You should read the following discussion and analysis of our financial condition
and results of operations together with our Unaudited Condensed Consolidated
Financial Statements, and the related notes thereto, appearing elsewhere in
this Quarterly Report on Form 10-Q ("Quarterly Report"), and our consolidated
and combined financial statements and the related notes and other financial
information included in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2021, filed with the Securities and Exchange Commission ("SEC") on
November 23, 2021. Some of the information contained in this discussion and
analysis or elsewhere in this Quarterly Report, including information with
respect to our plans and strategy for our business, our performance and future
success, our liquidity and capital resources, the impact of the COVID-19
pandemic on our business, results of operations and financial condition,
macroeconomic conditions, the semiconductor shortage, and trends in the global
auto industry, includes forward-looking statements that involve risks and
uncertainties. See "Cautionary Statement Concerning Forward-Looking Statements."
You should review the "Risk Factors" section in Part I, Item 1A of our Annual
Report on Form 10-K for the fiscal year ended September 30, 2021, as updated by
Part II, Item 1A of this Quarterly Report, for a discussion of important factors
that could cause actual results to differ materially from the results described
in or implied by the forward-looking statements contained in the following
discussion and analysis. Note that the results of operations for the three and
six months ended March 31, 2022 are not necessarily indicative of what our
operating results for the full fiscal year will be. In this Item, "we," "us,"
"our," "Cerence" and the "Company" refer to Cerence Inc. and its consolidated
subsidiaries, collectively.

Overview

Cerence builds AI powered virtual assistants for the mobility/transportation
market. Our primary target is the automobile market, but our solutions can apply
to all forms of transportation, including, but not limited to, two-wheel
vehicles, planes, tractors, cruise ships and elevators. Our solutions power
natural conversational and intuitive interactions between automobiles, drivers
and passengers, and the broader digital world. We possess one of the world's
most popular software platforms for building automotive virtual assistants. Our
customers include all major original equipment manufacturers ("OEMs") or their
tier 1 suppliers worldwide. We deliver our solutions on a white-label basis,
enabling our customers to deliver customized virtual assistants with unique,
branded personalities and ultimately strengthening the bond between automobile
brands and end users. Our vision is to enable a more enjoyable, safer journey
for everyone.

Our principal offering is our software platform, which our customers use to
build virtual assistants that can communicate, find information and take action
across an expanding variety of categories. Our software platform has a hybrid
architecture combining edge software components with cloud-connected components.
Edge software components are installed on a vehicle's head unit and can operate
without access to external networks and information. Cloud-connected components
are comprised of certain speech and natural language understanding related
technologies, AI-enabled personalization and context-based response frameworks,
and content integration platform.

We generate revenue primarily by selling software licenses and cloud-connected
services. Our edge software components are typically sold under a traditional
per unit perpetual software license model, in which a per unit fee is charged on
a variable basis for each software instance installed on an automotive head
unit. We typically license cloud-connected software components in the form of a
service to the vehicle end user, which is paid for in advance. In addition, we
generate professional services revenue from our work with our customers during
the design, development and deployment phases of the vehicle model lifecycle and
through maintenance and enhancement projects. We have existing relationships
with all major OEMs or their tier 1 suppliers, and while our customer contracts
vary, they generally represent multi-year engagements, giving us some level of
visibility into future revenue.

Impact of COVID-19 on our Business



The COVID-19 pandemic has resulted in, and may continue to result in, additional
governmental restrictions and regulations, which has adversely affected, and may
continue to adversely affect our business and financial results. For example,
pandemic related lockdowns were experienced in China throughout March 2022,
which resulted in loss of automotive production. We have seen, and anticipate
that we will continue to see, supply chain challenges in the automotive industry
related to semiconductor devices that are used in automobiles. The current
macroeconomic conditions have also increased competition for qualified employees
in our industry, particularly for members of our professional service teams, and
we, along with automotive OEMs, face significant competition in hiring and
retaining them. In addition, a recession, depression or other sustained adverse
market impact resulting from COVID-19 could materially and adversely affect our
business, our access to needed capital and liquidity, and the value of our
common stock. Even after the COVID-19 pandemic has lessened or subsided, we may
continue to experience adverse impacts on our business and financial performance
as a result of its global economic impact.

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As the full impact of the COVID-19 pandemic on our business continues to
develop, we are closely monitoring the global situation. We are unable at this
time to predict the full impact of COVID-19 on our operations, liquidity, and
financial results, and, depending on the magnitude and duration of the COVID-19
pandemic, such impact may be material. Accordingly, current results and
financial condition discussed herein may not be indicative of future operating
results and trends. While we are unable to accurately predict the full impact
that COVID-19 will have on our results from operations, financial condition,
liquidity and cash flows due to numerous uncertainties, including the duration
and severity of the pandemic and containment measures, these measures have
impacted, and may continue to impact, our business, as well as our customers and
consumers. For further discussion of the business risks associated with
COVID-19, see Item 1A, Risk Factors, within our Annual Report on Form 10-K for
the fiscal year ended September 30, 2021, as updated by Part II, Item 1A of this
Quarterly Report.

Basis of Presentation

The financial information presented in the accompanying unaudited condensed
consolidated financial statements has been prepared in accordance with U.S.
generally accepted accounting principles ("U.S. GAAP") and in accordance with
rules and regulations of the SEC regarding interim financial reporting.
Accordingly, the financial statements do not include all of the information and
footnotes required by U.S. GAAP for complete financial statements.

The condensed consolidated balance sheet data as of September 30, 2021 was
derived from audited financial statements, but does not include all disclosures
required by U.S. GAAP. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments, consisting
primarily of normal recurring accruals, necessary for a fair presentation of our
financial position and results of operations. The operating results for the
three and six months ended March 31, 2022 are not necessarily indicative of the
results expected for the full fiscal year ending September 30, 2022.

The accompanying unaudited condensed consolidated financial statements include
the accounts of the Company, as well as those of its wholly owned subsidiaries.
All significant intercompany transactions and balances are eliminated in
consolidation.

Key Metrics

In evaluating our financial condition and operating performance, we focus on revenue, operating margins, and cash flow from operations.

For the three months ended March 31, 2022 as compared to the three months ended March 31, 2021:

• Total revenue decreased by $12.4 million, or 12.5%, to $86.3 million from

$98.7 million.


  • Operating margin decreased 10.3 percentage points to 7.3% from 17.6%.

• Cash provided by operating activities was $1.6 million, a decrease of $14.6

million from cash provided by operating activities of $16.2 million.

For the six months ended March 31, 2022 as compared to the six months ended March 31, 2021:

• Total revenue decreased by $11.6 million, or 6.0%, to $180.7 million from

$192.3 million.


  • Operating margin decreased 1.9 percentage points to 16.2% from 18.1%.

• Cash provided by operating activities was $6.7 million, a decrease of $20.3

million from cash provided by operating activities of $27.0 million.


