BURLINGTON, Mass., Dec. 03, 2024 (GLOBE NEWSWIRE) -- Cerence Inc. (NASDAQ: CRNC) (“Cerence AI”), a global industry leader in AI for transportation, today announced that it has appointed Antonio (“Tony”) Rodriquez as its Chief Financial Officer (CFO), effective November 29, 2024. As Cerence AI’s CFO, Mr. Rodriquez will be focused on accelerating growth, improving operating results, and driving sustainable, long-term value, leading the Company’s finance organization, including accounting, tax, FP&A, treasury, ...

Core Viewpoint - Cerence is gaining attention as an AI stock, with shares increasing by 155% since its latest earnings release on November 21, 2023 [1] Company Overview - Cerence specializes in AI virtual assistants for the automotive market, focusing on conversational interactions between vehicles, drivers, and passengers [2] - The company competes directly with SoundHound AI, which also targets the automotive sector but has a broader market presence [2] Customer Base - Cerence has a diverse range of automotive customers, including major original equipment manufacturers (OEMs) such as Ford, Geely, and General Motors [3] Financial Performance - Following its earnings report, Cerence's stock surged as it exceeded revenue expectations by 15%, reporting an adjusted loss per share of $0.07 compared to an expected loss of $0.38 [4] Leadership and Strategy - The new CEO, Brian Krzanich, previously led Intel and is fostering optimism about Cerence's future [5] - Krzanich indicated a shift towards integrating AI and large language models into all products, with early signs of this transition already visible [6][7] Product Innovations - Cerence's new CaLLM Edge model, developed with Microsoft, is designed for automotive applications, enabling users to interact with their vehicles through voice commands [8] - The model features two language capabilities: a simpler model for offline use and a more complex model for online queries, allowing flexibility based on vehicle specifications [9] Future Outlook - The company anticipates a 1% decline in revenue for 2025, primarily due to a transition to a subscription-based revenue model [10] - Cerence has a 52% penetration rate in global auto production, indicating strong market presence and potential for growth in AI-driven solutions [12] Market Position - Cerence is currently valued at approximately 10% of SoundHound AI's market capitalization, despite generating four times more annual revenue [13]

