Full Transcript: Cerence Q3 2026 Earnings Call

Cerence (NASDAQ: CRNC ) released third-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

5 million, exceeding expectations. Free cash flow was $20 million, and recurring connected services revenue increased by over 20% year-over-year. The company launched the XUI platform, now in its commercialization phase, and secured a significant deal with Stellantis. XUI is expected to support higher average prices per unit and contribute to revenue growth in fiscal year 2027.

Cerence announced its first share repurchase program, reflecting confidence in its financial health and strategic positioning. The company raised its fiscal year 2026 free cash flow guidance to between $76 million and $82 million. In the automotive sector, Cerence is expanding its AI capabilities, securing several partnerships and contracts, including with JLR and BYD. The company is also progressing in non-automotive sectors, with initiatives like the Dealer Assistant Agent showing promising results.

Future outlook for fiscal year 2027 includes high single to low double-digit revenue growth, driven by XUI and connected services, with significant expansion expected in non-automotive areas. Full Transcript OPERATOR (Operator) Good day, and thank you for standing by. Welcome to the Cerence third quarter 2026 earnings conference call. At this time, all participants are in listen-only mode.

After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kate Hickman, Vice President of Corporate Communications and Investor Relations. Please go ahead. Kate Hickman, Vice President of Corporate Communications and Investor Relations Hello, everyone, and welcome to Cerence's third quarter 2026 conference call.

Before we begin, I would like to remind you that this call may involve certain forward-looking statements. Any statements that are not statements of historical fact, including statements related to our expectations, anticipations, intentions, estimates, assumptions, beliefs, outlook, strategies, goals, priorities, objectives, targets, and plans, are forward-looking statements. Cerence makes no representations to update those statements after today.

These statements are subject to risks and uncertainties which may cause actual results to differ materially from such statements and expectations as described in our SEC filings, including the Form 8-K with the press release preceding today's call, our most recent Form 10-Q, and our Form 10-K filed on November 20, 2025. In addition, the company may refer to certain non-GAAP measures, key performance indicators, and pro forma financial information during this call. Please refer to today's press release for further details of the definitions, limitations, and uses of those measures and reconciliations of non-GAAP measures to the closest GAAP equivalent.

The press release is available in the Investor section of our website. Joining me on today's call are Brian Krzanich, CEO, and Tony Rodriguez, CFO. Please note that slides with further context are available in the Investor section of our website. Before handing the call over to Brian, I would like to mention that we will be participating in the Raymond James 2026 Industrial Showcase on August 13 and the Needham Virtual Semiconductor and Semi Cap Conference on August 19.

Now, onto the call—Brian, thank you. Stefan Ortmanns, Chief Executive Officer Kate, and good afternoon everyone. Now, before we dig in, I'd like to briefly reflect on Cerence's progress as I approach my two-year anniversary as CEO in October. And when I stepped into the role, we established a clear roadmap.

The first year was about strengthening the foundation of the business, improving our financial profile, restoring profitability, generating cash flow, and reducing debt. I believe we delivered on those commitments, and we said the second year would be about execution. As we approach the end of fiscal year 26, I believe we have delivered there as well. We advanced our technology roadmap by bringing XUI from concept to production.

We improved free cash flow, and we are continuing to create value for customers and shareholders. Most importantly, we're now beginning to see the early stages of our next chapter. XUI is entering into commercialization phase, our agentic AI portfolio is gaining traction, and our non-automotive initiatives are beginning to move from proof points toward revenue contribution. We believe that our fiscal third quarter results demonstrate a company executing against its strategy, delivering strong financial performance, and positioning itself for future growth.

5 million, and free cash flow of $20 million. Importantly, we continue to grow our recurring connected services business, with revenue up more than 20% year over year. This growth further increases the recurring quotient of our revenue mix, enhancing visibility into the future performance, and demonstrates the value of the connected platform we've built across our installed base. Looking ahead to the rest of the fiscal year, we're again raising our fiscal year 26 free cash flow guidance, now to $76 million to $82 million, and narrowing most of our remaining forecasts as we approach the end of fiscal year 26.

Given the continued cash-generating strength of our business, I'd like to give an update on our capital allocation strategy. As mentioned in the past, we have several core capital allocation priorities, all focused on delivering returns to our shareholders: investing organically to support growth, reducing debt, managing equity dilution, and selectively pursuing inorganic opportunities that can enhance our long-term growth and strategic position. We evaluate these priorities based on the opportunities available to us, the strength of our balance sheet, and where we believe capital can generate attractive risk-adjusted return for shareholders.

