Schedule
12
EXHIBIT C
NUANCE COMMUNICATIONS, INC.
2000 STOCK PLAN
(Amended and Restated January 17, 2019)
RESTRICTED STOCK UNIT AGREEMENT
NON-U.S. AND COUNTRY-SPECIFIC PROVISIONS
Terms and Conditions
This Exhibit C includes special terms and conditions applicable to Grantee if Grantee resides outside the U.S. and, as applicable, in
one of the countries listed below. These terms and conditions supplement or replace (as indicated) the terms and conditions set forth
in the Restricted Stock Unit Agreement to which it is attached. Capitalized terms used and not defined in this Exhibit C will have the
meanings set forth in the Restricted Stock Unit Agreement or the Plan, as applicable.
Notifications
This Exhibit C also includes information regarding exchange controls and certain other issues of which Grantee should be aware
with respect to his or her participation in the Plan. The information is based on the exchange control, securities and other laws in
effect in the respective countries as of June 2019. Such laws are often complex and change frequently. In addition, other laws and
regulations generally applicable to the acquisition, holding or disposal of securities and financial instruments as well as cross-border
fund transfers may apply to Grantee. As a result, Grantee should not rely on the information noted herein as the only source of
information relating to the consequences of Grantee’s participation in the Plan because the information may be out of date at the
time the Restricted Stock Units vest or Grantee receives or sells Shares.
In addition, the information in this Exhibit C is general in nature and may not apply to Grantee’s particular situation. The Company
is not in a position to assure Grantee of any particular result. Accordingly, Grantee should seek appropriate professional advice as to
how the relevant laws in Grantee’s country apply to Grantee’s situation.
* * * * *
If Grantee is a citizen or resident of a country other than the one in which Grantee is currently residing and/or working, transfers
employment and/or residency after the Grant Date, or is considered a resident of another country for local law purposes, the terms
and conditions and information contained herein may not be applicable to Grantee. The Company shall, in its sole discretion,
determine to what extent the terms and conditions herein shall apply to Grantee in such a case.
13
Terms and Conditions for all Non-U.S. Grantees
Nature of Grant. By accepting the grant of Restricted Stock Units, Grantee acknowledges, understands and agrees that:
(a) the Plan is established voluntarily by the Company, is discretionary in nature and may be amended, suspended or
terminated by the Company at any time to the extent permitted in the Plan;
(b) the grant of Restricted Stock Units is exceptional, voluntary and occasional and does not create any contractual or other
right to receive future grants of restricted stock units, or benefits in lieu of restricted stock units, even if restricted stock units have
been awarded in the past;
(c) all decisions with respect to future grants of restricted stock units, if any, will be at the sole discretion of the Company;
(d) Grantee is voluntarily participating in the Plan;
(e) the grant of Restricted Stock Units and any Shares subject to the Restricted Stock Units, and the income from and value
of same, are not intended to replace any pension rights or compensation;
(f) unless otherwise agreed with the Company, the Restricted Stock Units and the Shares subject to the Restricted Stock
Units, and the income from and value of same, are not granted as consideration for, or in connection with, any service Grantee may
provide as a director of an Affiliate;
(g) the future value of the Shares underlying the Restricted Stock Units is unknown, indeterminable and cannot be
predicted with certainty;
(h) no claim or entitlement to compensation or damages shall arise from forfeiture of the Restricted Stock Units resulting
from Grantee’s termination as a Service Provider (for any reason whatsoever and whether or not later found to be invalid or in
breach of employment laws in the jurisdiction where Grantee is employed or the terms of Grantee’s employment agreement, if any);
(i) for purposes of the Restricted Stock Units, Grantee’s status as a Service Provider will be considered terminated as of the
date Grantee is no longer actively providing services to the Company or one of its Affiliates (regardless of the reason for such
termination and whether or not later to be found invalid or in breach of employment laws in the jurisdiction where Grantee is
employed or the terms of Grantee’s employment agreement, if any) and, unless otherwise expressly provided in the Agreement or
determined by the Company,
14
Grantee’s right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of such date and will not be extended by
any notice period (e.g., Grantee’s period of service would not include any contractual notice period or any period of “garden leave”
or similar period mandated under employment laws in the jurisdiction where Grantee is employed or the terms of Grantee’s
employment agreement, if any); the Administrator shall have the exclusive discretion to determine when Grantee is no longer
actively providing services for purposes of the Restricted Stock Units, and
(j) neither the Company, the Employer nor any Affiliate shall be liable for any exchange rate fluctuation between Grantee’s
local currency and the United States Dollar that may affect the value of the Restricted Stock Units or of any amounts due to Grantee
pursuant to the vesting and settlement of the Restricted Stock Units or the subsequent sale of any Shares acquired upon settlement.
No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any
recommendations regarding Grantee’s participation in the Plan or sale of the Shares acquired upon vesting and settlement of the
Restricted Stock Units. Grantee should consult with his or her own personal tax, legal and financial advisors regarding his or her
participation in the Plan before taking any action related to the Plan.
Data Privacy.
If Grantee would like to participate in the Plan, Grantee will need to review the information provided in this Data Privacy section
and, where applicable, declare Grantee’s consent to the processing and/or transfer of personal data as described below.
(a) EEA+ Controller and Representative. If Grantee is based in the European Union (“EU”), the European Economic
Area, Switzerland or, if and when the United Kingdom leaves the European Union, the United Kingdom (collectively “EEA+”),
Grantee should note that the Company, with its registered address at 1 Wayside Road Burlington, MA 01803, United States of
America, is the controller responsible for the processing of Grantee’s personal data in connection with the Agreement and the
Plan. The Company’s representative in the EU is Nuance Communications Ireland, Ltd, 20 Merrion Road, Ballsbridge, Dublin
4, Ireland.
(b) Data Collection and Usage. The Company collects, uses and otherwise processes certain personal data about
Grantee, including, but not limited to, Grantee’s name, home address and telephone number, email address, date of birth, social
insurance number, passport or other identification number (e.g., resident registration number), salary, nationality, job title, any
shares of stock or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to shares of
stock awarded, canceled, exercised, vested, unvested or outstanding in Grantee’s favor, which the Company receives from
Grantee, Grantee’s Employer or otherwise in connection with this Agreement or the Plan (“Data”), for the purposes of
implementing, administering and managing the Plan and allocating Shares pursuant to the Plan.
15
If Grantee is based in the EEA+, the legal basis, where required, for the processing of Data by the Company is the necessity of
the data processing for the Company to (i) perform its contractual obligations under this Agreement, (ii) comply with legal
obligations established in the EEA+, or (iii) pursue the legitimate interest of complying with legal obligations established outside
of the EEA+.
If Grantee is based outside of the EEA+, the legal basis, where required, for the processing of Data by the Company is Grantee’s
consent, as further described below.
(c) Stock Plan Administration Service Providers. The Company transfers Data to E*TRADE Corporate Financial
Services, Inc., and E*TRADE Securities LLC (collectively, “E*TRADE”), an independent service provider, which is assisting the
Company with the implementation, administration and management of the Plan. In the future, the Company may select a
different service provider and share Data with such other provider serving in a similar manner. E*TRADE will open an account
for Grantee to receive and trade Shares acquired under the Plan. Grantee may be asked to agree on separate terms and data
processing practices with E*TRADE, with such agreement being a condition to the ability to participate in the Plan.
(d) International Data Transfers. In the event Grantee resides, works or is otherwise located outside of the U.S., Data
will be transferred from Grantee’s country to the U.S., where the Company and its service providers are based. Grantee
understands and acknowledges that the U.S. might not provide a level of protection of personal data equivalent to the level of
protection in Grantee’s country. The U.S. is subject to adequacy decisions by the European Commission and Switzerland
acknowledging that the U.S. provides an adequate level of protection for personal data transferred to organizations in the United
States that have self-certified under the EU/U.S. and Swiss/U.S. Privacy Shield Frameworks.
The Company is self-certified under the EU/U.S. and Swiss/U.S. Privacy Shield Frameworks. If Grantee is based in the
EEA+, Data will be transferred from the EEA+ to the Company and onward from the Company to E*TRADE or, as the case may
be, a different service provider of the Company in the U.S. based on the Company’s self‑‑certification under EU/U.S. Privacy
Shield Framework or the Swiss/U.S. Privacy Shield Framework.
If Grantee is based outside of the EEA+, the Company’s legal basis, where required, for the transfer of Data from
Grantee’s country to the Company and from the Company onward to E*TRADE or, as the case may be, a different service
provider of the Company is Grantee’s consent, as further described below.
(e) Data Retention. The Company will hold and use the Data only as long as is necessary to implement, administer and
manage Grantee’s participation in the Plan, or as
16
required to comply with legal or regulatory obligations, including under tax and security laws.
(f) Data Subject Rights. Grantee may have a number of rights under data privacy laws in his or her jurisdiction.
Depending on where Grantee is based and subject to the conditions set out in applicable law, such rights may include the right to
request from the Company access to and rectification, erasure or portability of Data, to restrict or object to the processing of
Data, lodge a complaint with a supervisory authority and/or to receive a list with the names and addresses of any potential
recipients of Data. To receive additional information regarding these rights or to exercise these rights, Grantee can contact the
Company’s data privacy team at privacy@nuance.com.
(g) Necessary Disclosure of Data. Grantee understands that providing the Company with Data is necessary for the
performance of the Agreement and that Grantee’s refusal to provide Data would make it impossible for the Company to perform
its contractual obligations and may affect Grantee’s ability to participate in the Plan.
(h) Voluntariness and Consequences of Consent Denial or Withdrawal. Participation in the Plan is voluntary and
Grantee is providing any consents referred to herein on a purely voluntary basis. Grantee understands that he or she may
withdraw any such consent at any time with future effect for any or no reason. If Grantee does not consent, or if Grantee later
seeks to withdraw Grantee’s consent, Grantee’s salary from or employment and career with the Employer will not be affected;
the only consequence of refusing or withdrawing Grantee’s consent is that the Company would not be able to grant the Restricted
Stock Units or other awards to Grantee or administer or maintain the Restricted Stock Units. For more information on the
consequences of refusal to consent or withdrawal of consent, Grantee should contact the Company’s data privacy team at
privacy@nuance.com.
Declaration of Consent. If Grantee is based outside of the EEA+, by accepting the Restricted Stock Units and indicating consent
via the Company’s online acceptance procedure, Grantee explicitly declares his or her consent to the entirety of the Data
processing operations described in this “Data Privacy” Section including, without limitation, the onward transfer of Data by the
Company to E*TRADE or, as the case may be, a different service provider of the Company in the U.S.
Arbitration. This provision replaces Section 13 of the Agreement:
Any dispute arising under this Agreement shall be resolved by binding and non-appealable arbitration under the rules of the
International Centre for Dispute Resolution (“ICDR”). The arbitration shall be conducted by a single arbitrator chosen by the parties
or, if the parties cannot agree upon a single arbitrator within thirty (30) days, then by a single arbitrator appointed by the ICDR. The
arbitration shall take place in Middlesex County, Massachusetts,
17
U.S.A. and shall be conducted in the English language. All costs and expenses of the arbitrator and of the arbitral institution shall be
borne by the parties equally. Each party shall bear its own costs, fees, and expenses (including of its own counsel, experts and
witnesses) in preparing and presenting its case.
Foreign Asset/Account, Exchange Control, and Tax Reporting. Depending on Grantee’s country, Grantee may be subject to foreign
asset/account, exchange control and/or tax reporting requirements as a result of the vesting and settlement of the Restricted Stock
Units, the acquisition, holding, and/or transfer of Shares or cash resulting from participation in the Plan and/or the opening and
maintenance of a brokerage or bank account in connection with the Plan. Grantee may be required to report such assets, accounts,
account balances and values and/or related transactions to the applicable authorities in his or her country and/or repatriate funds
received in connection with the Plan to Grantee’s country within a certain time period and/or according to certain procedure. Grantee
acknowledges that he or she is responsible for ensuring compliance with any applicable foreign asset/account, exchange control and
tax reporting requirements and that Grantee should consult with his or her personal legal advisor to ensure compliance with
applicable laws.
18
AUSTRALIA
Terms and Conditions
Nature of Plan and Restricted Stock Units. The Plan is a plan to which Subdivision 83A-C of the Income Tax Assessment Act 1997
(Cth) (the “Act”) applies (subject to the conditions in that Act).
In addition, the offer of the Restricted Stock Units is intended to comply with the provisions of the Corporations Act 2001,
Australian Securities and Investments Commission (“ASIC”) Regulatory Guide 49 and ASIC Class Order 14/1000. Additional
details are set forth in the Offer Document for the Offer of Restricted Stock Units to Australian Resident Employees.
AUSTRIA
Notifications
Exchange Control Information. If Grantee holds securities (including Shares acquired under the Plan) or cash (including proceeds
from the sale of Shares) outside Austria, Grantee will be required to report certain information to the Austrian National Bank if
certain thresholds are exceeded. Specifically, if Grantee holds securities outside Austria, reporting requirements will apply if the
value of such securities meets or exceeds (i) €30,000,000 as of the end of any calendar quarter, or (ii) €5,000,000 as of December 31.
Further, if Grantee holds cash in accounts outside Austria, monthly reporting requirements will apply if the aggregate transaction
volume of such cash accounts meets or exceeds €10,000,000. If the transaction value of all cash accounts abroad is less than
€10,000,000, no ongoing reporting requirements apply.
BELGIUM
Notifications
Foreign Asset/Account Reporting Information. Grantee will be required to report any securities (e.g., Shares acquired under the Plan)
or bank accounts (including brokerage accounts) held outside of Belgium on Grantee’s annual tax return. Grantee will also be
required to complete a separate report providing the National Bank of Belgium with details regarding any such account (including
the account number, the name of the bank in which such account is held and the country in which such account is located). This
report, as well as additional information on how to complete it, can be found on the website of the National Bank of Belgium,
www.nbb.be, under Kredietcentrales / Centrales des crédits caption.
Stock Exchange Tax Alert. A stock exchange tax may apply to transactions under the Plan, such as the sale of Shares acquired under
the Plan. Grantee should consult with his or her personal tax advisor for details regarding Grantee’s obligations with respect to the
stock exchange tax.
19
Brokerage Account Tax Alert. A brokerage account tax may apply if the average annual value of the securities Grantee holds
(including Shares acquired under the Plan) in a brokerage or other securities account exceeds certain thresholds. Grantee should
consult with his or her personal tax advisor for details regarding Grantee’s obligations with respect to the brokerage account tax.
BRAZIL
Terms and Conditions
Nature of Grant. This provision supplements the Nature of Grant section of this Exhibit C:
By accepting the Restricted Stock Units, Grantee agrees that he or she is (i) making an investment decision, (ii) Shares will be issued
to Grantee only if the vesting conditions are met and (iii) the value of the underlying Shares is not fixed and may increase or
decrease without compensation to Grantee.
Compliance with Law. By accepting the Restricted Stock Units, Grantee acknowledges that he or she agrees to comply with
applicable Brazilian laws and pay any and all Tax-Related Items associated with the vesting and settlement of the Restricted Stock
Units, the receipt of any dividends or dividend equivalents and the sale of Shares acquired under the Plan.
