Cerence Inc. (NASDAQ:CRNC) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
Cerence's earnings call highlights strong financial performance, including a 15% YoY revenue increase and a return to profitability. The company's strategic partnerships with Nvidia and Microsoft, along with positive free cash flow and increased license revenue, contribute positively. Despite uncertainties in the automotive industry and professional services revenue decline, optimistic guidance and strong financial metrics suggest a positive outlook. The Q&A session reveals management's confidence in connected revenue growth, supported by AI integration. Overall, the positive aspects outweigh the negatives, indicating a likely positive stock price movement.
Key Financial Performance
Revenue $78 million, an increase of $10.2 million (15% year-over-year), primarily due to an increase in fixed license revenue of $11.1 million.
Adjusted EBITDA $29.5 million, an increase of $29.8 million compared to an approximate $300,000 EBITDA loss in Q2 of last fiscal year, driven by improved non-GAAP operating expenses.
Net Income $21.7 million, compared to a net loss of $278 million in the same quarter last year, which included a non-cash goodwill impairment charge of $252 million.
Free Cash Flow $13.1 million, marking the fourth consecutive quarter of positive free cash flow.
Gross Margin 77%, exceeding the guidance range of 74% to 76%, due to a larger percentage of technology revenue in the revenue mix.
Variable License Revenue $29.9 million, up $4.8 million (19% year-over-year), slightly ahead of expectations.
Fixed License Revenue $21.5 million, compared to $10.4 million for Q2 last fiscal year.
Connected Services Revenue $12.6 million, down $1 million (7% year-over-year), but improved demand for connected vehicles was noted.
Professional Services Revenue Decreased by approximately $4.8 million year-over-year, as solutions became more standardized and some OEMs integrated more in-house.
Average Price Per Unit (PPU) $4.87, up from $4.51 year-over-year, driven by a higher attachment rate of connected services.
Five-Year Backlog Approximately $960 million, consistent with the previous two quarters.
Cash and Marketable Securities $122.8 million, up $12.3 million from the previous quarter.
You have reached the limit. Sign up to access full content
Get started
Operating Highlights
VoiceTopping: Together with Code Factory, Cerence is introducing VoiceTopping, a new solution that brings conversational AI to self-service kiosks in various settings, enhancing user interaction through voice.
Cerence XUI: Cerence launched its hybrid Agentic AI assistant platform, XUI, at NVIDIA GTC, showcasing new multimodal features and capabilities, including integration with car sensor data.
Market Expansion: Cerence is expanding its partnerships with distributors and targeting new verticals beyond automotive, indicating a strategic shift towards diversification.
Free Cash Flow: Cerence generated strong free cash flow of $13.1 million, marking the fourth consecutive quarter of positive free cash flow.
Cost Management: The company achieved a significant reduction in non-GAAP operating expenses, down 32% year-over-year, due to restructuring efforts.
IP Protection: Cerence is aggressively protecting its intellectual property, with ongoing lawsuits against Samsung, Microsoft, and Nuance for patent and copyright infringements.
You have reached the limit. Sign up to access full content
Get started
Risk or Challenges
Tariff Impact: Cerence anticipates limited impact from tariffs on Q2 results, but acknowledges potential pressure on pricing and program timelines as customers assess the tariffs' effects on their businesses.
IP Protection Risks: The company is engaged in ongoing lawsuits against Samsung for patent infringement and has filed actions against Microsoft and Nuance for copyright infringement and breach of contract, which carry risks including potential loss of these actions.
Economic Uncertainty: Cerence recognizes ongoing macro challenges and uncertainties in the automotive industry that could affect future performance.
Professional Services Revenue Decline: There is a noted decrease in professional services revenue as solutions become more standardized and OEMs bring more integration in-house, which may impact future revenue streams.
Currency Fluctuations: Revenue was negatively impacted by euro to dollar exchange rate fluctuations, although this was neutral to profitability due to corresponding impacts on operating expenses.
Market Production Decline: Worldwide car production has seen a decline, particularly in the Chinese market, which may affect Cerence's sales and market penetration.
You have reached the limit. Sign up to access full content
Get started
Guidance & Outlook
Revenue Growth: Cerence reported Q2 revenue of $78 million, exceeding guidance of $74 million to $77 million.
Adjusted EBITDA: Adjusted EBITDA for Q2 was $29.5 million, surpassing guidance of $18 million to $22 million.
Free Cash Flow: Generated strong free cash flow of $13.1 million, marking the fourth consecutive quarter of positive free cash flow.
Strategic Partnerships: Announced partnership with Code Factory to introduce VoiceTopping, a solution for self-service kiosks.
IP Protection: Filed lawsuits against Samsung, Microsoft, and Nuance for patent and copyright infringement.
Cerence XUI Development: Continued development of Cerence XUI, achieving market launch and showcasing at NVIDIA GTC.
Customer Engagement: Signed deals with top automakers including JLR and continued interest in XUI.
Cost Management: Ongoing transformation and cost management efforts resulted in significant savings.
Q3 Revenue Guidance: Expected revenue range of $52 million to $56 million.
Full Year Revenue Guidance: Reiterating full year revenue guidance of $236 million to $247 million.
Adjusted EBITDA Guidance: Full year adjusted EBITDA expected in the range of $28 million to $34 million.
