Cerence Q1 FY25 Earnings Presentation Brian Krzanich, Chief Executive Officer Tony Rodriquez, Chief Financial Officer February 6, 2025 © 2025 Cerence Inc. Forward-Looking Statements Statements in this presentation regarding: Cerence's future performance, results and financial condition; expected growth and profitability; outlook; transformation plans and cost efficiency initiatives, including the estimated net annualized cost savings; strategy; opportunities; business, industry and market trends; strategy r ...

Revenue Performance - Total revenue for the three months ended December 31, 2024, decreased by $87.4 million, or 63.2%, to $50.9 million from $138.3 million in the same period of 2023[135]. - License revenue increased by $1.9 million, or 9.1%, to $22.7 million, representing 44.6% of total revenues, up from 15.1% in the prior year[145]. - Connected services revenue decreased by $83.1 million, or 85.8%, to $13.7 million from $96.8 million[144]. - Professional services revenue decreased by $6.2 million, or 30.1%, to $14.5 million from $20.7 million[144]. - Connected services revenue for Q1 FY2025 was $13.7 million, a decrease of $83.1 million, or 85.8%, from $96.8 million in Q1 FY2024, primarily due to contract terminations[146]. - Professional services revenue for Q1 FY2025 was $14.5 million, a decrease of $6.2 million, or 30.1%, from $20.7 million in Q1 FY2024, driven by contract fulfillment timing[147]. - Total gross profit for Q1 FY2025 was $33.1 million, a decrease of $78.9 million, or 70.5%, from $112.0 million in Q1 FY2024, primarily due to declines in connected services revenue[150]. Operating Performance - Operating margin decreased by 75.6 percentage points to negative 33.3% from 42.3%[135]. - Cash provided by operating activities was $9.3 million, a net change of $12.1 million from cash used in operating activities of $2.8 million[135]. - Total cost of revenues for Q1 FY2025 was $17.8 million, a decrease of $8.5 million, or 32.3%, from $26.3 million in Q1 FY2024[149]. - R&D expenses for Q1 FY2025 were $20.9 million, a decrease of $12.4 million, or 37.3%, from $33.3 million in Q1 FY2024[158]. - Sales and marketing expenses for Q1 FY2025 were $4.8 million, a decrease of $1.3 million, or 21.5%, from $6.1 million in Q1 FY2024[159]. - General and administrative expenses for Q1 FY2025 were $12.8 million, flat compared to $12.8 million in Q1 FY2024[160]. - Restructuring and other costs for Q1 FY2025 were $11.1 million, a significant increase from $0.7 million in Q1 FY2024, primarily due to personnel elimination charges[164][165]. Future Outlook - The company expects revenue to continue to be impacted by production delays and slowdowns in the global automotive industry due to macroeconomic conditions[143]. - A restructuring plan was announced in August 2024 to reduce operating expenses and position the company for profitable future growth[143]. - The implementation of the restructuring plan was substantially complete by the end of the first quarter of fiscal year 2025[143]. - The company has existing relationships with nearly all major OEMs or their tier 1 suppliers, providing some visibility into future revenue despite potential delays[130]. Tax and Cash Position - The provision for income taxes for the three months ended December 31, 2024 was $5.7 million, a decrease of 83.5% from $34.3 million in the same period of 2023[169]. - The effective income tax rate for the three months ended December 31, 2024 was negative 30.5%, compared to 59.0% for the same period in 2023[169]. - As of December 31, 2024, the company had $110.5 million in cash, cash equivalents, and marketable securities, with net working capital of $91.0 million[170]. - The total material cash requirements for future periods amount to $298.3 million, with $67.2 million due in 2025[174]. Debt and Financing Activities - The company issued $190.0 million in aggregate principal amount of 2028 Notes, with initial net proceeds of $193.2 million after transaction costs[175]. - The 2025 Modified Notes have a carrying amount of $135.4 million as of December 31, 2024, net of unamortized costs[179]. - Net cash provided by operating activities for the three months ended December 31, 2024 was $9.3 million, a significant increase of 428.7% from a net cash used of $2.8 million in the same period of 2023[193]. - The company repurchased $27.4 million aggregate principal amount of its 2025 Notes for $27.0 million in cash, resulting in a gain on extinguishment of debt of $0.3 million[186]. - Total interest expense related to the Notes for the three months ended December 31, 2024 was $2.97 million, compared to $2.91 million in 2023[187]. - The company terminated its Credit Agreement on December 31, 2024, with no revolving loans outstanding at that time[190]. - Net cash used in financing activities for Q4 2024 was $27.1 million, a significant increase of $27.0 million from $0.1 million in Q4 2023, driven by a $70.5 million decrease in income before non-cash charges[196]. - The company experienced a $88.8 million increase in deferred revenue, contributing positively to cash flow changes in financing activities[196]. Market Risks - The company is exposed to market risks from foreign currency exchange rates and interest rates, which could impact operating results and cash flows[200]. - The primary foreign currency exposure includes transactions in Canadian dollar, Chinese yuan, Euro, and Japanese yen[202]. - The company utilizes foreign currency forward contracts to hedge against foreign currency exchange risks associated with forecasted payments[203]. - The aggregate notional amount of outstanding foreign currency forward contracts was $43.2 million at December 31, 2024, with a potential unrealized loss of $3.7 million from a 10% unfavorable exchange rate movement[203]. - Cash and cash equivalents totaled approximately $104.1 million at December 31, 2024, with a potential increase of $0.6 million in interest income from a 1% rise in interest rates[204]. Accounting and Estimates - Critical accounting estimates significantly affecting financial condition include revenue recognition and allowance for credit losses[198]. - Recent accounting standards may impact future results of operations, as detailed in the company's annual report[199].

