CRNC

• Strategic Progress and Capital Allocation

  • After two years of foundation building, execution on the company's strategic roadmap is complete, and the business is positioned for future growth. The CERNS board has authorized the company's first-ever share repurchase program, authorizing up to $30 million in common stock repurchases over 12 months, demonstrating confidence in the business's cash generation and profitability.
  • Core capital allocation priorities remain: organic growth investment, debt reduction, managing equity dilution, and selective inorganic opportunities to drive long-term shareholder value.

• Automotive AI and XUI Commercialization

  • XUI, CERNS' next-generation AI automotive platform, has reached the commercialization phase, with ~100,000 XUI-powered vehicles on the road as of Q3, available in nearly 20 languages. XUI is ramping as expected, with meaningful revenue contribution targeted for fiscal 2027 and beyond.
  • CERNS signed a new XUI deal with Stellantis in Q3, with initial production already started. XUI programs with JLR, a VW Group brand, BYD, Geely, and a major Japanese automaker are progressing, with several set to start production in Q4 fiscal 2026. XUI carries significantly higher average price per unit than legacy products, with connected service terms averaging 7 years (up from ~3 years for legacy products).
  • CERNS won the JLR Global Supplier Excellence Awards' Exceptional Creator recognition for its AI partnership, validating its technology and strategic partner status for OEM AI transitions.
  • The company signed its first customer for a mobile work agent co-developed with Microsoft with a global premium automaker (rollout starting Q4), validating the strategy of standalone agent sales that can integrate into non-XUI and even competitive platforms, expanding the company's addressable market.
  • New wins across the broader portfolio include the first exterior vehicle interaction customer, new programs with Subaru, HKMC, GM, a Chinese robo-taxi company, and a non-XUI CERNS assistant program with Stellantis.

• Non-Automotive Expansion

  • CERNS is expanding voice AI and agentic capabilities to non-automotive complex verticals including commercial/industrial operations, robotics, and IoT, leveraging its edge AI, reliability, and security advantages.
  • A pilot dealer assistant AI agent launched at a Michigan car dealership has captured 100% of after-hours calls, driving a 20% increase in sales opportunities and a 30% increase in booked service appointments, proving the product's value in a large addressable market with tens of thousands of global dealerships.

• IP Strategy

  • CERNS continues active enforcement and protection of its intellectual property in the ordinary course of business. Outcomes remain unpredictable on a quarterly basis, but these efforts support long-term innovation and shareholder value. Ongoing litigation with Sony, TCL, Apple, and Amazon is ongoing, with several cases expected to go to court by the end of 2026.

• Q4 2026 Guidance:

  • Revenue: $61 million to $65 million (sequentially lower due to the $12.5 million of fixed license revenue recognized in Q3, with no additional fixed license revenue expected in Q4, and normal seasonal production volume declines). Excluding Q3 fixed license revenue, the Q4 revenue midpoint is higher than Q3's underlying revenue level.
  • Gross margin: 72% to 75%
  • Adjusted EBITDA: $1 million to $5 million
  • Net income: $1 million to $5 million
  • Diluted EPS: $0.02 to $0.10

• Full Fiscal 2026 Guidance:

  • Revenue: $310 million to $314 million
  • Gross margin: 78% to 79%
  • GAAP net result: net loss of $1.1 million to net income of $2.9 million
  • Diluted EPS: loss of $0.02 to income of $0.06
  • Adjusted EBITDA: $66 million to $70 million
  • Free cash flow guidance raised to $76 million to $82 million, up from the prior range of $66 million to $76 million

• Fiscal 2027 Qualitative Guidance:

  • Management expects full year revenue growth in the high single-digit to low double-digit range, driven by XUI ramp, growing connected services, and faster percentage growth in non-automotive revenue. Growth is expected to accelerate through the year as XUI and non-automotive initiatives ramp. Full quantitative fiscal 2027 guidance will be provided on the Q4 2026 earnings call. No IP monetization results are included in current forecasts, as litigation timing is unpredictable.