Financial Performance - Cerence generated revenue of $331.5 million in fiscal year 2024, a 12.6% increase from $294.5 million in fiscal year 2023[20] - The company recorded a net loss of $588.1 million for fiscal year 2024, a 945.4% increase in loss compared to $56.3 million in fiscal year 2023[20] - Total revenue increased by $37.0 million, or 12.6%, from $294.5 million to $331.5 million in fiscal year 2024[150] - Operating margin decreased by 165.7 percentage points from negative 9.2% to negative 174.9% in fiscal year 2024[150] - Cash from operating activities changed by $9.7 million, or 129.4%, from cash provided by operating activities of $7.5 million to $17.2 million in fiscal year 2024[150] - Total operating expenses increased by 263.9% during fiscal year 2024, primarily due to a goodwill impairment charge of $609.2 million[147] - Total gross profit increased by $45.0 million, or 22.6%, from $199.3 million to $244.3 million for fiscal year 2024[168] - The provision for income taxes for fiscal year 2024 was $3.5 million, a decrease of $16.4 million, or 82.5%, from $19.9 million in fiscal year 2023[201] Revenue Breakdown - License revenue for fiscal year 2024 was $124.7 million, a decrease of $20.5 million, or 14.1%, from $145.2 million in fiscal year 2023[158] - Connected services revenue for fiscal year 2024 was $133.4 million, an increase of $58.3 million, or 77.8%, from $75.1 million in fiscal year 2023[159] - Professional services revenue for fiscal year 2024 was $73.3 million, a decrease of $0.9 million, or 1.3%, from $74.2 million in fiscal year 2023[160] - License revenue as a percentage of total revenue decreased by 11.7 percentage points from 49.3% in fiscal year 2023 to 37.6% in fiscal year 2024[158] Market Position and Strategy - Cerence's solutions have been installed in over 500 million automobiles, with 46 million new vehicles incorporating its technologies in fiscal year 2024[20] - Approximately 52% of all cars shipped in fiscal year 2024 included Cerence technologies, indicating strong market penetration[20] - The company has established relationships with nearly all major OEMs and Tier 1 suppliers, supporting long-term customer retention[20] - The automotive cognitive assistance market is rapidly expanding, driven by increasing consumer demand for hands-free access to virtual assistants[20] - The company aims to expand into adjacent transportation markets, exploring opportunities in two-wheel vehicles, trucks, recreational vehicles, public transit, and fleet markets[38] Research and Development - Total research and development expenses were approximately $121.6 million, $123.3 million, and $107.1 million for fiscal years 2024, 2023, and 2022, respectively, indicating a slight decrease in 2024[44] - The company employs approximately 800 research and development personnel globally, contributing to its innovation in automotive cognitive assistance[44] - The company intends to continue investing in developing core product functionality and expanding its software platform's capabilities to maintain market share in edge software components and grow in cloud-connected functionalities[38] Challenges and Risks - The automotive industry is experiencing a semiconductor shortage, negatively impacting vehicle production and sales, which could materially affect the company's business and financial condition[57] - Economic uncertainty has led to falling demand for goods and services, reduced credit availability, and increased borrowing costs, which may adversely affect the company's operations[57] - Pricing pressures from major OEMs could impact sales and profit margins, necessitating continuous cost reductions to maintain profitability[63] - The company is facing challenges in developing new cloud-connected products, which may increase research and development costs and adversely affect revenue growth[62] - The company faces challenges in attracting and retaining skilled employees, particularly in technical areas, due to high demand and competition for talent[75] Corporate Governance and Leadership - Brian Krzanich succeeded Stefan Ortmanns as Chief Executive Officer in October 2024, marking a significant leadership transition[72] - The departure of key leadership personnel can result in a loss of knowledge and experience, potentially affecting the company's strategic direction[73] Financial Obligations and Debt - The company has issued $175 million in 3.00% convertible senior notes due June 1, 2025, and $210 million in 1.50% convertible senior notes due July 1, 2028[104] - The company may face significant cash flow challenges in servicing its debt, which could adversely affect its business and results of operations[104] - The company’s ability to comply with covenants under its Senior Credit Facilities may be affected by economic conditions, potentially leading to defaults[104] - The company believes it can secure additional liquidity through equity or debt offerings, although market conditions may affect this ability[205] Community Engagement and Diversity - The company has contributed over 600 community service hours globally in fiscal year 2024, reflecting its commitment to community engagement[48] - The company supports a Gender Diversity Initiative aimed at promoting leadership development and career advancement for women, with approximately 30% of women actively involved[51]

