10-Q 1 nuan0331201810-q.htm 10-Q Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _____________________________________________
Form 10-Q
 _____________________________________________
(Mark One)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
Or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-27038
 _____________________________________________
NUANCE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
 _____________________________________________
Delaware
 
94-3156479
(State or Other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
1 Wayside Road
Burlington, Massachusetts
 
01803
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:
(781) 565-5000
 _____________________________________________
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  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
ý
Accelerated filer
¨
Emerging growth company
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
 
Smaller reporting company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

The number of shares of the Registrant’s Common Stock, outstanding as of May 3, 2018 was 295,432,178.

 




NUANCE COMMUNICATIONS, INC.
TABLE OF CONTENTS
 
 
 
 
 
Page
Item 1.
 
Condensed Consolidated Financial Statements (unaudited):
 
 
 
 
Consolidated Statements of Operations for the three and six months ended March 31, 2018 and 2017
 
 
 
Consolidated Statements of Comprehensive Loss for the three and six months ended March 31, 2018 and 2017
 
 
 
Consolidated Balance Sheets at March 31, 2018 and September 30, 2017
 
 
 
Consolidated Statements of Cash Flows for the six months ended March 31, 2018 and 2017
 
 
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
 
Item 1.
 
 
Item 1A.
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
Item 5.
 
 
Item 6.
 
 
 
 
Certifications
 
 






NUANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
 
(Unaudited)
(In thousands, except per share amounts)
Revenues:
 
 
 
 
 
 
 
Professional services and hosting
$
274,574

 
$
258,690

 
$
533,601

 
$
512,107

Product and licensing
161,284

 
159,258

 
323,094

 
311,010

Maintenance and support
78,366

 
81,625

 
159,174

 
164,114

Total revenues
514,224

 
499,573

 
1,015,869

 
987,231

Cost of revenues:
 
 
 
 
 
 
 
Professional services and hosting
181,051

 
164,170

 
353,579

 
329,062

Product and licensing
18,966

 
18,790

 
38,035

 
37,168

Maintenance and support
14,191

 
13,240

 
28,432

 
26,838

Amortization of intangible assets
14,780

 
17,218

 
30,136

 
32,760

Total cost of revenues
228,988

 
213,418

 
450,182

 
425,828

Gross profit
285,236

 
286,155

 
565,687

 
561,403

Operating expenses:
 
 
 
 
 
 
 
Research and development
74,185

 
66,232

 
147,551

 
132,554

Sales and marketing
94,187

 
93,674

 
196,147

 
195,190

General and administrative
74,288

 
41,518

 
127,180

 
81,308

Amortization of intangible assets
22,670

 
27,912

 
45,734

 
55,771

Acquisition-related costs, net
2,360

 
5,379

 
7,921

 
14,405

Restructuring and other charges, net
8,948

 
19,911

 
23,749

 
26,614

Impairment of goodwill
137,907

 

 
137,907

 

Total operating expenses
414,545

 
254,626

 
686,189

 
505,842

(Loss) income from operations
(129,309
)
 
31,529

 
(120,502
)
 
55,561

Other (expense) income:
 
 
 
 
 
 
 
Interest income
2,236

 
1,280

 
4,428

 
2,303

Interest expense
(33,866
)
 
(37,853
)
 
(69,936
)
 
(75,874
)
Other expense, net
(570
)
 
(19,623
)
 
(792
)
 
(20,232
)
Loss before income taxes
(161,509
)
 
(24,667
)
 
(186,802
)
 
(38,242
)
Provision (benefit) for income taxes
2,544

 
9,141

 
(75,977
)
 
19,494

Net loss
$
(164,053
)
 
$
(33,808
)
 
$
(110,825
)
 
$
(57,736
)
Net loss per share:
 
 
 
 
 
 
 
Basic
$
(0.56
)
 
$
(0.12
)
 
$
(0.38
)
 
$
(0.20
)
Diluted
$
(0.56
)
 
$
(0.12
)
 
$
(0.38
)
 
$
(0.20
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
294,103

 
291,021

 
292,720

 
289,976

Diluted
294,103

 
291,021

 
292,720

 
289,976











See accompanying notes.

1



NUANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
 
(Unaudited)
 
(In thousands)
Net loss
$
(164,053
)
 
$
(33,808
)
 
$
(110,825
)
 
$
(57,736
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment
4,096

 
17,947

 
5,611

 
(12,619
)
Pension adjustments

 
118

 
116

 
236

Unrealized (loss) gain on marketable securities
(71
)
 
27

 
(348
)
 
(4
)
Total other comprehensive income (loss), net
4,025


18,092

 
5,379

 
(12,387
)
Comprehensive loss
$
(160,028
)
 
$
(15,716
)
 
$
(105,446
)
 
$
(70,123
)










































See accompanying notes.

2


NUANCE COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS 
 
March 31,
2018
 
September 30,
2017
 
(Unaudited)
 
(In thousands, except per
share amounts)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
468,642

 
$
592,299

Marketable securities
153,008

 
251,981

Accounts receivable, less allowances for doubtful accounts of $12,458 and $14,333
411,648

 
395,392

Prepaid expenses and other current assets
107,929

 
88,269

Total current assets
1,141,227

 
1,327,941

Marketable securities
27,087

 
29,844

Land, building and equipment, net
172,521

 
176,548

Goodwill
3,472,849

 
3,590,608

Intangible assets, net
596,060

 
664,474

Other assets
147,016

 
142,508

Total assets
$
5,556,760

 
$
5,931,923

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
Current portion of long-term debt
$

 
$
376,121

Contingent and deferred acquisition payments (including $1.5 million due to a related party as of March 31, 2018, as more fully described in Note 16)
20,926

 
28,860

Accounts payable
92,767

 
94,604

Accrued expenses and other current liabilities
214,680

 
245,901

Deferred revenue
413,126

 
366,042

Total current liabilities
741,499

 
1,111,528

Long-term debt
2,311,484

 
2,241,283

Deferred revenue, net of current portion
469,575

 
423,929

Deferred tax liabilities
42,344

 
131,320

Other liabilities
98,176

 
92,481

Total liabilities
3,663,078

 
4,000,541

 
 
 
 
Commitments and contingencies (Note 15)

 

 
 
 
 
Stockholders’ equity:
 
 
 
Common stock, $0.001 par value per share; 560,000 shares authorized; 298,330 and 293,938 shares issued and 294,580 and 290,187 shares outstanding, respectively
298

 
294

Additional paid-in capital
2,697,869

 
2,629,245

Treasury stock, at cost (3,751 shares)
(16,788
)
 
(16,788
)
Accumulated other comprehensive loss
(95,963
)
 
(101,342
)
Accumulated deficit
(691,734
)
 
(580,027
)
Total stockholders’ equity
1,893,682

 
1,931,382

Total liabilities and stockholders’ equity
$
5,556,760

 
$
5,931,923









See accompanying notes.

