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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
 
94-3156479
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification No.)
 
 
 
 
1 Wayside Road
 
01803
Burlington,
Massachusetts
 
 
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (781565-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common stock, $0.001 par value
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
þ
 
Accelerated filer
¨
Smaller reporting company
 
Non-accelerated filer
¨
 
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.

DOCUMENTS INCORPORATED BY REFERENCE
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.
 



NUANCE COMMUNICATIONS, INC.
TABLE OF CONTENTS
 
 
Page
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
PART IV
Item 15.



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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:

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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

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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

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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.

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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.

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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.

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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.

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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;

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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;

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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;

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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;

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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.

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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.

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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;

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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.

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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.

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Item 4.
Mine Safety Disclosures
Not applicable.

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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.
marketperformance.jpg
* $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.
 
100.00

106.20

94.06

101.98

112.36

105.81

Russell 2000
 
100.00

101.25

116.91

141.15

162.66

148.20

S&P Software & Services Select
100.00

109.82

131.33

156.88

218.07

225.09




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Issuer Purchases of Equity Securities

The following is a summary of our share repurchases for the three months ended September 30, 2019:
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
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)
July 1, 2019 - July 31, 2019
 

 

 

 
$
436,384,658

August 1, 2019 - August 31, 2019
 
391,114

 
$
15.34

 
391,114

 
$
430,383,689

September 1, 2019 - September 30, 2019
 

 

 

 
$
430,383,689

Total
 
391,114

 
 
 
391,114

 
 
              
(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.


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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.
 
Fiscal Year Ended September 30,
(In millions, except per share amounts)
2019
 
2018
 
2017
 
2016
 
2015
 
(ASC 606)
 
(ASC 605)
 
(ASC 605)
 
(ASC 605)
 
(ASC 605)
Continuing Operations (a):
 

 
 

 
 

 
 

 
 

Total revenues
$
1,823.1

 
$
1,842.3

 
$
1,728.2

 
$
1,720.3

 
$
1,721.5

Gross profit
$
1,043.2

 
$
1,016.9

 
$
924.3

 
$
945.4

 
$
948.4

Income (loss) from operations
$
132.7

 
$
(117.5
)
 
$
16.5

 
$
88.1

 
$
54.9

(Benefit) provision for income taxes
$
(88.6
)
 
$
(62.3
)
 
$
23.7

 
$
10.2

 
$
29.4

Net income (loss) from continuing operations
$
114.3

 
$
(184.9
)
 
$
(178.3
)
 
$
(58.7
)
 
$
(140.3
)
Net Income (Loss) Per Share - continuing operations:
 
 
 
 
 
 
 
 
 
Basic
$
0.40

 
$
(0.63
)
 
$
(0.62
)
 
$
(0.20
)
 
$
(0.44
)
Diluted
$
0.39

 
$
(0.63
)
 
$
(0.62
)
 
$
(0.20
)
 
$
(0.44
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
286.3

 
291.3

 
289.3

 
292.1

 
317.0

Diluted
290.1

 
291.3

 
289.3

 
292.1

 
317.0

Financial Position:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents and marketable securities
$
764.8

 
$
473.5

 
$
874.1

 
$
608.1

 
$
568.8

Total assets
$
5,365.8

 
$
5,302.4

 
$
5,931.9

 
$
5,661.5

 
$
5,511.9

Total debt
$
1,936.4

 
$
2,185.4

 
$
2,617.4

 
$
2,433.2

 
$
2,103.1

Total deferred revenue (a)
$
701.7

 
$
765.0

 
$
670.5

 
$
615.0

 
$
555.4

Total stockholders’ equity
$
2,173.2

 
$
1,717.5

 
$
1,931.4

 
$
1,931.3

 
$
2,265.3

Selected Data and Ratios (a):
 
 
 
 
 
 
 
 
 
Working capital
$
553.0

 
$
199.1

 
$
254.6

 
$
378.9

 
$
378.5

Depreciation of property and equipment
$
55.2

 
$
60.4

 
$
53.3

 
$
59.6

 
$
59.4

Amortization of intangible assets
$
103.6

 
$
124.9

 
$
150.7

 
$
139.8

 
$
146.7

Gross margin percentage
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.