                                       27
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Operating Results

The following table shows the Condensed Consolidated Statement of Operations for the three and six months ended March 31, 2022 and 2021 (dollars in thousands):



                                               Three Months Ended March 31, 

Six Months Ended March 31,


                                                 2022                 2021               2022               2021
Revenue:
License                                     $       46,308       $       54,371     $       93,158       $  100,785
Connected services                                  19,326               27,736             47,485           53,666
Professional services                               20,646               16,555             40,063           37,854
Total revenues                                      86,280               98,662            180,706          192,305
Cost of revenue:
License                                                386                1,181              1,107            1,855
Connected services                                   5,651                6,839             11,375           13,852
Professional services                               17,372               16,325             33,275           33,647
Amortization of intangible assets                      897                1,879              2,776            3,758
Total cost of revenues                              24,306               26,224             48,533           53,112
Gross profit                                        61,974               72,438            132,173          139,193
Operating expenses:
Research and development                            29,976               28,864             55,768           52,995
Sales and marketing                                  8,309                9,555             14,188           18,563
General and administrative                          13,800               12,956             21,327           25,390
Amortization of intangible assets                    3,135                3,183              6,289            6,341
Restructuring and other costs, net                     474                  537              5,389            1,017
Total operating expenses                            55,694               55,095            102,961          104,306
Income from operations                               6,280               17,343             29,212           34,887
Interest income                                         83                   16                173               34
Interest expense                                    (3,360 )             (3,476 )           (6,787 )         (7,275 )
Other income (expense), net                            (34 )              3,496               (286 )          1,259
Income before income taxes                           2,969               17,379             22,312           28,905
Provision for (benefit from) income taxes            3,445                6,216              3,744           (3,199 )
Net (loss) income                           $         (476 )     $       11,163     $       18,568       $   32,104




Our revenue consists primarily of license revenue, connected services revenue
and revenue from professional services. License revenue primarily consists of
license royalties associated with our edge software components. Our edge
software components are typically sold under a traditional per unit perpetual
software license model, in which a per unit fee is charged for each software
instance installed on an automotive head unit. Our contracts contain variable,
fixed prepaid or fixed minimum purchase commitment components. Revenue is
recognized and cash is collected for variable contracts over the license
distribution period. The fixed contracts typically provide the customer with a
price discount and can include the conversion of a variable contract that is
already in our variable backlog. Revenue for fixed contracts is recognized when
the software is made available to the customer, which has typically occurred at
the time the contract is signed. Cash is typically expected to be collected for
a fixed prepaid deal at the inception of the contract. Cash is expected to be
collected for a fixed minimum commitment deal over the license distribution
period. See Note 3 to the accompanying unaudited condensed consolidated
financial statements for further discussion of our revenue, deferred revenue
performance obligations and the timing of revenue recognition. Costs of license
revenue primarily consists of third-party royalty expenses for certain external
technologies we leverage.

Connected services revenue primarily represents the subscription fee that
provides access to our connected services components, including the
customization and construction of our connected services solutions. We also
derive revenue within our connected services business from usage contracts and
there can be instances where a customer purchases a software license that allows
them to take possession of the software to enable hosting by the customer or a
third-party. Subscription and usage contracts typically have a term of one to
five years. Subscription revenue is recognized over the subscription period and
cash is expected to be collected at the start of the subscription period. Usage
based revenue is recognized and cash is collected as the service is used. If the
customer takes possession of the software to have it hosted by the customer or a
third-party, revenue is recognized, and cash is collected at the time the
license is delivered. See Note 3 to the accompanying unaudited condensed
consolidated financial statements for further discussion of our revenue,
deferred revenue performance obligations and the timing of revenue
recognition. Cost of connected service revenue primarily consists of labor costs
of software delivery services, infrastructure, and communications fees that
support our connected services solutions.

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Professional services revenue is primarily comprised of porting, integrating, and customizing our embedded solutions, with costs primarily consisting of compensation for services personnel, contractors and overhead.



Our operating expenses include R&D, sales and marketing and general and
administrative expenses. R&D expenses primarily consist of salaries, benefits,
and overhead relating to research and engineering staff. Sales and marketing
expenses includes salaries, benefits, and commissions related to our sales,
product marketing, product management, and business unit management teams.
General and administrative expenses primarily consist of personnel costs for
administration, finance, human resources, general management, fees for external
professional advisers including accountants and attorneys, and provisions for
credit losses.

Amortization of acquired patents and core technology are included within cost of
revenues whereas the amortization of other intangible assets, such as acquired
customer relationships, trade names and trademarks, are included within
operating expenses. Customer relationships are amortized over their estimated
economic lives based on the pattern of economic benefits expected to be
generated from the use of the asset. Other identifiable intangible assets are
amortized on a straight-line basis over their estimated useful lives.

Restructuring and other costs, net include restructuring expenses as well as
other charges that are unusual in nature, are the result of unplanned events,
and arise outside the ordinary course of our business.

Total other expense, net consists primarily of foreign exchange gains (losses),
losses on the extinguishment of debt and interest expense related to the Notes,
the Senior Credit Facilities, and the Credit Agreement, dated October 1, 2019,
by and among the Company, the lenders and issuing banks party thereto and
Barclays Bank PLC, as administrative agent, which we repaid using proceeds from
the issuance of the Notes.

Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021




Total Revenues

The following table shows total revenues by product type, including the corresponding percentage change, for the three months ended March 31, 2022 and 2021 (dollars in thousands):



                                                  Three Months Ended March 31,                        % Change
                                      2022           % of Total        2021        % of Total       2022 vs. 2021
License                            $   46,308          53.7%         $ 54,371        55.1%                   (14.8 )%
Connected services                     19,326          22.4%           27,736        28.1%                   (30.3 )%
Professional services                  20,646          23.9%           16,555        16.8%                    24.7 %
Total revenues                     $   86,280                        $ 98,662                                (12.5 )%


Total revenues for the three months ended March 31, 2022 were $86.3 million, an
decrease of $12.4 million, or 12.5%, from $98.7 million for the three months
ended March 31, 2021. The decrease in revenues was driven by decreases in
licensing revenues and decreased demand for our connected services. Our license
revenue is highly dependent on vehicle production. Over the course of the past
year, third-party light vehicle production forecasts for calendar year 2022 have
decreased in response to the ongoing semiconductor shortage, conflict between
Russia and Ukraine, and the growing effects of lockdowns in mainland China
driven by COVID-19. While we cannot predict the full impact we will have from
the forecasted decline in production, we do expect to be negatively impacted for
the remainder of the fiscal year.

License Revenue



License revenue for the three months ended March 31, 2022 was $46.3 million, a
decrease of $8.1 million, or 14.8%, from $54.4 million for the three months
ended March 31, 2021. Variable license revenue decreased by $16.9 million
primarily due to a lower volume of licensing royalties. This decrease, which was
due in part to consumption of fixed license contracts, was partially offset by
an $8.4 million increase in minimum purchase commitment and prepaid deals with
customers. During the three months ended March 31, 2022, an existing variable
long-term contract with our largest customer was converted into a minimum
purchase commitment deal that accounted for $19.9 million of revenue in the
current quarter. The cash associated with this deal is expected to be collected
over the distribution period, which could be up to five years. The estimated
future revenue related to this long-term contract was previously included in our
variable backlog. As a percentage of total revenues, license revenue decreased
1.4 percentage points from 55.1% for the three months ended March 31, 2021 to
53.7% for the three months ended March 31, 2022.