3


NUANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Six Months Ended March 31,
 
2018
 
2017
 
(Unaudited)
(In thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(110,825
)
 
$
(57,736
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
107,055

 
116,644

Stock-based compensation
71,735

 
79,478

Non-cash interest expense
25,195

 
26,771

Deferred tax (benefit) provision
(90,331
)
 
5,643

Loss on extinguishment of debt

 
18,565

Impairment of goodwill
137,907

 

Impairment of fixed asset
1,780

 
10,944

Other
579

 
2,342

Changes in operating assets and liabilities, excluding effects of acquisitions:
 
 
 
Accounts receivable
(12,415
)
 
(1,431
)
Prepaid expenses and other assets
(22,059
)
 
(12,295
)
Accounts payable
(3,773
)
 
(1,000
)
Accrued expenses and other liabilities
5,230

 
(10,579
)
Deferred revenue
85,287

 
72,988

Net cash provided by operating activities
195,365

 
250,334

Cash flows from investing activities:
 
 
 
Capital expenditures
(25,326
)
 
(18,787
)
Payments for business and asset acquisitions, net of cash acquired (including cash payments of $3.5 million to a related party for fiscal 2018, see Note 16)
(12,768
)
 
(72,990
)
Purchases of marketable securities and other investments
(92,994
)
 
(153,851
)
Proceeds from sales and maturities of marketable securities and other investments
195,273

 
69,658

Net cash provided by (used in) investing activities
64,185

 
(175,970
)
Cash flows from financing activities:
 
 
 
Repayment and redemption of debt
(331,172
)
 
(634,055
)
Proceeds from issuance of long-term debt, net of issuance costs

 
838,959

Payments for repurchase of common stock

 
(99,077
)
Acquisition payments with extended payment terms
(16,927
)
 

Proceeds from issuance of common stock from employee stock plans
9,360

 
8,598

Payments for taxes related to net share settlement of equity awards
(44,006
)
 
(43,353
)
Other financing activities
(647
)
 
(206
)
Net cash (used in) provided by financing activities
(383,392
)
 
70,866

Effects of exchange rate changes on cash and cash equivalents
185

 
(1,210
)
Net (decrease) increase in cash and cash equivalents
(123,657
)
 
144,020

Cash and cash equivalents at beginning of period
592,299

 
481,620

Cash and cash equivalents at end of period
$
468,642

 
$
625,640











See accompanying notes.

4

NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1. Organization and Presentation
The condensed consolidated financial statements include the accounts of Nuance Communications, Inc. (“Nuance”, “we”, "our", or “the Company”) and our wholly-owned subsidiaries. We prepared the unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (the “U.S.” or the "United States") and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The condensed consolidated financial statements reflect all normal and recurring adjustments that, in our opinion, are necessary to present fairly our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period.
Although we believe the disclosures included herein are adequate to ensure that the condensed consolidated financial statements are fairly presented, certain information and footnote disclosures to the financial statements have been condensed or omitted in accordance with the rules and regulations of the SEC. Accordingly, the condensed consolidated financial statements and the footnotes included herein should be read in conjunction with the audited financial statements and the footnotes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire fiscal year or any future period.
2. Summary of Significant Accounting Policies
Recently Adopted Accounting Standards
In October 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory" ("ASU 2016-16"), which requires income tax consequences of inter-company transfers of assets other than inventory to be recognized when the transfer occurs. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We early adopted the guidance during the first quarter of fiscal year 2018. As a result, deferred tax liabilities of $0.9 million arising from inter-company transfers in prior years were recognized and recorded against the beginning balance of accumulated deficit in the first quarter of fiscal year 2018. The adoption of the guidance did not have a material impact on our consolidated financial statements for any period presented.
Recently Issued Accounting Standards
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.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), which is effective for fiscal years beginning after December 15, 2017 and the interim periods therein, with early adoption permitted. The guidance requires cash flows with multiple characteristics to be classified using a three-step process, including (i) determining whether explicit guidance is applicable, (ii) separating each identifiable source or use of cash flows, and (iii) determining the predominant source or use of cash flows when the source or use of cash flows cannot be separately identifiable. 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 February 2016, the FASB issued ASU No. 2016-02, "Leases" ("ASU 2016-02"). ASU 2016-02 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. ASU 2016-02 is effective for us in the first quarter of fiscal year 2020, and early application is permitted. We are currently evaluating the impact of our pending adoption of ASU 2016-02 on our consolidated financial statements, and we currently expect that most of our operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon our adoption of ASU 2016-02, which will increase our total assets and total liabilities that we report relative to such amounts prior to adoption.

5


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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. Although ASU 2016-01 retains many current requirements, it significantly revises accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments and is effective for us in the first quarter of fiscal year 2019. Based on the composition of our investment portfolio, we do not believe the adoption of ASU 2016-01 will have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers: Topic 606" ("ASU 2014-09"), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 permits two methods of adoption: (i) retrospective to each prior reporting period presented; or (ii) retrospective with the cumulative effect of initially applying the guidance recognized at the date of initial application. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of the new revenue standard for periods beginning after December 15, 2016 to December 15, 2017, with early adoption permitted but not earlier than the original effective date.  Accordingly, the updated standard is effective for us in the first quarter of fiscal 2019 and we do not plan to early adopt. In the first quarter of fiscal 2017, we commenced a project to assess the potential impact of the new standard on our consolidated financial statements and related disclosures. This project also includes the assessment and enhancement of our internal processes and systems to address the new standard. While we are continuing to assess all potential impacts of the new standard, we currently believe the most significant impact relates to our accounting for arrangements that include term-based software licenses bundled with maintenance and support. Under current GAAP, the revenue attributable to these software licenses is recognized ratably over the term of the arrangement because vendor-specific objective evidence ("VSOE") does not exist for the undelivered maintenance and support element as it is not sold separately. The requirement to have VSOE for undelivered elements to enable the separation of revenue for the delivered software licenses is eliminated under the new standard. Accordingly, under the new standard we will be required to recognize as revenue a portion of the arrangement fee upon delivery of the software license. While we currently expect revenue related to our professional services and cloud offerings to remain substantially unchanged, we are still in the process of evaluating the impact of the new standard on these arrangements. We plan to adopt this guidance beginning on October 1, 2018 and apply the cumulative catch-up transition method, with a cumulative adjustment to retained earnings as opposed to retrospectively adjusting prior periods.
3. Business Acquisitions
We continue to expand our solutions and integrate our technologies in new offerings through acquisitions. A summary of our acquisition activities is as follows:
Fiscal Year 2018
For the six months ended March 31, 2018, we completed an acquisition in our Healthcare segment for a total cash consideration of $8.7 million and contingent payments with a fair value of $0.5 million. As a result, we recognized goodwill of $6.8 million, and other intangible assets of $2.0 million, with a weighted average life of 2.0 years. The acquisition did not have a material impact on our condensed consolidated financial statements for the period.
In April 2018, we completed an acquisition in our Automotive segment for a total cash consideration of approximately $82 million, net of cash acquired. We are currently in the process of determining the total consideration transferred and the fair values of assets acquired and liabilities assumed, but do not expect this acquisition to have a material impact on our condensed consolidated financial statements.
Fiscal Year 2017
For the six months ended March 31, 2017, we completed several acquisitions in our Enterprise, Healthcare and Mobile segments for a total cash consideration of $34.4 million, 0.8 million shares of common stock valued at $13.4 million and contingent payments with a fair value of $2.0 million. As a result, we recognized goodwill of $27.0 million, and other intangible assets of $22.5 million, with a weighted average life of 6.2 years. Such acquisitions were not significant individually or in the aggregate.

