Cerence Announces First Quarter Fiscal 2025 Results

BURLINGTON, Mass., Feb. 06, 2025 (GLOBE NEWSWIRE) -- Cerence Inc. (NASDAQ: CRNC) (“Cerence AI”), a global industry leader in AI for transportation, today reported its first quarter fiscal year 2025 results for the quarter ended December 31, 2024. ResultsSummary(1,2)(in millions, except per share data) Three Months Ended December 31, 2024 2023 GAAP revenue $50.9 $138.3 GAAP gross margin 65.0% 81.0%Non-GAAP gross margin 65.9% 81.5%GAAP operating margin -33.3% 42.3%Non-GAAP operating margin -1.0% 49.4%GAAP net (loss) income $(24.3) $23.9 GAAP net (loss) income margin -47.7% 17.2%Non-GAAP net (loss) income $(1.5) $54.3 Adjusted EBITDA $1.4 $70.4 Adjusted EBITDA margin 2.7% 50.9%GAAP net (loss) income per share - diluted $(0.57) $0.53 Non-GAAP net (loss) income per share - diluted $(0.03) $1.12 (1)As previously disclosed, Q1FY24 revenue includes the non-cash revenue associated with the Toyota “Legacy” contract and related impacts totaling $86.6M.(2)Please refer to the “Discussion of Non-GAAP Financial Measures” and “Reconciliations of GAAP Financial Measures to Non-GAAP Financial Measures” included elsewhere in this release for more information regarding our use of non-GAAP financial measures. “I’m incredibly proud of the team’s progress and our performance in Q1, most notably beating the upper end of guidance on top-line revenue and adjusted EBITDA and showing strong free cash flow,” said Brian Krzanich, CEO, Cerence AI. “We believe we have solid momentum for 2025: we’ve made significant progress on our generative AI roadmap, achieving critical development milestones for our next-gen agentic, conversational AI platform. We have continued momentum with our automaker customers, including six design wins and two wins for our generative AI solutions, as well as six major customer SOPs and two generative AI SOPs within the quarter. In addition, our transformation and cost reduction initiatives are having a solid impact on the business. As we look to the future, we believe we are well positioned to continue on our path to long-term, sustainable growth and profitability.” Cerence Key Performance IndicatorsTo help investors gain further insight into the Cerence business and its performance, management provides a set of key performance indicators that includes: Key Performance Indicator1 Q1FY25 Percent of worldwide auto production with Cerence Technology (TTM) 51%Change in number of Cerence connected cars shipped2 (TTM over prior year TTM) 5%Change in Adjusted Total Billings (TTM over prior year TTM) 3% (1)Please refer to the “Key Performance Indicators” section included elsewhere in this release for more information regarding the definitions and our use of key performance indicators.(2)Based on IHS Markit data, global auto production decreased 2% over the same time period ended on December 31, 2024. Second Quarter and Full Year Fiscal 2025 Outlook For the fiscal quarter ending March 31, 2025, revenue is expected to be in the range of $74 million to $77 million. This includes $20 million of projected Fixed License revenue expected to be signed during the quarter. Gross margins are projected between 74% and 76% and net income is projected in the range of $1 million to $5 million. Adjusted EBITDA is expected to be in the range of $18 million to $22 million. Guidance for the full fiscal year ending September 30, 2025 remains unchanged. The adjusted EBITDA guidance excludes amortization of acquired intangible assets, stock-based compensation, restructuring and other costs. Additional details regarding guidance will be provided during the earnings call. Cerence Conference Call and WebcastThe company will host a live conference call and webcast with slides to discuss the results today at 5:00pm Eastern Time / 2:00pm Pacific Time. Interested investors and analysts are invited to dial into the conference call by registering here. Webcast access will also be available on the Investor Information section of the company’s website at https://www.cerence.com/investors/events-and-resources. A replay of the webcast can be accessed by visiting the company’s website 90 minutes following the conference call at https://www.cerence.com/investors/events-and-resources. Forward Looking Statements Statements in this press release regarding: Cerence’s future performance, results and financial condition; expected growth and profitability; outlook and momentum; transformation plans and cost efficiency initiatives, including the estimated net annualized cost