And with that, I'm pleased to share that our board has authorized Cerence's first ever share repurchase program. This reflects our confidence in the business, the progress we've made in improving profitability and cash generation, and our commitment to disciplined capital allocation as we look ahead. We remain focused on creating long-term shareholder value through execution, strategic investment, and prudent capital allocation. The stock repurchase program adds another tool to that approach while preserving our flexibility to continue investing in growth and reducing debt, while also helping to offset dilution, and Tony will provide further details on the program.

Now turning to updates and highlights from the quarter, we continue to see strong investment in next-generation AI-powered user experiences. Automakers increasingly view AI not as a discretionary investment, but as a strategic priority that reinforces their competitive position. As vehicles become more software-defined, automakers are seeking differentiated user experiences that reinforce their brands, improve customer satisfaction, and create opportunities for recurring revenue. That's where we believe Cerence AI continues to be uniquely positioned and why we continue to win.

We combine decades of automotive expertise with leading AI capabilities, enabling OEMs to bring powerful conversational experiences to market while reducing complexity, cost, and execution risk. As a result, despite the dynamic industry that OEMs are navigating, customer engagement remains strong, our pipeline continues to develop, and interest in our next-generation platform is growing. Cerence XUI, which is now available in nearly 20 languages, remains the center of our automotive strategy. In Q3, we signed a new XUI deal with Stellantis, who expects to deploy our platform across multiple brands and regions.

With initial production having recently started, and throughout the quarter we continued to advance our XUI programs with JLR, a VW Group brand, BYD, Geely, and a major Japanese automaker. Several of these programs have started production or are expected to start production in fiscal Q4. Today we have approximately 100,000 XUI-powered cars on the road, an important milestone in bringing this technology to market, and consistent with what we've said in the past, that XUI will begin its ramp at the end of 26 and impact revenue during fiscal year 27 and beyond as additional programs enter production and vehicle volume scale.

And we continue to expect XUI deployments to support higher average price per unit, reflecting its broader functionality, increased software content, and expanding agentic capabilities, a testament to the value we're bringing to our customers. Cerence AI was recognized at JLR's Global Supplier Excellence Awards in June. JLR honored us with their Exceptional Creator Recognition, a special category they introduced specifically to highlight truly outstanding partners. In their nominations, the JLR team highlighted how we fast-tracked our partnership into a true AI-era collaboration.

They specifically called out Cerence's flexibility as a key enabler in their ability to adopt new AI capabilities faster and innovate with confidence. That execution, paired with our disciplined delivery and sharp roadmap alignment, is now their blueprint for future-facing technology. We believe this recognition validates not only our technology but also our ability to serve as a trusted strategic partner as OEMs transition to next-generation AI platforms. During the quarter, we also advanced our agentic AI roadmap across parking, dining, and other task-oriented experiences.

Our goal is to evolve the in-vehicle assistant from a system that primarily responds to requests into an agentic experience that can take action and help users complete tasks in context. Of note, we reached an important milestone in this strategy in Q3 by signing the first customer for our Mobile Work Agent. Developed in collaboration with Microsoft, the customer is a global premium automaker and an existing Cerence customer, with rollout expected to begin in fiscal Q4. We believe this win is significant for two reasons.

First, it demonstrates our ability to quickly deploy a complex agent that turns the car into a managed, trusted device with compliant access to enterprise tools in the Microsoft 365 suite. Second, it validates our strategy to sell and deploy agents on a standalone basis. Not only can these agents be deployed within new XUI programs, but they can also be integrated into non-XUI programs and even competitive stacks. This expands our addressable opportunity and gives OEMs a flexible path to introduce agentic capabilities.

We're in talks with several other automakers to deploy our Mobile Work Agent in the near future. Beyond XUI and our agent roadmap, we continue to win business across our broader technology portfolio. During the quarter, we signed our first customer for Exterior Vehicle Interaction, which extends the reach of the vehicle's voice assistant outside the cabin, allowing drivers to use their voice to perform authenticated vehicle actions like unlocking doors or opening the trunk. We also secured wins across our stack with Subaru, HKMC, and GM.

