Cerence Inc. Q2 FY2025 earnings call

• The team delivered strong results with revenue of $78 million and adjusted EBITDA of $29.5 million, exceeding guidance. Raised full-year guidance for adjusted EBITDA and free cash flow.
• Focused on technology innovation, diverse customer base, and deep automotive expertise. Saw no meaningful tariff impact in Q2, with limited impact expected in Q3 but facing pricing pressure and program timeline changes from customers.
• Announced partnership with Code Factory for VoiceTopping solution in non-automotive verticals like restaurants, hospitality, etc.
• Ongoing IP protection lawsuits against Samsung, Microsoft, and Nuance to defend intellectual property.
• Progress on Cerence XUI: market launch, milestones at Auto Shanghai 2025 with multimodal features, strong customer interest with signed deals and a robust pipeline.
• Key deliverables for 2025: work on XUI, growing business with new and existing customers, and transformation/cost management.

In Q2 2025, Cerence achieved revenue of $78 million. Variable license revenue was $29.9 million, up $4.8 million or 19% from the same quarter last year. Fixed license revenue for the quarter was $21.5 million. Connected Services revenue was $12.6 million, down $1 million or 7% from the same quarter last year but excluding a prior $2.6 million revenue true-up. Gross margin was 77%, exceeding the guidance range. Adjusted EBITDA was $29.5 million. Free cash flow was $13.1 million, marking the fourth consecutive quarter of positive free cash flow. Revenue contribution: variable license revenue contributed around 38.3% ($29.9M / $78M), fixed license revenue around 27.6% ($21.5M / $78M), Connected Services revenue around 16.2% ($12.6M / $78M).

• Q3 revenue guidance: $52 million to $56 million.
• Full-year 2025 revenue guidance: $236 million to $247 million.
• Adjusted EBITDA full-year guidance: $28 million to $34 million.
• Free cash flow full-year guidance: $25 million to $35 million.

• Macro challenges and uncertainties in the automotive industry. Tariffs impacting pricing and program timelines.
• Risks associated with ongoing IP lawsuits, including potential loss of cases.

Q: On metrics, billings deceleration, connected cars uptick.

A: Volumes were in line with expectations, and the connected rate shows increased demand for connected vehicles. Billings are recognized over time, so increased connected rates are a positive sign.

Q: AI impact on connected, macro impacts.

A: AI drives usage in vehicles both connected and non-connected. Macro impacts could be seen in pricing discussions with OEMs and volume if volumes decrease dramatically.

Q: Professional services, gross margins, MediaTek partnership.

A: Reduced fixed contracts increased effective price. The MediaTek partnership is part of a three-way relationship with NVIDIA and Cerence to optimize SoCs for automotive, improving performance and reducing costs.

Q: Lawsuit against Microsoft, non-automotive opportunities.

A: Lawsuit is to protect intellectual property. Non-automotive opportunities include VoiceTopping with Code Factory in verticals like malls and airports, leveraging existing software expertise.