savings; strategy; opportunities; business, industry and market trends; strategy regarding fixed contracts and its impact on financial results; backlog; revenue visibility; revenue timing and mix; demand for Cerence products; innovation and new product offerings, including AI technology; expected benefits of technology partnerships; cost efficiency initiatives; and management’s future expectations, estimates, assumptions, beliefs, goals, objectives, targets, plans or prospects constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical fact (including statements containing the words “believes,” “plans,” “goal,” “anticipates,” “projects,” “forecasts,” “expects,” “intends,” “continues,” “will,” “may,” or “estimates” or similar expressions) should also be considered to be forward-looking statements. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown risk, uncertainties and other factors, which may cause actual results or performance of the company to be materially different from any future results or performance expressed or implied by such forward-looking statements including but not limited to: the highly competitive and rapidly changing market in which we operate; adverse conditions in the automotive industry, the related supply chain and semiconductor shortage, or the global economy more generally; volatility in the political, legal and regulatory environment in which we operate, including trade, tariffs and other policies implemented by the new administration or actions taken by other countries in response; automotive production delays; changes in customer forecasts; the impacts of the COVID-19 pandemic on our and our customers’ businesses; the ongoing conflicts in Ukraine and the Middle East; our inability to control and successfully manage our expenses and cash position; our inability to deliver improved financial results from process optimization efforts and cost reduction actions; escalating pricing pressures from our customers; the impact on our business of the transition to a lower level of fixed contracts, including the failure to achieve such a transition; our failure to win, renew or implement service contracts; the cancellation or postponement of existing contracts; the loss of business from any of our largest customers; effects of customer defaults; our inability to successfully introduce new products, applications and services; our strategies to increase cloud offerings and deploy generative AI and large language models (LLMs); the inability to expand into adjacent markets; the inability to recruit and retain qualified personnel; disruptions arising from transitions in management personnel, including the transition to our new Chief Executive Officer; cybersecurity and data privacy incidents; failure to protect our intellectual property; defects or interruptions in service with respect to our products; fluctuating currency rates and interest rates; inflation; financial and credit market volatility; restrictions on our current and future operations under the terms of our debt, the use of cash to service or repay our debt; and our inability to generate sufficient cash from our operations; and the other factors discussed in our most recent Annual Report on Form 10-K, quarterly reports on Form 10-Q, and other filings with the Securities and Exchange Commission. We disclaim any obligation to update any forward-looking statements as a result of developments occurring after the date of this document. Discussion of Non-GAAP Financial MeasuresWe believe that providing the non-GAAP information in addition to the GAAP presentation, allows investors to view the financial results in the way management views the operating results. We further believe that providing this information allows investors to not only better understand our financial performance, but more importantly, to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance. The non-GAAP information should not be considered superior to, or a substitute for, financial statements prepared in accordance with GAAP. We utilize a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of the business, for making operating decisions and for forecasting and planning for future periods. While our management uses these non-GAAP financial measures as a tool to enhance their understanding of certain aspects of our financial performance, our management does not consider these measures to be a substitute for, or superior to, the information provided by GAAP financial statements. Consistent with this approach, we believe that disclosing non-GAAP