Free Cash Flow Guidance: Expecting free cash flow in the range of $25 million to $35 million.
Liquidity Management: Plan to use cash on hand to repay $60.1 million of convertible notes due in June.
You have reached the limit. Sign up to access full content
Get started
Shareholder Return Plan
Free Cash Flow: Cerence generated strong free cash flow of $13.1 million in Q2 2025, marking the fourth consecutive quarter of positive free cash flow.
Full Year Free Cash Flow Guidance: For the full fiscal year, Cerence expects free cash flow to be in the range of $25 million to $35 million.
Convertible Notes Repayment: Cerence plans to use cash on hand to repay the remaining $60.1 million of its 2025 convertible notes due in June.
You have reached the limit. Sign up to access full content
Get started
Key Q&A
Q:Can you walk through the metrics, specifically the deceleration in billings and the uptick in connected cars?
A:Overall volumes are in line with expectations, with a slight uptick. The increase in connected cars is positive, but it doesn't immediately impact revenue as billings are recognized over time.
Q:Is the sequential increase in new connected revenue expected to continue into Q3 and Q4?
A:Yes, we expect increased connected revenue going forward based on past billings amortizing into revenue.
Q:What are the key drivers behind the sequential uptick in connected revenue?
A:AI is integrated into almost everything we do, driving consumer demand and increasing price per unit (PPU). Connected cars are seeing increased usage of voice and AI functionalities.
Q:Where might we see macro impacts, if any?
A:We may see impacts in both pricing discussions with OEMs and overall volume shipped, but the correlation may vary based on geography.
Q:Can you provide specifics on the unchanged fiscal 2025 guidance?
A:The guidance remains unchanged due to headwinds in professional services but an uptick in tech revenue and license volume.
Q:What is the relationship with MediaTek regarding the Edge solution?
A:It's a three-way relationship with NVIDIA, MediaTek, and Cerence, focusing on optimizing performance and reducing costs for OEMs.
Q:What is the goal of the lawsuit against Microsoft?
A:The goal is to protect our intellectual property related to text-to-speech and wake-up word technologies.
Q:How do you see pricing pressures affecting PPU over the next 12 to 24 months?
A:There are various factors affecting PPU, including pricing pressure and the number of connected cars, but no specific guidance is provided.
Q:What are the non-automotive opportunities you mentioned?
A:We're exploring verticals where our software expertise can be applied, such as kiosks in malls and airports, using partnerships to go to market.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer regarding the specifics of the pricing pressures affecting PPU and the potential impacts of macroeconomic factors on their business.
You have reached the limit. Sign up to access full content
Get started
Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Cerence technology
Cerence today
Conference th
Connected Services
IP
JLR
MBUX
Mercedes
NVIDIA
PPU
RD
XUI
action
catch
credit
customer interest
deliverable
demand vehicle
dollar exchange
euro dollar
exchange rate
feature capability
headwind service
impairment charge
infringement
key
kiosk
loss
platform
pricing
production China
remainder
setting
shipment
sign
stream
tariff
work
CRNC Transcript
Cerence Inc. (CRNC) Q1 2026 Earnings Call Transcript
Positive2-4
The earnings call presents strong financial performance, notably a record high free cash flow and gross margin improvement. The Q&A highlights strong demand for new products and strategic wins, such as a major automaker deal, enhancing future revenue visibility. Despite increased operating expenses, these are tied to strategic legal outcomes. However, the lack of upward guidance revision and high tax rate introduce caution. Overall, the positive factors outweigh the negatives, suggesting a stock price increase in the 2% to 8% range.
Cerence Inc. (CRNC) Q4 2025 Earnings Call Transcript
Positive11-19
The company exceeded revenue and EBITDA expectations, showcased strong financial metrics, improved cash flow, and raised guidance, all indicating robust performance. Despite some concerns in the Q&A about competitive dynamics and legal costs, the overall sentiment remains highly positive due to record high revenue, strong earnings, and optimistic guidance. The announcement of advancements in AI and expansion into non-automotive verticals further boosts the outlook. These factors suggest a strong positive stock price reaction.
Cerence Inc. (CRNC) Q3 2025 Earnings Call Transcript
Unknown8-6
The earnings call presents a mixed picture: strong Q2 revenue and free cash flow, but weak Q3 guidance. The strategic partnerships and product development are positives, but the net loss and expected decline in Q3 sales are concerns. The Q&A reveals no immediate impact from new AI programs and ongoing pricing pressures. The raised full-year guidance balances the short-term revenue drop. Without market cap data, predicting a strong reaction is challenging, but the overall sentiment leans towards a neutral short-term outlook.
Cerence Inc. (NASDAQ:CRNC) Q2 2025 Earnings Call Transcript
Positive5-8
Cerence's earnings call highlights strong financial performance, including a 15% YoY revenue increase and a return to profitability. The company's strategic partnerships with Nvidia and Microsoft, along with positive free cash flow and increased license revenue, contribute positively. Despite uncertainties in the automotive industry and professional services revenue decline, optimistic guidance and strong financial metrics suggest a positive outlook. The Q&A session reveals management's confidence in connected revenue growth, supported by AI integration. Overall, the positive aspects outweigh the negatives, indicating a likely positive stock price movement.
CRNC Slides
CRNC Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