Notifications
Exchange Control Information. Grantee may be required to submit a declaration of assets and rights held outside of Brazil to the
Central Bank of Brazil, depending on the aggregate value of such assets and rights. If the aggregate value of such assets and rights is
US$100,000 or more but less than $100,000,000, a declaration must be submitted annually. If the aggregate value exceeds
$100,000,000, a declaration must be submitted quarterly. Assets and rights that must be reported include Shares acquired under the
Plan.
Financial Transactions Tax Alert. Funds remitted into Brazil (e.g., sale proceeds from the sale of Shares and/or dividends), and the
conversion of funds between Brazilian Real and United States Dollars associated with such transfers, may be subject to the Tax on
Financial Transactions. Grantee should consult with his or her personal tax advisor for details regarding Grantee’s obligations with
respect to the Tax on Financial Transactions.
CANADA
Terms and Conditions
Payment After Vesting. This provision supplements Section 6 of the Agreement:
The discretion to pay cash in lieu of delivering Shares for the Restricted Stock Units, as described in Section 11(e) of the Plan, shall
not apply to any Restricted Stock Units in Canada.
20
All vested Restricted Stock Units in Canada will be settled by the Company issuing Shares to Grantee as described in this Section 6.
Nature of Grant. This provision replaces Section (i) of the Nature of Grant section of this Exhibit C:
For purposes of the Restricted Stock Units, Grantee’s status as a Service Provider will be considered terminated as of the date that is
the earliest of: (a) the date Grantee’s employment with the Employer is terminated, (b) the date Grantee receives written notice of
termination from the Employer, regardless of any notice period or period of pay in lieu of such notice mandated under the
employment laws in the jurisdiction where Grantee is employed or the terms of Grantee’s employment contract, if any, or (c) the
date Grantee is no longer actively providing services to the Company or an Affiliate (regardless of the reason for such termination
and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Grantee is employed or the
terms of Grantee’s employment contract, if any) and, unless otherwise expressly provided in the Agreement or determined by the
Company, Grantee’s right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of such date; the
Administrator shall have the exclusive discretion to determine when Grantee is no longer actively providing services for purposes of
the Restricted Stock Units.
The following provisions will also apply if Grantee is a resident of Quebec:
Language Consent. The parties acknowledge that it is their express wish that the Agreement, including this Exhibit C, as well as all
documents, notices, and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be
drawn up in English.
Consentement Relatif à la Langue Utilisée. Les parties reconnaissent avoir expressément souhaité que la convention ainsi que cette
Exhibit C, ainsi que tous les documents, avis et procédures judiciares, éxécutés, donnés ou intentés en vertu de, ou liés directement
ou indirectement à la présente convention, soient rédigés en langue anglaise.
Data Privacy. This provision supplements the Data Privacy section of this Exhibit C:
Grantee hereby authorizes the Company and the Company’s representatives to discuss with and obtain all relevant information from
all personnel, professional or not, involved in the administration and operation of the Plan. Grantee further authorizes the Company
and any Affiliate, as well as E*Trade or such other stock plan service provider as may be selected by the Company to assist with the
Plan, to disclose and discuss the Plan with their advisors. Grantee further authorizes the Company and any Affiliate to record such
information and to keep such information in Grantee’s employee file.
21
Notifications
Securities Law Information. Grantee is permitted to sell Shares acquired under the Plan through the Company’s designated broker,
provided the resale of such Shares takes place outside of Canada through the facilities of a stock exchange on which the Shares are
listed. The Shares are currently listed on the NASDAQ Stock Market.
Foreign Asset/Account Reporting Information. Foreign specified property held by a Canadian resident must be reporting annually on
a Form T1135 (Foreign Income Verification Statement) if the total cost of the foreign specified property exceeds C$100,000 at any
time during the year. Thus, unvested Restricted Stock Units must be reported - generally at a nil cost- if the C$100,000 cost
threshold is exceeded because of other foreign specified property held by Grantee. When Shares are acquired, their cost generally is
the adjusted cost base (“ACB”) of the Shares. The ACB would ordinarily equal the fair market value of the Shares at the time of
acquisition, but if Grantee owns other Shares, this ACB may need to be averaged with the ACB of the other Shares. Grantee should
consult with his or her personal legal advisor regarding what reporting obligations, if any, will apply to Grantee with respect to
Shares acquired under the Plan.
CHINA
Terms and Conditions
Payment After Vesting. This provision supplements Section 6 of the Agreement:
To facilitate compliance with any applicable laws and regulations in China, Grantee agrees that the Company (or a brokerage firm
instructed by the Company, if applicable) is entitled to (i) sell all Shares issued to Grantee at settlement (on Grantee’s behalf and at
Grantee’s direction pursuant to this authorization), either at the time of settlement, at the time Grantee ceases employment with the
Employer, or at such other time determined by the Company, and (ii) require that any Shares acquired under the Plan be held with a
designated brokerage firm until such Shares are sold.
Grantee also agrees to sign any agreements, forms and/or consents that may be reasonably requested by the Company (or the
Company’s designated brokerage firm) to effectuate the sale of the Shares and acknowledges that neither the Company nor the
designated brokerage firm is under any obligation to arrange for such sale of Shares at any particular price (it being understood that
the sale will occur at the then-current market price) and that brokerage fees or commissions may be incurred in any such sale. In any
event, when Shares acquired under the Plan are sold, the proceeds of the sale of the Shares, less any Tax-Related Items and
brokerage fees or commissions, will be remitted to Grantee in accordance with applicable exchange control laws and regulations.
Exchange Control Restrictions. Grantee understands and agrees that he or she will be required to immediately repatriate the proceeds
of the sale of Shares, any cash dividends or dividend
22
equivalents, and any other funds realized under the Plan to China. Grantee further understands that the repatriation of such funds
may need to be effected through a special exchange control account established by the Company or an Affiliate and Grantee hereby
consents and agrees that such funds may be transferred to such special account prior to being delivered to Grantee’s personal
account.
Grantee also understands that the Company will deliver sale proceeds, any cash dividends or dividend equivalents, and any other
funds realized under the Plan to Grantee as soon as practicable, but that there may be delays in distributing the funds due to
exchange control requirements in China. Funds may be paid to Grantee in U.S. dollars or local currency at the Company’s discretion.
If the funds are paid in U.S. dollars, Grantee will be required to set up a U.S. dollar bank account in China so that the proceeds may
be deposited into this account. If the funds are paid in local currency, the Company is under no obligation to secure any particular
currency conversion rate and the Company may face delays in converting the funds to local currency. Grantee agrees to bear any
currency fluctuation risk between the time the Shares are sold and the time (i) the Tax-Related Items are converted to local currency
and remitted to the tax authorities and/or (ii) the net proceeds are converted to local currency and distributed to Grantee.
Grantee further agrees to comply with any other requirements that may be imposed by the Company in the future in order to
facilitate compliance with exchange control requirements in China.
FRANCE
Terms and Conditions
Language Consent. By accepting the grant of the Restricted Stock Units, Grantee confirms having read and understood the
documents related to the grant (the Agreement and the Plan), which were provided in the English language. Grantee accepts the
terms of those documents accordingly.
Consentement Relatif à la Langue. En acceptant l’attribution du droit sur des actions assujetti à des restrictions, le Bénéficiaire
confirme avoir lu et compris les documents relatifs à l’attribution (le Contrat et le Plan) qui ont été fournis en langue anglaise. Le
Bénéficiaire accepte les dispositions de ces documents en connaissance de cause.
Notifications
Foreign Asset/Account Reporting Information. Grantee is required to report all foreign accounts (whether open, current or closed) to
the French tax authorities when filing his or her annual tax return. Additional monthly reporting requirements may apply if foreign
account balances exceed €1,000,000.
23
GERMANY
Notifications
Exchange Control Information. Grantee must report any cross-border payments in excess of €12,500 to the German Federal Bank
(Bundesbank). The report must be filed electronically and the form of report (Allgemeine Meldeportal Statistik) can be accessed via
the Bundesbank’s website (www.bundesbank.de). Grantee is responsible for complying with applicable reporting obligations and
should consult his or her personal legal advisor on this matter.
GREECE
There are no country-specific provisions.
HONG KONG
Terms and Conditions
Payment After Vesting. This provision supplements Section 6 of the Agreement:
24
The discretion to pay cash in lieu of delivering Shares for the Restricted Stock Units, as described in Section 11(e) of the Plan, shall
not apply to any Restricted Stock Units in Hong Kong. All vested Restricted Stock Units in Hong Kong will be settled by the
Company issuing Shares to Grantee as described in this Section 6.
Notifications
Securities Law Information. WARNING: The Restricted Stock Units and the Shares issued upon settlement of the Restricted Stock
Units do not constitute a public offering of securities and are available only to employees of the Company or its Affiliates.
The Agreement, the Plan and other incidental communication materials are intended only for the personal use of Grantees and not
for distribution to any other persons. The Agreement, the Plan and other incidental communication materials have not been
prepared in accordance with and are not intended to constitute a “prospectus” for a public offering of securities under the
applicable companies and securities legislation in Hong Kong, nor have the documents been reviewed by any regulatory authority in
Hong Kong. If Grantee has questions about any of the contents of the Agreement or the Plan, he or she should contact a legal or
other professional advisor.
HUNGARY
There are no country-specific provisions.
INDIA
Notifications
Exchange Control Information. Any funds realized in connection with the Plan (e.g., proceeds from the sale of Shares and cash
dividends paid on Shares) must be repatriated to India within a specified period of time after receipt as prescribed under Indian
exchange control laws. It is Grantee’s responsibility to obtain an inward remittance certificate (“FIRC”) from the bank where
Grantee deposits the foreign currency. Grantee should maintain the FIRC as evidence of the repatriation of funds in the event the
Reserve Bank of India or the Employer requests proof of repatriation.
25
Foreign Asset/Account Reporting Requirement. Grantee is required to declare foreign bank accounts and any foreign financial assets
(including Shares and, possibly, rights to Shares held outside India) in Grantee’s annual tax return. Grantee should consult with his
or her personal tax advisor to ensure compliance with applicable reporting obligations.
IRELAND
There are no country-specific provisions.
ITALY
Terms and Conditions
Plan Document Acknowledgment. By accepting the Agreement, Grantee further acknowledges that Grantee has received a copy of
the Plan, has reviewed the Plan and the Agreement in their entirety and fully understands and accepts all provisions of the Plan and
the Agreement. Grantee further acknowledges that Grantee has read and specifically and expressly approves, without limitation, the
following sections of the Agreement: “Vesting”; “Payment After Vesting”; “Responsibility for Taxes”; “Damages”; “Arbitration”;
“Electronic Delivery and Participation”; “Insider Trading Restrictions; Market Abuse Laws”; “Imposition of Other Requirements”;
“Nature of Grant”; and “Foreign Asset/Account, Exchange Control and Tax Reporting” (including the “Foreign Asset/Account
Reporting Information” below).
Notifications
Foreign Asset/Account Reporting Information. If Grantee holds investments abroad or foreign financial assets (e.g., cash, Shares)
that may generate income taxable in Italy, Grantee is required to report them on his or her annual tax return (UNICO Form, RW
Schedule) or on a special form if no tax return is due. The same reporting duties apply if Grantee is the beneficial owner of the
investments, even if Grantee does not directly hold investments abroad or foreign assets.
Foreign Financial Assets Tax Alert. The value of any Shares (and certain other foreign assets) held outside of Italy may be subject to
a foreign financial assets tax. The taxable amount is equal to the fair market value of Shares on December 31 or on the last day the
Shares were held (the tax is levied in proportion to the number of days Shares were held over the calendar year). The value of
financial assets held abroad must be reported in the annual tax return. Grantee should consult with his or her personal tax advisor
for details regarding Grantee’s obligations with respect to the foreign financial assets tax.
26
JAPAN
Notifications
Foreign Asset/Account Reporting Information. Grantee will be required to report details of any assets (such as Shares) held outside
of Japan as of December 31st to the extent such assets have a total net fair market value exceeding ¥50,000,000. Such report will be
due by March 15th each year. Grantee should consult with his or her personal tax advisor as to whether the reporting obligation
extends to any outstanding Restricted Stock Units held by Grantee and to ensure compliance with applicable reporting obligations.
KOREA
Notifications
Foreign Asset/Account Reporting Information. Korean residents must declare all foreign financial accounts (e.g., brokerage
accounts, bank accounts) to the Korean tax authorities and file a report with respect to such accounts if the value of such accounts
exceeds KRW 500 million (or an equivalent amount in foreign currency) on any month-end date during the calendar year. Grantee
should consult with his or her personal tax advisor to ensure compliance with applicable reporting obligations.
NETHERLANDS
There are no country-specific provisions.
NEW ZEALAND
Securities Law Information. Grantee is being offered Restricted Stock Units which will allow Grantee to acquire Shares in
accordance with the terms of this Agreement and the Plan. The Shares, if issued will give Grantee a stake in the ownership of the
Company. Grantee may receive a return if dividends are paid.
If the Company runs into financial difficulties and is wound up, Grantee will be paid only after all creditors have been paid. Grantee
may lose some or all of Grantee’s investment, if any.
New Zealand law normally requires people who offer financial products to give information to investors before they invest. This
information is designed to help investors make an informed decisions. The usual rules do not apply for this offer because it is made
under an employee share scheme. As a result, Grantee may not be given all the information usually required. Grantee will also have
fewer legal protections for this investment. Grantee should ask questions, read all documents carefully, and seek independent
financial advice before committing.
27
The Shares are listed on the NASDAQ. This means that if Grantee acquires Shares under the Plan, Grantee may be able to sell the
Shares on the NASDAQ if there are interested buyers. Grantee may get less than Grantee invested. The price will depend on the
demand for the Shares.
For more information on risk factors impacting the Company’s business that may affect the value of the Shares, Grantee should refer
to the risk factors discussion in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q which are filed
with the U.S. Securities and Exchange Commission. These reports are available online at www.sec.gov, as well as on the Company’s
“Investor Relations” website at http://investors.nuance.com/investor-relations.
SINGAPORE
Notifications
Securities Law Information. The grant of the Restricted Stock Units is being made pursuant to the “Qualifying Person” exemption
under section 273(1)(f) of the Securities and Futures Act (Chapter 289, 2006 Ed.) (“SFA”). The Plan has not been lodged or
registered as a prospectus with the Monetary Authority of Singapore. Grantee should note that the Restricted Stock Units are subject
to section 257 of the SFA and Grantee should not make any subsequent sale of the Shares in Singapore or any offer of such
subsequent sale of the Shares subject to the Restricted Stock Units in Singapore, unless such sale or offer is made (i) six months or
more after the Grant Date or (ii) pursuant to the exemptions under Part XIII Division 1 Subdivision (4) (other than section 280) of
the SFA (Chapter 289, 2006 Ed.) or pursuant to, and in accordance with the conditions of, any other applicable provisions of the
SFA. The Company’s Common Stock is traded on the NASDAQ Stock Market, which is located outside of Singapore, under the
ticker symbol “NUAN” and the Shares acquired under the Plan may be sold through this exchange.