financial measures to the readers of our financial statements provides such readers with useful supplemental data that, while not a substitute for GAAP financial statements, allows for greater transparency in the review of our financial and operational performance. In assessing the overall health of the business during the three months ended December 31, 2024 and 2023, our management has either included or excluded the following items in general categories, each of which is described below. Adjusted EBITDA. Adjusted EBITDA is defined as net income attributable to Cerence Inc. before net income (loss) attributable to income tax (benefit) expense, other income (expense) items, net, depreciation and amortization expense, and excluding amortization of acquired intangible assets, stock-based compensation, and restructuring and other costs, net or impairment charges related to fixed and intangible assets and gains or losses on the sale of long-lived assets, if any. From time to time we may exclude from Adjusted EBITDA the impact of events, gains, losses or other charges (such as significant legal settlements) that affect the period-to-period comparability of our operating performance. Other income (expense) items, net include interest expense, interest income, and other income (expense), net (as stated in our Condensed Consolidated Statement of Operations). Our management and Board of Directors use this financial measure to evaluate our operating performance. It is also a significant performance measure in our annual incentive compensation programs. Restructuring and other costs, net.Restructuring and other costs, net include restructuring expenses as well as other charges that are unusual in nature, are the result of unplanned events, and arise outside the ordinary course of our business such as employee severance costs, consulting costs relating to our transformation initiatives, and costs for consolidating duplicate facilities. Amortization of acquired intangible assets. We exclude the amortization of acquired intangible assets from non-GAAP expense and income measures. These amounts are inconsistent in amount and frequency and are significantly impacted by the timing and size of acquisitions. Providing a supplemental measure which excludes these charges allows management and investors to evaluate results “as-if” the acquired intangible assets had been developed internally rather than acquired and, therefore, provides a supplemental measure of performance in which our acquired intellectual property is treated in a comparable manner to our internally developed intellectual property. Although we exclude amortization of acquired intangible assets from our non-GAAP expenses, we believe that it is important for investors to understand that such intangible assets contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Future acquisitions may result in the amortization of additional intangible assets. Non-cash expenses.We provide non-GAAP information relative to the following non-cash expenses: (i) stock-based compensation; and (ii) non-cash interest. These items are further discussed as follows: i)Stock-based compensation. Because of varying valuation methodologies, subjective assumptions and the variety of award types, we exclude stock-based compensation from our operating results. We evaluate performance both with and without these measures because compensation expense related to stock-based compensation is typically non-cash and awards granted are influenced by the Company’s stock price and other factors such as volatility that are beyond our control. The expense related to stock-based awards is generally not controllable in the short-term and can vary significantly based on the timing, size and nature of awards granted. As such, we do not include such charges in operating plans. Stock-based compensation will continue in future periods.ii)Non-cash interest. We exclude non-cash interest because we believe that excluding this expense provides management, as well as other users of the financial statements, with a valuable perspective on the cash-based performance and health of the business, including the current near-term projected liquidity. Non-cash interest expense will continue in future periods. Other expenses.We exclude certain other expenses that result from unplanned events outside the ordinary course of continuing operations, in order to measure operating performance and current and future liquidity both with and without these expenses. By providing this information, we believe