Connected Services Revenue


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Connected services revenue for the three months ended March 31, 2022 was $19.3
million, a decrease of $8.4 million, or 30.3%, from $27.7 million for the three
months ended March 31, 2021. This decrease was primarily driven by the winding
down of a legacy contract acquired by Nuance Communications, Inc. ("Nuance")
through a 2013 acquisition. As a percentage of total revenues, connected
services revenue decreased by 5.7 percentage point from 28.1% for the three
months ended March 31, 2021 to 22.4% for the three months ended March 31, 2022.

Professional Services Revenue



Professional service revenue for the three months ended March 31, 2022 was $20.6
million, an increase of $4.0 million, or 24.7%, from $16.6 million for the three
months ended March 31, 2021. This increase was primarily driven by our continued
focus on integration and customization services related to our edge software and
timing of services rendered. As a percentage of total revenues, professional
services revenue increased by 7.1 percentage points from 16.8% for the three
months ended March 31, 2021 to 23.9% for the three months ended March 31, 2022.

Six Months Ended March 31, 2022 Compared with Six Months Ended March 31, 2021




Total Revenues

The following table shows total revenues by product type, including the corresponding percentage change, for the six months ended March 31, 2022 and 2021 (dollars in thousands):


                                                  Six Months Ended March 31,                        % Change
                                     2022         % of Total        2021         % of Total       2022 vs. 2021
License                            $  93,158        51.6%         $ 100,785        52.4%                    (7.6 )%
Connected services                    47,485        26.3%            53,666        27.9%                   (11.5 )%
Professional services                 40,063        22.1%            37,854        19.7%                     5.8 %
Total revenues                     $ 180,706                      $ 192,305                                 (6.0 )%


                                       30

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Total revenues for the six months ended March 31, 2022 were $180.7 million, an
decrease of $11.6 million, or 6.0%, from $192.3 million for the six months ended
March 31, 2021. The decrease in revenues was driven by decreases in licensing
revenues and decreased demand for our connected services. Our license revenue is
highly dependent on vehicle production. Over the course of the past year,
third-party light vehicle production forecasts for calendar year 2022 have
decreased in response to the ongoing semiconductor shortage, conflict between
Russia and Ukraine, and the growing effects of lockdowns in mainland China
driven by COVID-19. While we cannot predict the full impact we will have from
the forecasted decline in production, we do expect to be negatively impacted for
the remainder of the fiscal year.

License Revenue



License revenue for the six months ended March 31, 2022 was $93.2 million, a
decrease of $7.6 million, or 7.6%, from $100.8 million for the six months ended
March 31, 2021. Variable license revenue decreased by $31.7 million primarily
due to a lower volume of licensing royalties. This decrease, which was due in
part to consumption of fixed license contracts, was partially offset by an $18.4
million increase in minimum purchase commitment and prepaid deals and $5.2
million from a one-time volume commitment deal with a fitness customer. During
the six months ended March 31, 2022, certain existing variable long-term
contracts with our largest customer were converted into minimum purchase
commitment deals that accounted for $40.1 million of revenue during such
six-month period. The cash associated with these deals is expected to be
collected over the distribution period, which could be up to five years. The
estimated future revenue related to these long-term contracts was previously
included in our variable backlog. As a percentage of total revenues, license
revenue decreased by 0.8 percentage points from 52.4% for the six months ended
March 31, 2021 to 51.6% for the six months ended March 31, 2022.

Connected Services Revenue



Connected services revenue for the six months ended March 31, 2022 was $47.5
million, a decrease of $6.2 million, or 11.5% from $53.7 million for the six
months ended March 31, 2021. This decrease was primarily driven by the winding
down of a legacy contract acquired by Nuance through a 2013 acquisition. As a
percentage of total revenues, connected services revenue decreased by 1.6
percentage points from 27.9% for the six months ended March 31, 2021 to 26.3%
for the six months ended March 31, 2022.

Professional Services Revenue



Professional service revenue for the six months ended March 31, 2022 was $40.1
million, an increase of $2.2 million, or 5.8%, from $37.9 million for the six
months ended March 31, 2021. This increase was primarily driven by our continued
focus on integration and customization services related to our edge software and
timing of services rendered. As a percentage of total revenues, professional
services revenue increased by 2.4 percentage points from 19.7% for the six
months ended March 31, 2021 to 22.1% for the six months ended March 31, 2022.

Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021

Total Cost of Revenues and Gross Profits

The following table shows total cost of revenues by product type and the corresponding percentage change (dollars in thousands):



                                 Three Months Ended March 31,            % Change
                                   2022                 2021           2022 vs. 2021
License                       $          386       $        1,181               (67.3 )%
Connected services                     5,651                6,839               (17.4 )%
Professional services                 17,372               16,325                 6.4 %
Amortization of intangibles              897                1,879               (52.3 )%
Total cost of revenues        $       24,306       $       26,224                (7.3 )%

The following table shows total gross profit by product type and the corresponding percentage change (dollars in thousands):



                                 Three Months Ended March 31,            % Change
                                   2022                 2021           2022 vs. 2021
License                       $       45,922       $       53,190               (13.7 )%
Connected services                    13,675               20,897               (34.6 )%
Professional services                  3,274                  230              1323.5 %
Amortization of intangibles             (897 )             (1,879 )              52.3 %


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Total gross profit $ 61,974 $ 72,438 (14.4 )%

Total cost of revenues for the three months ended March 31, 2022 were $24.3 million, a decrease of $1.9 million, or 7.3%, from $26.2 million for the three months ended March 31, 2021.



We experienced a decrease in total gross profit of $10.4 million, or 14.4%, from
$72.4 million for the three months ended March 31, 2021 to $62.0 million for the
three months ended March 31, 2022. The decrease was primarily driven by a
decline in license and connected services revenues.

Cost of License Revenue



Cost of license revenue for the three months ended March 31, 2022 and 2021 was
$0.4 million, a decrease of $0.8 million, or 67.3%, from $1.2 million for the
three months ended March 31, 2021. Cost of license revenues decreased due to
third-party royalty expenses associated with external technologies we leverage
in our edge software components. As a percentage of total cost of revenues, cost
of license revenue decreased by 2.9 percentage points from 4.5% for the three
months ended March 31, 2021 to 1.6% for the three months ended March 31, 2022.

License gross profit decreased by $7.3 million, or 13.7%, for the three months
ended March 31, 2022 when compared to the three months ended March 31, 2021,
primarily due to decreases in license revenues.