CEO and Director Reporting Information. If Grantee is the chief executive officer (“CEO”) or a director (including an alternate,
substitute or shadow director) of a Singapore Affiliate, he or she is subject to certain notification requirements under the Singapore
Companies Act, regardless of whether he or she is a Singapore resident or employed in Singapore. Among these requirements is the
obligation to notify the Singapore Affiliate in writing when Grantee receives or disposes of an interest in the Company or an
Affiliate (e.g., Options, Restricted Stock Units, Shares). These notifications must be made within two (2) business days of acquiring
or disposing of any interest in the Company or any Affiliate or within two (2) business days of becoming the CEO or a director if
such an interest exists at that time.
28
SPAIN
Terms and Conditions
Nature of Grant. This section supplements the Nature of Grant section of this Exhibit C:
By accepting the Restricted Stock Units, consents to participate in the Plan and acknowledges having received a copy of the Plan.
Grantee understands that, as a condition of the grant of the Restricted Stock Units, the termination of Grantee’s employment for any
reason will automatically result in the forfeiture of any and all Restricted Stock Units that have not vested as of the date of
termination. In particular, Grantee understands and agrees that any unvested Restricted Stock Units will be forfeited without
entitlement to the underlying Shares or to any amount as indemnification in the event of a termination of Grantee’s employment
prior to vesting by reason of, including, but not limited to: death, disability, resignation, retirement, disciplinary dismissal adjudged
to be with cause, disciplinary dismissal adjudged or recognized to be without cause, individual or collective layoff on objective
grounds, whether adjudged to be with cause or adjudged or recognized to be without cause, material modification of the terms of
employment under Article 41 of the Workers’ Statute, relocation under Article 40 of the Workers’ Statute, Article 50 of the
Workers’ Statute, unilateral withdrawal by the Employer, and under Article 10.3 of Royal Decree 1382/1985.
Furthermore, Grantee understands that the Company has unilaterally, gratuitously and discretionally decided to grant the Restricted
Stock Units under the Plan to individuals who may be employees of the Company or an Affiliate throughout the world. The decision
is a limited decision that is entered into upon the express assumption and condition that any grant will not economically or otherwise
bind the Company or any Affiliate on an ongoing basis (other than as set forth in this Agreement and the Plan). Consequently,
Grantee understands that the Restricted Stock Units are granted on the assumption and condition that the Restricted Stock Units and
the related Shares shall not become a part of any employment or contract (either with the Company or any Affiliate) and shall not be
considered a mandatory benefit, salary for any purposes (including severance compensation) or any other right whatsoever. In
addition, Grantee understands that the grant of the Restricted Stock Units would not be made to Grantee but for the assumptions and
conditions referred to above; thus, Grantee acknowledges and freely accepts that should any or all of the assumptions be mistaken or
should any of the conditions not be met for any reason, then the grant of Restricted Stock Units shall be null and void.
Notifications
Securities Law Information. No “offer of securities to the public,” as defined under Spanish law, has taken place or will take place in
the Spanish territory in connection with the grant of the Restricted Stock Units under the Plan. This Agreement and the Plan have not
been nor will
29
they be registered with the Comisión Nacional del Mercado de Valores, and do not constitute a public offering prospectus.
Exchange Control Information. Grantee must declare the acquisition, ownership and disposition of stock in a foreign company
(including Shares acquired under the Plan) to the Spanish Dirección General de Comercio e Inversiones (the “DGCI”), the Bureau
for Commerce and Investments, which is a department of the Ministry of Economy and Competitiveness, for statistical purposes.
Generally, the declaration must be filed in January for Shares acquired or sold during (or owned as of December 31) the prior year;
however, if the value of the Shares acquired under the Plan or the amount of the sale proceeds exceeds €1,502,530, the declaration
must be filed within one month of the acquisition or sale, as applicable.
Grantee may be required to declare electronically to the Bank of Spain any foreign accounts (including brokerage accounts held
abroad), any foreign instruments (including Shares acquired under the Plan), and any transactions with non-Spanish residents
(including any payment of cash or Shares made by the Company) depending on the value of the transactions during the relevant year
or the balances in such accounts and the value of such instruments as of December 31 of the relevant year. Grantee should consult
with his or her personal legal advisor regarding the applicable thresholds and corresponding reporting requirements.
Foreign Asset/ Account Reporting Information. Grantee is required to report assets or rights deposited or held outside of Spain
(including the Shares acquired under the Plan or cash proceeds from the sale of the Shares acquired under the Plan) if the value per
type of asset or right exceeds a certain threshold. This obligation applies to assets and rights held as of December 31 and requires
that information on such assets and rights be included in Grantee’s tax return filed with the Spanish tax authorities for such year.
After such assets or rights are initially reported, the reporting obligation will apply for subsequent years only if the value of any
previously reported asset or right increases by more than a certain threshold or if ownership of such asset or right is transferred or
relinquished during the year. Grantee should consult with his or her personal tax advisor regarding the applicable thresholds and
corresponding reporting requirements.
SWITZERLAND
Notifications
Securities Law Information. The Restricted Stock Units are not intended to be publicly offered in or from Switzerland. Neither this
document nor any other materials relating to the Restricted Stock Units (i) constitutes a prospectus as such term is understood
pursuant to article 652a of the Swiss Code of Obligations, or (ii) may be publicly distributed or otherwise made publicly available in
Switzerland. Further, neither this document nor any other offering or marketing material relating to the offering of the Restricted
Stock Units has been or will be filed with or approved or supervised by any Swiss regulatory authority (in particular, the Swiss
Financial Market Supervisory Authority (FINMA)).
30
TAIWAN
Notifications
Securities Law Information: The grant of the Restricted Stock Units (and the issuance, if any, of the underlying Shares) is available
only to certain employees of the Company and its Affiliates. It is not a public offer of securities by a Taiwanese company. Therefore,
it is exempt from registration in Taiwan.
Exchange Control Information: Grantee may remit foreign currency (including proceeds from the sale of Shares and the receipt of
any dividends) into Taiwan with a transaction amount of up to US$5,000,000 per year. If the transaction amount is TWD500,000 or
more in a single transaction, Grantee must submit a foreign exchange transaction form and also provide supporting documentation to
the satisfaction of the handling bank.
If the transaction amount is US$500,000 or more, Grantee may be required to provide additional supporting documentation to the
satisfaction of the bank. Grantee should consult with his or her personal advisor to ensure compliance with applicable exchange
control laws in Taiwan.
UNITED KINGDOM
Terms and Conditions
Payment after Vesting. This provision supplements Section 6 of the Agreement and Section 11(e) of the Plan:
Restricted Stock Units shall be settled only in Shares. In no event shall the Restricted Stock Units be paid in cash, notwithstanding
any discretion contained in Section 11(e) of the Plan to the contrary.
Responsibility for Taxes. This provision supplements Section 8 of the Agreement:
Without limitation to Section 8 of the Agreement, Grantee hereby agrees that Grantee is liable for all Tax-Related Items and hereby
covenants to pay all such Tax-Related Items, as and when requested by the Company or if different, the Employer or by Her
Majesty’s Revenue & Customs (“HMRC”) (or any other tax authority or any other relevant authority). Grantee also hereby agrees
to indemnify and keep indemnified the Company and, if different, the Employer against any Tax-Related Items that they are required
to pay or withhold or have paid or will pay to HMRC (or any other tax authority or any other relevant authority) on Grantee’s behalf.
Notwithstanding the foregoing, if Grantee is a director or executive officer of the Company (within the meaning of Section 13(k) of
the Exchange Act), the terms of the immediately foregoing provision will not apply. In the event that Grantee is a director or
executive officer
31
of the Company and the income tax is not collected from or paid by Grantee within ninety (90) days of the end of the U.K. tax year
in which an event giving rise to the indemnification described above occurs, the amount of any uncollected income tax may
constitute a benefit to Grantee on which additional income tax and National Insurance contributions (“NICs”) may be payable.
Grantee will be responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-
assessment regime and for paying to the Company and/or the Employer (as appropriate) the amount of any employee NICs due on
this additional benefit.
NIC Joint Election. As a condition of participation in the Plan, Grantee agrees to accept liability for any secondary Class 1 National
Insurance contributions that may be payable by the Company and/or the Employer (or any successor to the Company or the
Employer) in connection with the Restricted Stock Units and any event giving rise to Tax-Related Items (“Employer NICs”).
Without prejudice to the foregoing, Grantee agrees to enter into the following joint election with the Company, the form of such
NICs Joint Election being formally approved by HMRC (the “NIC Joint Election”), and any other consent or elections required to
accomplish the transfer of the Employer NICs to Grantee. Grantee further agrees to execute such other elections as may be required
between Grantee and any successor to the Company and/or the Employer for the purpose of continuing the effectiveness of
Grantee’s NIC Joint Election. Grantee understands that the NIC Joint Election applies to any Restricted Stock Units granted to him
or her under the Plan after the execution of the NIC Joint Election. Grantee agrees that the Employer NICs may be collected by the
Company or the Employer by any of the methods set forth in Section 8 of the Agreement.
If Grantee does not enter into the NIC Joint Election, he or she will not be entitled to vest in the Restricted Stock Units or receive
any benefit in connection with the Restricted Stock Units unless and until he or she enters into a NIC Joint Election and no Shares or
other benefit pursuant to the Restricted Stock Units will be issued to Grantee under the Plan, without any liability to the Company
and/or the Employer.
IMPORTANT NOTE: By accepting the Agreement (whether by clicking on the acceptance buttons as part of the Company’s
electronic acceptance procedure or by signing the Agreement in hard copy), Grantee is agreeing to be bound by the terms of the
NIC Joint Election. Grantee should read the terms of the NIC Joint Election carefully before accepting the Agreement and the
NIC Joint Election. However, if requested by the Company, Grantee agrees to separately execute the NIC Joint Election.
32
ATTACHMENT FOR THE UNITED KINGDOM
Important Note on the Joint Election to Transfer
Employer National Insurance Contributions
As a condition of participation in the Nuance Communications, Inc. 2000 Stock Plan, as amended (the “Plan”) and the restricted
stock units (the “RSUs”) that have been granted to you (the “Grantee”) by Nuance Communications, Inc. (the “Company”), the
Grantee is required to enter into a joint election to transfer to the Grantee any liability for employer national insurance contributions
(the “Employer’s Liability”) that may arise in connection with the grant of the RSUs or in connection with any restricted stock units
that may be granted by the Company to the Grantee under the Plan (the “Joint Election”).
If the Grantee does not agree to enter into the Joint Election, the grant of the RSUs will be worthless and the Grantee will not be able
to vest in the RSUs or receive any benefit in connection with the RSUs.
By entering into the Joint Election:
••
••
••
the Grantee agrees that any Employer’s Liability that may arise in connection with or pursuant to the vesting of the RSUs (or
any restricted stock units granted to the Grantee under the Plan) or the acquisition of Shares or other taxable events in
connection with the RSUs (or any other restricted stock units granted under the Plan) will be transferred to the Grantee;
the Grantee authorises the Company and/or the Grantee’s employer to recover an amount sufficient to cover this liability by
any method set forth in the Restricted Stock Unit Award Agreement and/or the Joint Election; and
the Grantee acknowledges that even if he or she has accepted the Joint Election via the Company’s online procedure, the
Company or the Grantee’s employer may still require the Grantee to sign a paper copy of the Joint Election (or a
substantially similar form) if the Company determines such is necessary to give effect to the Joint Election.
By accepting the RSUs through the Company’s online acceptance procedure (or by signing the Restricted Stock Unit Agreement), the
Grantee is agreeing to be bound by the terms of the Joint Election.
Please read the terms of the Joint Election carefully before
accepting the Restricted Stock Unit Agreement
and the Joint Election.
Please print and keep a copy of the Joint Election
for your records.
33
NUANCE COMMUNICATIONS, INC. 2000 STOCK PLAN
(UK Employees)
Election To Transfer the Employer’s National Insurance Liability to the Employee
1. PARTIES
This Election is between:
(A)
(B)
You, the individual who has gained access to this Election (the “Employee”), who is employed by one of the
employing companies listed in the attached schedule (the “Employer”) and who is eligible to receive Restricted Stock
Units (“RSUs”) granted by Nuance Communications, Inc. pursuant to the terms and conditions of the Nuance
Communications, Inc. 2000 Stock Plan, as amended (the “Plan”), and
Nuance Communications, Inc. of 1 Wayside Road, Burlington, Massachusetts 01803, United States (the
“Company”), which may grant RSUs under the Plan and is entering into this Form of Election on behalf of the
Employer.
2. PURPOSE OF ELECTION
2.1
This Election relates to RSUs granted by the Company to the Employee under the Plan on or after July 1, 2017.
2.2 In this Election the following words and phrases have the following meanings:
“Taxable Event” means any event giving rise to Relevant Employment Income.
“ITEPA” means the Income Tax (Earnings and Pensions) Act 2003.
“Relevant Employment Income” from RSUs on which employer’s National Insurance Contributions becomes due is
defined as:
i.
an amount that counts as employment income of the earner under section 426 ITEPA (restricted securities: charge on certain
post-acquisition events);
ii. an amount that counts as employment income of the earner under section 438 of ITEPA (convertible securities: charge on
certain post-acquisition events); or
iii. any gain that is treated as remuneration derived from the earner’s employment by virtue of section 4(4)(a) SSCBA, including
without limitation:
(A) the acquisition of securities pursuant to the RSUs (within the meaning of section 477(3)(a) of
ITEPA);
(B) the assignment (if applicable) or release of the RSUs in return for consideration (within the
meaning of section 477(3)(b) of ITEPA);
34
(C)
the receipt of a benefit in connection with the RSUs, other than a benefit within (i) or (ii) above (within the
meaning of section 477(3)(c) of ITEPA).
“SSCBA” means the Social Security Contributions and Benefits Act 1992.
2.3
2.4
2.5
2.6
This Election relates to the Employer’s secondary Class 1 National Insurance Contributions (the “Employer’s Liability”)
which may arise in respect of the Relevant Employment Income in respect of RSUs pursuant to section 4(4)(a) and/or
paragraph 3B(1A) of Schedule 1 of the SSCBA.
This Election does not apply in relation to any liability, or any part of any liability, arising as a result of regulations being
given retrospective effect by virtue of section 4B(2) of either the SSCBA or the Social Security Contributions and Benefits
(Northern Ireland) Act 1992.
This Election does not apply to the extent that it relates to relevant employment income which is employment income of the
earner by virtue of Chapter 3A of Part VII of ITEPA (employment income: securities with artificially depressed market
value).
Any reference to the Company and/or the Employer shall include that entity’s successors in title and assigns as permitted in
accordance with the terms of the Plan and the Restricted Stock Unit Agreement. This Election will have effect in respect of
the RSUs and any awards which replace or replaced the RSUs following their grant in circumstances where section 483 of
ITEPA applies.