Financial Performance - GAAP revenue for Q1 FY2025 was $50.9 million, a decrease of 63.2% from $138.3 million in Q1 FY2024[2] - GAAP gross margin dropped to 65.0% in Q1 FY2025 from 81.0% in Q1 FY2024[2] - GAAP net loss for Q1 FY2025 was $24.3 million, compared to a net income of $23.9 million in Q1 FY2024, resulting in a net loss margin of -47.7%[2] - Adjusted EBITDA for Q1 FY2025 was $1.4 million, down from $70.4 million in Q1 FY2024, with an adjusted EBITDA margin of 2.7%[2] - Total revenues for Q1 2024 were $50,896 thousand, a decrease of 63.2% compared to $138,335 thousand in Q1 2023[27] - Net loss for Q1 2024 was $24,288 thousand, compared to a net income of $23,857 thousand in Q1 2023, representing a significant shift in performance[27] - GAAP gross margin for Q1 2024 was 65.0%, down from 81.0% in Q1 2023[30] - Non-GAAP operating loss for Q1 2024 was $509 thousand, a decline from an operating income of $68,313 thousand in Q1 2023[30] Future Projections - The company expects Q2 FY2025 revenue to be between $74 million and $77 million, including $20 million from projected Fixed License revenue[4] - Gross margins for Q2 FY2025 are projected to be between 74% and 76%[4] - GAAP revenue for Q2 2025 is projected between $74,000 and $77,000, with FY2025 expected to be between $236,000 and $247,000[34] - Non-GAAP gross profit for Q2 2025 is estimated to be between $55,400 and $59,400, while FY2025 is projected between $160,900 and $171,900[34] - GAAP net income for Q2 2025 is expected to range from $1,200 to $5,200, with a loss projected for FY2025 between $(39,600) and $(28,600)[35] - Non-GAAP net income for Q2 2025 is anticipated to be between $13,000 and $17,000, with FY2025 expected to range from $(6,600) to $4,400[35] - Adjusted EBITDA for Q2 2025 is projected between $17,800 and $21,800, while FY2025 is expected to be between $15,300 and $26,300[34] - GAAP operating margin for Q2 2025 is estimated to be between 10% and 14%, while the non-GAAP operating margin is expected to range from 21% to 26%[34] - Free Cash Flow for FY2025 is projected to be between $20,000 and $30,000[35] - Non-GAAP net income (loss) per share - diluted is expected to be between $0.28 and $0.36 for Q2 2025[35] - GAAP net cash provided by operating activities for FY2025 is projected to be between $34,000 and $40,000[35] - Stock-based compensation for Q2 2025 is estimated at $7,000, with FY2025 expected to be $22,500[34] Operational Highlights - The percentage of worldwide auto production utilizing Cerence technology reached 51%[3] - There was a 5% year-over-year increase in the number of Cerence connected cars shipped[3] - The company achieved six design wins and two wins for generative AI solutions in the quarter[2] - Cerence's transformation and cost reduction initiatives are positively impacting the business, positioning it for sustainable growth[2] Cash and Assets - Cash and cash equivalents at the end of Q1 2024 were $104,103 thousand, down from $121,485 thousand at the end of Q4 2023[29] - Total current assets decreased to $200,072 thousand in Q1 2024 from $265,509 thousand in Q4 2023[28] - Total liabilities decreased to $496,826 thousand in Q1 2024 from $561,261 thousand in Q4 2023[28] - Free cash flow for Q1 2024 was $7,894 thousand, compared to a negative free cash flow of $(3,746) thousand in Q1 2023[32] - The company reported a significant increase in accounts receivable, with a net amount of $47,671 thousand in Q1 2024 compared to $62,755 thousand in Q4 2023[28]