Cost of Connected Services Revenue



Cost of connected services revenue for the three months ended March 31, 2022 was
$5.7 million, a decrease of $1.1 million, or 17.4%, from $6.8 million for the
three months ended March 31, 2021. Cost of connected services revenue decreased
primarily due to a $0.4 million decrease in salary-related expenditures, $0.4
million decrease in amortization of costs previously deferred, and $0.3 million
decrease in stock-based compensation. The decrease was partially offset by a
$0.5 million increase in our cloud infrastructure costs. As a percentage of
total cost of revenues, cost of connected service revenue decreased by 2.9
percentage points from 26.1% for the three months ended March 31, 2021 to 23.2%
for the three months ended March 31, 2022.

Connected services gross profit decreased $7.2 million, or 34.6%, from $20.9
million for the three months ended March 31, 2021 to $13.7 million for the three
months ended March 31, 2022, driven by decreases in connected services revenue
due to the winding down of a legacy contract.

Cost of Professional Services Revenue



Cost of professional services revenue for the three months ended March 31, 2022
was $17.4 million, an increase of $1.1 million, or 6.4%, from $16.3 million for
the three months ended March 31, 2021. Cost of professional services revenue
increased primarily due to a $2.4 million increase in third-party contractor
costs, $0.2 million increase in stock-based compensation costs, $0.2 million
increase in salary-related expenditures and $0.2 million increase in
amortization of costs previously deferred. The increase was partially offset by
$2.1 million lower internal allocated costs. As a percentage of total cost of
revenues, cost of professional services revenue increased by 9.2 percentage
points from 62.3% for the three months ended March 31, 2021 to 71.5% for the
three months ended March 31, 2022.

Professional services gross profit increased $3.1 million, or 1323.5%, from $0.2
million for the three months ended March 31, 2021 to $3.3 million for the three
months ended March 31, 2022, which was due to an increase in professional
services revenues and cost savings initiatives implemented during the first half
of fiscal year 2022.

Six Months Ended March 31, 2022 Compared with Six Months Ended March 31, 2021

Total Cost of Revenues and Gross Profits

The following table shows total cost of revenues by product type and the corresponding percentage change (dollars in thousands):




                                 Six Months Ended March 31,            % Change
                                  2022                2021           2022 vs. 2021
License                       $       1,107       $       1,855               (40.3 )%
Connected services                   11,375              13,852               (17.9 )%
Professional services                33,275              33,647                (1.1 )%
Amortization of intangibles           2,776               3,758               (26.1 )%
Total cost of revenues        $      48,533       $      53,112                (8.6 )%


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The following table shows total gross profit by product type and the corresponding percentage change (dollars in thousands):



                                Six Months Ended March 31,           % Change
                                   2022               2021         2022 vs. 2021
License                       $       92,051       $   98,930                (7.0 )%
Connected services                    36,110           39,814                (9.3 )%
Professional services                  6,788            4,207                61.4 %
Amortization of intangibles           (2,776 )         (3,758 )              26.1 %
Total gross profit            $      132,173       $  139,193                (5.0 )%

Total cost of revenues for the six months ended March 31, 2022 were $48.5 million, a decrease of $4.6 million, or 8.6%, from $53.1 million for the six months ended March 31, 2021.



We experienced a decrease in total gross profit of $7.0 million, or 5.0%, from
$139.2 million for the six months ended March 31, 2021 to $132.2 million for the
six months ended March 31, 2022. The decrease was primarily driven by a decline
in license and connected services revenues.

Cost of License Revenue



Cost of license revenue for the six months ended March 31, 2022 was $1.1
million, a decrease of $0.8 million, or 40.3%, from $1.9 million for the six
months ended March 31, 2021. Cost of license revenues decreased due to
third-party royalty expenses associated with external technologies we leverage
in our edge software components. As a percentage of total cost of revenues, cost
of license revenue decreased by 1.2 percentage points from 3.5% for the six
months ended March 31, 2021 to 2.3% for the six months ended March 31, 2022.

License gross profit decreased by $6.9 million, or 7.0%, for the six months ended March 31, 2022 when compared to the six months ended March 31, 2021, primarily due to decreases in license revenues.

Cost of Connected Services Revenue



Cost of connected services revenue for the six months ended March 31, 2022 was
$11.4 million, a decrease of $2.5 million, or 17.9%, from $13.9 million for the
six months ended March 31, 2021. Cost of connected services revenue decreased
primarily due to a $1.1 million decrease in internal allocated costs, $1.0
million decrease in salary-related expenditures, $0.4 million decrease in
stock-based compensation, $0.2 million decrease in third-party contractor costs
and $0.2 million decrease in depreciation costs, offset by $0.8 million increase
in our cloud infrastructure costs. As a percentage of total cost of revenues,
cost of connected service revenue decreased by 2.7 percentage points from 26.1%
for the six months ended March 31, 2021 to 23.4% for the six months ended March
31, 2022.

Connected services gross profit decreased $3.7 million, or 9.3%, from $39.8 million for the six months ended March 31, 2021 to $36.1 million for the six months ended March 31, 2022, driven by declines in connected services revenue.

Cost of Professional Services Revenue



Cost of professional services revenue for the six months ended March 31, 2022
was $33.3 million, a decrease of $0.3 million, or 1.1%, from $33.6 million for
the six months ended March 31, 2021. Cost of professional services revenue
decreased primarily due to a $3.7 million decrease in internal allocated labor,
$1.0 million decrease in amortization of costs previously deferred, and $0.1
million decrease in stock-based compensation costs. The decrease was partially
offset by a $4.3 million increase in third-party contractor costs and $0.4
million increase in salary-related expenditures. As a percentage of total cost
of revenues, cost of professional services revenue increased by 5.2 percentage
points from 63.4% for the six months ended March 31, 2021 to 68.6% for the six
months ended March 31, 2022.

Professional services gross profit increased $2.6 million, or 61.4%, from $4.2
million for the six months ended March 31, 2021 to $6.8 million for the six
months ended March 31, 2022, which was due to an increase in professional
services revenues and cost savings initiatives implemented during the first half
of fiscal year 2022.

Operating Expenses

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The tables below show each component of operating expense. Total other income
(expense), net and provision for (benefit from) income taxes are non-operating
expenses and presented in a similar format (dollars in thousands).

R&D Expenses



Three Months Ended March 31, 2022 Compared with Three Months Ended March 31,
2021

                              Three Months Ended March 31,            % Change
                                2022                 2021           2022 vs. 2021
Research and development   $       29,976       $       28,864

3.9 %




Historically, R&D expenses are our largest operating expense as we continue to
build on our existing software platforms and develop new technologies. R&D
expenses for the three months ended March 31, 2022 were $30.0 million, an
increase of $1.1 million, or 3.9%, from $28.9 million for the three months ended
March 31, 2021. The increase in R&D expenses was primarily attributable to a
$2.2 million reduction in labor allocated to support our customer projects. The
increase was partially offset by a $0.8 million increase in capitalized costs
associated with internally developed software and $0.6 million decrease in
salary-related expenditures. As a percentage of total operating expenses, R&D
expenses increased by 1.4 percentage points from 52.4% for the three months
ended March 31, 2021 to 53.8% for the three months ended March 31, 2022.