3. ELECTION
The Employee and the Company jointly elect that the entire liability of the Employer to pay the Employer’s Liability that
arises on any Relevant Employment Income is hereby transferred to the Employee. The Employee understands that by
accepting the RSUs (whether by clicking on the acceptance buttons as part of the Company’s electronic acceptance
procedure or by signing the Restricted Stock Unit Agreement in hard copy), he or she will become personally liable for the
Employer’s Liability covered by this Election. This Election is made in accordance with paragraph 3B(1) of Schedule 1 to
SSCBA.
4. PAYMENT OF THE EMPLOYER’S LIABILITY
4.1
The Employee hereby authorises the Company and/or the Employer to collect the Employer’s Liability in respect of any
Relevant Employment Income from the Employee at any time after the Taxable Event:
(i)
by deduction from salary or any other payment payable to the Employee at any time on or after the date of the
Taxable Event; and/or
(ii)
directly from the Employee by payment in cash or cleared funds; and/or
35
(iii)
by arranging, on behalf of the Employee, for the sale of some of the securities which the Employee is entitled to
receive in respect of the RSUs; and/or
(iv)
by any other means specified in the Restricted Stock Unit Agreement.
4.2
4.3
The Company hereby reserves for itself and the Employer the right to withhold the transfer of any securities in respect of the
RSUs to the Employee until full payment of the Employer’s Liability is received.
The Company agrees to procure the remittance by the Employer of the Employer’s Liability to HM Revenue and Customs on
behalf of the Employee within 14 days after the end of the UK tax month during which the Taxable Event occurs (or within
17 days after the end of the UK tax month during which the Taxable Event occurs, if payments are made electronically).
5. DURATION OF ELECTION
5.1
The Employee and the Company agree to be bound by the terms of this Election regardless of whether the Employee is
transferred abroad or is not employed by the Employer on the date on which the Employer’s Liability becomes due.
5.2 This Election will continue in effect until the earliest of the following:
(i)
(ii)
the Employee and the Company agree in writing that it should cease to have effect;
on the date the Company serves written notice on the Employee terminating its effect;
(iii)
on the date HM Revenue and Customs withdraws approval of this Election; or
(iv)
after due payment of the Employer’s Liability in respect of the entirety of the RSUs to which this Election relates or
could relate, such that the Election ceases to have effect in accordance with its terms.
Acceptance by the Employee
The Employee acknowledges that by accepting the RSUs (whether by clicking on the acceptance buttons as part of the Company’s
electronic acceptance procedure or by signing the Restricted Stock Unit Agreement in hard copy), the Employee agrees to be bound
by the terms of this Election.
36
Acceptance by the Company
The Company acknowledges that, by arranging for the scanned signature of an authorised representative to appear on this Election,
the Company agrees to be bound by the terms of this Election.
Signed for and on behalf of the Company
[insert signature and signatory details]
37
SCHEDULE OF EMPLOYER COMPANIES
The following are employer companies to which this Joint Election may apply:
Nuance Communications UK Limited
Registered Office:
Company Registration Number:
Corporation Tax Reference:
PAYE Reference:
SpinVox Limited
Registered Office:
Company Registration Number:
Corporation Tax Reference:
PAYE Reference:
Winscribe Europe Limited (UK)
Registered Office:
Company Registration Number:
Corporation Tax Reference:
PAYE Reference:
Wethered House
Pound Lane
Marlow Buckinghamshire
SL7 2AF UK
4090152
2015201381
120VZ29530
Wethered House
Pound Lane
Marlow Buckinghamshire
SL7 2AF UK
4825183
7347505990
951/JZ55285
1 Pound Lane, Marlow, Buckinghamshire, England, SL7 2AF
1792924
2506004151
577/RM123
38
NUANCE COMMUNICATIONS, INC.
2000 STOCK PLAN
(Amended and Restated January 17, 2019)
RESTRICTED STOCK UNIT AGREEMENT
(A)
(B)
(C)
(D)
(E)
Name of Grantee:
Number of Restricted Stock Units:
Grant Date:
Vesting Commencement Date:
Award Number:
This Restricted Stock Unit Agreement, including any exhibit, appendix or addendum hereto (the “Agreement”), is made and
entered into as of the date set forth in Item C above between Nuance Communications, Inc., a Delaware corporation (the
“Company”), and the person named in Item A above (“Grantee”).
THE PARTIES AGREE AS FOLLOWS:
1. Restricted Stock Units. Pursuant to the Company’s 2000 Stock Plan, as amended from time to time (the “Plan”), a copy of
which is attached to this Agreement as Exhibit A, the Company hereby grants to Grantee the number of Restricted Stock Units
listed in Item B above on the terms and conditions set forth herein and in the Plan, the terms and conditions of the Plan being
hereby incorporated into this Agreement by reference. In the event of a conflict between the terms and conditions of the Plan and
the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail. Capitalized terms used and not
defined in this Agreement will have the meanings set forth in the Plan.
2. Company’s Obligation to Pay. Each Restricted Stock Unit represents the right to receive one share of Common Stock of the
Company, par value $0.001 (“Share”) after the Restricted Stock Unit has vested. Unless and until the Restricted Stock Units will
have vested in the manner set forth in Section 3, Grantee will have no right to receive the Shares subject to the Restricted Stock
Units. Prior to the actual issuance of any Shares subject to the Restricted Stock Units, such Restricted Stock Units will represent
an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.
3. Vesting. Subject to Section 5, the Restricted Stock Units shall vest in accordance with the provisions set forth on Exhibit B,
subject to Grantee’s continuing to be an employee, director or consultant of the Company or of an Affiliate (a “Service
Provider”) through each vesting date. For the avoidance of doubt, Grantee would no longer be considered a Service Provider
(and therefore the Restricted Stock Units would be forfeited) if Grantee’s employer ceases to be controlled by majority owned by
the Company.
4. Forfeiture upon Termination as Service Provider. If Grantee terminates service as a Service Provider, for any or no reason,
prior to vesting, Grantee’s right to acquire Shares pursuant to such unvested Restricted Stock Units awarded by this Agreement
will immediately terminate.
5. Payment After Vesting. Any Restricted Stock Units that vest in accordance with Section 3, or otherwise vest in accordance with
the terms of the Plan, will be settled by the Company issuing Shares to Grantee, subject to the provisions of Section 7 below. The
settlement of vested Restricted Stock Units will be completed by the issuance of the appropriate number of Shares as soon as
practicable after vesting, but in each such case no later than the 15th day of the third month following the end of the Company’s
tax year that includes each applicable vesting date.
Any distribution or delivery to be made to Grantee under this Agreement will, if Grantee is then deceased, be made to Grantee’s
designated beneficiary (if Grantee is permitted to and designates a beneficiary under the Plan). If no beneficiary is designated
(including if the Company does not permit Grantee to make a beneficiary designation) or if the Company determines, in its
discretion, that the beneficiary designation is not valid or enforceable under any applicable laws or regulations, or if no
beneficiary survives Grantee, then such distribution or delivery will be made to the administrator or executor of Grantee’s estate.
Any such beneficiary, administrator or executor must furnish the Company with (a) written notice of his or her status as a
beneficiary, administrator or executor, and (b) evidence satisfactory to the Company to establish the validity of the distribution or
delivery to be made to such beneficiary, administrator or executor and compliance with any laws or regulations pertaining
thereto.
6. Rights as Stockholder. Neither Grantee nor any person claiming under or through Grantee will have any of the rights or
privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates
representing such Shares will have been issued, recorded on the records of the Company or its transfer agents or registrars, and
delivered to Grantee.
7. Taxes.
a. Responsibility for Taxes. Grantee acknowledges that, regardless of any action taken by the Company or, if different,
Grantee’s employer (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits
tax, payment on account or other tax-related items related to Grantee’s participation in the Plan and legally applicable to
Grantee as a result of participation in the Plan (“Tax-Related Items”) is and remains Grantee’s responsibility and may
exceed the amount (if any) withheld by the Company or the Employer. Grantee further acknowledges that Company and the
Employer (i) make no representations or undertakings regarding the treatment of any
2
Tax-Related Items in connection with any aspect of the Restricted Stock Units, including, but not limited to, the grant of the
Restricted Stock Units, the vesting and settlement of the Restricted Stock Units, the delivery of Shares, the subsequent sale of
any Shares acquired at vesting / settlement and the receipt of any dividend equivalents or dividends, if applicable; and (ii) do
not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to
reduce or eliminate Grantee’s liability for Tax-Related Items or achieve any particular tax result. Further, if Grantee is
subject to Tax-Related Items in more than one jurisdiction, Grantee acknowledges that the Company and/or the Employer (or
former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
b. Withholding. Prior to the relevant taxable or tax withholding event, as applicable, Grantee agrees to make arrangements
satisfactory to the Company to satisfy all Tax-Related Items. In this regard, Grantee authorizes the Company and/or the
Employer, or their respective agents, at their discretion, to satisfy their withholding obligations with regard to all Tax-Related
Items by one or a combination of the following:
i. withholding from Grantee’s wages or other cash compensation otherwise payable to Grantee by the Company
and/or the Employer; and/or
ii.
requiring Grantee to tender a payment in cash (or the cash equivalent) in an amount equal to the Tax-Related
Items to the Company or its designee; and/or
iii. withholding from the proceeds from the sale of Shares acquired upon settlement of the Restricted Stock Units,
either through a voluntary sale or through a mandatory sale arranged by the Company (on Grantee’s behalf
pursuant to this authorization without further consent); and/or
iv. withholding in Shares to be issued upon settlement of the Restricted Stock Units, provided, however, that if
Grantee is an officer of the Company within the meaning of Section 16 of the Exchange Act, the Company will
withhold in Shares to be issued upon settlement of the Restricted Stock Units, unless the use of such withholding
method is problematic under applicable tax or securities law or has materially adverse accounting consequences,
in which case, the Committee (as constituted to satisfy Rule 16b-3 of the Exchange Act) will determine which of
the other withholding methods set out in this Section 8(b) will be used; and/or
v. any other method determined by the Company and permitted under applicable laws.
Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable
minimum statutory withholding rates or other applicable withholding rates, including applicable maximum rates in Grantee’s
jurisdiction, in which case Grantee may receive a refund of any over-withheld amount in cash and will not
3
be entitled to the equivalent amount in Shares. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for
tax purposes, Grantee will be deemed to have been issued the full number of Shares subject to the vested Restricted Stock Units,
notwithstanding that a number of Shares that are held back solely for the purpose of paying the Tax-Related Items.
The Company may refuse to deliver the Shares or the proceeds from the sale of the Shares if Grantee fails to comply with
Grantee’s obligations in connection with the Tax-Related Items as described in this section.
c. Section 409A. This Agreement and the Restricted Stock Units granted hereunder are intended to meet the “short-term
deferral” exception to the provisions of Section 409A of the Code and U.S. Department of Treasury regulations issued
thereunder or to otherwise comply with Section 409A of the Code and the U.S. Department of Treasury regulations and
guidance issued thereunder, to the extent applicable. Notwithstanding any provision of the Plan or this Agreement to the
contrary, this Agreement and the Restricted Stock Units granted hereunder shall be interpreted and construed consistent with
this intent. Notwithstanding the foregoing, the Company and its affiliates shall not be required to assume any increased
economic burden in connection therewith. Neither the Company or any of its Affiliates, nor any of their respective directors,
officers, managers, employees or advisers shall be liable to Grantee (or any other individual claiming a benefit through
Grantee) for any tax, interest, or penalties Grantee might owe as a result of this Agreement and the Restricted Stock Units
granted hereunder, or otherwise. Notwithstanding anything to the contrary in the Plan or this Agreement, the Company
reserves the right, but is not obligated, to revise this Agreement as it deems necessary or advisable, in its sole discretion and
without the consent of Grantee, to comply with Section 409A of the Code or to otherwise avoid imposition of any additional
tax or income recognition under Section 409A of the Code in connection with this grant of Restricted Stock Units; provided,
however, that the Company makes no representation that this Agreement and the Restricted Stock Units granted hereunder
will be exempt from, or will comply with, Section 409A of the Code, and makes no undertakings to preclude Section 409A
of the Code from applying to this Agreement and the Restricted Stock Units granted hereunder or to ensure that it complies
with Section 409A of the Code.
8. Assignment; Binding Effect. Subject to the limitations set forth in this Agreement, this Agreement shall be binding upon and
inure to the benefit of the executors, administrators, heirs, legal representatives, and successors of the parties hereto; provided,
however, that except to the limited extent that may be provided in Section 5, Grantee may not assign any of Grantee’s rights
under this Agreement.
9. Damages. Grantee shall be liable to the Company for all costs and damages, including incidental and consequential damages,
resulting from a disposition of the Restricted Stock Units which is not in conformity with the provisions of this Agreement.
4
10. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of
Massachusetts, U.S.A., without regard to conflict of laws principles.
11. Notices. Except as provided in Section 20, all notices and other communications under this Agreement shall be in writing. Unless
and until Grantee is notified in writing to the contrary, all notices, communications, and documents directed to the Company and
related to the Agreement, if not delivered by hand, shall be mailed, addressed as follows:
Nuance Communications, Inc.
1 Wayside Road
Burlington, MA 01803
Attention: HR Director
Except as provided in Section 20, all notices, communications, and documents intended for Grantee and related to this
Agreement, if not delivered by hand, shall be mailed to Grantee’s last known address as shown on the Company’s books.
Except as provided in Section 20, notices and communications shall be mailed by first class mail, postage prepaid; documents
shall be mailed by registered mail, return receipt requested, postage prepaid. All mailings and deliveries related to the
Agreement shall be deemed received when actually received, if by hand delivery, and two business days after mailing, if by
mail.
12. Arbitration. Any controversy, dispute, or claim arising out of or relating to this Agreement shall be finally settled and binding
arbitration administered by JAMS pursuant to its Employment Arbitration Rules and Procedures and subject to JAMS Policy on
Employment Arbitration Minimum Standards of Procedural Fairness. A copy of the current JAMS Employment Arbitration
Rules & Procedures are available from Human Resources upon request (including concurrently with Grantee’s review and
execution of this Agreement), online in English and Spanish at http://www.jamsadr.com/rules-employment-arbitration/, or by
calling JAMS at 800.352.5267. If the JAMS rules are inconsistent with the terms of this Section 12, the terms of this Section
shall govern, unless prohibited by applicable law. Any arbitration shall be before a single arbitrator and shall be held in the
jurisdiction where Grantee works for the Company or an Affiliate or last worked for the Company or an Affiliate. Judgment on
the arbitrator’s award may be entered in any court having jurisdiction. Grantee expressly agrees to waive any right to pursue or
participate in any dispute on behalf of, or as part of, any class, representative or collective action, except to the extent such
waiver is expressly prohibited by law. Accordingly, to the extent permitted by law, no dispute by the parties hereto shall be
brought, heard or arbitrated as a class or collective action, and no party hereto shall serve as a member of any purported class,
representative or collective proceeding, including without limitation pending but not certified class actions. Both the Company
and Grantee agree that this Section 12 is enforceable under the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (the “FAA”), and
that if the FAA is found not to apply, then this Section 12 is enforceable under the laws of the state in which Grantee is employed
at the time Grantee receives this Agreement.
