Cerence(CRNC) - 2025 Q1 - Quarterly Report

Revenue Performance - Total revenue for the three months ended December 31, 2024, decreased by $87.4 million, or 63.2$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$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$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$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$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$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$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$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$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].