Six Months Ended March 31, 2022 Compared with Six Months Ended March 31, 2021

                              Six Months Ended March 31,            % Change
                               2022                2021           2022 vs. 2021
Research and development   $      55,768       $      52,995                 5.2 %


Historically, R&D expenses are our largest operating expense as we continue to
build on our existing software platforms and develop new technologies. R&D
expenses for the six months ended March 31, 2022 were $55.8 million, an increase
of $2.8 million, or 5.2%, from $53.0 million for the six months ended March 31,
2021. The increase in R&D expenses was primarily attributable to a $4.6 million
reduction in labor allocated to support our customer projects, $0.8 million
increase in salary-related expenditures, $0.4 million increase in hardware and
software costs, and $0.3 million increase in third party contractor costs. The
increase was partially offset by a $2.5 million decrease in stock-based
compensation costs and $1.8 million increase in capitalized costs associated
with internally developed software. As a percentage of total operating expenses,
R&D expenses increased by 3.4 percentage points from 50.8% for the six months
ended March 31, 2021 to 54.2% for the six months ended March 31, 2022.

Sales & Marketing Expenses



Three Months Ended March 31, 2022 Compared with Three Months Ended March 31,
2021

                        Three Months Ended March 31,           % Change
                          2022                2021           2022 vs. 2021
Sales and marketing   $       8,309       $       9,555               (13.0 )%


Sales and marketing expenses for the three months ended March 31, 2022 were $8.3
million, a decrease of $1.3 million, or 13.0%, from $9.6 million for the three
months ended March 31, 2021. The decrease in sales and marketing expenses was
primarily attributable to a $1.5 million decrease in stock-based compensation
and $0.2 million decrease in salary-related expenses partially offset by an
increase of $0.3 million related to travel-related expenditures. As a percentage
of total operating expenses, sales and marketing expenses decreased by 2.4
percentage points from 17.3% for the three months ended March 31, 2021 to 14.9%
for the three months ended March 31, 2022.

Six Months Ended March 31, 2022 Compared with Six Months Ended March 31, 2021

                         Six Months Ended March 31,            % Change
                          2022                2021           2022 vs. 2021
Sales and marketing   $      14,188       $      18,563               (23.6 )%


                                       34

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Sales and marketing expenses for the six months ended March 31, 2022 were $14.2
million, a decrease of $4.4 million, or 23.6%, from $18.6 million for the six
months ended March 31, 2021. The decrease in sales and marketing expenses was
primarily attributable to a $4.7 million decrease in stock-based compensation
and $0.6 million decrease in salary-related expenses partially offset by an
increase of $0.5 million in travel-related expenditures, and $0.3 million
related to commission expense. As a percentage of total operating expenses,
sales and marketing expenses decreased by 4.0 percentage points from 17.8% for
the six months ended March 31, 2021 to 13.8% for the six months ended March 31,
2022.

General & Administrative Expenses



Three Months Ended March 31, 2022 Compared with Three Months Ended March 31,
2021

                                Three Months Ended March 31,            % Change
                                  2022                 2021           2022 vs. 2021
General and administrative   $       13,800       $       12,956

6.5 %




General and administrative expenses for the three months ended March 31, 2022
were $13.8 million, an increase of $0.8 million, or 6.5%, from $13.0 million for
the three months ended March 31, 2021. The increase in general and
administrative expenses was primarily attributable to $2.2 million increase in
third-party professional services. The increase was partially offset by $1.3
million decrease in stock-based compensation costs. As a percentage of total
operating expenses, general and administrative expenses increased by 1.3
percentage points from 23.5% for the three months ended March 31, 2021 to 24.8%
for the three months ended March 31, 2022.

Six Months Ended March 31, 2022 Compared with Six Months Ended March 31, 2021

                                Six Months Ended March 31,            % Change
                                 2022                2021           2022 vs. 2021
General and administrative   $      21,327       $      25,390               (16.0 )%


General and administrative expenses for the six months ended March 31, 2022 were
$21.3 million, a decrease of $4.1 million, or 16.0%, from $25.4 million for the
six months ended March 31, 2021. The decrease in general and administrative
expenses was primarily attributable to $6.9 decrease in stock-based compensation
costs. The decrease was partially offset by a $2.0 million increase in
third-party professional services and $0.9 million increase in salary-related
expenditures. As a percentage of total operating expenses, general and
administrative expenses decreased by 3.6 percentage points from 24.3% for the
six months ended March 31, 2021 to 20.7% for the six months ended March 31,
2022.

Amortization of Intangible Assets



Three Months Ended March 31, 2022 Compared with Three Months Ended March 31,
2021

                       Three Months Ended March 31,           % Change
                         2022                2021           2022 vs. 2021
Cost of revenues     $         897       $       1,879               (52.3 )%
Operating expense            3,135               3,183                (1.5 )%
Total amortization   $       4,032       $       5,062               (20.3 )%


                                       35

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Intangible asset amortization for the three months ended March 31, 2022 was $4.0
million, a decrease of $1.1 million, or 20.3%, from $5.1 million for the three
months ended March 31, 2021. The decrease in amortization relates to certain
intangible assets having been fully amortized during fiscal 2021. Amortization
expense for acquired technology and patents is included in the cost of revenues
in the accompanying Condensed Consolidated Statements of Operations.
Amortization expense for customer relationships is included in operating
expenses in the accompanying Condensed Consolidated Statements of Operations.

As a percentage of total cost of revenues, intangible asset amortization within
cost of revenues decreased by 3.5 percentage points from 7.2% for the three
months ended March 31, 2021 to 3.7% for the three months ended March 31, 2022.
As a percentage of total operating expenses, intangible asset amortization
expenses within operating expenses decreased by 0.2 percentage points from 5.8%
for the three months ended March 31, 2021 as compared to 5.6% for the three
months ended March 31, 2022.

Six Months Ended March 31, 2022 Compared with Six Months Ended March 31, 2021

                        Six Months Ended March 31,            % Change
                         2022                2021           2022 vs. 2021
Cost of revenues     $      2,776       $        3,758               (26.1 )%
Operating expense           6,289                6,341                (0.8 )%
Total amortization   $      9,065       $       10,099               (10.2 )%


                                       36

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Intangible asset amortization for the six months ended March 31, 2022 was $9.1
million, a decrease of $1.0 million, or 10.2%, from $10.1 million for the six
months ended March 31, 2021. The decrease in amortization relates to certain
intangible assets having been fully amortized during fiscal 2021. Amortization
expense for acquired technology and patents is included in the cost of revenues
in the accompanying Condensed Consolidated Statements of Operations.
Amortization expense for customer relationships is included in operating
expenses in the accompanying Condensed Consolidated Statements of Operations.

As a percentage of total cost of revenues, intangible asset amortization within
cost of revenues decreased by 1.4 percentage points from 7.1% for the six months
ended March 31, 2021 to 5.7% for the six months ended March 31, 2022. As a
percentage of total operating expenses, intangible asset amortization expenses
within operating expenses remained flat at 6.1% for the six months ended March
31, 2022 and 2021.