6


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Acquisition-Related Costs, net
Acquisition-related costs include costs related to business 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.
A summary of acquisition-related costs, net is as follows (dollars in thousands):
 
Three Months Ended March 31,
 
Six Months Ended March 31,
2018
 
2017
 
2018
 
2017
Transition and integration costs
$
3,367

 
$
3,612

 
$
7,429

 
$
7,322

Professional service fees
940

 
2,974

 
1,451

 
7,991

Acquisition-related adjustments
(1,947
)
 
(1,207
)
 
(959
)
 
(908
)
Total
$
2,360

 
$
5,379

 
$
7,921

 
$
14,405

4. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill by reportable segment for the six months ended March 31, 2018 are as follows (dollars in thousands): 

Goodwill
 
Healthcare
 
Enterprise
 
Imaging
 
Mobile
 
Automotive
 
Other
 
Total
Balance as of September 30, 2017
$
1,418,334

 
$
673,472

 
$
257,792

 
$
1,241,010

 
$

 
$

 
$
3,590,608

Acquisitions
6,775

 

 

 

 

 

 
6,775

Purchase accounting adjustments
(336
)
 

 

 
2,697

 

 

 
2,361

Effect of foreign currency translation
1,725

 
3,536

 
407

 
5,344

 

 

 
11,012

Reorganization (Note 17)

 
11,991

 

 
(1,249,051
)
 
1,080,453

 
156,607

 

Impairment charge (a)

 

 

 

 

 
(137,907
)
 
(137,907
)
Balance as of March 31, 2018
$
1,426,498

 
$
688,999

 
$
258,199

 
$

 
$
1,080,453

 
$
18,700

 
$
3,472,849

                      
(a) Represents accumulated impairment charge as of March 31, 2018.
Other Intangible Assets
The changes in the carrying amount of intangible assets for the six months ended March 31, 2018 are as follows (dollars in thousands): 
 
Intangible
Assets
Balance at September 30, 2017
$
664,474

Acquisitions
2,620

Acquisition from a related party (Note 16)
5,000

Amortization
(75,870
)
Effect of foreign currency translation
(164
)
Balance at March 31, 2018
$
596,060

Interim Impairment Analysis
As more fully described in Note 17, effective the second quarter of fiscal year 2018, our Automotive business, which was previously included within our Mobile segment, became a standalone operating segment. In addition, we moved our Dragon TV business from our Mobile operating segment into our Enterprise operating segment.
As a result of the reorganization, the original Mobile reporting unit was separated into three discrete lines of business comprised of Automotive, Dragon TV, and Devices. 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

7


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

for impairment by comparing each component’s fair value to its carrying amount. The fair values of Automotive and Dragon TV significantly exceeded their carrying amounts. However, the carrying value of Devices exceeded its fair value by $35.1 million. The standalone multi-year operating plan reflects the ongoing consolidation of our handset manufacturer customer base and continued erosion of our penetration of the remaining market. As a result, we recorded a $35.1 million goodwill impairment for the second quarter of fiscal 2018. After the impairment charge, the goodwill assigned to Devices as of March 31, 2018 was immaterial. The reorganization did not result in any impairment charge of other intangible assets for the second quarter of fiscal 2018.
Also during the second quarter of fiscal 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. Our SRS business provides value-added services to mobile operators in emerging markets, primarily in India and Brazil. These markets have experienced recent and dramatic disruption as a result of accelerated change in competition and business models for our mobile operator customers. Specifically, the rapid shift away from a model where voice, data and text are offered separately toward unlimited bundled services at considerably lower costs has significantly reduced mobile operators’ demand for our services. This reduced demand materially impacts our future expectations for SRS revenues. As a result, executive management performed an updated strategic assessment and reduced the long-term growth rates and profitability contemplated in SRS's multi-year operating plan. 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 2018. Based on the result of the impairment assessment, the carrying value of SRS exceeded its fair value by $94.3 million. In addition, we recorded an $8.5 million deferred tax benefit related to SRS’s goodwill, which is amortized over time for tax purposes, and therefore increased the impairment charge by the same amount. As a result, we recorded a goodwill impairment charge of $102.8 million related to SRS for the second quarter of fiscal 2018. After the impairment charge, goodwill assigned to SRS was $17.8 million as of March 31, 2018. The assessment did not result in any impairment charge of other intangible assets for the second quarter of fiscal 2018.

For the purpose of the goodwill impairment analysis, the carrying value of each reporting unit is determined based on the allocation of assets and liabilities to the reporting unit based on the reporting unit’s revenue and operating expenses as a percentage of our consolidated revenue and operating expenses. Certain corporate assets and liabilities that are not directly attributable to the reporting unit’s operations and would not be transferred to a hypothetical purchaser of the reporting unit are excluded from the 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, where the income approach is weighted 50% and the market approach 50%. The fair values of Devices and Dragon TV, however, were determined solely based upon the income approach due to the lack of comparable public companies or comparable acquisitions. 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 use discount rates that are commensurate with 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.

