UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________

Form 10-Q

_____________________________________________

(Mark One)

ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2017~~2018

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number ~~001-36056~~000-27038

_____________________________________________

NUANCE COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

_____________________________________________



Delaware		94-3156479
(State or Other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1 Wayside Road Burlington, Massachusetts		01803
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

(781) 565-5000

_____________________________________________

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý 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	ý	Accelerated filer	¨	Emerging growth company	¨
Non-accelerated filer	¨	(Do not check if a smaller reporting company)		Smaller reporting 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. ~~Yes~~ ¨ No ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

The number of shares of the Registrant’s Common Stock, outstanding as of ~~April 28, 2017~~May 3, 2018 was ~~287,655,022.~~295,432,178.

NUANCE COMMUNICATIONS, INC.

TABLE OF CONTENTS



			Page
PART I: FINANCIAL INFORMATION
Item 1.		Condensed Consolidated Financial Statements (unaudited):
	a)	Consolidated Statements of Operations for the three and six months ended March 31, ~~2017~~2018 and ~~2016~~2017	1
	b)	Consolidated Statements of Comprehensive ~~(Loss) Income~~Loss for the three and six months ended March 31, ~~2017~~2018 and ~~2016~~ 2017	2
	c)	Consolidated Balance Sheets at March 31, ~~2017~~2018 and September 30, ~~2016~~2017	3
	d)	Consolidated Statements of Cash Flows for the six months ended March 31, ~~2017~~2018 and ~~2016~~2017	4
	e)	Notes to Condensed Consolidated Financial Statements	5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	2324
Item 3.		Quantitative and Qualitative Disclosures about Market Risk	4239
Item 4.		Controls and Procedures	4340

PART II: OTHER INFORMATION
Item 1.		Legal Proceedings	4340
Item 1A.		Risk Factors	4440
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	5250
Item 3.		Defaults Upon Senior Securities	5250
Item 4.		Mine Safety Disclosures	5250
Item 5.		Other Information	5350
Item 6.		Exhibits	53
~~Signatures~~			5451
Exhibit Index			5551
Signatures			52
Certifications

NUANCE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



	Three Months Ended March 31,						Six Months Ended March 31,
	2018			2017			2018			2017
	(Unaudited) (In thousands, except per share amounts)
Revenues:
Professional services and hosting	$	274,574		$	258,690		$	533,601		$	512,107
Product and licensing	161,284			159,258			323,094			311,010
Maintenance and support	78,366			81,625			159,174			164,114
Total revenues	514,224			499,573			1,015,869			987,231
Cost of revenues:
Professional services and hosting	181,051			164,170			353,579			329,062
Product and licensing	18,966			18,790			38,035			37,168
Maintenance and support	14,191			13,240			28,432			26,838
Amortization of intangible assets	14,780			17,218			30,136			32,760
Total cost of revenues	228,988			213,418			450,182			425,828
Gross profit	285,236			286,155			565,687			561,403
Operating expenses:
Research and development	74,185			66,232			147,551			132,554
Sales and marketing	94,187			93,674			196,147			195,190
General and administrative	74,288			41,518			127,180			81,308
Amortization of intangible assets	22,670			27,912			45,734			55,771
Acquisition-related costs, net	2,360			5,379			7,921			14,405
Restructuring and other charges, net	8,948			19,911			23,749			26,614
Impairment of goodwill	137,907			—			137,907			—
Total operating expenses	414,545			254,626			686,189			505,842
(Loss) income from operations	(129,309		)	31,529			(120,502		)	55,561
Other (expense) income:
Interest income	2,236			1,280			4,428			2,303
Interest expense	(33,866		)	(37,853		)	(69,936		)	(75,874		)
Other expense, net	(570		)	(19,623		)	(792		)	(20,232		)
Loss before income taxes	(161,509		)	(24,667		)	(186,802		)	(38,242		)
Provision (benefit) for income taxes	2,544			9,141			(75,977		)	19,494
Net loss	$	(164,053	)	$	(33,808	)	$	(110,825	)	$	(57,736	)
Net loss per share:
Basic	$	(0.56	)	$	(0.12	)	$	(0.38	)	$	(0.20	)
Diluted	$	(0.56	)	$	(0.12	)	$	(0.38	)	$	(0.20	)
Weighted average common shares outstanding:
Basic	294,103			291,021			292,720			289,976
Diluted	294,103			291,021			292,720			289,976

~~Part I. Financial Information~~

~~Item 1.~~ ~~Condensed Consolidated Financial Statements (unaudited)~~

See accompanying notes.

NUANCE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~COMPREHENSIVE LOSS

Three Months Ended March 31, Six Months Ended March 31,
2017 2016 2017 2016

(Unaudited)
(In thousands, except per share amounts)
Revenues:
Professional services and hosting $ 258,690
$ 240,196
$ 512,107
$ 467,331
Product and licensing 159,258
158,622
311,010
337,672
Maintenance and support 81,625
79,915
164,114
159,845
Total revenues 499,573
478,733
987,231
964,848
Cost of revenues:
Professional services and hosting 164,170
154,712
329,062
307,971
Product and licensing 18,790
20,823
37,168
44,235
Maintenance and support 13,240
13,626
26,838
26,922
Amortization of intangible assets 17,218
16,339
32,760
31,970
Total cost of revenues 213,418
205,500
425,828
411,098
Gross profit 286,155
273,233
561,403
553,750
Operating expenses:
Research and development 66,232
67,226
132,554
137,751
Sales and marketing 93,674
92,837
195,190
193,427
General and administrative 41,518
45,940
81,308
86,441
Amortization of intangible assets 27,912
26,448
55,771
53,481
Acquisition-related costs, net 5,379
1,225
14,405
3,705
Restructuring and other charges, net 19,911
6,652
26,614
14,540
Total operating expenses 254,626
240,328
505,842
489,345
Income from operations 31,529
32,905
55,561
64,405
Other income (expense):
Interest income 1,280
1,616
2,303
2,499
Interest expense (37,853 ) (32,328 ) (75,874 ) (62,208 )
Other (expense) income, net (19,623 ) 6
(20,232 ) (6,795 )
(Loss) income before income taxes (24,667 ) 2,199
(38,242 ) (2,099 )
Provision for income taxes 9,141
9,245
19,494
17,012
Net loss $ (33,808 ) $ (7,046 ) $ (57,736 ) $ (19,111 )
Net loss per share:
Basic $ (0.12 ) $ (0.02 ) $ (0.20 ) $ (0.06 )
Diluted $ (0.12 ) $ (0.02 ) $ (0.20 ) $ (0.06 )
Weighted average common shares outstanding:
Basic 291,021
298,021
289,976
303,050
Diluted 291,021
298,021
289,976
303,050



	Three Months Ended March 31,						Six Months Ended March 31,
	2018			2017			2018			2017
	(Unaudited)
	(In thousands)
Net loss	$	(164,053	)	$	(33,808	)	$	(110,825	)	$	(57,736	)
Other comprehensive income (loss):
Foreign currency translation adjustment	4,096			17,947			5,611			(12,619		)
Pension adjustments	—			118			116			236
Unrealized (loss) gain on marketable securities	(71		)	27			(348		)	(4		)
Total other comprehensive income (loss), net	4,025			18,092			5,379			(12,387		)
Comprehensive loss	$	(160,028	)	$	(15,716	)	$	(105,446	)	$	(70,123	)

~~See accompanying notes.~~

~~NUANCE COMMUNICATIONS, INC.~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME~~

Three Months Ended March 31, Six Months Ended March 31,
2017 2016 2017 2016
(Unaudited)
(In thousands)
Net loss $ (33,808 ) $ (7,046 ) $ (57,736 ) $ (19,111 )
Other comprehensive income (loss):
Foreign currency translation adjustment 17,947
17,567
(12,619 ) 8,663
Pension adjustments 118
76
236
150
Unrealized gain (loss) on marketable securities 27
100
(4 ) 33
Total other comprehensive income (loss), net 18,092

17,743
(12,387 ) 8,846
Comprehensive (loss) income $ (15,716 ) $ 10,697
$ (70,123 ) $ (10,265 )

See accompanying notes.

NUANCE COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS


	March 31, 2017			September 30, 2016			March 31, 2018			September 30, 2017
	(Unaudited)						(Unaudited)
	(In thousands, except per share amounts)						(In thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	625,640		$	481,620		$	468,642		$	592,299
Marketable securities	160,836			98,840			153,008			251,981
Accounts receivable, less allowances for doubtful accounts of $11,998 and $11,038	385,895			380,004
Accounts receivable, less allowances for doubtful accounts of $12,458 and $14,333							411,648			395,392
Prepaid expenses and other current assets	92,411			78,126			107,929			88,269
Total current assets	1,264,782			1,038,590			1,141,227			1,327,941
Marketable securities	44,697			27,632			27,087			29,844
Land, building and equipment, net	167,985			185,169			172,521			176,548
Goodwill	3,525,899			3,508,879			3,472,849			3,590,608
Intangible assets, net	735,965			762,220			596,060			664,474
Other assets	135,023			138,980			147,016			142,508
Total assets	$	5,874,351		$	5,661,470		$	5,556,760		$	5,931,923

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	366,604		$	—		$	—		$	376,121
Contingent and deferred acquisition payments	29,795			9,468
Contingent and deferred acquisition payments (including $1.5 million due to a related party as of March 31, 2018, as more fully described in Note 16)							20,926			28,860
Accounts payable	98,290			94,599			92,767			94,604
Accrued expenses and other current liabilities	194,928			237,659			214,680			245,901
Deferred revenue	390,039			349,173			413,126			366,042
Total current liabilities	1,079,656			690,899			741,499			1,111,528
Long-term portion of debt	2,217,869			2,433,152
Long-term debt							2,311,484			2,241,283
Deferred revenue, net of current portion	412,363			386,960			469,575			423,929
Deferred tax liabilities	125,282			115,435			42,344			131,320
Other liabilities	89,511			103,694			98,176			92,481
Total liabilities	3,924,681			3,730,140			3,663,078			4,000,541

Commitments and contingencies (Note 15)

Stockholders’ equity:
Common stock, $0.001 par value per share; 560,000 shares authorized; 291,370 and 291,384 shares issued and 287,619 and 287,633 shares outstanding, respectively	291			291
Common stock, $0.001 par value per share; 560,000 shares authorized; 298,330 and 293,938 shares issued and 294,580 and 290,187 shares outstanding, respectively							298			294
Additional paid-in capital	2,581,454			2,492,992			2,697,869			2,629,245
Treasury stock, at cost (3,751 shares)	(16,788		)	(16,788		)	(16,788		)	(16,788		)
Accumulated other comprehensive loss	(128,521		)	(116,134		)	(95,963		)	(101,342		)
Accumulated deficit	(486,766		)	(429,031		)	(691,734		)	(580,027		)
Total stockholders’ equity	1,949,670			1,931,330			1,893,682			1,931,382
Total liabilities and stockholders’ equity	$	5,874,351		$	5,661,470		$	5,556,760		$	5,931,923

See accompanying notes.

NUANCE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended March 31,						Six Months Ended March 31,
	2017			2016			2018			2017
	(Unaudited) (In thousands)						(Unaudited) (In thousands)
Cash flows from operating activities:
Net loss	$	(57,736	)	$	(19,111	)	$	(110,825	)	$	(57,736	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	116,644			115,826			107,055			116,644
Stock-based compensation	79,478			80,511			71,735			79,478
Non-cash interest expense	26,771			21,215			25,195			26,771
Deferred tax provision	5,643			3,738
Deferred tax (benefit) provision							(90,331		)	5,643
Loss on extinguishment of debt	18,565			4,851			—			18,565
Impairment of goodwill							137,907			—
Impairment of fixed asset							1,780			10,944
Other	13,286			(135		)	579			2,342
Changes in operating assets and liabilities, net of effects from acquisitions:
Changes in operating assets and liabilities, excluding effects of acquisitions:
Accounts receivable	(1,431		)	22,110			(12,415		)	(1,431		)
Prepaid expenses and other assets	(12,295		)	(16,765		)	(22,059		)	(12,295		)
Accounts payable	(1,000		)	2,697			(3,773		)	(1,000		)
Accrued expenses and other liabilities	(10,579		)	7,334			5,230			(10,579		)
Deferred revenue	72,988			78,792			85,287			72,988
Net cash provided by operating activities	250,334			301,063			195,365			250,334
Cash flows from investing activities:
Capital expenditures	(18,787		)	(32,235		)	(25,326		)	(18,787		)
Payments for business and asset acquisitions, net of cash acquired	(72,990		)	(27,399		)
Payments for business and asset acquisitions, net of cash acquired (including cash payments of $3.5 million to a related party for fiscal 2018, see Note 16)							(12,768		)	(72,990		)
Purchases of marketable securities and other investments	(153,851		)	(32,757		)	(92,994		)	(153,851		)
Proceeds from sales and maturities of marketable securities and other investments	69,658			32,681			195,273			69,658
Net cash used in investing activities	(175,970		)	(59,710		)
Net cash provided by (used in) investing activities							64,185			(175,970		)
Cash flows from financing activities:
Payments of debt	(634,055		)	(511,844		)
Repayment and redemption of debt							(331,172		)	(634,055		)
Proceeds from issuance of long-term debt, net of issuance costs	838,959			663,757			—			838,959
Payments for repurchase of common stock	(99,077		)	(574,338		)	—			(99,077		)
Net payments on other long-term liabilities	(206		)	(1,084		)
Acquisition payments with extended payment terms							(16,927		)	—
Proceeds from issuance of common stock from employee stock plans	8,598			8,440			9,360			8,598
Cash used to net share settle employee equity awards	(43,353		)	(56,973		)
Net cash provided by (used in) financing activities	70,866			(472,042		)
Payments for taxes related to net share settlement of equity awards							(44,006		)	(43,353		)
Other financing activities							(647		)	(206		)
Net cash (used in) provided by financing activities							(383,392		)	70,866
Effects of exchange rate changes on cash and cash equivalents	(1,210		)	1,930			185			(1,210		)
Net increase (decrease) in cash and cash equivalents	144,020			(228,759		)
Net (decrease) increase in cash and cash equivalents							(123,657		)	144,020
Cash and cash equivalents at beginning of period	481,620			479,449			592,299			481,620
Cash and cash equivalents at end of period	$	625,640		$	250,690		$	468,642		$	625,640

See accompanying notes.

Table of Contents

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.	~~Organization and Presentation~~

1. Organization and Presentation

The condensed consolidated financial statements include the accounts of Nuance Communications, Inc. (“Nuance”, “we”, "our", or “the Company”) and our wholly-owned subsidiaries. We prepared ~~these~~the unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (the “U.S.” or the "United States") and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The condensed consolidated financial statements reflect all normal and recurring adjustments that, in our opinion, are necessary to present fairly our financial position, results of operations and cash flows for the periods ~~indicated.~~presented. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, ~~and~~ disclosure of contingent assets and liabilities, ~~at the date of the financial statements~~ and the reported amounts of revenues and expenses during the reporting period.

Although we believe the disclosures ~~in these~~included herein are adequate to ensure that the condensed consolidated financial statements are ~~adequate to make the information~~fairly presented, ~~not misleading,~~ certain information ~~in the~~and footnote disclosures ofto the financial statements ~~has~~have been condensed or omitted ~~where it substantially duplicates information provided in our latest audited consolidated financial statements,~~ in accordance with the rules and regulations of the SEC. Accordingly, ~~these~~the condensed consolidated financial statements and the footnotes included herein should be read in conjunction with the audited financial statements and the ~~notes thereto~~footnotes included in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2016.~~2017. The results of operations for the ~~three and six months ended March 31, 2017 and 2016, respectively,~~interim periods presented are not necessarily indicative of the results for the entire fiscal year or any future period.

~~We have evaluated subsequent events from March 31, 2017 through the date~~

2. Summary of the issuance of these consolidated financial statements and have determined that no material subsequent events have occurred that would affect the information presented in these consolidated financial statements.Significant Accounting Policies


2.	~~Summary of Significant Accounting Policies~~

Recently Adopted Accounting Standards

In ~~January 2017,~~October 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~No. 2017-01, “Clarifying the Definition~~2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of ~~a Business” (“~~Assets Other Than Inventory" ("ASU ~~2017-01”~~2016-16"), which ~~provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals)~~requires income tax consequences of inter-company transfers of assets ~~or businesses. ASU 2017-01 requires entities to use a screen test to determine when an integrated set of assets and activities is not a business or if the integrated set of assets and activities needs~~other than inventory to be ~~further evaluated against~~recognized when the ~~framework.~~transfer occurs. ASU ~~2017-01~~2016-16 is effective for fiscal years beginning after December 15, 2017, ~~including interim periods within those years,~~ with early adoption permitted. ~~Effective January 2017, we~~We early adopted the guidance during the first quarter of fiscal year 2018. As a result, deferred tax liabilities of $0.9 million arising from inter-company transfers in prior years were recognized and recorded against the beginning balance of accumulated deficit in the first quarter of fiscal year 2018. The adoption ~~had no~~of the guidance did not have a material impact on our consolidated financial ~~statements.~~statements for any period presented.

~~Effective October 1, 2016, we implemented~~Recently Issued Accounting Standards

In January 2018, the FASB issued ASU ~~No. 2015-02, “Amendments~~2018-02, "Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("AOCI"), which is effective for fiscal years beginning after December 15, 2018 and interim periods therein, with early adoption permitted. The guidance gives entities the option to reclassify to retained earnings the ~~Consolidation Analysis”~~tax effects resulting from the Tax Cuts and Jobs Act ("~~ASU 2015-02"~~TCJA"). related to items in AOCI. The ~~amendments~~new guidance may be applied retrospectively to each period in ~~ASU 2015-02 provide guidance on evaluating whether~~which the effect of the Act is recognized in the period of adoption. We do not expect the implementation to have a company should consolidate certain legal entities. In accordance with the guidance, all legal entities are subject to reevaluation under the revised consolidation model. The implementation of ASU 2015-02 had nomaterial impact on our consolidated financial statements.

Effective October 1, 2016, we implemented ASU No. 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern" ("ASU 2014-15"), to provide guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and to provide related footnote disclosures. The implementation of ASU 2014-15 had no impact on our consolidated financial statements.

~~Effective October 1, 2016, we implemented ASU No. 2014-12,~~ "Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period" ("ASU 2014-12"). ASU 2014-12 requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. The implementation of ASU 2014-12 had no impact on our consolidated financial statements.

~~NUANCE COMMUNICATIONS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~Recently Issued Accounting Standards~~

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 and cash flows or do not apply to our operations.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), which provides guidance on the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. The standard requires the use of a retrospective approach to all periods presented, but may be applied prospectively if retrospective application would be impracticable. ASU 2016-15 is effective for ~~us in~~fiscal years beginning after December 15, 2017 and the ~~first quarter of fiscal year 2019, and~~interim periods therein, with early ~~application~~adoption permitted. The guidance requires cash flows with multiple characteristics to be classified using a three-step process, including (i) determining whether explicit guidance is ~~permitted. We are currently evaluating the impact of our pending adoption of ASU 2016-15 on our statement~~applicable, (ii) separating each identifiable source or use of cash flows, ~~but~~and (iii) determining the predominant source or use of cash flows when the source or use of cash flows cannot be separately identifiable. The guidance will be applied retrospectively to each period presented. We do not expect itthe implementation to have a material ~~impact.~~

In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax effects, statutory withholding requirements, forfeitures, and classification on the statement of cash flows. ASU 2016-09 is effective for us in the first quarter of fiscal year 2018, and early application is permitted. We are currently evaluating the impact ~~of our pending adoption of ASU 2016-09~~ on our consolidated financial ~~statements but do not expect it to have a material impact.~~statements.

In February 2016, the FASB issued ASU No. 2016-02, "Leases" ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. ASU 2016-02 is effective for us in the first quarter of fiscal year 2020, and early application is permitted. We are currently evaluating the impact of our pending adoption of ASU 2016-02 on our consolidated financial statements, and we currently expect that most of our operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon our adoption of ASU 2016-02, which will increase our total assets and total liabilities that we report relative to such amounts prior to adoption.

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In January 2016, the FASB issued ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"). ASU 2016-01 amends the guidance on the classification and measurement of financial instruments. Although ASU 2016-01 retains many current requirements, it significantly revises accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments and is effective for us in the first quarter of fiscal year 2019. Based on the composition of our investment portfolio, we do not believe the adoption of ASU 2016-01 will have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers: Topic 606" ("ASU 2014-09"), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a ~~five step~~five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 permits two methods of adoption: (i) retrospective to each prior reporting period presented; or (ii) retrospective with the cumulative effect of initially applying the guidance recognized at the date of initial application. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of the new revenue standard for periods beginning after December 15, 2016 to December 15, 2017, with early adoption permitted but not earlier than the original effective date. Accordingly, the updated standard is effective for us in the first quarter of fiscal 2019 and we do not plan to early adopt. In the first quarter of fiscal 2017, we commenced a project to assess the potential impact of the new standard on our consolidated financial statements and related disclosures. This project also includes the assessment and enhancement of our internal processes and systems to address the new standard. While we are continuing to assess all potential impacts of the new standard, we currently believe the most significant impact relates to our accounting for arrangements that include term-based software licenses bundled with maintenance and support. Under current GAAP, the revenue attributable to these software licenses is recognized ratably over the term of the arrangement because vendor-specific objective evidence ("VSOE") does not exist for the undelivered maintenance and support element as it is not sold separately. The requirement to have VSOE for undelivered elements to enable the separation of revenue for the delivered software licenses is eliminated under the new standard. Accordingly, under the new standard we will be required to recognize as revenue a portion of the arrangement fee upon delivery of the software license. While we currently expect revenue related to our professional services and cloud offerings to remain substantially unchanged, we are still in the process of evaluating the impact of the new standard on these arrangements. We plan to adopt this guidance beginning on October 1, 2018 and apply the cumulative catch-up transition method, with a cumulative adjustment to retained earnings as opposed to retrospectively adjusting prior periods.

3. Business Acquisitions

We continue to expand our solutions and integrate our technologies in new offerings through acquisitions. A summary of our acquisition activities is as follows:

Fiscal Year 2018

For the six months ended March 31, 2018, we completed an acquisition in our Healthcare segment for a total cash consideration of $8.7 million and contingent payments with a fair value of $0.5 million. As a result, we recognized goodwill of $6.8 million, and other intangible assets of $2.0 million, with a weighted average life of 2.0 years. The acquisition did not have a material impact on our condensed consolidated financial statements for the period.

In April 2018, we completed an acquisition in our Automotive segment for a total cash consideration of approximately $82 million, net of cash acquired. We are currently in the process of determining the total consideration transferred and the fair values of assets acquired and liabilities assumed, but do not ~~yet selected~~expect this acquisition to have a ~~transition method.~~material impact on our condensed consolidated financial statements.

Fiscal Year 2017

For the six months ended March 31, 2017, we completed several acquisitions in our Enterprise, Healthcare and Mobile segments for a total cash consideration of $34.4 million, 0.8 million shares of common stock valued at $13.4 million and contingent payments with a fair value of $2.0 million. As a result, we recognized goodwill of $27.0 million, and other intangible assets of $22.5 million, with a weighted average life of 6.2 years. Such acquisitions were not significant individually or in the aggregate.

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


3.	~~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 2017 Acquisitions~~

In fiscal year 2017, we acquired several businesses in our Enterprise, Healthcare and Mobile segments that were not significant individually or in the aggregate. The total aggregate consideration for these acquisitions was $53.5 million, including the issuance of 0.8 million shares of our common stock valued at $13.4 million and a $3.3 million estimated fair value for future contingent payments. The results of operations of these acquisitions have been included in our financial results since their respective acquisition dates.

The fair value estimates for the assets acquired and liabilities assumed for acquisitions completed during fiscal year 2017 were based upon preliminary calculations and valuations, and our estimates and assumptions for each of these acquisitions are subject to change as we obtain additional information during the respective measurement periods (up to one year from the respective acquisition dates). The primary areas of preliminary estimates that were not yet finalized related to certain assets and liabilities acquired. There were no significant changes to the fair value estimates during the current year.

We have not furnished pro forma financial information related to our current year acquisitions because such information is not material, individually or in the aggregate, to our financial results. We have also not presented revenue or the results of operations for each of these business combinations, from the date of acquisition, as they were similarly neither material nor significant to our consolidated financial results.

~~Fiscal Year 2016 Acquisitions~~

~~Acquisition of TouchCommerce, Inc.~~

In August 2016, we acquired all of the outstanding stock of TouchCommerce. TouchCommerce is a provider of omni-channel solutions to engage their customers on any device through online chat, guides, personalized content, and other automated tools, resulting in enhanced customer experience, increased revenue and reduced support costs. We expect this acquisition to expand our customer care solutions with a range of new digital engagement offerings, including live chat, customer analytics and personalization solutions within our Enterprise segment. We expect to be able to provide an end-to-end engagement platform that merges intelligent self-service with assisted service to increase customer satisfaction, strengthen customer loyalty and improve business results. The aggregate consideration for this transaction was $218.1 million, and included $113.0 million paid in cash and $85.0 million paid in our common stock. The remaining $20.1 million is expected to be paid in November 2017 at the conclusion of an indemnity period in either cash or our common stock, at our election. The acquisition was a stock purchase and the goodwill resulting from this acquisition is not deductible for tax purposes. The results of operations for this acquisition have been included in our Enterprise segment from the acquisition date.

~~NUANCE COMMUNICATIONS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~A summary of the preliminary allocation of the purchase consideration for our TouchCommerce acquisition is as follows (dollars in thousands):~~

Touch-Commerce
Purchase consideration:
Cash $ 113,008
Common stock^(a)
85,000
Deferred acquisition payment 20,140
Total purchase consideration $ 218,148

Allocation of the purchase consideration:
Cash $ 137
Accounts receivable^(b)
14,897
Goodwill 117,924
Identifiable intangible assets^(c)
110,800
Other assets 1,521
Total assets acquired 245,279
Current liabilities (4,198 )
Deferred tax liability (19,515 )
Deferred revenue (2,784 )
Other long term liabilities (634 )
Total liabilities assumed (27,131 )
Net assets acquired $ 218,148


^(a)	~~5,749,807 shares of our common stock valued at $14.78 per share were issued at closing.~~


^(b)	~~Accounts receivable have been recorded at their estimated fair values and the fair value reserve was not material.~~


^(c)	~~The following are the identifiable intangible assets acquired and their respective weighted average useful lives, as determined based on preliminary valuations (dollars in thousands):~~

TouchCommerce
Amount
Weighted
Average
Life
(Years)
Core and completed technology $ 26,000
6.0
Customer relationships 81,600
10.0
Trade names 3,200
5.0
Total $ 110,800

~~Other Fiscal Year 2016 Acquisitions~~

During fiscal year 2016, we acquired several other businesses in our Healthcare segment that were not significant individually or in the aggregate. The total aggregate cash consideration for these acquisitions was $50.4 million including an estimated fair value for future contingent payments. The results of operations of these acquisitions have been included in our financial results since their respective acquisition dates.

Acquisition-Related Costs, net

~~NUANCE COMMUNICATIONS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

connection with acquisition activities, and disputes and regulatory matters related to acquired entities; and (iii) fair value adjustments to acquisition-related items that are required to be marked to fair value each reporting period, such as contingent consideration, and other items related to acquisitions for which the measurement period has ended, such as gains or losses on settlements of pre-acquisition contingencies.

~~The components~~A summary of acquisition-related costs, net ~~are~~is as follows (dollars in thousands):


	Three Months Ended March 31,						Six Months Ended March 31,						Three Months Ended March 31,						Six Months Ended March 31,
	2017			2016			2017			2016			2018			2017			2018			2017
Transition and integration costs	$	3,612		$	1,039		$	7,322		$	2,035		$	3,367		$	3,612		$	7,429		$	7,322
Professional service fees	2,974			1,197			7,991			2,600			940			2,974			1,451			7,991
Acquisition-related adjustments	(1,207		)	(1,011		)	(908		)	(930		)	(1,947		)	(1,207		)	(959		)	(908		)
Total	$	5,379		$	1,225		$	14,405		$	3,705		$	2,360		$	5,379		$	7,921		$	14,405


4.	~~Goodwill and Intangible Assets~~

4. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill ~~and~~by reportable segment for the six months ended March 31, 2018 are as follows (dollars in thousands):

Goodwill



	Healthcare			Enterprise		Imaging		Mobile			Automotive		Other			Total
Balance as of September 30, 2017	$	1,418,334		$	673,472	$	257,792	$	1,241,010		$	—	$	—		$	3,590,608
Acquisitions	6,775			—		—		—			—		—			6,775
Purchase accounting adjustments	(336		)	—		—		2,697			—		—			2,361
Effect of foreign currency translation	1,725			3,536		407		5,344			—		—			11,012
Reorganization (Note 17)	—			11,991		—		(1,249,051		)	1,080,453		156,607			—
Impairment charge ^(a)	—			—		—		—			—		(137,907		)	(137,907		)
Balance as of March 31, 2018	$	1,426,498		$	688,999	$	258,199	$	—		$	1,080,453	$	18,700		$	3,472,849

^(a)Represents accumulated impairment charge as of March 31, 2018.