5
GRANTEE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT GRANTEE IS WAIVING ANY RIGHT GRANTEE MAY
OTHERWISE HAVE TO A JURY TRIAL FOR ANY DISPUTES ARISING OUT OF OR RELATING TO THIS AGREEMENT.
13. No Rights to Restricted Stock Units, Shares, or Employment. Other than with respect to the Restricted Stock Units granted
pursuant to, and subject to, this Agreement, neither Grantee nor any other person shall have any claim or right to be issued
Shares. Having received a grant of Restricted Stock Units under the Plan shall not give Grantee any right to receive any other
grant under the Plan. This grant of Restricted Stock Units is not an employment contract and nothing in this grant of Restricted
Stock Units shall be deemed to create in any way whatsoever any obligation on Grantee’s part to continue in the employ or
service of the Company, or an Affiliate (as applicable) or the Company or an Affiliate (as applicable) to continue Grantee’s
employment or service relationship.
14. Entire Agreement; Modifications. The Company and Grantee agree that this Agreement is the complete and exclusive statement
between the Company and Grantee regarding its subject matter and supersedes all prior proposals, communications, and
agreements of the parties, whether oral or written, regarding the grant Restricted Stock Units to Grantee. Grantee expressly
warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than
those contained herein. Modifications to this Agreement or the Plan can be made only in an express written contract executed by
a duly authorized officer of the Company. This grant of Restricted Stock Units and any Shares subject to the Restricted Stock
Units, and the income from and value of same, are not part of normal or expected compensation for any purpose, including, but
not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service
awards, holiday pay, pension or retirement or welfare benefits or similar mandatory payments.
15. Additional Conditions to Issuance of Shares. If at any time the Company will determine, in its discretion, that the listing,
registration or qualification of the Shares upon any securities exchange or under any law (including any U.S. federal or state or
any non-U.S. law), or the consent or approval of any governmental regulatory authority is necessary or desirable as a condition
to the issuance of Shares to Grantee, such issuance will not occur unless and until such listing, registration, qualification, consent
or approval will have been effected or obtained free of any conditions not acceptable to the Company.
16. Administrator Authority. The Administrator will have the power to interpret the Plan and this Agreement and to adopt such rules
for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such
rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions
taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon Grantee,
the Company and all other interested persons. No member of the Administrator will be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or this Agreement.
6
17. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of
this Agreement.
18. Agreement Severable. In the event that any provision in this Agreement will be held invalid or unenforceable, such provision
will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining
provisions of this Agreement.
19. Language. If Grantee has received this Agreement or any other document related to the Plan translated into a language other
than English and if the meaning of the translated version is different from the English version, the English version will control.
20. Electronic Delivery and Participation. The Company may, in its sole discretion, deliver any documents related to this
Agreement or to participation in the Plan or to future awards that may be granted under the Plan by electronic means or to
request Grantee’s consent to participate in the Plan by electronic means. Grantee hereby consents to receive such documents by
electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the
Company or a third party designated by the Company.
21. Insider Trading Restrictions/Market Abuse Laws. Grantee acknowledges that he or she may be subject to insider trading
restrictions and/or market abuse laws in applicable jurisdictions including, but not limited to, the United States and Grantee’s
country of residence, which may affect Grantee’s ability to directly or indirectly acquire, sell or attempt to sell Shares or rights to
Shares (e.g., Restricted Stock Units) under the Plan during such times as Grantee is considered to have “insider information”
regarding the Company (as defined by the laws in the applicable jurisdictions). Any restrictions under these laws or regulations
are separate from and in addition to any restrictions that may be imposed under any applicable insider trading policy of the
Company. Grantee is responsible for ensuring compliance with any applicable restrictions and should consult his or her personal
legal advisor on this matter.
22. Non-U.S. and Country-Specific Provisions. The Restricted Stock Units and any Shares subject to the Restricted Stock Units
shall be subject to any special terms and conditions set forth in Exhibit C to this Agreement. Moreover, if Grantee relocates to
one of the countries included in Exhibit C, the special terms and conditions for such country will apply to Grantee, to the extent
the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative
purposes. Exhibit C constitutes part of this Agreement.
23. Imposition of Other Requirements. The Company reserves the right to impose other requirements on Grantee’s participation in
the Plan, on the Restricted Stock Units and on any Shares subject to the Restricted Stock Units, to the extent the Company
determines it is
7
necessary or advisable for legal or administrative reasons, and to require Grantee to sign any additional agreements or
undertakings that may be necessary to accomplish the foregoing.
24. Waiver. Grantee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or
be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by Grantee or any other grantee.
8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date below.
Nuance Communications, Inc.
By: Mark Benjamin, Chief Executive Officer
By signing below or accepting the Restricted Stock Units through the Company’s electronic acceptance procedure, Grantee
hereby accepts and agrees to be bound by all of the terms and conditions of this Agreement and the Plan.
Grantee:
Date
9
EXHIBITS
Exhibit A
Exhibit B
Exhibit C
2000 Stock Plan (as Amended and Restated January 17, 2019)
Vesting Schedule
Non-U.S. and Country-Specific Provisions
10
EXHIBIT A
2000 Stock Plan (as Amended and Restated January 17, 2019)
11
EXHIBIT B
Vesting Schedule
12
EXHIBIT C
NUANCE COMMUNICATIONS, INC.
2000 STOCK PLAN
(Amended and Restated February 28, 2018)
RESTRICTED STOCK UNIT AGREEMENT
NON-U.S. AND COUNTRY-SPECIFIC PROVISIONS
Terms and Conditions
This Exhibit C includes special terms and conditions applicable to Grantee if Grantee resides outside the U.S. and, as applicable, in
one of the countries listed below. These terms and conditions supplement or replace (as indicated) the terms and conditions set forth
in the Restricted Stock Unit Agreement to which it is attached. Capitalized terms used and not defined in this Exhibit C will have the
meanings set forth in the Restricted Stock Unit Agreement or the Plan, as applicable.
Notifications
This Exhibit C also includes information regarding exchange controls and certain other issues of which Grantee should be aware
with respect to his or her participation in the Plan. The information is based on the exchange control, securities and other laws in
effect in the respective countries as of July 2018. Such laws are often complex and change frequently. In addition, other laws and
regulations generally applicable to the acquisition, holding or disposal of securities and financial instruments as well as cross-border
fund transfers may apply to Grantee. As a result, Grantee should not rely on the information noted herein as the only source of
information relating to the consequences of Grantee’s participation in the Plan because the information may be out of date at the
time the Restricted Stock Units vest or Grantee receives or sells Shares.
In addition, the information in this Exhibit C is general in nature and may not apply to Grantee’s particular situation. The Company
is not in a position to assure Grantee of any particular result. Accordingly, Grantee should seek appropriate professional advice as to
how the relevant laws in Grantee’s country apply to Grantee’s situation.
*****
If Grantee is a citizen or resident of a country other than the one in which Grantee is currently residing and/or working, transfers
employment and/or residency after the Grant Date or is considered a resident of another country for local law purposes, the terms
and conditions and information contained herein may not be applicable to Grantee. The Company shall, in its sole
13
discretion, determine to what extent the terms and conditions herein shall apply to Grantee in such a case.
Terms and Conditions for all Non-U.S. Grantees
Nature of Grant. By accepting the grant of Restricted Stock Units, Grantee acknowledges, understands and agrees that:
(a) the Plan is established voluntarily by the Company, is discretionary in nature and may be amended, suspended or
terminated by the Company at any time to the extent permitted in the Plan;
(b) the grant of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to
receive future grants of restricted stock units, or benefits in lieu of restricted stock units, even if restricted stock units have been
awarded in the past;
(c) all decisions with respect to future grants of restricted stock units, if any, will be at the sole discretion of the Company;
(d) Grantee is voluntarily participating in the Plan;
(e) the grant of Restricted Stock Units and any Shares subject to the Restricted Stock Units, and the income from and value
of same, are not intended to replace any pension rights or compensation;
(f) unless otherwise agreed with the Company, the Restricted Stock Units and the Shares subject to the Restricted Stock
Units, and the income from and value of same, are not granted as consideration for, or in connection with, any service Grantee may
provide as a director of an Affiliate;
(g) the future value of the Shares underlying the Restricted Stock Units is unknown, indeterminable and cannot be
predicted with certainty;
(h) no claim or entitlement to compensation or damages shall arise from forfeiture of the Restricted Stock Units resulting
from Grantee’s termination as a Service Provider (for any reason whatsoever and whether or not later found to be invalid or in
breach of employment laws in the jurisdiction where Grantee is employed or the terms of Grantee’s employment agreement, if any);
(i) for purposes of the Restricted Stock Units, Grantee's status as a Service Provider will be considered terminated as of the
date Grantee is no longer actively providing services to the Company or one of its Affiliates (regardless of the reason for such
termination
14
and whether or not later to be found invalid or in breach of employment laws in the jurisdiction where Grantee is employed or the
terms of Grantee’s employment agreement, if any) and, unless otherwise expressly provided in the Agreement or determined by the
Company, Grantee’s right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of such date and will not be
extended by any notice period (e.g., Grantee's period of service would not include any contractual notice period or any period of
“garden leave” or similar period mandated under employment laws in the jurisdiction where Grantee is employed or the terms of
Grantee’s employment agreement, if any); the Administrator shall have the exclusive discretion to determine when Grantee is no
longer actively providing services for purposes of the Restricted Stock Units, and
(j) neither the Company, the Employer nor any Affiliate shall be liable for any exchange rate fluctuation between Grantee’s
local currency and the United States Dollar that may affect the value of the Restricted Stock Units or of any amounts due to Grantee
pursuant to the vesting and settlement of the Restricted Stock Units or the subsequent sale of any Shares acquired upon settlement.
No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any
recommendations regarding Grantee’s participation in the Plan or sale of the Shares acquired upon vesting and settlement of the
Restricted Stock Units. Grantee should consult with his or her own personal tax, legal and financial advisors regarding his or her
participation in the Plan before taking any action related to the Plan.
Data Privacy.
(a) Data Collection and Usage. The Company and the Employer may collect, process and use certain personal
information about Grantee, and persons closely associated with Grantee, including, but not limited to, Grantee’s name, home
address and telephone number, email address, date of birth, social insurance number, passport or other identification number
(e.g., resident registration number), salary, nationality, job title, any shares of stock or directorships held in the Company, details
of all Restricted Stock Units or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or
outstanding in Grantee’s favor (“Data”), for the purposes of implementing, administering and managing the Plan. The legal
basis, where required, for the processing of Data is Grantee’s consent. Where required under applicable law, Data may also be
disclosed to certain securities or other regulatory authorities where the Company's securities are listed or traded or regulatory
filings are made and the legal basis, where required, for such disclosure is the applicable laws.
(b) Stock Plan Administration Service Providers. The Company transfers Data to E*TRADE Corporate Financial
Services, Inc., and E*TRADE Securities LLC, an independent service provider, which is assisting the Company with the
implementation, administration and management of the Plan. In the future, the Company may select a different service provider
and share Data with such other provider serving in a similar manner. Grantee may be asked
15
to agree on separate terms and data processing practices with the service provider, with such agreement being a condition to the
ability to participate in the Plan.
(c) International Data Transfers. The Company and its service providers are based in the United States. Grantee’s
country or jurisdiction may have different data privacy laws and protections than the United States. For example, the European
Commission has issued a limited adequacy finding with respect to the United States that applies only to the extent companies
register for the EU-U.S. Privacy Shield program, which is open to companies subject to Federal Trade Commission jurisdiction
and in which the Company participates with respect to employee data. The Company's legal basis, where required, for the
transfer of Data is Grantee’s consent.
(d) Data Retention. The Company will hold and use the Data only as long as is necessary to implement, administer and
manage Grantee’s participation in the Plan, or as required to comply with legal or regulatory obligations, including under tax
and security laws.
(e) Voluntariness and Consequences of Consent Denial or Withdrawal. Participation in the Plan is voluntary and
Grantee is providing the consents herein on a purely voluntary basis. If Grantee does not consent, or if Grantee later seeks to
revoke Grantee’s consent, Grantee’s salary from or employment and career with the Employer will not be affected; the only
consequence of refusing or withdrawing Grantee’s consent is that the Company would not be able to grant this Restricted Stock
Unit or other awards to Grantee or administer or maintain such awards.
(f) Declaration of Consent. By accepting the Restricted Stock Units and indicating consent via the Company’s online
acceptance procedure, Grantee is declaring that he or she agrees with the data processing practices described herein and
consents to the collection, processing and use of Data by the Company and the transfer of Data to the recipients mentioned
above, including recipients located in countries which do not adduce an adequate level of protection from a European (or other
non-U.S.) data protection law perspective, for the purposes described above.
Grantee understands that the Company may rely on a different legal basis for the processing or transfer of Data in the future
and/or request that Grantee provide another data privacy consent form. If applicable and upon request of the Company, Grantee
agrees to provide an executed acknowledgement or data privacy consent form to the Employer or the Company (or any other
acknowledgements, agreements or consents that may be required by the Employer or the Company) that the Company and/or the
Employer may deem necessary to obtain under the data privacy laws in Grantee’s country, either now or in the future. Grantee
understands that he or she will not be able to participate in the Plan if he or she fails to execute any such acknowledgement,
agreement or consent requested by the Company and/or the Employer.
Arbitration. This provision replaces Section 12 of the Agreement:
16
Any dispute arising under this Agreement shall be resolved by binding and non-appealable arbitration under the rules of the
International Centre for Dispute Resolution (“ICDR”). The arbitration shall be conducted by a single arbitrator chosen by the parties
or, if the parties cannot agree upon a single arbitrator within thirty (30) days, then by a single arbitrator appointed by the ICDR. The
arbitration shall take place in Middlesex County, Massachusetts, U.S.A. and shall be conducted in the English language. All costs
and expenses of the arbitrator and of the arbitral institution shall be borne by the parties equally. Each party shall bear its own costs,
fees, and expenses (including of its own counsel, experts and witnesses) in preparing and presenting its case.
Foreign Asset/Account, Exchange Control, and Tax Reporting. Depending on Grantee’s country, Grantee may be subject to foreign
asset/account, exchange control and/or tax reporting requirements as a result of the vesting and settlement of the Restricted Stock
Units, the acquisition, holding, and/or transfer of Shares or cash resulting from participation in the Plan and/or the opening and
maintenance of a brokerage or bank account in connection with the Plan. Grantee may be required to report such assets, accounts,
account balances and values and/or related transactions to the applicable authorities in his or her country and/or repatriate funds
received in connection with the Plan to Grantee’s country within a certain time period and/or according to certain procedure. Grantee
acknowledges that he or she is responsible for ensuring compliance with any applicable foreign asset/account, exchange control and
tax reporting requirements and that Grantee should consult his or her personal legal advisor to ensure compliance with applicable
laws.
17
AUSTRALIA
Terms and Conditions
Nature of Plan and Restricted Stock Units. The Plan is a plan to which Subdivision 83A-C of the Income Tax Assessment Act 1997
(Cth) (the “Act”) applies (subject to the conditions in that Act).