Determining the fair value of a reporting unit involves 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. Additionally, if we continue to experience lower-than-expected growth in a reporting unit 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 goodwill impairment analysis. Such changes in assumptions and estimates may result in additional impairment of our goodwill and/or other long-lived assets, which could materially impact our future results of operations and financial conditions. Finally, as we continue to identify and assess other initiatives to better align our segment reporting structure with our long-term strategies, any additional changes in our organizational and segment reporting structure may result in additional impairment charges of goodwill and other intangible assets.

8


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Financial Instruments and Hedging Activities
Derivatives Not Designated as Hedges
Forward Currency Contracts
We utilize foreign currency forward contracts to mitigate the risks associated with changes in foreign currency exchange rates. Generally, we enter into such contracts for less than 90 days and have no cash requirements until maturity. At March 31, 2018 and September 30, 2017, we had outstanding contracts with a total notional value of $78.0 million and $69.0 million, respectively.
We did not designate any forward contracts as hedging instruments for the six months ended March 31, 2018 or 2017. Therefore, changes in fair value of foreign currency forward contracts were recognized within other expense, net in our condensed 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 condensed consolidated statement of cash flows.
A summary of the derivative instruments as of March 31, 2018 and September 30, 2017 is as follows (dollars in thousands):
Derivatives Not Designated as Hedges
 
Balance Sheet Classification
 
Fair Value
 
March 31,
2018
 
September 30,
2017
Foreign currency forward contracts
 
Prepaid expenses and other current assets
 
$
325

 
$
220

Foreign currency forward contracts
 
Accrued expenses and other current liabilities
 
(374
)
 
(373
)

A summary of loss related to the derivative instruments for the six months ended March 31, 2018 and 2017 is as follows (dollars in thousands):
 
 
Income Statement Classification
 
Three Months Ended March 31,
 
Six Months Ended March 31,
Derivatives Not Designated as Hedges
 
Income (loss) recognized
 
2018
 
2017
 
2018
 
2017
Foreign currency forward contracts
 
Other expense, net
 
$
(785
)
 
$
3,555

 
$
(1,182
)
 
$
(8,060
)
6. Fair Value Measurements
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.

9


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Assets and liabilities measured at fair value on a recurring basis at March 31, 2018 and September 30, 2017 consisted of the following (dollars in thousands):
 
March 31, 2018
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Money market funds(a)
$
342,877

 
$

 
$

 
$
342,877

Time deposits(b)

 
97,421

 

 
97,421

Commercial paper, $42,987 at cost(b)

 
43,084

 

 
43,084

Corporate notes and bonds, $79,574 at cost(b)

 
79,116

 

 
79,116

Foreign currency exchange contracts(b)

 
325

 

 
325

Total assets at fair value
$
342,877

 
$
219,946

 
$

 
$
562,823

Liabilities:
 
 
 
 
 
 
 
Foreign currency exchange contracts(b)
$

 
$
(374
)
 
$

 
$
(374
)
Contingent acquisition payments(c)

 

 
(11,752
)
 
(11,752
)
Total liabilities at fair value
$

 
$
(374
)
 
$
(11,752
)
 
$
(12,126
)

 
September 30, 2017
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Money market funds(a)
$
381,899

 
$

 
$

 
$
381,899

Time deposits(b)

 
85,570

 

 
85,570

Commercial paper, $41,805 at cost(b)

 
41,968

 

 
41,968

Corporate notes and bonds, $74,150 at cost(b)

 
74,067

 

 
74,067

Foreign currency exchange contracts(b)

 
220

 

 
220

Total assets at fair value
$
381,899

 
$
201,825

 
$

 
$
583,724

Liabilities:
 
 
 
 
 
 
 
Foreign currency exchange contracts(b)
$

 
$
(373
)
 
$

 
$
(373
)
Contingent acquisition payments(c)

 

 
(8,648
)
 
(8,648
)
Total liabilities at fair value
$

 
$
(373
)
 
$
(8,648
)
 
$
(9,021
)
 
(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 0.68 years as of March 31, 2018 and 0.72 years as of September 30, 2017.
(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.

As of September 30, 2017, $80.2 million of debt securities included within marketable securities were designated as held-to-maturity investments, which had a weighted average maturity of 0.27 years and an estimated fair value of $80.4 million based on Level 2 measurements. No debt securities were designated as held-to-maturity investments as of March 31, 2018.
The estimated fair value of our long-term debt approximated $2,558.6 million (face value $2,587.0 million) and $2,930.9 million (face value $2,918.1 million) as of March 31, 2018 and September 30, 2017, respectively, based on Level 2 measurements. The fair value of each borrowing was estimated using the averages of the bid and ask trading quotes at each respective reporting date. There was no balance outstanding under our revolving credit agreement as of March 31, 2018 or September 30, 2017.

10


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Additionally, contingent acquisition payments are recorded at fair values upon the acquisition, and 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.
The following table provides a summary of changes in the aggregate fair value of the contingent acquisition payments for all periods presented (dollars in thousands):
 
Three Months Ended March 31,
 
Six Months Ended March 31,
2018
 
2017
 
2018
 
2017
Balance at beginning of period
$
10,431

 
$
8,961

 
$
8,648

 
$
8,240

Earn-out liabilities established at time of acquisition

 
1,600

 
500

 
3,253

Payments and foreign currency translation
(79
)
 
(2,759
)
 
(96
)
 
(4,257
)
Adjustments to fair value included in acquisition-related costs, net
1,400

 
(1,425
)
 
2,700

 
(859
)
Balance at end of period
$
11,752

 
$
6,377

 
$
11,752

 
$
6,377

Contingent acquisition payments are to be made in periods through fiscal year 2019. As of March 31, 2018, the maximum amount payable based on the agreements was $19.6 million if the specified performance targets are achieved.
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (dollars in thousands): 
 
March 31,
2018
 
September 30,
2017
Compensation
$
119,683

 
$
159,951

Cost of revenue related liabilities
26,036

 
20,124

Consulting and professional fees
24,741

 
12,649

Accrued interest payable
22,318

 
26,285

Facility-related liabilities
5,006

 
7,158

Sales and marketing incentives
4,508

 
3,655

Sales and other taxes payable
1,537

 
3,125

Other
10,851

 
12,954

Total
$
214,680

 
$
245,901

8. Deferred Revenue
Deferred maintenance revenue consists of prepaid fees received for post-contract customer support for our products, including telephone support and the right to receive unspecified upgrades/updates on a when-and-if-available basis. Unearned revenue includes fees for up-front setup of the service environment; fees charged for on-demand service; certain software arrangements for which we do not have fair value of post-contract customer support, resulting in ratable revenue recognition for the entire arrangement on a straight-line basis; and fees in excess of estimated earnings on percentage-of-completion service contracts.
Deferred revenue consisted of the following (dollars in thousands): 
 