Other Intangible Assets

The changes in the carrying amount of intangible assets for the six months ended March 31, ~~2017~~,2018 are as follows (dollars in thousands):


	Goodwill			Intangible Assets			Intangible Assets
Balance at September 30, 2016	$	3,508,879		$	762,220
Balance at September 30, 2017							$	664,474
Acquisitions	26,720			61,803			2,620
Purchase accounting adjustments	402			—
Acquisition from a related party (Note 16)							5,000
Amortization	—			(88,531		)	(75,870		)
Effect of foreign currency translation	(10,102		)	473			(164		)
Balance at March 31, 2017	$	3,525,899		$	735,965
Balance at March 31, 2018							$	596,060

~~During~~Interim Impairment Analysis

As more fully described in Note 17, effective the ~~first~~second quarter of fiscal year ~~2017, we acquired a speech patent portfolio for total cash consideration of $35.0 million~~2018, our Automotive business, which was ~~paid~~previously included within our Mobile segment, became a standalone operating segment. In addition, we moved our Dragon TV business from our Mobile operating segment into our Enterprise operating segment.

As a result of the reorganization, the original Mobile reporting unit was separated into three discrete lines of business comprised of Automotive, Dragon TV, and Devices. We assigned $1,080.5 million, $12.0 million, and $36.0 million of goodwill to Automotive, Dragon TV and Devices, respectively, based on their relative fair values as of March 31, 2018, and assessed the assigned goodwill

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

for impairment by comparing each component’s fair value to its carrying amount. The fair values of Automotive and Dragon TV significantly exceeded their carrying amounts. However, the carrying value of Devices exceeded its fair value by $35.1 million. The standalone multi-year operating plan reflects the ongoing consolidation of our handset manufacturer customer base and continued erosion of our penetration of the remaining market. As a result, we recorded a $35.1 million goodwill impairment for the second quarter of fiscal 2018. After the impairment charge, the goodwill assigned to Devices as of March 31, 2018 was immaterial. The reorganization did not result in ~~January 2017.~~any impairment charge of other intangible assets for the second quarter of fiscal 2018.

Also during the second quarter of fiscal 2018, our Subscriber Revenue Services ("SRS") reporting unit, originally included within our Mobile operating segment, recorded significantly lower revenue and profitability due to recent market disruptions in certain markets that we serve. Our SRS business provides value-added services to mobile operators in emerging markets, primarily in India and Brazil. These markets have experienced recent and dramatic disruption as a result of accelerated change in competition and business models for our mobile operator customers. Specifically, the rapid shift away from a model where voice, data and text are offered separately toward unlimited bundled services at considerably lower costs has significantly reduced mobile operators’ demand for our services. This reduced demand materially impacts our future expectations for SRS revenues. As a result, executive management performed an updated strategic assessment and reduced the long-term growth rates and profitability contemplated in SRS's multi-year operating plan. We concluded that these financial results coupled with the rapid market shifts being experienced in the industry were factors that represented impairment indicators, triggering a review of goodwill and indefinite-lived intangible assets for impairment during the second quarter of fiscal 2018. Based on the result of the impairment assessment, the carrying value of SRS exceeded its fair value by $94.3 million. In addition, we recorded an $8.5 million deferred tax benefit related to SRS’s goodwill, which is amortized over time for tax purposes, and therefore increased the impairment charge by the same amount. As a result, we recorded a goodwill impairment charge of $102.8 million related to SRS for the second quarter of fiscal 2018. After the impairment charge, goodwill assigned to SRS was $17.8 million as of March 31, 2018. The assessment did not result in any impairment charge of other intangible assets for the second quarter of fiscal 2018.

For the purpose of the goodwill impairment analysis, the carrying value of each reporting unit is determined based on the allocation of assets and liabilities to the reporting unit based on the reporting unit’s revenue and operating expenses as a percentage of our consolidated revenue and operating expenses. Certain corporate assets and liabilities that are not directly attributable to the reporting unit’s operations and would not be transferred to a hypothetical purchaser of the reporting unit are excluded from the reporting unit’s carrying amount.

The fair value of a reporting unit is generally determined using a combination of the income approach and the market approach, where the income approach is weighted 50% and the market approach 50%. The fair values of Devices and Dragon TV, however, were determined solely based upon the income approach due to the lack of comparable public companies or comparable acquisitions. For the income approach, fair value is determined based on the present value of estimated future after-tax cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future after-tax cash flows and estimate the long-term growth rates based on our most recent views of the long-term outlook for each reporting unit. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the weighted average cost of capital. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. For the market approach, we use a valuation technique in which values are derived based on valuation multiples of comparable publicly traded companies. We assess each valuation methodology based upon the relevance and availability of the data at the time we perform the valuation and weight the methodologies appropriately.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions, all of which we believe are reasonable but nevertheless inherently uncertain. These estimates and assumptions include revenue growth rates and operating margins used to estimate future cash flows, risk-adjusted discount rates, future economic and market conditions, and the use of market comparables. Additionally, if we continue to experience lower-than-expected growth in a reporting unit or fail to sustain our profitability due to changing market dynamics, competition or technological obsolescence, it could adversely impact the long-term assumptions used in our goodwill impairment analysis. Such changes in assumptions and estimates may result in additional impairment of our goodwill and/or other long-lived assets, which could materially impact our future results of operations and financial conditions. Finally, as we continue to identify and assess other initiatives to better align our segment reporting structure with our long-term strategies, any additional changes in our organizational and segment reporting structure may result in additional impairment charges of goodwill and other intangible assets.


5.	~~Financial Instruments and Hedging Activities~~

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Financial Instruments and Hedging Activities

Derivatives Not Designated as Hedges

Forward Currency Contracts

We operate our business in countries throughout the world and transact business in various foreign currencies. Our foreign currency exposures typically arise from transactions denominated in currencies other than the functional currency of our operations. We have a program that primarily utilizesutilize foreign currency forward contracts to ~~offset~~mitigate the risks associated with ~~the effect of certain~~changes in foreign currency exposures. Our program is designed so that increases or decreases in our foreign currency exposures are offset by gains or losses on the foreign currency forward contracts in order to mitigate the risks and volatility associated with our foreign currency transactions.exchange rates. Generally, we enter into such contracts for less than 90 days and have no cash requirements until maturity. At March 31, ~~2017~~2018 and September 30, ~~2016,~~2017, we had outstanding contracts with a total notional value of ~~$69.3~~$78.0 million and ~~$215.2~~$69.0 million, respectively.

We ~~have~~did not ~~designated these~~designate any forward contracts as hedging instruments ~~pursuant to~~for the ~~authoritative guidance for derivatives and hedging, and accordingly, we record the~~six months ended March 31, 2018 or 2017. Therefore, changes in fair value of ~~these~~foreign currency forward contracts ~~at the end of each reporting period in our consolidated balance sheet, with the unrealized gains and losses~~were recognized ~~immediately in earnings as~~within other expense, net in our condensed consolidated statements of operations. The cash flows related to the settlement of ~~these~~forward contracts not designated as hedging instruments are included in cash flows from investing activities within our condensed consolidated statement of cash flows.

~~NUANCE COMMUNICATIONS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~The following table provides a quantitative~~A summary of the ~~fair value of our~~ derivative instruments as of March 31, ~~2017~~2018 and September 30, ~~2016~~2017 is as follows (dollars in thousands):

Derivatives Not Designated as Hedges: Balance Sheet Classification Fair Value
March 31, 2017 September 30, 2016
Foreign currency contracts Prepaid expenses and other current assets $ 448
$ 335
Net fair value of non-hedge derivative instruments $ 448
$ 335



Derivatives Not Designated as Hedges	Balance Sheet Classification	Fair Value
Derivatives Not Designated as Hedges	Balance Sheet Classification	March 31, 2018			September 30, 2017
Foreign currency forward contracts	Prepaid expenses and other current assets	$	325		$	220
Foreign currency forward contracts	Accrued expenses and other current liabilities	(374		)	(373		)

~~The following tables summarize~~

A summary of loss related to the ~~activity of~~ derivative instruments for the six months ended March 31, ~~2017~~2018 and ~~2016~~2017 is as follows (dollars in thousands):

Three Months Ended March 31, Six Months Ended March 31,
Derivatives Not Designated as Hedges Location of Gain (Loss) Recognized in Income 2017 2016 2017 2016
Foreign currency contracts Other expense (income), net $ 3,555
$ 5,607
$ (8,060 ) $ 2,234

~~Other Financial Instruments~~

Financial instruments including cash equivalents, accounts receivable and accounts payable are carried in the consolidated financial statements at amounts that approximate their fair value based on the short maturities of those instruments. Marketable securities and derivative instruments are carried at fair value.



	Income Statement Classification	Three Months Ended March 31,					Six Months Ended March 31,
Derivatives Not Designated as Hedges	Income (loss) recognized	2018			2017		2018			2017
Foreign currency forward contracts	Other expense, net	$	(785	)	$	3,555	$	(1,182	)	$	(8,060	)

6.Fair Value ~~Measures~~Measurements

Fair value is defined as the price that would be received ~~for~~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 ~~following summarizes~~determination of the ~~three levels~~applicable level within the hierarchy of a particular financial asset or liability depends on the lowest level of inputs ~~required~~that are significant to ~~measure~~the fair value measurement as of ~~which~~ the ~~first two are considered observable and the third is considered unobservable:~~measurement date as follows:

Level 1.1: Quoted prices for identical assets or liabilities in active ~~markets which we can access.~~markets.

Level 2.2: Observable inputs other than those described as Level 1.

Level 3.3: Unobservable inputs that are supportable by little or no market activities and are based on ~~the best information available, including management’s estimates~~significant assumptions and ~~assumptions.~~estimates.

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Assets and liabilities measured at fair value on a recurring basis at March 31, ~~2017~~2018 and September 30, ~~2016~~2017 consisted of the following (dollars in thousands):

March 31, 2017
Level 1 Level 2 Level 3 Total
Assets:
Money market funds^(a)
$ 505,784
$ —
$ —
$ 505,784
US government agency securities^(a)
1,004
—
—
1,004
Time deposits^(b)
—
83,172
—
83,172
Commercial paper, $45,985 at cost^(b)
—
46,018
—
46,018
Corporate notes and bonds, $76,311 at cost^(b)
—
76,343
—
76,343
Foreign currency exchange contracts^(b)
—
448
—
448
Total assets at fair value $ 506,788
$ 205,981
$ —
$ 712,769
Liabilities:
Contingent acquisition payments^(c)
$ —
$ —
$ (6,377 ) $ (6,377 )
Total liabilities at fair value $ —
$ —
$ (6,377 ) $ (6,377 )

~~NUANCE COMMUNICATIONS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~



	March 31, 2018
	Level 1		Level 2			Level 3			Total
Assets:
Money market funds^(a)	$	342,877	$	—		$	—		$	342,877
Time deposits^(b)	—		97,421			—			97,421
Commercial paper, $42,987 at cost^(b)	—		43,084			—			43,084
Corporate notes and bonds, $79,574 at cost^(b)	—		79,116			—			79,116
Foreign currency exchange contracts^(b)	—		325			—			325
Total assets at fair value	$	342,877	$	219,946		$	—		$	562,823
Liabilities:
Foreign currency exchange contracts^(b)	$	—	$	(374	)	$	—		$	(374	)
Contingent acquisition payments^(c)	—		—			(11,752		)	(11,752		)
Total liabilities at fair value	$	—	$	(374	)	$	(11,752	)	$	(12,126	)


	September 30, 2016										September 30, 2017
	Level 1		Level 2		Level 3			Total			Level 1		Level 2			Level 3			Total
Assets:
Money market funds^(a)	$	331,419	$	—	$	—		$	331,419		$	381,899	$	—		$	—		$	381,899
US government agency securities^(a)	1,002		—		—			1,002
Time deposits^(b)	—		33,794		—			33,794			—		85,570			—			85,570
Commercial paper, $38,108 at cost^(b)	—		38,142		—			38,142
Corporate notes and bonds, $54,484 at cost^(b)	—		54,536		—			54,536
Commercial paper, $41,805 at cost^(b)											—		41,968			—			41,968
Corporate notes and bonds, $74,150 at cost^(b)											—		74,067			—			74,067
Foreign currency exchange contracts^(b)	—		335		—			335			—		220			—			220
Total assets at fair value	$	332,421	$	126,807	$	—		$	459,228		$	381,899	$	201,825		$	—		$	583,724
Liabilities:
Foreign currency exchange contracts^(b)											$	—	$	(373	)	$	—		$	(373	)
Contingent acquisition payments^(c)	$	—	$	—	$	(8,240	)	$	(8,240	)	—		—			(8,648		)	(8,648		)
Total liabilities at fair value	$	—	$	—	$	(8,240	)	$	(8,240	)	$	—	$	(373	)	$	(8,648	)	$	(9,021	)


^(a)	Money market funds and ~~U.S. government agency securities,~~time deposits with original maturity of 90 days or less are included inwithin cash and cash equivalents in the ~~accompanying~~consolidated balance sheets and are valued at quoted market prices in active markets.

^(b)

~~The fair values of our time~~

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. ~~The commercial~~Commercial paper and corporate notes and bonds generally mature within three years and ~~have~~had a weighted average maturity of ~~0.78~~0.68 years as of March 31, 2018 and 0.72 years as of September 30, 2017.


^(c)	The fair values of our contingent consideration arrangements ~~are~~were determined ~~based on our evaluation as to~~using either the ~~probability and amount of any earn-out that will be achieved based on expected future performance by~~option pricing model with Monte Carlo simulation or the ~~acquired entity.~~probability-weighted discounted cash flow method.

As of September 30, 2017, $80.2 million of debt securities included within marketable securities were designated as held-to-maturity investments, which had a weighted average maturity of 0.27 years and an estimated fair value of $80.4 million based on Level 2 measurements. No debt securities were designated as held-to-maturity investments as of March 31, 2018.

The ~~following table provides a summary of changes in~~estimated fair value of our ~~Level 3 financial instruments for the six months ended March 31, 2017~~long-term debt approximated $2,558.6 million (face value $2,587.0 million) and ~~2016 (dollars in thousands):~~

Three Months Ended March 31, Six Months Ended March 31,
2017 2016 2017 2016
Balance at beginning of period $ 8,961
$ 16,901
$ 8,240
$ 15,961
Earn-out liabilities established at time of acquisition 1,600
2,500
3,253
2,500
Payments and foreign currency translation (2,759 ) 910
(4,257 ) 1,372
Adjustments to fair value included in acquisition-related costs, net (1,425 ) 514
(859 ) 992
Balance at end of period $ 6,377
$ 20,825
$ 6,377
$ 20,825

Our financial liabilities valued based upon Level 3 inputs are composed of contingent consideration arrangements relating to our acquisitions. We are contractually obligated to pay contingent consideration to the selling shareholders upon the achievement of specified objectives, including the achievement of future bookings and sales targets related to the products of the acquired entities and therefore we record contingent consideration liabilities at the time of the acquisitions. We update our assumptions each reporting period based on new developments and record such amounts at fair$2,930.9 million (face value ~~based on the revised assumptions until the consideration is paid upon the achievement of the specified objectives or eliminated upon failure to achieve the specified objectives.~~

~~Contingent acquisition payment liabilities are scheduled to be paid in periods through fiscal year 2019. As~~$2,918.1 million) as of March 31, 2018 and September 30, 2017, we could be required to pay up to $22.3 million for contingent consideration arrangements if the specified objectives are achieved. We have determined the fair value of the liabilities for the contingent considerationrespectively, based on ~~a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market and thus represents a~~ Level ~~3 measurement within the fair value hierarchy.~~2 measurements. The fair value of each borrowing was estimated using the ~~contingent consideration liability associated with future payments~~averages of the bid and ask trading quotes at each respective reporting date. There was ~~based on several factors, the most significant~~no balance outstanding under our revolving credit agreement as of ~~which are the estimated cash flows projected from future product sales and the risk adjusted discount rate for the fair value measurement.~~March 31, 2018 or September 30, 2017.

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


7.	~~Accrued Expenses and Other Current Liabilities~~

Additionally, contingent acquisition payments are recorded at fair values upon the acquisition, and 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.

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 March 31,						Six Months Ended March 31,
	2018			2017			2018			2017
Balance at beginning of period	$	10,431		$	8,961		$	8,648		$	8,240
Earn-out liabilities established at time of acquisition	—			1,600			500			3,253
Payments and foreign currency translation	(79		)	(2,759		)	(96		)	(4,257		)
Adjustments to fair value included in acquisition-related costs, net	1,400			(1,425		)	2,700			(859		)
Balance at end of period	$	11,752		$	6,377		$	11,752		$	6,377

Contingent acquisition payments are to be made in periods through fiscal year 2019. As of March 31, 2018, the maximum amount payable based on the agreements was $19.6 million if the specified performance targets are achieved.

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (dollars in thousands):


	March 31, 2017		September 30, 2016		March 31, 2018		September 30, 2017
Compensation	$	111,410	$	154,028	$	119,683	$	159,951
Accrued interest payable	23,629		20,409
Cost of revenue related liabilities	17,639		19,351		26,036		20,124
Consulting and professional fees	16,083		18,001		24,741		12,649
Facilities related liabilities	8,600		7,382
Accrued interest payable					22,318		26,285
Facility-related liabilities					5,006		7,158
Sales and marketing incentives	4,509		6,508		4,508		3,655
Sales and other taxes payable	2,083		2,708		1,537		3,125
Other	10,975		9,272		10,851		12,954
Total	$	194,928	$	237,659	$	214,680	$	245,901


8.	~~Deferred Revenue~~

8. Deferred Revenue

Deferred maintenance revenue consists of prepaid fees received for post-contract customer support for our products, including telephone support and the right to receive unspecified upgrades/updates on a when-and-if-available basis. Unearned revenue includes fees for up-front ~~set-up~~setup of the service environment; fees charged for on-demand service; certain software arrangements for which we do not have fair value of post-contract customer support, resulting in ratable revenue recognition for the entire arrangement on a straight-line basis; and fees in excess of estimated earnings on percentage-of-completion service contracts.

Deferred revenue consisted of the following (dollars in thousands):


	March 31, 2017		September 30, 2016		March 31, 2018		September 30, 2017
Current liabilities:
Deferred maintenance revenue	$	166,650	$	165,902	$	170,849	$	162,958
Unearned revenue	223,389		183,271		242,277		203,084
Total current deferred revenue	$	390,039	$	349,173	$	413,126	$	366,042
Long-term liabilities:
Deferred maintenance revenue	$	58,110	$	59,955	$	62,744	$	60,298
Unearned revenue	354,253		327,005		406,831		363,631
Total long-term deferred revenue	$	412,363	$	386,960	$	469,575	$	423,929


9.	~~Restructuring and Other Charges, net~~

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. 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~~or arise outside of the ordinary course of continuing operations. Restructuring expenses consist of employee severance costs and may also include charges for excess facility space and other contract termination costs. Other charges may include litigation contingency reserves, costs related to a transition agreement for our ~~Chief Executive Officer, asset impairment charge and gains or losses on the sale or disposition of certain non-strategic assets or product lines.~~business.

The following table sets forth accrual activity relating to restructuring reserves for the six months ended March 31, ~~2017~~2018 (dollars in thousands):

Personnel Facilities Total
Balance at September 30, 2016 $ 2,661
$ 11,132
$ 13,793
Restructuring charges, net 8,224
4,154
12,378
Non-cash adjustment —
(79 ) (79 )
Cash payments (8,264 ) (3,968 ) (12,232 )
Balance at March 31, 2017 $ 2,621
$ 11,239
$ 13,860

~~NUANCE COMMUNICATIONS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~



	Personnel			Facilities			Total
Balance at September 30, 2017	$	1,546		$	9,159		$	10,705
Restructuring charges, net	8,670			3,012			11,682
Non-cash adjustment	—			(754		)	(754		)
Cash payments	(8,862		)	(2,897		)	(11,759		)
Balance at March 31, 2018	$	1,354		$	8,520		$	9,874

While restructuring and other charges, net are excluded from our calculation of segment profit, the table below presents the restructuring and other charges, net associated with each segment (dollars in thousands):



	Three Months Ended March 31,																						Three Months Ended March 31,
	2017										2016												2018											2017
	Personnel		Facilities		Total Restructuring		Other Charges		Total		Personnel			Facilities			Total Restructuring		Other Charges		Total		Personnel		Facilities			Total Restructuring		Other Charges		Total		Personnel		Facilities		Total Restructuring		Other Charges		Total
Healthcare	$	577	$	593	$	1,170	$	—	$	1,170	$	613		$	8		$	621	$	—	$	621	$	788	$	—		$	788	$	—	$	788	$	577	$	593	$	1,170	$	—	$	1,170
Mobile	3,053		51		3,104		10,773		13,877		2,729			(652		)	2,077		46		2,123
Enterprise	388		257		645		—		645		(41		)	2,014			1,973		—		1,973		265		7			272		—		272		388		257		645		—		645
Automotive																							849		—			849		—		849		1,247		—		1,247		—		1,247
Imaging	225		36		261		—		261		(1		)	184			183		—		183		83		(16		)	67		—		67		225		36		261		—		261
Other																							1,095		558			1,653		—		1,653		1,806		51		1,857		10,773		12,630
Corporate	332		1,318		1,650		2,308		3,958		1,691			—			1,691		61		1,752		707		798			1,505		3,814		5,319		332		1,318		1,650		2,308		3,958
Total	$	4,575	$	2,255	$	6,830	$	13,081	$	19,911	$	4,991		$	1,554		$	6,545	$	107	$	6,652	$	3,787	$	1,347		$	5,134	$	3,814	$	8,948	$	4,575	$	2,255	$	6,830	$	13,081	$	19,911

	Six Months Ended March 31,
	2017										2016
	Personnel		Facilities		Total Restructuring		Other Charges		Total		Personnel			Facilities			Total Restructuring		Other Charges		Total
Healthcare	$	2,561	$	870	$	3,431	$	—	$	3,431	$	1,314		$	8		$	1,322	$	—	$	1,322
Mobile	3,265		51		3,316		10,773		14,089		4,911			(50		)	4,861		46		4,907
Enterprise	812		864		1,676		—		1,676		1,043			2,034			3,077		—		3,077
Imaging	586		387		973		—		973		212			184			396		—		396
Corporate	1,000		1,982		2,982		3,463		6,445		2,069			2,708			4,777		61		4,838
Total	$	8,224	$	4,154	$	12,378	$	14,236	$	26,614	$	9,549		$	4,884		$	14,433	$	107	$	14,540



	Six Months Ended March 31,
	2018											2017
	Personnel		Facilities			Total Restructuring		Other Charges		Total		Personnel		Facilities		Total Restructuring		Other Charges		Total
Healthcare	$	3,301	$	25		$	3,326	$	—	$	3,326	$	2,561	$	870	$	3,431	$	—	$	3,431
Enterprise	527		2,367			2,894		—		2,894		812		864		1,676		—		1,676
Automotive	1,000		—			1,000		—		1,000		1,415		—		1,415		—		1,415
Imaging	1,306		(7		)	1,299		—		1,299		586		387		973		—		973
Other	1,344		569			1,913		—		1,913		1,850		51		1,901		10,773		12,674
Corporate	1,192		58			1,250		12,067		13,317		1,000		1,982		2,982		3,463		6,445
Total	$	8,670	$	3,012		$	11,682	$	12,067	$	23,749	$	8,224	$	4,154	$	12,378	$	14,236	$	26,614

Fiscal Year ~~2017~~2018

~~During the three and six months ended March 31, 2017, we recorded restructuring charges of $6.8 million and $12.4 million, respectively. The restructuring charges for~~For the six months ended March 31, ~~2017~~2018, we recorded restructuring charges of $11.7 million, which included ~~$8.2~~$8.7 million ~~for severance costs~~ related to the termination of approximately ~~220 terminated~~400 employees and ~~$4.2~~$3.0 million ~~charge~~related to certain excess facilities. Of these amounts, $5.1 million was recorded for the ~~closure of~~three months ended March 31, 2018, including $3.8 million related to employee termination and $1.3 million related to certain excess ~~facility space including adjustment to sublease assumptions associated with prior abandoned~~ facilities. These actions ~~are~~were part of our strategic initiatives ~~to reduce costs~~focused on investment rationalization, process optimization and ~~optimize processes.~~cost reduction. We expect the remaining outstanding severance ~~payments~~ of ~~$2.6~~$1.4 million ~~will~~to be substantially paid ~~by the end of~~during fiscal year ~~2017. We expect~~2018, and the remaining ~~payments~~balance of ~~$11.2~~$8.5 million ~~for the closure of~~related to excess ~~facility space will~~facilities to be paid through fiscal year 2025, in accordance with the terms of the applicable leases.

~~In addition to~~Additionally, for the ~~restructuring charges, during the three and~~ six months ended March 31, ~~2017,~~2018, we recorded $4.6 million related to the transition agreement of our former CEO and $7.5 million related to our remediation and restoration efforts after the malware incident that occurred in the third quarter of fiscal year 2017 (the "2017 Malware Incident"). Of these amounts, $2.3 million ~~and $3.5 million, respectively, for costs~~ related to athe CEO transition ~~agreement~~and $1.5 million related to the 2017 Malware Incident were recorded for ~~our Chief Executive Officer as communicated on our Form 8-K filed on November 17, 2016.~~the three months ended March 31, 2018. The cash payments associated with the CEO transition agreement are expected to be made ~~during~~through fiscal years 2018 and 2019. Also included in other charges is a non-cash impairment charge of $10.8 million resulting from our decision to cease use of a capitalized internally developed software during the three months ended March 31, 2017.year 2020.

~~FiscalYear2016~~

During the three and six months ended March 31, 2016, we recorded restructuring charges of $6.5 million and $14.4 million, respectively. The restructuring charges for the six months ended March 31, 2016 included $9.5 million for severance costs related to approximately 200 terminated employees as part of our initiatives to reduce costs and optimize processes. The restructuring charges also included a $4.9 million charge for the closure of certain excess facility space.

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


~~10.~~	~~Debt and Credit Facilities~~

FiscalYear2017

For the six months ended March 31, 2017, we recorded restructuring charges of $12.4 million, which included $8.2 million related to the termination of approximately 220 employees and $4.2 million related to certain excess facilities. Of these amounts, $6.8 million was recorded for the three months ended March 31, 2017, including $4.6 million related to employee termination and $2.3 million related to certain excess facilities. These actions were part of our strategic initiatives focused on process optimization and cost reduction.

Additionally, for the six months ended March 31, 2017, we recorded $3.5 million related to the transition agreement of our former CEO and $10.8 million of non-cash impairment charge related to an internally developed software. Of these amounts, $2.3 million related to the CEO transition and $10.8 million of non-cash impairment charge were recorded for the three months ended March 31, 2017.

10. Debt

At March 31, ~~2017~~2018 and September 30, ~~2016,~~2017, we had the following ~~long-term~~ borrowing obligations (dollars in thousands):

March 31, 2017 September 30, 2016
5.625% Senior Notes due 2026, net of deferred issuance costs of $6.4 million. Effective interest rate 5.625%. $ 493,634
$ —
5.375% Senior Notes due 2020, net of unamortized premium of $1.1 million and $3.0 million, respectively, and deferred issuance costs of $2.7 million and $7.3 million, respectively. Effective interest rate 5.375%. 448,391
1,046,851
6.000% Senior Notes due 2024, net of deferred issuance costs of $2.2 million and $2.4 million, respectively. Effective interest rate 6.000%. 297,756
297,601
1.00% Convertible Debentures due 2035, net of unamortized discount of $152.4 million and $163.5 million, respectively, and deferred issuance costs of $7.6 million and $8.2 million, respectively. Effective interest rate 5.622%. 516,542
504,712
2.75% Convertible Debentures due 2031, net of unamortized discount of $10.5 million and $19.2 million, respectively, and deferred issuance costs of $0.6 million and $1.1 million, respectively. Effective interest rate 7.432%. 366,604
375,208
1.25% Convertible Debentures due 2025, net of unamortized discount of $97.6 million, and deferred issuance costs of $4.6 million. Effective interest rate 5.578%. 247,860
—
1.50% Convertible Debentures due 2035, net of unamortized discount of $47.2 million and $51.7 million, respectively, and deferred issuance costs of $1.7 million and $1.9 million, respectively. Effective interest rate 5.394%. 215,026
210,286
Deferred issuance costs related to our Revolving Credit Facility (1,340 ) (1,506 )
Total long-term debt $ 2,584,473
$ 2,433,152
Less: current portion 366,604
—
Non-current portion of long-term debt $ 2,217,869
$ 2,433,152



	March 31, 2018			September 30, 2017
5.625% Senior Notes due 2026, net of deferred issuance costs of $5.4 million and $5.7 million, respectively. Effective interest rate 5.625%.	$	494,607		$	494,298
5.375% Senior Notes due 2020, net of unamortized premium of $0.8 million and $1.0 million, respectively, and deferred issuance costs of $1.9 million and $2.3 million, respectively. Effective interest rate 5.375%.	448,868			448,630
6.000% Senior Notes due 2024, net of deferred issuance costs of $1.9 million and $2.1 million, respectively. Effective interest rate 6.000%.	298,065			297,910
1.00% Convertible Debentures due 2035, net of unamortized discount of $129.1 million and $140.9 million, respectively, and deferred issuance costs of $6.3 million and $6.9 million, respectively. Effective interest rate 5.622%.	541,164			528,690
2.75% Convertible Debentures due 2031, net of unamortized discount of $1.5 million and deferred issuance costs of $0.1 million as of September 30, 2017. Effective interest rate 7.432%.	46,568			376,121
1.25% Convertible Debentures due 2025, net of unamortized discount of $87.6 million and $92.7 million, respectively, and deferred issuance costs of $4.0 million and $4.3 million, respectively. Effective interest rate 5.578%.	258,387			253,054
1.50% Convertible Debentures due 2035, net of unamortized discount of $37.7 million and $42.5 million, respectively, and deferred issuance costs of $1.3 million and $1.5 million, respectively. Effective interest rate 5.394%.	224,833			219,875
Deferred issuance costs related to our Revolving Credit Facility	(1,008		)	(1,174		)
Total debt	2,311,484			2,617,404
Less: current portion	—			376,121
Total long-term debt	$	2,311,484		$	2,241,283

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the maturities of our borrowing obligations as of March 31, ~~2017~~2018 (dollars in thousands):


Fiscal Year	Convertible Debentures⁽¹⁾			Senior Notes			Total			Convertible Debentures⁽¹⁾			Senior Notes			Total
2017	$	—		$	—		$	—
2018	377,740			—			377,740			$	—		$	—		$	—
2019	—			—			—			—			—			—
2020	—			450,000			450,000			—			450,000			450,000
2021	—			—			—			—			—			—
2022										310,463			—			310,463
Thereafter	1,290,383			800,000			2,090,383			1,026,488			800,000			1,826,488
Total before unamortized discount	1,668,123			1,250,000			2,918,123			1,336,951			1,250,000			2,586,951
Less: unamortized discount and issuance costs	(322,091		)	(11,559		)	(333,650		)	(265,999		)	(9,468		)	(275,467		)
Total long-term debt	$	1,346,032		$	1,238,441		$	2,584,473		$	1,070,952		$	1,240,532		$	2,311,484

⁽¹⁾

~~Holders~~Pursuant to the terms of ~~the 1.0% 2035 Debentures~~each convertible instrument, holders have the right to ~~require us to~~ redeem the ~~debentures~~debt on ~~December 15, 2022, 2027 and 2032. Holders of~~specific dates prior to maturity. The repayment schedule above assumes that payment is due on the 2031 Debentures have the right to require us to redeem the debentures on November 1, 2017, 2021, and 2026. Holders of the 1.5% 2035 Debentures have the right to require us to redeem the debentures on November 1, 2021, 2026, and 2031.next redemption date after March 31, 2018.