In addition, the offer of the Restricted Stock Units is intended to comply with the provisions of the Corporations Act 2001,
Australian Securities and Investments Commission (“ASIC”) Regulatory Guide 49 and ASIC Class Order 14/1000. Additional
details are set forth in the Offer Document for the Offer of Restricted Stock Units to Australian Resident Employees.
AUSTRIA
Notifications
Exchange Control Information. If Grantee holds securities (including Shares acquired under the Plan) or cash (including proceeds
from the sale of Shares) outside Austria, Grantee will be required to report certain information to the Austrian National Bank if
certain thresholds are exceeded. Specifically, if Grantee holds securities outside Austria, reporting requirements will apply if the
value of such securities meets or exceeds (i) €30,000,000 as of the end of any calendar quarter, or (ii) €5,000,000 as of December 31.
Further, if Grantee holds cash in accounts outside Austria, monthly reporting requirements will apply if the aggregate transaction
volume of such cash accounts meets or exceeds €10,000,000. If the transaction value of all cash accounts abroad is less than
€10,000,000, no ongoing reporting requirements apply.
BELGIUM
Notifications
Foreign Asset/Account Reporting Information. Grantee will be required to report any securities (e.g., Shares acquired under the Plan)
or bank accounts (including brokerage accounts) held outside of Belgium on Grantee’s annual tax return. Grantee will also be
required to complete a separate report providing the National Bank of Belgium with details regarding any such account (including
the account number, the name of the bank in which such account is held and the country in which such account is located). This
report, as well as additional information on how to complete it, can be found on the website of the National Bank of Belgium,
www.nbb.be, under Kredietcentrales / Centrales des crédits caption.
Stock Exchange Tax Alert. A stock exchange tax may apply to transactions under the Plan, such as the sale of Shares acquired under
the Plan. Grantee should consult with his or her personal tax advisor for details regarding Grantee’s obligations with respect to the
stock exchange tax.
18
Brokerage Account Tax Alert. A brokerage account tax may apply if the average annual value of the securities Grantee holds
(including Shares acquired under the Plan) in a brokerage or other securities account exceeds certain thresholds. Grantee should
consult with his or her personal tax advisor for details regarding Grantee’s obligations with respect to the brokerage account tax.
BRAZIL
Terms and Conditions
Nature of Grant. This provision supplements the Nature of Grant section of this Exhibit C:
By accepting the Restricted Stock Units, Grantee agrees that he or she is (i) making an investment decision, (ii) Shares will be issued
to Grantee only if the vesting conditions are met and (iii) the value of the underlying Shares is not fixed and may increase or
decrease without compensation to Grantee.
Compliance with Law. By accepting the Restricted Stock Units, Grantee acknowledges that he or she agrees to comply with
applicable Brazilian laws and pay any and all Tax-Related Items associated with the vesting and settlement of the Restricted Stock
Units, the receipt of any dividends or dividend equivalents and the sale of Shares acquired under the Plan.
Notifications
Exchange Control Information. Grantee may be required to submit a declaration of assets and rights held outside of Brazil to the
Central Bank of Brazil, depending on the aggregate value of such assets and rights. If the aggregate value of such assets and rights is
US$100,000 or more but less than $100,000,000, a declaration must be submitted annually. If the aggregate value exceeds
$100,000,000, a declaration must be submitted quarterly. Assets and rights that must be reported include Shares acquired under the
Plan.
CANADA
Terms and Conditions
Payment After Vesting. This provision supplements Section 5 of the Agreement:
The discretion to pay cash in lieu of delivering Shares for the Restricted Stock Units, as described in Section 11(e) of the Plan, shall
not apply to any Restricted Stock Units in Canada. All vested Restricted Stock Units in Canada will be settled by the Company
issuing Shares to Grantee as described in this Section 5.
Nature of Grant. This provision replaces Section (i) of the Nature of Grant section of this Exhibit C:
19
For purposes of the Restricted Stock Units, Grantee’s status as a Service Provider will be considered terminated as of the date that is
the earliest of: (a) the date Grantee’s employment with the Employer is terminated, (b) the date Grantee receives written notice of
termination from the Employer, regardless of any notice period or period of pay in lieu of such notice mandated under the
employment laws in the jurisdiction where Grantee is employed or the terms of Grantee’s employment contract, if any, or (c) the
date Grantee is no longer actively providing services to the Company or an Affiliate (regardless of the reason for such termination
and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Grantee is employed or the
terms of Grantee’s employment contract, if any, and, unless otherwise expressly provided in the Agreement or determined by the
Company, Grantee’s right to vest in the Restricted Stock Units under the Plan, if any) will terminate as of such date; the
Administrator shall have the exclusive discretion to determine when Grantee is no longer actively providing services for purposes of
the Restricted Stock Units.
The following provisions will also apply if Grantee is a resident of Quebec:
Language Consent. The parties acknowledge that it is their express wish that the Agreement, including this Exhibit C, as well as all
documents, notices, and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be
drawn up in English.
Consentement Relatif à la Langue Utilisée. Les parties reconnaissent avoir expressément souhaité que la convention ainsi que cette
Exhibit C, ainsi que tous les documents, avis et procédures judiciares, éxécutés, donnés ou intentés en vertu de, ou liés directement
ou indirectement à la présente convention, soient rédigés en langue anglaise.
Data Privacy. This provision supplements the Data Privacy section of this Exhibit C:
Grantee hereby authorizes the Company and the Company’s representatives to discuss with and obtain all relevant information from
all personnel, professional or not, involved in the administration and operation of the Plan. Grantee further authorizes the Company
and any Affiliate, as well as E*Trade or such other stock plan service provider as may be selected by the Company to assist with the
Plan, to disclose and discuss the Plan with their advisors. Grantee further authorizes the Company and any Affiliate to record such
information and to keep such information in Grantee’s employee file.
20
Notifications
Securities Law Information. Grantee is permitted to sell Shares acquired under the Plan through the Company’s designated broker,
provided the resale of such Shares takes place outside of Canada through the facilities of a stock exchange on which the Shares are
listed. The Shares are currently listed on the NASDAQ Stock Market.
Foreign Asset/Account Reporting Information. Foreign specified property held by a Canadian resident must be reporting annually on
a Form T1135 (Foreign Income Verification Statement) if the total cost of the foreign specified property exceeds C$100,000 at any
time during the year. Thus, unvested Restricted Stock Units must be reported - generally at a nil cost- if the C$100,000 cost
threshold is exceeded because of other foreign specified property held by Grantee. When Shares are acquired, their cost generally is
the adjusted cost base (“ACB”) of the Shares. The ACB would ordinarily equal the fair market value of the Shares at the time of
acquisition, but if Grantee owns other Shares, this ACB may need to be averaged with the ACB of the other Shares. Grantee should
consult with his or her personal legal advisor regarding what reporting obligations, if any, will apply to Grantee with respect to
Shares acquired under the Plan.
CHINA
Terms and Conditions
Payment After Vesting. This provision supplements Section 5 of the Agreement:
To facilitate compliance with any applicable laws and regulations in China, Grantee agrees that the Company (or a brokerage firm
instructed by the Company, if applicable) is entitled to (i) sell all Shares issued to Grantee at settlement (on Grantee’s behalf and at
Grantee’s direction pursuant to this authorization), either at the time of settlement or when Grantee ceases employment with the
Employer, or at such other time determined by the Company, or (ii) require that any Shares acquired under the Plan be held with a
designated brokerage firm until such Shares are sold.
Grantee also agrees to sign any agreements, forms and/or consents that may be reasonably requested by the Company (or the
Company’s designated brokerage firm) to effectuate the sale of the Shares and acknowledges that neither the Company nor the
designated brokerage firm is under any obligation to arrange for such sale of Shares at any particular price (it being understood that
the sale will occur at the then-current market price) and that brokerage fees or commissions may be incurred in any such sale. In any
event, when Shares acquired under the Plan are sold, the proceeds of the sale of the Shares, less any Tax-Related Items and
brokerage fees or commissions, will be remitted to Grantee in accordance with applicable exchange control laws and regulations.
Exchange Control Restrictions. Grantee understands and agrees that, he or she will be required to immediately repatriate the
proceeds of the sale of Shares, any cash dividends or dividend
21
equivalents, or any other funds realized under the Plan to China. Grantee further understands that the repatriation of such funds may
need to be effected through a special exchange control account established by the Company or an Affiliate and he or she hereby
consents and agrees that such funds may be transferred to such special account prior to being delivered to Grantee’s personal
account.
Grantee also understands that the Company will deliver any sale proceeds, cash dividends or dividend equivalents or other funds to
Grantee as soon as practicable, but that there may be delays in distributing the funds due to exchange control requirements in China.
Funds may be paid to Grantee in U.S. dollars or local currency at the Company’s discretion. If the funds are paid in U.S. dollars,
Grantee will be required to set up a U.S. dollar bank account in China so that the proceeds may be deposited into this account. If the
funds are paid in local currency, the Company is under no obligation to secure any particular currency conversion rate and the
Company may face delays in converting the funds to local currency. Grantee agrees to bear any currency fluctuation risk between
the time the Shares are sold and the time (i) the Tax-Related Items are converted to local currency and remitted to the tax authorities
and/or (ii) the net proceeds are converted to local currency and distributed to Grantee.
Grantee further agrees to comply with any other requirements that may be imposed by the Company in the future in order to
facilitate compliance with exchange control requirements in China.
FRANCE
Terms and Conditions
Language Consent. By accepting the grant of the Restricted Stock Units, Grantee confirms having read and understood the
documents related to the grant (the Agreement and the Plan), which were provided in the English language. Grantee accepts the
terms of those documents accordingly.
Consentement Relatif à la Langue. En acceptant l'attribution du droit sur des actions assujetti à des restrictions, le Bénéficiaire
confirme avoir lu et compris les documents relatifs à l'attribution (le Contrat et le Plan) qui ont été fournis en langue anglaise. Le
Bénéficiaire accepte les dispositions de ces documents en connaissance de cause.
Notifications
Foreign Asset/Account Reporting Information. Grantee is required to report all foreign accounts (whether open, current or closed) to
the French tax authorities when filing his or her annual tax return. Additional monthly reporting requirements may apply if foreign
account balances exceed €1,000,000.
22
GERMANY
Notifications
Exchange Control Information. Grantee must report any cross-border payments in excess of €12,500 to the German Federal Bank
(Bundesbank). The report must be filed electronically and the form of report (Allgemeine Meldeportal Statistik) can be accessed via
the Bundesbank’s website (www.bundesbank.de). Grantee is responsible for complying with applicable reporting obligations and
should consult his or her personal legal advisor on this matter.
GREECE
There are no country-specific provisions.
HONG KONG
Terms and Conditions
Payment After Vesting. This provision supplements Section 5 of the Agreement:
The discretion to pay cash in lieu of delivering Shares for the Restricted Stock Units, as described in Section 11(e) of the Plan, shall
not apply to any Restricted Stock Units in Hong Kong. All vested Restricted Stock Units in Hong Kong will be settled by the
Company issuing Shares to Grantee as described in this Section 5.
Notifications
Securities Law Information. WARNING: The Restricted Stock Units and the Shares issued upon settlement of the Restricted Stock
Units do not constitute a public offering of securities and are available only to employees of the Company or its Affiliates.
The Agreement, the Plan and other incidental communication materials are intended only for the personal use of Grantees and not
for distribution to any other persons. The Agreement, the Plan and other incidental communication materials have not been
prepared in accordance with and are not intended to constitute a “prospectus” for a public offering of securities under the
applicable companies and securities legislation in Hong Kong, nor have the documents been reviewed by any regulatory authority in
Hong Kong. If Grantee has questions about any of the contents of the Agreement or the Plan, he or she should contact a legal or
other professional advisor.
23
HUNGARY
There are no country-specific provisions.
INDIA
Notifications
Exchange Control Information. Any funds realized in connection with the Plan (e.g., proceeds from the sale of Shares and cash
dividends paid on Shares) must be repatriated to India within a specified period of time after receipt as prescribed under Indian
exchange control laws. It is Grantee’s responsibility to obtain an inward remittance certificate (“FIRC”) from the bank where
Grantee deposits the foreign currency. Grantee should maintain the FIRC as evidence of the repatriation of funds in the event the
Reserve Bank of India or the Employer requests proof of repatriation.
Foreign Asset/Account Reporting Requirement. Grantee is required to declare foreign bank accounts and any foreign financial assets
(including Shares and, possibly, rights to Shares held outside India) in Grantee’s annual tax return. Grantee should consult his or her
personal tax advisor to ensure compliance with applicable reporting obligations.
IRELAND
Notifications
Director Reporting Information. Directors, shadow directors and secretaries of an Irish Affiliate are subject to certain notification
requirements under the Irish Companies Act. If Grantee is a director, shadow director or secretary of the Irish Affiliate, he or she
must notify the Irish Affiliate in writing of their interest in the Company and the number and class of Shares or rights to which the
interest relates within five days of the issuance or disposal of Shares or within five days of becoming aware of the event giving rise
to the notification. This disclosure requirement also applies to any rights or the Shares acquired by Grantee’s spouse or children
(under the age of 18) if Grantee is a director, shadow director or secretary of the Irish Affiliate.
ITALY
Terms and Conditions
Plan Document Acknowledgment. By accepting the Agreement, Grantee further acknowledges that Grantee has received a copy of
the Plan, has reviewed the Plan and the Agreement in their entirety and fully understands and accepts all provisions of the Plan and
the Agreement. Grantee further acknowledges that Grantee has read and specifically and expressly approves, without limitation, the
following sections of the Agreement: “Vesting”; “Payment After Vesting”; “Responsibility for Taxes”; “Damages”; “Arbitration”;
“Electronic Delivery and
24
Participation”; “Insider Trading Restrictions; Market Abuse Laws”; “Imposition of Other Requirements”; “Nature of Grant”; and
“Foreign Asset/Account, Exchange Control and Tax Reporting” (including the “Foreign Asset/Account Reporting Information”
below).
Notifications
Foreign Asset/Account Reporting Information. If Grantee holds investments abroad or foreign financial assets (e.g., cash, Shares)
that may generate income taxable in Italy, Grantee is required to report them on his or her annual tax return (UNICO Form, RW
Schedule) or on a special form if no tax return is due. The same reporting duties apply if Grantee is the beneficial owner of the
investments, even if Grantee does not directly hold investments abroad or foreign assets.
JAPAN
Notifications
Foreign Asset/Account Reporting Information. Grantee will be required to report details of any assets (such as Shares) held outside
of Japan as of December 31st to the extent such assets have a total net fair market value exceeding ¥50,000,000. Such report will be
due by March 15th each year. Grantee should consult with his or her personal tax advisor as to whether the reporting obligation
extends to any outstanding Restricted Stock Units held by Grantee and to ensure compliance with applicable reporting obligations.
KOREA
Notifications
Foreign Asset/Account Reporting Information. Korean residents must declare all foreign financial accounts (e.g., brokerage
accounts, bank accounts) to the Korean tax authorities and file a report with respect to such accounts if the value of such accounts
exceeds KRW 1 billion on any month-end date during the calendar year. Grantee should consult with his or her personal tax advisor
to ensure compliance with applicable reporting obligations.