March 31,
2018
 
September 30,
2017
Current liabilities:
 
 
 
Deferred maintenance revenue
$
170,849

 
$
162,958

Unearned revenue
242,277

 
203,084

Total current deferred revenue
$
413,126

 
$
366,042

Long-term liabilities:
 
 
 
Deferred maintenance revenue
$
62,744

 
$
60,298

Unearned revenue
406,831

 
363,631

Total long-term deferred revenue
$
469,575

 
$
423,929


11


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Restructuring and Other Charges, net
Restructuring and other charges, net include restructuring expenses together with other charges that are unusual in nature, are the result of unplanned events, or arise outside of the ordinary course of our business.
The following table sets forth accrual activity relating to restructuring reserves for the six months ended March 31, 2018 (dollars in thousands): 
 
Personnel
 
Facilities
 
Total
Balance at September 30, 2017
$
1,546

 
$
9,159

 
$
10,705

Restructuring charges, net
8,670

 
3,012

 
11,682

Non-cash adjustment

 
(754
)
 
(754
)
Cash payments
(8,862
)
 
(2,897
)
 
(11,759
)
Balance at March 31, 2018
$
1,354

 
$
8,520

 
$
9,874

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):
 
Three Months Ended March 31,
 
2018
 
2017
 
Personnel
 
Facilities
 
Total Restructuring
 
Other Charges
 
Total
 
Personnel
 
Facilities
 
Total Restructuring
 
Other Charges
 
Total
Healthcare
$
788

 
$

 
$
788

 
$

 
$
788

 
$
577

 
$
593

 
$
1,170

 
$

 
$
1,170

Enterprise
265

 
7

 
272

 

 
272

 
388

 
257

 
645

 

 
645

Automotive
849

 

 
849

 

 
849

 
1,247

 

 
1,247

 

 
1,247

Imaging
83

 
(16
)
 
67

 

 
67

 
225

 
36

 
261

 

 
261

Other
1,095

 
558

 
1,653

 

 
1,653

 
1,806

 
51

 
1,857

 
10,773

 
12,630

Corporate
707

 
798

 
1,505

 
3,814

 
5,319

 
332

 
1,318

 
1,650

 
2,308

 
3,958

Total
$
3,787

 
$
1,347

 
$
5,134

 
$
3,814

 
$
8,948

 
$
4,575

 
$
2,255

 
$
6,830

 
$
13,081

 
$
19,911

 
Six Months Ended March 31,
 
2018
 
2017
 
Personnel
 
Facilities
 
Total Restructuring
 
Other Charges
 
Total
 
Personnel
 
Facilities
 
Total Restructuring
 
Other Charges
 
Total
Healthcare
$
3,301

 
$
25

 
$
3,326

 
$

 
$
3,326

 
$
2,561

 
$
870

 
$
3,431

 
$

 
$
3,431

Enterprise
527

 
2,367

 
2,894

 

 
2,894

 
812

 
864

 
1,676

 

 
1,676

Automotive
1,000

 

 
1,000

 

 
1,000

 
1,415

 

 
1,415

 

 
1,415

Imaging
1,306

 
(7
)
 
1,299

 

 
1,299

 
586

 
387

 
973

 

 
973

Other
1,344

 
569

 
1,913

 

 
1,913

 
1,850

 
51

 
1,901

 
10,773

 
12,674

Corporate
1,192

 
58

 
1,250

 
12,067

 
13,317

 
1,000

 
1,982

 
2,982

 
3,463

 
6,445

Total
$
8,670

 
$
3,012

 
$
11,682

 
$
12,067

 
$
23,749

 
$
8,224

 
$
4,154

 
$
12,378

 
$
14,236

 
$
26,614


Fiscal Year 2018
For the six months ended March 31, 2018, we recorded restructuring charges of $11.7 million, which included $8.7 million related to the termination of approximately 400 employees and $3.0 million related to certain excess facilities. Of these amounts, $5.1 million was recorded for the three months ended March 31, 2018, including $3.8 million related to employee termination and $1.3 million related to 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 $1.4 million to be substantially paid during fiscal year 2018, and the remaining balance of $8.5 million related to excess facilities to be paid through fiscal year 2025, in accordance with the terms of the applicable leases.
Additionally, for the six months ended March 31, 2018, we recorded $4.6 million related to the transition agreement of our former CEO and $7.5 million related to our remediation and restoration efforts after the malware incident that occurred in the third quarter of fiscal year 2017 (the "2017 Malware Incident"). Of these amounts, $2.3 million related to the CEO transition and $1.5 million related to the 2017 Malware Incident were recorded for the three months ended March 31, 2018. The cash payments associated with the CEO transition agreement are expected to be made through fiscal year 2020.

12


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fiscal Year 2017
For the six months ended March 31, 2017, we recorded restructuring charges of $12.4 million, which included $8.2 million related to the termination of approximately 220 employees and $4.2 million related to certain excess facilities. Of these amounts, $6.8 million was recorded for the three months ended March 31, 2017, including $4.6 million related to employee termination and $2.3 million related to certain excess facilities. These actions were part of our strategic initiatives focused on process optimization and cost reduction.
Additionally, for the six months ended March 31, 2017, we recorded $3.5 million related to the transition agreement of our former CEO and $10.8 million of non-cash impairment charge related to an internally developed software. Of these amounts, $2.3 million related to the CEO transition and $10.8 million of non-cash impairment charge were recorded for the three months ended March 31, 2017.
10. Debt
At March 31, 2018 and September 30, 2017, we had the following borrowing obligations (dollars in thousands): 
 
March 31,
2018
 
September 30,
2017
5.625% Senior Notes due 2026, net of deferred issuance costs of $5.4 million and $5.7 million, respectively. Effective interest rate 5.625%.
$
494,607

 
$
494,298

5.375% Senior Notes due 2020, net of unamortized premium of $0.8 million and $1.0 million, respectively, and deferred issuance costs of $1.9 million and $2.3 million, respectively. Effective interest rate 5.375%.
448,868

 
448,630

6.000% Senior Notes due 2024, net of deferred issuance costs of $1.9 million and $2.1 million, respectively. Effective interest rate 6.000%.
298,065

 
297,910

1.00% Convertible Debentures due 2035, net of unamortized discount of $129.1 million and $140.9 million, respectively, and deferred issuance costs of $6.3 million and $6.9 million, respectively. Effective interest rate 5.622%.
541,164