management and the users of the financial statements are better able to understand the financial results of what we consider to be our organic, continuing operations. Included in these expenses are items such as other charges (credits), net, (gains) losses from extinguishment of debt, and changes in indemnification assets corresponding with the release of pre-spin liabilities for uncertain tax positions. Adjustments to income tax provision.Adjustments to our GAAP income tax provision to arrive at non-GAAP net income is determined based on our non-GAAP pre-tax income. Additionally, as our non-GAAP profitability is higher based on the non-GAAP adjustments, we adjust the GAAP tax provision to remove valuation allowances and related effects based on the higher level of reported non-GAAP profitability. We also exclude from our non-GAAP tax provision certain discrete tax items as they occur. Key Performance IndicatorsWe believe that providing key performance indicators (“KPIs”) allows investors to gain insight into the way management views the performance of the business. We further believe that providing KPIs allows investors to better understand information used by management to evaluate and measure such performance. KPIs should not be considered superior to, or a substitute for, operating results prepared in accordance with GAAP. In assessing the performance of the business during the three months ended December 31, 2024, our management has reviewed the following KPIs, each of which is described below: Percent of worldwide auto production with Cerence Technology: The number of Cerence enabled cars shipped as compared to IHS Markit car production data.Change in number of Cerence connected cars shipped: The year-over-year change in the number of cars shipped with Cerence connected solutions. Amounts calculated on a TTM basis.Change in Adjusted total billings YoY (TTM): The year over year change in total billings excluding Professional Services, prepay billings and adjusted for prepay consumption. ____________ See the tables at the end of this press release for non-GAAP reconciliations to the most directly comparable GAAP measures. To learn more about Cerence AI, visit www.cerence.ai, and follow the company on LinkedIn. About Cerence Inc.Cerence Inc. (NASDAQ: CRNC) is a global industry leader in creating intuitive, seamless, AI-powered experiences across automotive and transportation. Leveraging decades of innovation and expertise in voice, generative AI, and large language models, Cerence powers integrated experiences that create safer, more connected, and more enjoyable journeys for drivers and passengers alike. With more than 500 million cars shipped with Cerence technology, the company partners with leading automakers, transportation OEMs, and technology companies to advance the next generation of user experiences. Cerence is headquartered in Burlington, Massachusetts, with operations globally and a worldwide team dedicated to pushing the boundaries of AI innovation. For more information, visit www.cerence.ai. Contact InformationInvestor Relations | Email: investorrelations@cerence.com CERENCE INC.Condensed Consolidated Statements of Operations(in thousands, except per share data) Three Months Ended December 31, 2024 2023 Revenues: License $22,725 $20,823 Connected services 13,707 96,820 Professional services 14,464 20,692 Total revenues 50,896 138,335 Cost of revenues: License 1,782 1,604 Connected services 6,311 7,303 Professional services 9,731 17,325 Amortization of intangible assets — 103 Total cost of revenues 17,824 26,335 Gross profit 33,072 112,000 Operating expenses: Research and development 20,869 33,306 Sales and marketing 4,766 6,071 General and administrative 12,754 12,793 Amortization of intangible assets 554 545 Restructuring and other costs, net 11,062 705 Total operating expenses 50,005 53,420 (Loss) income from operations (16,933) 58,580 Interest income 1,437 1,432 Interest expense (3,393) (3,236)Other income, net 272 1,422 (Loss) income before income taxes (18,617) 58,198 Provision for income taxes 5,671 34,341 Net (loss) income $(24,288) $23,857 Net (loss) income per share: Basic $(0.57) $0.58 Diluted $(0.57) $0.53 Weighted-average common share outstanding: Basic 42,897 41,186 Diluted 42,897 49,255 CERENCE INC.Condensed Consolidated Balance Sheets(in thousands, except per share amounts) December 31, September 30, 2024 2024 (Unaudited) ASSETS Current assets: Cash and cash equivalents $104,103 121,485 Marketable securities 3,889 5,502 Accounts receivable, net of