NETHERLANDS
There are no country-specific provisions.
NEW ZEALAND
Securities Law Information. Grantee is being offered Restricted Stock Units which will allow Grantee to acquire Shares in
accordance with the terms of this Agreement and the Plan. The Shares, if issued will give Grantee a stake in the ownership of the
Company. Grantee may receive a return if dividends are paid.
25
If the Company runs into financial difficulties and is wound up, Grantee will be paid only after all creditors have been paid. Grantee
may lose some or all of Grantee’s investment, if any.
New Zealand law normally requires people who offer financial products to give information to investors before they invest. This
information is designed to help investors make an informed decisions. The usual rules do not apply for this offer because it is made
under an employee share scheme. As a result, Grantee may not be given all the information usually required. Grantee will also have
fewer legal protections for this investment. Grantee should ask questions, read all documents carefully, and seek independent
financial advice before committing.
The Shares are listed on the NASDAQ. This means that if Grantee acquires Shares under the Plan, Grantee may be able to sell the
Shares on the NASDAQ if there are interested buyers. Grantee may get less than Grantee invested. The price will depend on the
demand for the Shares.
For more information on risk factors impacting the Company’s business that may affect the value of the Shares, Grantee should refer
to the risk factors discussion in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q which are filed
with the U.S. Securities and Exchange Commission. These reports are available online at www.sec.gov., as well as on the
Company’s “Investor Relations” website at http://investors.nuance.com/investor-relations.
SINGAPORE
Notifications
Securities Law Information. The grant of the Restricted Stock Units is being made pursuant to the “Qualifying Person” exemption”
under section 273(1)(f) of the Securities and Futures Act (Chapter 289, 2006 Ed.) (“SFA”). The Plan has not been lodged or
registered as a prospectus with the Monetary Authority of Singapore. Grantee should note that the Restricted Stock Units are subject
to section 257 of the SFA and Grantee should not make any subsequent sale of the Shares in Singapore or any offer of such
subsequent sale of the Shares subject to the Restricted Stock Units in Singapore, unless such sale or offer is made (i) six months or
more after the Grant Date or (ii) pursuant to the exemptions under Part XIII Division 1 Subdivision (4) (other than section 280) of
the SFA (Chapter 289, 2006 Ed.) or pursuant to, and in accordance with the conditions of, any other applicable provisions of the
SFA. The Company’s Common Stock is traded on the NASDAQ Stock Market, which is located outside of Singapore, under the
ticker symbol “NUAN” and the Shares acquired under the Plan may be sold through this exchange.
CEO and Director Reporting Information. If Grantee is the chief executive officer (“CEO”) or a director (including an alternate,
substitute or shadow director) of a Singapore Affiliate, he or she is subject to certain notification requirements under the Singapore
Companies Act, regardless of whether he or she is a Singapore resident or employed in Singapore. Among
26
these requirements is the obligation to notify the Singapore Affiliate in writing when Grantee receives or disposes of an interest in
the Company or an Affiliate (e.g., Options, Restricted Stock Units, Shares). These notifications must be made within two (2)
business days of acquiring or disposing of any interest in the Company or any Affiliate or within two (2) business days of becoming
the CEO or a director if such an interest exists at that time.
SPAIN
Terms and Conditions
Nature of Grant. This section supplements the Nature of Grant section of this Exhibit C:
By accepting the Restricted Stock Units, consents to participate in the Plan and acknowledges having received a copy of the Plan.
Grantee understands that, as a condition of the grant of the Restricted Stock Units, the termination of Grantee’s employment for any
reason will automatically result in the forfeiture of any and all Restricted Stock Units that have not vested as of the date of
termination. In particular, Grantee understands and agrees that any unvested Restricted Stock Units will be forfeited without
entitlement to the underlying Shares or to any amount as indemnification in the event of a termination of Grantee’s employment
prior to vesting by reason of, including, but not limited to: death, disability, resignation, retirement, disciplinary dismissal adjudged
to be with cause, disciplinary dismissal adjudged or recognized to be without cause, individual or collective layoff on objective
grounds, whether adjudged to be with cause or adjudged or recognized to be without cause, material modification of the terms of
employment under Article 41 of the Workers’ Statute, relocation under Article 40 of the Workers’ Statute, Article 50 of the
Workers’ Statute, unilateral withdrawal by the Employer, and under Article 10.3 of Royal Decree 1382/1985.
Furthermore, Grantee understands that the Company has unilaterally, gratuitously and discretionally decided to grant the Restricted
Stock Units under the Plan to individuals who may be employees of the Company or an Affiliate throughout the world. The decision
is a limited decision that is entered into upon the express assumption and condition that any grant will not economically or otherwise
bind the Company or any Affiliate on an ongoing basis (other than as set forth in this Agreement and the Plan). Consequently,
Grantee understands that the Restricted Stock Units are granted on the assumption and condition that the Restricted Stock Units and
the related Shares shall not become a part of any employment or contract (either with the Company or any Affiliate) and shall not be
considered a mandatory benefit, salary for any purposes (including severance compensation) or any other right whatsoever. In
addition, Grantee understands that the grant of the Restricted Stock Units would not be made to Grantee but for the assumptions and
conditions referred to above; thus, Grantee acknowledges and freely accepts that should any or all of the assumptions be mistaken or
should any of the conditions not be met for any reason, then the grant of Restricted Stock Units shall be null and void.
27
Notifications
Securities Law Information. No “offer of securities to the public,” as defined under Spanish law, has taken place or will take place in
the Spanish territory in connection with the grant of the Restricted Stock Units under the Plan. This Agreement and the Plan have not
been nor will they be registered with the Comisión Nacional del Mercado de Valores, and do not constitute a public offering
prospectus.
Exchange Control Information. Grantee must declare the acquisition, ownership and disposition of stock in a foreign company
(including Shares acquired under the Plan) to the Spanish Dirección General de Comercio e Inversiones (the “DGCI”), the Bureau
for Commerce and Investments, which is a department of the Ministry of Economy and Competitiveness, for statistical purposes.
Generally, the declaration must be filed in January for Shares acquired or sold during (or owned as of December 31) the prior year;
however, if the value of the Shares acquired under the Plan or the amount of the sale proceeds exceeds €1,502,530, the declaration
must be filed within one month of the acquisition or sale, as applicable.
Grantee may be required to declare electronically to the Bank of Spain any foreign accounts (including brokerage accounts held
abroad), any foreign instruments (including Shares acquired under the Plan), and any transactions with non-Spanish residents
(including any payment of cash or Shares made by the Company) depending on the value of the transactions during the relevant year
or the balances in such accounts and the value of such instruments as of December 31 of the relevant year. Grantee should consult
with his or her personal legal advisor regarding the applicable thresholds and corresponding reporting requirements.
Foreign Asset/ Account Reporting Information. Grantee is required to report assets or rights deposited or held outside of Spain
(including the Shares acquired under the Plan or cash proceeds from the sale of the Shares acquired under the Plan) if the value per
type of asset or right exceeds a certain threshold. This obligation applies to assets and rights held as of December 31 and requires
that information on such assets and rights be included in Grantee’s tax return filed with the Spanish tax authorities for such year.
After such assets or rights are initially reported, the reporting obligation will apply for subsequent years only if the value of any
previously reported asset or right increases by more than a certain threshold or if ownership of such asset or right is transferred or
relinquished during the year. Grantee should consult with his or her personal tax advisor regarding the applicable thresholds and
corresponding reporting requirements.
SWITZERLAND
Notifications
Securities Law Information. The Restricted Stock Units are not intended to be publicly offered in or from Switzerland. Neither this
document nor any other materials relating to the Restricted Stock Units (i) constitutes a prospectus as such term is understood
pursuant to article 652a of the
28
Swiss Code of Obligations, or (ii) may be publicly distributed or otherwise made publicly available in Switzerland. Further, neither
this document nor any other offering or marketing material relating to the offering of the Restricted Stock Units has been or will be
filed with or approved or supervised by any Swiss regulatory authority (in particular, the Swiss Financial Market Supervisory
Authority (FINMA)).
TAIWAN
Notifications
Securities Law Information: The grant of the Restricted Stock Units (and the issuance, if any, of the underlying Shares) is available
only to certain employees of the Company and its Affiliates. It is not a public offer of securities by a Taiwanese company. Therefore,
it is exempt from registration in Taiwan.
Exchange Control Information: Grantee may remit foreign currency (including proceeds from the sale of Shares and the receipt of
any dividends) into Taiwan with a transaction amount of up to US$5,000,000 per year. If the transaction amount is TWD500,000 or
more in a single transaction, Grantee must submit a foreign exchange transaction form and also provide supporting documentation to
the satisfaction of the handling bank.
If the transaction amount is US$500,000 or more, Grantee may be required to provide additional supporting documentation to the
satisfaction of the bank. Grantee should consult with his or her personal advisor to ensure compliance with applicable exchange
control laws in Taiwan.
UNITED KINGDOM
Terms and Conditions
Payment after Vesting. This provision supplements Section 5 of the Agreement and Section 11(e) of the Plan:
Restricted Stock Units shall be settled only in Shares. In no event shall the Restricted Stock Units be paid in cash, notwithstanding
any discretion contained in Section 11(e) of the Plan to the contrary.
Responsibility for Taxes. This provision supplements Section 7 of the Agreement:
Without limitation to Section 7 of the Agreement, Grantee hereby agrees that Grantee is liable for all Tax-Related Items and hereby
covenants to pay all such Tax-Related Items, as and when requested by the Company or if different, the Employer or by Her
Majesty’s Revenue & Customs (“HRMC”) (or any other tax authority or any other relevant authority). Grantee also hereby agrees
to indemnify and keep indemnified the Company and, if different, the Employer
29
against any Tax-Related Items that they are required to pay or withhold or have paid or will pay to HMRC (or any other tax authority
or any other relevant authority) on Grantee’s behalf.
Notwithstanding the foregoing, if Grantee is a director or executive officer of the Company (within the meaning of Section 13(k) of
the Exchange Act), the terms of the immediately foregoing provision will not apply. In the event that Grantee is a director or
executive officer of the Company and the income tax is not collected from or paid by Grantee within ninety (90) days of the end of
the U.K. tax year in which an event giving rise to the indemnification described above occurs, the amount of any uncollected income
tax may constitute a benefit to Grantee on which additional income tax and National Insurance contributions (“NICs”) may be
payable. Grantee will be responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under
the self-assessment regime and for paying to the Company and/or the Employer (as appropriate) the amount of any employee NICs
due on this additional benefit.
NIC Joint Election. As a condition of participation in the Plan, Grantee agrees to accept liability for any secondary Class 1 National
Insurance contributions that may be payable by the Company and/or the Employer (or any successor to the Company or the
Employer) in connection with the Restricted Stock Units and any event giving rise to Tax-Related Items (“Employer NICs”).
Without prejudice to the foregoing, Grantee agrees to enter into the following joint election with the Company, the form of such
NICs Joint Election being formally approved by HMRC (the “NIC Joint Election”), and any other consent or elections required to
accomplish the transfer of the Employer NICs to Grantee. Grantee further agrees to execute such other elections as may be required
between Grantee and any successor to the Company and/or the Employer for the purpose of continuing the effectiveness of
Grantee’s NIC Joint Election. Grantee understands that the NIC Joint Election applies to any Restricted Stock Units granted to him
or her under the Plan after the execution of the NIC Joint Election. Grantee agrees that the Employer NICs may be collected by the
Company or the Employer by any of the methods set forth in Section 8 of the Agreement.
If Grantee does not enter into the NIC Joint Election, he or she will not be entitled to vest in the Restricted Stock Units or receive
any benefit in connection with the Restricted Stock Units unless and until he or she enters into a NIC Joint Election and no Shares or
other benefit pursuant to the Restricted Stock Units will be issued to Grantee under the Plan, without any liability to the Company
and/or the Employer.
IMPORTANT NOTE: By accepting the Agreement (whether by clicking on the acceptance buttons as part of the Company's
electronic acceptance procedure or by signing the Agreement in hard copy), Grantee is agreeing to be bound by the terms of the
NIC Joint Election. Grantee should read the terms of the NIC Joint Election carefully before accepting the Agreement and the
NIC Joint Election. However, if requested by the Company, Grantee agrees to separately execute the NIC Joint Election.
30
Exhibit 10.9
Execution Version
AMENDMENT NO. 1 (this “Amendment”), dated as of October 4, 2016, by and among NUANCE COMMUNICATIONS, INC., a
Delaware corporation (the “Borrower”), the LENDERS party hereto and BARCLAYS BANK PLC, as administrative agent (the “Administrative
Agent”), to the Revolving Credit Agreement dated as of April 15, 2016 (as amended, supplemented, amended and restated or otherwise modified prior
to the date hereof, the “Credit Agreement”), among the Borrower, the LENDERS party thereto from time to time, the Administrative Agent and the
other parties thereto from time to time. Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement.
WHEREAS, the parties hereto wish to amend the Credit Agreement as described herein;
WHEREAS, Section 9.08 of the Credit Agreement provides that the Borrower and the Required Lenders may amend the Credit
Agreement for certain purposes;
sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt and
Section 1. Amendment.
(a) Section 1.01 of the Credit Agreement is hereby amended by:
(i)
replacing the definition of “Alternate Currency” in its entirety with the following:
“Alternate Currency” shall mean each of euros, pounds, yen, Canadian dollars, Australian dollars and each other currency
(other than Dollars) that is a lawful currency that is readily available and freely transferable and convertible into Dollars as shall be agreed
from time to time between each applicable Issuing Bank and the Borrower.
(ii)
adding the following definitions to such Section in alphabetical order:
“Australian dollars” shall mean the lawful money of the Commonwealth of Australia.
“Requirements of Law” shall mean, collectively, all international, foreign, federal, state and local common law, statutes,
treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or
administration thereof by any Governmental Authority charged with the enforcement, interpretation or ad-ministration thereof, and all
applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental
Authority, in each case whether or not having the force of law.
Lenders that:
Section 2. Representations and Warranties. The Borrower represents and war-rants to the Administrative Agent and each of the
(a) The execution and delivery of this Amendment is within the Borrower’s organizational powers and has been duly authorized by
all necessary organizational action on the part of the Borrower. This Amendment has been duly executed and delivered by the Borrower and
constitutes, a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency or similar laws affecting creditors’ rights generally, subject to general principles of equity and subject to implied covenants of good
faith and fair dealing. This Amendment will not violate any Requirement of Law, will not violate or result in a default or require any consent or
approval under any indenture, agreement or other instrument binding upon any Loan Party or its property, or give rise to a right thereunder to
require any payment to be made by any Loan Party, in each case, except as could not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect or a material adverse effect on the rights and remedies of the Administrative Agent and the Lenders.
(b) After giving effect to this Amendment, the representations and warranties set forth in Article III of the Credit Agreement or in
any other Loan Document are true and correct in all material respects with the same effect as though made on and as of the date hereof (except
where such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall have been
true and correct in all material respects as of such earlier date).