Restructuring and Other Costs, Net



Three Months Ended March 31, 2022 Compared with Three Months Ended March 31,
2021

                                                   Three Months Ended March 31,            % Change
                                                    2022                  2021           2022 vs. 2021
Restructuring and other costs, net              $         474         $         537               (11.7 )%


Restructuring and other costs, net for the three months ended March 31, 2022 and
2021 remained flat at $0.5 million. For the three months ended March 31, 2022,
we recorded restructuring and other charges, net of $0.5 million, which included
$0.3 million related to one-time charges and a $0.2 million charge resulting
from the closure of facilities that will no longer be utilized. As a percentage
of total operating expenses, restructuring and other costs, net decreased by
0.1 percentage points from 1.0% for the three months ended March 31, 2021 to
0.9% for the three months ended March 31, 2022.

Six Months Ended March 31, 2022 Compared with Six Months Ended March 31, 2021

                                                   Six Months Ended March 31,            % Change
                                                    2022                2021           2022 vs. 2021
Restructuring and other costs, net              $       5,389       $       1,017               429.9 %


Restructuring and other costs, net for the six months ended March 31, 2022 were
$5.4 million, an increase of $4.4 million, or 429.9%, from $1.0 million for the
six months ended March 31, 2021. The increase in restructuring and other costs,
net was primarily driven by $4.0 million, net of $5.0 million in forfeitures, in
stock-based compensation due to the resignation of our former CEO and the
resulting modification of certain stock-based awards, $0.3 million severance
charge related to the elimination of personnel, and $0.4 million charge
resulting from the closure of facilities that will no longer be utilized. As a
percentage of total operating expenses, restructuring and other costs, net
increased by 4.2 percentage points from 1.0% for the six months ended March 31,
2021 to 5.2% for the six months ended March 31, 2022.

Total Other Expense, Net



Three Months Ended March 31, 2022 Compared with Three Months Ended March 31,
2021

                                                   Three Months Ended March 31,            % Change
                                                     2022                 2021           2022 vs. 2021
Interest income                                 $           83       $           16               418.8 %
Interest expense                                        (3,360 )             (3,476 )              (3.3 )%
Other income (expense), net                                (34 )              3,496              (101.0 )%
Total other income (expense), net               $       (3,311 )     $           36             (9297.2 )%


Total other expense, net for the three months ended March 31, 2022 was expense
of $3.3 million, a decrease of $3.3 million from $36 thousand of income for the
three months ended March 31, 2021. The change in other income (expense), net was
primarily driven by foreign exchange losses. For further information, see
"Liquidity and Capital Resources" below.

Six Months Ended March 31, 2022 Compared with Six Months Ended March 31, 2021

        Six Months Ended March 31,             % Change
              2022                2021       2022 vs. 2021


                                       37

--------------------------------------------------------------------------------

Interest income               $    173     $     34        408.8 %
Interest expense                (6,787 )     (7,275 )       (6.7 )%

Other income (expense), net (286 ) 1,259 (122.7 )% Total other expense, net $ (6,900 ) $ (5,982 ) 15.3 %




Total other expense, net for the six months ended March 31, 2022 was expense of
$6.9 million, a decrease of $0.9 million from $6.0 million of expense for the
six months ended March 31, 2021. The decrease in interest expense was primarily
attributable to a lower applicable interest rate on Term Loan Facility. The
change in other income (expense), net was primarily driven by foreign exchange
gains offset by $1.3 million of expense related to a decrease in an asset
corresponding with the release of indemnified pre-spin-off liabilities for
uncertain tax positions. For further information, see "Liquidity and Capital
Resources" below.

Provision For (Benefit From) Income Taxes



Three Months Ended March 31, 2022 Compared with Three Months Ended March 31,
2021
                                Three Months Ended March 31,           % Change
                                  2022                2021           2022 vs. 2021
Provision for income taxes    $       3,445       $       6,216               (44.6 )%
Effective income tax rate %           116.0 %              35.8 %


Our effective income tax rate for the three months ended March 31, 2022 was
116.0%, compared to 35.8% for the three months ended March 31, 2021.
Consequently, our provision for income taxes for the three months ended March
31, 2022 was $3.4 million, a net change of $2.8 million from a provision for
income taxes of $6.2 million for the three months ended March 31, 2021. This
difference was attributable to our composition of jurisdiction earnings and U.S.
inclusions of foreign taxable income as a result of 2017 tax law changes.

Six Months Ended March 31, 2022 Compared with Six Months Ended March 31, 2021

                                                   Six Months Ended March 31,              % Change
                                                    2022                2021             2022 vs. 2021

Provision for (benefit from) income taxes $ 3,744 $ (3,199 )

               (217.0 )%
Effective income tax rate%                              16.8 %              

(11.1 )%




Our effective income tax rate for the six months ended March 31, 2022 was 16.8%,
compared to negative 11.1% for the six months ended March 31, 2021.
Consequently, our provision for income taxes for the six months ended March 31,
2022 was $3.7 million, a net change of $6.9 million from a benefit from income
taxes of $3.2 million for the six months ended March 31, 2021. This difference
was attributable to our composition of jurisdiction earnings, U.S. inclusions of
foreign taxable income as a result of 2017 tax law changes, and a $15.8 million
tax benefit recorded as a result of a decrease to the enacted Netherlands tax
rate in the first quarter of fiscal 2021, partially offset by a $3.5 million tax
benefit recorded as result of a decrease to the enacted Netherlands tax rate in
the first quarter of fiscal 2022.

Liquidity and Capital Resources

Financial Condition



As of March 31, 2022, we had $146.1 million in cash, cash equivalents, and
marketable securities. Cash equivalents include highly liquid investments that
are readily convertible to known amounts of cash and have original maturities of
three months or less. Marketable securities include commercial paper and
corporate bonds. As of March 31, 2022, our net working capital, excluding
deferred revenue and deferred costs, was $181.0 million. This balance is
representative of the short-term net cash inflows based on the working capital
at that date.

During the three and six months ended March 31, 2022, we converted existing
variable long-term contracts into minimum purchase commitment deals with our
largest customer. These minimum commitment deals accounted for $19.9 million and
$40.1 million of revenue, respectively. The cash associated with these deals is
expected to be collected over the distribution period, which could be up to five
years. The estimated future revenue related to these long-term contracts was
previously included in our variable backlog.

Sources and Material Cash Requirements


                                       38
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Our principal sources of liquidity are our cash, cash equivalents, and marketable securities, as well as the cash flows we generated from our operations. The primary uses of cash include costs of revenues, funding of R&D activities, capital expenditures and debt obligations.



Our ability to fund future operating needs will depend on our ability to
generate positive cash flows from operations and finance additional funding in
the capital markets as needed. Based on our history of generating positive cash
flows and the $146.1 million of cash, cash equivalents, and marketable
securities as of March 31, 2022, we believe that we will be able to meet our
liquidity needs over the next 12 months. We believe that we will meet
longer-term expected future cash requirements and obligations, through a
combination of cash flows from operating activities, available cash balances,
and available credit via our Revolving Facility.

