View:
June 17, 2019
Leanne Fitzgerald
Vice President, Associate General Counsel and Assistant Secretary
Cerence LLC
1 Wayside Road
Burlington, MA 01803
Re: Cerence LLC
Draft Registration Statement on Form 10-12B
Submitted May 21, 2019
CIK No. 0001768267
Dear Ms. Fitzgerald:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to these comments by providing the requested information
and either
submitting an amended draft registration statement or publicly filing your
registration statement
on EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Draft Registration Statement on Form 10-12B submitted May 21, 2019
Business
Market Opportunities and Industry Trends, page 65
1. You indicate that autonomous driving is a key industry trend and
cognitive assistance in
the domain of trip planning will gradually and partially replace
physical driving controls.
Please clarify whether your products are currently used in autonomous
driving systems.
Research, Development, and Intellectual Property, page 68
2. Please provide a brief description of how your intellectual property
portfolio that you will
take possession as part of the spin-off differs from the intellectual
property that will be
retained by Nuance. On pages 108 and 109, you refer to the Nuance
intellectual property
Leanne Fitzgerald
FirstName LastNameLeanne Fitzgerald
Cerence LLC
Comapany NameCerence LLC
June 17, 2019
June 17, 2019 Page 2
Page 2
FirstName LastName
as "related to the Business" of Cerence or its "field of use." Please
provide more
specificity as to range of intellectual property Cerence will receive,
the intellectual
property that Nuance will license to Cerence, and the intellectual
property that are not part
of intellectual property agreement.
3. To the extent there are any material restrictions as to the use of
either your intellectual
property or those from Nuance subject to the intellectual property
agreement, please
consider adding a risk factor to address such restrictions.
Key Metrics, page 70
4. Please advise whether the current management of the units that will
comprise Cerence
uses any key performance indicators to evaluate their business beyond
the financial
measures provided on page 72. For example, you referenced an installed
base figure on
page 64 and units to be shipped, renewals, and vehicle end users on
page 61.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Operating Results, page 74
5. Please explain the basis for your accounting classification treatment
of acquired patent
amortization included within cost of revenues whereas the amortization
of other intangible
assets, such as acquired customer relationships, trade names and
trademarks, are included
within operating expenses.
Future Liquidity, page 86
6. Please discuss the adequacy of the cash and cash equivalents that will
be transferred to
Cerence from Nuance at the close of the distribution.
Reorganization Transactions, page 104
7. Please provide a materially complete description of the reorganization
transactions that
must occur through the close of the distribution to Nuance
stockholders of shares of
Cerence. An illustration of the reorganization transactions and the
spin-off may be useful
to stockholders.
Exclusive Forum, page 113
8. Your forum selection provision identifies the Court of Chancery of the
State of Delaware
as the exclusive forum for certain litigation, including any
"derivative action." Please
disclose whether this provision applies to actions arising under the
Securities Act or
Exchange Act. In that regard, Section 27 of the Exchange Act creates
exclusive federal
jurisdiction over all suits brought to enforce any duty or liability
created by the Exchange
Act or the rules and regulations thereunder, and Section 22 of the
Securities Act creates
concurrent jurisdiction for federal and state courts over all suits
brought to enforce any
duty or liability created by the Securities Act or the rules and
regulations thereunder. If the
Leanne Fitzgerald
FirstName LastNameLeanne Fitzgerald
Cerence LLC
Comapany NameCerence LLC
June 17, 2019
June 17, 2019 Page 3
Page 3
FirstName LastName
provision applies to Securities Act claims, please revise to state
that there is uncertainty as
to whether a court would enforce such provision and to state that
stockholders will not be
deemed to have waived the company's compliance with the federal
securities laws and the
rules and regulations thereunder. If this provision does not apply to
actions arising under
the Securities Act or Exchange Act, please ensure that the exclusive
forum provision in
the governing documents states this clearly.
Index to combined financial statements, page F-1
9. We note your Emerging Growth Company status where you have presented
audited
financial statements for the last two fiscal years. Furnish all
financial statements required
by Regulation S-X and the supplementary financial information required
by Item 302 of
Regulation S-K pursuant to Item 13 of Form 10. Please also refer to
the Division of
Corporation Finance Financial Reporting Manual 10220.1(d).
10. Please update your financial statements in your next amendment to Form
10. Please refer
to Rule 3-12(g) of Regulation S-X.
Notes to the Combined Financial Statements
Note 2. Basis of Presentation, page F-9
11. You disclose that the combined financial statements include the
allocation of certain
assets and liabilities that have historically been held at the Nuance
corporate level by
shared entities but which are specifically identifiable or allocable
to the Cerence business.
Regarding the allocations, revise to disclose more fully the
allocation methods and
assumptions used. For example, disclose the guidance, assumptions and
methodology
used to allocate Nuance goodwill Cerence. Please refer to SAB Topic
1.B.1 and
specifically, with respect to the goodwill, ASC 350-20-35-45 and 46.
12. Tell us and disclose the rationale for not reflecting the Nuance
allocable stock-based
compensation in the Cerence Combined Statements of Operations while
reflecting it in the
net parent investment as you have disclosed on page F-10.
Note 3. Summary of Significant Accounting Policies
(c) Revenue recognition, page F-11
13. On page F-11, you state that you offer some of your products via a
Software-as-a-
Service model also known as a hosted model. In this type of
arrangement, you are
compensated in three ways: (1) fees for up-front set-up of the service
environment and (2)
fees charged for hosted service subscriptions. However, you only cited
two ways in your
disclosures. Please clarify or revise to denote the on-demand service
subscription fees as
item "(3)."
General
14. You disclose that Nuance may distribute at least 80.1% of the common
stock of Cerence,
Leanne Fitzgerald
Cerence LLC
June 17, 2019
Page 4
Inc. to stockholders , but as much as 100% of the Cerence shares if you
do not receive a
private letter ruling from the IRS as to the tax free treatment of the
spin-off prior to the
distribution. You further indicate that Nuance may retain up to 18.5%
ownership interest
in Cerence, but will sell all of the shares to third parties so soon as
reasonable practicable
following the spin-off. Please clarify how you will disclose to
investors whether the IRS
private letter ruling has been received and the amount of shares that
Nuance will retain.
Further, if Nuance has discretion as to the amount of Cerence shares it
will retain, please
clarify how Nuance's management will decide on the appropriate amounts
and its
potential impact on the operations and financial condition for Cerence.
For example, it is
unclear whether the size of the amount of shares retained by Nuance will
impact the
Cerence dividend policy, the amount of cash transferred to Cerence as
part of the spin-off,
and the amounts of indebtedness to be incurred by Cerence.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Becky Chow, Staff Accountant, at (202) 551-6524 or
Craig Wilson,
Senior Staff Accountant, at (202) 551-3226 if you have questions regarding
comments on the
financial statements and related matters. Please contact Edwin Kim, Staff
Attorney, at (202)
551-3297 or Barbara Jacobs, Assistant Director, at (202) 551-3735 with any
other questions.
Sincerely,
FirstName LastNameLeanne Fitzgerald Division of
Corporation Finance
Office of
Information Technologies
Comapany NameCerence LLC
and Services
June 17, 2019 Page 4
cc: John C. Kennedy of Paul, Weiss, Rifkind, Wharton & Garrison LLP
FirstName LastName