(c) After giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.
Section 3. Effectiveness. This Amendment shall become effective on the date (the “Amendment Effective Date”) on which (i) the
Administrative Agent shall have received counterparts of this Amendment executed by the Borrower and the Required Lenders and (ii) each of the
following conditions shall have been satisfied in accordance with the terms thereof:
(a)
the representations and warranties set forth in Section 2 hereof shall be true and correct as of the Amendment Effective
Date;
(b)
the Borrower shall have paid all reasonable out-of-pocket costs and expenses of the Administrative Agent in connection
with the preparation, negotiation and execution of this Amendment (including the reasonable fees and expenses of Cahill Gordon & Reindel
LLP as counsel to the Administrative Agent); and
(c)
the Administrative Agent (or its counsel) shall have received a certificate of a Responsible Officer of the Borrower, dated
the Amendment Effective Date, certifying compliance with the condition set forth in clause (a) of this Section 3.
Section 4. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto on
separate counterparts, each of which when so executed and delivered shall be deemed to be an original, but all of which when taken together shall
constitute a single instrument. Delivery of an executed counterpart of a signature page of this Amendment by facsimile or any other electronic
transmission shall be effective as delivery of a manually executed counterpart hereof.
Section 5. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. The provisions of Sections 9.07, 9.11 and 9.15 of the Credit
Agreement shall apply to this Amendment to the same extent as if fully set forth herein.
Section 6. Headings. The headings of this Amendment are for purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
limit, impair, constitute a waiver of or otherwise affect
Section 7. Effect of Amendment. Except as expressly set forth herein, (i) this Amendment shall not by implication or otherwise
-2-
the rights and remedies of the Lenders, the Administrative Agent, any other Agent, any Issuing Bank or the Swingline Lender, in each case under the
Credit Agreement or any other Loan Document, and (ii) shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement or any other provision of either such agreement or any other Loan Document. Except as
expressly set forth herein, each and every term, condition, obligation, covenant and agreement contained in the Credit Agreement or any other Loan
Document is hereby ratified and re-affirmed in all respects and shall continue in full force and effect. Each Loan Party reaffirms its obligations under
the Loan Documents to which it is party and the validity of the Liens granted by it pursuant to the Security Documents. This Amendment shall
constitute a Loan Document for purposes of the Credit Agreement and from and after the Amendment Effective Date, all references to the Credit
Agreement in any Loan Document and all references in the Credit Agreement, as applicable, to “this Agreement,” “hereunder,” “hereof” or words of
like import referring to the Credit Agreement shall, unless expressly provided otherwise, refer to the Credit Agreement as amended hereby. Each of the
Loan Parties hereby consents to this Amendment and confirms that all obligations of such Loan Party under the Loan Documents to which such Loan
Party is a party shall continue to apply to the Credit Agreement as amended hereby.
[Remainder of page intentionally left blank]
-3-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the
day and year first above written.
NUANCE COMMUNICATIONS, INC.
By: /S/ T.F. Chagnon
Name: T.F. Chagnon
Title:
[Signature Page to Amendment No. 1]
BARCLAYS BANK PLC, as Administrative Agent and a Lender,
By: /s/ Mathew Cybul
Name: Mathew Cybul
Title: Assistant Vice President
[Signature page to Amendment No. 1]
AMENDMENT TO
THE NUANCE COMMUNICATIONS, INC. REVOLVING CREDIT AGREEMENT
THE UNDERSIGNED LENDER:
X Consents to Amendment
The Bank of Tokyo-Mitsubishi UFJ, Ltd.,
Name: Lillian Kim
Title: Director
By: /s/ Lillian Kim
[If a second signature is necessary:
By:
Name:
Title:]
Existing Revolving Facility Commitment amount1: $25,000,000
I For informational purposes only. In the event of immaterial discrepancies the Administrative Agent's Register will prevail.
[Signature Page to Amendment No. I]
AMENDMENT TO
THE NUANCE COMMUNICATIONS, INC. REVOLVING CREDIT AGREEMENT
THE UNDERSIGNED LENDER:
X Consents to Amendment
CITIBANK, N.A,
By: /s/ James Cahow
Name: James Cahow
Title: Director and Vice President
Existing Revolving Facility Commitment amount1: $20,000,000
1For informational purposes only. In the event of immaterial discrepancies the Administrative Agent's Register will prevail.
[Signature Page to Amendment No. 1]
AMENDMENT TO
THE NUANCE COMMUNICATIONS, INC. REVOLVING CREDIT AGREEMENT
THE UNDERSIGNED LENDER:
X Consents to Amendment
DEUTSCHE BANK AG NEW YORK BRANCH
By: /s/ Anca Trifan
Name: Anca Trifan
Title: Managing Director
By: /s Dusan Lazarov
Name: Dusan Lazarov
Title: Director
Existing Revolving Facility Commitment amount1: $35,000,000.00
1For informational purposes only. In the event of immaterial discrepancies the Administrative Agent's Register will prevail.
Signature Page to Amendment No. 1
AMENDMENT TO
THE NUANCE COMMUNICATIONS, INC. REVOLVING CREDIT AGREEMENT
THE UNDERSIGNED LENDER:
X Consents to Amendment
ROYAL BANK OF CANADA ,
(Name of Institution)
By: /s/ Sheldon Pinto
Name: Sheldon Pinto
Title: Authorized Signatory
Existing Revolving Facility Commitment amount1: $25,000,000
1For informational purposes only. In the event of immaterial discrepancies the Administrative Agent's Register will prevail.
[Signature Page to Amendment No. 1]
AMENDMENT TO
THE NUANCE COMMUNICATIONS, INC. REVOLVING CREDIT AGREEMENT
THE UNDERSIGNED LENDER:
X Consents to Amendment
SunTrust Bank,
By: /s/ Johnetta Bush
Name: Johnetta Bush
Title: Vice President
Existing Revolving Facility Commitment amount1: $25,000,000
1For informational purposes only. In the event of immaterial discrepancies the Administrative Agent's Register will prevail.
[Signature Page to Amendment No. 1]
The following is a list of subsidiaries of the Company as of September 30, 2019.
Exhibit 21.1
Jurisdiction
Type
Subsidiary Name
Agnitio Corp.
Caere LLC
Cerence AI LLC
Cerence Inc.
Cerence Operating Company
Cognition Technologies, Inc.
ComplyMD LLC
Consolidated Enterprise Corporation
Consolidated Healthcare Corporation
Consolidated Imaging Corporation
Consolidated Mobile Corporation
Ditech Networks, Inc.
Ditech Networks International, Inc.
eCopy, LLC
iScribes Inc.
eScription, Inc.
Language and Computing, Inc.
Montage Healthcare Solutions, Inc.
Nuance Diagnostics Holding, Inc.
Nuance Transcription Services, Inc.
PerSay, Inc.
Phonetic Systems, Inc.
Primordial Design, Inc.
Quadramed Quantim Corporation
SNAPin Software, LLC
SVOX USA, Inc.
TouchCommerce, Inc.
Viecore Federal Systems Division, Inc.
Viecore, LLC
VirtuOz, Inc.
VoiceBox Technologies LLC
J.A. Thomas and Associates, Inc.
Nuance Healthcare Diagnostics Solutions, Inc.
Winscribe USA Inc
New England Medical Transcription, Inc.
AMS Solutions Corporation
Accentus U.S., Inc. f/k/a Zylomed Inc.
Medical Transcription Education Center, Inc.
Physician Technology Partners, LLC
Nuance Enterprise Solutions & Services Corporation f/k/a Varolii Corporation
Washington
Information Technologies Australia Pty Ltd.
ITA Services Pty. Ltd.
Nuance Communications Australia Pty. Ltd.
OTE Pty. Limited
VoiceBox Technologies Australia Pty. Ltd.
Winscribe Australasia Pty. Ltd.
Australia
Australia
Australia
Australia
Australia
Australia
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Georgia
Georgia
Illinois
Maine
Massachusetts
Nevada
Ohio
Ohio
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
Domestic
International
International
International
International
International
International
Nuance Communications Austria GmbH
Nuance Communications Services Austria GmbH
SpeechMagic Holdings GmbH
Multi-Corp International Ltd.
Language and Computing N.V.
Nuance Communications Belgium Limited
Cerence BVBA
Nuance Bermuda Automotive, Ltd.
Nuance Bermuda Enterprise, Ltd.
Nuance Bermuda Healthcare, Ltd.
Nuance Communications Ltda.
Novitech Technologia e Servicos Ltda.
BlueStar Options Inc.
BlueStar Resources Ltd.
SpeechWorks BVI Ltd.
845162 Alberta Ltd.
Accentus Inc. f/k/a/ 2350111 Ontario Inc.
Cerence Holding Inc.
Ditech Networks Canada, Inc.
Cerence Acquisition ULC
Cerence Technologies Inc.
Nuance Communications Canada, Inc.
Zi Corporation
Zi Corporation of Canada, Inc.
Foxtrot Acquisition Limited
Foxtrot Acquisition II Limited
Huayu Zi Software Technology (Beijing) Co., Ltd.
Cerence Software Technology (Beijing) Co., Ltd.
Cerence Comm Tech (Shanghai) Co. Ltd.
USA Shenyu Technologies (Shenzhen) Co. Ltd.
Nuance Communications Finland OY
Voice Signal Technologies Europe OY
Nuance Communications France Sarl
VirtuOz S.A.
VoiceBox Technologies France SAS
Cerence GmbH
Nuance Communications GmbH
Nuance Communications Deutschland GmbH f/k/a Dictaphone Deutschland
GmbH
Nuance Communications Germany GmbH
Nuance Communications Healthcare Germany GmbH
Cerence Deutschland GmbH
Voicebox Technologies Deutschland GmbH
Asia Translation & Telecommunications Limited
Huayu Zi Software Technology Limited
Cerence Hong Kong Limited
Telecom Technology Corporation Limited
Zi Corporation (H.K.) Limited
Zi Corporation of Hong Kong Limited
Nuance Communications Hungary Kft
Ditech Communications India Pvt. Ltd.
Nuance India Pvt. Ltd.
Austria
Austria
Austria
Barbados
Belgium
Belgium
Belgium
Bermuda
Bermuda
Bermuda
Brazil
Brazil
British Virgin Islands
British Virgin Islands
British Virgin Islands
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Cayman Islands
Cayman Islands
China
China
China
China
Finland
Finland
France
France
France
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Hong Kong SAR
Hong Kong SAR
Hong Kong SAR
Hong Kong SAR
Hong Kong SAR
Hong Kong SAR
Hungary
India
India
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
Nuance Transcription Services India Private Limited f/k/a/ FocusMT India
Private Limited
ServTech Systems India Pvt. Ltd.
Transcend India Private Limited
Transcend MT Services Private Ltd.
Cerence Services (India) LLP
Nuance Communications International Holdings ULC
Nuance Communications Ireland Limited
Nuance Communications Services Ireland Ltd.
Diamond Auto Technologies Ireland Ltd.
Cerence Services Ireland Ltd.
Nuance Communications Healthcare International Ltd formally Voice Signal
Ireland Ltd.
Nuance Communications Israel Ltd.
PerSay Ltd.
Phonetic Systems Ltd.
Cerence s.r.l.
Loquendo S.p.a.
Nuance Communications Italy Srl
Cerence Japan K.K.
Nuance Japan K.K.
Cerence Ltd Korea
Caere Corporation Branch Mexico
Cerence B.V.
Cerence Holding B.V.
Cerence Services B.V.
Nuance Communications Netherlands B.V.
X-Solutions Group B.V.
Winscribe Inc. Ltd.
VoiceBox Technologies Europe B.V.
Heartland Asia (Mauritius) Ltd.
Nuance Communications Asia Pacific Pte. Ltd.
Nuance Communications Korea Ltd.
Nuance Communications Iberica SA
Agnitio S.L.
Cerence Operations SL
Cerence A.B.
Nuance Communications Sweden, A.B.
Cerence Switzerland AG
SVOX AG
Winscribe GmbH
Cerence Taiwan Ltd.
Nuance Communications Illetism Ltd. Sirketi
Nuance Turkey Iletisim Hizmetleri Ltd. Sirketi
Ditech Communications Europe Ltd.
Cerence Ltd.
Nuance Communications UK Limited
SpinVox Limited
Winscribe Europe Limited
TouchCommerce UK Ltd.
India
India
India
India
India
Ireland
Ireland
Ireland
Ireland
Ireland
Ireland
Israel
Israel
Israel
Italy
Italy
Italy
Japan
Japan
Korea
Mexico
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
New Zealand
Netherlands
Republic of Mauritius
Singapore
South Korea
Spain
Spain
Spain
Sweden
Sweden
Switzerland
Switzerland
Switzerland
Taiwan
Turkey
Turkey
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
Intenational
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
International
Nuance Communications, Inc.
Burlington, Massachusetts
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in Registration Statements on Form S-3 (Nos. 333-128397 and 333-61862) and Form S-8 (Nos.333-
229550, 333-224825, 333-215966, 333-211272, 333-201933, 333-188397, 333-182459, 333-179399, 333-178436, 333-164955, 333-157579, 333-151088, 333-
151087, 333‑153911, 333-148684, 333-145971, 333-143465, 333-142183, 333-141819, 333-134687, 333-128396, 333-124856, 333-122718, 333-108767, 333-
99729, 333-75406, 333-49656, and 333-33464) of Nuance Communications, Inc. of our reports dated November 22, 2019, relating to the consolidated financial
statements (which report expresses an unqualified opinion and includes an explanatory paragraph related to the Company’s change in method of accounting for
revenue from contracts with customers due to the adoption of the new revenue standard) and the effectiveness of Nuance Communications, Inc.’s internal control
over financial reporting, which appear in this Form 10-K.
/s/ BDO USA, LLP
Boston, Massachusetts
November 26, 2019
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002
I, Mark Benjamin, certify that:
1. I have reviewed this Annual Report on Form 10-K of Nuance Communications, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and in 15d-15(f)) for the registrant
and have:
a.
b.
c.
d.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
b.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over
financial reporting.
November 26, 2019
By:
/s/ Mark Benjamin
Mark Benjamin
Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel D. Tempesta, certify that:
1. I have reviewed this Annual Report on Form 10-K of Nuance Communications, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and in 15d-15(f)) for the registrant
and have:
a.
b.
c.
d.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
b.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over
financial reporting.
November 26, 2019
By:
/s/Daniel D. Tempesta
Daniel D. Tempesta
Executive Vice President and Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark Benjamin, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of Nuance Communications, Inc. on Form 10-K for the period ended September 30, 2019 fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial
condition and results of operations of Nuance Communications, Inc.
Exhibit 32.1
November 26, 2019
By:
/s/ Mark Benjamin
Mark Benjamin
Chief Executive Officer
I, Daniel D. Tempesta, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of Nuance Communications, Inc. on Form 10-K for the period ended September 30, 2019 fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial
condition and results of operations of Nuance Communications, Inc.
November 26, 2019
By:
/s/Daniel D. Tempesta
Daniel D. Tempesta
Executive Vice President and Chief Financial Officer