The estimated fair value of our long-term debt approximated $2,941.7 million (face value $2,918.1 million) and $2,630.3 million (face value $2,687.1 million) at March 31, 2017 and September 30, 2016, respectively. These fair value amounts represent the value at which our lenders could trade our debt within the financial markets and do not represent the settlement value of these long-term debt liabilities to us at each reporting date. The fair value of the long-term debt will continue to vary each period based on fluctuations in market interest rates, as well as changes to our credit ratings. The Senior Notes and the Convertible Debentures are traded, and the fair values of each borrowing was estimated using the averages of the bid and ask trading quotes at each respective reporting date. We had no outstanding balance on the Revolving Credit Facility at March 31, 2017 or September 30, 2016.

~~NUANCE COMMUNICATIONS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

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 2020 Senior Notes. The 2026 Senior Notes bear interest at 5.625% per year, payable in cash semi-annually in arrears, beginning on June 15, 2017.

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 before December 15, 2021, we may redeem all or a portion of the 2026 Senior Notes at a redemption price equal to 100% of the aggregate principal amount of the 2026 Senior Notes to be redeemed, plus a “make-whole” premium and accrued and unpaid interest to, but excluding, the redemption date. At any time on or after December 15, 2021, 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. At any time and from time to time before December 15, 2021, we may redeem up to 35% of the aggregate outstanding principal amount of the 2026 Senior Notes with the net cash proceeds received by us from certain equity offerings at a price equal to 105.625% of the aggregate principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided that the redemption occurs no later than 120 days after the closing of the related equity offering, and at least 50% of the original aggregate principal amount of the 2026 Senior Notes remains outstanding immediately thereafter.

Upon the occurrence of certain asset sales or a change in control, 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.

5.375% Senior Notes due 2020

In August 2012, we issued $700.0 million aggregate principal amount of 5.375% Senior Notes due on August 15, 2020 in a private placement. In October 2012, we issued an additional $350.0 million aggregate principal amount of our 5.375% Senior Notes (collectively the “2020 Senior Notes”). The 2020 Senior Notes bear interest at 5.375% per year, payable in cash semi-annually in arrears. The 2020 Senior Notes are our unsecured senior obligations and are guaranteed on an unsecured senior basis by certain of our domestic subsidiaries, ("the Subsidiary Guarantors"). The 2020 Senior Notes and 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 2020 Senior Notes and guarantees effectively rank junior to all secured debt of our and 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 2020 Senior Notes.

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In January 2017, we repurchased $600.0 million in aggregate principal amount of our 2020 Senior Notes using cash and cash equivalents and the net proceeds from our 2026 Senior Notes issued in December 2016. In January 2017, we recorded an extinguishment loss of ~~$18.4~~$18.6 million. In accordance with the authoritative guidance for debt instruments, a loss on extinguishment is equal to the difference between the reacquisition price and the net carrying amount of the extinguished debt, including any unamortized debt discount or issuance costs. Following this activity, $450.0 million in aggregate principal amount of our 2020 Senior Notes remains outstanding.

At any time on or after August 15, 2018, we may redeem any or all or a portion of the 2020 Senior Notes at a redemption price equal to 100% of the aggregate principal amount, plus any accrued and unpaid interest to, but excluding, the redemption date.

6.0% Senior Notes due 2024

In June 2016, we issued $300.0 million aggregate principal amount of 6.0% Senior Notes due on July 1, 2024 (the "2024 Senior Notes") in a private placement. The proceeds from the 2024 Senior Notes were approximately $297.5 million, net of issuance costs. The 2024 Senior Notes bear interest at 6.0% per year, payable in cash semi-annually in arrears. The 2024 Senior Notes are unsecured senior obligations and are guaranteed on an unsecured senior basis by our Subsidiary Guarantors. The 2024 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 2024 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 2024 Senior Notes.

~~NUANCE COMMUNICATIONS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

At any time before July 1, 2019, we may redeem all or a portion of the 2024 Senior Notes at a redemption price equal to100% of the aggregate principal amount of the 2024 Senior Notes to be redeemed, plus a “make-whole” premium and accrued and unpaid interest to, but excluding, the redemption date. At any time on or after July 1, 2019, we may redeem all or a portion of the 2024 Senior Notes at certain redemption prices expressed as percentages of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption 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. We used a portion of the proceeds to repurchase $38.3 million in aggregate principal on our 2.75% Senior Convertible Debentures due in 2031 and to repay the aggregate principal balance of $472.5 million on the term loan. Upon the repurchase and repayment of debts in December 2015, we recorded an extinguishment loss of $4.9 million in other expense, net, in the accompanying consolidated statements of operations. The 1.0% 2035 Debentures bear interest at 1.0% per year, payable in cash semi-annually in arrears. 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 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. The initial conversion price is approximately $27.22 per share. 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. As of March 31, ~~2017 and September 30, 2016,~~2018, none of the conversion criteria were met for the 1.0% 2035 Debentures. If the conversion criteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.

2.75% Convertible Debentures due 2031

In October 2011, we issued $690.0 million in aggregate principal amount of 2.75% Senior Convertible Debentures due in 2031 (the “2031 Debentures”) in a private placement. The 2031 Debentures bear interest at 2.75% per year, payable in cash semi-annually in arrears. The 2031 Debentures mature on November 1, 2031, subject to the right of the holders to require us to redeem the 2031 Debentures on November 1, 2017, 2021, and 2026. The 2031 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 2031 Debentures. The 2031 Debentures will be effectively subordinated to indebtedness and other liabilities of our subsidiaries. The initial conversion price is approximately $32.30 per share. At issuance, we allocated $533.6 million to long-term debt, and $156.4 million has been recorded as additional paid-in capital, which is being amortized to interest expense using the effective interest rate method through November 2017.

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

aggregate principal amount of our 1.5% 2035 Debentures. In December 2015, we entered into separate privately negotiated agreements with certain holders of our 2031 Debentures to repurchase $38.3 million in aggregate principal with proceeds received from the issuance of our 1.0% 2035 Debentures. In March 2017, we entered into separate privately negotiated agreements with certain holders of our 2031 Debentures to repurchase $17.8 million in aggregate principal with proceeds received from the issuance of our 1.25% Senior Convertible Debentures issued in March 2017. Following these activities, $377.7 million in aggregate principal amount of our 2031 Debentures ~~remain outstanding. As~~remained outstanding as of ~~March 31,~~September 30, 2017, which was included within the ~~remaining~~total current liabilities.

In November 2017, holders of approximately $331.2 million in aggregate principal amount of the outstanding ~~principal balance has been classified as current portion of long-term debt on the consolidated balance sheet as the holders have the~~2031 Debentures exercised their right to require us to ~~redeem on November 1, 2017. As of March 31, 2017 and September 30, 2016, none of~~repurchase such debentures. Following the ~~conversion criteria were met for the 2031 Debentures. If the conversion criteria were met, we could be required to repay all or some of the~~repurchase, $46.6 million in aggregate principal amount ~~in cash prior~~of the 2031 Debentures remains outstanding. On or after November 6, 2017, we have the right to call for redemption of some or all of the ~~maturity date.~~remaining outstanding 2031 Debentures.

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 2031 Debentures. We ~~intend to use~~used the remaining net proceeds, together with cash on hand to ~~repurchase,~~ redeem and retire ~~or otherwise repay all~~$331.2 million of our ~~remaining~~ outstanding 2031 Debentures in November 2017. 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.

~~NUANCE COMMUNICATIONS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

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 (based on an initial conversion rate, which represents an initial conversion price of approximately $22.22 per share, subject to adjustment under certain circumstances) be paid in cash or shares of our common stock, at our election, only in the following circumstances and to the following extent: (i) prior to October 1, 2024, on any date during any fiscal quarter beginning after June 30, 2017 (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, including any additional interest to, but excluding, the repurchase date. As of March 31, ~~2017,~~2018, none of the conversion criteria were met for the 1.25% 2025 Debentures. If the conversion criteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.

1.50% Convertible Debentures due 2035

In June 2015, we issued $263.9 million in aggregate principal amount of 1.50% Senior Convertible Debentures due in 2035 (the “1.5% 2035 Debentures”) in exchange for $256.2 million in aggregate principal amount of our 2031 Debentures. 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 bear interest at 1.50% per year, payable in cash semi-annually in arrears. The 1.5% 2035 Debentures mature on November 1, 2035, subject to the right of the holders to require us to redeem the 1.5% 2035 Debentures on November 1, 2021, 2026, or 2031. The 1.5% 2035 Debentures are general senior unsecured obligations and rank equally in right of payment with all of our existing and

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

future unsecured, unsubordinated indebtedness and senior in right of payment to any indebtedness that is contractually subordinated to the 1.5% 2035 Debentures. The 1.5% 2035 Debentures will be effectively subordinated to indebtedness and other liabilities of our subsidiaries. The initial conversion price is approximately $23.26 per share. At issuance, we allocated $208.6 million to long-term debt, and $55.3 million has been recorded as additional paid-in capital, which is being amortized to interest expense using the effective interest rate method through November 2021. As of March 31, ~~2017 and September 30, 2016,~~2018, none of the conversion criteria were met for the 1.5% 2035 Debentures. If the conversion criteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.

Revolving Credit Facility

~~In April 2016, we entered into a~~Our revolving credit agreement ~~that provides for a $242.5 million revolving credit line, including letters of credit (together, the~~(the “Revolving Credit Facility”)~~. The Revolving Credit Facility matures~~, which expires on April 15, ~~2021.~~2021, provides for aggregate borrowing commitments of $242.5 million, including the revolving facility loans, the swingline loans and issuance of letters of credit. As of March 31, ~~2017, issued~~2018, after taking into account the outstanding letters of credit ~~in the aggregate amount~~ of ~~$4.5~~$4.1 million, ~~were treated as issued and outstanding when calculating the borrowing availability under the Revolving Credit Facility. As of March 31, 2017,~~ we had ~~$238.0~~$238.4 million available for ~~additional~~ borrowing under the Revolving Credit Facility. ~~Any amounts~~The borrowing outstanding under the Revolving Credit Facility ~~will bear~~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 Revolving Credit Facility is secured by substantially all ~~assets of ours and~~ our ~~Subsidiary Guarantors.~~assets. The Revolving Credit Facility contains customary affirmative and negative covenants and conditions to borrowing, as well as customary events of default. As of March 31, 2018, we are in compliance with all the debt covenants.


~~11.~~	~~Stockholders' Equity~~

11. Stockholders' Equity

Share Repurchases

~~NUANCE COMMUNICATIONS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~repurchase. Approximately $193.4 million remained available for share repurchases as of March 31, 2017 pursuant to 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 will be determined by management based on an evaluation of market conditions, capital allocation alternatives, and other factors.

~~Stock Issuances~~

~~During the quarter ended March 31, 2017, we issued 844,108 shares of our common stock valued at $13.4 million in connection with a business acquisition, which is discussed in Note 3.~~


~~12.~~	~~Net Loss Per Share~~

As of March 31, 2017 and 2016, diluted weighted average common shares outstanding is equal to basic weighted average common shares due to our net loss position. Common equivalent shares are excluded from the computation of diluted net loss perThere were no share if their effect is anti-dilutive. Potentially dilutive common equivalent shares aggregating to 8.2 million and 8.4 million shares for the three months ended March 31, 2017 and 2016, respectively, and 8.6 million and 9.0 million sharesrepurchases for the six months ended March 31, 2018. For the six months ended March 31, 2017, ~~and 2016, respectively,~~we repurchased 5.8 million shares of our common stock for $99.1 million under the program. Since the commencement of the program, we have ~~been excluded from~~repurchased an aggregate of 46.5 million shares for $806.6 million. The amount paid in excess of par value is recognized in additional paid in capital. Shares were retired upon repurchase. As of March 31, 2018, approximately $193.4 million remained available for future repurchases under the program.

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12. Net Loss Per Share

The following table sets forth the computation offor basic and diluted net loss per share ~~because their inclusion would be anti-dilutive.~~(dollars in thousands, except per share amounts):



	Three Months Ended March 31,						Six Months Ended March 31,
	2018			2017			2018			2017
Numerator:
Net loss	$	(164,053	)	$	(33,808	)	$	(110,825	)	$	(57,736	)
Denominator:
Weighted average common shares outstanding — Basic	294,103			291,021			292,720			289,976
Dilutive effect of employee stock compensation plans ^(a)	—			—			—			—
Weighted average common shares outstanding — Diluted	294,103			291,021			292,720			289,976
Net loss per share:
Basic	$	(0.56	)	$	(0.12	)	$	(0.38	)	$	(0.20	)
Diluted	$	(0.56	)	$	(0.12	)	$	(0.38	)	$	(0.20	)

Anti-dilutive equity instruments excluded from the calculation	2,679			3,875			4,178			5,126
Contingently issuable awards excluded from the calculation ^(b)	2,836			4,334			2,387			3,478

^(a) For all periods presented, there is no dilutive effect of equity instruments as the impact of these items is anti-dilutive due to the net loss incurred.

^(b) Contingently issuable awards were excluded from the determination of dilutive net income per share as the conditions were not met at the end of the reporting period.


~~13.~~	~~Stock-Based Compensation~~

13. Stock-Based Compensation

As of March 31, 2018, we had 13.5 million shares available for future grants under the amended and restated 2000 stock plan. We recognize stock-based compensation ~~expense~~expenses over the requisite service ~~period.~~periods. Our share-based awards are ~~accounted for as equity instruments.~~classified within equity. The amounts included in the condensed consolidated statements of operations ~~relating~~related to stock-based compensation are as follows (dollars in thousands):


	Three Months Ended March 31,				Six Months Ended March 31,				Three Months Ended March 31,				Six Months Ended March 31,
	2017		2016		2017		2016		2018		2017		2018		2017
Cost of professional services and hosting	$	8,080	$	7,757	$	16,490	$	15,514	$	6,322	$	8,080	$	13,729	$	16,490
Cost of product and licensing	102		122		194		244		112		102		378		194
Cost of maintenance and support	1,010		923		1,987		1,991		885		1,010		2,089		1,987
Research and development	8,398		7,967		16,888		17,900		8,396		8,398		18,092		16,888
Selling and marketing	11,018		10,460		22,987		23,297
Sales and marketing									8,366		11,018		19,042		22,987
General and administrative	11,740		10,934		20,932		21,565		9,668		11,740		18,405		20,932
Total	$	40,348	$	38,163	$	79,478	$	80,511	$	33,749	$	40,348	$	71,735	$	79,478

Stock Options

The table below summarizes ~~activity relating~~activities related to stock options for the six months ended March 31, ~~2017~~2018:

Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value^(a)
Outstanding at September 30, 2016 1,965,826
$ 15.01

Exercised (921,787 ) $ 13.48

Expired (1,359 ) $ 19.86

Outstanding at March 31, 2017 1,042,680
$ 16.36
0.7 years $ 1.0 million
Exercisable at March 31, 2017 1,042,671
$ 16.36
0.7 years $ 1.0 million
Exercisable at March 31, 2016 1,976,456
$ 14.97
1.2 years $ 7.4 million



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value^(a)
Outstanding at September 30, 2017	23,807		$	15.39
Exercised	(1,859	)	$	3.41
Outstanding at March 31, 2018	21,948		$	16.40	2.6 years	$	0.1	million
Exercisable at March 31, 2018	21,939		$	16.41	2.6 years	$	0.1	million
Exercisable at March 31, 2017	1,042,671		$	16.36	0.7 years	$	1.0	million

~~NUANCE COMMUNICATIONS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


^(a)	The aggregate intrinsic value in this table ~~was calculated based on the positive difference, if~~represents any ~~between~~excess of the closing market price of our common stock onas of March 31, ~~2017~~2018 ($~~17.31) and~~15.75) over the exercise price of the underlying options.

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The ~~weighted-average~~aggregate intrinsic value of stock options exercised during the six months ended March 31, 2018 and 2017 ~~and 2016~~ was ~~$0.8~~$0.02 million and ~~$8.5~~$0.8 million, respectively.

Restricted Units

Restricted units are not included in issued and outstanding common stock until the shares are vested and released. The purchase price for vested restricted units is $0.001 per share. The table below summarizes ~~activity~~activities relating to restricted units for the six months ended March 31, ~~2017:~~2018:


	Number of Shares Underlying Restricted Units — Contingent Awards		Number of Shares Underlying Restricted Units — Time-Based Awards		Number of Shares Underlying Restricted Units — Contingent Awards		Number of Shares Underlying Restricted Units — Time-Based Awards
Outstanding at September 30, 2016	4,224,488		5,884,023
Outstanding at September 30, 2017					5,043,931		6,477,164
Granted	3,014,321		6,026,857		1,784,982		6,005,863
Earned/released	(1,748,874	)	(4,399,216	)	(1,687,862	)	(4,176,917	)
Forfeited	(444,311	)	(375,212	)	(1,236,037	)	(457,533	)
Outstanding at March 31, 2017	5,045,624		7,136,452
Outstanding at March 31, 2018					3,905,014		7,848,577
Weighted average remaining recognition period of outstanding restricted units	1.7 years		1.8 years		1.1 years		1.8 years
Unearned stock-based compensation expense of outstanding restricted units	$66.1 million		$77.7 million
Unrecognized stock-based compensation expense of outstanding restricted units					$48.3 million		$86.0 million
Aggregate intrinsic value of outstanding restricted units^(a)	$87.3 million		$123.6 million		$61.5 million		$123.7 million


^(a)	The aggregate intrinsic value in this table ~~was calculated based on the positive difference between~~represents any excess of the closing market price of our common stock onas of March 31, ~~2017~~2018 ($~~17.31) and~~15.75) over the purchase price of the underlying restricted units.

A summary of the weighted-average grant-date fair value ~~for awards~~of restricted units granted, and the aggregate intrinsic value of ~~all~~ restricted units vested during the periods noted is as follows:


	Six Months Ended March 31,				Six Months Ended March 31,
	2017		2016		2018		2017
Weighted-average grant-date fair value per share	$	16.05	$	20.14	$	15.67	$	16.05
Total intrinsic value of shares vested (in millions)	$	99.5	$	132.1	$	94.0	$	99.5

~~Restricted Stock Awards~~

14. Income Taxes

The components of loss before income taxes are as follows (dollars in thousands):



	Three Months Ended March 31,						Six Months Ended March 31,
	2018			2017			2018			2017
Domestic	$	(79,921	)	$	(41,803	)	$	(119,952	)	$	(89,386	)
Foreign	(81,588		)	17,136			(66,850		)	51,144
Loss before income taxes	$	(161,509	)	$	(24,667	)	$	(186,802	)	$	(38,242	)

The components of provision (benefit) for income taxes are as follows (dollars in thousands):



	Three Months Ended March 31,						Six Months Ended March 31,
	2018			2017			2018			2017
Domestic	$	5,197		$	4,822		$	(75,669	)	$	8,981
Foreign	(2,653		)	4,319			(308		)	10,513
Provision (benefit) for income taxes	$	2,544		$	9,141		$	(75,977	)	$	19,494
Effective tax rate	(1.6		)%	(37.1		)%	40.7		%	(51.0		)%

~~Restricted stock awards are included in~~On December 22, 2017, the ~~issued~~Tax Cuts and ~~outstanding common stock~~Jobs Act ("TCJA") was signed into law. The TCJA significantly revises the U.S. corporate income tax by, among other things, lowering corporate income tax rates, implementing a hybrid territorial tax system, and imposing a mandatory one-time repatriation tax on foreign cash and earnings.

As a result of the TCJA, we remeasured certain deferred tax assets and liabilities at the ~~date~~lower rates and recorded approximately $87.0 million of ~~grant. The table below summarizes activity related to restricted stock awards~~tax benefits for the six months ended March 31, ~~2017~~:

Number of Shares Underlying Restricted Stock Weighted Average Grant Date Fair Value
Outstanding at September 30, 2016 —
$ —
Granted 250,000
$ 15.55
Outstanding at March 31, 2017 250,000
$ 15.55
Weighted average remaining recognition period of outstanding restricted stock awards 0.5 years

Unearned stock-based compensation expense of outstanding restricted stock awards $2.2 million
Aggregate intrinsic value of outstanding restricted stock awards^(a)
$4.3 million
2018, which also reflected an expense of $10.0 million for the


^(a) 19	The aggregate intrinsic value in this table was calculated based on the positive difference between the closing market price of our common stock on March 31, 2017 ($17.31) and the purchase price of the underlying restricted stock awards.

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~No restricted stock awards vested during~~three months ended March 31, 2018 as we revised our estimates of the timing and amounts of the temporary differences. Additionally, we recorded a $2.0 million provision for the deemed repatriation of foreign cash and earnings for the six months ended March 31, ~~2017. The weighted-average intrinsic value~~2018, which also reflected a benefit of ~~restricted stock awards vested during the six months ended March 31, 2016 was $4.3 million.~~


~~14.~~	~~Income Taxes~~

~~The components of (loss) income before income taxes are as follows (dollars in thousands):~~

Three Months Ended March 31, Six Months Ended March 31,
2017 2016 2017 2016
Domestic $ (41,803 ) $ (33,691 ) $ (89,386 ) $ (62,693 )
Foreign 17,136
35,890
51,144
60,594
(Loss) income before income taxes $ (24,667 ) $ 2,199
$ (38,242 ) $ (2,099 )

~~The components of provision from income taxes are as follows (dollars in thousands):~~

Three Months Ended March 31, Six Months Ended March 31,
2017 2016 2017 2016
Domestic $ 4,822
$ 5,021
$ 8,981
$ 9,559
Foreign 4,319
4,224
10,513
7,453
Provision for income taxes $ 9,141
$ 9,245
$ 19,494
$ 17,012
Effective tax rate (37.1 )% 420.4 % (51.0 )% (810.5 )%

~~The effective income tax rate was (37.1)% and 420.4%~~$12.0 million for the three months ended March 31, ~~2017~~2018 as we revised our estimates of foreign earnings and ~~2016, respectively.~~ profits related to the mandatory repatriation tax.

The ~~effective~~provisional amounts above were based upon the estimates of (i) temporary differences at the end of the upcoming tax year, (ii) the timing the temporary differences are expected to reverse, (iii) foreign earnings and profits, and (iv) foreign income taxes. The assessment is incomplete as of March 31, 2018. As our assessment is ongoing, these amounts may materially change as we revise our assumptions and estimates based on new information available to us, changes in our interpretations, additional guidance to be issued, and actions we may take as a result of the TCJA. We are still evaluating the full impact of other provisions of the TCJA, which may materially increase or decrease our income tax ~~rate was (51.0)% and (810.5)%~~provision. The assessment is expected to be completed no later than the first quarter of fiscal year 2019.

In addition, as more fully described in Note 4, in connection with the impairment charge of SRS's goodwill, we recognized a tax benefit of $8.5 million related to the portion of deductible goodwill in Brazil for the three and six months ended March 31, 2017 and 2016, respectively. Our current effective income tax rate differs from the U.S. federal statutory rate of 35% primarily due to current period losses in the United States that require an additional valuation allowance and accordingly provide no benefit to the provision as well as an increase to indefinite lived deferred tax liabilities. This is partially offset by our earnings in foreign operations that are subject to a significantly lower tax rate than the U.S. statutory tax rate, driven primarily by our subsidiaries in Ireland.

The effective income tax rate is based upon the income for the year, the composition of the income in different countries, changes relating to valuation allowances for certain countries if and as necessary, and adjustments, if any, for the potential tax consequences, benefits or resolutions of audits or other tax contingencies. Our aggregate income tax rate in foreign jurisdictions is lower than our income tax rate in the United States. The majority of our income before provision for income taxes from foreign operations has been earned by subsidiaries in Ireland. Our effective tax rate may be adversely affected by earnings being lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated in countries where we have higher statutory tax rates.

At March 31, 2017 and September 30, 2016, we had gross tax effected unrecognized tax benefits of $28.3 million and $27.3 million, respectively, which are included in other long-term liabilities. If these benefits were recognized, they would impact our effective tax rate. We do not expect a significant change in the amount of unrecognized tax benefits within the next 12 months.2018.


~~15.~~	~~Commitments and Contingencies~~

15. 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 at times actions with respect to contracts, intellectual property, employment, benefits and securities matters. ~~We have estimated~~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 ~~probable~~probability and the range of the outcomes, and estimates are based only on the best information available at the time. Due to the inherent uncertainties involved in claims and legal proceedings and in estimating losses that may ~~result~~arise, actual outcomes may differ from ~~all currently pending matters, and such amounts are reflected~~our estimates. Contingencies deemed not probable or for which losses were not estimable in ~~our consolidated financial statements. These recorded amounts are not material to our consolidated financial position~~one period may become probable, or ~~results of operations and no additional material~~ losses ~~related to these pending matters are reasonably possible. While it is not possible to predict the outcome of these matters with certainty, we do not expect the results of any of these actions to~~may become estimable in later periods, which may have a material ~~adverse effect~~impact on our results of operations orand financial position. ~~However, each~~As of ~~these matters is subject~~March 31, 2018, accrued losses were not material to ~~uncertainties, the actual losses may prove to be larger or smaller than the accruals reflected in~~ our condensed consolidated financial statements, and we ~~could incur judgments or enter into settlements of claims that could adversely affect~~do not expect any pending matter to have a material impact on our condensed consolidated financial ~~position, results of operations or cash flows.~~

~~NUANCE COMMUNICATIONS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

statements.

Guarantees and Other

We ~~often~~ include indemnification provisions in the ~~customer~~contracts we enter with customers and business ~~partner contracts.~~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 ~~have~~ 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~~six-year period. To the extent that we do not purchase a director and officer insurance 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.


~~16.~~	~~Segment and Geographic Information~~

~~We operate~~16. Related Party Transaction

In January 2018, we entered into a software and license agreement (the "License Agreement") with Magnet Systems, Inc. ("Magnet"). A member of the Magnet board of directors also served on our board of directors at the time of the transaction. Pursuant to the License Agreement, Magnet granted Nuance a perpetual software license to certain technology for a one-time payment of

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$5.0 million in cash, with $3.5 million paid immediately upon the effective date of the License Agreement and ~~report financial~~$1.5 million payable upon the earlier of (i) the 120-day period following the effective date of the License Agreement or (ii) signature of a statement of work for the engineering services described below.

Additionally, we entered into a service agreement (the "Service Agreement") with Magnet, pursuant to which, Magnet will provide engineering services to assist in integrating the licensed technology into certain of our Enterprise solutions. The fees under the Service Agreement total $2.0 million, payable in six equal monthly installments upon the signature of the statement of work, which is to be finalized within 90 days following the effective date of the License Agreement.

As of March 31, 2018, $1.5 million related to the software license was included within Contingent and Deferred acquisition payments.

17. Segment and Geographic Information

During the first quarter of fiscal year 2018, we commenced a reorganization of our segment reporting structure to allow our Chief Operating Decision Maker ("CODM") greater focus on implementing strategic initiatives and identifying future investment opportunities. During the second quarter of fiscal year 2018, we established our Automotive business as a separate operating segment. Additionally, we moved our Dragon TV business from our Mobile operating segment into our Enterprise operating segment to consolidate our telecommunications market resources. Finally, our SRS business and our Devices business, originally included within our Mobile operating segment, are now presented within our Other segment. As a result, segment information for the ~~following~~ ~~four~~ ~~reportable segments: Healthcare, Mobile, Enterprise,~~three and ~~Imaging.~~six months ended March 31, 2018 and 2017 has been recast to reflect the new segment reporting structure.