Total Q3 2026 revenue was $70 million, up 12% year-over-year (YoY):

• License revenue: $41.6 million, up 22% YoY (59.4% of total revenue). This includes $12.5 million in fixed license revenue (17.9% of total), and $29.1 million in variable license revenue (41.6% of total), which was down 15% YoY due to tough comparisons against a strong prior year quarter and softer production in CERNS' core OEM/regional mix.
• Connected services revenue: $15.5 million, up 20% YoY (22.1% of total revenue), driven by a larger connected install base and higher attach rates.
• Professional services revenue: $12.9 million, down 18% YoY (18.5% of total revenue), reflecting a focus on higher-margin standard implementations and revenue deferrals for bundled arrangements.

Other key segment/performance metrics:

• Gross margin: 76% YoY, up from 74% in the prior year period.
• Adjusted EBITDA: $13.5 million, up 51% YoY.
• Free cash flow: $20 million in Q3.
• Non-automotive revenue is forecasted to be $7 million to $9 million for full fiscal 2026, with larger growth expected starting in fiscal 2027.

• Variable license revenue is exposed to broader automotive production volatility, and CERNS' volume can underperform the broader market based on its specific OEM and regional mix, plus program lifecycle transitions where older programs wind down faster than new programs ramp.
  • XUI production ramp timelines are dependent on coordination with multiple OEM and supplier partners, so CERNS does not control exact launch timing.
  • The timing and outcome of IP litigation and monetization cannot be predicted accurately quarter-to-quarter, so potential gains from ongoing IP enforcement are not included in official guidance.
  • Fixed license revenue is inherently variable quarter-to-quarter based on contract execution timing, creating potential sequential revenue volatility.
  • Forward-looking statements are subject to general risks and uncertainties that could cause actual results to differ materially from expectations, as detailed in CERNS' SEC filings.

Q: What are the financial implications of the current XUI backlog, including the recent Stellantis win, for revenue and profit once fully ramped, and how long will the ramp take? / A: There are currently ~100,000 XUI-powered vehicles on the road just over a month after initial production started. Additional OEM programs are expected to start production by the end of Q4 and early Q1 2027 fiscal, with volumes growing significantly through 2027 fiscal to a couple million units on the road by year end. XUI has significantly higher average per-unit pricing than legacy products, with connected service terms averaging 7 years (up from ~3 years for older products), and all XUI vehicles are connected, creating both higher license and recurring revenue. The ramp will take several years to complete, but will drive revenue and profitability growth as volumes scale.

Q: Can management confirm the qualitative top-line trajectory for fiscal 2027 after the prior hint of high single-digit to low double-digit growth? / A: The prior outlook for high single-digit to low double-digit overall revenue growth for 2027 remains intact. Growth will be driven by strong growth in connected services from XUI, higher average per-unit pricing from XUI adoption, and significantly faster percentage growth in non-automotive revenue compared to automotive. Growth will accelerate through the year as XUI and non-automotive initiatives ramp. Professional services will remain a stable base business but will decline as a percentage of total revenue. No potential IP monetization results are included in this baseline outlook.

Q: What is the typical length and competitive dynamics of an XUI sales cycle, using the Stellantis win as an example? / A: XUI sales cycles typically start with an OEM RFQ (often co-developed with CERNS for existing customers) and can take at least six months to complete, with larger deals taking longer due to OEM internal processes. The competitive process usually narrows to two finalists, with competition focused on product features, integration support, and ability to meet customization requirements rather than price. CERNS has not faced a race-to-the-bottom price competition, and XUI pricing is consistently significantly higher than legacy product pricing.

Q: Is there any unusual volatility outside of normal seasonality impacting Q4 automotive production volumes? / A: No material unusual volatility is expected for Q4. Only the normal seasonal slight decline in production volumes that CERNS typically sees from Q3 to Q4 is factored into guidance, and underlying demand and production schedules remain stable.

Q: What factors drive the Q4 variable license revenue rebound implied by guidance? / A: The Q4 forecast reflects a return to normal seasonal production volumes after Q3's year-over-year decline tied to tough prior year comparisons. Continued 20%+ year-over-year growth in connected services also contributes, plus a small expected increase in non-automotive revenue contributions.