Executive Summary

Q1 FY25 revenue $50.9M and adjusted EBITDA $1.4M both exceeded the upper end of guidance; free cash flow was $7.9M, aided by a $2.0M connected royalty true-up and lower non‑GAAP opex (-23% YoY) from restructuring and a $2.5M R&D tax credit catch-up .
Q2 FY25 guidance: revenue $74–77M (incl. $20M fixed license), gross margin 74–76%, GAAP NI $1–5M, adj. EBITDA $18–22M; FY25 guidance unchanged at revenue $236–247M and adj. EBITDA $15–26M, with FCF $20–30M .
Strategic progress: six design wins and two GenAI wins; first XUI Gen 1 customer program started; expanded NVIDIA collaboration to accelerate CaLLM/Edge development; momentum in SOPs (six major, two GenAI) .
Balance sheet/financing: repurchased ~$27M of 3.00% converts at 98.5% of par in Dec; plan to extinguish remaining ~$60M due June 2025 via cash and/or financing while maintaining cash flexibility .
Near-term catalysts: execution of Q2 fixed license signings; additional GenAI/XUI program conversion; clarity on convertible notes resolution; potential guide update in May if macro/tariff developments warrant—management targets meeting/beat philosophy and upper-end FY25 adj. EBITDA/FCF .

What Went Well and What Went Wrong

What Went Well

Beat on revenue and profitability vs guidance with positive FCF: “Top line revenue of $50.9M and adjusted EBITDA of $1.4M, both exceeded the high end of our guidance… strong free cash flow of $7.9M.” .
GenAI product roadmap milestones and commercial traction: “delivering five proof‑of‑concepts and kicking off our first major customer program” for XUI Gen 1; six design wins (two GenAI) and two GenAI SOPs; NVIDIA/Microsoft partnerships to improve performance/cost .
Cost actions delivered opex savings and margin outperformance: non‑GAAP opex fell to $34.1M (-23% YoY) with restructuring benefits; GM 65% beat the 60% high‑end guide on mix and PS margin improvement .

What Went Wrong

YoY comps remain distorted by decommissioned “Legacy” Toyota contract: revenue -$87.4M YoY with $86.6M non‑cash revenue in Q1 FY24; GAAP net loss $(24.3)M vs $23.9M prior year .
Penetration softness and China exposure: TTM penetration fell to 51% as global production mix shifted to China where Cerence has limited in‑country wins; shipped ~11.0M units in Q1, down 10% YoY; connected growth is improving but still early .
Professional Services deceleration and variability: PS revenue declined to $14.5M and will be deemphasized (expected FY25 headwind) though margins improved >30%; Q2 absorbs ~$2M PS headwinds .

Financial Results

Quarterly performance (oldest → newest):

Metric	Q3 FY24	Q4 FY24	Q1 FY25
Revenue ($M)	$70.5	$54.8	$50.9
GAAP Gross Margin	71.5%	63.7%	65.0%
Non-GAAP Gross Margin	72.4%	64.9%	65.9%
GAAP Diluted EPS	$(7.50)	$(0.49)	$(0.57)
Non-GAAP Diluted EPS	$0.19	$(0.07)	$(0.03)
Adjusted EBITDA ($M)	$12.5	$(1.9)	$1.4
GAAP Net (Loss) Income ($M)	$(313.5)	$(20.4)	$(24.3)

Year-over-year (Q1 FY24 vs Q1 FY25):

Metric	Q1 FY24	Q1 FY25
Revenue ($M)	$138.3	$50.9
GAAP Gross Margin	81.0%	65.0%
Non-GAAP Gross Margin	81.5%	65.9%
GAAP Diluted EPS	$0.53	$(0.57)
Non-GAAP Diluted EPS	$1.12	$(0.03)
Adjusted EBITDA ($M)	$70.4	$1.4

Revenue mix:

Revenue Line ($M)	Q3 FY24	Q4 FY24	Q1 FY25
License	$43.055	$25.341	$22.725
Connected Services	$10.939	$12.088	$13.707
Professional Services	$16.545	$17.376	$14.464
Total	$70.539	$54.805	$50.896