Our CODM regularly reviews segment revenues and segment profits for performance evaluation and resources allocation. Segment ~~profit is an important measure used~~revenues include certain acquisition-related adjustments for ~~evaluating performance and for decision-making purposes and reflects~~revenues that would otherwise have been recognized without the ~~direct~~acquisition. Segment profits reflect controllable costs ofdirectly related to each segment ~~together with an~~and the allocation of certain corporate expenses such as, corporate sales and ~~corporate~~ marketing expenses and ~~certain~~ research and development project costs that benefit multiple ~~product offerings. Segment profit represents income from operations excluding~~segments. Certain items such as stock-based compensation, amortization of intangible assets, acquisition-related costs, net, restructuring and other charges, net, ~~costs associated with intellectual property collaboration agreements,~~ other ~~expense,~~expenses, net and certain unallocated corporate ~~expenses. We believe that these adjustments~~expenses are excluded from segment profits, which allow for more ~~complete~~meaningful comparisons to the financial results of the historical ~~operations.~~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 Mobile segment is primarily engaged in providing a broad portfolio of specialized virtual assistants and connected services built on voice recognition, text-to-speech, natural language understanding, dialog, and text input technologies. Our Enterprise segment is primarily engaged in using speech, natural language understanding, and artificial intelligence to provide automated ~~and assisted~~ customer solutions and services for voice, mobile, web and messaging ~~channels,~~channels.

The Automotive segment is primarily engaged in ~~native~~providing automotive manufacturers and ~~secure modes.~~ their suppliers branded and personalized virtual assistants and connected car services built on our voice recognition and natural language understanding technologies.

The Imaging segment is primarily engaged in software solutions and expertise that help professionals and organizations to gain optimal control of their document and information processes through scanning and print management.

The Other segment includes our SRS business and our Devices business. Our SRS business provides value-added services to mobile operators in emerging markets, primarily in India and Brazil. Our Devices business provides speech recognition solutions and predictive text technologies to handset devices.

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We do not track our assets by ~~operating~~ segment. Consequently, it is not practical to show assets or depreciation by ~~operating~~ segment. The following table presents segment results along with a reconciliation of segment profit to ~~(loss) income~~loss before income taxes (dollars in thousands):


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	March 31,						March 31,						March 31,						March 31,
	2017			2016			2017			2016			2018			2017			2018			2017
Segment revenues^(a):
Segment revenues:
Healthcare	$	238,466		$	244,391		$	477,673		$	492,475		$	261,239		$	238,466		$	506,775		$	477,673
Mobile	100,226			91,835			192,010			188,238
Enterprise	119,357			94,443			232,295			183,219			112,668			122,126			233,266			237,504
Automotive													68,950			61,725			130,448			120,600
Imaging	53,048			56,744			105,137			118,351			48,933			53,048			104,563			105,137
Other													26,524			35,732			52,087			66,201
Total segment revenues	511,097			487,413			1,007,115			982,283			518,314			511,097			1,027,139			1,007,115
Less: acquisition-related revenues adjustments	(11,524		)	(8,680		)	(19,884		)	(17,435		)	(4,090		)	(11,524		)	(11,270		)	(19,884		)
Total consolidated revenues	499,573			478,733			987,231			964,848
Total revenues													514,224			499,573			1,015,869			987,231
Segment profit:
Healthcare	83,328			78,382			161,896			159,611			87,350			83,328			164,769			161,896
Mobile	40,437			33,448			73,909			67,212
Enterprise	41,772			34,059			73,730			60,270			25,722			40,349			63,451			70,267
Automotive													28,875			29,312			52,082			56,942
Imaging	18,470			22,192			36,086			49,177			12,257			18,470			27,900			36,086
Other													6,084			12,548			9,505			20,430
Total segment profit	184,007			168,081			345,621			336,270			160,288			184,007			317,707			345,621
Corporate expenses and other, net	(30,186		)	(35,878		)	(61,148		)	(66,598		)	(65,093		)	(30,186		)	(109,757		)	(61,148		)
Acquisition-related revenues and cost of revenues adjustments	(11,524		)	(8,471		)	(19,884		)	(17,060		)
Acquisition-related revenues													(4,090		)	(11,524		)	(11,270		)	(19,884		)
Stock-based compensation	(40,348		)	(38,163		)	(79,478		)	(80,511		)	(33,749		)	(40,348		)	(71,735		)	(79,478		)
Amortization of intangible assets	(45,130		)	(42,787		)	(88,531		)	(85,451		)	(37,450		)	(45,130		)	(75,870		)	(88,531		)
Acquisition-related costs, net	(5,379		)	(1,225		)	(14,405		)	(3,705		)	(2,360		)	(5,379		)	(7,921		)	(14,405		)
Restructuring and other charges, net	(19,911		)	(6,652		)	(26,614		)	(14,540		)	(8,948		)	(19,911		)	(23,749		)	(26,614		)
Costs associated with IP collaboration agreements	—			(2,000		)	—			(4,000		)
Other expense, net	(56,196		)	(30,706		)	(93,803		)	(66,504		)
(Loss) income before income taxes	$	(24,667	)	$	2,199		$	(38,242	)	$	(2,099	)
Impairment of goodwill													(137,907		)	—			(137,907		)	—
Other expenses, net													(32,200		)	(56,196		)	(66,300		)	(93,803		)
Loss before income taxes													$	(161,509	)	$	(24,667	)	$	(186,802	)	$	(38,242	)


^(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.

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				Six Months Ended				Three Months Ended				Six Months Ended
	March 31,				March 31,				March 31,				March 31,
	2017		2016		2017		2016		2018		2017		2018		2017
United States	$	352,937	$	338,710	$	702,107	$	694,524	$	367,613	$	352,937	$	731,899	$	702,107
International	146,636		140,023		285,124		270,324		146,611		146,636		283,970		285,124
Total revenues	$	499,573	$	478,733	$	987,231	$	964,848	$	514,224	$	499,573	$	1,015,869	$	987,231

18. Supplemental Cash Flow Information

Cash paid for Interest and Income Taxes:



	Three Months Ended March 31,				Six Months Ended March 31,
	2018		2017		2018		2017
	(Dollars in thousands)
Interest paid	$	21,427	$	34,814	$	48,708	$	45,883
Income taxes paid	$	4,233	$	4,432	$	8,833	$	8,636

NUANCE COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Non-Cash Investing and Financing Activities:

From time to time, we issue shares of our common stock in connection with our business and asset acquisitions, including shares issued as payment for acquisitions, shares initially held in escrow, and shares issued as payment for contingent consideration, as more fully described in Note 3.

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 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 including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures About Market Risk” under Items 2 and 3, respectively, of Part I of this report, and the sections entitled “Legal Proceedings” and “Risk Factors,” under Items 1 and 1A, respectively, of Part II of this report, 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:

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 ~~transformation program~~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, and anticipated benefits from acquisitions;

international operations and localized versions of our products; 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 ~~leading provider of voice recognition~~pioneer and ~~natural language understanding solutions.~~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, ~~mobile, consumer, enterprise customer service,~~automotive, financial services, telecommunication and ~~imaging markets.~~travel industries, among others. We are seeing 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 ~~from~~including speech recognition, to natural language understanding, semantic processing, domain-specific reasoning, dialog management capabilities, artificial intelligence, and biometric speaker authentication. We report our business in five segments, Healthcare, Enterprise, Automotive, Imaging and Other.

Confronted by dramatic increases in electronic information, consumers, business personnel and healthcare professionals must use a variety of resources to retrieve information, transcribe patient records, conduct transactions and perform other job-related functions. We believe that the power of our solutions can transform the way people use the Internet, telecommunications systems, electronic medical records ("EMR"), wireless and mobile networks and related corporate infrastructure to conduct business.BusinessTrends

Healthcare. ~~Trends~~Customers in our healthcare ~~business include growing customer preference for hosted solutions and subscription-based license models and increased use of mobile devices to access healthcare systems and create clinical~~

~~documentation within electronic health record systems. In addition, we~~segment are experiencing growing demand for integrated solutions, combining our Dragon Medical and hosted transcription offerings. The volume processed in our hosted transcription services has continued to erode as customers adoptbroadly implementing electronic medical record systems and are working to improve clinical documentation, to improve quality of care, to minimize physician burnout and to integrate quality measures and to aid reimbursement. These trends are driving a shift towards more integrated solutions that combine both Dragon Medical and transcription services. Recently, higher demand for more integrated solutions have offset declines in legacy, hosted

transcription services. Additionally, we have been able to capitalize on healthcare providers’ shift towards hosted, or cloud-based solutions, and away from perpetual licenses, by adding new innovations to our Dragon Medical ~~solutions. This decline has been partially offset by new customer wins and the increased sale of integrated~~cloud solutions of our transcription and Dragon Medical offerings. We have also experienced declines in our Dragon Medical perpetual license revenue as customers shift toward Dragon Medical cloud offerings. These cloud offerings are enabling the expansion of our Dragon Medical solutions to includeincluding new clinical language understanding and ~~artificial intelligence innovations, providing real time queries~~Artificial Intelligence ("AI") capabilities designed to ~~the physician~~increase productivity and improve clinical documentation at the point of ~~care. We believe an important trend in the healthcare market is the desire to improve efficiency in the coding~~care and revenue cycle management process. Our solutions reduce costs by increasing automation of this important workflow and also enable hospitals to improve documentation used to support billings. The industry’s shift in international classification of diseases ("ICD") from ICD-9 to ICD-10, together with evolving reimbursement reform that is increasingly focused on clinical outcomes, has increased the complexity of the clinical documentation and coding processes. This shift is reinforcing our customers’ desire for improved efficiency. We are investing to expand our product set to address the various opportunities, including deeper integration with our clinical documentation solutions; investing in our cloud-based products and operations; entering new and adjacent markets such as ambulatory care; and expanding our international capabilities.

within existing electronic medical work flow.

~~Mobile.~~Enterprise. ~~Trends in our mobile business include automotive original equipment manufacturers ("OEM") differentiating their offerings by using voice and content~~Consumer demand for 24/7, multi-channel access to ~~provide an enhanced experience for drivers; consumer electronics companies and cable operators competing to develop virtual assistant technologies for~~customer service from the home; geographic expansion of our mobile operator services; and the adoption of our technology on a broadening scope of devices, such as televisions, set-top boxes, and third-party applications. The more powerful capabilities within automobiles and mobile devices require us to supply a broader portfolio of specialized virtual assistants and connected services providing voice recognition, content integration, text-to-speech, and natural language understanding capabilities. We continued to see increasedbusinesses they interact with is driving demand for our ~~enhanced offerings that combined speech and natural language understanding technology with artificial intelligence particularly from large automotive OEMs for our embedded and connected~~AI-powered omni-channel engagement solutions. We are continuing to see a decline in our devices revenue resulting from the consolidation of the device market to a small number of customers as well as increased competition in voice recognition and natural language solutions and services sold to device OEMs. We continue to see demand involving the sale and delivery of both software and non-software related services, as well as products to help customers define, design and implement increasingly robust and complex custom solutions such as virtual assistants. We continue to see an increasing proportion of revenue from on-demand and transactional arrangements as opposed to traditional perpetual licensing of our Mobile products and solutions. Although this has a negative impact on near-term revenue, we believe this model will build more predictable revenues over time. We are investing in the expansion of the cloud capabilities and content of our automotive solutions; machine learning technologies, expansion across the Internet of Things in our devices solutions; and go-to market strategies with mobile operators.

~~Enterprise.~~ Trends in our enterprise business include increasing interest in the use of mobile applications and web sites to access customer care systems and records, voice-based authentication of users, increasing interest in coordinating actions and data across customer care channels, and the ability of a broader set of hardware providers and systems integrators to serve the market. In addition, for large enterprise businesses around the world, customer service interactions are accelerating toward more pervasive digital engagement across web, mobile and social platforms. In order to acquire and retain customers, enterprises need to be able to provide a customer service experience when and how the customer desires. This is creating a growing market opportunity for our omni-channel enterprise solutions, and with the acquisition of TouchCommerce, Inc., which closed during the fourth quarter of fiscal year 2016, we will be able to provide an end-to-end engagement platform that merges intelligent self-service with assisted service to increase customer satisfaction, strengthen customer loyalty and improve business results. In fiscal year 2016, revenues and bookings from on-demand solutions continued to increase, as a growing proportion of customers choose our cloud-based solutions for call center, web and mobile customer care solutions. We expect these trends to continue in fiscal year 2017. We are investing to extendenhance our technology capabilities with intelligent self-service and artificial intelligence for customer ~~service;~~service, and to extend the market for our on-demand omni-channel enterprise solutions into international ~~markets;~~markets, expand our sales and solutions for ~~voice biometrics;~~biometrics, and expand our ~~on-premise product~~core products and services portfolio.

Automotive. We established the Automotive segment as a stand-alone segment this quarter reflecting growing demand for our Automotive solutions and our desire to optimize our opportunity in this expanding market. Previously, our Automotive business was reported as part of our Mobile segment. Demand for our embedded and cloud-based automotive solutions is being driven by the growth in personalized, automotive virtual assistants and connected services for cars and by auto manufacturers' desire to create a branded and personalized experience, capable of integrating and intelligently managing customers’ personal smart phone and home device preferences and technologies.

Imaging.The imaging market is evolving to include more networked solutions to multi-function printing ("MFP") devices, as well as more mobile access to those networked solutions, and away from packaged software. We are investing to merge the scan and print technology platforms to improve mobile access to our solutions and ~~technologies;~~technologies, expand our distribution channels and ~~embedding relationships;~~embedded relationships, and expand our language coverage for optical character recognition ("OCR") in order to drive a more comprehensive and compelling offering to our partners.

Other. The Other segment includes our Subscriber Revenue Services ("SRS") business and our Devices business. Our SRS business provides value-added services to mobile operators in emerging markets, primarily in India and Brazil. Our Devices business provides speech recognition solutions and predictive text technologies to handset devices.

As more fully described in Note 4 to the accompanying condensed consolidated financial statements, for the three and six months ended March 31, 2018, we recognized a goodwill impairment charge of $102.8 million related to SRS as a result of lowering our long-term projections of the business during the second quarter of fiscal year 2018 due to the recent market disruptions in India and Brazil. These markets have experienced recent and dramatic disruption as a result of accelerated change in competition and business models for our SRS mobile operator customers. Specifically, the rapid shift away from a model where voice, data and text are offered separately toward unlimited bundled services at considerably lower costs has significantly reduced mobile operators’ demand for our services. This reduced demand materially impacts our future expectations for SRS revenues. As a result, executive management performed an updated strategic assessment and reduced the long-term growth rates and profitability contemplated in SRS's multi-year operating plan. We concluded that these financial results coupled with the accelerated market shifts being experienced in the industry were factors that represented impairment indicators, triggering a review of goodwill and indefinite-lived intangible assets for impairment during the second quarter of fiscal 2018.

Additionally, we recognized a $35.1 million goodwill impairment related to our Devices business, which has been declining due to the ongoing consolidation of our handset manufacturer customer base and continued erosion of our penetration of the remaining market. While the business has been performing in line with our expectations, the reorganization, as more fully described in Note 17 to the accompanying condensed consolidated financial statements, triggered an assessment for the goodwill assigned to the business.

Key Metrics

In evaluating the financial condition and operating performance of our business, management focuses on revenues, net income, gross margins, operating margins, cash flow from operations, and changes in deferred revenue. A summary of ~~these~~ key financial metrics ~~is as follows:~~

~~For~~for the six months ended March 31, ~~2017,~~2018, as compared to the six months ended March 31, ~~2016:~~2017, is as follows:

Total revenues increased by ~~$22.4~~$28.6 million to ~~$987.2~~$1,015.9 million;

Net loss increased by ~~$38.6~~$53.1 million to ~~a loss of $57.7~~$110.8 million;

Gross margins decreased by ~~0.5~~1.2 percentage points to ~~56.9%~~55.7%;

Operating margins decreased by ~~1.0~~17.5 percentage points to ~~5.6%~~(11.9)%; and

Cash provided by operating activities decreased ~~$50.7~~by $55.0 million to ~~$250.3~~$195.4 million.

As of March 31, ~~2017,~~2018, as compared to March 31, ~~2016:~~2017:

Total deferred revenue increased ~~7.2%~~by 10.0% from ~~$748.5~~$802.4 million to ~~$802.4~~$882.7 million, primarily driven ~~primarily~~ by the continued growth of our ~~hosting solutions, most notably for our automotive~~Automotive connected services ~~in our Mobile segment.~~and Healthcare bundled offerings.

~~In addition to the above key financial metrics, we also focus on certain operating metrics.~~ A summary of ~~these~~ key operating metrics for the ~~quarter~~three months ended March 31, ~~2017,~~2018, as compared to the ~~quarter~~three months ended March 31, ~~2016,~~2017, is as follows:

Net new bookings ~~increased 30.8%~~decreased by 8% from one year ago to ~~$410.4 million. The net new bookings growth benefited from strong bookings performance~~$376.6 million, primarily due to declines in our ~~Healthcare~~Automotive and ~~Mobile~~Imaging segments.

Bookings represent the estimated gross revenue value of transactions at the time of contract execution, except for maintenance and support offerings. For fixed price contracts, the bookings value represents the gross total contract value. For contracts where revenue is based on transaction volume, the bookings value represents the contract price multiplied by the estimated future transaction volume during the contract term, whether or not such transaction volumes are guaranteed under a minimum commitment clause. Actual results could be different than our initial estimate. The maintenance and support bookings value represents the amounts the customer is invoiced in the period. Because of the inherent estimates required to determine bookings and the fact that the actual resultant revenue may differ from our initial bookings estimates, we consider bookings one indicator of potential future revenue and not as an arithmetic measure of backlog.

Net new bookings represents the estimated revenue value at the time of contract execution from new contractual arrangements or the estimated revenue value incremental to the portion of value that will be renewed under pre-existing ~~arrangements;~~arrangements.

Recurring revenue represented ~~73.3%~~71% and ~~69.0%~~74% of total revenue for ~~six~~three months ended March 31, ~~2017~~2018 and March 31, ~~2016,~~2017, respectively. Recurring revenue represents the sum of recurring hosting, product and licensing, ~~hosting,~~ and maintenance and support revenues as well as the portion of professional services revenue delivered under ongoing contracts. Recurring product and licensing revenue comprises term-based and ratable licenses as well as revenues from royalty ~~arrangements;~~arrangements.

Annualized line run-rate in our on-demand healthcare solutions decreased 8%by 33% from ~~one~~a year ago to approximately ~~4.7~~3.2 billion lines per year. The decrease was primarily due to the continued erosion in our transcription ~~services.~~services and the impact of the 2017 Malware Incident, as defined below. The annualized line run-rate is determined using billed equivalent line counts in a given quarter, multiplied by ~~four; and~~four.

Estimated three-year value of total on-demand contracts atas of March 31, ~~2017 increased 19%~~2018 decreased by 9% from ~~one~~a year ago to approximately ~~$2.6~~$2.3 billion. The ~~increase~~decrease was primarily due to the continued erosion in our ~~Enterprise omni-channel solutions~~transcription services, and the impact of the 2017 Malware Incident, offset in part by growth in our Dragon Medical cloud ~~offerings.~~and Automotive solutions. We determine this value as of the end of the period reported, by using our estimate of three years of anticipated future revenue streams under signed on-demand contracts then in place, whether or not they are guaranteed through a minimum commitment clause. Our estimate is based on assumptions used in evaluating the contracts and determining sales compensation, adjusted for changes in estimated launch dates, actual volumes achieved, and other factors deemed relevant. For contracts with an expiration date beyond three years, we include only the value expected within three years. For other contracts, we assume renewal consistent with historic renewal rates unless there is a known cancellation. Contracts are

generally priced by volume of usage and typically have no or low minimum commitments. Actual revenue could vary from our estimates due to factors such as cancellations, non-renewals or volume fluctuations.

Cybersecurity & Data Privacy Matters

On June 27, 2017, Nuance was a victim of the global NotPetya malware incident (the “2017 Malware Incident”). The NotPetya malware affected certain Nuance systems, including systems used by our healthcare customers, primarily for transcription services, as well as systems used by our imaging division to receive and process orders. For fiscal year 2017, we estimate that we lost approximately $68.0 million in revenues, primarily in our Healthcare segment, due to the service disruption and the reserves we established for customer refund credits related to 2017 Malware Incident. Additionally, we incurred incremental costs of approximately $24.0 million for fiscal year 2017 as a result of our remediation and restoration efforts, as well as incremental amortization expenses. Although the direct effects of the 2017 Malware Incident were remediated during fiscal year 2017, as explained below, the 2017 Malware Incident had a continued effect on our results of operations in the first half of fiscal year 2018 including contributing to: a year-over-year decline in the annualized line run-rate in our on-demand healthcare solutions and in the estimated three-year value of on-demand contracts; a year-over-year decline in hosted revenue and an increase in restructuring and other charges. In addition, we expect to expend additional resources during the remainder of fiscal year 2018 and beyond to continue to enhance and upgrade information security.

In addition, in December 2017, an unauthorized third party illegally accessed certain reports hosted on a Nuance transcription platform. This incident was limited in scope to records of approximately 45,000 individuals and was isolated to a single transcription platform that was promptly shutdown. Customers using that platform were notified of the incident and were migrated to our eScription transcription platforms. We also notified law enforcement authorities and have cooperated in their investigation into the matter. The law enforcement investigation resulted in the identification of the third party, and the accessed reports have been recovered. This incident did not have a material effect on our financial results for the six months ended March 31, 2018 and is not expected to have a material effect on our financial results for future periods. Future cybersecurity or data privacy incidents could have a material adverse effect on our results of operations. See “Risk Factors - Cybersecurity and data privacy incidents or breaches may damage client relations and inhibit our growth.”

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				Dollar Change			Percent Change			Six Months Ended								Dollar Change			Percent Change		Three Months Ended								Dollar Change			Percent Change			Six Months Ended								Dollar Change				Percent Change
	March 31,									March 31,								March 31,								March 31,
	2017		2016							2017				2016				2018							2017					2018								2017
Professional services and hosting	$	258.7	$	240.2		$	18.5		7.7	%		$	512.1			$	467.3								$	44.8			9.6	%	$		274.6		$	258.7			$	15.9			6.1	%		$	533.6			$	512.1			$	21.5	4.2	%
Product and licensing	159.3		158.6			0.6			0.4	%		311.0				337.7					(26.7		)		(7.9	)%	161.3				159.3			2.0				1.3	%		323.1				311.0				12.1				3.9	%
Maintenance and support	81.6		79.9		1.7			2.1	%		164.1				159.8				4.3			2.7	%	78.4				81.6					(3.2	)		(4.0	)%		159.2				164.1				(4.9		)		(3.0	)%
Total Revenues	$	499.6	$	478.7	$	20.8		4.4	%		$	987.2			$	964.8			$	22.4		2.3	%	$	514.2			$	499.6			$	14.6		2.9	%		$	1,015.9			$	987.2			$	28.7			2.9	%
United States	$	352.9	$	338.7	$	14.2		4.2	%		$	702.1			$	694.5			$	7.6		1.1	%	$	367.6			$	352.9			$	14.7		4.2	%		$	731.9			$	702.1			$	29.8			4.2	%
International	146.6		140.0		6.6			4.7	%		285.1				270.3				14.8			5.5	%	146.6				146.6				—			—	%		284.0				285.1				(1.1		)		(0.4	)%
Total Revenues	$	499.6	$	478.7	$	20.8		4.4	%		$	987.2			$	964.8			$	22.4		2.3	%	$	514.2			$	499.6			$	14.6		2.9	%		$	1,015.9			$	987.2			$	28.7			2.9	%

The geographic split for the three months ended March 31, ~~2017,~~2018 was 71% of total revenues in the United States and 29% internationally, as compared to 71% of total revenues in the United States and 29% internationally for the ~~same period last year.~~three months ended March 31, 2017.

The geographic split for the six months ended March 31, ~~2017,~~2018 was 72% of total revenues in the United States and 28% internationally, as compared to 71% of total revenues in the United States and 29% internationally ~~as compared to 72% of total revenues in the United States and 28% internationally~~ for the ~~same period last year.~~six months ended March 31, 2017.

Professional Services and Hosting Revenue

Professional services revenue primarily consists of consulting, implementation and training services for customers. Hosting revenue primarily relates to delivering on-demand hosted services, such as medical transcription, automated customer care applications, mobile operator services, mobile infotainment and search and transcription, over a specified term. The following table shows professional services and hosting revenue, in dollars and as a percentage of total revenues (dollars in millions):


	Three Months Ended						Dollar Change			Percent Change			Six Months Ended								Dollar Change			Percent Change		Three Months Ended								Dollar Change				Percent Change			Six Months Ended								Dollar Change				Percent Change
	March 31,											March 31,								March 31,								March 31,
	2017			2016								2017				2016				2018							2017					2018									2017
Professional services revenue	$	56.5		$	55.6			$	1.0		1.7	%		$	116.7			$	105.2								$	11.4			10.9	%	$		80.2			$	56.5			$	23.6			41.8	%		$	154.1			$	116.7			$	37.4	32.0	%
Hosting revenue	202.2			184.6				17.5			9.5	%		395.4				362.1					33.4				9.2	%	194.4				202.2				(7.8		)		(3.8	)%		379.5				395.4				(15.9		)		(4.0	)%
Professional services and hosting revenue	$	258.7		$	240.2		$	18.5		7.7	%		$	512.1			$	467.3			$	44.8		9.6	%
																										$	274.6			$	258.7				$	15.9			6.1	%		$	533.6			$	512.1			$	21.5			4.2	%
As a percentage of total revenue	51.8		%	50.2		%							51.9		%		48.4		%							53.4		%		51.8		%									52.5		%		51.9		%

Three Months Ended March 31, ~~2017~~2018 compared ~~with~~to Three Months Ended March 31, ~~2016~~2017

~~In our hosting business, Enterprise hosting~~Hosting revenue ~~increased $9.0~~decreased by $7.8 million, or 3.8%, primarily ~~driven by strength across many of our omni-channel cloud offerings including revenue from~~due to a ~~recent acquisition. Mobile on-demand revenue grew $6.9~~$8.3 million ~~primarily driven by a continued trend toward cloud-based services~~decrease in our ~~automotive solutions~~Other segment and ~~strength~~a $4.5 million decrease in ~~our mobile operator services.~~ Healthcare ~~on-demand revenue grew $1.6 million with strong growth in our Dragon Medical cloud revenue as we continue to transition to cloud offerings~~segment, partially offset by a $4.0 million increase in our Automotive segment. Hosting revenue ~~decrease~~in Other segment decreased due to lower revenue from both our SRS and Devices businesses. Healthcare hosting revenue decreased primarily due to the continued erosion in transcription services, and the negative impact of the 2017 Malware Incident, offset in part by the continued market penetration and growth of our Dragon cloud-based solutions. Automotive hosting revenue increased due to continued ~~erosion~~growth in our ~~transcription~~connected services.

Professional services revenue increased by $23.6 million, or 41.8% primarily due to higher revenue from electronic healthcare record ("EHR") implementation and optimization services in our Healthcare segment.

As a percentage of total revenue, professional services and hosting revenue increased from 51.8% to 53.4%, primarily due to higher professional services revenue discussed above.

Six Months Ended March 31, ~~2017~~2018 compared ~~with~~to Six Months Ended March 31, ~~2016~~2017

~~In our hosting business, Enterprise hosting~~Hosting revenue ~~increased $24.6~~decreased by $15.9 million, or 4.0%, primarily ~~driven by revenue from~~due to a ~~recent acquisition and strength across many of our omni-channel cloud offerings. Mobile on-demand revenue grew $11.0~~$13.6 million ~~primarily driven by a continued trend toward cloud-based services~~decrease in our ~~automotive solutions~~Other segment and ~~strength~~a $11.6 million decrease in our ~~mobile operator services. These increases were~~Healthcare segment, partially offset by a ~~$2.3~~$7.6 million ~~decrease~~increase in ~~the~~our Automotive segment. Hosting revenue in Other segment decreased due to lower revenue from both our SRS and Devices businesses. Healthcare hosting revenue ~~as we continue~~decreased primarily due to ~~experience some~~the continued erosion in ~~our~~ transcription services, ~~which is partially~~and the negative impact of the 2017 Malware Incident, offset in part by the continued market penetration and growth of our Dragon cloud-based solutions. Automotive hosting revenue increased primarily due to continued growth in our ~~Dragon Medical cloud~~connected services.

Professional services revenue increased by $37.4 million, or 32.0% primarily due to ~~transition to cloud offerings. In~~higher revenue from EHR implementation and optimization services in our Healthcare segment.

As a percentage of total revenue, professional services ~~business, Healthcare~~and hosting revenue increased from 51.9% to 52.5%, primarily due to higher professional services revenue ~~increased $7.2 million driven~~

~~by an acquisition in fiscal year 2016. In addition, professional services revenue increased $3.1 million~~ in our ~~Mobile~~Healthcare segment ~~and $1.1 million in our Enterprise segment.~~discussed above.

