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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _____________________________________________
Form 10-Q
 _____________________________________________
(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 2021
Or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-27038
 _____________________________________________
NUANCE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
 _____________________________________________
DE 94-3156479
(State or Other jurisdiction of
incorporation or organization) 		(I.R.S. Employer
Identification No.)
1 Wayside Road
Burlington, MA 01803
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:
(781) 565-5000
 _____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, par value $0.001 NUAN Nasdaq Stock Market LLC
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  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer," “accelerated filer," “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ☒ Accelerated Filer ☐
Non-accelerated Filer ☐ Smaller Reporting Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
The number of shares of the Registrant’s Common Stock, outstanding as of January 31, 2022 was 319,385,728.


NUANCE COMMUNICATIONS, INC.
TABLE OF CONTENTS
 
    Page
Item 1. Condensed Consolidated Financial Statements:
Consolidated Statements of Operations for the three months ended December 31, 2021 and 2020
1
Consolidated Statements of Comprehensive (Loss) Income for the three months ended December 31, 2021 and 2020
2
Consolidated Balance Sheets at December 31, 2021 and September 30, 2021
3
Consolidated Statements of Stockholders’ Equity for the three months ended December 31, 2021 and 2020
4
Consolidated Statements of Cash Flows for the three months ended December 31, 2021 and 2020
5
Notes to Condensed Consolidated Financial Statements
6
Item 2.
28
Item 3.
41
Item 4.
42
Item 1.
43
Item 1A.
43
Item 2.
43
Item 3.
43
Item 4.
43
Item 5.
43
Item 6.
43
44
45
Certifications




NUANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
  Three Months Ended December 31,
  2021 2020
(Unaudited)
(In thousands, except per share amounts)
Revenues:
Hosting and professional services $ 213,732  $ 195,832 
Product and licensing 47,472  86,037 
Maintenance and support 60,231  63,884 
Total revenues 321,435  345,753 
Cost of revenues:  
Hosting and professional services 121,254  105,615 
Product and licensing 6,690  14,415 
Maintenance and support 6,718  7,486 
Amortization of intangible assets 5,215  4,262 
Total cost of revenues 139,877  131,778 
Gross profit 181,558  213,975 
Operating expenses:
Research and development 68,166  56,457 
Sales and marketing 84,002  65,405 
General and administrative 35,517  41,145 
Amortization of intangible assets 6,754  10,531 
Acquisition-related costs, net 1,248  325 
Restructuring and other charges, net 8,506  8,566 
Total operating expenses 204,193  182,429 
(Loss) income from operations (22,635) 31,546 
Other income (expense):    
Interest income 22  228 
Interest expense (12,661) (23,014)
Other income, net 1,265  497 
(Loss) income before income taxes (34,009) 9,257 
Provision for income taxes 23,550  2,303 
Net (loss) income from continuing operations (57,559) 6,954 
Net income from discontinued operations —  7,941 
Net (loss) income $ (57,559) $ 14,895 
Net (loss) income per common share - basic:
Continuing operations $ (0.18) $ 0.02 
Discontinued operations —  0.03 
Total net (loss) income per basic common share $ (0.18) $ 0.05 
Net (loss) income per common share - diluted:
Continuing operations $ (0.18) $ 0.02 
Discontinued operations —  0.03 
Total net (loss) income per diluted common share $ (0.18) $ 0.05 
Weighted average common shares outstanding:
Basic 317,359  283,818 
Diluted 317,359  314,210 

See accompanying notes.
1
NUANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
  Three Months Ended December 31,
  2021 2020
(Unaudited)
  (In thousands)
Net (loss) income $ (57,559) $ 14,895 
Other comprehensive (loss) income:
Foreign currency translation adjustment (2,653) 15,814 
Pension adjustments 35  14 
Unrealized loss on marketable securities (7) (29)
Total other comprehensive (loss) income, net (2,625) 15,799 
Comprehensive (loss) income $ (60,184) $ 30,694 








































See accompanying notes.
2
NUANCE COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS 
December 31,
2021 		September 30,
2021
(Unaudited)
  (In thousands, except per
share amounts)
ASSETS
Current assets:
Cash and cash equivalents $ 91,949  $ 187,307 
Marketable securities —  22,168 
Accounts receivable, less allowances for doubtful accounts of $9,536 and $10,073
180,171  162,292 
Prepaid expenses and other current assets 203,684  231,778 
Total current assets 475,804  603,545 
Land, building and equipment, net 147,704  146,660 
Goodwill 2,154,658  2,155,270 
Intangible assets, net 116,002  128,331 
Right-of-use assets 77,905  82,666 
Deferred tax assets 45,927  45,927 
Other assets 218,557  224,254 
Total assets $ 3,236,557  $ 3,386,653 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt $ 348,669  $ 372,999 
Contingent and deferred acquisition payments 1,882  2,148 
Accounts payable 75,326  90,120 
Accrued expenses and other current liabilities 154,276  222,340 
Deferred revenue 261,010  240,742 
Total current liabilities 841,163  928,349 
Long-term debt 495,185  494,925 
Deferred revenue, net of current portion 99,505  108,317 
Deferred tax liabilities 27,723  12,019 
Operating lease liabilities 80,444  85,290 
Other liabilities 76,915  77,781 
Total liabilities 1,620,935  1,706,681 
Commitments and contingencies (Note 16)
Mezzanine Equity 40,723  45,038 
Stockholders’ equity:
Common stock, $0.001 par value per share; 560,000 shares authorized; 322,582 and 319,402 shares issued and 318,831 and 315,651 shares outstanding, respectively
323  319 
Additional paid-in capital 2,055,139  2,054,994 
Treasury stock, at cost (3,751 shares)
(16,788) (16,788)
Accumulated other comprehensive loss (107,274) (104,649)
Accumulated deficit (356,501) (298,942)
Total stockholders’ equity 1,574,899  1,634,934 
Total liabilities and stockholders’ equity $ 3,236,557  $ 3,386,653 





See accompanying notes.
3
NUANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the three months ended December 31, 2021
  Common Stock Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity
  Shares Amount Shares Amount
  (In thousands)
Balance at September 30, 2021 319,402  $ 319  $ 2,054,994  (3,751) $ (16,788) $ (104,649) $ (298,942) $ 1,634,934 
Issuance of common stock under employee stock plans 3,875  4  60  —  —  —  —  64 
Cancellation of restricted stock, and repurchase of common stock at cost for employee tax withholding (1,549) (1) (85,374) —  —  —  —  (85,375)
Stock-based compensation —  —  81,361  —  —  —  —  81,361 
Equity portion of convertible debt puttable —  —  4,315  —  —  —  —  4,315 
Redemption of Convertible Notes(a)
854  1  (217) —  —  —  —  (216)
Net loss —  —  —  —  —  —  (57,559) (57,559)
Other comprehensive loss —  —  —  —  —  (2,625) —  (2,625)
Balance at December 31, 2021 322,582  $ 323  $ 2,055,139  (3,751) $ (16,788) $ (107,274) $ (356,501) $ 1,574,899 
For the three months ended December 31, 2020
  Common Stock Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity
  Shares Amount Shares Amount
  (In thousands)
Balance at September 30, 2020 286,703  $ 287  $ 1,550,568  (3,751) $ (16,788) $ (117,918) $ (272,216) $ 1,143,933 
Issuance of common stock under employee stock plans 3,117  3  (3) —  —  —  —  — 
Cancellation of restricted stock, and repurchase of common stock at cost for employee tax withholding (1,151) (1) (43,702) —  —  —  —  (43,703)
Stock-based compensation —  —  75,455  —  —  —  —  75,455 
Equity portion of convertible debt puttable —  —  (53,343) —  —  —  —  (53,343)
Net income —  —  —  —  —  —  14,895  14,895 
Other comprehensive income —  —  —  —  —  15,799  —  15,799 
Balance at December 31, 2020 288,669  $ 289  $ 1,528,975  (3,751) $ (16,788) $ (102,119) $ (257,321) $ 1,153,036 
__________
(a) According to ASC 470-20, cash consideration paid to repurchase and retire our convertible notes was first allocated to debt component based on the actual fair value on the trading date, and the remaining consideration was allocated to additional paid-in capital.

See accompanying notes.
4
NUANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
  Three Months Ended December 31,
  2021 2020
(Unaudited)
(In thousands)
Cash flows from operating activities:
Net (loss) income from continuing operations $ (57,559) $ 6,954 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation 11,019  7,993 
Amortization 11,969  14,793 
Stock-based compensation 38,399  34,906 
Non-cash interest expense 4,144  12,324 
Deferred tax provision (benefit) 14,386  (5,435)
Loss on extinguishment of debt 215  — 
Other 651  3,028 
Changes in operating assets and liabilities, excluding effects of acquisitions:
Accounts receivable (19,354) (40,023)
Prepaid expenses and other assets 40,930  (5,892)
Accounts payable (14,934) 11,636 
Accrued expenses and other liabilities (29,480) (9,480)
Deferred revenue 13,464  23,814 
  Net cash provided by operating activities - continuing operations 13,850  54,618 
  Net cash provided by operating activities - discontinued operations —  6,570 
Net cash provided by operating activities 13,850  61,188 
Cash flows from investing activities:
Capital expenditures (12,394) (17,400)
Purchases of marketable securities and other investments —  (41,366)
Proceeds from sales and maturities of marketable securities and other investments 22,162  37,582 
Payments for business and asset acquisitions, net of cash acquired (5,375) (250)
Other 209  (545)
Net cash provided by (used in) investing activities 4,602  (21,979)
Cash flows from financing activities:
Repurchase and redemption of debt (28,646) — 
Payments for taxes related to net share settlement of equity awards (82,763) (43,729)
Other financing activities (78) (6)
Net cash used in financing activities (111,487) (43,735)
Effects of exchange rate changes on cash and cash equivalents (2,323) 2,739 
Net decrease in cash and cash equivalents (95,358) (1,787)
Cash and cash equivalents at beginning of period 187,307  301,233 
Cash and cash equivalents at end of period $ 91,949  $ 299,446 










See accompanying notes.
5
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. 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.
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NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2. Summary of Significant Accounting Policies
Issued Accounting Standards Not Yet Adopted
From time to time, new accounting pronouncements are issued by the FASB and are adopted by us as of the specified effective dates. Unless otherwise discussed, such pronouncements did not have or will not have a significant impact on our consolidated financial position, results of operations or cash flows, or do not apply to our operations.
Convertible Notes
In August 2020, the FASB issued ASU 2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity," which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The new guidance eliminates two of the three models in Accounting Standards Codification ("ASC") 470-202 that require separating embedded conversion features from convertible instruments. As a result, only conversion features accounted for under the substantial premium model in ASC 470-20 and those that require bifurcation in accordance with ASC 815-153 will be accounted for separately. For contracts in an entity’s own equity, the new guidance eliminates some of the requirements in ASC 815-404 for equity classification. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. The guidance will be effective for annual periods beginning after December 15, 2021, and interim periods therein. Early adoption is permitted for all entities for fiscal periods beginning after December 15, 2020, including interim periods within the same fiscal year. Entities are allowed to adopt the guidance using either the modified or full retrospective approach. We are currently assessing the provisions of the guidance and the impact on our condensed consolidated financial statements.
Business Combinations
In August 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers," which improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to: (1) recognition of an acquired contract liability, and (2) payment terms and their effect on subsequent revenue recognized by the acquirer. The new guidance requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The guidance will be effective for annual periods beginning after December 15, 2022, and interim periods therein. Early adoption is permitted for all entities, including interim periods within the same fiscal year. We are currently assessing the provisions of the guidance and the impact on our condensed consolidated financial statements.
3. Revenue Recognition
We derive revenue from the following sources: (1) hosting services, (2) software licenses, including royalties, (3) maintenance and support ("M&S"), (4) professional services, and (5) sale of hardware. Revenue is reported net of applicable sales and use tax, value-added tax and other transaction taxes imposed on the related transaction including mandatory government charges that are passed through to our customers. We account for a contract when both parties have approved and committed to the contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and the collectability of the consideration is probable.
The majority of our arrangements with customers typically contain multiple products and services. We account for individual products and services separately if they are distinct, that is, if a product or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer.
We recognize revenue after applying the following five steps:
•identification of the contract, or contracts, with a customer;
•identification of the performance obligations in the contract, including whether they are distinct within the context of the contract;
•determination of the transaction price, including the constraint on variable consideration;
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NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
•allocation of the transaction price to the performance obligations in the contract; and
•recognition of revenue when, or as, performance obligations are satisfied.
We allocate the transaction price of the arrangement based on the relative estimated standalone selling price ("SSP") of each distinct performance obligation. In determining SSP, we maximize observable inputs and consider a number of data points, including:
•the pricing of standalone sales (in the instances where available);
•the pricing established by management when setting prices for deliverables that are intended to be sold on a standalone basis;
•contractually stated prices for deliverables that are intended to be sold on a standalone basis; and
•other pricing factors, such as the geographical region in which the products are sold and expected discounts based on the customer size and type.
We only include estimated amounts of variable consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. We reduce transaction prices for estimated returns and other allowances that represent variable consideration under ASU No. 2014-09, "Revenue from Contracts with Customers: Topic 606" ("ASC 606"), which we estimate based on historical return experience and other relevant factors and record a reduction to revenue and accounts receivable. Other forms of contingent revenue or variable consideration are infrequent.
Revenue is recognized when control of these products and services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
We assess the timing of the transfer of products or services to the customer as compared to the timing of payments to determine whether a significant financing component exists. In accordance with the practical expedient in ASC 606-10-32-18, we do not assess the existence of a significant financing component when the difference between payment and transfer of deliverables is a year or less. If the difference in timing arises for reasons other than the provision of financing to either the customer or us, no financing component is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our services, not to receive or provide financing from or to customers. We do not consider set-up fees nor other upfront fees paid by our customers to represent a financing component.
Certain products are sold through distributors or resellers. Certain distributors and resellers have been granted right of return and selling incentives which are accounted for as variable consideration when estimating the amount of revenue to be recognized. Returns and credits are estimated at the contract inception and updated at the end of each reporting period as additional information becomes available. In accordance with the practical expedient in ASC 606-10-10-4, we apply a portfolio approach to estimate the variable consideration associated with this group of customers.
Reimbursements for out-of-pocket costs generally include, but are not limited to, costs related to transportation, lodging and meals. Revenue from reimbursed out-of-pocket costs is accounted for as variable consideration.
Shipping and handling activities are not considered a contract performance obligation. We record shipping and handling costs billed to customers as revenue with offsetting costs recorded as cost of revenue.
Performance Obligations
Hosting
Hosting services, which allow our customers to use the hosted software over the contract period without taking possession of the software, are provided on a usage basis as consumed or on a fixed fee subscription basis. Our hosting contract terms generally range from one to five years.
As each day of providing services is substantially the same and the customer simultaneously receives and consumes the benefits as access is provided, we have determined that our hosting services arrangements are a single performance obligation comprised of a series of distinct services. These services include variable consideration, which is typically a function of usage. We recognize revenue as each distinct service period is performed (i.e., recognized as incurred).
8

NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Subscription-based revenue represents a single promise to stand-ready to provide access to our hosting services. Revenue is recognized over time on a ratable basis over the hosting contract term, which generally ranges from one to five years.
Software Licenses
On-premise software licenses sold with non-distinct professional services to customize and/or integrate the underlying software are accounted for as a combined performance obligation. Revenue from the combined performance obligation is recognized over time based upon the progress towards completion of the project, which is measured based on the labor hours already incurred to date as compared to the total estimated labor hours.
Revenue from distinct on-premise software licenses, which do not require professional services to customize and/or integrate the software license, is recognized at the point in time when the software is made available to the customer and control is transferred.
Revenue from software licenses sold on a royalty basis, where the license of intellectual property is the predominant item to which the royalty relates, is recognized in the period the usage occurs in accordance with the practical expedient in ASC 606-10-55-65(A).
Maintenance and Support
Our M&S contracts generally include telephone support and the right to receive unspecified upgrades and updates on a when-and-if available basis. M&S revenue is recognized over time on a ratable basis over the contract period because we transfer control evenly by providing a stand-ready service.
Professional Services
Revenue from distinct professional services, including training, is recognized over time based upon the progress towards completion of the project, which is measured based on the labor hours already incurred to date as compared to the total estimated labor hours.
Hardware
Hardware revenue is recognized at the point in time when control is transferred to the customer, which is typically upon delivery.
Significant Judgments
Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Our license contracts often include professional services to customize and/or integrate the licenses into the customer’s environment. Judgment is required to determine whether the license is considered distinct and accounted for separately, or not distinct and accounted for together with professional services.
Judgments are required to determine the SSP for each distinct performance obligation. When SSP is directly observable, we estimate SSP based upon the historical transaction prices, adjusted for geographic considerations, customer classes, and customer relationship profiles. In instances where SSP is not directly observable, we determine SSP using information that may include market conditions and other observable inputs. We may have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining SSP. Determining SSP for performance obligations which we never sell separately also requires significant judgment. In estimating the SSP for such performance obligations, we consider the likely price that would have resulted from established pricing practices had the deliverable been offered separately and the prices a customer would likely be willing to pay.
From time to time, we may enter into arrangements with third party suppliers to resell products or services. In such cases, we evaluate whether we are the principal (i.e. report revenues on a gross basis) or agent (i.e. report revenues on a net basis). In doing so, we first evaluate whether we control the good or service before it is transferred to the customer. If we control the good or service before it is transferred to the customer, we are the principal; if not, we are the agent. Generally, we control a promised good or service before transferring that good or service to the customer and act as the principal to the transaction. Determining whether we control the good or service before it is transferred to the customer may require judgment.
9

NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Disaggregated Revenue
We disaggregate revenue from contracts with customers by reportable segment and products and services as this presentation depicts the timing, risks and uncertainty of our revenue streams, which is also in line with how we manage our businesses, assess performance, and determine management compensation. Our disaggregated revenue from continuing operations is as follows (dollars in thousands):
Three Months Ended December 31,
2021 2020
Hosting and professional services Product and licensing Maintenance and support Total Hosting and professional services Product and licensing Maintenance and support Total
Healthcare $ 136,297  $ 34,696  $ 29,407  $ 200,400  $ 110,803  $ 54,783  $ 33,746  $ 199,332 
Enterprise 73,760  12,659  30,808  117,227  78,741  30,286  30,125  139,152 
Other 3,675  117  16  3,808  6,288  968  13  7,269 
Total revenues $ 213,732  $ 47,472  $ 60,231  $ 321,435  $ 195,832  $ 86,037  $ 63,884  $ 345,753 
Hardware revenue comprised approximately $7.3 million of total product and licensing revenue for the three months ended December 31, 2021, and $6.6 million of total product and licensing revenue for the three months ended December 31, 2020.
Contract Acquisition Costs
We are required to capitalize certain contract acquisition costs under ASC 606. The capitalized costs primarily relate to paid commissions and other direct, incremental costs to acquire customer contracts. In accordance with the practical expedient in ASC 606-10-10-4, we apply a portfolio approach to estimate contract acquisition costs for groups of customer contracts. We elect to apply the practical expedient in ASC 340-40-25-4 and will expense contract acquisition costs as incurred where the expected period of benefit is one year or less. Sales commissions paid on renewal maintenance and support are not commensurate with sales commissions paid on the initial maintenance and support contract. Contract acquisition costs are deferred and amortized on a straight-line basis over the period of benefit, which we have estimated to be between one and five years. The period of benefit was determined based on an average customer contract term, expected contract renewals, changes in technology and our ability to retain customers including canceled contracts. Contract acquisition costs are classified as current or noncurrent assets based on when the expense will be recognized. The current and noncurrent portions of contract acquisition costs are included in Prepaid expenses and other current assets, and Other assets, respectively. As of December 31, 2021, we had $49.4 million of current contract acquisition costs and $91.9 million of noncurrent contract acquisition costs. As of September 30, 2021, we had $40.5 million of current contract acquisition costs and $86.1 million of noncurrent contract acquisition costs. Commission expense is primarily included in sales and marketing expense on the consolidated statements of operations. We had amortization expense of $7.0 million and $4.7 million related to contract acquisition costs for the three months ended December 31, 2021 and 2020, respectively. There was no impairment related to commission costs capitalized.
Capitalized Contract Costs
We capitalize incremental costs incurred to fulfill our contracts that (1) relate directly to the contract, (2) are expected to generate resources that will be used to satisfy our performance obligation under the contract, and (3) are expected to be recovered through revenue generated under the contract. Our capitalized costs consist primarily of setup costs, such as costs to stand-up, customize, and develop applications for each customer. These costs are incurred to satisfy our stand-ready obligation to provide access to our connected offerings. The contract costs are expensed to cost of revenue as we satisfy our stand-ready obligation over the contract term, which we estimate to be between one and five years. The contract term estimation was determined based on an average customer contract term, expected contract renewals, changes in technology, and our ability to retain customers including canceled contracts. We classify capitalized contract costs as current or noncurrent based on the timing of when we expect to recognize the expense. The current and noncurrent portions of capitalized contract fulfillment costs are included in Prepaid expenses and other current assets, and Other assets, respectively. As of December 31, 2021, we had $22.8 million of short-term contract costs included with Prepaid expenses and other current assets and $35.5 million of long-term costs included within Other assets. As of September 30, 2021, we had $21.3 million of short-term contract costs included with Prepaid expenses and other current assets and $35.3 million of long-term costs within Other assets.
Trade Accounts Receivable and Contract Balances
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NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We classify our right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). We present such receivables in Accounts receivable, net in our consolidated balance sheets at their net estimated realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that may not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and other applicable factors.
Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.
Contract assets include unbilled amounts from long-term contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not solely subject to the passage of time. The current and noncurrent portions of contract assets are included in Prepaid expenses and other current assets, and Other assets. As of December 31, 2021, we had $65.2 million of current contract assets and $73.9 million of noncurrent contract assets. As of September 30, 2021, we had $72.6 million of current contract assets and $88.9 million of noncurrent contract assets. The table below shows significant changes in contract assets of continuing operations (dollars in thousands):
Contract assets
Balance as of September 30, 2021 $ 161,512 
Revenues recognized but not billed 73,228 
Amounts reclassified to accounts receivable (95,632)
Balance at December 31, 2021 $ 139,108 
Our contract liabilities, or Deferred revenue, consist of advance payments and billings in excess of revenues recognized. We classify Deferred revenue as current or noncurrent based on when we expect to recognize the revenues. As of December 31, 2021, we had $360.5 million of Deferred revenue. The table below shows significant changes in Deferred revenue (dollars in thousands):
Deferred revenue
Balance as of September 30, 2021 $ 349,059 
Amounts bill but not recognized 200,167 
Revenue recognized (188,711)
Balance at December 31, 2021 $ 360,515 
Remaining Performance Obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of December 31, 2021 (dollars in thousands):
Within One Year Two to Four Years Greater than Four Years Total
Total revenue $ 745,007  $ 993,659  $ 42,923  $ 1,781,589 
The table above includes fixed backlogs and does not include variable backlog derived from contingent usage-based activities, such as royalties and usage-based hosting revenue.
4. Disposition of Businesses
Disposition of Our Medical Transcription and EHR Implementation businesses
On November 17, 2020, we entered into a definitive agreement (the “Agreement”) to sell our medical transcription and electronic healthcare record ("EHR") implementation businesses (the "Business") to Assured Healthcare Partners and Aeries Technology Group (together, the “Buyer”). Pursuant to the Agreement, we sold and transferred, and the Buyer purchased and acquired, (a) the shares of certain subsidiaries through which we operate a portion of the Business and (b) certain assets used in or related to the Business; and the Buyer assumed certain liabilities related to such assets of the Business, subject to certain exclusions and indemnities as set forth in the Agreement.
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NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On March 1, 2021, we completed the sale of the Business and received approximately $29.8 million in cash, subject to post-closing finalization of the adjustments set forth in the Agreement. As a result, we recorded a loss of $12.5 million, which is included within net income (loss) from discontinued operations in fiscal year 2021. There are a number of working capital and other adjustments under the Agreement and related ancillary agreements. We do not believe that post-closing working capital adjustments under the Agreement, if any, will have a material impact on our results of operations.
For all periods presented, the Businesses' results of operations have been included within discontinued operations in our condensed consolidated financial statements.
The following table summarizes the results of the discontinued operations (dollars in thousands):
Three Months Ended December 31,
2021 2020
  Medical Transcription and EHR Implementation Medical Transcription and EHR Implementation
Major line items constituting net income of discontinued operations:
Revenue N/A $ 47,650 
Cost of revenue N/A 29,152 
Research and development N/A 1,298 
Sales and marketing N/A 908 
General and administrative N/A 12 
Amortization of intangible assets N/A 2,444 
Restructuring and other charges, net N/A 4,438 
Income from discontinued operations before income taxes N/A 9,398 
Provision for income taxes N/A 1,457 
Net income from discontinued operations N/A $ 7,941 
Supplemental information:
Depreciation N/A $ 1,063 
Amortization N/A $ 2,444 
Stock compensation N/A $ 287 
Capital expenditures N/A $ 57 
5. Business Acquisitions
As part of our business strategy, we have acquired, and may acquire in the future, certain businesses and technologies primarily to expand our products and service offerings.
Fiscal Year 2021 Acquisitions
For the fiscal year ended September 30, 2021, we completed one acquisition in our Healthcare segment for a total cash consideration of $45.2 million. As a result, we recognized goodwill of $27.4 million and intangible assets of $19.7 million related to technology with a useful life of 5.0 years. The results of operations of the acquired entity have been included within our consolidated statement of operations from the acquisition date. The acquisition was not material to our condensed consolidated financial statements.
Acquisition-Related Costs, net
Acquisition-related costs include costs related to business and asset acquisitions. These costs consist of (i) transition and integration costs, including retention payments, transitional employee costs and earn-out payments, and other costs related to integration activities; (ii) professional service fees, including financial advisory, legal, accounting, and other outside services incurred in connection with acquisition activities, and disputes and regulatory matters related to acquired entities; and (iii) fair value adjustments to acquisition-related contingencies.
A summary of acquisition-related costs, net is as follows (dollars in thousands):
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Three Months Ended December 31,
2021 2020
Transition and integration costs $ 1,238  $ 72 
Professional service fees 10  253 
Total $ 1,248  $ 325 
6. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill by reportable segment for the three months ended December 31, 2021 are as follows (dollars in thousands): 
Goodwill
Healthcare Enterprise Other Total
Balance as of September 30, 2021 $ 1,453,836  $ 688,163  $ 13,271  $ 2,155,270 
Purchase accounting adjustments 150  —  —  150 
Effect of foreign currency translation (1,745) 896  87  (762)
Balance at December 31, 2021 $ 1,452,241  $ 689,059  $ 13,358  $ 2,154,658 
Other Intangible Assets
The changes in the carrying amount of intangible assets for the three months ended December 31, 2021 are as follows (dollars in thousands):
Intangible Assets
Balance at September 30, 2021 $ 128,331 
Amortization (11,969)
Effect of foreign currency translation (360)
Balance at December 31, 2021 $ 116,002 
7. Financial Instruments and Hedging Activities
Derivatives Not Designated as Hedges
Forward Currency Contracts
We have operations in a number of international locations where currency exchange rates can be volatile. We utilize foreign currency forward contracts to mitigate the risks associated with changes in foreign currency exchange rates so that our exposure to foreign currencies will be mitigated or offset by the gains or losses on the foreign currency forward contracts. Generally, we enter into such contracts for less than 90 days and have no cash requirements until maturity. As of December 31, 2021 and September 30, 2021, we had outstanding contracts with a total notional value of $75.1 million and $52.5 million, respectively.
We did not designate any forward contracts as hedging instruments for the three months ended December 31, 2021 or 2020. Therefore, changes in fair value of foreign currency forward contracts were recognized within Other income, net in our consolidated statements of operations. The cash flows related to the settlement of forward contracts not designated as hedging instruments are included in cash flows from investing activities within our consolidated statement of cash flows.
A summary of the derivative instruments is as follows (dollars in thousands):
Derivatives Not Designated as Hedges Balance Sheet Classification Fair Value
December 31,
2021 		September 30,
2021
Foreign currency forward contracts Prepaid expenses and other current assets $ 129  $ 112 
Foreign currency forward contracts Accrued expenses and other current liabilities $ (105) $ (49)
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A summary of other income (expense), net related to foreign currency forward contracts for the three months ended December 31, 2021 and 2020 is as follows (dollars in thousands):
Income Statement Classification Three Months Ended December 31,
Derivatives Not Designated as Hedges (Income) Loss Recognized 2021 2020
Foreign currency forward contracts Other income (expense), net $ 175  $ (548)
8. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Valuation techniques must maximize the use of observable inputs and minimize the use of unobservable inputs. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The determination of the applicable level within the hierarchy of a particular financial asset or liability depends on the lowest level of inputs that are significant to the fair value measurement as of the measurement date as follows:
•Level 1: Quoted prices for identical assets or liabilities in active markets.
•Level 2: Observable inputs other than those described as Level 1.
•Level 3: Unobservable inputs that are supportable by little or no market activities and are based on significant assumptions and estimates.
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and September 30, 2021 consisted of the following (dollars in thousands):
  December 31, 2021
Level 1 Level 2 Level 3 Total
Assets:
Money market funds (a)
$ 60,144  $ —  $ —  $ 60,144 
Time deposits (b)
—  1,000  —  1,000 
Foreign currency exchange contracts (b)
—  129  —  129 
Total assets at fair value $ 60,144  $ 1,129  $ —  $ 61,273 
Liabilities:
Foreign currency exchange contracts (b)
$ —  $ (105) $ —  $ (105)
Total liabilities at fair value $ —  $ (105) $ —  $ (105)
September 30, 2021
Level 1 Level 2 Level 3 Total
Assets:
Money market funds (a)
$ 113,186  $ —  $ —  $ 113,186 
Time deposits (b)
—  13,889  —  13,889 
Commercial paper, $18,633 at cost (b)
—  18,668  —  18,668 
Foreign currency exchange contracts (b)
—  112  —  112 
Total assets at fair value $ 113,186  $ 32,669  $ —  $ 145,855 
Liabilities:
Foreign currency exchange contracts (b)
$ —  $ (49) $ —  $ (49)
Total liabilities at fair value $ —  $ (49) $ —  $ (49)
__________
(a)Money market funds and time deposits with original maturity of 90 days or less are included within cash and cash equivalents in the consolidated balance sheets and are valued at quoted market prices in active markets.
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(b)Time deposits, commercial paper, corporate notes and bonds, and foreign currency exchange contracts are recorded at fair market values, which are determined based on the most recent observable inputs for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable. Time deposits are generally for terms of one year or less. Commercial paper and corporate notes and bonds generally mature within three years and had a weighted average maturity of 0.21 years as of September 30, 2021.
The estimated fair value of our long-term debt approximated $1,547.5 million (face value $889.4 million) as of December 31, 2021 and $1,620.3 million (face value $918.0 million) as of September 30, 2021 based on Level 2 measurements. The fair value of each borrowing was estimated using the average of the bid and ask trading quotes at each respective reporting date. There was no balance outstanding under our revolving credit agreement as of December 31, 2021 or September 30, 2021.
Additionally, contingent acquisition payments are recorded at fair values upon the acquisition and are remeasured in subsequent reporting periods with the changes in fair values recorded within acquisition-related costs, net. Such payments are contingent upon the achievement of specified performance targets and are valued using the option pricing model with Monte Carlo simulation or the probability-weighted discounted cash flow model (Level 3 measurement).
The following table provides a summary of changes in the aggregate fair value of the contingent acquisition payments for all periods presented (dollars in thousands):
Three Months Ended December 31,
2021 2020
Balance at beginning of period $ —  $ 1,796 
Payments and foreign currency translation —  51 
Balance at end of period $ —  $ 1,847 
As of December 31, 2021, we do not have any required payments based upon any specified performance targets being achieved.
9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (dollars in thousands): 
December 31,
2021 		September 30,
2021
Compensation $ 78,335  $ 133,194 
Cost of revenue related liabilities 22,517  24,976 
Accrued interest payable 2,341  9,038 
Consulting and professional fees 14,623  18,130 
Sales and marketing incentives 1,201  1,294 
Sales and other taxes payable 8,120  8,016 
Operating lease obligations 22,870  24,522 
Other 4,269  3,170 
Total $ 154,276  $ 222,340 
10. Restructuring and Other Charges, net
Restructuring and other charges, net include restructuring expenses together with other charges that are unusual in nature, are the result of unplanned events, and arise outside of the ordinary course of our business.
The following table represents the roll forward of restructuring liabilities for the three months ended December 31, 2021 (dollars in thousands): 
Personnel Facilities Total
Balance at September 30, 2021 $ 444  $ 16,946  $ 17,390 
Restructuring charges, net 3,195  195  3,390 
Non-cash adjustment —  (152) (152)
Cash payments (2,792) (1,638) (4,430)
Balance at December 31, 2021 $ 847  $ 15,351  $ 16,198 
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The table below presents the Restructuring and other charges, net associated with each segment, but excluded from calculation of each segment's profit (dollars in thousands):
  Three Months Ended December 31,
2021 2020
Personnel Facilities Total Restructuring Other Charges Total Personnel Facilities Total Restructuring Other Charges Total
Healthcare $ 1,804  $ 125  $ 1,929  $ —  $ 1,929  $ 2,632  $ 567  $ 3,199  $ —  $ 3,199 
Enterprise 450  249  699  —  699  1,182  2,472  3,654  —  3,654 
Other —  (138) (138) —  (138) —  29  29  —  29 
Corporate 941  (41) 900  5,116  6,016  975  3  978  706  1,684 
Total $ 3,195  $ 195  $ 3,390  $ 5,116  $ 8,506  $ 4,789  $ 3,071  $ 7,860  $ 706  $ 8,566 
Fiscal Year 2022
For the three months ended December 31, 2021, we recorded restructuring charges of $3.4 million, which included $3.2 million related to the termination of approximately 81 employees and $0.2 million of charges related to closing certain idle facilities. These actions were part of our strategic initiatives focused on investment rationalization, process optimization and cost reduction as we continue to evaluate the geographic footprint of our offices and facilities. We expect the remaining outstanding severance of $0.8 million to be substantially paid during fiscal year 2022, and the remaining $15.4 million in lease payments to be made through fiscal year 2027, in accordance with the terms of the applicable leases.
Additionally, for the three months ended December 31, 2021, we recorded approximately $5.0 million of expenses related to the acquisition of Nuance by Microsoft, and $0.1 million of insurance recoveries.
Fiscal Year 2021
For the three months ended December 31, 2020, we recorded restructuring charges of $7.9 million, which included $4.8 million related to the termination of approximately 57 employees and a $3.1 million charge related to closing certain idle facilities. These actions were part of our strategic initiatives focused on investment rationalization, process optimization and cost reduction as we continue to evaluate the geographic footprint of our offices and facilities.
Additionally, for the three months ended December 31, 2020, we recorded $0.7 million in professional services expenses related to other corporate initiatives.
11. Debt
As of December 31, 2021 and September 30, 2021, we had the following borrowing obligations (dollars in thousands): 
December 31,
2021 		September 30,
2021
5.625% Senior Notes due 2026, net of deferred issuance costs of $3.1 million and $3.2 million, respectively. Effective interest rate 5.625%.
$ 496,918  $ 496,764 
1.000% Convertible Debentures due 2035, net of unamortized discount of $5.5 million and $7.0 million, respectively, and deferred issuance costs of $0.3 million and $0.3 million, respectively. Effective interest rate 5.622%.
122,185  122,948 
1.250% Convertible Debentures due 2025, net of unamortized discount of $33.6 million and $36.1 million, respectively, and deferred issuance costs of $1.4 million and $1.5 million, respectively. Effective interest rate 5.578%.
226,484  225,067 
1.500% Convertible Debentures due 2035, net of unamortized discount of $0.1 million, as of September 30, 2021. Effective interest rate 5.394%.
—  24,984 
Deferred issuance costs related to our Revolving Credit Facility (1,733) (1,839)
Total debt 843,854  867,924 
Less: current portion (a)
(348,669) (372,999)
Total long-term debt $ 495,185  $ 494,925 
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__________
(a) As of December 31, 2021, the holders have the right to convert all or any portion of the 1.25% 2025 Debentures and 1.0% 2035 Debentures between January 1, 2022 and March 31, 2022. As a result, the net carrying amounts of the convertible debentures were included in current liabilities as of December 31, 2021.
The following table summarizes the maturities of our borrowing obligations as of December 31, 2021 (dollars in thousands):
Fiscal Year
Convertible Debentures (a)
Senior Notes Total
2022 $ 389,392  $ 389,392 
2023 —  —  — 
2024 —  —  — 
2025 —  —  — 
2026 —  —  — 
Thereafter
—  500,000  500,000 
Total before unamortized discount 389,392  500,000  889,392 
Less: unamortized discount and issuance costs (40,723) (4,815) (45,538)
Total debt $ 348,669  $ 495,185  $ 843,854 
__________
(a) As more fully described below, as of December 31, 2021, the holders have the right to convert all or any portion of the 1.25% 2025 Debentures and 1.0% 2035 Debentures between January 1, 2022 and March 31, 2022. As a result, these convertible debentures were treated as if they were due in fiscal year 2022.