allowances of $53 and $1,613 47,671 62,755 Deferred costs 4,739 5,286 Prepaid expenses and other current assets 39,670 70,481 Total current assets 200,072 265,509 Long-term marketable securities 2,552 3,453 Property and equipment, net 29,371 30,139 Deferred costs 15,539 18,051 Operating lease right of use assets 13,156 12,879 Goodwill 288,886 296,858 Intangible assets, net 1,059 1,706 Deferred tax assets 46,035 51,398 Other assets 20,858 22,365 Total assets $617,528 $702,358 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $7,609 $3,959 Deferred revenue 47,626 52,822 Short-term operating lease liabilities 3,828 4,528 Short-term debt 59,954 87,094 Accrued expenses and other current liabilities 32,967 68,405 Total current liabilities 151,984 216,808 Long-term debt 196,208 194,812 Deferred revenue, net of current portion 113,444 114,354 Long-term operating lease liabilities 10,071 8,803 Other liabilities 25,119 26,484 Total liabilities 496,826 561,261 Stockholders' Equity: Common stock, $0.01 par value, 560,000 shares authorized; 42,988 and 41,924 shares issued and outstanding, respectively 430 419 Accumulated other comprehensive loss (29,785) (25,912)Additional paid-in capital 1,096,085 1,088,330 Accumulated deficit (946,028) (921,740)Total stockholders' equity 120,702 141,097 Total liabilities and stockholders' equity $617,528 $702,358 CERENCE INC.Condensed Consolidated Statements of Cash Flows(in thousands) Three Months Ended December 31, 2024 2023 Cash flows from operating activities: Net (loss) income $(24,288) $23,857 Adjustments to reconcile net (loss) income to net cash provided by (used in) operations: Depreciation and amortization 2,445 2,686 Provision for expected credit loss reserve 207 - Stock-based compensation 7,771 8,380 Non-cash interest expense 1,861 1,468 Gain on debt extinguishment (327) - Deferred tax provision 4,927 30,298 Unrealized foreign currency transaction losses (gains) 1,997 (2,012)Other, net (33) 382 Changes in operating assets and liabilities: Accounts receivable 8,800 4,933 Prepaid expenses and other assets 27,201 1,170 Deferred costs 1,859 2,589 Accounts payable 3,814 2,382 Accrued expenses and other liabilities (33,087) 3,712 Deferred revenue 6,107 (82,660)Net cash provided by (used in) operating activities 9,254 (2,815)Cash flows from investing activities: Capital expenditures (1,360) (931)Sale and maturities of marketable securities 2,493 2,442 Other investing activities (374) (322)Net cash provided by investing activities 759 1,189 Cash flows from financing activities: Principal payments of short-term debt (26,964) - Common stock repurchases for tax withholdings for net settlement of equity awards (1,369) (6,209)Principal payment of lease liabilities arising from a finance lease (115) (122)Proceeds from the issuance of common stock 1,364 6,201 Net cash used in financing activities (27,084) (130)Effects of exchange rate changes on cash and cash equivalents (311) (662)Net change in cash and cash equivalents (17,382) (2,418)Cash and cash equivalents at beginning of period 121,485 101,154 Cash and cash equivalents at end of period $104,103 $98,736 CERENCE INC.Reconciliations of GAAP Financial Measures to Non-GAAP Financial Measures(unaudited - in thousands) Three Months Ended December 31, 2024 2023 GAAP revenue $50,896 $138,335 GAAP gross profit $33,072 $112,000 Stock-based compensation 490 641 Amortization of intangible assets - 103 Non-GAAP gross profit $33,562 $112,744 GAAP gross margin 65.0% 81.0%Non-GAAP gross margin 65.9% 81.5% GAAP operating (loss) income $(16,933) $58,580 Stock-based compensation* 4,808 8,380 Amortization of intangible assets 554 648 Restructuring and other costs, net* 11,062 705 Non-GAAP operating (loss) income $(509) $68,313 GAAP operating margin -33.3% 42.3%Non-GAAP operating margin -1.0% 49.4% GAAP net (loss) income $(24,288) $23,857 Stock-based compensation* 4,808 8,380 Amortization of intangible assets 554 648 Restructuring and other costs, net* 11,062 705 Depreciation 1,891 2,038 Total other expense, net (1,684) (382)Provision for income taxes 5,671 34,341 Adjusted EBITDA $1,382 $70,351 GAAP net (loss) income margin -47.7% 17.2%Adjusted EBITDA margin 2.7% 50.9%* - $3.0 million in stock-based compensation is included in Restructuring and other costs, net for Q1’25. CERENCE INC.Reconciliations of GAAP Financial Measures to Non-GAAP Financial Measures (cont.)