We signed an emergency vehicle detection program with a Chinese robotaxi company and a Cerence Assistant program with Stellantis for the vehicles that will not initially use XUI. These programs have the potential to generate recurring business, maintain our seat at the table within the OEM technology stack, and create opportunities to expand our role over time even when customers use multiple technologies. We're also making progress in extending our voice, AI, and agentic capabilities beyond the vehicle. We continue to focus on complex environments similar to the car, including commercial and industrial operations, robotics, and select IoT applications.

We believe our products have the ability to serve as the trusted interaction layer across a broad range of verticals where our edge AI, reliability, services, security, and domain-specific integration translate well and provide a meaningful competitive advantage. One example of our progress is the launch of our Dealer Assistant Agent live at Infiniti of Grand Rapids, Michigan, targeting a real pain point for dealerships: missed and after-hours sales and service calls that can translate into lost leads and revenue.

Our AI agent provides an always-on instant response, serving as a virtual expert on vehicle features, scheduling test drives, and booking service appointments while freeing staff from routine, repetitive calls. Since the program went live, Dealer Assistant Agent has delivered measurable business impact to the customer, with 100% of after-hour calls now being captured. There's been a 20% increase in sales opportunities driven by always-on lead engagement and qualification, and nearly a 30% increase in service appointments booked, improving utilization and capturing additional service revenue.

While this is an early deployment, we believe that it demonstrates the impact our agentic solutions can deliver, and with tens of thousands of car dealerships worldwide, we see this as a promising growth opportunity. Consistent with our prior outlook, we expect approximately $7 million to $9 million in non-auto revenue forecasted for full fiscal 2026, and the larger opportunity ahead of us in fiscal year 27 and beyond. On our next earnings call, we look forward to providing you additional details on our fiscal year 2027 roadmap, forecast, and strategy for building a meaningful business beyond automotive.

Now, in terms of our intellectual property strategy and ongoing enforcement efforts, we continue to actively protect our technology and investments as part of the ordinary course of our business. While the timing of IP-related outcomes can be difficult to predict on a quarterly basis, we believe these efforts support our broader commitment to innovation and long-term shareholder value, and we'll continue to keep you posted as additional progress is made. As we approach the end of fiscal 2026, I want to close with the four drivers that underpin our belief in Cerence's long-term value.

First, that Cerence occupies an important position in the automotive AI stack, supported by deep OEM relationships and a large install base and durable recurring revenue. Second, our XUI and agentic AI wins provide an opportunity for ongoing growth and higher revenue per vehicle as these programs enter production and scale. And third, we continue to deliver strong free cash flow while maintaining our focus on disciplined capital allocation. We believe that our business model supports debt reduction, balance sheet strength, inorganic growth, and the strategic and operational flexibility necessary to make key decisions like our stock repurchase program.

And fourth, our expansion outside of automotive and our IP enforcement efforts provide additional sources of potential long-term value. Now with that, I'll turn it over to Tony. UNKNOWN, Chief Financial Officer Thank you, Brian. Good afternoon, everyone, and thank you for joining us today.

We appreciate your continued interest in Cerence. Today I'll review our third quarter fiscal 2026 results, highlight the key drivers of the quarter, and then provide guidance for our fourth quarter and the resulting full fiscal year. For the quarter, total revenue was approximately $70 million, within our guidance range of $68 to $72 million and up 12% from $62 million in the prior-year period. The increase was led by higher license revenue, including the timing of fixed license contract execution, and a positive shift to recurring connected services revenue.

6 million, up 22% year over year, reflecting the higher fixed license contribution this quarter. 5 million this quarter compared to no fixed license revenue in the prior-year period and above the approximately $10 million contemplated in our Q3 guidance. As we have discussed, fixed license revenue can vary quarter to quarter based on the timing of contract execution. We do not expect any additional fixed license revenue for the remainder of the fiscal year.

1 million, down 15% year over year. Two factors drove the decrease. First, the comparison was against an exceptionally strong prior-year quarter that benefited from higher-than-normal production as some manufacturers built ahead of anticipated tariff impacts and from favorable foreign exchange rates. Second, our unit volumes came in below the broader market this quarter.

Production of vehicles with Cerence technology was down 8% year over year, while global light vehicle production declined roughly 2% based on the customer production data available to us. The difference relative to the broader market primarily reflects our specific OEM and regional mix. Much of the global market's relative resilience came from regions where we have limited presence, such as South America and South Asia, while the OEMs and regions that represent the majority of our volume saw softer production.