5.625% Senior Notes due 2026
In December 2016, we issued $500.0 million aggregate principal amount of 5.625% Senior Notes due on December 15, 2026 (the "2026 Senior Notes") in a private placement. The proceeds from the 2026 Senior Notes were approximately $495.0 million, net of issuance costs, and we used the proceeds to repurchase a portion of our then outstanding 5.375% Senior Notes due 2020. The 2026 Senior Notes bear interest at 5.625% per year, payable in cash semi-annually in arrears.
The 2026 Senior Notes are unsecured senior obligations and are guaranteed on an unsecured senior basis by certain of our domestic subsidiaries ("Subsidiary Guarantors"). The 2026 Senior Notes and the guarantees rank equally in right of payment with all of our and the Subsidiary Guarantors’ existing and future unsecured senior debt and rank senior in right of payment to all of our and the Subsidiary Guarantors’ future unsecured subordinated debt. The 2026 Senior Notes and guarantees effectively rank junior to all our secured debt and that of the Subsidiary Guarantors to the extent of the value of the collateral securing such debt and to all liabilities, including trade payables, of our subsidiaries that have not guaranteed the 2026 Senior Notes.
At any time, we may redeem all or a portion of the 2026 Senior Notes at certain redemption prices expressed as percentages of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date.
Upon the occurrence of a change in control or sale of substantially all assets, we must offer to repurchase the 2026 Senior Notes at a price equal to 100% in the case of an asset sale, or 101% in the case of a change of control, of the principal amount plus accrued and unpaid interest to, but excluding, the repurchase date.
1.0% Convertible Debentures due 2035
In December 2015, we issued $676.5 million in aggregate principal amount of 1.0% Senior Convertible Debentures due in 2035 (the "1.0% 2035 Debentures") in a private placement. Total proceeds were $663.8 million, net of issuance costs, and we used a portion to repurchase $38.3 million in aggregate principal on our 2.75% Senior Convertible Debentures due in 2031 (the “2.75% 2031 Debentures”) and to repay the aggregate principal balance of $472.5 million on our term loan under the amended and restated credit agreement. The 1.0% 2035 Debentures bear interest at 1.0% per year, payable in cash semi-annually in arrears. In addition to ordinary interest and default additional interest, beginning with the semi-annual interest period commencing on December 15, 2022, contingent interest will accrue during any regular semi-annual interest period where the average trading price of our 1.0% 2035 Debentures for the ten trading day period immediately preceding the first day of such semi-annual period is greater than or equal to $1,200 per $1,000 principal amount of our 1.0% 2035 Debentures, in which case, contingent interest will accrue at a rate of 0.50% per annum of such average trading price. The 1.0% 2035 Debentures mature on December 15, 2035, subject to the right of the holders to require us to redeem the 1.0% 2035 Debentures on December 15, 2022, 2027, or 2032. The 1.0% 2035 Debentures are general senior unsecured obligations and rank equally in right of payment
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with all of our existing and future unsecured, unsubordinated indebtedness and senior in right of payment to any indebtedness that is contractually subordinated to the 1.0% 2035 Debentures. The 1.0% 2035 Debentures will be effectively subordinated to indebtedness and other liabilities of our subsidiaries.
We account separately for the liability and equity components of the 1.0% 2035 Debentures in accordance with authoritative guidance for convertible debt instruments that may be settled in cash upon conversion. The guidance requires the carrying amount of the liability component to be estimated by measuring the fair value of a similar liability that does not have an associated conversion feature and record the remainder in stockholders’ equity. At issuance, we allocated $495.4 million to long-term debt, and $181.1 million has been recorded as additional paid-in capital, which is being amortized to interest expense using the effective interest rate method through December 2022.
If converted, the principal amount of the 1.0% 2035 Debentures is payable in cash and any amounts payable in excess of the principal amount will be paid in cash or shares of our common stock, at our election. The conversion of the 1.0% 2035 Debentures will be based upon a conversion ratio of 41.4576 common shares per $1,000 principal amount, subject to adjustments. Conversion is only allowed in the following circumstances and to the following extent: (i) prior to June 15, 2035, on any date during any fiscal quarter (and only during such fiscal quarter) if the closing sale price of our common stock was more than 130% of the then current conversion price for at least 20 trading days in the period of the 30 consecutive trading days ending on the last trading day of the previous fiscal quarter; (ii) during the five consecutive business-day period following any five consecutive trading-day period in which the trading price for $1,000 principal amount of the 1.0% 2035 Debentures for each day during such five trading-day period was less than 98% of the closing sale price of our common stock multiplied by the then current conversion rate; (iii) upon the occurrence of specified corporate transactions, as described in the indenture for the 1.0% 2035 Debentures; or (iv) at the option of the holder at any time on or after June 15, 2035. Additionally, we may redeem the 1.0% 2035 Debentures, in whole or in part, on or after December 20, 2022 for cash at a price equal to 100% of the principal amount of the 1.0% 2035 Debentures to be purchased plus any accrued and unpaid interest, including any additional interest to, but excluding, the repurchase date. Each holder shall have the right, at such holder’s option, to require us to repurchase all or any portion of the 1.0% 2035 Debentures held by such holder on December 15, 2022, December 15, 2027, or December 15, 2032 at par plus accrued and unpaid interest. If we undergo a fundamental change or non-stock change of control (as described in the indenture for the 1.0% 2035 Debentures) prior to maturity, holders will have the option to require us to repurchase all or any portion of their debentures for cash at a price equal to 100% of the principal amount of the 1.0% 2035 Debentures to be purchased plus any accrued and unpaid interest.
During the third quarter of fiscal year 2021, we induced the exchange of $457.0 million notional amount of our 1.0% 2035 Debentures for $5.0 million in cash and 18.9 million shares of common stock, of which we allocated $435.1 million to debt and $567.1 million to equity. Also, in connection with the redemptions, we wrote off $32.4 million of unamortized discount and $1.4 million of unamortized costs. As a result, we recorded a $15.0 million loss associated with the redemptions, of which $3.1 million represents the inducement expense and $1.9 million represents the interest earned at the time of settlement, based upon the guidance in ASC 470-20. Additionally, as part of these redemptions we transferred non-cash consideration in the form of shares of common stock valued at $1,002.2 million.
Also, during the fourth quarter of fiscal year 2021, holders of our 1.0% 2035 Debentures exercised their right to convert $89.2 million notional amount for $89.2 million in cash and 2.1 million shares of common stock, of which we allocated $85.4 million to debt and $117.6 million to equity. Also, in connection with the conversions, we wrote off $5.6 million of unamortized discount and $0.3 million of unamortized costs. As a result, we recorded a $2.1 million loss associated with the conversions. Additionally, as part of these conversions we transferred non-cash consideration in the form of shares of common stock valued at $113.8 million.
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, of which we allocated $2.2 million to debt and $3.1 million to equity. Also, in connection with the conversions, we wrote off $0.1 million of unamortized discount. As a result, we recorded an immaterial loss associated with the conversions. Additionally, as part of these conversions we transferred non-cash consideration in the form of shares of common stock valued at $3.0 million. Following the redemptions, $128.0 million in aggregate principal amount of the 1.0% 2035 Debentures remained outstanding as of December 31, 2021.
The 1.0% 2035 Debentures were convertible as of December 31, 2021, as our common stock price exceeded the conversion threshold price of 130% of the applicable conversion price per share for at least 20 trading days during the 30 consecutive trading days ending December 31, 2021. As a result, the holders of our 1.0% 2035 Debentures have the right to convert all or
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any portion of their debentures between January 1, 2022 and March 31, 2022. The holders previously had the right to convert all or any portion of their debentures at the aforementioned conversion ratio beginning January 1, 2021 through December 31, 2021.
As of December 31, 2021, holders have exercised their right to convert $23.5 million notional amount of our 1.0% 2035 Debentures for an estimated $23.5 million in cash and 0.5 million shares of common stock for an estimated total consideration of $53.8 million. The settlement of these conversions occurred in the second quarter of fiscal year 2022. The net carrying amount of the 1.0% 2035 Debentures was included within the current portion of long-term debt, and $5.8 million has been reclassified from permanent equity to mezzanine equity. As of December 31, 2021, the if-converted value of the 1.0% 2035 Debentures exceeded its principal amount by $165.5 million.
1.25% Convertible Debentures due 2025
In March 2017, we issued $350.0 million in aggregate principal amount of 1.25% Senior Convertible Debentures due in 2025 (the "1.25% 2025 Debentures") in a private placement. The proceeds were approximately $343.6 million, net of issuance costs. We used a portion of the proceeds to repurchase 5.8 million shares of our common stock for $99.1 million and $17.8 million in aggregate principal on our 2.75% 2031 Debentures. The 1.25% 2025 Debentures bear interest at 1.25% per year, payable in cash semi-annually in arrears, beginning on October 1, 2017. The 1.25% 2025 Debentures mature on April 1, 2025. The 1.25% 2025 Debentures are general senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured, unsubordinated indebtedness and senior in right of payment to any indebtedness that is contractually subordinated to the 1.25% 2025 Debentures. The 1.25% 2025 Debentures will be effectively subordinated to indebtedness and other liabilities of our subsidiaries.
We account separately for the liability and equity components of the 1.25% 2025 Debentures in accordance with authoritative guidance for convertible debt instruments that may be settled in cash upon conversion. The guidance requires the carrying amount of the liability component to be estimated by measuring the fair value of a similar liability that does not have an associated conversion feature and record the remainder in stockholders’ equity. At issuance, we allocated $252.1 million to long-term debt, and $97.9 million has been recorded as additional paid-in capital, which is being amortized to interest expense using the effective interest rate method through April 1, 2025.
If converted, the principal amount of the 1.25% 2025 Debentures is payable in cash and any amounts payable in excess of the principal amount will be paid in cash or shares of our common stock, at our election. The conversion of the 1.25% 2025 Debentures will be based upon a conversion ratio of 50.7957 common shares per $1,000 principal amount, subject to adjustments. Conversion is only allowed in the following circumstances and to the following extent: (i) prior to October 1, 2024, on any date during any fiscal quarter (and only during such fiscal quarter) if the closing sale price of our common stock was more than 130% of the then current conversion price for at least 20 trading days in the period of the 30 consecutive trading days ending on the last trading day of the previous fiscal quarter; (ii) at any time on or after October 1, 2024; (iii) during the five consecutive business-day period immediately following any five consecutive trading-day period in which the trading price for $1,000 principal amount of the 1.25% 2025 Debentures for each day during such five trading-day period was less than 98% of the closing sale price of our common stock multiplied by the then current conversion rate; or (iv) upon the occurrence of specified corporate transactions, as described in the indenture for the 1.25% 2025 Debentures. We may not redeem the 1.25% 2025 Debentures prior to the maturity date. If we undergo a fundamental change or non-stock change of control (as described in the indenture for the 1.25% 2025 Debentures) prior to maturity, holders will have the option to require us to repurchase all or any portion of their debentures for cash at a price equal to 100% of the principal amount of the 1.25% 2025 Debentures to be purchased plus any accrued and unpaid interest.
During the second quarter of fiscal year 2020, we repurchased $87.3 million notional amount of our 1.25% 2025 Debentures for $112.3 million, of which we allocated $72.8 million to debt and $39.5 million to equity. Also, in connection with the repurchases, we wrote off $16.7 million of unamortized discount and $0.7 million of unamortized costs. As a result, we recorded a $2.8 million loss associated with the repurchases.
Additionally, during the first quarter of fiscal year 2022, 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, of which we allocated $1.1 million to debt and $2.3 million to equity. Also, in connection with the conversions, we wrote off $0.2 million of unamortized discount. As a result, we recorded an immaterial loss associated with the conversions. Additionally, as part of these conversions we transferred non-cash consideration in the form of shares of common stock valued at $2.2 million. Following the redemptions, $261.4 million in aggregate principal amount of the 1.25% 2025 Debentures remained outstanding as of December 31, 2021.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The 1.25% 2025 Debentures were convertible as of December 31, 2021, as our common stock price exceeded the conversion threshold price of 130% of the applicable conversion price per share 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 have the right to convert all or any portion of their debentures between January 1, 2022 and March 31, 2022. The holders previously had the right to convert all or any portion of their debentures at the aforementioned conversion ratio beginning October 1, 2020 through December 31, 2021. As of December 31, 2021, the net carrying amount of the 1.25% 2025 Debentures was included within the current portion of long-term debt, and $34.9 million has been reclassified from permanent equity to mezzanine equity. As of December 31, 2021, the if-converted value of the 1.25% 2025 Debentures exceeded its principal amount by $473.2 million.
1.50% Convertible Debentures due 2035
In June 2015, we issued $263.9 million in aggregate principal amount of 1.5% Senior Convertible Debentures due in 2035 in exchange for $256.2 million in aggregate principal amount of our 2.75% 2031 Debentures. Total proceeds, net of issuance costs, were $253.2 million. The 1.5% 2035 Debentures were issued at 97.09% of the principal amount, which resulted in a discount of $7.7 million. The 1.5% 2035 Debentures bore interest at 1.5% per year, payable in cash semi-annually in arrears. In addition to ordinary interest and default additional interest, beginning with the semi-annual interest period commencing on November 1, 2021, contingent interest accrued during any regular semi-annual interest period where the average trading price of our 1.5% 2035 Debentures for the ten trading day period immediately preceding the first day of such semi-annual period was greater than or equal to $1,200 per $1,000 principal amount of our 1.5% 2035 Debentures, in which case, contingent interest accrued at a rate of 0.50% per annum of such average trading price.
During the second quarter of fiscal year 2020, we repurchased $36.5 million notional amount of 1.5% 2035 Debentures for $41.3 million, of which we allocated $34.7 million to debt and $6.6 million to equity based upon ASC 470-20. Also, in connection with the repurchases, we wrote off $2.5 million of unamortized discount and $0.1 million of unamortized costs. As a result, we recorded a $0.8 million loss associated with the repurchases.
During the third quarter of fiscal year 2021, we induced the exchange of $64.9 million notional amount of 1.5% 2035 Debentures for $0.5 million in cash and 3.2 million shares of common stock, of which we allocated $64.2 million to debt and $102.5 million to equity. Also, in connection with the redemptions, we wrote off $1.4 million of unamortized discount. As a result, we recorded a $1.1 million loss associated with the redemptions, of which $0.4 million represents the inducement expense and $0.1 million represents the interest earned at the time of settlement, based upon the guidance in ASC 470-20. Additionally, as part of these redemptions we transferred non-cash consideration in the form of shares of common stock valued at $166.7 million.
The 1.5% 2035 Debentures were convertible during the period October 1, 2021 through November 4, 2021, as our common stock price exceeded the conversion threshold price of 130% of the applicable conversion price per share for at least 20 trading days during the 30 consecutive trading days ending September 30, 2021. The holders previously had the right to convert all or any portion of their debentures at the aforementioned conversion ratio beginning October 1, 2020 through November 4, 2021.
Further, during the third and fourth quarter of fiscal year 2021, holders of our 1.5% 2035 Debentures exercised their right to convert $137.4 million notional amount for $137.4 million in cash and 4.1 million shares of common stock, of which we allocated $136.0 million to debt and $225.1 million to equity. Also, in connection with the conversions, we wrote off $2.4 million of unamortized discount and $0.1 million of unamortized costs. As a result, we recorded a $1.1 million loss associated with the conversions. Additionally, as part of these conversions we transferred non-cash consideration in the form of shares of common stock valued at $223.7 million.
On September 29, 2021, we issued a notice calling for redemption all of our outstanding 1.5% 2035 Debentures, pursuant to which the holders had the right to receive cash at a price equal to 100% of the principal amount of the 1.5% 2035 Debentures plus any accrued and unpaid interest, including any additional interest to, but excluding, the repurchase date of November 5th, 2021. In lieu of redemption, holders had the right to convert all or any portion of their debentures at the aforementioned conversion ratio until the close of business on November 4, 2021. Upon the conclusion of the conversion period on November 4, 2021, holders of $25.0 million notional amount exercised their right to convert. Additionally, we redeemed the remaining outstanding $0.1 million 1.5% 2035 Debentures for $0.1 million in cash. On November 5, 2021, we settled all of the outstanding 1.5% 2035 Debentures for $25.1 million in cash and 0.8 million shares of common stock. As part of these conversions we transferred non-cash consideration in the form of shares of common stock valued at $41.9 million. Following these redemptions and conversions, none of the 1.5% 2035 Debentures remain outstanding.
Revolving Credit Facility
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NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On July 31, 2020, we amended our revolving credit agreement (the "Amended Revolving Credit Agreement") to, among other things, extend the expiration from April 15, 2021 to April 15, 2022. The Amended Revolving Credit Agreement provided for aggregate borrowing commitments of $242.5 million (the "Revolving Credit Facility"), including the revolving facility loans, the swingline loans and issuance of letters of credit. The borrowing outstanding under the Revolving Credit Facility bore interest at either (i) LIBOR plus an applicable margin of 1.50% or 1.75%, or (ii) the alternative base rate plus an applicable margin of 0.50% or 0.75%. The Revolving Credit Facility was secured by substantially all our assets. The Amended Revolving Credit Agreement contained customary affirmative and negative covenants and conditions to borrowing, as well as customary events of default. At any time that there were any outstanding borrowings (excluding up to $25,000,000 of issued and undrawn Letters of Credit) under the Revolving Credit Facility, we were required to maintain a Consolidated Senior Secured Leverage Ratio (as defined in the Amended Revolving Credit Agreement) not exceeding 4.00 to 1.00.
On February 4, 2021, we entered into a new revolving credit agreement (the "New Revolving Credit Agreement"), which replaced the existing Amended Revolving Credit Agreement. The New Revolving Credit Agreement expires February 4, 2026, and has an aggregate borrowing commitment of $300.0 million, including revolving loans and letters of credit (the "New Revolving Credit Facility"). The New Revolving Credit Facility bears interest at either (i) LIBOR plus an applicable margin of 1.50% or 1.75%, or (ii) the alternative base rate plus an applicable margin of 0.50% or 0.75%. The New Revolving Credit Facility is secured by substantially all our assets and substantially all assets of certain of our domestic subsidiaries that guarantee our obligations under the New Revolving Credit Agreement. The New Revolving Credit Agreement contains customary affirmative and negative covenants and conditions to borrowing, as well as customary events of default. Among other things, we are required to maintain a Consolidated Senior Secured Leverage Ratio (as defined in the New Revolving Credit Agreement) not exceeding 4.00 to 1.00. We were in compliance with all the debt covenants as of December 31, 2021.
As of December 31, 2021, after taking into account the outstanding letters of credit of $1.9 million, we had $298.1 million available for borrowing under the New Revolving Credit Facility.
12. Stockholders' Equity
Share Repurchases
On April 29, 2013, our Board of Directors approved a share repurchase program for up to $500.0 million, which was increased by $500.0 million on April 29, 2015. On August 1, 2018, our Board of Directors approved an additional $500.0 million under our share repurchase program. Under the terms of the share repurchase program, we have the ability to repurchase shares from time to time through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated stock repurchase transactions, or any combination of such methods. The share repurchase program does not require us to acquire any specific number of shares and may be modified, suspended, extended or terminated by us at any time without prior notice. The timing and the amount of any purchases are subject to our assessment of the prevailing market conditions, general economic conditions, capital allocation alternatives, and other factors.