The following table presents our material cash requirements for future periods
(dollars in thousands):
                                                       Material Cash Requirements Due by Period
                                        2022        2023 - 2024       2025 - 2026       Thereafter        Total
Notes                                 $      -     $           -     $     175,000     $          -     $ 175,000
Interest payable on the Notes (a)        2,631            10,507             3,507                -        16,645
Senior Credit Facilities                 3,125            23,438            87,500                -       114,063
Interest payable on Senior Credit        1,551             5,513             1,174                -         8,238
Facilities (b)
Operating leases                         3,525            10,946             5,218            2,470        22,159
Operating leases under                     (20 )              30               402              201           613
restructuring (c)
Financing leases                           208               886               414                -         1,508

Total material cash requirements $ 11,020 $ 51,320 $ 273,215 $ 2,671 $ 338,226

(a) Interest per annum is due and payable semiannually and is determined based

on the outstanding principal as of March 31, 2022.

(b) Interest per annum is due and payable monthly and is determined based on

the outstanding principal as of March 31, 2022.

(c) Contractual lease commitments are shown net of sublease income related to

certain facilities. As of March 31, 2022, we anticipate sublease income of

$2.0 million through fiscal year 2024.




As the impact of the COVID-19 pandemic on the economy and our operations
evolves, we will continue to assess our liquidity needs. Should we need to
secure additional sources of liquidity, we believe that we could finance our
needs through the issuance of equity securities or debt offerings. However, we
cannot guarantee that we will be able to obtain financing through the issuance
of equity securities or debt offerings on acceptable terms. The COVID-19
pandemic has negatively impacted the global economy and created significant
volatility and disruption of financial markets. An extended period of economic
disruption could materially affect our business, results of operations, ability
to meet debt covenants, access to sources of liquidity and financial condition.

3.00% Senior Convertible Notes due 2025



On June 2, 2020, we issued $175.0 million in aggregate principal amount of
Notes, including the initial purchasers' exercise in full of their option to
purchase an additional $25.0 million principal amount of the Notes, between the
Company and the Trustee, in a private offering to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as amended. The net
proceeds from the issuance of the Notes were $169.8 million after deducting
transaction costs.

The Notes are senior, unsecured obligations and will accrue interest payable
semiannually in arrears on June 1 and December 1 of each year at a rate of 3.00%
per year. The Notes will mature on June 1, 2025, unless earlier converted,
redeemed, or repurchased. The Notes are convertible into cash, shares of our
common stock or a combination of cash and shares of our common stock, at our
election.

The conversion rate will initially be 26.7271 shares of our common stock per
$1,000 principal amount of Notes (equivalent to an initial conversion price of
approximately $37.42 per share of our common stock).

The interest expense recognized related to the Notes for the three and six months ended March 31, 2022 and 2021 was as follows (dollars in thousands):



                                                Three Months Ended March 31,           Six Months Ended March 31,
                                                  2022                2021              2022                2021
Contractual interest expense                  $       1,294       $       1,294     $       2,616       $       2,616
Amortization of debt discount                           919                 863             1,843               1,731
Amortization of issuance costs                          231                 217               463                 435

Total interest expense related to the Notes $ 2,444 $ 2,374 $ 4,922 $ 4,782


                                       39
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The conditional conversion feature of the Notes was triggered in the three and
six months ended March 31, 2022, with no Notes being converted. As of March 31,
2022, the Notes were not convertible. As of this Quarterly Report, no Notes have
been converted by the holders. Whether any of the Notes will be convertible in
future quarters will depend on the satisfaction of one or more of the conversion
conditions in the future. If one or more holders elect to convert their Notes at
a time when any such Notes are convertible, unless we elect to satisfy our
conversion obligation by delivering solely shares of our common stock (other
than paying cash in lieu of delivering any fractional share), we would be
required to settle a portion or all of our conversion obligation through the
payment of cash, which could adversely affect our liquidity.

Senior Credit Facilities



On June 12, 2020, we entered into a Term Loan Facility. The net proceeds from
the issuance of the Term Loan Facility were $123.0 million. We also entered the
Revolving Facility, which shall be drawn on in the event that our working
capital and other cash needs are not supported by our operating cash flow. As of
March 31, 2022, there were no amounts outstanding under the Revolving Facility.

On December 17, 2020 (the "Amendment No. 1 Effective Date"), we entered into
Amendment No. 1 to the Credit Agreement (the "Amendment"). The Amendment
extended the scheduled maturity date of the revolving credit and term facilities
from June 12, 2024 to April 1, 2025.

The Amendment revised certain interest rates in the Credit Agreement. Following
delivery of a compliance certificate for the first full fiscal quarter after the
Amendment No. 1 Effective Date, the applicable margins for the revolving credit
and term facilities is subject to a pricing grid based upon the net total
leverage ratio as follows: (i) if the net total leverage ratio is greater than
3.00 to 1.00, the applicable margin is LIBOR plus 3.00% or ABR plus 2.00%; (ii)
if the net total leverage ratio is less than or equal to 3.00 to 1.00 but
greater than 2.50 to 1.00, the applicable margin is LIBOR plus 2.75% or ABR plus
1.75%; (iii) if the net total leverage ratio is less than or equal to 2.50 to
1.00 but greater than 2.00 to 1.00, the applicable margin is LIBOR plus 2.50% or
ABR plus 1.50%; (iv) if the net total leverage ratio is less than or equal to
2.00 to 1.00 but greater than 1.50 to 1.00, the applicable margin is LIBOR plus
2.25% or ABR plus 1.25%; and (v) if the net total leverage ratio is less than or
equal to 1.50 to 1.00, the applicable margin is LIBOR plus 2.20% or ABR plus
1.00%. As a result of the Amendment, the applicable LIBOR floor was reduced from
0.50% to 0.00%.

From the Amendment No. 1 Effective Date until the fiscal quarter ended March 31,
2021, the interest rate was LIBOR plus 2.50%. For the three months ended March
31, 2021, the interest rate was LIBOR plus 2.25%. For the three and six months
ended March 31, 2022, the interest rate was LIBOR plus 2.25%. Total interest
expense relating to the Senior Credit Facilities for the three months ended
March 31, 2022 and 2021 was $0.9 million and $1.0 million, respectively, and
$1.8 million and $2.4 million for the six months ended March 31, 2022 and 2021,
respectively. Amounts reflect the coupon and accretion of the discount.

In addition, the quarterly commitment fee required to be paid based on the
unused portion of the Revolving Facility is subject to a pricing grid based upon
the net total leverage ratio as follows (i) if the net total leverage ratio is
greater than 3.00 to 1.00, the unused line fee is 0.500%; (ii) if the net total
leverage ratio is less than or equal to 3.00 to 1.00 but greater than 2.50 to
1.00, the unused line fee is 0.450%; (iii) if the net total leverage ratio is
less than or equal to 2.50 to 1.00 but greater than 2.00 to 1.00, the unused
line fee is 0.400%; (iv) if the net total leverage ratio is less than or equal
to 2.00 to 1.00 but greater than 1.50 to 1.00, the unused line fee is 0.350%;
and (v) if the net total leverage ratio is less than or equal to 1.50 to 1.00,
the unused line fee is 0.300%.

