Cerence Inc. Q2 FY2026 earnings call

Key Results - Delivered strong quarter with revenue $64.2M and free cash flow $13.6M, both above guidance. - AI technology excels in automotive environment, unique domain expertise and flexible architecture differentiate from competitors. ### Priorities - 2026 priorities: advancing technology, cost diligence, profitable top-line growth. ### XUI Developments - BYD started production with XUI, multi-year contract with Japanese automaker, wins from hyperscalers, pending opportunities in late stage discussions. ### Other Technology Portfolio - Audio AI suite has significant wins, GenAI solutions like ChatPro serve as strong option for OEMs. ### Non-auto Focus - Concentrating on high-value verticals like dealership AI, commercial/industrial operations, IoT/robotics, scaling through direct engagement and distributor-led expansion.

Total revenue for the second quarter was $64.2 million, exceeding the high end of the guidance range. Variable license revenue was $31.8 million, up 6% year-over-year. Connected services revenue was $15.3 million, up 21% year-over-year. Professional services revenue was $11.3 million, down 19% year-over-year. Fixed license revenue was $5.8 million, compared to $21.5 million in the prior year period. Gross margin for the quarter was 74%. Adjusted EBITDA for Q2 was $7.2 million. Cash from operations was $14.1 million and free cash flow was $13.6 million. XUI revenue is ramping up with more to flow in fiscal year 27 and beyond. Non-auto business is focused on high-value verticals with early traction.

Q3 Expectations - Revenue between $68 - $72M, adjusted EBITDA $8 - $12M. ### Full-Year Outlook - Raised midpoint for revenue to $305 - $320M, adjusted EBITDA to $60 - $70M, free cash flow guidance raised by $10M to $66 - $76M.

IP Enforcement - Filed patent infringement action against Amazon, timing of outcomes hard to predict, but viewed as long-term value driver.

Q: Brian, you mentioned vehicles using XUI are now coming off the production line. Could you give more context about product reception at auto OEMs and consumer feedback?

A: BYD just started shipping, other OEMs starting to ship in June/July. Haven't gotten consumer feedback yet, but OEMs appreciate technology performance, rich features, and automotive grade integration. ### Q: Perspective on medium to longer-term revenue growth?

A: Core business can grow high single to low double digits, fueled by connectivity and XUI deals with higher PPUs. Backlog still strong, outside automotive and IP enforcement to contribute later. ### Q: Connected traction and quarter outperformance?

A: Connected is leading growth engine, outperformance due to connected services growth and reduced fixed revenue discounts. ### Q: XUI pipeline and non-auto business?

A: POCs with large OEMs, expecting to close at least one more in Q3. Non-auto business focused on scalable verticals, legal expenses at appropriate pace with no revenue projected from IP cases yet.