We did not repurchase any shares of our common stock for the three months ended December 31, 2021 and 2020. Since the commencement of the program, we have repurchased 73.8 million shares for $1,238.8 million. As of December 31, 2021, approximately $261.2 million remained available for future repurchases under the program.
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NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Net (Loss) Income Per Share
The following table sets forth the computation for basic and diluted net (loss) income per share (in thousands, except per share amounts): 
  Three Months Ended December 31,
2021 2020
Numerator:
Net (loss) income from continuing operations $ (57,559) $ 6,954 
Net income from discontinued operations —  7,941 
Net (loss) income $ (57,559) $ 14,895 
Denominator:
Weighted average common shares outstanding — basic 317,359  283,818 
Dilutive effect of convertible instruments —  21,636 
Dilutive effect of employee stock compensation plans(a)
—  8,756 
Weighted average common shares outstanding — diluted 317,359  314,210 
Net (loss) income per common share - basic:
Continuing operations $ (0.18) $ 0.02 
Discontinued operations —  0.03 
Total net (loss) income per basic common share $ (0.18) $ 0.05 
Net (loss) income per common share - diluted:
Continuing operations $ (0.18) $ 0.02 
Discontinued operations —  0.03 
Total net (loss) income per diluted common share $ (0.18) $ 0.05 
Anti-dilutive equity instruments excluded from the calculation
—  580 
Contingently issuable awards excluded from the calculation
112  — 
__________
(a)Certain performance-based awards were excluded from the determination of dilutive net (loss) income per share as the conditions were not met at the end of the reporting period.
14. Stock-Based Compensation
On January 22, 2020, our shareholders adopted our 2020 Stock Plan (the "2020 Stock Plan") and as of such date, we ceased granting awards under our amended and restated 2000 Stock Plan (the "2000 Stock Plan"). Additionally, since adoption of the 2020 Stock Plan, we also no longer grant awards under our amended and restated 1995 Directors Stock Plan (the "1995 Directors Stock Plan"), and all non-employee directors are awarded grants under the 2020 Stock Plan. Outstanding awards under our 2000 Stock Plan that are forfeited or returned to the Company for satisfaction of taxes, are transferred to the 2020 Stock Plan and may be used for future issuance. The 2020 Stock Plan (i) grants the Company's compensation committee the discretionary authority over the plan; (ii) makes employees, directors, consultants, and advisors of the Company and its subsidiaries eligible to receive awards; (iii) sets the number of shares of common stock that may be issued in satisfaction of awards to be 9,000,000 shares, plus the number of shares that become available for issuance under the 2000 Stock Plan; and (iv) identifies the annual limits on shares granted to each individual and the types of awards permissible.
As of December 31, 2021, we had 11.4 million shares available for future grants under the 2020 Stock Plan. We recognize stock-based compensation expenses over the requisite service periods. Our share-based awards are classified within equity upon issuance.
The amounts included in the consolidated statements of operations related to stock-based compensation are as follows (dollars in thousands): 
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NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
  Three Months Ended December 31,
2021 2020
Cost of hosting and professional services $ 7,206  $ 6,563 
Cost of product and licensing 29  75 
Cost of maintenance and support 471  426 
Research and development 9,364  8,440 
Sales and marketing 11,710  8,943 
General and administrative 9,619  10,459 
Total $ 38,399  $ 34,906 
Stock Options
The table below summarizes activities related to stock options for the three months ended December 31, 2021:
Number of
Shares 		Weighted
Average
Exercise
Price 		Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value (a)
Outstanding at September 30, 2021 9,355  $ 17.18 
Exercised (3,700) $ 17.18 
Outstanding at December 31, 2021 5,655  $ 17.18  0.3 years $ 0.2   million
Exercisable at December 31, 2021 5,655  $ 17.18  0.3 years $ 0.2   million
Exercisable at December 31, 2020 9,355  $ 17.18  1.3 years $ 0.3   million
__________
(a)The aggregate intrinsic value in this table represents any excess of the closing market price of our common stock as of December 31, 2021 ($55.32) over the exercise price of the underlying options.
The aggregate intrinsic values of stock options exercised during the three months ended December 31, 2021 and 2020 were de minimis.
Restricted Stock Units and Performance Stock Units
Restricted units and performance stock units are not included in issued and outstanding common stock until the units are vested and underlying shares are released. The purchase price for vested restricted units is $0.001 per share. The table below summarizes activities relating to restricted units and performance stock units for the three months ended December 31, 2021:
Number of Shares Underlying Restricted Units — Performance-Based Awards Number of Shares Underlying Restricted Units — Time-Based Awards
Outstanding at September 30, 2021 2,463,921  4,655,825 
Granted (a)
880,362  1,796,045 
Earned/released (1,760,724) (2,110,257)
Forfeited (5,601) (34,455)
Outstanding at December 31, 2021 1,577,958  4,307,158 
Weighted average remaining recognition period of outstanding Restricted Units 1.2 years 1.8 years
Unrecognized stock-based compensation expense of outstanding Restricted Units $21.1 million $122.3 million
Aggregate intrinsic value of outstanding Restricted Units (b)
$87.3 million $238.3 million
__________
(a)For the three months ending December 31, 2021, there were no performance-based restricted units granted. The granted performance-based restricted units for the period are a result of the performance-based restricted units vesting above their specified targets in our first quarter of fiscal year 2022.
(b)The aggregate intrinsic value in this table represents any excess of the closing market price of our common stock as of December 31, 2021 ($55.32) over the purchase price of the underlying restricted units.
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NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of the weighted-average grant-date fair value of restricted units granted, and the aggregate intrinsic value of restricted units vested during the periods noted is as follows: 
  Three Months Ended December 31,
2021 2020
Weighted-average grant-date fair value per share $ 55.18  $ 37.26 
Total intrinsic value of shares vested (in millions) $ 213.4  $ 119.4 
Performance-based restricted units outstanding as of December 31, 2021 include performance goals based on total shareholder return relative to a peer index and a revenue growth metric (for awards granted in November 2020) during the performance period. The awards actually earned will be up to two hundred percent of the target number of the performance-based restricted units. Compensation expense related to performance-based restricted units aligned to the total shareholder return is recorded on a straight-line basis over the performance period of the award. The grant date fair value for performance-based restricted units aligned to total shareholder return is determined using a Monte Carlo simulation model. Below is a summary of key assumptions of the valuation:
Three Months Ended December 31,
2021 2020
Dividend yield
N/A
0.0%
Expected volatility
N/A
34.95%
Risk-free interest rate
N/A
 0.21%
Expected term (in years)
N/A
3.00
15. Income Taxes
The components of (loss) income before income taxes from continuing operations are as follows (dollars in thousands):
  Three Months Ended December 31,
2021 2020
Domestic $ (58,889) $ (4,995)
Foreign 24,880  14,252 
(Loss) income before income taxes $ (34,009) $ 9,257 
The components of provision for income taxes from continuing operations are as follows (dollars in thousands):
  Three Months Ended December 31,
2021 2020
Domestic $ 21,229  $ (2,892)
Foreign 2,321  5,195 
Provision for income taxes $ 23,550  $ 2,303 
Effective tax rate (69.2) % 24.9  %
The effective income tax rate is based upon the income for the year, the geographic mix of our income, the composition of the income in different countries, changes relating to valuation allowances and the potential tax consequences of resolving audits or other tax contingencies.
Our effective income tax rate was (69.2)% for the three months ended December 31, 2021, compared to 24.9% for the three months ended December 31, 2020. The effective tax rate for the three months ended December 31, 2021 differed from the U.S. federal statutory rate of 21.0% primarily due to the base erosion anti-abuse tax, the composition of the mix in income in different countries, offset by the change in valuation allowance. The effective tax rate for the three months ended December 31, 2020 differed from the U.S. federal statutory rate of 21.0% primarily due to the base erosion anti-abuse tax offset by a change in the valuation allowance in the United States.
On October 8, 2021, we received an interim decision from the Administrative Court of the Canton of Zurich in Switzerland (the “Swiss Appeals Court”) regarding our appeal of certain proposed income tax adjustments related to a 2011 IP transfer and business restructuring by a Swiss subsidiary. Although the Swiss Appeals Court upheld a tax assessment related to the IP
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NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
transfer, it remanded our case to a lower court in Switzerland for further factual development and consideration of other issues. As of the quarter ending December 31, 2021, the lower court proceeding has not commenced. We currently believe it is reasonably possible that the case could be resolved in the next 12 months. We disagree with the tax authorities' position and intend to vigorously defend our position in the lower court proceedings. If we prevail, there would be no incremental financial exposure; however, if the position of the Swiss tax authorities is ultimately upheld on all matters, we could be required to pay up to $60 million, the majority of which could affect our earnings.
Valuation Allowances
As of December 31, 2021 and September 30, 2021, we had a full valuation allowance against net domestic deferred tax assets and certain foreign deferred tax assets. We intend to maintain valuation allowances on these deferred tax assets until there is sufficient evidence to support the release of all or some portion of these allowances. A significant portion of our domestic deferred tax assets relate to U.S. net operating losses. We continue to believe negative evidence for the release of some or all of the allowances outweighs positive evidence after considering recent profitability trends and the disposition of the medical transcription and EHR implementation businesses. We continue to evaluate all sources of domestic taxable income including both the reversal of existing deferred tax liabilities and the likelihood that we could sustain pretax profitability in the future. As of December 31, 2021, we believe that there is a reasonable possibility that within the next twelve months these sources of taxable income may become sufficient positive evidence to support a conclusion that a substantial portion of the domestic valuation allowance, excluding capital losses, could be released.
16. Commitments and Contingencies
Litigation and Other Claims
Similar to many companies in the software industry, we are involved in a variety of claims, demands, suits, investigations and proceedings that arise from time to time relating to matters incidental to the ordinary course of our business, including actions with respect to contracts, intellectual property, employment, benefits and securities matters. At each balance sheet date, we evaluate contingent liabilities associated with these matters in accordance with ASC 450 "Contingencies". If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgments are required for the determination of probability and the range of the outcomes, and the estimates are based only on the information available at the time. Due to the inherent uncertainties involved in claims, legal proceedings, and in estimating the losses that may arise, actual outcomes may differ from our estimates. Contingencies deemed not probable or for which losses were not estimable in one period may become probable, or losses may become estimable in later periods which may have a material impact on our results of operations and financial position. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. As of December 31, 2021, accrued losses were not material to our condensed consolidated financial statements, and we do not expect any pending matter to have a material impact on our condensed consolidated financial statements.
Guarantees and Other
We include indemnification provisions in the contracts we enter into with customers and business partners. Generally, these provisions require us to defend claims arising out of our products’ infringement of third-party intellectual property rights, breach of contractual obligations and/or unlawful or otherwise culpable conduct. The indemnity obligations generally cover damages, costs and attorneys’ fees arising out of such claims. In most, but not all cases, our total liability under such provisions is limited to either the value of the contract or a specified, agreed upon amount. In some cases, our total liability under such provisions is unlimited. In many, but not all cases, the term of the indemnity provision is perpetual. While the maximum potential amount of future payments we could be required to make under all the indemnification provisions is unlimited, we believe the estimated fair value of these provisions is minimal due to the low frequency with which these provisions have been triggered.
We indemnify our directors and officers to the fullest extent permitted by Delaware law, which provides among other things, indemnification to directors and officers for expenses, judgments, fines, penalties and settlement amounts incurred by such persons in their capacity as a director or officer of the company, regardless of whether the individual is serving in any such capacity at the time the liability or expense is incurred. Additionally, in connection with certain acquisitions, we agreed to indemnify the former officers and members of the boards of directors of those companies, on similar terms as described above, for a period of six years from the acquisition date. In certain cases, we purchase director and officer insurance policies related to these obligations, which fully cover the six-year period. To the extent that we do not purchase a director and officer insurance
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NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
policy for the full period of any contractual indemnification, and such directors and officers do not have coverage under separate insurance policies, we would be required to pay for costs incurred, if any, as described above.
Contingencies
The Company is subject to contingencies which arise through the ordinary course of business. All material liabilities of which management were aware are properly reflected in the financial statements as of December 31, 2021 and September 30, 2021.
Microsoft Acquisition Contingencies
On April 11, 2021, we entered into a Merger Agreement with Microsoft, subject to the terms of which Microsoft has agreed to acquire Nuance. The consummation of the Merger remains subject to customary closing conditions including satisfaction of certain regulatory approvals. 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. As part of the transaction, Nuance expects to incur liabilities of approximately $114 million that are contingent on the deal consummation. These liabilities include banker fees, legal fees, and certain retention bonuses.
17. Operating Leases
Operating Leases
We have various operating leases for office space, data centers, office equipment and automobiles around the world with lease terms expiring between 2022 and 2030.
We determine if an arrangement is a lease at inception. The current portion of our operating lease liabilities is included in accrued expenses and other current liabilities and the long-term portion is included in operating lease liabilities.
Operating lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is our incremental borrowing rate. Due to the interest rate implicit in most of our leases not being readily determinable, our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. Operating lease assets also include any prepaid lease payments and lease incentives. Our lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term.
Our lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. We combine fixed payments for non-lease components with our lease payments and account for them together as a single lease component which increases the amount of our lease assets and liabilities. Payments under our lease arrangements are primarily fixed. Variable rents, if any, are expensed as incurred.
As of December 31, 2021, our operating leases had a weighted average remaining lease term of 4.1 years and a weighted average discount rate of 3.8%. 
Future lease payments under operating leases as of December 31, 2021 were as follows (dollars in thousands):
Fiscal Year Operating Leases Operating leases under restructuring Total
2022 $ 16,622  $ 4,401  $ 21,023 
2023 16,291  4,227  20,518 
2024 13,912  2,727  16,639 
2025 12,479  1,583  14,062 
2026 11,280  1,379  12,659 
Thereafter 30,016  463  30,479 
Total $ 100,600  $ 14,780  $ 115,380 
As of December 31, 2021, we have subleased certain office space that is included in the above table to third parties. As of December 31, 2021, the aggregate sublease income to be recognized during the remaining lease terms is $10.1 million, with approximately an average of $1.8 million annually for each of the next five fiscal years and approximately $1.1 million thereafter.
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NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our operating lease cost was approximately $6.0 million for the three months ended December 31, 2021, and $7.2 million for the three months ended December 31, 2020. Operating lease payments included within operating cash flows were $7.6 million for the three months ended December 31, 2021, and $7.7 million for the three months ended December 31, 2020.
18. Segment and Geographic Information
Our Chief Operating Decision Maker ("CODM") regularly reviews segment revenues and segment profits for performance evaluation and resources allocation. Segment revenues include certain acquisition-related adjustments for revenues that would otherwise have been recognized without the acquisition. Segment profits reflect controllable costs directly related to each segment and the allocation of certain corporate expenses such as corporate sales and marketing expenses and research and development project costs that benefit multiple segments. Certain items such as stock-based compensation, amortization of intangible assets, acquisition-related costs, net, restructuring and other charges, net, other expenses, net and certain unallocated corporate expenses are excluded from segment profits, which allow for more meaningful comparisons to the financial results of the historical operations for performance evaluation and resources allocation by our CODM.
•The Healthcare segment is primarily engaged in providing clinical speech and clinical language understanding solutions that improve the clinical documentation process, from capturing the complete patient record to improving clinical documentation and quality measures for reimbursement.
•The Enterprise segment is primarily engaged in using speech, natural language understanding, and artificial intelligence to provide automated customer solutions and services for voice, mobile, web and messaging channels.
•The Other segment consists primarily of voicemail transcription services.
As more fully described in Note 4, on November 17, 2020, we entered into the Agreement to sell the Business, comprised of our medical transcription and EHR implementation businesses. Effective the first quarter of fiscal year 2021, the results of operations of the Business are included within discontinued operations for all periods presented. Our Healthcare segment revenue and segment profit for the historical periods have been recast to reflect the forementioned change.
We do not track our assets by segment. Consequently, it is not practical to show assets or depreciation by segment. The following table presents segment results along with a reconciliation of segment profit to (Loss) income before income taxes (dollars in thousands): 
Three Months Ended December 31,
2021 2020
Segment revenues:
Healthcare $ 200,400  $ 199,332 
Enterprise 117,227  139,152 
Other 3,808  7,269 
Total segment revenues $ 321,435  $ 345,753 
Segment profit:
Healthcare $ 43,139  $ 74,812 
Enterprise 18,725  41,468 
Other 2,011  4,971 
Total segment profit $ 63,875  $ 121,251 
Corporate expenses and other, net (26,388) (31,115)
Stock-based compensation (38,399) (34,906)
Amortization of intangible assets (11,969) (14,793)
Acquisition-related costs, net (1,248) (325)
Restructuring and other charges, net (8,506) (8,566)
Other expenses, net (11,374) (22,289)
(Loss) income before income taxes $ (34,009) $ 9,257 
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NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
No country outside of the United States provided greater than 10% of our total revenues. Revenues, classified by the major geographic areas in which our customers are located, were as follows (dollars in thousands): 
Three Months Ended December 31,
2021 2020
United States $ 259,776  $ 272,598 
International 61,659  73,155 
Total revenues $ 321,435  $ 345,753 
19. Supplemental Cash Flow Information
Cash paid for Interest and Income Taxes:
  Three Months Ended December 31,
  2021 2020
  (Dollars in thousands)
Interest paid $ 15,214  $ 21,087 
Income taxes paid $ 2,582  $ 2,738 
20. COVID-19 Pandemic
The novel coronavirus ("COVID-19") pandemic has disrupted economic markets, and the future economic impact, duration and spread of COVID-19 is still uncertain at this time. The COVID-19 pandemic may continue to adversely impact our business, results of operations, cash flows and financial condition. While we have not experienced significant disruptions to our ability to conduct business thus far as a result of the pandemic, we are currently conducting business with substantial modifications to employee travel, employee work locations, virtualization or cancellation of customer and employee events, and remote sales, implementation, and support activities, among other modifications.
The full extent to which the coronavirus pandemic will impact our business, operations, and financial results in the future will depend on numerous evolving factors and may not be accurately predicted at this time.
21. Subsequent Events
In addition to the debt holder exercises disclosed in Note 11, subsequent to our period end of December 31, 2021, certain debt holders have exercised their right to convert $2.1 million notional amount of our 1.0% 2035 Debentures for an estimated $2.1 million in cash and 0.1 million shares of common stock for an estimated total consideration of $4.7 million. The settlement of these conversions is expected to occur in the second quarter of fiscal year 2022.