Core Insights - Cerence Inc. reported a significant decline in revenue and profitability for Q1 FY2025 compared to the same period in FY2024, with GAAP revenue dropping to $50.9 million from $138.3 million, and a net loss of $24.3 million compared to a profit of $23.9 million in the previous year [2][3][26]. Financial Performance - GAAP revenue for Q1 FY2025 was $50.9 million, a decrease of 63.2% year-over-year [2]. - GAAP gross margin fell to 65.0% from 81.0% year-over-year, while non-GAAP gross margin decreased to 65.9% from 81.5% [2]. - The company reported a GAAP operating margin of -33.3%, down from 42.3% in the prior year [2]. - Adjusted EBITDA was $1.4 million, significantly lower than $70.4 million in Q1 FY2024, resulting in an adjusted EBITDA margin of 2.7% compared to 50.9% [2][3]. Key Performance Indicators - Cerence's technology was present in 51% of worldwide auto production on a trailing twelve-month basis [4]. - The number of Cerence connected cars shipped increased by 5% year-over-year [4]. - Adjusted total billings grew by 3% year-over-year [4]. Future Outlook - For Q2 FY2025, Cerence expects revenue to be between $74 million and $77 million, including $20 million from projected fixed license revenue [7]. - Gross margins for the upcoming quarter are projected to be between 74% and 76%, with net income expected to range from $1 million to $5 million [7]. - The full fiscal year guidance remains unchanged, with adjusted EBITDA guidance excluding certain costs [8]. Management Commentary - The CEO expressed pride in the team's progress, highlighting achievements in generative AI and strong customer momentum, including six design wins and two wins for generative AI solutions [3]. - The company is focused on transformation and cost reduction initiatives, which are positively impacting the business [3]. Company Overview - Cerence Inc. is a leader in AI for transportation, providing integrated experiences for automotive and transportation sectors [25]. - The company has shipped over 500 million cars with its technology and partners with leading automakers and technology companies [25].

BURLINGTON, Mass., Jan. 21, 2025 (GLOBE NEWSWIRE) -- Cerence Inc. (NASDAQ: CRNC) (“Cerence AI”), a global industry leader in AI for transportation, will announce its first quarter financial results for the quarter ended December 31, 2024, on Thursday, February 6, 2025, at 4:05pm Eastern Time / 1:05pm Pacific Time. The company will host a live conference call and webcast, with supplementary slides, to discuss the results on the same day at 5:00pm Eastern Time / 2:00pm Pacific Time. Interested investors and a ...

Company Overview - Cerence, Inc. (NASDAQ: CRNC) specializes in AI-powered virtual assistants for the automotive industry, with its technology installed in 500 million vehicles and supporting 70 languages [1] Investment Approach - The company employs a value investing approach, focusing on high-growth opportunities across industries and prioritizing robust business models and strategic foresight [1] - The primary valuation methodology used is discounted cash flow (DCF), while also being adaptable to various valuation techniques [1] - Business model frameworks from institutions like Harvard Business School are leveraged for in-depth analysis, ensuring a comprehensive understanding of a company's intrinsic value and strategic positioning [1] Strategic Focus - The focus is on companies with the potential to profoundly influence the global landscape in the years ahead, facilitating informed investment decisions with an emphasis on long-term growth potential and risk mitigation [1]