Financial Performance - The company reported a loss of 7 cents per share in Q4 FY2024, surpassing the Zacks Consensus Estimate by 78.13% [1] - Revenues were $55 million, beating the Zacks Consensus Estimate by 13.85% but declining 32.1% year-over-year [2] - Adjusted Total Billings for the trailing 12 months amounted to $220.7 million, reflecting a 1% increase year-over-year [5] - Adjusted EBITDA loss was $1.9 million against adjusted EBITDA of $16.6 million reported in the year-ago quarter [10] - Operating loss was $4 million against operating income of $14.4 million reported in the year-ago quarter [11] Revenue Breakdown - License revenues (46.2% of revenues) of $25.3 million beat the Zacks Consensus Estimate by 28.64% but missed 41% year-over-year [4] - Connected Services (22.1% of revenues) of $12.1 million beat the Zacks Consensus Estimate by 11.1% but declined 36.9% year-over-year [4] - Professional Services (31.7% of revenues) of $17.4 million missed the Zacks Consensus Estimate by 1.10% and was down 6.1% year-over-year [4] Operational Metrics - The company shipped 10.6 million cars with its technology in Q4 FY2024, down 14% year-over-year [6] - The number of Cerence-connected cars shipped increased 16% over the trailing 12 months [5] - The company reported a five-year backlog of approximately $969 million, indicating strong long-term visibility [6] Cost and Expenses - Non-GAAP gross margin contracted 790 basis points year-over-year to 64.9% from 72.9% [8] - Research and development expenses declined 28.2% year-over-year to $25.2 million [8] - General and administrative expenses increased 15.2% year-over-year to $13.2 million [8] - Sales and marketing expenses declined 17.5% year-over-year to $4.8 million [9] - Total operating expenses dropped 17.5% year-over-year to $43.24 million [10] Cash Flow and Balance Sheet - Cash, cash equivalents, and marketable securities were $126.9 million as of Sept. 30, 2024, compared with $120.9 million as of June 30, 2024 [12] - Long-term debt, net of discounts and issuance costs, amounted to $194.8 million as of Sept. 30, 2024 [13] - Cash provided by operating activities came in at $6.1 million, down from $12.9 million reported in the prior quarter [13] - Free cash flow was $4.6 million compared with $12.078 million reported in the previous quarter [14] Guidance - For Q1 FY2025, the company expects revenues between $47 million and $50 million, including a $1 million headwind [15] - Adjusted EBITDA is projected to be in the range of negative $9 million to negative $6 million for Q1 FY2025 [16] - Non-GAAP earnings loss for Q1 FY2025 is projected to be between 32 and 25 cents per share [16] - For FY2025, the company expects revenues in the range of $236-$247 million [17] - Adjusted EBITDA is forecasted to be in the range of $15-$26 million for FY2025 [18] - Non-GAAP earnings are expected to be between a loss of $0.15 and a gain of $0.10 per share for FY2025 [19] Market and Industry Position - The company's penetration of global auto production for the trailing 12 months declined slightly to 52% from 53% in the previous quarter [3] - The company reported strong progress in generative AI solutions, with 10 customer wins and six program launches in FY2024, including partnerships with Volkswagen, Renault, and Audi [7] - CRNC's shares have plunged 70.3% against the Zacks Computer and Technology sector's growth of 27.6% in the year-to-date period [19]

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Despite being the clear market leader in voice assistant and driver monitoring systems within the automotive industry, Cerence's (NASDAQ: CRNC ) stock price has struggled over the past year as the business has faced weakAn individual investor primarily focused on undercovered companies, with more than 50 companies on my watchlist. My areas include technology, software, electronics and the energy transition. I have been investing my personal capital for over 7 years in a broad range of companies globally. Th ...

© 2024 Cerence Inc. Cerence Q4 FY24 Earnings Presentation Brian Krzanich, Chief Executive Officer Tony Rodriquez, Interim Chief Financial Officer November 21, 2024 Forward-Looking Statements Statements in this presentation regarding: Cerence's future performance, results and financial condition; expected growth and profitability; outlook; fiscal year 2025 framework; transformation plans and cost efficiency initiatives, including estimated net cost savings; strategy; opportunities; business, industry and mar ...

