Organization and Presentation

3 Months Ended

Dec. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Presentation

Organization and Presentation

Nuance Communications, Inc. ("we", "Nuance", "our", "us", or the "Company") is a pioneer and leader in conversational and cognitive artificial intelligence ("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, financial services, telecommunications and travel industries, among others. We had three reportable segments as of December 31, 2021: Healthcare, Enterprise, and Other. See Note 18 for a description of each of these segments.

Although we believe the disclosures included herein are adequate to ensure that the condensed consolidated financial statements are fairly presented, certain information and footnote disclosures to the financial statements have been condensed or omitted in accordance with the rules and regulations of the SEC. Accordingly, the condensed consolidated financial statements and the footnotes included herein should be read in conjunction with the audited financial statements and the footnotes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire fiscal year or any future period.

On April 11, 2021, we entered into an Agreement and Plan of Merger (the " Merger Agreement") with Microsoft Corporation ("Microsoft"). Subject to the terms and conditions of the Merger Agreement, Microsoft has agreed to acquire Nuance for $56.00 per share in an all-cash transaction. Pursuant to the Merger Agreement, a wholly-owned subsidiary of Microsoft will merge with and into Nuance (the "Merger") with Nuance surviving as a wholly-owned subsidiary of Microsoft. As a result of the Merger, we will cease to be a publicly traded company. We have agreed to various customary covenants and agreements, including, among others, agreements to conduct our business in the ordinary course during the period between the execution of the Merger Agreement and the effective time of the Merger. We do not believe these restrictions will prevent us from meeting our debt service obligations, ongoing costs of operations, working capital needs, or capital expenditure requirements. The acquisition has been approved by Nuance’s shareholders, and we expect it to close by the end of the first calendar quarter of 2022, subject to the satisfaction of certain regulatory approvals and other customary closing conditions.

For additional information related to the Merger Agreement, please refer to the definitive proxy statement previously filed with the Securities and Exchange Commission ("SEC") and other relevant materials in connection with the transaction that we will file with the SEC and which will contain important information about Nuance and the Merger.

As more fully described in Note 11, during the first quarter of fiscal year 2022, our common stock price exceeded 130% of the applicable conversion price for each of our convertible debentures for at least 20 trading days during the 30 consecutive trading days ending December 31, 2021. As a result, the holders of our 1.25% 2025 Debentures and 1.0% 2035 Debentures have the right to convert all or any portion of their debentures between January 1, 2022 and March 31, 2022. All of our convertible notes with a total net book value of $348.7 million were included within current liabilities as of December 31, 2021.

Should any holders elect to convert, the principal amount of the convertible debentures would be payable in cash, and any amount payable in excess of the principal amount would be paid in cash or shares of our common stock at our election. During the first quarter of fiscal year 2022, holders of our 1.5% 2035 Debentures exercised their right to convert and we redeemed $25.1 million notional amount for $25.1 million in cash and 0.8 million shares of common stock. Following these redemptions, none of the 1.5% 2035 Debentures remain outstanding. Additionally, during the first quarter of fiscal year 2022, holders of our 1.0% 2035 Debentures exercised their right to convert $2.3 million notional amount for $2.3 million in cash and 0.1 million shares of common stock, and holders of our 1.25% 2025 Debentures exercised their right to convert $1.2 million notional amount for $1.2 million in cash and 0.04 million shares of common stock. As part of these redemptions, we transferred non-cash consideration in the form of shares of common stock valued at $41.9 million for the 1.5% 2035 Debentures, $3.0 million for the 1.0% 2035 Debentures, and $2.2 million for the 1.25% 2025 Debentures. As of December 31, 2021, $128.0 million in aggregate principal amount of the 1.0% 2035 Debentures and $261.4 million in aggregate principal amount of the 1.25% 2025 Debentures remained outstanding.

Our convertible debentures are actively traded in the open market. The 1.25% 2025 Debentures trade at a price consistently in excess of their conversion values. Therefore, we believe that it is uneconomic, and thus unlikely, for the holders of the 1.25% 2025 Debentures to early exercise their conversion rights. In the event that holders of any of our debentures presented an amount for settlement that exceeded our then available sources of liquidity, we may need to obtain additional financing, which we believe would be available to us based upon our assessment of the prevailing market and business conditions and our experience of successful capital raising activities.