Product and Licensing Revenue

Product and licensing revenue primarily consists of sales and licenses of our technology. The following table shows product and licensing revenue, in dollars and as a percentage of total revenues (dollars in millions):


	Three Months Ended						Dollar Change			Percent Change			Six Months Ended							Dollar Change	Percent Change	Three Months Ended							Dollar Change		Percent Change		Six Months Ended							Dollar Change		Percent Change
	March 31,											March 31,							March 31,					March 31,
	2017			2016								2017				2016			2018				2017				2018						2017
Product and licensing revenue	$	159.3		$	158.6			$	0.6		0.4	%		$	311.0		$	337.7					$	(26.7	)	(7.9	)%	$		161.3	$	159.3		$	2.0		1.3	%		$	323.1	$	311.0	$	12.1	3.9	%
As a percentage of total revenue	31.9		%	33.1		%								31.5		%	35.0		%						31.4	%		31.9		%						31.8	%		31.5		%

Three Months Ended March 31, ~~2017~~2018 compared ~~with~~to Three Months Ended March 31, ~~2016~~2017

~~The~~Product and licensing revenue increased by $2.0 million, or 1.3%, primarily due to a $4.8 million increase in Automotive and a $6.3 million increase in Healthcare, mostly offset by a $5.0 million decrease in Enterprise and a $4.5 million decrease in Imaging. Automotive product and licensing revenue ~~consisted~~increased primarily due to royalties from existing customers. Healthcare product and licensing revenue increased primarily as a result of ~~a $6.7 million~~higher revenue from diagnostics solutions due to recent acquisitions, and the increase in Dragon Medical solutions. Enterprise product and licensing revenue decreased primarily due to lower contact center license revenue. Imaging product and licensing revenue decreased primarily due to lower revenue from our ~~Enterprise segment~~scanning and print management solutions. As a ~~$1.4 million increase in our Mobile segment driven by growth in our embedded speech license sales. These increases were partially offset by a $4.4 million decrease in our Healthcare segment~~percentage of total revenue, product and licensing revenue decreased from 31.9% to 31.4% as ~~we continue~~customers continued to transition ~~our~~from Dragon ~~Medical offerings from a~~ perpetual ~~license sales model~~licenses to ~~a cloud service model and a $3.1 million decrease~~Dragon cloud-based solutions in ~~our Imaging license sales.~~Healthcare.

Six Months Ended March 31, ~~2017~~2018 compared ~~with~~to Six Months Ended March 31, ~~2016~~2017

~~The~~Product and licensing revenue increased by $12.1 million, or 3.9%, primarily due to a $5.4 million increase in Automotive and a $10.5 million increase in Healthcare, offset in part by a $3.9 million decrease in Enterprise. Automotive product and licensing revenue ~~consisted~~increased primarily due to royalties from existing customers. Healthcare product and licensing revenue increased primarily as a result of higher revenue from diagnostics solutions due to recent acquisitions, and the increase in Dragon Medical solutions. Enterprise product and licensing revenue decreased primarily due to lower contact center license revenue. As a ~~$18.1 million decrease~~percentage of total revenue, product and licensing revenue increased from 31.5% to 31.8%, primarily due to higher revenue in our ~~Healthcare~~healthcare segment ~~a $8.3 million decrease~~related to recent acquisitions, offset in ~~our Mobile segment, and an $11.1 million decrease in our Imaging segment, partially offset~~part by ~~a $10.7 million increase in our Enterprise segment. The revenue decrease in our Healthcare segment was mainly driven by lower revenues from our Dragon Medical perpetual license sales as we~~customers' continued transition from Dragon perpetual licenses to cloud and subscription models. The revenue decrease in our Mobile business was driven by a decline in devices revenue resulting from deterioration in mature markets, partially offset by revenue growth in our automotive business. The revenue decrease in our Imaging segment was mainly driven by lower sales of our MFP products. These decreases were partially offset with higher license sales within our Enterprise segment.Dragon cloud-based solutions.

Maintenance and Support Revenue

Maintenance and support revenue primarily consists of technical support and maintenance services. The following table shows maintenance and support revenue, in dollars and as a percentage of total revenues (dollars in millions):


	Three Months Ended						Dollar Change			Percent Change			Six Months Ended							Dollar Change	Percent Change	Three Months Ended							Dollar Change		Percent Change		Six Months Ended							Dollar Change		Percent Change
	March 31,											March 31,							March 31,					March 31,
	2017			2016								2017				2016			2018				2017				2018						2017
Maintenance and support revenue	$	81.6		$	79.9			$	1.7		2.1	%		$	164.1		$	159.8					$	4.3		2.7	%	$		78.4	$	81.6		$	(3.2	)	(4.0	)%		$	159.2	$	164.1	$	(4.9	)	(3.0	)%
As a percentage of total revenue	16.3		%	16.7		%								16.6		%	16.6		%						15.2	%		16.3		%						15.7	%		16.6		%

Three Months Ended March 31, ~~2017~~2018 compared ~~with~~to Three Months Ended March 31, ~~2016~~2017

~~The increase in~~Maintenance and support revenue decreased by $3.2 million, or 4.0%. As a percentage of total revenue, maintenance and support revenue ~~was driven~~decreased from 16.3% to 15.2%. The decreases were primarily ~~by our Enterprise and Imaging segments.~~due to the continuing customer transition from product licenses to cloud-based solutions in Healthcare.

Six Months Ended March 31, ~~2017~~2018 compared ~~with~~to Six Months Ended March 31, ~~2016~~2017

~~The increase in~~Maintenance and support revenue decreased by $4.9 million, or 3.0%. As a percentage of total revenue, maintenance and support revenue ~~was driven~~decreased from 16.6% to 15.7%. The decreases were primarily ~~by our Enterprise and Imaging segments.~~due to the continuing customer transition from product licenses to cloud-based solutions in Healthcare.

~~Costs and Expenses~~COSTS AND EXPENSES

Cost of Professional Services and Hosting Revenue

Cost of professional services and hosting revenue primarily consists of compensation for services personnel, outside consultants and overhead, as well as the hardware, infrastructure and communications fees that support our hosting solutions. The following table shows the cost of professional services and hosting revenue, in dollars and as a percentage of professional services and hosting revenue (dollars in millions):


	Three Months Ended						Dollar Change		Percent Change		Six Months Ended						Dollar Change		Percent Change		Three Months Ended						Dollar Change		Percent Change		Six Months Ended						Dollar Change		Percent Change
	March 31,										March 31,										March 31,										March 31,
	2017			2016							2017			2016							2018			2017							2018			2017
Cost of professional services and hosting revenue	$	164.2		$	154.7		$	9.5	6.1	%	$	329.1		$	308.0		$	21.1	6.8	%	$	181.1		$	164.2		$	16.9	10.3	%	$	353.6		$	329.1		$	24.5	7.5	%
As a percentage of professional services and hosting revenue	63.5		%	64.4		%					64.3		%	65.9		%					65.9		%	63.5		%					66.3		%	64.3		%

Three Months Ended March 31, ~~2017~~2018 compared ~~with~~to Three Months Ended March 31, ~~2016~~2017

The increase in cost of professional services and hosting revenue was primarily ~~driven by higher compensation expense in our Enterprise segment driven by recent acquisitions and higher cloud services costs driven by~~due to the growth in our Dragon Medical ~~cloud revenue~~cloud-based solutions and EHR implementation and optimization services, offset in ~~our Healthcare segment.~~part by the decline in transcription services revenue. Gross ~~margins increased 0.9~~margin decreased by 2.4 percentage points primarily ~~driven by~~due to margin ~~expansion~~compression in our medical transcription services and the increase in EHR implementation and optimization services which carried lower margins, offset in part by a favorable shift in revenue mix towards higher margin Dragon Medical cloud-based ~~services within our Mobile and Healthcare segments, partially offset by impact from a recent acquisition which carries a~~offerings. Also contributing to the decrease was lower gross ~~margin.~~margin in our Enterprise segment due to lower revenues and the relatively fixed hosting costs, and the margin compression in Other segment due to the margin erosions in our Devices and SRS businesses.

Six Months Ended March 31, ~~2017~~2018 compared ~~with~~to Six Months Ended March 31, ~~2016~~2017

The increase in cost of professional services and hosting revenue was primarily ~~driven~~due to the growth in our Dragon Medical cloud-based solutions and EHR implementation and optimization services, offset in part by the decline in transcription services revenue. Gross margin decreased by 2.0 percentage points primarily due to margin compression in our medical transcription services and the increase in EHR implementation and optimization services which carried lower margins, offset in part by a favorable shift in revenue mix towards higher ~~compensation expense~~margin Dragon Medical cloud-based offerings. Also contributing to the decrease was lower gross margin in our Enterprise segment ~~driven by recent acquisitions. Gross margins increased 1.6 percentage points primarily driven by~~due to lower revenues and the relatively fixed hosting costs, and the margin ~~expansion~~compression in Other segment due to the margin erosions in our ~~cloud-based services within our Mobile segment, partially offset by impact from a recent acquisition which carries a lower gross margin.~~Devices and SRS businesses.

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						Dollar Change				Percent Change			Six Months Ended							Dollar Change	Percent Change	Three Months Ended							Dollar Change		Percent Change		Six Months Ended							Dollar Change		Percent Change
	March 31,												March 31,							March 31,					March 31,
	2017			2016									2017				2016			2018				2017				2018						2017
Cost of product and licensing revenue	$	18.8		$	20.8			$	(2.0	)		(9.8	)%		$	37.2		$	44.2					$	(7.1	)	(16.0	)%	$		19.0	$	18.8		$	0.2		0.9	%		$	38.0	$	37.2	$	0.8	2.3	%
As a percentage of product and licensing revenue	11.8		%	13.1		%									12.0		%	13.1		%						11.8	%		11.8		%						11.8	%		12.0		%

Three Months Ended March 31, ~~2017~~2018 compared ~~with~~to Three Months Ended March 31, ~~2016~~2017

~~The decrease in cost~~Cost of product and licensing revenue increased by $0.2 million, or 0.9%. Gross margin was primarily driven by lower costs in our Healthcare and Imaging segments. Gross margins increased 1.3 percentage points, primarily driven by higher revenues from higher margin license products in our Enterprise segment.essentially flat year-over-year.

Six Months Ended March 31, ~~2017~~2018 compared ~~with~~to Six Months Ended March 31, ~~2016~~2017

~~The decrease in cost~~Cost of product and licensing revenue ~~was primarily driven~~increased by ~~lower costs in our Healthcare and Imaging segments.~~$0.8 million, or 2.3%. Gross ~~margins~~margin increased ~~1.1~~by 0.2 percentage points, ~~primarily driven by higher revenues from higher margin license products in our Enterprise segment.~~

or essentially flat year-over-year.

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						Dollar Change			Percent Change		Six Months Ended						Dollar Change			Percent Change		Three Months Ended						Dollar Change		Percent Change		Six Months Ended						Dollar Change		Percent Change
	March 31,											March 31,											March 31,										March 31,
	2017			2016								2017			2016								2018			2017							2018			2017
Cost of maintenance and support revenue	$	13.2		$	13.6		$	(0.4	)	(2.8	)%	$	26.8		$	26.9		$	(0.1	)	(0.3	)%	$	14.2		$	13.2		$	1.0	7.2	%	$	28.4		$	26.8		$	1.6	5.9	%
As a percentage of maintenance and support revenue	16.2		%	17.1		%						16.4		%	16.8		%						18.1		%	16.2		%					17.9		%	16.4		%

Three Months Ended March 31, ~~2017~~2018 compared ~~with~~to Three Months Ended March 31, ~~2016~~2017

Cost of maintenance and support revenue increased by $1.0 million, or 7.2%. Gross margins ~~increased 0.9~~decreased by 1.9 percentage points primarily driven by ~~higher~~lower margin on Dragon Medical maintenance and support ~~revenue~~services in ~~our Enterprise segment which carries a higher margin.~~healthcare.

Six Months Ended March 31, ~~2017~~2018 compared ~~with~~to Six Months Ended March 31, ~~2016~~2017

~~Gross margins increased 0.4 percentage points primarily driven by higher~~Cost of maintenance and support revenue ~~in our Enterprise segment which carries a higher margin.~~increased by $1.6 million, or 5.9%. Gross margins decreased by 1.5 percentage points primarily due to lower margin on Dragon Medical maintenance and support services.

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 research and development expense, in dollars and as a percentage of total revenues (dollars in millions):


	Three Months Ended						Dollar Change			Percent Change		Six Months Ended						Dollar Change			Percent Change		Three Months Ended						Dollar Change		Percent Change		Six Months Ended						Dollar Change		Percent Change
	March 31,											March 31,											March 31,										March 31,
	2017			2016								2017			2016								2018			2017							2018			2017
Research and development expense	$	66.2		$	67.2		$	(1.0	)	(1.5	)%	$	132.6		$	137.8		$	(5.2	)	(3.8	)%	$	74.2		$	66.2		$	8.0	12.0	%	$	147.6		$	132.6		$	15.0	11.3	%
As a percentage of total revenue	13.3		%	14.0		%						13.4		%	14.3		%						14.4		%	13.3		%					14.5		%	13.4		%

Three Months Ended March 31, ~~2017~~2018 compared ~~with~~to Three Months Ended March 31, ~~2016~~2017

~~The decrease in research~~Research and development expense ~~was~~increased by $8.0 million, or 12.0%, primarily ~~attributable~~due to ~~lower~~higher compensation ~~costs,~~expenses as a result of higher R&D headcount as we ~~benefited from~~continue to enhance our ~~cost-savings initiatives including~~R&D capability and invest in new technologies to support our ~~restructuring plans and our on-going efforts to move costs and activities to lower-cost countries during the period.~~long-term growth.

Six Months Ended March 31, ~~2017~~2018 compared ~~with~~to Six Months Ended March 31, ~~2016~~2017

~~The decrease in research~~Research and development expense ~~was~~increased by $15.0 million, or 11.3%, primarily ~~attributable~~due to ~~lower~~higher compensation ~~costs,~~expenses as a result of higher R&D headcount as we ~~benefited from~~continue to enhance our ~~cost-savings initiatives including~~R&D capability and invest in new technologies to support our ~~restructuring plans and our on-going efforts to move costs and activities to lower-cost countries during the period.~~long-term growth.

Sales and Marketing Expense

Sales and marketing expense includes 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):


	Three Months Ended						Dollar Change		Percent Change		Six Months Ended						Dollar Change		Percent Change		Three Months Ended						Dollar Change		Percent Change		Six Months Ended						Dollar Change		Percent Change
	March 31,										March 31,										March 31,										March 31,
	2017			2016							2017			2016							2018			2017							2018			2017
Sales and marketing expense	$	93.7		$	92.8		$	0.8	0.9	%	$	195.2		$	193.4		$	1.8	0.9	%	$	94.2		$	93.7		$	0.5	0.5	%	$	196.1		$	195.2		$	1.0	0.5	%
As a percentage of total revenue	18.8		%	19.4		%					19.8		%	20.0		%					18.3		%	18.8		%					19.3		%	19.8		%

Three Months Ended March 31, ~~2017~~2018 compared ~~with~~to Three Months Ended March 31, ~~2016~~2017

~~The increase in sales~~Sales and marketing expense ~~was~~increased by $0.5 million, or 0.5%, primarily ~~attributable to a $4.5 million increase in total compensation and commission costs, including stock-based compensation expense, partially offset~~driven by ~~a $3.6 million decrease~~increases in marketing and ~~channel program spending and a $2.0 million decrease~~communication expenses, offset in ~~expense as a result of the conclusion of exclusive commercialization rights under a collaboration agreement during the second quarter of fiscal year 2016.~~part by lower compensation expenses.

Six Months Ended March 31, ~~2017~~2018 compared ~~with~~to Six Months Ended March 31, ~~2016~~2017

~~The increase in sales~~Sales and marketing expense ~~was~~increased by $1.0 million, or 0.5%, primarily ~~attributable~~due to ~~a $9.6 million~~the increase in ~~total compensation~~professional service expenses and ~~commission costs, including stock-based compensation expense, partially offset by a $6.8 million decrease in~~ marketing and channel program spending and a $4.0 million decrease in expense as a result of the conclusion of exclusive commercialization rights under a collaboration agreement during the second quarter of fiscal year 2016.communication expenses.

General and Administrative Expense

General and administrative 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 general and administrative expense, in dollars and as a percentage of total revenues (dollars in millions):


	Three Months Ended						Dollar Change			Percent Change		Six Months Ended						Dollar Change			Percent Change		Three Months Ended						Dollar Change		Percent Change		Six Months Ended						Dollar Change		Percent Change
	March 31,											March 31,											March 31,										March 31,
	2017			2016								2017			2016								2018			2017							2018			2017
General and administrative expense	$	41.5		$	45.9		$	(4.4	)	(9.6	)%	$	81.3		$	86.4		$	(5.1	)	(5.9	)%	$	74.3		$	41.5		$	32.8	78.9	%	$	127.2		$	81.3		$	45.9	56.4	%
As a percentage of total revenue	8.3		%	9.6		%						8.2		%	9.0		%						14.4		%	8.3		%					12.5		%	8.2		%

Three Months Ended March 31, ~~2017~~2018 compared ~~with~~to Three Months Ended March 31, ~~2016~~2017

~~The decrease in general~~General and administrative expense ~~was~~increased by $32.8 million, or 78.9%, primarily ~~attributable~~due to ~~the decrease in consulting and~~ professional ~~services fees~~service costs related to ~~assessing~~evaluating strategic alternatives for certain businesses and ~~our transformation program.~~establishing the Automotive business as a separate operating segment.

Six Months Ended March 31, ~~2017~~2018 compared ~~with~~to Six Months Ended March 31, ~~2016~~2017

~~The decrease in general~~General and administrative expense ~~was~~increased by $45.9 million, or 56.4%, primarily ~~attributable~~due to ~~the decrease in consulting and~~ professional services ~~fees~~costs related to ~~assessing~~evaluating strategic alternatives for certain businesses and ~~our transformation program.~~

establishing the Automotive business as a separate operating segment.

Amortization of Intangible Assets

Amortization of acquired patents and ~~core and completed technology~~technologies are included inwithin 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 inwithin operating expenses. Customer relationships are amortized ~~on an accelerated basis~~ based upon the pattern in which the economic benefits of the customer relationships are ~~being~~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						Dollar Change		Percent Change		Six Months Ended						Dollar Change		Percent Change		Three Months Ended						Dollar Change			Percent Change		Six Months Ended						Dollar Change			Percent Change
	March 31,										March 31,										March 31,											March 31,
	2017			2016							2017			2016							2018			2017								2018			2017
Cost of revenue	$	17.2		$	16.3		$	0.9	5.4	%	$	32.8		$	32.0		$	0.8	2.5	%	$	14.8		$	17.2		$	(2.4	)	(14.2	)%	$	30.1		$	32.8		$	(2.6	)	(8.0	)%
Operating expenses	27.9			26.4			1.5		5.5	%	55.8			53.5			2.3		4.3	%	22.7			27.9			(5.2		)	(18.8	)%	45.7			55.8			(10.0		)	(18.0	)%
Total amortization expense	$	45.1		$	42.9		$	2.2	5.2	%	$	88.5		$	85.5		$	3.1	3.6	%	$	37.5		$	45.1		$	(7.7	)	(17.0	)%	$	75.9		$	88.5		$	(12.7	)	(14.3	)%
As a percentage of total revenue	9.0		%	9.0		%					9.0		%	8.9		%					7.3		%	9.0		%						7.5		%	9.0		%

The ~~increase~~decreases in total amortization of intangible assets for the three and six months ended March 31, ~~2017,~~2018, as compared to the ~~three and six months ended March 31, 2016, was~~prior year periods, were primarily ~~attributable~~due to ~~the amortization of acquired customer relationship~~certain intangible assets ~~from recent acquisitions.~~having been fully amortized during fiscal year 2017.

Acquisition-Related Costs, Net

Acquisition-related costs include costs related to business ~~and other acquisitions, including potential~~ acquisitions. These costs consist of (i) transition and integration costs, including retention payments, transitional employee costs, ~~and~~ earn-out payments, ~~treated as compensation expense, as well as the~~and other costs ~~of integration-related activities, including services provided by third-parties;~~related to integration activities; (ii) professional service fees, ~~and expenses,~~ 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 ~~items that are required to be marked to fair value each reporting period, such as contingent consideration, and other items related to acquisitions for which~~contingencies. A summary of the ~~measurement period has ended, such as gains or losses on settlements of pre-acquisition contingencies. Acquisition-related~~acquisition-related costs ~~were recorded~~is as follows (dollars in millions):


	Three Months Ended						Dollar Change			Percent Change		Six Months Ended						Dollar Change		Percent Change		Three Months Ended						Dollar Change			Percent Change		Six Months Ended						Dollar Change			Percent Change
	March 31,											March 31,										March 31,											March 31,
	2017			2016								2017			2016							2018			2017								2018			2017
Transition and integration costs	$	3.6		$	1.0		$	2.6		247.6	%	$	7.3		$	2.0		$	5.3	259.8	%	$	3.4		$	3.6		$	(0.2	)	(6.8	)%	$	7.4		$	7.3		$	0.1		1.5	%
Professional service fees	3.0			1.2			1.8			148.5	%	8.0			2.6			5.4		207.3	%	0.9			3.0			(2.0		)	(68.4	)%	1.5			8.0			(6.5		)	(81.8	)%
Acquisition-related adjustments	(1.2		)	(1.0		)	(0.2		)	19.4	%	(0.9		)	(0.9		)	—		(2.4	)%	(1.9		)	(1.2		)	(0.7		)	61.3	%	(1.0		)	(0.9		)	(0.1		)	5.6	%
Total acquisition-related costs, net	$	5.4		$	1.2		$	4.2		339.1	%	$	14.4		$	3.7		$	10.7	288.8	%	$	2.4		$	5.4		$	(3.0	)	(56.1	)%	$	7.9		$	14.4		$	(6.5	)	(45.0	)%
As a percentage of total revenue	1.1		%	0.3		%						1.5		%	0.4		%					0.5		%	1.1		%						0.8		%	1.5		%

~~Included~~The decreases in ~~transition and integration~~acquisition-related costs, net for the three and six months ended March 31, ~~2017 is $2.5 million and $5.6 million related~~2018, as compared to ~~contingent retention payments for acquisitions closed~~the prior year periods, were primarily due to the decrease in professional service fees driven by reduced acquisition activities during fiscal ~~years 2016 and 2017.~~year 2018.

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 continuing operations. Restructuring expenses consist of employee severance costs and may also include charges for excess facility space and other contract termination costs. Other charges may include litigation contingency reserves, costs related to a transition agreement for our Chief Executive Officer, asset impairment charge and gains or losses on the sale or disposition of certain non-strategic assets or product lines.

While restructuring and other charges, net are excluded from ~~our calculation of~~ segment ~~profit,~~profits, the table below presents the restructuring and other charges, net associated with each segment (dollars in thousands):



	Three Months Ended March 31,																						Three Months Ended March 31,
	2017										2016												2018											2017
	Personnel		Facilities		Total Restructuring		Other Charges		Total		Personnel			Facilities			Total Restructuring		Other Charges		Total		Personnel		Facilities			Total Restructuring		Other Charges		Total		Personnel		Facilities		Total Restructuring		Other Charges		Total
Healthcare	$	577	$	593	$	1,170	$	—	$	1,170	$	613		$	8		$	621	$	—	$	621	$	788	$	—		$	788	$	—	$	788	$	577	$	593	$	1,170	$	—	$	1,170
Mobile	3,053		51		3,104		10,773		13,877		2,729			(652		)	2,077		46		2,123
Enterprise	388		257		645		—		645		(41		)	2,014			1,973		—		1,973		265		7			272		—		272		388		257		645		—		645
Automotive																							849		—			849		—		849		1,247		—		1,247		—		1,247
Imaging	225		36		261		—		261		(1		)	184			183		—		183		83		(16		)	67		—		67		225		36		261		—		261
Other																							1,095		558			1,653		—		1,653		1,806		51		1,857		10,773		12,630
Corporate	332		1,318		1,650		2,308		3,958		1,691			—			1,691		61		1,752		707		798			1,505		3,814		5,319		332		1,318		1,650		2,308		3,958
Total	$	4,575	$	2,255	$	6,830	$	13,081	$	19,911	$	4,991		$	1,554		$	6,545	$	107	$	6,652	$	3,787	$	1,347		$	5,134	$	3,814	$	8,948	$	4,575	$	2,255	$	6,830	$	13,081	$	19,911

	Six Months Ended March 31,
	2017										2016
	Personnel		Facilities		Total Restructuring		Other Charges		Total		Personnel			Facilities			Total Restructuring		Other Charges		Total
Healthcare	$	2,561	$	870	$	3,431	$	—	$	3,431	$	1,314		$	8		$	1,322	$	—	$	1,322
Mobile	3,265		51		3,316		10,773		14,089		4,911			(50		)	4,861		46		4,907
Enterprise	812		864		1,676		—		1,676		1,043			2,034			3,077		—		3,077
Imaging	586		387		973		—		973		212			184			396		—		396
Corporate	1,000		1,982		2,982		3,463		6,445		2,069			2,708			4,777		61		4,838
Total	$	8,224	$	4,154	$	12,378	$	14,236	$	26,614	$	9,549		$	4,884		$	14,433	$	107	$	14,540

~~During the three and six months ended March 31, 2017, we recorded restructuring charges of $6.8 million and $12.4 million, respectively. The restructuring charges for~~



	Six Months Ended March 31,
	2018											2017
	Personnel		Facilities			Total Restructuring		Other Charges		Total		Personnel		Facilities		Total Restructuring		Other Charges		Total
Healthcare	$	3,301	$	25		$	3,326	$	—	$	3,326	$	2,561	$	870	$	3,431	$	—	$	3,431
Enterprise	527		2,367			2,894		—		2,894		812		864		1,676		—		1,676
Automotive	1,000		—			1,000		—		1,000		1,415		—		1,415		—		1,415
Imaging	1,306		(7		)	1,299		—		1,299		586		387		973		—		973
Other	1,344		569			1,913		—		1,913		1,850		51		1,901		10,773		12,674
Corporate	1,192		58			1,250		12,067		13,317		1,000		1,982		2,982		3,463		6,445
Total	$	8,670	$	3,012		$	11,682	$	12,067	$	23,749	$	8,224	$	4,154	$	12,378	$	14,236	$	26,614

FiscalYear2018

For the six months ended March 31, ~~2017~~2018, we recorded restructuring charges of $11.7 million, which included ~~$8.2~~$8.7 million ~~for severance cost~~ related to the termination of approximately ~~220 terminated~~400 employees and ~~$4.2~~$3.0 million ~~charge~~related to certain excess facilities. Of these amounts, $5.1 million was recorded for the ~~closure of~~three months ended March 31, 2018, including $3.8 million related to employee termination and $1.3 million related to certain excess ~~facility space including adjustment to sublease assumptions associated with prior abandoned~~ facilities. These actions ~~are~~were part of our strategic initiatives ~~to reduce costs~~focused on investment rationalization, process optimization and ~~optimize processes.~~cost reduction. We expect the remaining outstanding severance ~~payments~~ of ~~$2.6~~$1.4 million ~~will~~to be substantially paid ~~by the end of~~during fiscal year ~~2017. We expect~~2018, and the remaining ~~payments~~balance of ~~$11.2~~$8.5 million ~~for the closure of~~related to excess ~~facility space will~~facilities to be paid through fiscal year 2025, in accordance with the terms of the applicable leases.

~~In addition~~Additionally, for the six months ended March 31, 2018, we recorded $4.6 million related to the ~~restructuring charges, during~~transition agreement of our former

CEO, $7.5 million related to our remediation and restoration efforts after the 2017 Malware Incident that occurred in the third quarter of fiscal year 2017. Of these amounts, $2.3 million related to the CEO transition and $1.5 million related to the 2017 Malware Incident was recorded for the three ~~and~~months ended March 31, 2018. The cash payments associated with the CEO transition agreement are expected to be made through fiscal year 2020.

FiscalYear2017

Additionally, for the six months ended March 31, 2017, we recorded $3.5 million ~~respectively, for costs~~ related to ~~a transition agreement for our Chief Executive Officer as communicated on our Form 8-K filed on November 17, 2016. The cash payments associated with~~ the transition agreement ~~are expected to be made during fiscal years 2018~~of our former CEO and ~~2019. Also included in other charges was a~~$10.8 million non-cash impairment charge ofrelated to an internally developed software. Of these amounts, $2.3 million related to the CEO transition and $10.8 million ~~resulting from our decision to cease use of a capitalized internally developed software during~~non-cash impairment charge were recorded for the three months ended March 31, 2017.

~~During~~Impairment of Goodwill

FiscalYear2018

As more fully described in Note 4 of the three and six months ended March 31, 2016, we recorded restructuring charges of $6.5 million and $14.4 million, respectively. The restructuring charges for the six months ended March 31, 2016 included $9.5 million for severance costs related to approximately 200 terminated employees as part of our initiatives to reduce costs and optimize processes. The restructuring charges also included a $4.9 million charge for the closure of certain excess facility space.