Key performance indicators:

KPI	Q3 FY24	Q4 FY24	Q1 FY25
% of worldwide auto production with Cerence tech (TTM)	53%	52%	51%
Change in connected cars shipped (TTM YoY)	+19%	+16%	+5%
Change in Adjusted Total Billings (TTM YoY)	+3%	+1%	+3%
Pro forma royalties ($M)	$39.6	$42.2	$36.7
Units shipped with Cerence tech (quarter)	11.7M	10.6M	~11.0M
Total billings ($M, quarter)	—	—	$69 (↑7% YoY)

Notes: Q1 FY24 revenue included $86.6M non‑cash “Legacy” Toyota connected services revenue recognized upon decommissioning, distorting YoY comparability .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($M)	Q2 FY25	—	$74–77; includes ~$20 fixed license	New detail
Gross Margin	Q2 FY25	—	74–76%	New detail
GAAP Net Income ($M)	Q2 FY25	—	$1–5	New detail
Adjusted EBITDA ($M)	Q2 FY25	—	$18–22	New detail
Revenue ($M)	FY25	$236–247	$236–247 (unchanged)	Maintained
Adjusted EBITDA ($M)	FY25	$15–26	$15–26 (unchanged)	Maintained
Free Cash Flow ($M)	FY25	$20–30	$20–30 (unchanged)	Maintained
Commentary	FY25	—	Q2 guide includes ~$2M PS headwind; no additional fixed license assumed beyond Q2; full-year guide not revised until later in year	—

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 FY24, Q4 FY24)	Current Period (Q1 FY25)	Trend
GenAI/LLM roadmap & XUI platform	8 GenAI wins YTD; multiple launches; plan to accelerate next-gen platform; Microsoft partnership for embedded LLMs; pricing/margin uplift expected over time	Five POCs delivered; first major XUI Gen1 customer program kicked off; six design wins (two GenAI); two GenAI SOPs; NVIDIA collab expanded; targeting Gen2 by end of CY2025	Strengthening
Cost transformation	Targeting $35–40M net annualized savings, mostly FY25; Q4 actions underway	Non‑GAAP opex down 23% YoY; restructuring charges $11.1M; further process/contract streamlining in FY25; additional savings likely benefit FY26	Executing/continuing
Fixed license strategy & consumption	FY24 fixed ~30.4M; consumption to normalize by FY26; less fixed in FY25	Q2 includes ~$20M fixed; aiming to reduce discounts via select partners; no further fixed assumed in FY25 beyond Q2	Managed, more selective
Connected services growth/PPU	Early usage/PPU lift; backlog/billings key indicator; modest growth planned	Connected revenue up YoY ex-legacy; effective PPU framework forthcoming next quarter; billings outpacing GAAP revenue	Improving transparency
China/Regional exposure	TTM penetration falling; backlog near ~$1B; limited China in‑country wins	Penetration 51% TTM; China mix hurting penetration; winback in China on cloud; relationships with Chinese OEMs ex‑China	Mixed; working to expand
Macro/tariffs	Noted macro headwinds; guides incorporate normal swings	Tariff impact seen as volume‑only risk; paused near-term; too fluid to quantify; revisit in May	Watchlist
Capital structure (2025 converts)	Evaluating refinance vs payoff	~$27M repurchased; plan to extinguish remaining ~~$60M via cash/financing while keeping >~~$70M cash min comfortable level	De‑risking underway

Management Commentary

“Top line revenue of $50.9 million and adjusted EBITDA of $1.4 million, both exceeded the high end of our guidance, and we had strong free cash flow of $7.9 million.” — CEO Brian Krzanich .
“We secured six new design wins… two new wins for our generative AI solutions… six major customer SOPs and two generative AI SOPs within the quarter… delivering five proof‑of‑concepts and kicking off our first major customer program [for XUI Gen1].” — CEO .
“Non‑GAAP operating expenses were $34.1 million… a decrease of $10.4 million or 23%… Q1 revenue was aided by $2 million in connected royalty true‑ups… Q2 revenue guidance… includes $20 million of projected fixed license revenue.” — CFO Antonio Rodriquez .
“I have a firm policy not to change guidance after the first quarter… we are projecting to be in the upper end of the range for adjusted EBITDA and free cash flow [for FY25].” — CEO .
“Our plan is to extinguish [the June 2025 notes] through some combination of payoff and financing.” — CEO/CFO .