28
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis is intended to help the reader understand the results of operations and financial condition of our business. Management’s Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements.
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks, uncertainties and assumptions that, if they never materialize or if they prove incorrect, could cause our consolidated results to differ materially from those expressed or implied by such forward-looking statements. These forward-looking statements include predictions regarding:
•potential disruption to our business caused by the proposed acquisition of us by Microsoft;
•our ability to complete the Merger in a timely manner or at all;
•our future bookings, revenues, cost of revenues, research and development expenses, selling, general and administrative expenses, amortization of intangible assets and gross margin;
•our strategy relating to our segments;
•our programs to reduce costs and optimize processes;
•market trends;
•technological advancements;
•the potential of future product releases;
•our product development plans and the timing, amount and impact of investments in research and development;
•future acquisitions, divestitures and other strategic transactions, and anticipated benefits from such transactions;
•international operations and localized versions of our products; 
•the impact of the COVID-19 pandemic; and
•the conduct, timing and outcome of legal proceedings and litigation matters.
You can identify these and other forward-looking statements by the use of words such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intends," "potential," "continue" or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks described in Item 1A — "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q.
You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.
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, 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 automated speech recognition, natural language
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understanding, semantic processing, domain-specific reasoning, dialog management capabilities, AI, and voice biometric speaker authentication. We report our business in three segments, Healthcare, Enterprise, and Other.
•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 and helping care teams and health organizations drive meaningful financial and clinical outcomes. Our principal solutions include Dragon Medical Cloud-based solutions, Computer-Assisted Physician Documentation, Diagnostic Imaging Solutions, Nuance® Dragon Ambient eXperience™, Clinical Documentation Improvement and Coding.
•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 principal solutions include interactive voice response, intelligent engagement, digital messaging and security & biometric solutions, delivered via on-premise and/or cloud.
•Other. Our Other segment currently consists primarily of voicemail transcription services.
•Discontinued Operations. On November 17, 2020, we entered into the Agreement to sell our medical transcription and electronic healthcare record implementation businesses. On March 1, 2021, we completed the sale of the Business and received proceeds of approximately $29.8 million, subject to certain customary post-closing adjustments. For all periods presented, the Business' results of operations have been included within discontinued operations in our consolidated financial statements.
Acquisition of Nuance Communications, Inc. by Microsoft Corporation
On April 11, 2021, we entered into a Merger Agreement with 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, following consummation of the Merger, Nuance will be 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. If the Merger Agreement is terminated under certain specified circumstances, we will be required to pay Microsoft a termination fee of $515.0 million. The consummation of the Merger remains subject to customary closing conditions, including satisfaction of certain regulatory approvals and other customary closing conditions. 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 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.
Key Metrics
In evaluating the financial condition and operating performance of our business, management focuses on revenue, net (loss) income, gross margins, operating margins, cash flow from operations, and changes in deferred revenue. A summary of key financial metrics for the three months ended December 31, 2021, as compared to the three months ended December 31, 2020, is as follows:
•Total revenues were $321.4 million for the three months ended December 31, 2021, as compared to $345.8 million for the three months ended December 31, 2020;
•Net loss from continuing operations for the three months ended December 31, 2021 was $57.6 million, compared to net income from continuing operations of $7.0 million for the three months ended December 31, 2020;
•Gross margins for the three months ended December 31, 2021 were 56.5%, compared to 61.9% for the three months ended December 31, 2020;
•Operating margins for the three months ended December 31, 2021 were (7.0)%, compared to 9.1% for three months ended December 31, 2020; and
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•Operating cash flows from continuing operations decreased by $40.8 million to $13.9 million for the three months ended December 31, 2021, compared to $54.6 million for the three months ended December 31, 2020.
RESULTS OF OPERATIONS
Total Revenues
The following tables show total revenues by product type and by geographic location, based on the location of our customers, in dollars and percentage change (dollars in millions): 
Three Months Ended December 31, Dollar
Change 		Percent
Change
2021 2020
Hosting and professional services $ 213.7  $ 195.8  $ 17.9  9.1  %
Product and licensing 47.5  86.0  (38.6) (44.8) %
Maintenance and support 60.2  63.9  (3.7) (5.7) %
Total revenues $ 321.4  $ 345.8  $ (24.3) (7.0) %
United States $ 259.8  $ 272.6  $ (12.8) (4.7) %
International 61.7  73.2  (11.5) (15.7) %
Total revenues $ 321.4  $ 345.8  $ (24.3) (7.0) %
The geographic split was 81% of total revenues in the United States and 19% internationally for the three months ended December 31, 2021, as compared to 79% of total revenues in the United States and 21% internationally for the three months ended December 31, 2020.
Hosting and Professional Services Revenue
Hosting revenue primarily relates to delivering on-demand hosted services, such as medical transcription and automated customer care applications, 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 and as a percentage of total revenues (dollars in millions): 
Three Months Ended December 31, Dollar
Change 		Percent
Change
2021 2020
Hosting revenue $ 191.2  $ 167.3  $ 23.9  14.3  %
Professional services revenue 22.5  28.5  (6.0) (20.9) %
Hosting and professional services revenue $ 213.7  $ 195.8  $ 17.9  9.1  %
As a percentage of total revenue 66.5  % 56.6  %
Three Months Ended December 31, 2021 compared to Three Months Ended December 31, 2020
Hosting revenue for the three months ended December 31, 2021 increased by $23.9 million, or 14.3%, primarily due to a $26.8 million increase in Healthcare, driven by the growth in our Dragon Medical Cloud solutions and our continued transition from a license model to a cloud-based model. As a percentage of total revenue, hosting revenue increased from 48.4% to 59.5% for the three months ended December 31, 2021.
Professional services revenue for the three months ended December 31, 2021 decreased by $6.0 million, or 20.9%, primarily due to a $4.7 million decrease in Enterprise, driven by an accelerated transition from an on-premise license model to a recurring, cloud-based model, as well as the timing of customer projects for our Voice Engagement suite of products. As a percentage of total revenue, professional services revenue decreased from 8.2% to 7.0% for the three months ended December 31, 2021.
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Product and Licensing Revenue
Product and licensing revenue primarily consist of sales and licenses of our technology. The following table shows product and licensing revenue, in dollars and as a percentage of total revenues (dollars in millions): 
Three Months Ended December 31, Dollar
Change 		Percent
Change
2021 2020
Product and licensing revenue $ 47.5  $ 86.0  $ (38.6) (44.8) %
As a percentage of total revenue 14.8  % 24.9  %
Three Months Ended December 31, 2021 compared to Three Months Ended December 31, 2020
Product and licensing revenue for the three months ended December 31, 2021 decreased by $38.6 million, or 44.8%, primarily due to a $20.1 million decrease in Healthcare and a $17.6 million decrease in Enterprise. Healthcare product and licensing revenue decreased primarily due to a wind down of a non-strategic, legacy term license contract that did not renew, and our ongoing transition from term licenses to cloud-based solutions. Enterprise product and licensing revenue decreased primarily due to the timing of certain license contracts and the accelerated transition from an on-premise license model to a recurring, cloud-based model. As a percentage of total revenue, product and licensing revenue decreased from 24.9% to 14.8% for the three months ended December 31, 2021.
Maintenance and Support Revenue
Maintenance and support revenue primarily consist of technical support and maintenance services. The following table shows maintenance and support revenue, in dollars and as a percentage of total revenues (dollars in millions): 
Three Months Ended December 31, Dollar
Change 		Percent
Change
2021 2020
Maintenance and support revenue $ 60.2  $ 63.9  $ (3.7) (5.7) %
As a percentage of total revenue 18.7  % 18.5  %
Three Months Ended December 31, 2021 compared to Three Months Ended December 31, 2020
Maintenance and support revenue for the three months ended December 31, 2021 decreased by $3.7 million, or 5.7%, primarily due to a $4.3 million decrease in Healthcare, driven by the continued transition from software sold with maintenance and support to cloud-based solutions, and a legacy contract that did not renew. As a percentage of total revenue, maintenance and support revenue increased from 18.5% to 18.7% for the three months ended December 31, 2021.
COSTS AND EXPENSES
Cost of Hosting and Professional Services Revenue
Cost of hosting and professional services 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 hosting and professional services revenue, in dollars and as a percentage of professional services and hosting revenue (dollars in millions): 
Three Months Ended December 31, Dollar
Change 		Percent
Change
2021 2020
Cost of hosting and professional services revenue $ 121.3  $ 105.6  $ 15.6  14.8  %
As a percentage of professional services and hosting revenue 56.7  % 53.9  %
Three Months Ended December 31, 2021 compared to Three Months Ended December 31, 2020
Cost of hosting and professional services revenue for the three months ended December 31, 2021 increased by $15.6 million, or 14.8%, primarily driven by increased employee headcount to support the continued growth and expansion of our cloud-based solutions. Gross margin decreased by 2.8 percentage points primarily due to an increase in hosting cost of revenue related to an increased headcount in the Dragon Medical suite of products.
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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 and as a percentage of product and licensing revenue (dollars in millions): 
Three Months Ended December 31, Dollar
Change 		Percent
Change
2021 2020
Cost of product and licensing revenue $ 6.7  $ 14.4  $ (7.7) (53.6) %
As a percentage of product and licensing revenue 14.1  % 16.8  %