(unaudited - in thousands, except per share data) Three Months Ended December 31, 2024 2023 GAAP net (loss) income $(24,288) $23,857 Stock-based compensation* 4,808 8,380 Amortization of intangible assets 554 648 Restructuring and other costs, net* 11,062 705 Gain on debt extinguishment (327) - Non-cash interest expense 1,861 1,468 Other (33) (27)Adjustments to income tax expense 4,895 19,259 Non-GAAP net (loss) income $(1,468) $54,290 Adjusted EPS: GAAP Numerator: Net (loss) income attributed to common shareholders - basic $(24,288) $23,857 Interest on the Notes, net of tax - 2,250 Net (loss) income attributed to common shareholders - diluted $(24,288) $26,107 Non-GAAP Numerator: Net (loss) income attributed to common shareholders - basic $(1,468) $54,290 Interest on the Notes, net of tax - 1,120 Net (loss) income attributed to common shareholders - diluted $(1,468) $55,410 GAAP Denominator: Weighted-average common shares outstanding - basic 42,897 41,186 Adjustment for diluted shares - 8,069 Weighted-average common shares outstanding - diluted 42,897 49,255 Non-GAAP Denominator: Weighted-average common shares outstanding- basic 42,897 41,186 Adjustment for diluted shares - 8,069 Weighted-average common shares outstanding - diluted 42,897 49,255 GAAP net (loss) income per share - diluted $(0.57) $0.53 Non-GAAP net (loss) income per share - diluted $(0.03) $1.12 GAAP net cash provided by (used in) operating activities $9,254 $(2,815)Capital expenditures (1,360) (931)Free Cash Flow $7,894 $(3,746)* - $3.0 million in stock-based compensation is included in Restructuring and other costs, net for Q1’25. CERENCE INC.Reconciliations of GAAP Financial Measures to Non-GAAP Financial Measures (cont.)(unaudited - in thousands) Q2 2025 FY2025 Low High Low High GAAP revenue $74,000 $77,000 $236,000 $247,000 GAAP gross profit $54,700 $58,700 $158,400 $169,400 Stock-based compensation 700 700 2,500 2,500 Amortization of intangible assets - - - - Non-GAAP gross profit $55,400 $59,400 $160,900 $171,900 GAAP gross margin 74% 76% 67% 69%Non-GAAP gross margin 75% 77% 68% 70% GAAP operating income (loss) $7,100 $11,100 $(27,100) $(16,100)Stock-based compensation 7,000 7,000 22,500 22,500 Amortization of intangible assets 500 500 1,600 1,600 Restructuring and other costs, net 1,300 1,300 8,100 8,100 Non-GAAP operating income $15,900 $19,900 $5,100 $16,100 GAAP operating margin 10% 14% -11% -7%Non-GAAP operating margin 21% 26% 2% 7% GAAP net income (loss) $1,200 $5,200 $(39,600) $(28,600)Stock-based compensation 7,000 7,000 22,500 22,500 Amortization of intangible assets 500 500 1,600 1,600 Restructuring and other costs, net 1,300 1,300 8,100 8,100 Depreciation 1,900 1,900 10,200 10,200 Total other expense, net (1,300) (1,300) (5,100) (5,100)Provision for income taxes 4,600 4,600 7,400 7,400 Adjusted EBITDA $17,800 $21,800 $15,300 $26,300 GAAP net income (loss) margin 2% 7% -17% -12%Adjusted EBITDA margin 24% 28% 6% 11% CERENCE INC.Reconciliations of GAAP Financial Measures to Non-GAAP Financial Measures (cont.)(unaudited - in thousands) Q2 2025 FY2025 Low High Low High GAAP net income (loss) $1,200 $5,200 $(39,600) $(28,600)Stock-based compensation 7,000 7,000 22,500 22,500 Amortization of intangibles 500 500 1,600 1,600 Restructuring and other costs, net 1,300 1,300 8,100 8,100 Non-cash interest expense 1,500 1,500 5,500 5,500 Other - - (100) (100)Adjustments to income tax expense 1,500 1,500 (4,600) (4,600)Non-GAAP net income (loss) $13,000 $17,000 $(6,600) $4,400 Adjusted EPS: GAAP Numerator: Net income (loss) attributed to common shareholders - basic and diluted $1,200 $5,200 $(39,600) $(28,600) Non-GAAP Numerator: Net income (loss) attributed to common shareholders - basic $13,000 $17,000 $(6,600) $4,400 Interest on the Notes, net of tax 900 900 - - Net income (loss) attributed to common shareholders - diluted $13,900 $17,900 $(6,600) $4,400 GAAP Denominator: Weighted-average common shares outstanding - basic 43,000 43,000 43,000 43,000 Adjustment for diluted shares 100 100 - - Weighted-average common shares outstanding - diluted 43,100 43,100 43,000 43,000 Non-GAAP Denominator: Weighted-average common shares outstanding- basic 43,000 43,000 43,000 43,000 Adjustment for diluted shares 6,800 6,800 - 100 Weighted-average common shares outstanding - diluted 49,800 49,800 43,000 43,100 GAAP net income (loss) per share - diluted $0.03 $0.12 $(0.92) $(0.67)Non-GAAP net income (loss) per share - diluted $0.28 $0.36 $(0.15) $0.10 GAAP net cash provided by operating activities $34,000 $40,000 Capital expenditures (14,000) (10,000)Free Cash Flow $20,000 $30,000

Cerence Announces First Quarter Fiscal 2025 Results

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