Cerence (CRNC) $30M Investor Settlement

D. Massachusetts

Court

1:22-CV-10321

Case number

16 Nov 2020

Class period Start

04 Feb 2022

Class period End

Cerence has agreed to pay $30 million to settle a class-action lawsuit accusing the company of misleading investors about its financial health.

The lawsuit alleges that Cerence engaged in deceptive practices, including manipulating revenue recognition through fixed license deals, to mask the long-term financial damage caused by the global semiconductor shortage. These actions allegedly inflated the company’s short-term financial performance, misleading investors about its true economic state.

Outline

Cerence is accused of hiding how much the global semiconductor shortage hurt its business. Investors claim Cerence attempted to mask the issue by accelerating revenue recognition, artificially inflating its financial results This was done through entering fixed license agreements that inflated short-term revenue but harmed Cerence’s long-term economic health. These deals were personally approved by Cerence’s former CEO Sanjay Dhawan and former CFO Mark Gallenberger, who are defendants in this case.

Following Cerence's reduction of its 2022 fiscal guidance and the disclosure of its revenue manipulation, the company's stock price fell by 31% on February 7, 2022. This significant drop, combined with earlier stock declines, led investors to file a class-action lawsuit. Cerence has now agreed to settle the lawsuit for $30 million, bringing the matter to a close.

Timeline
Early 2020: Cerence’s leadership, including CEO Sanjay Dhawan, started pressuring the sales team to push fixed license deals to boost immediate revenue, compromising future growth.
November 16, 2020: Cerence executives began reporting the company’s revenue growth was strong and sustainable. They failed to disclose that much of this revenue was generated by pulling forward sales from future quarters, creating the illusion of demand while hiding the risk of declining future revenue.
Mid 2021: Cerence introduced "minimum commitment" deals, which allowed customers to lock in discounts without paying upfront. Cerence recorded revenue immediately, even though no cash was received, leading to unsustainable financial practices.
August 9, 2021: Cerence raised its 2024 revenue guidance to $700 million while continuing to hide the harmful effects of relying on fixed and minimum commitment deals.
November 22, 2021: The company issued lower-than-expected revenue guidance for fiscal year 2022, which triggered a 20% drop in Cerence's stock price.
December 14, 2021: CEO Sanjay Dhawan's sudden resignation led to another 11% drop in Cerence's stock price.
February 7, 2022: Cerence revealed the full extent of the harm caused by their revenue manipulation and withdrew their 2024 guidance. The stock price fell another 31% after this announcement.
September 2023: Cerence agreed to a $30 million settlement with investors.
Background

In early 2020, Cerence’s leadership, including CEO Sanjay Dhawan, began pushing fixed-license deals to boost short-term revenue by pulling sales forward from future quarters. This tactic inflated financial results and misled investors about the company’s growth potential. Dhawan and CFO Mark Gallenberger personally benefited from these actions, receiving performance-based compensation tied directly to these inflated revenues. Together, they earned over $25 million from stock sales during this period, while the company’s long-term financial health deteriorated.

On February 7, 2022, Cerence admitted that the semiconductor shortage and its sales tactics were hurting the company more than it had let on, and they lowered their revenue projections for the future. This news caused the stock price to fall by 31%, leading to big losses for investors. Soon after, investors filed a class-action lawsuit, claiming that Cerence had misled them by overstating its ability to handle supply chain problems and inflating its financial results

What Investors Should Expect

Investors who suffered financial losses due to Cerence’s misleading statements regarding the semiconductor shortage may be eligible for compensation from the $30 million settlement.

If you were damaged due to this situation, you can file for a payout and get your share of the settlement. You can check if you are eligible and other details in the FAQ section below.

Case Status

Preliminary Approved Settlement

Alleged Offence

Misleading Statements,

Financial Misrepresentation,

Failure to Disclose

Suspected Party

Directors,

Management

Security Type

Stocks

Trade Direction

Long

Payout per Share

1.12

Filing date

25 February 2022

Lead Plaintiff Deadline

26 April 2022

Plaintiffs

City of Miami Fire Fighters' and Police Officers' Retirement Trust

Attorneys

Bernstein Litowitz Berger & Grossmann LLP; Davidson Bowie, PLLC

Defendants

Cerence Inc.

Judge

Allison D. Burroughs

Administrator

A.B. Data Ltd

Attorney fee

$7,800,000

Trades matching type

FIFO

+$30,000,000

Cash Settlement Amount