Three Months Ended December 31, 2021 compared to Three Months Ended December 31, 2020
Cost of product and licensing revenue for the three months ended December 31, 2021 decreased by $7.7 million, or 53.6%, primarily due to a non-strategic legacy term license contract that was not renewed in our Healthcare segment. Gross margin increased by 2.7 percentage points, primarily due to lower licensing revenue being offset by even lower licensing costs.
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 the cost of maintenance and support revenue, in dollars and as a percentage of maintenance and support revenue (dollars in millions): 
Three Months Ended December 31, Dollar
Change 		Percent
Change
2021 2020
Cost of maintenance and support revenue $ 6.7  $ 7.5  $ (0.8) (10.3) %
As a percentage of maintenance and support revenue 11.2  % 11.7  %
Three Months Ended December 31, 2021 compared to Three Months Ended December 31, 2020
Cost of maintenance and support revenue for the three months ended December 31, 2021 decreased by $0.8 million, or 10.3%. Gross margins increased by 0.5 percentage points primarily driven by lower Healthcare maintenance and support costs, consistent with the continued shift to cloud-based solutions.
Research and Development Expense
Research and development ("R&D") expense primarily consists of salaries, benefits, and overhead relating to engineering staff as well as third party engineering costs. The following table shows R&D expense, in dollars and as a percentage of total revenues (dollars in millions): 
Three Months Ended December 31, Dollar
Change 		Percent
Change
2021 2020
Research and development expense $ 68.2  $ 56.5  $ 11.7  20.7  %
As a percentage of total revenue 21.2  % 16.3  %
Three Months Ended December 31, 2021 compared to Three Months Ended December 31, 2020
R&D expense increased by $11.7 million, or 20.7%, primarily due to a higher employee headcount as we continued to invest in our core technologies to power new products and solutions.
Sales and Marketing Expense
Sales and marketing expense 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 and as a percentage of total revenues (dollars in millions): 
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Three Months Ended December 31, Dollar
Change 		Percent
Change
2021 2020
Sales and marketing expense $ 84.0  $ 65.4  $ 18.6  28.4  %
As a percentage of total revenue 26.1  % 18.9  %
Three Months Ended December 31, 2021 compared to Three Months Ended December 31, 2020
Sales and marketing expense for the three months ended December 31, 2021 increased by $18.6 million, or 28.4%, primarily due to a higher employee headcount to support our continued growth in our strategic investments, and increased traveling and entertainment expenses.
General and Administrative Expense
General and administrative ("G&A") expense primarily consists 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 G&A expense, in dollars and as a percentage of total revenues (dollars in millions): 
Three Months Ended December 31, Dollar
Change 		Percent
Change
2021 2020
General and administrative expense $ 35.5  $ 41.1  $ (5.6) (13.7) %
As a percentage of total revenue 11.0  % 11.9  %
Three Months Ended December 31, 2021 compared to Three Months Ended December 31, 2020
G&A expense decreased by $5.6 million, or 13.7%, primarily due to continued impacts of our cost savings initiatives.
Amortization of Intangible Assets
Amortization of acquired patents and technologies are included within cost of revenue and the amortization of acquired customer and contractual relationships, non-compete agreements, acquired trade names and trademarks, and other intangibles are included within Operating expenses. Customer relationships are amortized based upon the pattern in which the economic benefits of the customer relationships are expected to be 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): 
Three Months Ended December 31, Dollar
Change 		Percent
Change
2021 2020
Cost of revenue $ 5.2  $ 4.3  $ 1.0  22.4  %
Operating expenses 6.8  10.5  (3.8) (35.9) %
Total amortization expense $ 12.0  $ 14.8  $ (2.8) (19.1) %
The decrease in total amortization of intangible assets for the three months ended December 31, 2021, as compared to the prior-year period, was primarily due to certain intangible assets that became fully amortized or fully written off during fiscal year 2021 and the first quarter of fiscal year 2022.
Acquisition-Related Costs, Net
Acquisition-related costs include costs related to business and asset 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 cost, net is as follows (dollars in millions): 
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Three Months Ended December 31, Dollar
Change 		Percent
Change
2021 2020
Transition and integration costs $ 1.2  $ 0.1  $ 1.2  1,619.4  %
Professional service fees —  0.3  (0.2) (96.0) %
Total Acquisition-related costs, net $ 1.2  $ 0.3  $ 0.9  284.0  %
The increase in acquisition-related cost, net for the three months ended December 31, 2021, as compared to the prior-year period, was primarily due to certain retention bonuses being earned as part of an acquisition that was completed in the second quarter of fiscal year 2021.
Restructuring and Other Charges, Net
Restructuring and other charges, net include restructuring expenses together with other charges that are unusual in nature, are the result of unplanned events, or arise outside of the ordinary course of our business. While restructuring and other charges, net are excluded from segment profits, the table below presents the restructuring and other charges, net associated with each segment (dollars in thousands):
  Three Months Ended December 31,
2021 2020
Personnel Facilities Total Restructuring Other Charges Total Personnel Facilities Total Restructuring Other Charges Total
Healthcare $ 1,804  $ 125  $ 1,929  $ —  $ 1,929  $ 2,632  $ 567  $ 3,199  $ —  $ 3,199 
Enterprise 450  249  699  —  699  1,182  2,472  3,654  —  3,654 
Other —  (138) (138) —  (138) —  29  29  —  29 
Corporate 941  (41) 900  5,116  6,016  975  3  978  706  1,684 
Total $ 3,195  $ 195  $ 3,390  $ 5,116  $ 8,506  $ 4,789  $ 3,071  $ 7,860  $ 706  $ 8,566 

