Leases

12 Months Ended

Sep. 30, 2025

We have entered into a number of facility and equipment leases which qualify as operating leases under GAAP. We also have a limited number of equipment leases that qualify as finance leases. We determine if contracts with vendors represent a lease or have a lease component under GAAP at contract inception. Our leases have remaining terms ranging from less than one year to six years. Some of our leases include options to extend or terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.

Operating lease right of use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date. As our leases generally do not provide an implicit rate, we use an estimated incremental borrowing rate in determining the present value of future payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular location and currency environment.

The following table presents certain information related to lease term and incremental borrowing rates for leases as of September 30, 2025 and 2024:


	September 30, 2025		September 30, 2024
Weighted-average remaining lease term (in months):
Operating leases	46.9		46.0
Finance leases	3.4		13.4
Weighted-average discount rate:
Operating leases	7.2	%	6.6	%
Finance leases	4.4	%	4.4	%

The following table presents the lease-related assets and liabilities reported in the Consolidated Balance Sheets as of September 30, 2025 and 2024 (dollars in thousands):


	Classification	September 30, 2025		September 30, 2024
Assets
Operating lease assets	Operating lease right of use assets	$	16,762	$	12,879
Finance lease assets	Property and equipment, net	63		410
Total lease assets		$	16,825	$	13,289

Liabilities
Current
Operating	Short-term operating lease liabilities	$	4,344	$	4,528
Finance	Accrued expenses and other current liabilities	53		394
Noncurrent
Operating	Long-term operating lease liabilities	$	13,083	$	8,803
Finance	Other liabilities	—		53
Total lease liability		$	17,480	$	13,778

The following table presents lease expense for the fiscal years ended September 30, 2025, 2024 and 2023 (dollars in thousands):


	Year Ended September 30,
	2025		2024		2023
Finance lease costs:
Amortization of right of use asset	$	348	$	415	$	432
Interest on lease liability	7		22		37
Operating lease cost	6,642		6,226		6,489
Variable lease cost	1,117		2,550		3,120
Sublease income	(206)		(216)		(195)
Total lease cost	$	7,908	$	8,997	$	9,883

For the fiscal years ended September 30, 2025, 2024 and 2023 cash payments related to operating leases were $6.7 million, $6.6 million and $6.6 million, respectively. For the fiscal years ended September 30, 2025, 2024 and 2023, cash payments related to financing leases were $0.4 million, $0.4 million and $0.4 million, respectively, of which an immaterial amount related to the interest portion of the lease liability. For the fiscal years ended September 30, 2025, 2024 and 2023 right of use assets obtained in exchange for lease obligations were $5.9 million, $5.8 million and $2.9 million, respectively.

The table below reconciles the undiscounted future minimum lease payments under non-cancelable leases to the total lease liabilities recognized on the Consolidated Balance Sheet as of September 30, 2025 (dollars in thousands):


Year Ending September 30,	Operating Leases		Financing Leases		Total
2026	5,581		53		5,634
2027	5,546		—		5,546
2028	4,556		—		4,556
2029	3,171		—		3,171
2030	1,122		—		1,122
Thereafter	110		—		110
Total future minimum lease payments	$	20,086	$	53	$	20,139
Less effects of discounting	(2,659)		—		(2,659)
Total lease liabilities	$	17,427	$	53	$	17,480
Reported as of September 30, 2025
Short-term lease liabilities	$	4,344	$	53	$	4,397
Long-term lease liabilities	13,083		—		13,083
Total lease liabilities	$	17,427	$	53	$	17,480

Leases

The following table presents certain information related to lease term and incremental borrowing rates for leases as of September 30, 2025 and 2024:


	September 30, 2025		September 30, 2024
Weighted-average remaining lease term (in months):
Operating leases	46.9		46.0
Finance leases	3.4		13.4
Weighted-average discount rate:
Operating leases	7.2	%	6.6	%
Finance leases	4.4	%	4.4	%

The following table presents the lease-related assets and liabilities reported in the Consolidated Balance Sheets as of September 30, 2025 and 2024 (dollars in thousands):


	Classification	September 30, 2025		September 30, 2024
Assets
Operating lease assets	Operating lease right of use assets	$	16,762	$	12,879
Finance lease assets	Property and equipment, net	63		410
Total lease assets		$	16,825	$	13,289

Liabilities
Current
Operating	Short-term operating lease liabilities	$	4,344	$	4,528
Finance	Accrued expenses and other current liabilities	53		394
Noncurrent
Operating	Long-term operating lease liabilities	$	13,083	$	8,803
Finance	Other liabilities	—		53
Total lease liability		$	17,480	$	13,778

The following table presents lease expense for the fiscal years ended September 30, 2025, 2024 and 2023 (dollars in thousands):


	Year Ended September 30,
	2025		2024		2023
Finance lease costs:
Amortization of right of use asset	$	348	$	415	$	432
Interest on lease liability	7		22		37
Operating lease cost	6,642		6,226		6,489
Variable lease cost	1,117		2,550		3,120
Sublease income	(206)		(216)		(195)
Total lease cost	$	7,908	$	8,997	$	9,883


Year Ending September 30,	Operating Leases		Financing Leases		Total
2026	5,581		53		5,634
2027	5,546		—		5,546
2028	4,556		—		4,556
2029	3,171		—		3,171
2030	1,122		—		1,122
Thereafter	110		—		110
Total future minimum lease payments	$	20,086	$	53	$	20,139
Less effects of discounting	(2,659)		—		(2,659)
Total lease liabilities	$	17,427	$	53	$	17,480
Reported as of September 30, 2025
Short-term lease liabilities	$	4,344	$	53	$	4,397
Long-term lease liabilities	13,083		—		13,083
Total lease liabilities	$	17,427	$	53	$	17,480

Cerence Inc. 10-K