 
528,690

2.75% Convertible Debentures due 2031, net of unamortized discount of $1.5 million and deferred issuance costs of $0.1 million as of September 30, 2017. Effective interest rate 7.432%.
46,568

 
376,121

1.25% Convertible Debentures due 2025, net of unamortized discount of $87.6 million and $92.7 million, respectively, and deferred issuance costs of $4.0 million and $4.3 million, respectively. Effective interest rate 5.578%.
258,387

 
253,054

1.50% Convertible Debentures due 2035, net of unamortized discount of $37.7 million and $42.5 million, respectively, and deferred issuance costs of $1.3 million and $1.5 million, respectively. Effective interest rate 5.394%.
224,833

 
219,875

Deferred issuance costs related to our Revolving Credit Facility
(1,008
)
 
(1,174
)
Total debt
2,311,484

 
2,617,404

    Less: current portion

 
376,121

Total long-term debt
$
2,311,484

 
$
2,241,283


13


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the maturities of our borrowing obligations as of March 31, 2018 (dollars in thousands):
Fiscal Year
 
Convertible Debentures(1)
 
Senior Notes
 
Total
2018
 
$

 
$

 
$

2019
 

 

 

2020
 

 
450,000

 
450,000

2021
 

 

 

2022
 
310,463

 

 
310,463

Thereafter
 
1,026,488

 
800,000

 
1,826,488

Total before unamortized discount
 
1,336,951

 
1,250,000

 
2,586,951

Less: unamortized discount and issuance costs
 
(265,999
)
 
(9,468
)
 
(275,467
)
Total long-term debt
 
$
1,070,952

 
$
1,240,532

 
$
2,311,484

                 
(1) 
Pursuant to the terms of each convertible instrument, holders have the right to redeem the debt on specific dates prior to maturity. The repayment schedule above assumes that payment is due on the next redemption date after March 31, 2018.
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, beginning on June 15, 2017.
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.
5.375% Senior Notes due 2020
In August 2012, we issued $700.0 million aggregate principal amount of 5.375% Senior Notes due on August 15, 2020 in a private placement. In October 2012, we issued an additional $350.0 million aggregate principal amount of our 5.375% Senior Notes (collectively the “2020 Senior Notes”). The 2020 Senior Notes bear interest at 5.375% per year, payable in cash semi-annually in arrears. The 2020 Senior Notes are our unsecured senior obligations and are guaranteed on an unsecured senior basis by certain of our domestic subsidiaries, ("the Subsidiary Guarantors"). The 2020 Senior 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 2020 Senior 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 2020 Senior Notes.

14


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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. In January 2017, we recorded an extinguishment loss of $18.6 million. In accordance with the authoritative guidance for debt instruments, a loss on extinguishment is equal to the difference between the reacquisition price and the net carrying amount of the extinguished debt, including any unamortized debt discount or issuance costs. Following this activity, $450.0 million in aggregate principal amount of our 2020 Senior Notes remains outstanding.
At any time on or after August 15, 2018, we may redeem any or all or a portion of the 2020 Senior Notes at a redemption price equal to 100% of the aggregate principal amount, plus any accrued and unpaid interest to, but excluding, the redemption date.
6.0% Senior Notes due 2024
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, 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 to100% 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.
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. We used a portion of the proceeds to repurchase $38.3 million in aggregate principal on our 2.75% Senior Convertible Debentures due in 2031 and to repay the aggregate principal balance of $472.5 million on the term loan. Upon the repurchase and repayment of debts in December 2015, we recorded an extinguishment loss of $4.9 million in other expense, net, in the accompanying consolidated statements of operations. The 1.0% 2035 Debentures bear interest at 1.0% per year, payable in cash semi-annually in arrears. 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. The initial conversion price is approximately $27.22 per share. 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. As of March 31, 2018, none of the conversion criteria were met for the 1.0% 2035 Debentures. If the conversion criteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.
2.75% Convertible Debentures due 2031
In October 2011, we issued $690.0 million in aggregate principal amount of 2.75% Senior Convertible Debentures due in 2031 (the “2031 Debentures”) in a private placement. 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. The initial conversion price is approximately $32.30 per share. At issuance, we allocated $533.6 million to long-term debt, and $156.4 million has been recorded as additional paid-in capital, which is being 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

15


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

aggregate principal amount of our 1.5% 2035 Debentures. 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. In March 2017, we entered into separate privately negotiated agreements with certain holders of our 2031 Debentures to repurchase $17.8 million in aggregate principal with proceeds received from the issuance of our 1.25% Senior Convertible Debentures issued in March 2017. Following these activities, $377.7 million in aggregate principal amount of our 2031 Debentures remained outstanding as of September 30, 2017, which was included within the total current liabilities.
In November 2017, holders of approximately $331.2 million in aggregate principal amount of the outstanding 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. On or after November 6, 2017, we have the right to call for redemption of some or all of the remaining outstanding 2031 Debentures.
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. We used the remaining net proceeds, together with cash on hand to redeem and retire $331.2 million of our outstanding 2031 Debentures in November 2017. 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, 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, only in the following circumstances and to the following extent: (i) prior to October 1, 2024, on any date during any fiscal quarter beginning after June 30, 2017 (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, including any additional interest to, but excluding, the repurchase date. As of March 31, 2018, none of the conversion criteria were met for the 1.25% 2025 Debentures. If the conversion criteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.
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. 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. 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

16


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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. The initial conversion price is approximately $23.26 per share. 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. As of March 31, 2018, none of the conversion criteria were met for the 1.5% 2035 Debentures. If the conversion criteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.
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 March 31, 2018, after taking into account the outstanding letters of credit of $4.1 million, we had $238.4 million available for 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 March 31, 2018, we are in compliance with all the debt covenants.
11. Stockholders' Equity
Share Repurchases
On April 29, 2013, our Board of Directors approved a share repurchase program for up to $500.0 million. On April 29, 2015, 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 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.
There were no share repurchases for the six months ended March 31, 2018. For the six months ended March 31, 2017, we repurchased 5.8 million shares of our common stock for $99.1 million under the program. Since the commencement of the program, we have repurchased an aggregate of 46.5 million shares for $806.6 million. The amount paid in excess of par value is recognized in additional paid in capital. Shares were retired upon repurchase. As of March 31, 2018, approximately $193.4 million remained available for future repurchases under the program.