Q&A Highlights

Pricing/PPU disclosure coming: management aims to simplify to a “volume × price” model and will start sharing effective PPU next quarter; early indicators show higher connected rates and price per unit .
Fixed license timing/discounts: Q2 fixed licenses opportunistically executed with record‑low discounts and right partners; no further fixed assumed for FY25 .
Competitive landscape: competing vs big tech (Google/Amazon), peers (SoundHound), and DIY; Cerence emphasizes neutrality, customization (incl. private LLMs), and strong embedded capabilities .
China/market share: Share relatively flat among Western OEMs; limited success in China domestic market to date; some relationships with Chinese OEMs outside China; recent China cloud winback .
Professional Services: revenue trending down by design; margins improved above 30%; Q2 absorbs ~$2M PS headwind .
Tariffs: exposure is purely unit‑volume; current pause limits near‑term effect; will update in May if needed .
Liquidity/notes: comfortable with potential post‑payoff cash floor “north of $70M”; evaluating best capital structure .

Estimates Context

Wall Street consensus from S&P Global was unavailable at the time of retrieval (API limit), so we cannot provide definitive consensus comparisons for Q1 actuals or Q2 outlook at this time.*
As context, management noted on Nov 21 that “the Street consensus for Q1 FY25 revenue is $57M” and FY25 revenue $234M; Q1 actual revenue of $50.9M came in below that prior revenue consensus reference, reflecting no fixed licenses in Q1 and timing effects, but above company guidance .
Given Q2 guidance includes ~$20M fixed licenses, estimate revisions may shift toward the high end for Q2 revenue and margins; management also pointed to potential upper‑end FY25 adj. EBITDA/FCF outcomes .

*Estimates unavailable via S&P Global due to temporary access limits.

Key Takeaways for Investors

Execution beat: Q1 cleared the high end of both revenue and adjusted EBITDA guidance with positive FCF, underpinned by mix and cost controls .
Q2 setup: Guidance embeds ~~$20M fixed license revenue and stronger margins; watch PS headwind (~~$2M) and timing dynamics; no further fixed assumed for FY25 beyond Q2 .
AI roadmap gaining proof points: POCs, first XUI Gen1 program, and NVIDIA collaboration de‑risk the tech path; additional design wins and SOPs broaden revenue visibility into FY26 .
Cost transformation traction: Non‑GAAP opex down 23% YoY; additional process/contract simplification could add FY26 benefits; near‑term profitability bias to the upside vs initial plan .
Balance sheet de‑risk: ~$27M converts repurchased; plan to resolve remaining ~$60M by June via cash/financing while maintaining liquidity .
Watch China/mix risk: penetration down to 51% TTM as China’s in‑country mix rises; any inroads domestically in China would be a structural positive .
Potential stock catalysts: delivery of Q2 fixed licenses, more GenAI/XUI wins/SOPs, convert resolution, and any upward bias to FY25 adj. EBITDA/FCF at May update (management aiming for upper end) .

Appendix: Additional Data Points

Segment drivers in Q1 FY25: License $22.7M; Connected $13.7M (includes ~$2.0M true-up); Professional Services $14.5M .
Free Cash Flow Q1 FY25: $7.9M; Cash & equivalents $104.1M; Total cash & marketable securities ~$108.0M .
Guidance reconciliation tables (GAAP→Non‑GAAP) provided in 8‑K Exhibits 99.1/99.2 .

Cerence Inc. (CRNC)·Q1 2025 Earnings Summary