Financial Data and Key Metrics - Q4 2024 revenue was $54.8 million, exceeding the high-end guidance of $50 million, driven by $5 million in license royalty true-ups from two OEM customers [20] - Adjusted EBITDA loss of $1.9 million, significantly better than the guidance of a $13 million loss, due to higher-than-expected revenue and $6 million in cost savings from restructuring [22] - Full-year 2024 revenue was $331.5 million, with adjusted EBITDA of $80.6 million, but excluding legacy revenue, adjusted EBITDA would have been negative $6 million [25] - Free cash flow for Q4 was $4.7 million, and the company ended the quarter with $130.4 million in cash and marketable securities [24][25] Business Line Performance - Variable license revenue was $25.3 million, down 17% YoY, but up from Q3 [31] - Connected Services revenue (excluding legacy) was $12.1 million, up 12% YoY [31] - Professional Services revenue declined 6% YoY, with further reductions expected in fiscal 2025 [31][30] - Pro forma royalties were $42.2 million, flat YoY, with fixed license consumption totaling $16.9 million, up 9% YoY [33] Market and Competitive Landscape - The company shipped 10.6 million cars with Cerence technology in Q4, down 14% YoY, while global auto production declined 5% [35] - The penetration rate of global auto production for the trailing 12 months declined slightly to 52%, primarily due to weaker production volumes among top customers [34] - The company secured 28 design wins in fiscal 2024, including 10 customer wins and six program launches for generative AI solutions with automakers like Volkswagen, Renault, and BMW [9][10] Strategic Direction and Industry Competition - The company is focusing on integrating generative AI and large language models (LLMs) into its product portfolio to enhance in-car voice interaction [8][9] - Cerence launched CaLLM Edge, the first LLM running on automotive Edge, in collaboration with Microsoft, enabling advanced voice interaction even without connectivity [11][12] - The company aims to streamline operations and reduce costs, targeting $35 million to $40 million in net savings, with $16.3 million in one-time restructuring costs [26][28] Management Commentary on Operating Environment and Outlook - The company issued fiscal 2025 revenue guidance of $236 million to $247 million, with adjusted EBITDA of $15 million to $26 million and free cash flow of $20 million to $30 million [16] - Management expects a return to profitability in fiscal 2025, driven by cost reductions and strong market positioning [16][18] - The company plans to transition from broad cost-cutting to simplifying and streamlining its organization to improve speed to market [17] Other Key Information - The company has $87.5 million in convertible notes due in June 2025 and is exploring refinancing options to strengthen its balance sheet [43][44] - Gross margins for fiscal 2025 are expected to be in the range of 67% to 69%, driven by a shift toward higher-margin connected services and licenses [42] Q&A Session Summary Question: AI-related deal margins and pricing uplift - Management noted that generative AI solutions command higher unit economics, with improved margins compared to the rest of the portfolio [10][51] - While specific pricing details were not disclosed, the company highlighted strong demand and interest from customers for AI-driven products [51][52] Question: Connected Services growth and competitive position - Connected Services revenue grew 12% YoY in Q4, excluding legacy revenue, and is expected to continue growing in fiscal 2025 [56][57] - The company emphasized its strong product customization capabilities and deep automotive expertise as key differentiators in the competitive landscape [59][60] Question: Historical growth challenges and future priorities - Management attributed past growth challenges to a focus on bookings rather than product differentiation and speed to market [63] - Priorities for fiscal 2025 include execution, cost reduction, and advancing generative AI products, with potential expansion into non-automotive markets [78][80] Question: Professional Services revenue trends - Professional Services revenue was down 6% YoY, with a $5 million to $7 million headwind expected in fiscal 2025 due to reduced focus on low-potential projects [30][85] - The company noted that Professional Services revenue can be lumpy quarter-to-quarter, depending on project demand [86][87] Question: License average PPU and AI product pipeline - License average PPU increased due to higher-value components in the license mix, with generative AI rollouts contributing to the uplift [91][94] - The company plans to seamlessly transition customers between AI product generations, with backward compatibility ensuring no slowdown in AI-related launches [101][103]

Cerence (CRNC) came out with a quarterly loss of $0.07 per share versus the Zacks Consensus Estimate of a loss of $0.32. This compares to earnings of $0.09 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 78.13%. A quarter ago, it was expected that this automotive artificial intelligence developer would post earnings of $0.05 per share when it actually produced earnings of $0.19, delivering a surprise of 280%.Over the last four ...

Exhibit 10.2 CERENCE INC. CHANGE OF CONTROL AND SEVERANCE AGREEMENT This Change of Control and Severance Agreement (the "Agreement") is made and entered into by and between Brian Krzanich ("Executive") and Cerence Inc., a Delaware corporation (the "Company"), effective as of the later of (i) the latest date on the signature page of this Agreement and (ii) the date Executive's employment with the Company commences (the "Ef ective Date"). RECITALS 1. The Compensation Committee (the "Committee") of the Board o ...