Cerence Inc.

Case Details

Class Period: February 8, 2021 - February 4, 2022
Date Filed: February 25, 2022
Case Number: 1:22-cv-10321
Jurisdiction: District of Massachusetts
icon-casetype Case Type: Securities Case

Case Summary

On February 25, 2022, Saxena White filed a securities fraud class action against Cerence, Inc., and certain of its senior executives, for violations of the Securities Exchange Act of 1934. The Complaint, filed on behalf of all persons or entities that purchased Cerence common stock during the relevant time period, alleges that Defendants made false and misleading statements, and that they failed to disclose material adverse facts about the Company’s business, operations, and prospects, thus artificially inflating the Company’s stock price and causing investors to suffer substantial losses when the truth eventually emerged.

Cerence is a Massachusetts-based technology company that sells artificial intelligence-powered, voice-operated virtual assistant software primarily to automobile manufacturers. During the relevant time period, Cerence reported growing revenue and strong demand for its software licenses, despite the ongoing COVID-19 pandemic, crippling supply-chain issues, and a global semiconductor shortage, all of which significantly reduced the global production of automobiles. Cerence even touted its “visibility” into future revenue and demand for its products by providing analysts with revenue guidance for fiscal year 2024 as early as February 18, 2020—guidance that drew significant attention from securities analysts throughout the remainder of the class period.

The Complaint alleges that during the relevant time period, Cerence artificially inflated its stock price by failing to disclose: (1) that the global semiconductor shortage was having a materially negative impact on demand for Cerence’s software licenses, and (2) that Cerence was in fact masking the impact of the semiconductor shortage by improperly pulling forward sales and artificially inflating Cerence’s short-term revenue. As a result, Defendants’ statements about Cerence’s business, operations, and prospects during the relevant time period lacked a reasonable basis and were false and misleading.

The truth began to emerge on November 22, 2021, during Cerence’s 2021 fourth-quarter earnings call when the Company announced revenue guidance for 2022 that was well below analysts’ expectations. In response to this revelation, Cerence’s stock price plunged more than 20% from a closing price of $104.06 the prior day, to a close of $82.59 on November 22, 2021, causing investors to suffer substantial losses. Cerence’s stock price continued to fall the next day, dropping another 5% to close at $78.27 on November 23, 2021. Approximately three weeks later, Cerence’s CEO abruptly resigned, causing the Company’s stock to drop another 11%, from a closing price of $78.08 on December 14, 2021, to a closing price of $69.20 on December 15, 2021. Finally, on February 7, 2022, Cerence shocked the market once again by announcing (1) that the Company’s CFO would be retiring effective March 11, 2022, and (2) that, following an internal review of the Company’s financials by the new CEO, Cerence was lowering its 2022 revenue guidance yet again. The internal review confirmed that Cerence’s short-term revenue was in fact inflated and that “conversions from bookings to revenue [would] take longer than expected.” Cerence was also forced to completely withdraw its closely watched fiscal year 2024 revenue guidance. In response, Cerence’s stock price plummeted another 30% from a closing price of $63.58 on the prior trading day of February 4, 2022, to a close of $43.61 on February 7, 2022.

On May 12, 2022, the Court appointed the Public Employees’ Retirement System of Mississippi as Lead Plaintiff and Saxena White as Lead Counsel.

On July 26, 2022, Lead Plaintiff filed its amended complaint, which added significant detail and refinement to the fraud allegations. On September 9, 2022, Defendants filed a motion to dismiss the complaint.

On March 25, 2024, Saxena White secured a major victory with a significant decision issued by the Honorable Allison D. Burroughs of the District of Massachusetts, in which Judge Burroughs denied in part Defendants’ motion to dismiss Lead Plaintiff’s amended complaint.

In denying Defendants’ motion to dismiss, Judge Burroughs sustained the full alleged class period and three key false statements, finding that facts from Saxena White’s investigation supported Plaintiffs’ allegations that Defendants “were engaged in a scheme to increase Cerence’s use of fixed contract arrangements,” and that Defendants’ statements to the contrary were thus false and misleading. Judge Burroughs further found that a finding of Defendants’ scienter was supported by facts provided by a key confidential witness, and by Defendants’ realization of tens of millions of dollars in incentive compensation by misleadingly inflating Cerence’s revenues.

The case will now proceed to the discovery phase.