~~Other Expense, Net~~

Other expense, net consists of interest income, interest expense, gain (loss) from foreign exchange, and gain (loss) from other non-operating activities. The following table shows other expense, net, in dollars and as a percentage of total revenues (dollars in millions):

Three Months Ended
Dollar
Change

Percent
Change
Six Months Ended
Dollar
Change

Percent
Change
March 31, March 31,
2017 2016 2017 2016
Interest income $ 1.3
$ 1.6
$ (0.3 ) (20.8 )% $ 2.3
$ 2.5
$ (0.2 ) (7.8 )%
Interest expense (37.9 ) (32.3 ) (5.5 ) 17.1 % (75.9 ) (62.2 ) (13.7 ) 22.0 %
Other (expense) income, net (19.6 ) —
(19.6 ) N/A
(20.2 ) (6.8 ) (13.4 ) 197.7 %
Total other expense, net $ (56.2 ) $ (30.7 ) $ (25.5 ) 83.0 % $ (93.8 ) $ (66.5 ) 41.0 %
As a percentage of total revenue 11.2 % 6.4 % 9.5 % 6.9 %

~~Interest expense~~accompanying condensed consolidated financial statements, for the three and six months ended March 31, ~~2017 increased $5.5~~2018, we recorded a goodwill impairment charge of $137.9 million related to Other segment, with $35.1 million related to Devices and ~~$13.7~~$102.8 million ~~primarily driven by increase~~related to SRS.

Other Expense, Net

A summary of other expenses, net is as follows (dollars in interest expense as a result of the issuance of debt, including the 2024 Senior Notes issue in June 2016, the 2026 Senior Notes issued in December 2016 and the 1.25% 2025 Debentures in March 2017. These increases were partially offset by lower interest expense resulting from the early repayment of our Credit Facility in December 2015 and the partial repayment of 2020 Senior Notes in January 2017. Other (expense) income, netmillions):



	Three Months Ended						Dollar Change		Percent Change		Six Months Ended						Dollar Change		Percent Change
	March 31,										March 31,
	2018			2017							2018			2017
Interest income	$	2.2		$	1.3		$	1.0	74.7	%	$	4.4		$	2.3		$	2.1	92.3	%
Interest expense	(33.9		)	(37.9		)	4.0		(10.5	)%	(69.9		)	(75.9		)	5.9		(7.8	)%
Other expense, net	(0.6		)	(19.6		)	19.1		(96.9	)%	(0.8		)	(20.2		)	19.4		(96.1	)%
Total other expense, net	$	(32.2	)	$	(56.2	)	$	24.0	(42.7	)%	$	(66.3	)	$	(93.8	)	$	27.5	(29.3	)%
As a percentage of total revenue	6.3		%	11.2		%					6.5		%	9.5		%

The decreases for the three and six months ended March 31, ~~2017 included~~2018, as compared to the prior year periods, were primarily due to debt extinguishment losses of $18.6 million ~~primarily related to~~for the partial repayment of our 2020 Senior ~~Notes.~~Notes in fiscal year 2017.

Provision for Income Taxes

The following table shows the provision (benefit) for income taxes and the effective income tax rate (dollars in millions):


	Three Months Ended						Dollar Change			Percent Change		Six Months Ended						Dollar Change		Percent Change		Three Months Ended						Dollar Change			Percent Change		Six Months Ended						Dollar Change			Percent Change
	March 31,											March 31,										March 31,											March 31,
	2017			2016								2017			2016							2018			2017								2018			2017
Provision for income taxes	$	9.1		$	9.2		$	(0.1	)	(1.1	)%	$	19.5		$	17.0		$	2.5	14.6	%
Provision (benefit) for income taxes																						$	2.5		$	9.1		$	(6.6	)	(72.2	)%	$	(76.0	)	$	19.5		$	(95.5	)	(489.7	)%
Effective income tax rate	(37.1		)%	420.4		%						(51.0		)%	(810.5		)%					(1.6		)%	(37.1		)%						40.7		%	(51.0		)%

As more fully described in Note 14 to the accompanying condensed consolidated financial statements, as a result of the Tax Cuts and Jobs Act ("TCJA"), we remeasured certain deferred tax assets and liabilities at the lower rates and recorded approximately $87.0 million of tax benefits for the six months ended March 31, 2018, which also reflected an expense of $10.0 million for the three months ended March 31, 2018 as we revised our estimates of the timing and amounts of the temporary differences. Additionally, we recorded a $2.0 million provision for the deemed repatriation of foreign cash and earnings for the six months ended March 31, 2018, which also reflected a benefit of $12.0 million for the three months ended March 31, 2018 as we revised our estimates of foreign earnings and profits related to the mandatory repatriation tax.

~~The effective income~~In addition, as more fully described in Note 4 to the condensed consolidated financial statements, in connection with the impairment charge of SRS's goodwill, we recognized a tax ~~rate was (37.1)% and (51.0)%~~benefit of $8.5 million related to the portion of deductible goodwill in Brazil for the three and six months ended March 31, 2017, respectively. Our current effective income tax rate differs from the U.S. federal statutory rate of 35% primarily due to current period losses in the United States that require an additional valuation allowance and accordingly provide no benefit to the provision as well as an increase to indefinite lived deferred tax liabilities. This is partially offset by our earnings in foreign operations that are subject to a significantly lower tax rate than the U.S. statutory tax rate, driven primarily by our subsidiaries in Ireland.

SEGMENT ANALYSIS

~~We operate in,~~During the first quarter of fiscal year 2018, we commenced a reorganization of our segment reporting structure to allow our Chief Operating Decision Maker ("CODM") greater focus on implementing strategic initiatives and ~~report financial~~identifying future investment opportunities. During the second quarter of fiscal year 2018, we established our Automotive business as a separate operating segment. Additionally, we moved our Dragon TV business from our Mobile operating segment into our Enterprise operating segment to consolidate our telecommunications market resources. Finally, our SRS business and our Devices business, originally included within our Mobile operating segment, are now presented within our Other segment. As a result, segment information for the ~~following four reportable segments: Healthcare, Mobile, Enterprise,~~three and ~~Imaging. Segment profit is an important measure used for evaluating performance~~six months ended March 31, 2018 and ~~for decision-making purposes and reflects~~2017 has been recast to reflect the ~~direct controllable costs of each~~new segment together with an allocation of sales and corporate marketing expenses, and certain research and development project costs that benefit multiple product offerings. Segment profit represents income from operations excluding stock-based compensation, amortization of intangible assets, acquisition-related costs, net, restructuring and other charges, net, costs associated with intellectual property collaboration agreements, other expense, net and certain unallocated corporate expenses. We believe that these adjustments allow for more complete comparisons to the financial results of the historical operations.

reporting structure.

The following table presents ~~segment results~~certain financial information about our operating segments (dollars in millions):


	Three Months Ended						Change			Percent Change		Six Months Ended						Change			Percent Change		Three Months Ended						Change			Percent Change		Six Months Ended						Change			Percent Change
	March 31,											March 31,											March 31,											March 31,
	2017			2016								2017			2016								2018			2017								2018			2017
Segment Revenues^(a):
Healthcare	$	238.5		$	244.4		$	(5.9	)	(2.4	)%	$	477.7		$	492.5		$	(14.8	)	(3.0	)%	$	261.2		$	238.5		$	22.7		9.5	%	$	506.8		$	477.7		$	29.1		6.1	%
Mobile	100.2			91.8			8.4			9.1	%	192.0			188.2			3.8			2.0	%
Enterprise	119.4			94.4			24.9			26.4	%	232.3			183.2			49.1			26.8	%	112.7			122.1			(9.4		)	(7.7	)%	233.3			237.5			(4.2		)	(1.8	)%
Automotive																							69.0			61.7			7.3			11.7	%	130.4			120.6			9.8			8.2	%
Imaging	53.0			56.7			(3.7		)	(6.5	)%	105.1			118.4			(13.2		)	(11.2	)%	48.9			53.0			(4.1		)	(7.8	)%	104.6			105.1			(0.5		)	(0.5	)%
Other																							26.5			35.7			(9.2		)	(25.8	)%	52.1			66.2			(14.1		)	(21.3	)%
Total segment revenues	$	511.1		$	487.4		$	23.7		4.9	%	$	1,007.1		$	982.3		$	24.8		2.5	%	$	518.3		$	511.1		$	7.2		1.4	%	$	1,027.1		$	1,007.1		$	20.0		2.0	%
Less: acquisition related revenues adjustments	(11.5		)	(8.7		)	(2.8		)	32.2	%	(19.9		)	(17.4		)	(2.4		)	14.0	%	(4.1		)	(11.5		)	7.4			(64.5	)%	(11.3		)	(19.9		)	8.6			(43.3	)%
Total revenues	$	499.6		$	478.7		$	20.9		4.4	%	$	987.2		$	964.8		$	22.4		2.3	%	$	514.2		$	499.6		$	14.6		2.9	%	$	1,015.9		$	987.2		$	28.7		2.9	%
Segment Profit:
Healthcare	$	83.3		$	78.4		$	4.9		6.3	%	$	161.9		$	159.6		$	2.3		1.4	%	$	87.4		$	83.3		$	4.1		4.8	%	$	164.8		$	161.9		$	2.9		1.8	%
Mobile	40.4			33.4			7.0			21.0	%	73.9			67.2			6.7			10.0	%
Enterprise	41.8			34.1			7.7			22.6	%	73.7			60.3			13.5			22.3	%	25.7			40.3			(14.6		)	(36.3	)%	63.5			70.3			(6.8		)	(9.7	)%
Automotive																							28.9			29.3			(0.4		)	(1.5	)%	52.1			56.9			(4.8		)	(8.5	)%
Imaging	18.5			22.2			(3.7		)	(16.7	)%	36.1			49.2			(13.1		)	(26.6	)%	12.3			18.5			(6.2		)	(33.6	)%	27.9			36.1			(8.2		)	(22.7	)%
Other																							6.1			12.5			(6.4		)	(51.5	)%	9.5			20.4			(10.9		)	(53.5	)%
Total segment profit	$	184.0		$	168.1		$	15.9		9.5	%	$	345.6		$	336.3		$	9.4		2.8	%	$	160.3		$	184.0		$	(23.7	)	(12.9	)%	$	317.7		$	345.6		$	(27.9	)	(8.1	)%
Segment Profit Margin
Segment Profit Margin:
Healthcare	34.9		%	32.1		%	2.9					33.9		%	32.4		%	1.5					33.4		%	34.9		%	(1.5		)			32.5		%	33.9		%	(1.4		)
Mobile	40.3		%	36.4		%	3.9					38.5		%	35.7		%	2.8
Enterprise	35.0		%	36.1		%	(1.1		)			31.7		%	32.9		%	(1.2		)			22.8		%	33.0		%	(10.2		)			27.2		%	29.6		%	(2.4		)
Automotive																							41.9		%	47.5		%	(5.6		)			39.9		%	47.2		%	(7.3		)
Imaging	34.8		%	39.1		%	(4.3		)			34.3		%	41.6		%	(7.2		)			25.0		%	34.8		%	(9.8		)			26.7		%	34.3		%	(7.6		)
Other																							22.9		%	35.1		%	(12.2		)			18.2		%	30.9		%	(12.6		)
Total segment profit margin	36.0		%	34.5		%	1.5					34.3		%	34.2		%	0.1					30.9		%	36.0		%	(5.1		)			30.9		%	34.3		%	(3.4		)


^(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 March 31, 2018 compared to Three Months Ended March 31, 2017

Healthcare segment revenue ~~decreased $5.9~~increased by $22.7 million, ~~for the three months ended March 31, 2017, as compared~~or 9.5%, primarily due to ~~the three months ended March 31, 2016. Product~~higher revenue from Dragon Medical cloud-based solutions and ~~licensing revenue decreased $5.3 million driven~~EHR implementation and optimization services, offset by in part by lower revenue from our ~~Dragon Medical perpetual~~transcription services revenue due to the continued erosion, and the negative impact of the 2017 Malware Incident.

Enterprise segment revenue decreased by $9.4 million, or 7.7%, primarily due to lower contact center license ~~sales as we transition~~and services revenue, and lower volume through our legacy inbound and outbound on-demand solutions.

Automotive segment revenue increased by $7.3 million, or 11.7%, primarily due to higher revenues from ~~perpetual to cloud offerings. Professional services~~royalties and hosting ~~revenue decreased $0.3 million due to~~solutions driven by continued ~~erosion in our transcription services partially offset by strong revenue~~ growth in our ~~Dragon Medical cloud~~connected services.

Mobile segment revenue increased $8.4 million for the three months ended March 31, 2017, as compared to the three months ended March 31, 2016. Professional services and hosting revenue increased $8.4 million driven primarily by a continued trend toward cloud-based services in our automotive solutions and strength in our mobile operator services.

Enterprise segment revenue increased $24.9 million for the three months ended March 31, 2017, as compared to the three months ended March 31, 2016. Product and licensing revenue increased $12.5 million primarily related to revenue from recent acquisitions and growth in our embedded speech license sales. Professional services and hosting revenue increased $10.3 million driven by strong revenue across many of our omni-channel cloud offerings, including revenue from a recent acquisition. Maintenance and support revenue increased $2.1 million.

Imaging segment revenues decreased ~~$3.7~~by $4.1 million, or 7.8%, primarily due to lower revenue from our scanning and print management solutions.

Other segment revenue decreased by $9.2 million, or 25.8%, primarily due to declines in both SRS and Devices. The decline in SRS was primarily due to the recent market disruptions in India and Brazil. These markets have experienced recent and dramatic disruptions as a result of accelerated change in competition and business models for our SRS mobile operator customers, which has reduced demand for our services. The decline in our Devices business was primarily due to the ~~three months ended~~ongoing consolidation of our handset manufacturer customer base, as well as continued erosion of our penetration of the remaining market.

Six Months Ended March 31, ~~2017, as~~2018 compared to ~~the three months ended March 31, 2016, primarily driven by lower sales of our MFP products.~~

Six Months Ended March 31, 2017

Healthcare segment revenue ~~decreased $14.8~~increased by $29.1 million, ~~for the six months ended March 31, 2017, as compared~~or 6.1%, primarily due to ~~the six months ended March 31, 2016. Product~~higher revenue from Dragon Medical cloud-based solutions and ~~licensing revenue decreased $19.9 million driven~~EHR implementation and optimization services, offset by in part by lower revenue from our ~~Dragon Medical perpetual license sales as we transition from perpetual~~transcription services revenue due to ~~cloud offerings. Hosting~~the continued erosion, and the negative impact of the 2017 Malware Incident.

Enterprise segment revenue decreased ~~$2.4~~by $4.2 million, or 1.8%, primarily due to ~~continued erosion in~~lower contact center license and services revenue, and lower volume through our ~~transcription services partially offset~~legacy inbound and outbound on-demand solutions.

Automotive segment revenue increased by ~~the~~$9.8 million, or 8.2%, primarily due to higher revenues from royalties and hosting solutions driven by continued growth in our ~~Dragon Medical cloud~~connected services. ~~These decreases were partially offset by a $6.8 million increase in professional services revenue driven by a recent acquisition.~~

Mobile segment revenue increased $3.8 million for the six months ended March 31, 2017, as compared to the six months ended March 31, 2016. Professional services and hosting revenue increased $14.3 million driven primarily by a continued trend toward cloud-based services in our automotive solutions and strength in our mobile operator services. Product and licensing revenue decreased $8.8 million and maintenance and support revenue decreased $1.7 million, due to a decline in devices revenue from deterioration in mature markets, partially offset by the growth in recurring product and licensing revenue in our automotive business.

Enterprise segment revenue increased $49.1 million for the six months ended March 31, 2017, as compared to the six months ended March 31, 2016. Professional services and hosting revenue increased $26.0 million driven by strong revenue across many of our omni-channel offerings, including revenue from a recent acquisition. Product and licensing revenue increased $19.2 million primarily related to revenue from recent acquisitions.

Imaging segment revenues decreased ~~$13.2~~by $0.5 million, ~~for the six months ended March 31, 2017, as compared~~or 0.5%, primarily due to lower revenue from our scanning and print management solutions.

Other segment revenue decreased by 14.1 million, or 21.3%, primarily due to declines in both of SRS and Devices. The decline in SRS was primarily due to the ~~six months ended March 31, 2016,~~recent market disruptions in India and Brazil. These markets have experienced recent and dramatic disruptions as a result of accelerated change in competition and business models for our SRS mobile operator customers, which has reduced demand for our services. The decline in our Devices business was primarily ~~driven by lower sales~~due to the ongoing consolidation of our ~~MFP products.~~handset manufacturer customer base, as well as continued erosion of our penetration of the remaining market.

Segment Profit

Three Months Ended March 31, 2018 compared to Three Months Ended March 31, 2017

Healthcare segment profit ~~for the three months ended March 31, 2017~~ increased ~~6.3% from the same period last year,~~by $4.1 million, or 4.8%, primarily ~~driven~~due to higher segment revenue offset in part by lower ~~operating expenses. Segment profit~~gross margin. The lower gross margin ~~increased 2.9% percentage points, from 32.1% for~~was primarily due to margin compression in our medical transcription services and the ~~same period last year to 34.9% during the current period. The~~ increase in EHR implementation and optimization services which carried lower margins, offset in part by a favorable shift in revenue mix towards higher margin Dragon Medical cloud-based offerings. As a result, segment profit margin decreased by 1.5 percentage points to 33.4%.

Enterprise segment profit decreased by $14.6 million, or 36.3%, primarily due to lower segment revenue and lower gross margin. The lower gross margin was primarily ~~driven~~a result of lower revenue and relatively fixed overhead costs. As a result, segment profit margin decreased by 10.2 percentage points to 22.8%.

Automotive segment profit decreased by $0.4 million, or 1.5%, primarily due to lower ~~operating expenses with improvements of 2.3 percentage point~~gross margin and higher ~~gross margins of 0.6 percentage point.~~

~~Mobile segment profit for the three months ended March 31, 2017 increased 21.0% from the same period last year, primarily driven~~R&D expenses, offset in part by higher ~~gross profit. Segment profit margin increased 3.9% percentage points, from 36.4% for the same period last year to 40.3% during the current period.~~revenue. The ~~increase in segment profit~~lower gross margin was primarily driven by our ~~cost savings~~investment in automotive technologies and ~~process optimization initiatives with improvements of 2.9 percentage point due to lower operating~~increased professional services headcount for future business needs. The higher R&D expenses ~~and a 1.0 percentage point improvement in gross margin driven by margin expansion in our cloud-based services.~~

Enterprise segment profit for the three months ended March 31, 2017 increased 22.6% from the same period last year, driven by higher gross profit due to increased revenue. Segment profit margin decreased 1.1% percentage points, from 36.1% for the same period last year to 35.0% in the current period. The decrease in segment profit margin was primarily driven by ~~lower gross margin resulting from~~our increased investment in new technologies to support future growth. As a ~~shift in mix towards a higher percentage of professional services and hosting revenue.~~

~~Imaging~~result, segment ~~profit for the three months ended March 31, 2017 decreased 16.7% from the same period last year, primarily driven by lower revenue. Segment~~ profit margin decreased ~~4.3%~~by 5.6 percentage points to 41.9%.

Imaging segment profit decreased by 6.2 million, or 33.6%, primarily due to lower segment revenue and gross margin and higher operating expenses. Gross margin declined as a result of an unfavorable shift in revenue mix from ~~39.1% for the same period last year~~higher margin licensing revenue to ~~34.8% during the current period. The decrease in~~lower margin product revenue. Operating expenses increased primarily due to higher sales and marketing and R&D expenses to support new products and solutions. As a result, segment profit margin ~~was~~decreased by 9.8 percentage points to 25.0%.

Other segment profit decreased by 6.4 million, or 51.5%. Profit margin decreased by 12.2 percentage points to 22.9%. The declines were primarily ~~driven by~~due to lower revenues and ~~higher research~~relatively fixed costs and ~~development expenses.~~expenses structure.

Six Months Ended March 31, 2018 compared to Six Months Ended March 31, 2017

Healthcare segment profit ~~for the six months ended March 31, 2017~~ increased ~~1.4% from the same period last year,~~by $2.9 million, or 1.8%, primarily ~~driven~~due to higher segment revenue offset in part by lower ~~operating expenses. Segment profit~~gross margin. The lower gross margin ~~increased 1.5 percentage points, from 32.4% for~~was primarily due to margin compression in our medical transcription services and the ~~same period last year to 33.9% during the current period. The~~ increase in EHR implementation and optimization services which carried lower margins, offset in part by a favorable shift in revenue mix towards higher margin Dragon Medical cloud-based offerings. As a result, segment profit margin decreased by 1.4 percentage points to 32.5%.

Enterprise segment profit decreased by $6.8 million, or 9.7%, primarily due to lower segment revenue and lower gross margin. The lower gross margin was primarily ~~driven by~~a result of lower ~~operating expenses with improvements of 1.5 percentage point.~~

~~Mobile~~revenue and relatively fixed overhead costs. As a result, segment profit ~~for the six months ended March 31, 2017 increased 10.0% from the same period last year,~~margin decreased by 2.4 percentage points to 27.2%.

Automotive segment profit decreased by $4.8 million, or 8.5%, primarily ~~driven~~due to lower gross margin and higher R&D expenses, offset in part by higher ~~gross profit and~~revenue. The lower ~~operating expenses. Segment profit margin increased 2.8 percentage~~

~~points, from 35.7% for the same period last year to 38.5% during the current period. The increase in segment profit~~gross margin was primarily driven by our ~~cost savings~~investment in automotive technologies and ~~process optimization initiatives with improvements of 1.9 percentage point due to lower operating~~increased professional services headcount for future business needs. The higher R&D expenses ~~and a 0.9 percentage point improvement in gross margin driven by margin expansion in our cloud-based services.~~

Enterprise segment profit for the six months ended March 31, 2017 increased 22.3% from the same period last year, driven by higher gross profit, partially offset by higher operating expenses from a recent acquisition. Segment profit margin decreased 1.2 percentage points, from 32.9% for the same period last year to 31.7% in the current period. The decrease in segment profit margin was primarily driven by ~~lower gross margin resulting from~~our increased investment in new technologies to support future growth. As a ~~shift in mix towards a higher percentage of professional services and hosting revenue.~~

~~Imaging~~result, segment ~~profit for the six months ended March 31, 2017 decreased 26.6% from the same period last year, primarily driven by lower revenue. Segment~~ profit margin decreased ~~7.2~~by 7.3 percentage points to 39.9%.

Imaging segment profit decreased by $8.2 million, or 22.7%, primarily due to lower segment revenue and gross margin and higher operating expenses. Gross margin declined as a result of an unfavorable shift in revenue mix from ~~41.6% for the same period last year~~higher margin licensing revenue to ~~34.3% during the current period. The decrease in~~lower margin product revenue. Operating expenses increased primarily due to higher sales and marketing and R&D expenses to support new products and solutions. As a result, segment profit margin ~~was~~decreased by 7.6 percentage points to 26.7%.

Other segment profit decreased by 10.9 million, or 53.5%. Profit margin decreased by 12.6% percentage points to 18.2%. The declines were primarily ~~driven by~~due to lower revenues and ~~higher research~~relatively fixed costs and ~~development expenses.~~expenses structure.

LIQUIDITY AND CAPITAL RESOURCES

~~Cash and cash equivalents and marketable securities totaled $831.2 million at March 31, 2017, an increase of $223.1 million as compared to $608.1 million at September 30, 2016. The higher level of~~Liquidity

We had cash and cash equivalents and marketable securities ~~at March 31, 2017 was a result~~ of having received $226.6 million in net proceeds from the issuance of the 1.25% 2025 Debentures after giving effect to the repurchase of our common stock for $99.1 million and repayment of $17.8 million in aggregate principal on our 2031 Debentures. Our working capital was $185.1$648.7 million as of March 31, ~~2017, as compared to working capital~~2018, a decrease of ~~$347.7~~$225.4 million from $874.1 million as of September 30, ~~2016. As~~2017. Our working capital, defined as total current assets less total current liabilities, was $399.7 million as of March 31, ~~2017,~~2018, compared to $216.4 million as of September 30, 2017. Additionally, we had $238.4 million available for borrowing under our ~~total accumulated deficit was $486.8 million.~~revolving credit facility as of March 31, 2018. We ~~do not expect~~believe that our ~~accumulated deficit~~existing sources of liquidity are sufficient to ~~impact~~support our ~~future ability to operate~~operating needs, capital requirements and any debt service requirements for the ~~business given our cash balance and strong operating cash flow positions.~~next twelve months.

Cash and cash equivalents and marketable securities held by our international operations totaled ~~$129.9~~$131.0 million atas of March 31, ~~2017 compared to $116.5~~2018 and $148.6 million atas of September 30, ~~2016.~~2017. As more fully described in Note 14 to the accompanying condensed consolidated financial statements, as a result of the enactment of the Tax Cuts and Jobs Act ("TCJA"), we recorded a provisional amount of one-time repatriation tax of approximately $2 million on foreign cash and earnings as of March 31, 2018. The actual impact of the TCJA may differ materially from our estimate due to changes in our interpretations and assumptions, additional guidance to be issued, and actions we may take as a result of the TCJA. We ~~utilize~~have not changed our indefinite reinvestment assertion related to foreign cash and earnings.

In April 2018, we completed an acquisition in our Automotive segment for a ~~variety~~total cash consideration of ~~financing strategies to ensure that our worldwide~~approximately $82 million, net of cash ~~is available~~acquired. We are currently in the ~~locations in which it is needed. We expect~~process of determining the ~~cash held overseas will continue to be used for our international operations,~~total consideration transferred and ~~that we will meet U.S. liquidity needs through future cash flows, use~~the fair values of ~~U.S. cash balances, external borrowings, or some combination of these sources~~assets acquired and ~~therefore~~liabilities assumed, but do not ~~anticipate repatriating these funds.~~expect this acquisition to have a material impact on our condensed consolidated financial statements.

The holders of our 2031 Debentures may require us to redeem the outstanding principal balance of $377.7 million, together with accrued interest, on November 1, 2017. We expect that we will be able to use our existing cash balances, including cash generated by our operating activities during fiscal 2017, to fund the potential redemption requests related to the 2031 Debentures, if any. However, we will assess our operating and investing cash flow requirements and the borrowing economics in the capital markets at that time to determine the appropriate funding source.

~~We believe our current cash and cash equivalents, marketable securities, and cash flow from operations are sufficient to meet our operating needs for at least the next twelve months.~~

Cash Provided by Operating Activities

Cash provided by operating activities for the six months ended March 31, ~~2017,~~2018, was ~~$250.3~~$195.4 million, a decrease of ~~$50.7~~$55.0 million ~~as compared to~~from cash provided by operating activities of ~~$301.1~~$250.3 million for the six months ended March 31, ~~2016.~~2017. The ~~net~~ decrease was primarily ~~driven by the following factors:~~due to:

A decrease of ~~$40.7~~$59.6 million ~~in cash flows generated by~~due to lower net income, excluding non-cash adjustments;

A decrease of $7.7 million due to unfavorable changes in working capital, ~~excluding deferred revenue;~~primarily due to the timing of billing and cash payments, offset in part by,

~~A decrease in cash flows~~An increase of ~~$5.8~~$12.3 million from changes in deferred revenue. Deferred revenue ~~contributed~~had a positive effect of $85.3 million on operating cash ~~inflow of~~flows for the six months ended March 31, 2018, as compared to $73.0 million for the six months ended March 31, 2017, ~~as compared to $78.8 million for the six months ended March 31, 2016. The deferred revenue~~primarily driven by continued growth ~~in the six months ended March 31, 2017 was driven primarily by~~of our ~~hosting solutions, most notably for our automotive~~Automotive connected services ~~in our Mobile segment;~~ and

~~A decrease in cash flows of $4.2 million resulting from higher net loss, exclusive of non-cash adjustment items.~~

Healthcare bundled offerings.

Cash ~~Used in~~Provided by (Used in) Investing Activities

Cash ~~used in~~provided by investing activities for the six months ended March 31, ~~2017,~~2018, was ~~$176.0~~$64.2 million, an increase of ~~$116.3~~$240.2 million ~~as compared to~~from cash used in investing activities of ~~$59.7~~$176.0 million for the six months ended March 31, ~~2016.~~2017. The ~~net~~ increase was primarily ~~driven by~~due to:

A net increase of $186.5 million from the ~~following factors:~~

~~An increase in cash outflows of $121.1 million for purchases~~sale and purchase of marketable securities and other investments; and

~~An increase in cash outflows~~A decrease of ~~$45.6~~$60.2 million for business and asset ~~acquisitions; and~~

~~Partially offset by an increase in cash inflows of $37.0 million from the sale of marketable securities and other investments.~~acquisitions.