17


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12. Net Loss Per Share
The following table sets forth the computation for basic and diluted net loss per share (dollars in thousands, except per share amounts): 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
Net loss
$
(164,053
)
 
$
(33,808
)
 
$
(110,825
)
 
$
(57,736
)
Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding — Basic
294,103

 
291,021

 
292,720

 
289,976

Dilutive effect of employee stock compensation plans (a)

 

 

 

Weighted average common shares outstanding — Diluted
294,103

 
291,021

 
292,720

 
289,976

Net loss per share:
 
 
 
 
 
 
 
Basic
$
(0.56
)
 
$
(0.12
)
 
$
(0.38
)
 
$
(0.20
)
Diluted
$
(0.56
)
 
$
(0.12
)
 
$
(0.38
)
 
$
(0.20
)
 
 
 
 
 
 
 
 
Anti-dilutive equity instruments excluded from the calculation
2,679

 
3,875

 
4,178

 
5,126

Contingently issuable awards excluded from the calculation (b)
2,836

 
4,334

 
2,387

 
3,478

              
(a) For all periods presented, there is no dilutive effect of equity instruments as the impact of these items is anti-dilutive due to the net loss incurred. 
(b) Contingently issuable 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.
13. Stock-Based Compensation
As of March 31, 2018, we had 13.5 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 condensed consolidated statements of operations related to stock-based compensation are as follows (dollars in thousands): 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
2018
 
2017
 
2018
 
2017
Cost of professional services and hosting
$
6,322

 
$
8,080

 
$
13,729

 
$
16,490

Cost of product and licensing
112

 
102

 
378

 
194

Cost of maintenance and support
885

 
1,010

 
2,089

 
1,987

Research and development
8,396

 
8,398

 
18,092

 
16,888

Sales and marketing
8,366

 
11,018

 
19,042

 
22,987

General and administrative
9,668

 
11,740

 
18,405

 
20,932

Total
$
33,749

 
$
40,348

 
$
71,735

 
$
79,478

Stock Options
The table below summarizes activities related to stock options for the six months ended March 31, 2018:
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value(a)
Outstanding at September 30, 2017
23,807

 
$
15.39

 
 
 
 
Exercised
(1,859
)
 
$
3.41

 
 
 
 
Outstanding at March 31, 2018
21,948

 
$
16.40

 
2.6 years
 
$
0.1
 million
Exercisable at March 31, 2018
21,939

 
$
16.41

 
2.6 years
 
$
0.1
 million
Exercisable at March 31, 2017
1,042,671

 
$
16.36

 
0.7 years
 
$
1.0
 million
(a) 
The aggregate intrinsic value in this table represents any excess of the closing market price of our common stock as of March 31, 2018 ($15.75) over the exercise price of the underlying options.

18


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The aggregate intrinsic value of stock options exercised during the six months ended March 31, 2018 and 2017 was $0.02 million and $0.8 million, respectively.

Restricted Units
Restricted units are not included in issued and outstanding common stock until the shares are vested and released. The purchase price for vested restricted units is $0.001 per share. The table below summarizes activities relating to restricted units for the six months ended March 31, 2018:
 
Number of Shares Underlying Restricted Units — Contingent Awards
 
Number of Shares Underlying Restricted Units — Time-Based Awards
Outstanding at September 30, 2017
5,043,931

 
6,477,164

Granted
1,784,982

 
6,005,863

Earned/released
(1,687,862
)
 
(4,176,917
)
Forfeited
(1,236,037
)
 
(457,533
)
Outstanding at March 31, 2018
3,905,014

 
7,848,577

Weighted average remaining recognition period of outstanding restricted units
1.1 years

 
1.8 years

Unrecognized stock-based compensation expense of outstanding restricted units
$48.3 million
 
$86.0 million
Aggregate intrinsic value of outstanding restricted units(a)
$61.5 million
 
$123.7 million
                    
(a) 
The aggregate intrinsic value in this table represents any excess of the closing market price of our common stock as of March 31, 2018 ($15.75) over the purchase price of the underlying restricted units.
A summary of the weighted-average grant-date fair value of restricted units granted, and the aggregate intrinsic value of restricted units vested during the periods noted is as follows: 
 
Six Months Ended March 31,
2018
 
2017
Weighted-average grant-date fair value per share
$
15.67

 
$
16.05

Total intrinsic value of shares vested (in millions)
$
94.0

 
$
99.5

14. Income Taxes
The components of loss before income taxes are as follows (dollars in thousands):
 
Three Months Ended March 31,
 
Six Months Ended March 31,
2018
 
2017
 
2018
 
2017
Domestic
$
(79,921
)
 
$
(41,803
)
 
$
(119,952
)
 
$
(89,386
)
Foreign
(81,588
)
 
17,136

 
(66,850
)
 
51,144

Loss before income taxes
$
(161,509
)
 
$
(24,667
)
 
$
(186,802
)
 
$
(38,242
)
The components of provision (benefit) for income taxes are as follows (dollars in thousands):
 
Three Months Ended March 31,
 
Six Months Ended March 31,
2018
 
2017
 
2018
 
2017
Domestic
$
5,197

 
$
4,822

 
$
(75,669
)
 
$
8,981

Foreign
(2,653
)
 
4,319

 
(308
)
 
10,513

Provision (benefit) for income taxes
$
2,544

 
$
9,141

 
$
(75,977
)
 
$
19,494

Effective tax rate
(1.6
)%
 
(37.1
)%
 
40.7
%
 
(51.0
)%
On December 22, 2017, the Tax Cuts and Jobs Act ("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.
As a result of the TCJA, we remeasured certain deferred tax assets and liabilities at the lower rates and recorded approximately $87.0 million of tax benefits for the six months ended March 31, 2018, which also reflected an expense of $10.0 million for the

19


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

three months ended March 31, 2018 as we revised our estimates of the timing and amounts of the temporary differences. Additionally, we recorded a $2.0 million provision for the deemed repatriation of foreign cash and earnings for the six months ended March 31, 2018, which also reflected a benefit of $12.0 million for the three months ended March 31, 2018 as we revised our estimates of foreign earnings and profits related to the mandatory repatriation tax.
The provisional amounts above were based upon the estimates of (i) temporary differences at the end of the upcoming tax year, (ii) the timing the temporary differences are expected to reverse, (iii) foreign earnings and profits, and (iv) foreign income taxes. The assessment is incomplete as of March 31, 2018. As our assessment is ongoing, these amounts may materially change as we revise our assumptions and estimates based on new information available to us, changes in our interpretations, additional guidance to be issued, and actions we may take as a result of the TCJA. We are still evaluating the full impact of other provisions of the TCJA, which may materially increase or decrease our income tax provision. The assessment is expected to be completed no later than the first quarter of fiscal year 2019.
In addition, as more fully described in Note 4, in connection with the impairment charge of SRS's goodwill, we recognized a tax benefit of $8.5 million related to the portion of deductible goodwill in Brazil for the three and six months ended March 31, 2018.
15. Commitments and Contingencies
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 at times 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 estimates are based only on the best information available at the time. Due to the inherent uncertainties involved in claims and legal proceedings and in estimating 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 of March 31, 2018, accrued losses were not material to our condensed consolidated financial statements, and we do not expect any pending matter to have a material impact on our condensed consolidated financial statements.
Guarantees and Other
We include indemnification provisions in the contracts we enter 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.
16. Related Party Transaction
In January 2018, we entered into a software and license agreement (the "License Agreement") with Magnet Systems, Inc. ("Magnet"). 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 Nuance a perpetual software license to certain technology for a one-time payment of

