Core Insights - Cerence Inc. has appointed Marion Harris, a former executive at Ford Motor Company, as an independent, non-executive director effective April 1, 2025 [1] - Harris brings over 25 years of experience in the automotive and financial services sectors, including his role as Chairman and CEO of Ford Motor Credit Company, where he led a successful digital transformation [2] - The addition of Harris to the Cerence AI Board is expected to provide strategic insights as the company continues to innovate in automotive and expand into the broader mobility market [3][4] Company Overview - Cerence Inc. is a global leader in creating AI-powered user experiences in the automotive and transportation sectors, with over 500 million cars equipped with its technology [5] - The company focuses on leveraging voice, generative AI, and large language models to enhance safety and connectivity for drivers and passengers [5] - Cerence is headquartered in Burlington, Massachusetts, and collaborates with leading automakers and technology companies to advance user experiences [5]

Core Insights - Cerence Inc. has launched Cerence xUI™, an AI assistant platform designed for in-vehicle user experiences, leveraging both edge and cloud technologies [1][5] - The platform aims to enhance user engagement by providing a conversational interface that can perform tasks, answer questions, and offer personalized suggestions based on user preferences [2][4] Group 1: Product Features - Cerence xUI utilizes the CaLLM™ family of language models, optimized in collaboration with NVIDIA and Microsoft, to deliver automotive-specific voice assistant capabilities [2][4] - The hybrid architecture of Cerence xUI allows deployment as a cloud-based add-on or as a fully integrated system, providing flexibility for automakers [3][5] - The platform supports streamlined interactions for complex queries and offers tailored conversational experiences suitable for in-car use [6] Group 2: Market Position and Strategy - Cerence AI has established strategic partnerships with global automakers to implement Cerence xUI in future vehicle models, enhancing the in-cabin experience [1][5] - The company emphasizes its role as a trusted partner for automakers, enabling them to integrate advanced AI features into both new and existing vehicles [5][8] - Cerence AI has shipped over 500 million cars with its technology, showcasing its significant presence in the automotive industry [8]

Industry Overview - The global virtual assistants market is experiencing significant growth, with a compound annual growth rate (CAGR) of 22.3% projected to reach a value of $23.57 billion by 2033 [1] Market Drivers - The integration of virtual assistants with smart home devices such as speakers, thermostats, and lighting systems is a key factor driving market growth [1]

Core Viewpoint - Cerence (CRNC) has shown significant stock performance, returning 75.1% year to date, outperforming the broader technology sector and the IT services industry [1] Financial Performance - In the first quarter of fiscal 2025, Cerence reported a non-GAAP loss of 3 cents per share, exceeding the Zacks Consensus Estimate by 88.89% [2] - Revenues for the same quarter were $50.9 million, surpassing the Zacks Consensus Estimate by 3.62%, although this represents a 63.2% decline year over year [2] Market Position and Technology - Cerence's technology was utilized in 51% of auto production in the first quarter of fiscal 2025, with approximately 11 million cars shipped, reflecting a 2.6% sequential increase but a 10.5% year-over-year decrease [3] - The company powers over 500 million cars globally, indicating strong market reach and leadership in automotive AI [4] Growth Prospects - For fiscal 2025, Cerence anticipates revenues between $236 million and $247 million, with adjusted EBITDA expected between $15 million and $26 million [7] - The second quarter of fiscal 2025 is projected to generate revenues between $74 million and $77 million, including an estimated $20 million from fixed contracts [7] - The Zacks Consensus Estimate for second-quarter fiscal 2025 revenues is $76.57 million, indicating a 12.89% growth compared to the previous year [8] Clientele and Partnerships - Cerence has expanded its automotive clientele, achieving 10 customer wins and launching six Gen AI programs in fiscal 2024 [11] - The company set a record with 22 platform launches in 2024 and has secured a multi-year agreement with JLR for next-generation in-car experiences [12] - Collaborations with NVIDIA and Microsoft enhance Cerence's technological capabilities, integrating advanced AI solutions into vehicles [13][14] Valuation and Market Sentiment - Despite strong growth prospects, Cerence shares are considered overvalued, indicated by a Value Score of D, and are trading above the 50-day and 200-day moving averages, suggesting a bearish trend [15][16] - The company faces intense competition in the automotive voice assistance domain, which may impact its future prospects [17]