Cash (Used in) Provided ~~(Used) in~~by Financing Activities

Cash ~~provided by~~used in financing activities for the six months ended March 31, ~~2017,~~2018, was ~~$70.9~~$383.4 million, aan increase of ~~$542.9~~$454.3 million ~~as compared to~~from cash ~~used in~~provided by financing activities of ~~$472.0~~$70.9 million for the six months ended March 31, ~~2016.~~2017. The net increase was primarily ~~driven~~due to:

A decrease in cash inflows of $839.0 million from new debt issuance. During the six months ended March 31, 2017, the cash inflows from debt activities includes $494.6 million net proceeds from the issuance of 5.625% Senior Notes due 2026; and $344.3 million net proceeds from the issuance of our 1.25% 2025 Convertible Debentures;

An increase in cash outflows of $16.9 million related to acquisition payments with extended payment terms, offset in part by, ~~the following factors:~~

A decrease in cash outflows of ~~$475.3~~$302.9 million from the redemption and repayment of debt. During the six months ended March 31, 2018 holders of approximately $331.2 million in aggregate principal amount of the 2.75% 2031 Debentures exercised their right to require us to repurchase such debentures. During the six months ended March 31, 2017, we made repayments of $616.7 million for the redemption of our 2020 Senior Notes and $17.9 million for the redemption of our 2031 Convertible Debentures; and

A decrease in cash outflows of $99.1 million related to share repurchases. During the six months ended March 31, 2017, we repurchased 5.8 million shares of our common stock for $99.1 million under our share repurchase program, as compared to 9.4 million shares repurchased under our share repurchase program and 26.3 million shares repurchased from the Icahn Group for total cash outflows of $574.3 million during the same period in the prior year;

An increase in cash inflows of $53.0 million from debt activities. During the six months ended March 31, 2017, the net cash inflows from debt activities was $204.9 million including approximately $495.0 million net proceeds from the issuance of our 2026 Senior Notes, approximately $343.6 million net proceeds from the issuance of our 1.25% 2025 Debentures, offset by the repurchase of $600.0 million in aggregate principal of our 2020 Senior Notes and the repurchase of $17.8 million in aggregate principal of our 2031 Debentures. During the six months ended March 31, 2016, the net cash inflows from debt activities was $151.9 million including $676.5 million in aggregate principal from the issuance of our 1.0% 2035 Debentures offset by the $472.5 million repayment of our term loan and the repurchase of $38.3 million in aggregate principal on our 2031 Debentures; and

A decrease in cash outflows of $13.6 million as a result of lower cash payments required to net share settle employee equity awards, due to a decrease in vesting value as a result of lower stock prices during the six months ended March 31, 2017 as compared to the same period in the prior year.program.

Debt

For a detailed description of the terms and ~~Credit Facilities~~

~~5.625% Senior Notes due 2026~~

~~In December 2016, we issued $500.0 million aggregate principal amount~~restrictions 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 2020 Senior Notes. The 2026 Senior Notes bear interest at 5.625% per year, payable in cash semi-annually in arrears, beginning on June 15, 2017.

The 2026 Senior Notes are unsecured senior obligations and are guaranteed on an unsecured senior basis by our 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 Guarantorsrevolving credit facility, see Note 10 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.~~

~~equity offering, and at least 50% of the original aggregate principal amount of the 2026 Senior Notes remains outstanding immediately thereafter.~~

~~5.375% Senior Notes due 2020~~

In August 2012, we issued $700.0 million aggregate principal amount of 5.375% Senior Notes due on August 15, 2020 in a private placement. In October 2012, we issued an additional $350.0 million aggregate principal amount of our 5.375% Senior Notes (collectively the “2020 Senior Notes”). The 2020 Senior Notes bear interest at 5.375% per year, payable in cash semi-annually in arrears. The 2020 Senior Notes are our unsecured senior obligations and are guaranteed on an unsecured senior basis by the Subsidiary Guarantors. The 2020 Senior Notes and 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 2020 Senior Notes and guarantees effectively rank junior to all secured debt of our and 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 2020 Senior Notes.

In January 2017, we repurchased $600.0 million in aggregate principal amount of our 2020 Senior Notes using cash and cash equivalents and the net proceeds from our 2026 Senior Notes issued in December 2016. In January 2017, we recorded an extinguishment loss of $18.4 million. In accordance with the authoritative guidance for debt instruments, a loss on extinguishment is equal to the difference between the reacquisition price and the net carrying amount of the extinguished debt, including any unamortized debt discount or issuance costs. Following this activity, $450.0 million in aggregate principal amount of our 2020 Senior Notes remain outstanding.

~~6.0% Senior Notes due 2024~~

~~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. We used a portion of the proceeds to repurchase $38.3 million in aggregate principal on our 2.75% Senior Convertible Debentures due in 2031 and to repay the aggregate principal balance of $472.5 million on the term loan. Upon the repurchase and repayment of debts in December 2015, we recorded an extinguishment loss of $4.9 million in other expense, net, in the accompanying condensed consolidated statements of operations. The 1.0% 2035 Debentures bear interest at 1.0% per year, payable in cash semi-annually in arrears. 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 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. The initial conversion price is approximately $27.22 per share. 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. As of March 31, 2017 and September 30, 2016, none of the conversion criteria were met for the 1.0% 2035 Debentures. If the conversion criteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.

~~2.75% Convertible Debentures due 2031~~

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 2031 Debentures. The 2031 Debentures will be effectively subordinated to indebtedness and other liabilities of our subsidiaries. The initial conversion price is approximately $32.30 per share. At issuance, we allocated $533.6 million to long-term debt, and $156.4 million has been recorded as additional paid-in capital, which is being amortized to interest expense using the effective interest rate method through November 2017.

In June 2015, we entered into separate privately negotiated agreements with certain holders of our 2031 Debentures to exchange, in a private placement, $256.2 million in aggregate principal amount of our 2031 Debentures for approximately $263.9 million in aggregate principal amount of our 1.5% 2035 Debentures. In December 2015, we entered into separate privately negotiated agreements with certain holders of our 2031 Debentures to repurchase $38.3 million in aggregate principal with proceeds received from the issuance of our 1.0% 2035 Debentures. In March 2017, we entered into separate privately negotiated agreements with certain holders of our 2031 Debentures to repurchase $17.8 million in aggregate principal with proceeds received from the issuance of our 1.25% Senior Convertible Debentures issued in March 2017. Following these activities, $377.7 million in aggregate principal amount of our 2031 Debentures remain outstanding. As of March 31, 2017, the remaining aggregate outstanding principal balance has been classified as current portion of long-term debt on the consolidated balance sheet as the holders have the right to require us to redeem on November 1, 2017. As of March 31, 2017 and September 30, 2016, none of the conversion criteria were met for the 2031 Debentures. If the conversion criteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.

~~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 2031 Debentures. We intend to use the remaining net proceeds, together with cash on hand, to repurchase, redeem, retire or otherwise repay all of our remaining outstanding 2031 Debentures in November 2017. 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 (based on an initial conversion rate, which represents an initial conversion price of approximately $22.22 per share, subject to adjustment under certain circumstances) be paid in cash or shares of our common stock, at our election, only in the following circumstances and to the following extent: (i) prior to October 1, 2024, on any date during any fiscal quarter beginning after June 30, 2017 (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, including any additional interest to, but excluding, the repurchase date. As of March 31, 2017, none of the conversion criteria were met for the 1.25% 2025 Debentures. If the conversion criteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.

~~1.50% Convertible Debentures due 2035~~

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 bear interest at 1.50% per year, payable in cash semi-annually in arrears. The 1.5% 2035 Debentures mature on November 1, 2035, subject to the right of the holders to require us to redeem the 1.5% 2035 Debentures on November 1, 2021, 2026, or 2031. The 1.5% 2035 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 1.5% 2035 Debentures. The 1.5% 2035 Debentures will be effectively subordinated to indebtedness and other liabilities of our subsidiaries. The initial conversion price is approximately $23.26 per share. At issuance, we allocated $208.6 million to long-term debt, and $55.3 million has been recorded as additional paid-in capital, which is being amortized to interest expense using the effective interest rate method through November 2021. As of March 31, 2017 and September 30, 2016, none of the conversion criteria were met for the 1.5% 2035 Debentures. If the conversion criteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.

~~Revolving Credit Facility~~

In April 2016, we entered into a credit agreement that provides for a $242.5 million revolving credit line, including letters of credit (together, the “Revolving Credit Facility”). The Revolving Credit Facility matures on April 15, 2021. As of March 31, 2017, issued letters of credit in the aggregate amount of $4.5 million were treated as issued and outstanding when calculating the borrowing availability under the Revolving Credit Facility. As of March 31, 2017, we had $238.0 million available for additional borrowing under the Revolving Credit Facility. Any amounts outstanding under the Revolving Credit Facility will bear 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 is secured by substantially all assets of ours and our Subsidiary Guarantors. The Revolving Credit Facility contains customary affirmative and negative covenants and conditions to borrowing, as well as customary events of default.financial statements.

Share Repurchase Program

On April 29, 2013, our Board of Directors approved a share repurchase program for up to $500.0 ~~million of our outstanding shares of common stock.~~million. On April 29, 2015, our Board of Directors approved an additional $500.0 million under our share repurchase program. In March 2017, in connection with the issuance of our 1.25% 2025 Debentures, we used a portion of the net proceeds to repurchase 5.8 million shares of our common stock for $99.1 million under the approved program. Since the commencement of the program, we have repurchased 46.5 million shares for $806.6 million. These shares were retired upon repurchase. Approximately $193.4 million remained available for share repurchases as of March 31, 2017 pursuant to 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 will be determined by management based on an evaluation of market conditions, capital allocation alternatives, and other factors.

There were no share repurchases for the six months ended March 31, 2018. For the six months ended March 31, 2017, we repurchased 5.8 million shares of our common stock for $99.1 million under the program. Since the commencement of the program, we have repurchased an aggregate of 46.5 million shares for $806.6 million. The amount paid in excess of par value is recognized

in additional paid in capital. Shares were retired upon repurchase. As of March 31, 2018, approximately $193.4 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):


	Payments Due by Fiscal Year Ended September 30,										Contractual Payments Due in Fiscal Year
Contractual Obligations	Total		2017		2018 and 2019		2020 and 2021		Thereafter		Total		2018		2019 and 2020		2021 and 2022		Thereafter
Convertible debentures⁽¹⁾	$	1,668.1	$	—	$	377.7	$	—	$	1,290.4	$	1,337.0	$	—	$	—	$	310.5	$	1,026.5
Senior notes	1,250.0		—		—		450.0		800.0		1,250.0		—		450.0		—		800.0
Interest payable on long-term debt⁽²⁾	605.1		44.2		176.0		146.6		238.3		518.3		43.4		173.4		122.4		179.1
Letters of credit⁽³⁾	4.5		0.6		3.9		—		—		4.1		3.4		0.7		—		—
Lease obligations and other liabilities:
Operating leases	176.3		10.7		43.8		31.3		90.5		159.4		17.5		40.2		27.4		74.3
Operating leases under restructuring⁽⁴⁾	57.9		5.9		16.2		12.4		23.4		62.7		5.1		17.9		15.2		24.5
Purchase commitments⁽⁵⁾	36.6		6.6		12.0		14.4		3.6		32.2		7.6		13.8		10.8		—
Total contractual cash obligations	$	3,798.5	$	68.0	$	629.6	$	654.7	$	2,446.2	$	3,363.7	$	77.0	$	696.0	$	486.3	$	2,104.4

⁽¹⁾

⁽²⁾

Interest per annum is due and payable semi-annually ~~under 1.0% 2035 Debentures at a~~and is determined based on the outstanding principal as of March 31, 2018, the stated interest rate of ~~1.0%, under 2031 Debentures at a rate of 2.75%, under 1.25% 2025 Debentures at a rate of 1.25%~~each debt instrument and ~~under 1.5% 2035 Debentures at a rate of 1.5%. Interest per annum is due and payable semi-annually on~~ the ~~5.625% Senior Notes at a rate of 5.625%, 5.375% Senior Notes at a rate of 5.375%, and 6.0% Senior Notes at a rate of 6.0%.~~assumed redemption dates discussed above.


⁽³⁾	Letters of Credit are in place primarily to secure future operating lease payments.


⁽⁴⁾	Obligations include contractual lease commitments related to facilities that were part of restructuring plans. As of March 31, ~~2017,~~2018, we have subleased certain of the facilities with total sublease income of ~~$52.6~~$53.3 million through fiscal year 2025.


⁽⁵⁾	Purchase commitments include non-cancelable purchase commitments for property and equipment, inventory, and services in the normal course of business. These amounts also include arrangements that require a minimum purchase commitment by us.

~~The gross liability for~~Total unrecognized tax benefits as of March 31, ~~2017 was $28.3~~2018 were $31.9 million. We do not expect aany significant change in the amount of unrecognized tax benefits within the next 12twelve months. ~~We estimate that none of this amount will be paid within the next year and we are currently unable to reasonably estimate the timing of payments for the remainder of the liability.~~

Contingent Liabilities and Commitments

~~In connection with certain acquisitions, we may be required to make up to $22.3 million of additional~~Certain acquisition payments to ~~the~~ selling shareholders were contingent upon the achievement of ~~specified~~pre-determined performance target 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 March 31, 2018, the maximum amount of payments to be made based on the agreements was $19.6 million if the specific performance objectives ~~including the achievement of future bookings and sales targets related to the products of the acquired entities.~~are achieved. In addition, ~~there are~~certain deferred ~~payment obligations~~compensation payments to ~~certain former~~selling shareholders contingent upon their continued ~~employment. These deferred payment obligations, totaling $21.4 million, will be~~employment after the acquisition was recorded as compensation expense over the ~~applicable employment~~requisite service period. As of March 31, 2018, total deferred compensation to be paid out upon the conclusion of requisite service periods was $26.9 million.

Off-Balance Sheet Arrangements

~~Through~~As of March 31, ~~2017, we have not entered into any~~2018, there were no off-balance sheet arrangements orthat may have a material ~~transactions with unconsolidated entities or other persons.~~impact on the condensed consolidated financial statements.

CRITICAL ACCOUNTING POLICIES ~~JUDGMENTS AND ESTIMATES~~

The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates, assumptions and judgments, including those related to:

revenue recognition; allowance for doubtful accounts and sales returns; accounting for deferred costs; accounting for internally developed software; the valuation of goodwill and intangible assets; accounting for business combinations, including contingent consideration; accounting for stock-based compensation; accounting for derivative instruments; accounting for income taxes and related valuation allowances; and loss contingencies. Our management bases its estimates on historical experience, market participant fair value considerations, projected future cash flows and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

~~Information about those~~critical accounting policies ~~we deem to be critical to our financial reporting may be found~~are included in the ~~audited financial statements~~“Critical Accounting Policies” section of “Management’s Discussion and ~~the notes thereto~~Analysis of Financial Condition and Results of Operations” included in ~~our Annual Report on~~the Form 10-K for the fiscal year ended September 30, ~~2016. Based on events occurring subsequent~~2017. There has been no material change to our critical accounting policies since September 30, ~~2016, we are updating certain of~~2017. See Note 4 to the ~~Critical Accounting Policies, Judgments and Estimates.~~accompanying condensed consolidated financial statements for the critical estimates related to our interim goodwill impairment analysis.

RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS

~~Refer to~~See Note 2 to the ~~unaudited~~accompanying condensed consolidated financial statements ~~included in Item 1~~for a discussion of ~~Part I of this Quarterly Report on Form 10-Q.~~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 U.S. dollar compared to foreign currencies ~~will have either a positive or negative effect on~~may impact 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, Japanese yen, Indian rupee and Hungarian forint.

A hypothetical change of 10% in appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates at March 31, 2017 would not have a material impact on our revenue, operating results or cash flows in the coming year.

Periodically, we enter into forward exchange contracts to hedge against foreign ~~currency~~exchange rate fluctuations. ~~These~~As of March 31, 2018, we had not designated any contracts ~~may~~as fair value or ~~may not be designated as~~ cash flow hedges for accounting purposes. We have in place a program which primarily uses forward contracts to offset the risks associated with foreign currency exposures that arise from transactions denominated in currencies other than the functional currencies of our worldwide operations.hedges. The ~~program is designed so that increases or decreases in our foreign currency exposures are offset by gains or losses on the foreign currency forward contracts. The outstanding~~ contracts are not designated as cash flow hedges and generally are for periods less than 90 days. ~~The~~As of March 31, 2018, the notional contract amount of outstanding foreign currency exchange contracts ~~not designated as cash flow hedges~~ was $69.3 million at March 31, 2017. Based on the nature of the transactions for which the contracts were purchased, a hypothetical change of 10% in exchange rates would not have a material impact on our financial results.$78.0 million.

Interest Rate Sensitivity

We are exposed to interest rate risk as a result of our cash and cash equivalents and marketable securities.

At March 31, ~~2017,~~2018, we held approximately ~~$831.2~~$648.7 million of cash and cash equivalents and marketable securities primarily consisting of cash, money-market funds, bank deposits and a separately managed investment portfolio. Assuming a one percentage point ~~increase~~change in interest rates, our interest income on our investments classified as cash and cash equivalents and marketable securities would ~~increase~~change by approximately ~~$7.1~~$6.4 million per annum, based on the balances as of March 31, ~~2017 reported balances of our investment accounts.~~2018.

At March 31, ~~2017,~~2018, we had no outstanding debt ~~exposed~~subject to variable interest rates.

~~2031 Debentures, 1.5% 2035 Debentures, 1.0% 2035 Debentures and 1.25% 2025~~Convertible Debentures

The fair values of our ~~2031 Debentures, 1.5% 2035 Debentures, 1.0% 2035 Debentures and 1.25% 2025 Debentures~~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.

~~Our debentures trade in the financial markets, and~~

The following table summarizes the fair value ~~at March 31, 2017 was $380.5 million for the 2031 Debentures, based on an average of the bid~~ and ~~ask prices on that day. The~~ conversion value ~~on March 31, 2017 was approximately $202.4 million. A~~of our convertible debentures, and the estimated increase in fair value and conversion value with a hypothetical 10% increase in the stock price ~~over the~~of $15.75 as of March 31, 2017 closing price of $17.31 would cause an estimated $1.0 million increase to the fair value and an $20.2 million increase to the conversion value of the debentures. The fair value at March 31, 2017 was $272.1 million for the 1.5% 2035 Debentures, based on an average of the bid and ask prices on that day. The conversion value on March 31, 2017 was approximately $196.4 million. A 10% increase2018 (dollars in the stock price over the March 31, 2017 closing price of $17.31 would cause an estimated $11.0 million increase to the fair value and a $19.6 million increase to the conversion value of the debentures. The fair value at March 31, 2017 was $643.9 million for the 1.0% 2035 Debentures, based on an average of the bid and ask prices on that day. The conversion value on March 31, 2017 was approximately $430.2 million. A 10% increase in the stock price over the March 31, 2017 closing price of $17.31 would cause an estimated $23.5 million increase to the fair value and a $43.0 million increase to the conversion value of the debentures. The fair value at March 31, 2017 was $349.9 million for the 1.25% 2025 Debentures, based on an average of the bid and ask prices on that day. The conversion value on March 31, 2017 was approximately $272.7 million. A 10% increase in the stock price over the March 31, 2017 closing price of $17.31 would cause an estimated $19.9 million increase to the fair value and a $27.3 million increase to the conversion value of the debentures.millions):



	March 31, 2018
	Fair value		Conversion value		Increase to fair value		Increase to conversion value
2.75% 2031 Debentures	$	45.7	$	22.7	$	0.1	$	2.3
1.5% 2035 Debentures	$	269.1	$	178.7	$	10.7	$	17.9
1.0% 2035 Debentures	$	643.4	$	391.4	$	21.3	$	39.1
1.25% 2025 Debentures	$	346.7	$	248.1	$	18.2	$	24.8


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.

Changes in Internal Control Over Financial Reporting

There were no material changes to our internal controls over financial reporting as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f) identified in connection with the evaluation that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1.Legal Proceedings

This information is included in Note 15, Commitments and Contingencies, in the accompanying notes to unaudited consolidated financial statements and is incorporated herein by reference from Item 1 of Part I.


Item 1A.Risk Factors	~~Risk Factors~~

You should carefully consider the risks described below when evaluating our company and when deciding whether to invest in our company. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we do not currently believe are important to an investor may also harm our business operations. If any of the events, contingencies, circumstances or conditions described below actually occurs, our business, financial condition or our results of operations could be seriously harmed. If that happens, the trading price of our common stock could decline, and you may lose part or all of the value of any of our shares held by you.

Risks Related to Our Business

The markets in which we operate are highly competitive and rapidly changing and we may be unable to compete successfully.

There are a number of companies that develop or may develop products that compete in our targeted markets. The markets for our products and services are characterized by intense competition, evolving industry and regulatory standards, emerging business and distribution models, disruptive software and hardware technology developments, short product and service life cycles, price

sensitivity on the part of customers, and frequent new product introductions, including alternatives ~~with~~for certain of our products that offer limited functionality ~~available~~ at significantly lower costs or free of charge. Within voice recognition and natural language understanding, we compete primarily with Amazon, Google, ~~iFlyTek and~~as well as other smaller providers. ~~Within healthcare,~~In our Healthcare business we compete primarily with M*Modal, Optum, 3M and other smaller providers. ~~Within imaging,~~In our Automotive business we compete, or may in the future compete, with Amazon, Google, iFlyTek and Microsoft as well as with other, smaller vendors particularly in China. In our Imaging business we compete primarily with ABBYY and Adobe. ~~In our enterprise business,~~Also, some of our partners such as Avaya, Canon, Cisco, and Genesys develop and market products that might be considered substitutes for our solutions. In addition, a number of smaller companies in voice recognition, natural language understanding, text input and imaging produce technologies or products that are in some markets competitive with our solutions. Current and potential competitors have established, or may establish, cooperative relationships among themselves or with third parties to increase the ability of their technologies to address the needs of our prospective customers. Furthermore, there has been a trend toward industry consolidation in our markets for several years. We expect this trend to continue as companies attempt to strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations.

The competition in these markets could adversely affect our operating results by reducing the volume of the products we license or the prices we can charge. Some of our current or potential competitors, such as 3M, Adobe, Amazon, Google and ~~Google,~~Microsoft, have significantly greater financial, technical and marketing resources than we do. These competitors may be able to respond more rapidly than we can to new or emerging technologies or changes in customer requirements. They may also devote greater resources to the development, promotion and sale of their products than we do, and in certain cases may be able to include or combine their competitive products or technologies with other of their products or technologies in a manner whereby the competitive functionality is available at lower cost or free of charge within the larger offering. To the extent they do so, market acceptance and penetration of our products, and therefore our revenue and bookings, may be adversely affected. Our success will depend substantially upon our ability to enhance our products and technologies and to develop and introduce, on a timely and cost-effective basis, new products and features that meet changing customer requirements and incorporate technological enhancements. If we are unable to develop new products and enhance functionalities or technologies to adapt to these changes, or if we are unable to realize synergies among our acquired products and technologies, our business will suffer.

Our operating results may fluctuate significantly from period to period, and this may cause our stock price to decline.

Our revenue, bookings and operating results have fluctuated materially in the past and are expected to continue to fluctuate in the future. Given these fluctuations, we believe that quarter to quarter comparisons of revenue, bookings and operating results are not necessarily meaningful ornor an accurate indicator of our future performance. These fluctuations may cause our results of operations to not meet the expectations of securities analysts or investors. If this occurs, the price of our stock would likely decline. Factors that contribute to fluctuations in operating results include:

volume, timing and fulfillment of customer orders and receipt of royalty reports;

~~the pace of the transition to an on-demand and transactional revenue model;~~

slowing sales by our channel partners to their customers;

customers delaying their purchasing decisions in anticipation of new versions of our products;

contractual counterparties are unable to, or do not, meet their contractual commitments to us;

introduction of new products by us or our competitors;

cybersecurity or data breaches perpetrated by hackers or other third parties;

seasonality in purchasing patterns of our customers;

reduction in the prices of our products in response to competition, market conditions or contractual obligations;

returns and allowance charges in excess of accrued amounts;

timing of significant marketing and sales promotions;

impairment of goodwill or intangible assets;

the pace of the transition to an on-demand and transactional revenue model;

delayed realization of synergies resulting from our acquisitions;

accounts receivable that are not collectible and write-offs of excess or obsolete inventory;

increased expenditures incurred pursuing new product or market opportunities;

~~general economic trends as they affect retail and corporate sales; and~~

higher than anticipated costs related to fixed-price contracts with our ~~customers.~~customers; and

general economic trends as they affect the customer bases into which we sell.

Due to the foregoing factors, among others, our revenue, bookings and operating results are difficult to forecast. Our expense levels are based in significant part on our expectations of future revenue, and we may not be able to reduce our expenses quickly to respond to ~~a shortfall~~near-term shortfalls in projected revenue. Therefore, our failure to meet revenue expectations would seriously harm our operating results, financial condition and cash flows.

A significant portion of our revenue and bookings are derived, and a significant portion of our research and development activities are based, outside the United States. Our results could be harmed by economic, political, regulatory, foreign currency fluctuations and other risks associated with these international regions.

Because we operate worldwide, our business is subject to risks associated with doing business internationally. We anticipate that revenue and bookings from international operations could increase in the future. Most of our international revenue and bookings are generated by sales in Europe and Asia. In addition, some of our products are developed outside the United States and we have a large number of employees in India that provide development and transcription services. We also have a large number of employees in Canada, Germany and the United Kingdom that provide professional services. A significant portion of the development of our voice recognition and natural language understanding solutions is conducted in Canada and Germany, and a significant portion of our imaging research and development is conducted in Hungary and Canada. We also have significant research and development resources in Austria, Belgium, China, Italy, and the United Kingdom. In addition, we are exposed to changes in foreign currencies including the euro, British pound, Brazilian real, Canadian dollar, Japanese yen, Indian rupee and Hungarian forint. Changes in the value of foreign currencies relative to the value of the U.S. dollar could adversely affect future revenue and operating results. Accordingly, our future results could be harmed by a variety of factors associated with international sales and operations, including:

the impact on local and global economies of the United Kingdom leaving the European Union;

changes in foreign currency exchange rates or the lack of ability to hedge certain foreign currencies;

changes in a specific country's or region's economic conditions;

compliance with laws and regulations in many countries and any subsequent changes in such laws and regulations;

geopolitical turmoil, including terrorism and war;

trade protection measures, including tariffs and ~~import or~~ import/export ~~licensing requirements~~controls, imposed by the United States and/or by other ~~countries;~~countries such as China;

changing and import or export licensing requirements, particularly for our voice biometrics products;

changing data privacy regulations and customer requirements to locate data centers in certain jurisdictions;

adverse political and economic conditions, particularly those negatively affecting the trade relationship between the U.S. and China;

restrictions on cross-border investment, including enhanced oversight by the Committee on Foreign Investment in the United States (CFIUS) and substantial restrictions on investment from China;

changes in applicable tax laws;

difficulties in staffing and managing operations in multiple locations in many countries;

longer payment cycles of foreign customers and timing of collections in foreign jurisdictions; and

less effective protection of intellectual property than in the United States.

We recently hired a new Chief Executive Officer. If we encounter difficulties in the transition, our business could be negatively impacted.

Mark D. Benjamin became our Chief Executive Officer and a member of our Board of Directors late April 2018. Our future success will partly depend upon Mr. Benjamin’s ability, along with the ability of other senior management and other key employees, to effectively implement our business strategies. In addition, Mr. Benjamin may pursue changes in our strategy or business focus. Mr. Benjamin may require transition time to fully understand all aspects of our business as would be typical with any executive transition. If we have failures in any aspects of this transition, or new strategies implemented by our management team are not successful, our business could be harmed.

If we are unable to attract and retain key personnel, our business could be harmed.

If any of our key employees were to leave, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience. ~~Our~~For example, we have recently undergone a chief executive officer transition with the retirement of Mr. Ricci as our Chief Executive Officer in March 2018 and the appointment of Mr. Benjamin as our new Chief Executive Officer in April 2018. In addition, two other members of our senior management team have recently left the company. Although we have arrangements with some of our executive officers designed to promote retention, our employment relationships are generally at-will and we have had key employees leave in the past. We cannot assure you that one or more key employees will not leave in the future. We intend to continue to hire additional highly qualified personnel, including research and development and operational personnel, but may not be able to attract, assimilate or retain qualified personnel in the future. Any failure to attract, integrate, motivate and retain these employees could harm our business.

In response to our changing needs and input from our investors, we recently added a number of new directors to our Board of Directors and expect to add additional directors over the balance of fiscal year 2018. If the transition to these new directors is not effective, our business could be harmed.

In addition to his appointment as Chief Executive Officer, Mr. Benjamin was appointed to our Board of Directors. With this addition, three of the eight members of our Board of Directors have joined since December 2017. We expect to add additional members to our Board of Directors in the coming months and to reconstitute the membership of Board Committees as new directors are added to take advantage of the experience the new members bring to our Board of Directors. There can be no assurances that the new Board of Directors or its committees will function effectively and that there will not be any adverse effects on the business as a result of the significant changes on our Board of Directors.

We experienced a significant malware incident in the third quarter of fiscal year 2017, which had and continues to have a significant impact on our future results of operations and financial condition.

On June 27, 2017, Nuance was a victim of the global NotPetya malware incident (the “2017 Malware Incident”). The NotPetya malware affected certain Nuance systems, including systems used by our healthcare customers, primarily for transcription services, as well as systems used by our imaging division to receive and process orders. Our revenue and our operating results for fiscal year 2017 were negatively impacted by the 2017 Malware Incident. For fiscal year 2017, we estimate that we lost approximately $68.0 million in revenues, primarily in our Healthcare segment, due to the service disruption and the reserves we established for customer refund credits. Additionally, we incurred incremental costs of approximately $24.0 million for fiscal year 2017 as a result of our remediation and restoration efforts, as well as incremental amortization expenses. Although the direct effects of the 2017 Malware Incident were remediated during fiscal year 2017, the 2017 Malware Incident had a continued effect on our results of operations in the first and second quarters of fiscal year 2018, and our outlook for the remainder of fiscal year 2018 reflects both the residual effects of the incident and the additional resources we will need to invest on an ongoing basis to continuously enhance information security.

Cybersecurity and data privacy incidents or breaches may damage client relations and inhibit our growth.