Share Performance and Growth Drivers - Cerence's shares surged 387.1% over the trailing six months, significantly outperforming the Zacks Computer & Technology Sector's 1.1% return and the Zacks Computers - IT Services industry's 13.6% appreciation [1] - The share price movement was driven by successful integration of generative AI solutions, record platform launches, and a robust partner network [2] - Strong revenue performance and a focus on automotive AI innovations contributed to the growth [2] AI Integration and Partnerships - Cerence collaborated with NVIDIA to utilize advanced chip technology, enhancing the performance and scalability of its offerings [2] - The company achieved 10 customer wins and launched six Gen AI programs in fiscal 2024, demonstrating strong momentum in deploying advanced AI solutions [4] - Cerence's AI technology powers more than 500 million cars globally, highlighting its extensive market reach [5] Market Reach and Customer Wins - Major automotive OEMs, including Microsoft, Volkswagen, BMW, and Renault, have implemented Cerence's voice assistance systems [5] - The company recorded 22 platform launches in 2024, including four in the fourth quarter of fiscal 2024 [6] - Cerence secured a multi-year agreement with JLR to develop next-generation in-car experiences using AI-enabled technologies [6] - Audi selected Cerence's Gen AI technology to enhance its in-car assistant capabilities [6] Competitive Landscape - Rising competition in the automotive AI sector, particularly from companies like SoundHound AI, poses a challenge to Cerence's market share [3][7] - Cerence's technology was integrated into 52% of global auto production for the trailing 12 months, showing a minor dip due to lower production volumes from key customers [7] Financial Performance and Estimates - The Zacks Consensus Estimate for Q2 fiscal 2025 revenues is $57.71 million, indicating a 14.92% year-over-year decline [8] - The non-GAAP earnings estimate for Q2 fiscal 2025 is 2 cents per share, unchanged over the past 30 days, marking a 122.22% year-over-year surge [8] - Fiscal 2025 revenue is expected to be between $236 million and $247 million, with headwinds of $5-$7 million due to a strategic shift from professional service projects [9] - The Zacks Consensus Estimate for 2025 revenues is $241.27 million, indicating a 27.22% year-over-year decline [10] - The non-GAAP loss per share for fiscal 2025 is projected between 92 cents and 67 cents, with a consensus earnings estimate of 15 cents per share, marking an 87.80% year-over-year decline [10] Historical Performance - Cerence has a history of strong quarterly performances, with earnings surpassing the Zacks Consensus Estimate in the trailing four quarters, averaging a 110.86% surprise [11]

Small-Cap Tech Stocks Overview - Innovative small-cap tech stocks like Cerence Inc (NASDAQ: CRNC), Rigetti Computing (NASDAQ: RGTI), and Airship AI (NASDAQ: AISP) are gaining traction in both business and stock prices, indicating potential for significant gains in 2025 [1] - These stocks are benefiting from short-covering rallies, but the sustainability of their market traction and upward trends in 2025 remains uncertain [1] Rigetti Computing - Rigetti Computing builds quantum computers and offers quantum-computing-as-a-service, benefiting from a short squeeze and increased trading volume [2] - The company's stock rally is driven by advancements in quantum computing technology, its industry position, and improved investor confidence, particularly due to Google's Willow chip advancements [2] - Catalysts for 2025 include the anticipated launches of 36- and 100-qubit systems, which could open an $8 billion addressable market [3] - Revenue is expected to grow exponentially from $15 million, but the company may need to raise more cash before achieving profitability, with shareholder value diluted by over 30% in the first nine months of F2024 [3] Cerence Inc - Cerence Inc provides AI assistants for mobility, transportation, and autonomous driving, focusing on voice/audio assistants [4] - The company recently expanded its partnership with NVIDIA, which helps scale its business, improve performance, and advance its technology [4] - Despite weak 2025 guidance, the company benefits from AI growth in the transportation industry, with assistants embedded in both legacy ICE and newer EVs [4] - A short squeeze, fueled by 18% short interest, led to a 700% spike in share price, with the stock expected to consolidate and trend higher in 2025 [5] Airship AI - Airship AI uses AI and machine learning to power its video surveillance platform, enabling real-time monitoring and threat response [7] - The company serves government agencies and Fortune 500 companies, with revenue expected to grow by 50% in F2025 and profitability anticipated next year [8] - Analysts rate the stock as a Buy, viewing it as a deep value with an 80% upside potential from current levels [8] - Despite its growth outlook, Airship AI is not among the top five stocks recommended by top-rated analysts [9]

Stock Performance - Cerence stock has experienced a significant increase, skyrocketing by 150% recently [1] Video Content - The video covers recent updates regarding Cerence (CRNC 8 79%) [1] - Stock prices used in the video were from the trading day of Jan 3, 2025 [1] - The video was published on Jan 6, 2025 [1]

Collaboration Announcement - Cerence announced an increased collaboration with Nvidia [1] Stock Information - Nvidia (NVDA) stock price was 4 45% [1] - Cerence (CRNC) stock price was 143 76% [1] - Stock prices used were the after-market prices of Jan 3 2025 [1] Video Details - The video discussing Nvidia and Cerence was published on Jan 4 2025 [1]