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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;

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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.
RESULTS OF OPERATIONS
Total Revenues
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

 
$
966.6

 
3.5
 %
 
8.2
 %
Product and licensing
509.2

 
533.1

 
544.0

 
493.9

 
(2.0
)%
 
10.1
 %
Maintenance and support
269.2

 
243.7

 
252.6

 
267.7

 
(3.5
)%
 
(5.6
)%
Total Revenues
$
1,823.1

 
$
1,858.8

 
$
1,842.3

 
$
1,728.2

 
0.9
 %
 
6.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
United States
$
1,367.8

 
$
1,399.9

 
$
1,374.9

 
$
1,244.9

 
1.8
 %
 
10.4
 %
International
455.3

 
458.9

 
467.4

 
483.3

 
(1.8
)%
 
(3.3
)%
Total Revenues
$
1,823.1

 
$
1,858.8

 
$
1,842.3

 
$
1,728.2

 
0.9
 %
 
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): 

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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)
Hosting revenue
$
826.4

 
$
850.6

 
$
771.1

 
$
733.8

 
10.3
 %
 
5.1
%
Professional services revenue
218.3

 
231.3

 
274.6

 
232.7

 
(15.8
)%
 
18.0
%
Hosting and professional services revenue
$
1,044.7

 
$
1,081.9

 
$
1,045.7

 
$
966.6

 
3.5
 %
 
8.2
%
As a percentage of total revenues
57.3
%
 
58.2
%
 
56.8
%
 
55.9
%
 
 
 
 
Fiscal Year 2019 compared to Fiscal Year 2018
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): 

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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

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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.
COSTS AND EXPENSES
Cost of Hosting and Professional Services Revenue
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): 
 
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)
Cost of hosting and professional services revenue
$
636.2

 
$
639.1

 
$
678.4

 
$
654.6

 
(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): 
 
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)
Cost of product and licensing revenue
$
73.3

 
$
67.4

 
$
56.8

 
$
54.1

 
18.7
%
 
5.0
%
As a percentage of product and licensing revenue
14.4
%
 
12.7
%
 
10.4
%
 
11.0
%
 
 
 
 

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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):
 
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)
Cost of maintenance and support revenue
$
33.6

 
$
33.8

 
$
39.3

 
$
37.2

 
(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): 
 
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)
Research and development expenses
$
275.9

 
$
275.9

 
$
278.7

 
$
239.9

 
(1.0
)%
 
16.2
%
As a percentage of total revenues
15.1
%
 
14.8
%
 
15.1
%
 
13.9
%
 
 

 
 

Fiscal Year 2019 compared to Fiscal Year 2018
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.

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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): 
 
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)
Sales and marketing expenses
$
303.5

 
$
309.4

 
$
311.7

 
$
324.4

 
(0.8
)%
 
(3.9
)%
As a percentage of total revenues
16.6
%
 
16.6
%
 
16.9
%
 
18.8
%
 
 
 
 
Fiscal Year 2019 compared to Fiscal Year 2018
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):
 
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)
General and administrative expenses
$
175.0

 
$
175.0

 
$
225.9

 
$
163.1

 
(22.5
)%
 
38.5
%
As a percentage of total revenues
9.6
%
 
9.4
%
 
12.3
%
 
9.4
%
 
 
 
 
Fiscal Year 2019 compared to Fiscal Year 2018
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.

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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): 
 
Fiscal Year 2019
 
Fiscal Year 2018
 
Fiscal Year 2017
 
% Change 2019 vs. 2018
 
% Change 2018 vs. 2017
Cost of revenues
$
36.8

 
$
50.9

 
$
57.9

 
(27.6
)%
 
(12.1
)%
Operating expenses
66.7

 
74.0

 
92.8

 
(9.8
)%
 
(20.3
)%
Total amortization expenses
$
103.5

 
$
124.9

 
$
150.7

 
(17.1
)%
 
(17.1
)%
As a percentage of total revenues
5.7
%
 
6.8
%
 
8.7
%
 
 
 
 
Fiscal Year 2019 compared to Fiscal Year 2018
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): 

Fiscal Year 2019
 
Fiscal Year 2018
 
Fiscal Year 2017

% Change 2019 vs. 2018

% Change 2018 vs. 2017
Transition and integration costs
$
8.1

 
$
16.1

 
$
15.2

 
(49.4
)%
 
5.9
 %
Professional service fees
2.3

 
3.5

 
12.6

 
(32.7
)%
 
(72.2
)%
Acquisition-related adjustments
(1.5
)
 
(3.4
)
 
(0.1
)
 
(54.8
)%
 
3,300.0
 %
Total acquisition-related costs, net
$
8.9

 
$
16.1

 
$
27.7

 
(44.7
)%
 
(41.9
)%
As a percentage of total revenue
0.5
%
 
0.9
%
 
1.6
%
 
 
 
 
Fiscal Year 2019 compared to Fiscal Year 2018
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
$
4,679

 
$
191

 
4,870

 
$

 
4,870

Enterprise
5,037

 
933

 
5,970

 

 
5,970

Automotive
5,159

 
1,706

 
6,865

 
44,453

 
51,318

Other
1,457

 
337

 
1,794

 
3,306

 
5,100

Corporate
3,039

 
764

 
3,803

 
9,404

 
13,207

Total fiscal year 2019
$
19,371

 
$
3,931

 
$
23,302

 
$
57,163

 
$
80,465