Through the fiscal quarter ending December 31, 2022, we are obligated to make
quarterly principal payments in an aggregate amount equal to 1.25% of the
original principal amount of the Term Loan Facility. From the fiscal quarter
ending March 31, 2023 and for each fiscal quarter thereafter, we are obligated
to make quarterly principal payments in an aggregate amount equal to 2.50% of
the original principal amount of the Term Loan Facility, with the balance
payable at the maturity date thereof.

The Credit Agreement contains certain affirmative and negative covenants
customary for financings of this type that, among other things, limit our and
our subsidiaries' ability to incur additional indebtedness or liens, to dispose
of assets, to make certain fundamental changes, to designate subsidiaries as
unrestricted, to make certain investments, to prepay certain indebtedness and to
pay dividends, or to make other distributions or redemptions/repurchases, in
respect of our and our subsidiaries' equity interests. In addition, the Credit
Agreement contains financial covenants, each tested quarterly, (1) a net secured
leveraged ratio of not greater than 3.25 to 1.00; (2) a net total leverage ratio
of not greater than 4.25 to 1.00; and (3) minimum liquidity of at least $75
million. The Credit Agreement also contains events of default customary for
financings of this type, including certain customary change of control events.
As of March 31, 2022, we were in compliance with all Credit Agreement covenants.

Cash Flows



Cash flows from operating, investing and financing activities for the six months
ended March 31, 2022 and 2021, as reflected in the unaudited Condensed
Consolidated Statements of Cash Flows included in Item 1 of this Form 10-Q, are
summarized in the following table (dollars in thousands):

                                       40
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                                                   Six Months Ended March 31,            % Change
                                                     2022               2021           2022 vs. 2021

Net cash provided by operating activities $ 6,743 $ 27,009

                 (75.0 )%
Net cash used in investing activities                   (5,965 )         (13,847 )               (56.9 )%
Net cash used in financing activities                  (16,336 )         (31,039 )               (47.4 )%
Effect of foreign currency exchange rates on
cash and cash equivalents                               (1,051 )           1,356                (177.5 )%

Net changes in cash and cash equivalents $ (16,609 ) $ (16,521 )

                 0.5 %




Net Cash Provided by Operating Activities



Net cash provided by operating activities for the six months ended March 31,
2022 was $6.7 million, a net decrease of $20.3 million, or 75.0%, from net cash
provided by operating activities of $27.0 million for the six months ended March
31, 2021. The net decrease in cash provided by operating activities was
primarily due to:

• A decrease of $16.2 million from income before non-cash charges;

• A decrease of $13.8 million due to unfavorable changes in working


          capital primarily related to cash outflows from prepaid expenses and
          other assets; and


  • An increase of $9.6 million from changes in deferred revenue.


Deferred revenue represents a significant portion of our net cash provided by
operating activities and, depending on the nature of our contracts with
customers, this balance can fluctuate significantly from period to period.
Fluctuations in deferred revenue are not a reliable indicator of future
performance and the related revenue associated with these contractual
commitments. We expect our deferred revenue balances to decrease in the future,
including due to a wind-down of a legacy connected service relationship with a
major OEM, since the majority of cash from the contract has been collected. We
do not expect any changes in deferred revenue to affect our ability to meet our
obligations.

Net Cash Used in Investing Activities



Net cash used in investing activities for the six months ended March 31, 2022
was $6.0 million, a net change of $7.8 million, or 56.9%, from $13.8 million
cash used in investing activities for the six months ended March 31, 2021. The
change in cash flows were driven by:

• An increase of $9.7 million net cash inflow related to marketable securities;

• A decrease of $2.0 million related to payments for equity investments; and

• An increase of $4.8 million in capital expenditures.

Net Cash Used in Financing Activities



Net cash used in financing activities for the six months ended March 31, 2022
was $16.3 million, a net change of $14.7 million, from cash used in financing
activities of $31.0 million for the six months ended March 31, 2021. The change
in cash flows were primarily due to:

• An increase of $14.2 million in payments of tax related withholdings due

to the net settlement of equity awards; and

• An increase of $28.4 million in proceeds from the issuance of our common

stock.

Critical Accounting Policies, Judgments and Estimates



Our condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates and
assumptions that have a material impact on the reported amounts of assets and
liabilities and the disclosures of contingent assets and liabilities as of the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. We base our estimates and judgments on
historical experience and various other factors we believe to be reasonable
under the circumstances, the results of which form the basis for judgments about
the carrying values of assets and liabilities and the amounts of revenues and
expenses. Actual results may differ from these estimates.

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We believe that our critical accounting policies and estimates are those related
to revenue recognition; allowance for credit losses; accounting for deferred
costs; accounting for internally developed software; the valuation of goodwill
and intangible assets; accounting for business combinations; accounting for
stock-based compensation; accounting for income taxes; accounting for leases;
accounting for convertible debt; and loss contingencies. We believe these
policies and estimates are critical because they most significantly affect the
portrayal of our financial condition and results of operations and involve our
most complex and subjective estimates and judgments. A discussion of our
critical accounting policies and estimates may be found in our Annual Report on
Form 10-K for the fiscal year ended September 30, 2021 in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," under
the heading "Critical Accounting Policies, Judgments and Estimates" and below.

Revenue Recognition



We primarily derive revenue from the following sources: (1) royalty-based
software license arrangements, (2) connected services, and (3) professional
services. 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 collectability of
consideration is probable.

Our arrangements with customers may 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.

See Note 3 to the accompanying unaudited condensed consolidated financial statements for further discussion of our revenue, deferred revenue performance obligations and the timing of revenue recognition.

Goodwill

Goodwill is reported at the reporting unit level. Upon consideration of the discrete financial information reviewed by our CODM, we have concluded that our goodwill is associated with one reporting unit.

Goodwill is not amortized but tested annually for impairment or when interim
indicators of impairment are present. The test for goodwill impairment involves
an assessment of impairment indicators. If indicators are present, a
quantitative test of impairment is performed. During the quantitative test, the
fair value of the reporting unit is compared to its carrying value. If the fair
value of the reporting unit is less than the carrying value, the difference
represents an impairment. If the fair value of the reporting unit is greater
than the carrying value, no impairment is recognized.

On March 31, 2022, we concluded that no goodwill impairment indicators were present.

See Note 7 to the accompanying unaudited condensed consolidated financial statements for further discussion of our goodwill.

Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements To Be Adopted



Refer to Note 2 to the accompanying unaudited condensed consolidated financial
statements for a description of certain issued accounting standards that have
been recently adopted and are expected to be adopted by us and may impact our
results of operations in future reporting periods.

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