Cerence Inc. Q4 FY2024 earnings call

• Brian Krzanich highlighted Cerence's position in the automotive AI revolution, with 28 design wins in fiscal 2024 and 10 customer wins for generative AI solutions. The new AI platform based on proprietary language models was launched, with the second generation to be released by Q4 2025. • Tony Rodriguez reviewed Q4 and full year 2024 results, noting revenue exceeded guidance, gross margin was 64%, and free cash flow was $4.7 million. Discussed restructuring efforts with net savings on track to meet or exceed $40 million, with cost reductions across headcount and facilities. • Mentioned plans for fiscal 2025, including revenue guidance of $236-$247 million, adjusted EBITDA of $15-$26 million, and free cash flow of $20-$30 million, with focus on execution, business process improvement, and advancing generative AI roadmap.

In Q4 2024, Cerence achieved revenue of $54.8 million, with adjusted EBITDA of negative $1.9 million, both exceeding the high-end of guidance. Full year 2024 revenue was $331.5 million, and adjusted EBITDA was $80.6 million. Variable license revenue was $25.3 million, down 17% year-over-year. Connected Services revenue in Q4 was $12.1 million, up 12% year-over-year. Professional Services revenue was down 6% year-over-year. Pro forma royalties were $42.2 million, flat compared to Q4 2023 and up from Q3.

• Fiscal 2025 revenue guidance: $236 million to $247 million. • Adjusted EBITDA guidance for 2025: $15 million to $26 million. • Free cash flow guidance for 2025: $20 million to $30 million. • Q1 2025 revenue expected: $47 million to $50 million. • Q1 2025 adjusted EBITDA expected: negative $9 million to negative $6 million. • Q1 2025 free cash flow expected: negative $4 million to zero. • Gross margins for 2025 expected: 67% to 69%.

• Convertible notes of $87.5 million due in June 2025, with considerations of refinancing and cash position. • Revenue headwinds from restructuring actions, particularly in Professional Services. • Quarterly data can be materially impacted by fixed license revenue signed in the quarter, and year-over-year comparisons can be noisy due to factors like legacy revenue and volume changes.

Q: Jeff Van Rhee asked about AI margins and pricing uplift.

A: Brian Krzanich said margins are improving with AI deals as people see value in natural language interpretation, and Tony Rodriguez added margins are higher for Connected Services products.

Q: Colin Langan asked about shipments and backlog.

A: Tony Rodriguez explained shipments are affected by average PPU, with growth in Connected Services and license business, and Brian Krzanich mentioned backlog is around $1 billion and priorities include execution, finishing Gen AI products, and exploring non-automotive usages.

Q: Nicholas Doyle asked about Professional Services and average PPU.

A: Tony Rodriguez said Professional Services will be down due to focus on meaningful results, and Brian Krzanich noted quarter-to-quarter lumpiness in Professional Services and average PPU is affected by license components and Connected Services billings.