Financial Data and Key Metrics Changes - The company reported Q1 revenue of $50.9 million, exceeding the high end of guidance of $47 million to $50 million [20] - Adjusted EBITDA was $1.4 million, significantly better than the anticipated loss of $6.6 million to $9 million [23] - Gross margin for the quarter was 65%, surpassing the guidance of 60% [21] - The net loss for Q1 was $22.4 million, compared to a net income of $23.9 million in the same quarter of the previous year [24] - Cash and marketable securities at the end of the quarter were $110.5 million, down $19.9 million from the previous fiscal year [25] Business Line Data and Key Metrics Changes - License revenue increased to $22.7 million, up 9.1% year-over-year [27] - Connected services revenue rose to $13.7 million, a 34% increase from $10.2 million in the same quarter last year [27] - Professional services revenue decreased year-over-year but performed at a higher gross margin than anticipated [21][28] Market Data and Key Metrics Changes - The penetration of global auto production declined by 2% to 51% [31] - Approximately 11 million cars were shipped with Cerence technology in Q1, a 2.6% increase quarter-over-quarter but a 10.5% decrease year-over-year [32] - Worldwide car production declined by 1.2% compared to the same quarter last year [32] Company Strategy and Development Direction - The company aims to return to profitability in fiscal year 2025, focusing on cost management and operational efficiency [6][17] - Key deliverables for 2025 include launching the next-gen product Cerence XUI, growing business with new and existing customers, and continuing transformation efforts [11][15][16] - Partnerships with leading AI companies like Nvidia and Microsoft are expected to enhance product performance and cost efficiency [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year cash flow expectations and projected revenue guidance for Q2 between $74 million and $77 million [17][35] - The company is optimistic about its ability to navigate challenges in the automotive industry, including cost pressures and geopolitical factors [11] - Management noted that the recent tariff announcements are not expected to have a meaningful impact on Q2 results [43] Other Important Information - The company repurchased $27 million of convertible notes due in June 2025 as part of its debt management strategy [7] - The restructuring efforts have resulted in a significant reduction in operating expenses, down 23% year-over-year [22] Q&A Session Summary Question: What is the size of the first major customer program with Cerence XUI? - The first major customer program is with a European auto manufacturer, expected to involve several million units over the contract's life, with approximately one million units in the first year [47] Question: Can you provide insights on the competitive landscape for digital assistance? - The competitive landscape remains similar, with major players like Google and Amazon, as well as DIY solutions from OEMs. Cerence's agnostic approach allows for customization and flexibility [67][68] Question: What are the one-time items that contributed to better-than-expected results? - The $2 million royalty true-up and a $2.5 million international tax credit were significant contributors to improved profitability [86][88] Question: How quickly can the adoption of XUI ramp up? - Adoption rates depend on the contracts, which typically range from one to ten years, with most being two to three years [101] Question: What is the company's strategy regarding the remaining convertible notes? - The company plans to extinguish the remaining $60 million of convertible notes due in June through a combination of payoff and financing [39][127]

Group 1: Earnings Performance - Cerence reported a quarterly loss of $0.03 per share, significantly better than the Zacks Consensus Estimate of a loss of $0.27, representing an earnings surprise of 88.89% [1] - The company has surpassed consensus EPS estimates for four consecutive quarters [2] - Cerence's revenues for the quarter ended December 2024 were $50.9 million, exceeding the Zacks Consensus Estimate by 3.62%, but down from $138.34 million year-over-year [2] Group 2: Stock Performance and Outlook - Cerence shares have increased approximately 66.9% since the beginning of the year, outperforming the S&P 500's gain of 3.1% [3] - The company's future stock performance will largely depend on management's commentary during the earnings call and the earnings outlook [4][6] - The current consensus EPS estimate for the upcoming quarter is $0.02 on revenues of $57.71 million, and $0.15 on revenues of $241.27 million for the current fiscal year [7] Group 3: Industry Context - The Computers - IT Services industry, to which Cerence belongs, is currently ranked in the top 18% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Cerence's stock performance [5]

Financial Performance - Q1 FY25 - Total revenue was $50.9 million, compared to $138.3 million in Q1 FY24[5] - Gross margin was 65%, a decrease from 81% in Q1 FY24[5] - Net loss was $24.3 million, compared to a net income of $23.9 million in Q1 FY24[5] - Adjusted EBITDA was $1.4 million, significantly lower than $70.4 million in Q1 FY24[5] Revenue Breakdown - Q1 FY25 - Total license revenue was $22.7 million, comprised entirely of variable license revenue[7] - Connected services revenue was $13.7 million, compared to $96.8 million in Q1 FY24, which included $86.6 million from a legacy contract with Toyota that was decommissioned[7, 5] - Professional services revenue was $14.5 million, down from $20.7 million in Q1 FY24[7] Key Performance Indicators - Q1 FY25 - Adjusted Total Billings TTM increased by 3% to $227 million[11] - Total Billings for Q1 increased by 7% to $69 million[11] - Units shipped with Cerence technology in Q1 were approximately 11 million, down 10% year-over-year[11] Guidance - Q2 FY25 and Full Year FY25 - Q2 FY25 revenue is projected to be between $74 million and $77 million[14] - Full year FY25 revenue is projected to be between $236 million and $247 million[14] - Full year FY25 Free Cash Flow is expected to be between $20 million and $30 million[14]

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].