Cerence Inc. Q1 FY2026 earnings call

Key Priorities - Advancing business through leading technology (XUI), maintaining cost diligence, and driving top-line growth. ### CES Highlights - Showcased Cerence XUI with new LLM palette, Calm Edge model, and Audio AI suite. Completed development of new AI agents including mobile work agent (Microsoft partnership), dealer assist agent, and ownership companion agent. ### Cost Diligence - Paid down $30 million of debt due in 2028, completed restructuring of foreign operations. ### Top-Line Growth - Focus on increasing XUI adoption, strong customer traction outside XUI (generative AI apps, Audio AI wins), growth in connected vehicles shipped, and expansion in non-automotive businesses. ### Strategic Milestone - Recorded $49.5 million patent license revenue from Samsung litigation resolution.

Total revenue for First Quarter 2026 was $115.1 million, up 126% from $50.9 million in the prior year. Variable license revenue was $30.59 million, up 34% YOY, driven by steady customer utilization and adoption. Fixed license revenue was $7.8 million, with timing differences as prior year had no such deals. Connected services revenue was $14.5 million, up 6% YOY (excluding prior year true-up, up over 20% YOY). Patent license revenue of $49.5 million was recorded from the Samsung litigation resolution. Gross profit was $99.4 million, 86% gross margin. Adjusted EBITDA was $44.6 million, 39% margin. Free cash flow was a record $35.6 million. Connected cars shipped grew 14% TTM. Pro forma royalties were $39.8 million, up YOY. Consumption of fixed license contracts was $8.7 million, lower than prior year but in line with expectations.

Q2 2026 - Revenue between $58 million - $62 million, gross margins 71-72%, GAAP net income breakeven (EPS -$0.01 to $0.08), adjusted EBITDA $2 million - $6 million. ### Full-Year 2026 - Reaffirmed guidance: Revenue $300 million - $320 million, adjusted EBITDA $50 million - $70 million, free cash flow $56 million - $66 million, gross margins 79-80%.

Patent Litigation - Ongoing cases with Sony, TCL, and Apple with resolutions taking multiple years. ### Market Risks - Potential for actual results to differ from forward-looking statements due to risks and uncertainties outlined in SEC filings.

Q: On the mobile work agent, where does it rank in terms of XUI capabilities and impact on ARPUs?

A: Brian Krzanich: The mobile work agent (cloud-based) makes cars trusted devices with voice-first access to Microsoft 365 Copilot, etc. It can be applied to existing vehicles, is additive to PPU, and revenue event for Cerence.

Q: On existing cars, is revenue from mobile work agent a current event?

A: Brian Krzanich: Yes, it's a revenue event.

Q: TTM billings and backlog preview for Q2?

A: Tony Rodriguez: Signings will be reflected in five-year backlog next quarter as contracts are signed and volume projected over periods.

Q: Interest from Western vs Chinese OEMs in XUI pipeline?

A: Brian Krzanich: Three of five XUI deals are with Western/classic OEMs, timing similar to Chinese, and PPU significantly higher than current listed PPU.

Q: Reasons for EBITDA beat in Q1?

A: Tony Rodriguez: Legal costs associated with Samsung settlement were better than expected, and some R&D projects deferred, aiding OpEx.

Q: Competitive process for major volume global automaker win?

A: Brian Krzanich: Won due to technology capability, confidence in delivery, and ability to customize, with win rate showing strong traction.