The confidentiality and security of our information, and that of third parties, is critical to our business. Our services involve the transmission, use, and storage of customers’ and their customer’s confidential information. We were the victim of a cybercrime in the past, and future cybersecurity or data privacy incidents could have a material adverse effect on our results of operations and financial condition. While we maintain a broad array of information security and privacy measures, policies and practices, our networks may be breached through a variety of means, resulting in someone obtaining unauthorized access to our information, to information of our customers or their customers, or to our intellectual property; disabling or degrading service; or sabotaging systems or information. In addition, hardware, software, or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud or other forms of deceiving our employees, contractors, and vendors. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. We will continue to incur significant costs to continuously enhance our information security measures to defend against the threat of cybercrime. Any cybersecurity or data privacy incident or breach may result in:

loss of revenue resulting from the operational disruption;

loss of revenue or increased bad debt expense due to the inability to invoice properly or to customer dissatisfaction resulting in collection issues;

loss of revenue due to loss of customers;

material remediation costs to restore systems;

material investments in new or enhanced systems in order to enhance our information security posture;

cost of incentives offered to customers to restore confidence and maintain business relationships;

reputational damage resulting in the failure to retain or attract customers;

costs associated with potential litigation or governmental investigations;

costs associated with any required notices of a data breach;

costs associated with the potential loss of critical business data; and

other consequences of which we are not currently aware but will discover through the remediation process.

Our business is subject to a variety of domestic and international laws, rules, policies and other obligations regarding data protection.

We are subject to a complex array of federal, state and international laws relating to the collection, use, retention, disclosure, security and transfer of personally identifiable information and personal health information, with additional laws applicable in some jurisdictions where the information is collected from children. In many cases, these laws apply not only to transfers between unrelated third-parties but also to transfers between us and our subsidiaries. Many jurisdictions have passed laws in this area, and other jurisdictions are considering imposing additional restrictions. ~~These laws continue to evolve and may be inconsistent from jurisdiction to jurisdiction. In April 2016, the~~The European Commission adopted the European General Data Protection Regulation (the “GDPR”)~~. The GDPR has~~, which will be in effect as of May 25, 2018. China adopted a ~~two-year phase-in period.~~new cybersecurity law as of June 2017, and there is an increase in regulation of biometric data globally, which may include voiceprints. Complying with the GDPR and other emerging and changing requirements may cause us to incur substantial costs orand may require us to change our business practices. Noncompliance could result in penalties or significant legal liability, and could affect our ability to retain and attract customers.

Any failure by us, our customers, suppliers or other parties with whom we do business to comply with our privacy policy or with ~~other~~ federal, state or international privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others. Any alleged or actual failure to comply with applicable privacy laws and regulations may:

cause our customers to lose confidence in our solutions;

harm our reputation;

expose us to litigation, regulatory investigations and ~~liability;~~to resulting liabilities including reimbursement of customer costs, damages penalties or fines imposed by regulatory agencies; and

require us to incur significant expenses for remediation.

~~Security and privacy breaches may damage client relations and inhibit our growth.~~

~~The confidentiality and security~~Interruptions or delays in services could impair the delivery of our services and ~~third party, information is critical to~~harm our ~~business. Our~~business

Because our services ~~involve the transmission, use,~~are complex and storage of customers’ and their customer’s confidential information. A failure of our security or privacy measures or policies could have a material adverse effect on our financial operation and results of operations. These measures may be breached throughincorporate a variety of ~~means resulting~~hardware and proprietary and third-party software, our services may have errors or defects that could result in ~~someone obtaining unauthorized access~~unanticipated downtime for our customers and harm to our orreputation and our ~~customers’ information or~~business. We have from time to time, found defects in our ~~intellectual property. Because~~services, and new errors in our services may be detected in the ~~techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target,~~future. As we acquire companies, we may ~~be unable~~encounter difficulty in incorporating the acquired services or technologies into our services. Any damage to, ~~anticipate these techniques~~ or ~~to implement adequate preventative measures. Any security or privacy breach may:~~

~~cause~~failure of, the systems that serve our customers ~~to lose confidence~~in whole or in part, could result in interruptions in our ~~solutions;~~

~~harm~~service. Interruptions in our ~~reputation;~~

~~expose~~service may reduce our revenue, cause us to ~~litigation~~issue credits or pay service-level agreement penalties, cause customers to terminate their on-demand services, and ~~liability;~~adversely affect our renewal rates and

~~require us~~ our ability to ~~incur significant expense for remediation.~~attract new customers.

Interruptions or delays in service from data center hosting facilities could impair the delivery of our services and harm our business.

We currently serve our customers from ~~our, third-party,~~ data center hosting facilities we directly manage and from third-party public cloud facilities. Any damage to, or failure of, the systems that serve our customers in whole or in part, could result in interruptions in our service. Interruptions in our service may reduce our revenue, cause us to issue credits or pay service level agreement penalties, cause customers to terminate their on-demand services and adversely affect our renewal rates and our ability to attract new customers.

As part of our business strategy, we acquire other businesses and technologies, and our ability to realize the anticipated benefits of our acquisitions will depend on successfully integrating the acquired businesses.

As part of our business strategy, we have in the past acquired, and expect to continue to acquire, other businesses and technologies. Our prior acquisitions required, and our recently completed acquisitions continue to require, substantial

integration and management efforts, and we expect future acquisitions to require similar efforts. Successfully realizing the benefits of acquisitions involves a number of risks, including:

difficulty in transitioning and integrating the operations and personnel of the acquired businesses;

potential disruption of our ongoing business and distraction of management;

difficulty in incorporating acquired products and technologies into our products and technologies;

potential difficulties in completing projects associated with in-process research and development;

unanticipated expenses and delays in completing acquired development projects and technology integration and upgrades;

challenges associated with managing additional, geographically remote businesses;

impairment of relationships with partners and customers;

assumption of unknown material liabilities of acquired companies;

accurate projection of revenue and bookings plans of the acquired entity in the due diligence process;

customers delaying purchases of our products pending resolution of product integration between our existing and our newly acquired products;

entering markets or types of businesses in which we have limited experience; and

potential loss of key employees of the acquired business.

As a result of these and other risks, if we are unable to successfully integrate acquired businesses, we may not realize the anticipated benefits from our acquisitions. Any failure to achieve these benefits or failure to successfully integrate acquired businesses and technologies could seriously harm our business.

Charges to earnings as a result of our acquisitions may adversely affect our operating results in the foreseeable future, which could have a material and adverse effect on the market value of our common stock.

Under accounting principles generally accepted in the United States, ~~of America,~~ we record the market value of our common stock and other forms of consideration issued in connection with an acquisition as the cost of acquiring the company or business. We allocate that cost to the individual assets acquired and liabilities assumed, including various identifiable intangible assets such as acquired technology, acquired trade names and acquired customer relationships, based on their respective fair values. Our estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain. After we complete an acquisition, the following factors could result in material charges and may adversely affect our operating results and cash flows:

costs incurred to combine the operations of businesses we acquire, such as transitional employee expenses and employee retention, redeployment or relocation expenses;

impairment of goodwill or intangible assets;

amortization of intangible assets acquired;

a reduction in the useful lives of intangible assets acquired;

identification of or changes to assumed contingent liabilities, both income tax and non-income tax related, after our final determination of the amounts for these contingencies or the conclusion of the measurement period (generally up to one year from the acquisition date), whichever comes first;

charges to our operating results to eliminate certain duplicative pre-merger activities, to restructure our operations or to reduce our cost structure;

charges to our operating results ~~resulting~~arising from expenses incurred to effect the acquisition; and

charges to our operating results due to the expensing of ~~certain~~ stock awards assumed in ~~an acquisition.~~acquisitions.

Intangible assets are generally amortized over three to ten years. Goodwill is not subject to amortization but is subject to an impairment analysis, at least annually, which may result in an impairment charge if the carrying value exceeds its implied fair value. As of March 31, ~~2017,~~2018, we had identified intangible assets of approximately ~~$0.7 billion,~~$596.1 million, net of accumulated amortization, and goodwill of approximately $3.5 ~~billion.~~billion, net of accumulated impairment charges. In addition, purchase accounting limits our ability to recognize certain revenue that otherwise would have been recognized by the acquired company as an independent business. As a result, the combined company may delay revenue recognition or recognize less revenue than we and the acquired company would have recognized as independent companies.

We have grown, and may continue to grow, through acquisitions, which could dilute our existing stockholders and/or increase our debt levels.

In connection with past acquisitions, we have in the past issued a substantial number of shares of our common stock as transaction consideration, including contingent consideration, and also incurred significant debt to finance the cash consideration used for our acquisitions. We may continue to issue equity securities for future acquisitions, which would dilute existing stockholders, perhaps significantly, depending on the terms of such acquisitions. We may also incur additional debt in connection with future acquisitions, which, if available at all, may place additional restrictions on our ability to operate our business.

Our strategy to increase cloud services, term licensing and transaction-based recurring revenue may adversely affect our near-term revenue growth and results of operations.

Our ongoing shift from a perpetual software license model to cloud services, term licensing and transaction-based recurring revenue models will create a recurring revenue stream that is more predictable. The transition, however, creates risks related to the timing of revenue recognition. We also incur certain expenses associated with the infrastructures and selling efforts of our hosting offerings in advance of our ability to recognize the revenues associated with these offerings, which may adversely affect our near-term reported revenues, results of operations and cash flows. A decline in renewals of recurring revenue offerings in any period may

not be immediately reflected in our results for that period but may result in a decline in our revenue and results of operations in future quarters.

We have a history of operating losses, and may incur losses in the future, which may require us to raise additional capital on unfavorable terms.

We reported net losses of $151.0 million, $12.5 million ~~$115.0 million~~ and ~~$150.3~~$115.0 million in fiscal years 2017, 2016 ~~2015~~ and ~~2014,~~2015, respectively, and ~~have~~a net loss of $164.1 million for the second fiscal quarter of fiscal year 2018. We had a total accumulated deficit of ~~$486.8~~$691.7 million as of March 31, ~~2017.~~2018. If we are unable to return to profitability, the market price for our stock may decline, perhaps substantially. We cannot assure you that our revenue or bookings will grow or that we will return to profitability in the future. If we do not achieve profitability, we may be required to raise additional capital to maintain or grow our operations. Additional capital, if available at all, may be highly dilutive to existing investors or contain other unfavorable terms, such as a high interest rate and restrictive covenants.

If our efforts to execute our formal transformation program are not successful, our business could be harmed.

We have been executing a formal transformation program to focus our product investments on our growth opportunities, increase our operating efficiencies, reduce costs, and further enhance shareholder value through share buybacks. There can be no assurance that we will be successful in executing this transformation program or be able to fully realize the anticipated benefits of this program, within the expected ~~timeframes,~~time frames, or at all. Additionally, if we are not successful in strategically aligning our product portfolio, we may not be able to achieve the anticipated benefits of this program. A failure to successfully reduce and re-align our costs could have an adverse effect on our revenue and on our expenses and profitability. As a result, our financial results may not meet our or the expectations of securities analysts or investors in the future and our business could be harmed.

Tax matters may cause significant variability in our financial results.

Our businesses are subject to income taxation in the United States, as well as in many tax jurisdictions throughout the world. Tax rates in these jurisdictions may be subject to significant change. If our effective tax rate increases, our operating results and cash flow could be adversely affected. Our effective income tax rate can vary significantly between periods due to a number of complex factors including:

projected levels of taxable income;

pre-tax income being lower than anticipated in countries with lower statutory rates or higher than anticipated in countries with higher statutory rates;

increases or decreases to valuation allowances recorded against deferred tax assets;

tax audits conducted and settled by various tax authorities;

adjustments to income taxes upon finalization of income tax returns;

the ability to claim foreign tax credits;

the repatriation of non-U.S. earnings for which we have not previously provided for income taxes; and

changes in tax laws and their interpretations in countries in which we are subject to taxation.

During 2014, Ireland enacted changes to the taxation of certain Irish incorporated companies effective as of January 2021. On October 5, 2015, the Organization for Economic Cooperation and Development released the Final Reports for its Action Plan on Base Erosion and Profit Shifting. The implementation of one or more of these reports in jurisdictions in which we operate, together with the 2014 enactment by Ireland, could result in an increase to our effective tax rate. In addition, in December 2017, the United States enacted the Tax Cut and Jobs Act of 2017. We expect this to have a material impact on our GAAP tax financial results. We have determined that our GAAP tax provision for the first quarter of fiscal 2018 was benefited by approximately $80 million driven by a revaluation of certain deferred tax assets and liabilities using the updated federal tax rates, offset in part by a one-time repatriation tax on non-US cash and earnings. Future changes in U.S. and non-U.S. tax laws and regulations could have a material effect on our results of operations in the periods in which such laws and regulations become effective as well as in future periods.

The failure to successfully maintain the adequacy of our system of internal control over financial reporting could have a material adverse impact on our ability to report our financial results in an accurate and timely manner.

Under the Sarbanes-Oxley Act of 2002, we were required to develop and are required to maintain an effective system of disclosure controls and internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. In addition, our management is required to assess and certify the adequacy of our controls on a quarterly basis, and our independent auditors must attest and report on the effectiveness of our internal control over financial reporting on an annual basis. Any failure in the effectiveness of our system of internal control over financial reporting

could have a material adverse impact on our ability to report our financial statements in an accurate and timely manner. Inaccurate and/or untimely financial statements could subject us to regulatory actions, civil or criminal penalties, shareholder litigation, or loss of customer confidence, which could result in an adverse reaction in the financial marketplace and ultimately could negatively impact our stock price due to a loss of investor confidence in the reliability of our financial statements.

Impairment of our intangible assets could result in significant charges that would adversely impact our future operating results.

We have significant intangible assets, including goodwill and ~~intangibles with indefinite lives,~~other intangible assets, which are susceptible to valuation adjustments as a result of changes in various factors or conditions. The most significant intangible assets are customer relationships, patents and core technology, completed technology and trademarks. Customer relationships are amortized on an accelerated basis based upon the pattern in which the economic benefits of customer relationships are being utilized. Other identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives. We assess the potential impairment of intangible assets on an annual basis, as well as whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment of such assets include the following:

significant underperformance relative to historical or projected future operating results;

significant changes in the manner of or use of the acquired assets or the strategy for our overall business;

significant negative industry or economic trends;

significant decline in our stock price for a sustained period;

changes in our organization or management reporting structure that could result in additional reporting units, which may require alternative methods of estimating fair values or greater disaggregation or aggregation in our analysis by reporting unit; and

our market capitalization declining to below net book value.

For example, during the second quarter of fiscal year 2018, we reorganized our Mobile business into three discrete lines of business. In connection with this reorganization, and with the review of goodwill and indefinite-lived intangible assets for impairment during the second quarter of fiscal year 2018 that was triggered by recent financial results and rapidly changing business conditions for our Subscriber Revenue Services (“SRS”), we recorded a total of $137.9 million of goodwill impairment charge related to our Devices business and SRS for the second quarter of fiscal 2018. For more information, please see Note 4 of the accompanying condensed consolidated financial statements. Future adverse changes in these or other unforeseeable factors could result in an impairment charge that would impact our results of operations and financial position in the reporting period identified.

Our sales to government clients subject us to risks, including early termination, audits, investigations, sanctions and penalties.

We derive a portion of our revenues and bookings from contracts with the United States government, as well as various state and local governments, and their respective agencies. Government contracts are generally subject to oversight, including audits and investigations which could identify violations of these agreements. Government contract violations could result in a range of consequences including, but not limited to, contract price adjustments, civil and criminal penalties, contract termination, forfeiture of profit and/or suspension of payment, and suspension or debarment from future government contracts. We could also suffer serious harm to our reputation if we were found to have violated the terms of our government contracts.

Risks Related to Our Intellectual Property and Technology

Third parties have claimed and may claim in the future that we are infringing their intellectual property, and we could be exposed to significant litigation or licensing expenses or be prevented from selling our products if such claims are successful.

From time to time, we are subject to claims and law actions alleging that we or our customers may be infringing or contributing to the infringement of the intellectual property rights of others. We may be unaware of intellectual property rights of others that may cover some of our technologies and products. If it appears necessary or desirable, we may seek licenses for these intellectual property rights. However, we may not be able to obtain licenses from some or all claimants, the terms of any offered licenses may not be acceptable to us, and we may not be able to resolve disputes without litigation. Any litigation regarding intellectual property could be costly and time-consuming and could divert the attention of our management and key personnel from our business operations. Intellectual property disputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from manufacturing or licensing certain of our products, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfy indemnification commitments with our customers including contractual provisions under various arrangements. Any of these could seriously harm our business.

Unauthorized use of our proprietary technology and intellectual property could adversely affect our business and results of operations.

Our success and competitive position depend in large part on our ability to obtain and maintain intellectual property rights protecting our products and services. We rely on a combination of patents, copyrights, trademarks, service marks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect our intellectual property and proprietary rights. Unauthorized parties may attempt to copy or discover aspects of our products or to obtain, license, sell or otherwise use information that we regard as proprietary. Policing unauthorized use of our products is difficult and we may not be able to protect our technology from unauthorized use. Additionally, our competitors may independently develop technologies that are substantially the same or superior to our technologies and that do not infringe our rights. In these cases, we would be unable to prevent our competitors from selling or licensing these similar or superior technologies. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States. Although the source code for our proprietary software is protected both as a trade secret and as a copyrighted work, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Litigation, regardless of the outcome, can be very expensive and can divert management efforts.

Our software products may have bugs, which could result in delayed or lost revenue and bookings, expensive correction, liability to our customers and claims against us.

Complex software products such as ours may contain errors, defects or bugs. Defects in the solutions or products that we develop and sell to our customers could require expensive corrections and result in delayed or lost revenue and bookings, adverse customer reaction and negative publicity about us or our products and services. Customers who are not satisfied with any of our products may also bring claims against us for damages, which, even if unsuccessful, would likely be time-consuming to defend, and could result in costly litigation and payment of damages. Such claims could harm our reputation, financial results and competitive position.

Risks Related to our Corporate Structure, Organization and Common Stock

Our debt agreements contain covenant restrictions that may limit our ability to operate our business.

Our debt agreements contain, and any of our other future debt agreements or arrangements may contain, covenant restrictions that limit our ability to operate our business, including restrictions on our ability to:

incur additional debt or issue guarantees;

create liens;

make certain investments;

enter into transactions with our affiliates;

sell certain assets;

repurchase capital stock or make other restricted payments;

declare or pay dividends or make other distributions to stockholders; and

merge or consolidate with any entity.

Our ability to comply with these limitations is dependent on our future performance, which will be subject to many factors, some of which are beyond our control, including prevailing economic conditions. As a result of these limitations, our ability to respond to changes in business and economic conditions and to obtain additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that might otherwise be beneficial to us. In addition, our failure to comply with our debt covenants could result in a default under our debt agreements, which could permit the holders to accelerate our obligation to repay the debt. If any of our debt is accelerated, we may not have sufficient funds available to repay the accelerated debt.

Our significant debt could adversely affect our financial health and prevent us from fulfilling our obligations under our credit facility and our convertible debentures.

We have a significant amount of debt. AtAs of March 31, ~~2017,~~2018, we had ~~a total of $2,918.1~~$2,587.0 million ~~face value~~outstanding principal amount of debt, ~~outstanding, comprised of~~including $450.0 million of senior notes due in 2020, $300.0 million of senior notes due in 2024, and $500.0 million of senior notes due in ~~2026. At March 31, 2017, we also had $1,668.1~~2026, $46.6 million ~~in aggregate principal amount~~ of ~~convertible debentures outstanding comprised of our~~ 2.75% 2031 Convertible Debentures ~~($377.7 million) redeemable in November 2017, 1.5% 2035 Debentures ($263.9 million)~~ redeemable in November 2021, $263.9 million of 1.5% 2035 Convertible Debentures redeemable in November 2021, $676.5 million of 1.0% 2035 Convertible Debentures ~~($676.5 million)~~ redeemable in December 2022, and $350.0 million of 1.25% 2025 Convertible Debentures ~~($350.0 million)~~ redeemable in April 1, 2025. Investors may require us to redeem these debentures earlier than the dates indicated if the closing sale price of our common stock is more than 130% of

the then current conversion price of the respective debentures for certain specified periods. If a holder elects to convert, we will be required to pay the principal amount in cash and any amounts payable in excess of the principal amount in cash or shares of our common stock, at our election. We also ~~have~~had a $242.5 million Revolving Credit Facility under which ~~$4.5~~$4.1 million was committed to backing outstanding letters of credit issued and ~~$238.0~~$238.4 million was available for borrowing at March 31, ~~2017.~~2018. Our debt level could have important consequences, for example it could:

require us to use a large portion of our cash flow to pay principal and interest on debt, including the convertible debentures and the credit facility, which will reduce the availability of our cash flow to fund working capital, capital expenditures, acquisitions, research and development, exploiting business opportunities, and other business activities;

place us at a competitive disadvantage compared to our competitors that have less debt; and

limit, along with the financial and other restrictive covenants related to our debt, our ability to borrow additional funds, dispose of assets or pay cash dividends.

Our ability to meet our payment and other obligations under our debt instruments depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, or that additional capital will be available to us, in an amount sufficient to enable us to meet our payment obligations under the convertible debentures and our other debt and to fund other liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, including the convertible debentures, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under the convertible debentures and our other debt.

The market price of our common stock has been and may continue to be subject to wide fluctuations, and this may make it difficult for you to resell the common stock when you want or at prices you find attractive.

Our stock price historically has been, and may continue to be, volatile. Various factors contribute to the volatility of our stock price, including, for example, quarterly variations in our financial results, new product introductions by us or our competitors and general economic and market conditions. Sales of a substantial number of shares of our common stock by our largest stockholders, or the perception that such sales could occur, could also contribute to the volatility or our stock price. While we cannot predict the individual effect that any of these factors may have on the market price of our common stock, these factors, either individually or in the aggregate, could result in significant volatility in our stock price. Moreover, companies that have experienced volatility in the market price of their stock often are subject to securities class action litigation. Any such litigation could result in substantial costs and divert management's attention and resources.

Current uncertainty in the global financial markets and the global economy may negatively affect the value of our investment portfolio.

Our investment ~~portfolio,~~portfolios, which ~~includes~~include investments in money market funds, bank deposits and a separately managed investment ~~portfolio, is~~portfolios, are generally subject to credit, liquidity, counterparty, market and interest rate risks that may be exacerbated by a global financial crisis or by uncertainty surrounding the United Kingdom's exit from the European Union. If the banking

system or the fixed income, credit or equity markets deteriorate or remain volatile, our investment portfolio may be impacted and the values and liquidity of our investments could be adversely affected.

Future issuances of our common stock could adversely affect the trading price of our common stock and our ability to raise funds in new stock offerings.

Future issuances of substantial amounts of our common stock, whether in the public market or through private placements, including issuances in connection with acquisition activities, or the perception that such issuances could occur, could adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or equity-related securities. In connection with past acquisitions, we issued a substantial number of shares of our common stock as transaction consideration or contingent consideration. We may continue to issue equity securities for future acquisitions, which would dilute existing stockholders, perhaps significantly depending on the terms of such acquisitions. No prediction can be made as to the effect, if any, that future sales of shares of common stock, or the availability of shares of common stock for future sale, will have on the trading price of our common stock.

Our business could be negatively affected by the actions of activist stockholders.

In recent periods, certain stockholders have publicly and privately expressed concerns with the Company’s performance and with certain governance matters. For example, certain stockholders have expressed concerns about the timing and process related to

our former chief executive officer retiring and the appointment of a new chief executive officer, certain provisions of our executive compensation plans and features of our corporate governance provisions in our governing documents and policies. In addition, we have enacted certain changes to our bylaws in the past year in response to demands from stockholders that may weaken our ability to prevent an unsolicited takeover. Responding to actions by activist stockholders can be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees. Furthermore, any perceived uncertainties as to our future direction could result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

On February 7, 2017, we issued 844,108 shares of our common stock in connection with a business acquisition. The shares were issued in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 4(a)(2) thereof because the issuance did not involve a public offering.

~~The following is a summary of our share repurchases for the three months ended March 31, 2017:~~

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⁾
January 1, 2017 - January 31, 2017 —
$ —
—
$ 292,487
February 1, 2017 - February 28, 2017 —
$ —
—
$ 292,487
March 1, 2017 - March 31, 2017 5,797
$ 17.09
5,797
$ 193,410
Total 5,797
5,797

⁽¹⁾ On April 29, 2013, our Board of Directors approved a share repurchase program for up to $500.0 million of our outstanding shares of common stock. On April 29, 2015, our Board of Directors approved an additional $500.0 million under our share repurchase program. The plan has no expiration date. As of March 31, 2017, approximately $193.4 million of repurchasing authority remained available.

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.None.


Item 3.	Defaults Upon Senior Securities

None.


Item 4.	Mine Safety Disclosures

Not applicable.


Item 5.	Other Information

~~None.~~

Not applicable.


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.

EXHIBIT INDEX



		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
3.1	Amended and Restated Certificate of Incorporation of the Registrant.	10-Q	0-27038	3.2	5/11/2001
3.2	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Registrant.	10-Q	0-27038	3.1	8/9/2004
3.3	Certificate of Ownership and Merger.	8-K	0-27038	3.1	10/19/2005
3.4	Amended and Restated Bylaws of the Registrant.	8-K	0-27038	3.1	11/13/2017
3.5	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Registrant, as amended.	S-3	333-142182	3.3	4/18/2007
10.1	Amended & Restated 2000 Stock Plan (Amended & Restated February 28, 2018)	8-K	0-27038	10.1	3/6/2018
10.2	Employment Agreement between the Registrant and Mark D. Benjamin Dated March 19, 2018	8-K	0-27038	10.1	3/22/2018
10.3	Separation & Release Agreement between the Registrant and Paul Ricci dated April 19, 2018					X
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a).					X
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a).					X
32.1	Certification Pursuant to 18 U.S.C. Section 1350.					X
101.0	The following materials from Nuance Communications, Inc.’s Quarterly Report on Form 10-Q for the quarter ended 3/31/2018, formatted in XBRL (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

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 May 10, ~~2017.~~2018.




	Nuance Communications, Inc.

	By:		/s/ Daniel D. Tempesta
			Daniel D. Tempesta
			Executive Vice President and Chief Financial Officer

~~EXHIBIT INDEX~~

Incorporated by Reference
Exhibit
Number
Exhibit Description Form File No. Exhibit
Filing
Date

Filed
Herewith
3.1
Amended and Restated Certificate of Incorporation of the Registrant. 10-Q 0-27038 3.2 5/11/2001
3.2
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Registrant. 10-Q 0-27038 3.1 8/9/2004
3.3
Certificate of Ownership and Merger. 8-K 0-27038 3.1 10/19/2005
3.4
Amended and Restated Bylaws of the Registrant. 8-K 0-27038 3.1 11/13/2007
3.5
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Registrant, as amended. S-3 333-142182 3.3 4/18/2007
3.6
Certificate of Elimination of the Series A Participating Preferred Stock. 8-K 0-27038 3.1 8/20/2013
3.7
Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock 8-K 0-27038 3.2 8/20/2013
4.1
Indenture, dated as of March 17, 2017, by and between Nuance Communications, Inc. and U.S. Bank National Association, as trustee relating to 1.25% Senior Convertible Notes due 2025, including form of Global Note. 8-K 001-36056 4.1 3/17/2017
10.1

Nuance Communications, Inc. 2000 Stock Plan (as amended January 30, 2017)

8-K 001-36056 10.1 2/3/2017
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a). X
31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a). X
32.1
Certification Pursuant to 18 U.S.C. Section 1350. X
101.0

The following materials from Nuance Communications, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive (Loss) Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.
X

5552



	Touch-Commerce
Purchase consideration:
Cash	$	113,008
Common stock^(a)	85,000
Deferred acquisition payment	20,140
Total purchase consideration	$	218,148

Allocation of the purchase consideration:
Cash	$	137
Accounts receivable^(b)	14,897
Goodwill	117,924
Identifiable intangible assets^(c)	110,800
Other assets	1,521
Total assets acquired	245,279
Current liabilities	(4,198		)
Deferred tax liability	(19,515		)
Deferred revenue	(2,784		)
Other long term liabilities	(634		)
Total liabilities assumed	(27,131		)
Net assets acquired	$	218,148



	TouchCommerce
	Amount		Weighted Average Life (Years)
Core and completed technology	$	26,000	6.0
Customer relationships	81,600		10.0
Trade names	3,200		5.0
Total	$	110,800



Derivatives Not Designated as Hedges:	Balance Sheet Classification	Fair Value
Derivatives Not Designated as Hedges:	Balance Sheet Classification	March 31, 2017		September 30, 2016
Foreign currency contracts	Prepaid expenses and other current assets	$	448	$	335
Net fair value of non-hedge derivative instruments		$	448	$	335



	Number of Shares Underlying Restricted Stock	Weighted Average Grant Date Fair Value
Outstanding at September 30, 2016	—	$	—
Granted	250,000	$	15.55
Outstanding at March 31, 2017	250,000	$	15.55
Weighted average remaining recognition period of outstanding restricted stock awards	0.5 years
Unearned stock-based compensation expense of outstanding restricted stock awards	$2.2 million
Aggregate intrinsic value of outstanding restricted stock awards^(a)	$4.3 million




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⁾
January 1, 2017 - January 31, 2017	—	$	—	—	$	292,487
February 1, 2017 - February 28, 2017	—	$	—	—	$	292,487
March 1, 2017 - March 31, 2017	5,797	$	17.09	5,797	$	193,410
Total	5,797			5,797