Cerence Inc.CRNC
Cerence Inc. Fair Value Disclosure
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 fair value measurements for assets and liabilities 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 in pricing the asset or liability.
The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement as of the measurement date as follows:
•Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
•Level 2 - Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the assets or liabilities.
•Level 3 - Unobservable inputs that are supported by little or no market activity.
The following table presents information about our financial assets that are measured at fair value and indicates the fair value hierarchy of the valuation inputs used (dollars in thousands) as of:
| September 30, 2025 | |||||||||||||||||
| Fair Value | Cash and Cash Equivalents | Marketable Securities | |||||||||||||||
| Level 1: | |||||||||||||||||
Money market funds $20,898 at cost (a) | $ | 20,898 | $ | 20,898 | $ | — | |||||||||||
Level I Government Securities $1,003 at cost (b) | 1,006 | — | $ | 1,006 | |||||||||||||
Corporate bonds, $2,017 at cost (b) | 2,022 | — | 2,022 | ||||||||||||||
| Level 2: | |||||||||||||||||
Level II Government securities $405 at cost (b) | 405 | — | 405 | ||||||||||||||
Time deposits, $3,040 at cost (a) | 3,040 | 3,040 | — | ||||||||||||||
Convertible debt, $0 at cost (c) | 770 | — | — | ||||||||||||||
| Total assets | $ | 28,141 | $ | 23,938 | $ | 3,433 | |||||||||||
| September 30, 2024 | |||||||||||||||||
| Fair Value | Cash and Cash Equivalents | Marketable Securities | |||||||||||||||
| Level 1: | |||||||||||||||||
Money market funds $77,785 at cost (a) | $ | 77,785 | $ | 77,785 | $ | — | |||||||||||
| Level 2: | |||||||||||||||||
Government securities $3,940 at cost (b) | 3,950 | — | 3,950 | ||||||||||||||
Time deposits, $3,700 at cost (a) | 3,700 | 3,700 | — | ||||||||||||||
Corporate bonds, $4,984 at cost (b) | 5,005 | — | 5,005 | ||||||||||||||
Convertible debt, $2,000 at cost (c) | 3,099 | — | — | ||||||||||||||
| Total assets | $ | 93,539 | $ | 81,485 | $ | 8,955 | |||||||||||
(a)Money market funds and other highly liquid investments with original maturities of 90 days or less are included within Cash and cash equivalents in the Consolidated Balance Sheets.
(b)Government securities, commercial paper and corporate bonds with original maturities greater than 90 days are included within Marketable securities in the Consolidated Balance Sheets and classified as current or noncurrent based upon whether the maturity of the financial asset is less than or greater than 12 months.
(c)Debt securities are classified as current or long-term within the Consolidated Balance Sheet based upon whether the maturity of the financial asset is less than or greater than 12 months.
During the fiscal years ended September 30, 2025, 2024, and 2023, we recorded unrealized gains related to our marketable securities of less than $0.1 million, $0.3 million, and $0.2 million, respectively, within Accumulated other comprehensive loss. During the year ended September 30, 2025, in the course of our periodic review of our investments, we observed a deterioration in the market conditions with respect to a single investment in convertible notes. Accordingly, we performed a fair value assessment of our investment in the convertible notes, resulting in a write down of $2.4 million, recognized in other (expense) income, net.
The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, and accounts payable, approximate fair value due to their short-term maturities and are excluded from the fair value tables above.
Derivative financial instruments are recognized at fair value using quoted forward rates and prices and classified within Level 2 of the fair value hierarchy. See Note 6 – Derivative Financial Instruments for additional details.
Long-term debt
The estimated fair value of our Long-term debt is determined by Level 1 inputs and is based on observable market data including prices for similar instruments. As of September 30, 2025 and 2024, the estimated fair value of our Notes was $174.2 million and $184.8 million, respectively. The Notes are recorded at face value less unamortized debt discount and transaction costs on our Consolidated Balance Sheets. The carrying amount of the Senior Credit Facilities (as defined in Note 17) approximates fair value given the underlying interest rate applied to such amounts outstanding is currently set to the prevailing market rate.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
We measure certain assets at fair value on a non-recurring basis, primarily goodwill, intangible assets, and long-lived assets. These assets were initially measured and recognized at amounts equal to the fair value determined as of the date of acquisition or purchase and are subject to changes in value only for foreign currency translation and impairment. See Note 2 - Summary of Significant Accounting Policies for additional information on impairment assessments and related Level 3 inputs for goodwill, indefinite-lived intangible assets and long-lived assets.
Equity securities
We have a non-controlling equity investment in a privately held company. We evaluated the equity investment under the voting model and concluded consolidation was not applicable. We accounted for the investment by electing the measurement alternative for investments without readily determinable fair values. The non-marketable equity investment is carried at cost less any impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, which is recorded within the Consolidated Statements of Operations.
Investments without readily determinable fair values were $2.6 million and $2.6 million as of September 30, 2025 and 2024, respectively. These investments are included within Other assets on the Consolidated Balance Sheets. Impairment related to investments without readily determinable fair values was $0.5 million during the fiscal year ended September 30, 2023. No impairment was recorded for the fiscal years ended September 2025 and 2024.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.