Fiscal Year 2022
For the three months ended December 31, 2021, we recorded restructuring charges of $3.4 million, which included $3.2 million related to the termination of approximately 81 employees and $0.2 million of charges related to closing certain idle facilities. These actions were part of our strategic initiatives focused on investment rationalization, process optimization and cost reduction as we continue to evaluate the geographic footprint of our offices and facilities. We expect the remaining outstanding severance of $0.8 million to be substantially paid during fiscal year 2022, and the remaining $15.4 million in lease payments to be made through fiscal year 2027, in accordance with the terms of the applicable leases.
Additionally, for the three months ended December 31, 2021, we recorded approximately $5.0 million of expenses related to the acquisition of Nuance by Microsoft, and $0.1 million of insurance recoveries.
Fiscal Year 2021
For the three months ended December 31, 2020, we recorded restructuring charges of $7.9 million, which included $4.8 million related to the termination of approximately 57 employees and a $3.1 million charge related to closing certain idle facilities. These actions were part of our strategic initiatives focused on investment rationalization, process optimization and cost reduction as we continue to evaluate the geographic footprint of our offices and facilities.
Additionally, for the three months ended December 31, 2020, we recorded $0.7 million in professional services expenses related to other corporate initiatives.
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Other Income (Expense), Net
A summary is as follows (dollars in millions): 
Three Months Ended December 31, Dollar
Change 		Percent
Change
2021 2020
Interest income $ —  $ 0.2  $ (0.2) (90.4) %
Interest expense (12.7) (23.0) 10.4  (45.0) %
Other income, net 1.3  0.5  0.8  154.5  %
Total other expense, net $ (11.4) $ (22.3) $ 10.9  (49.0) %
Interest income for the three months ended December 31, 2021 decreased primarily due to lower yields and decreases in cash and marketable securities for the current year period.
Interest expense for the three months ended December 31, 2021 decreased as we had aggregate redemptions of $521.9 million notional amounts of the 1.0% and 1.5% Convertible Debentures, and holders of our 1.0% and 1.5% Convertible Debentures exercised their right to convert an aggregate of $226.6 million notional amount during fiscal year 2021. Additionally, during the first quarter of fiscal year 2022, we had aggregate redemptions of $28.6 million notional amounts of our 1.5% 2035 Debentures, 1.0% 2035 Debentures, and 1.25% 2025 Debentures.
Other income, net for the three months ended December 31, 2021 increased primarily due to indemnification charges related to historical dispositions and certain investments.
Provision for Income Taxes
The following table shows the provision for income taxes on continuing operations and the effective income tax rate (dollars in millions):
Three Months Ended December 31, Dollar
Change 		Percent
Change
2021 2020
Provision for income taxes $ 23.6  $ 2.3  $ 21.2  922.6  %
Effective income tax rate (69.2) % 24.9  %
The effective income tax rate is based upon the income for the year, the geographic mix of our income, the composition of the income in different countries, changes relating to valuation allowances and the potential tax consequences of resolving audits or other tax contingencies.
Our effective income tax rate was (69.2)% for the three months ended December 31, 2021, compared to 24.9% for the three months ended December 31, 2020. The effective tax rate for the three months ended December 31, 2021 differed from the U.S. federal statutory rate of 21.0% primarily due to the base erosion anti-abuse tax, the composition of the mix in income in different countries, offset by the change in valuation allowance. The effective tax rate for the three months ended December 31, 2020 differed from the U.S. federal statutory rate of 21.0% primarily due to the base erosion anti-abuse tax offset by a change in the valuation allowance in the United States.
Valuation Allowances
As of December 31, 2021 and September 30, 2021, we had a full valuation allowance against net domestic deferred tax assets and certain foreign deferred tax assets. We intend to maintain valuation allowances on these deferred tax assets until there is sufficient evidence to support the release of all or some portion of these allowances. A significant portion of our domestic deferred tax assets relate to U.S. net operating losses. We continue to believe negative evidence for the release of some or all of the allowances outweighs positive evidence after considering recent profitability trends and the disposition of the medical transcription and EHR implementation businesses. We continue to evaluate all sources of domestic taxable income including both the reversal of existing deferred tax liabilities and the likelihood that we could sustain pretax profitability in the future. As of December 31, 2021, we believe that there is a reasonable possibility that within the next twelve months these sources of taxable income may become sufficient positive evidence to support a conclusion that a substantial portion of the domestic valuation allowance, excluding capital losses, could be released.
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Net Income from Discontinued Operations
Disposition of Our Medical Transcription and EHR Implementation businesses
On November 17, 2020, we entered into the Agreement to sell the Business to Assured Healthcare Partners and Aeries Technology Group. Pursuant to the Agreement, we sold and transferred, and the Buyer purchased and acquired, (a) the shares of certain subsidiaries through which we operate a portion of the Business and (b) certain assets used in or related to the Business; and the Buyer assumed certain liabilities related to such assets of the Business, subject to certain exclusions and indemnities as set forth in the Agreement.
On March 1, 2021, we completed the sale of the Business and received approximately $29.8 million in cash, subject to post-closing finalization of the adjustments set forth in the Agreement. As a result, we recorded a loss of $12.5 million, which is included within net income from discontinued operations in fiscal year 2021. There are a number of working capital and other adjustments under the Agreement and related ancillary agreements. We do not believe that post-closing working capital adjustments under the Agreement, if any, will have a material impact on our results of operations.
For all periods presented, the Businesses' results of operations have been included within discontinued operations in our condensed consolidated financial statements.
SEGMENT ANALYSIS
The following table presents certain financial information about our operating segments (dollars in millions):
Three Months Ended December 31, Change Percent
Change
2021 2020
Segment Revenues (a):
Healthcare $ 200.4  $ 199.3  $ 1.1  0.5  %
Enterprise 117.2  139.2  (21.9) (15.8) %
Other 3.8  7.3  (3.5) (47.6) %
Total segment revenues $ 321.4  $ 345.8  $ (24.3) (7.0) %
Segment Profit:
Healthcare $ 43.1  $ 74.8  $ (31.7) (42.3) %
Enterprise 18.7  41.5  (22.7) (54.8) %
Other 2.0  5.0  (3.0) (59.5) %
Total segment profit $ 63.9  $ 121.3  $ (57.4) (47.3) %
Segment Profit Margin:
Healthcare 21.5  % 37.5  % (16.0)
Enterprise 16.0  % 29.8  % (13.8)
Other 52.8  % 68.4  % (15.6)
Total segment profit margin 19.9  % 35.1  % (15.2)
__________
(a)Segment revenues differ from reported revenues due to certain revenue adjustments related to acquisitions that would otherwise have been recognized but for the purchase accounting treatment of the business combinations. These revenues are included to allow for more complete comparisons to the financial results of historical operations and in evaluating management performance.
Segment Revenues
Three Months Ended December 31, 2021 compared to Three Months Ended December 31, 2020
•Healthcare segment revenue increased by $1.1 million, or 0.5%, driven primarily by growth in our Dragon Medical and DAX cloud solutions, partly offset by a decline in Coding. Revenue from Dragon Medical cloud and DAX cloud-based solutions increased by $23.1 million, or 28.6%, to $103.6 million for the three months ended December 31, 2021 from $80.6 million for the three months ended December 31, 2020, primarily due to the continued market penetration and customer transition to Dragon Medical One.
•Enterprise segment revenue decreased by $21.9 million, or 15.8%, primarily driven an accelerated transition from an on-premise license model to a recurring, cloud-based model and the timing of certain license contracts.
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•Other segment revenue decreased by $3.5 million, or 47.6%, as we continue to wind down our Other segment.
Segment Profit
Three Months Ended December 31, 2021 compared to Three Months Ended December 31, 2020
•Healthcare segment profit decreased by $31.7 million, or 42.3%, primarily driven by relatively flat revenue growth being more than offset by higher cost of sales and operating expenses, resulting from an increased employee headcount to support the continued growth and expansion of our cloud-based solutions. Segment profit margin decreased by 16.0 percentage points to 21.5%, primarily driven by the increased expenses and relatively flat revenues.
•Enterprise segment profit decreased by $22.7 million, or 54.8%, primarily driven by lower licensing segment revenue and increased R&D operating expenses. Segment profit margin decreased by 13.8 percentage points to 16.0%, primarily due to lower segment revenues, and higher operating expenses.
•Other segment profit decreased by $3.0 million, or 59.5%, as we continue to wind down our Other segment. Segment profit margin decreased by 15.6 percentage points to 52.8%.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We had cash and cash equivalents and marketable securities of $91.9 million as of December 31, 2021, a decrease of $117.5 million from $209.5 million as of September 30, 2021. Our working capital, defined as total current assets less total current liabilities, was $(365.4) million as of December 31, 2021, compared to $(324.8) million as of September 30, 2021. Our working capital included $348.7 million and $373.0 million convertible debt as of December 31, 2021 and September 30, 2021, respectively. As of December 31, 2021, we had $298.1 million available for borrowing under our revolving credit facility. We believe that our existing sources of liquidity are sufficient to support our operating needs, capital requirements and any debt service requirements for the next twelve months.
Cash and cash equivalents and marketable securities held by our international operations totaled $23.3 million as of December 31, 2021 and $35.7 million as of September 30, 2021. We utilize a variety of financing strategies to ensure that our worldwide cash is available to meet our liquidity needs. We expect the cash held overseas to be permanently invested in our international operations, and our U.S. operation to be funded through its own operating cash flows, cash and marketable securities within the U.S., and if necessary, borrowing under our revolving credit facility.
Acquisition of Nuance Communications, Inc. by Microsoft Corporation
On April 11, 2021, we entered into a Merger Agreement with 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, following consummation of the Merger Nuance will be 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 Merger 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 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.
Convertible Debentures
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.
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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.
Net Cash Provided by Operating Activities
Cash provided by operating activities for the three months ended December 31, 2021 was $13.9 million, a decrease of $47.3 million from $61.2 million cash provided for the three months ended December 31, 2020. The decrease was primarily due to:
•A decrease of $51.3 million in cash provided due to lower income before non-cash charges; and
•A decrease of $10.4 million in cash provided from changes in deferred revenue. Deferred revenue had a positive effect of $13.5 million on operating cash flows for the three months ended December 31, 2021, as compared to a positive effect of $23.8 million for the three months ended December 31, 2020; and
•A decrease of $6.6 million in cash flows provided from discontinued operations; offset in part by,
•An increase of $20.9 million in cash provided due to favorable changes in working capital, primarily due to the timing of cash collections and cash payments.
Net Cash Provided by (Used in) Investing Activities
Cash provided by investing activities for the three months ended December 31, 2021 was $4.6 million, an increase of $26.6 million from $22.0 million cash used for the three months ended December 31, 2020. The increase was primarily due to:
•An increase of $25.9 million in net proceeds from the sale and purchase of marketable securities and other investments; and
•A decrease of $5.0 million in cash used for capital expenditures; and
•An increase of $0.8 million in cash provided by other investing activities; offset in part by,
•An increase of $5.1 million in cash used for payments for business and asset acquisitions.
Net Cash Used in Financing Activities
Cash used in financing activities for the three months ended December 31, 2021 was $111.5 million, an increase of $67.8 million from $43.7 million cash used for the three months ended December 31, 2020. The increase was primarily due to:
•An increase of $28.6 million in cash used for the repayment and redemption of debt; and
•An increase of $39.0 million in cash used for payments for taxes related to net share settlement of equity awards.
Debt
For a detailed description of the terms and restrictions of the debt and revolving credit facility, see Note 11 to the accompanying condensed consolidated financial statements. For the three months ended December 31, 2021, we spent approximately $28.6 million in cash and issued 0.9 million shares of common stock for the redemption of debt. During the first quarter of
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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, 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.
Additionally, certain debt holders have exercised their right to convert Debentures that did not settle as of December 31, 2021. Holders of our 1.0% 2035 Debentures redeemed $25.6 million notional amount for an estimated $25.6 million in cash and 0.6 million shares of common stock for an estimated total consideration of $58.5 million. The settlement of these conversions is expected to occur in the second quarter of fiscal year 2022.
As of December 31, 2021, we were in compliance with all the debt covenants. We may from time to time, depending on market and business conditions, repurchase outstanding debt in the open market or by private negotiation. We expect to incur cash interest payments of $16.2 million for the remainder of fiscal year 2022, based on the stated yields and the outstanding debt principals as of December 31, 2021. We expect to fund our debt service requirements through existing sources of liquidity and our operating cash flows.
Share Repurchase Program
On April 29, 2013, our Board of Directors approved a share repurchase program for up to $500.0 million, which was increased by $500.0 million on April 29, 2015. On August 1, 2018, our Board of Directors approved an additional $500.0 million under our share repurchase program. Under the terms of the share repurchase program, we have the ability to repurchase shares from time to time through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated stock repurchase transactions, or any combination of such methods. The share repurchase program does not require us to acquire any specific number of shares and may be modified, suspended, extended or terminated by us at any time without prior notice. The timing and the amount of any purchases are subject to our assessment of the prevailing market conditions, general economic conditions, capital allocation alternatives, and other factors.
We did not repurchase any shares of our common stock for the three months ended December 31, 2021 and 2020. Since the commencement of the program, we have repurchased 73.8 million shares for $1,238.8 million. As of December 31, 2021, approximately $261.2 million remained available for future repurchases under the program.
Off-Balance Sheet Arrangements, Contractual Obligations
Contractual Obligations
The following table outlines our contractual payment obligations (dollars in millions):
  Contractual Payments Due in Fiscal Year
Contractual Obligations Total Remainder of 2022 2023 and 2024 2025 and 2026 Thereafter
Convertible debentures (1)
$ 389.4  $ 389.4  $ —  $ —  $ — 
Senior notes (2)
500.0  —  —  —  500.0 
Interest payable on long-term debt (3)
151.2  16.2  63.0  57.9  14.1 
Letters of credit (4)
1.9  1.9  —  —  — 
Lease obligations and other liabilities:
Operating leases (5)
100.6  16.6  30.2  23.8  30.0 
Operating leases under restructuring 14.9  4.4  7.0  3.0  0.5 
Purchase commitments for inventory, property and equipment (6)
54.2  47.8  6.4  —  — 
Total contractual cash obligations $ 1,212.2  $ 476.3  $ 106.6  $ 84.7  $ 544.6 
__________
(1)As of December 31, 2021, the holders have the right to convert all or any portion of the 1.25% 2025 Debentures and 1.0% 2035 Debentures between January 1, 2022 and March 31, 2022. As a result, these convertible debentures were treated as if they were due in fiscal year 2022.
(2)The repayment schedule reflects the outstanding principal amount of our 5.625% senior notes due 2026 as of December 31, 2021.
(3)Interest per annum is due and payable semi-annually and is determined based on the outstanding principal as of December 31, 2021, the stated interest rate of each debt instrument and the assumed redemption dates discussed above.
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(4)Letters of credit are in place primarily to secure future operating lease payments.
(5)Obligations include contractual lease commitments related to facilities that have subsequently been subleased. As of December 31, 2021, we have subleased certain facilities with total sublease income of $10.1 million through fiscal year 2027.
(6)These amounts include non-cancelable purchase commitments for property and equipment as well as inventory in the normal course of business to fulfill customer backlog. We entered into an agreement with Microsoft in October of 2019 for their Azure cloud computing service with a minimum commitment of $175.0 million. This contract is expected to be in effect through fiscal year 2024.
Total unrecognized tax benefits as of December 31, 2021 were $61.3 million. Other than a possible change for the Swiss Court tax proceedings discussed further in Note 15, we do not expect any other significant change in the amount of unrecognized tax benefits within the next twelve months.
Contingent Liabilities and Commitments
Certain acquisition payments to selling stockholders were contingent upon the achievement of predetermined performance targets over a period of time after the acquisition. Such contingent payments were recorded at estimated fair values upon the acquisition and re-measured in subsequent reporting periods. As of December 31, 2021, we do not have any requirements to pay any selling stockholders based upon the achievement of any specified performance goals. In addition, certain deferred compensation payments to selling stockholders contingent upon their continued employment after the acquisition were recorded as compensation expense over the requisite service period. Additionally, as of December 31, 2021, the remaining deferred payment obligations of $13.6 million to certain former stockholders, which are contingent upon their continued employment, will be recognized ratably as compensation expense over the remaining requisite service periods.
Microsoft Acquisition Contingent Consideration
On April 11, 2021, we entered into a Merger Agreement with Microsoft, subject to the terms of which Microsoft has agreed to acquire Nuance. The consummation of the Merger remains subject to customary closing conditions including satisfaction of certain regulatory approvals. 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. As part of the transaction, Nuance expects to incur liabilities of approximately $114 million that are contingent on the deal consummation. These liabilities include banker fees, legal fees, and certain retention bonuses.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are included in the "Critical Accounting Policies" section of "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in the Form 10-K for the fiscal year ended September 30, 2021. There has been no material change to our critical accounting policies since September 30, 2021.
RECENTLY ADOPTED ACCOUNTING STANDARDS AND ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
See Note 2 to the accompanying condensed consolidated financial statements for a discussion of the recently adopted and issued accounting standards.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in foreign currency exchange rates, interest rates and equity prices which could affect operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when appropriate, through the use of derivative financial instruments.
Exchange Rate Sensitivity
We are exposed to changes in foreign currency exchange rates. Any foreign currency transaction, defined as a transaction denominated in a currency other than the local functional currency, will be reported in the functional currency at the applicable exchange rate in effect at the time of the transaction. A change in the value of the functional currency compared to the foreign currency of the transaction will have either a positive or negative impact on our financial position and results of operations.
Assets and liabilities of our foreign entities are translated into U.S. dollars at exchange rates in effect at the balance sheet date and income and expense items are translated at average rates for the applicable period. Therefore, the change in the value of the
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U.S. dollar compared to foreign currencies will have either a positive or negative effect on our financial position and results of operations. Historically, our primary exposure has related to transactions denominated in the euro, British pound, Brazilian real, Canadian dollar, and Indian rupee.
Periodically, we enter into forward exchange contracts to hedge against foreign exchange rate fluctuations. As of December 31, 2021, we had not designated any contracts as fair value or cash flow hedges. The contracts generally have a maturity of less than 90 days. As of December 31, 2021, the notional contract amount of outstanding foreign currency exchange contracts was $75.1 million.
Interest Rate Sensitivity
We are exposed to interest rate risk as a result of our cash and cash equivalents and marketable securities.
At December 31, 2021, we held approximately $91.9 million of cash and cash equivalents and marketable securities consisting of cash, money-market funds, bank deposits and a separately managed investment portfolio. Assuming a one percentage point increase in interest rates, our interest income on our investments classified as cash and cash equivalents and marketable securities would increase by approximately $0.9 million per annum, based on the balances of cash and cash equivalents and marketable securities as of December 31, 2021.
Convertible Debentures
The fair values of our convertible debentures are dependent on the price and volatility of our common stock as well as movements in interest rates. The fair market values of these debentures will generally increase as the market price of our common stock increases and will decrease as the market price of our common stock decreases. The fair market values of these debentures will generally increase as interest rates fall and decrease as interest rates rise. The market value and interest rate changes affect the fair market values of these debentures, but do not impact our financial position, results of operations or cash flows due to the fixed nature of the debt obligations. However, increases in the value of our common stock above the stated trigger price for each issuance for a specified period of time may provide the holders of these debentures the right to convert each bond using a conversion ratio and payment method as defined in the debenture agreement.
The following table summarizes the fair value and conversion value of our convertible debentures, and the estimated increase in fair value and conversion value with a hypothetical 10% increase in the stock price of $55.32 as of December 31, 2021 (dollars in millions):
December 31, 2021
Fair value Conversion value Increase to fair value Increase to conversion value
1.0% 2035 Debentures $ 293.1  $ 293.5  $ 29.9  $ 29.3 
1.25% 2025 Debentures $ 738.3  $ 734.6  $ 72.1  $ 73.5 
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures under the supervision of, and with the participation of, management, including our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to meet the requirements of Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
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Changes in Internal Control Over Financial Reporting
There have been no material changes in our internal controls over financial reporting during the three months ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
This information is included in Note 16, Commitments and Contingencies, in the accompanying notes to the unaudited condensed consolidated financial statements and is incorporated herein by reference from Item 1 of Part I.
Item 1A. Risk Factors
Item 1A of our Annual Report on Form 10-K for the year ended September 30, 2021 set forth information relating to important risks and uncertainties that could materially affect our business, financial condition or operating results. Those risk factors, in addition to the other information set forth in this report, continue to be relevant to an understanding of our business, financial condition and operating results for the three months ended December 31, 2021. There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended September 30, 2021.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
The following is a summary of our share repurchases for the three months ended December 31, 2021:
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)
October 1, 2021 - October 31, 2021 —  —  —  $261.2 Million
November 1, 2021 - November 30, 2021 —  —  —  $261.2 Million
December 1, 2021 - December 31, 2021 —  —  —  $261.2 Million
Total —  — 
__________
(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 additional $500.0 million under our share repurchase program. As of December 31, 2021, approximately $261.2 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.
Item 3.Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
None.
Item 6.Exhibits
The exhibits listed on the Exhibit Index are filed or incorporated by reference (as stated therein) as part of this Quarterly Report on Form 10-Q.
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EXHIBIT INDEX
 
    Incorporated by Reference
Exhibit
Number 		Exhibit Description Form File No. Exhibit Filing
Date 		Filed
Herewith
3.1 10-Q 000-27038 3.2 5/11/2001
3.2 10-Q 000-27038 3.1 8/9/2004
3.3 8-K 000-27038 3.1 10/19/2005
3.4 S-3 333-142182 3.3 4/18/2007
3.5 10-K 001-36056 3.4 11/7/2019
3.6 8-K 000-27038 3.1 4/13/2021
31.1 X
31.2 X
32.1 X
101 The following materials from Nuance Communications, Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2021, formatted in XBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Loss, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements. X
104 The cover page of the Quarterly Report on Form 10-Q for the quarter ended December 31, 2021 formatted in Inline XBRL (included in Exhibit 101)

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Burlington, Commonwealth of Massachusetts, on February 7, 2022.
 
Nuance Communications, Inc.
By:   /s/ Daniel D. Tempesta
  Daniel D. Tempesta
  Executive Vice President and Chief Financial Officer

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