20


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$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. The fees under the Service Agreement total $2.0 million, payable in six equal monthly installments upon the signature of the statement of work, which is to be finalized within 90 days following the effective date of the License Agreement.
As of March 31, 2018, $1.5 million related to the software license was included within Contingent and Deferred acquisition payments.
17. Segment and Geographic Information
During the first quarter of fiscal year 2018, we commenced a reorganization of our segment reporting structure to allow our Chief Operating Decision Maker ("CODM") greater focus on implementing strategic initiatives and identifying future investment opportunities. During the second quarter of fiscal year 2018, we established our Automotive business as a separate operating segment. Additionally, we moved our Dragon TV business from our Mobile operating segment into our Enterprise operating segment to consolidate our telecommunications market resources. Finally, our SRS business and our Devices business, originally included within our Mobile operating segment, are now presented within our Other segment. As a result, segment information for the three and six months ended March 31, 2018 and 2017 has been recast to reflect the new segment reporting structure.
Our 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, 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.
The Imaging segment is primarily engaged in software solutions and expertise that help professionals and organizations to gain optimal control of their document and information processes through scanning and print management.
The Other segment includes our SRS business and our Devices business. Our SRS business provides value-added services to mobile operators in emerging markets, primarily in India and Brazil. Our Devices business provides speech recognition solutions and predictive text technologies to handset devices.

21


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We do not track our assets by segment. Consequently, it is not practical to show assets or depreciation by segment. The following table presents segment results along with a reconciliation of segment profit to loss before income taxes (dollars in thousands): 
 
Three Months Ended
 
Six Months Ended
 
March 31,
 
March 31,
 
2018
 
2017
 
2018
 
2017
Segment revenues:
 
 
 
 
 
 
 
Healthcare
$
261,239

 
$
238,466

 
$
506,775

 
$
477,673

Enterprise
112,668

 
122,126

 
233,266

 
237,504

Automotive
68,950

 
61,725

 
130,448

 
120,600

Imaging
48,933

 
53,048

 
104,563

 
105,137

Other
26,524

 
35,732

 
52,087

 
66,201

Total segment revenues
518,314

 
511,097

 
1,027,139

 
1,007,115

Less: acquisition-related revenues adjustments
(4,090
)
 
(11,524
)
 
(11,270
)
 
(19,884
)
Total revenues
514,224

 
499,573

 
1,015,869

 
987,231

Segment profit:
 
 
 
 
 
 
 
Healthcare
87,350

 
83,328

 
164,769

 
161,896

Enterprise
25,722

 
40,349

 
63,451

 
70,267

Automotive
28,875

 
29,312

 
52,082

 
56,942

Imaging
12,257

 
18,470

 
27,900

 
36,086

Other
6,084

 
12,548

 
9,505

 
20,430

Total segment profit
160,288

 
184,007

 
317,707

 
345,621

Corporate expenses and other, net
(65,093
)
 
(30,186
)
 
(109,757
)
 
(61,148
)
Acquisition-related revenues
(4,090
)
 
(11,524
)
 
(11,270
)
 
(19,884
)
Stock-based compensation
(33,749
)
 
(40,348
)
 
(71,735
)
 
(79,478
)
Amortization of intangible assets
(37,450
)
 
(45,130
)
 
(75,870
)
 
(88,531
)
Acquisition-related costs, net
(2,360
)
 
(5,379
)
 
(7,921
)
 
(14,405
)
Restructuring and other charges, net
(8,948
)
 
(19,911
)
 
(23,749
)
 
(26,614
)
Impairment of goodwill
(137,907
)
 

 
(137,907
)
 

Other expenses, net
(32,200
)
 
(56,196
)
 
(66,300
)
 
(93,803
)
Loss before income taxes
$
(161,509
)
 
$
(24,667
)
 
$
(186,802
)
 
$
(38,242
)
No country outside of the United States provided greater than 10% of our total revenues. Revenues, classified by the major geographic areas in which our customers are located, were as follows (dollars in thousands): 
 
Three Months Ended
 
Six Months Ended
 
March 31,
 
March 31,
 
2018
 
2017
 
2018
 
2017
United States
$
367,613

 
$
352,937

 
$
731,899

 
$
702,107

International
146,611

 
146,636

 
283,970

 
285,124

Total revenues
$
514,224

 
$
499,573

 
$
1,015,869

 
$
987,231


18. Supplemental Cash Flow Information

Cash paid for Interest and Income Taxes:
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
 
(Dollars in thousands)
Interest paid
$
21,427

 
$
34,814

 
$
48,708

 
$
45,883

Income taxes paid
$
4,233

 
$
4,432

 
$
8,833

 
$
8,636


22


NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Non-Cash Investing and Financing Activities:
From time to time, we issue shares of our common stock in connection with our business and asset acquisitions, including shares issued as payment for acquisitions, shares initially held in escrow, and shares issued as payment for contingent consideration, as more fully described in Note 3.


23



Item 2. 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. 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 condensed consolidated financial statements.

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures About Market Risk” under Items 2 and 3, respectively, of Part I of this report, and the sections entitled “Legal Proceedings” and “Risk Factors,” under Items 1 and 1A, respectively, of Part II of this report, 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. These forward-looking statements include predictions regarding:
our future bookings, revenues, cost of revenues, research and development expenses, selling, general and administrative expenses, amortization of intangible assets and gross margin;
our strategy relating to our segments;
our programs to reduce costs and optimize processes;
market trends;
technological advancements;
the potential of future product releases;
our product development plans and the timing, amount and impact of investments in research and development;
future acquisitions, and anticipated benefits from acquisitions;
international operations and localized versions of our products; and
the conduct, timing and outcome of 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 for many reasons, including the risks described in Item 1A — “Risk Factors” and elsewhere in this Quarterly Repo