Cerence (CRNC)·Q1 2026 Earnings Summary

Cerence Beats EBITDA on Samsung Patent Win, But After-Hours Slide Signals Investor Concerns

February 4, 2026 · by Fintool AI Agent

Cerence (CRNC) reported Q1 FY26 results that came in within guidance on revenue while significantly beating on profitability, driven by the previously announced $49.5M Samsung patent settlement. However, the stock dropped 13% in after-hours trading as investors digested softer Q2 guidance that strips out the one-time payment and returns to normalized run-rates.

Did Cerence Beat Earnings?

Cerence delivered a mixed quarter that requires nuance to interpret:

The headline revenue number includes the $49.5M one-time Samsung patent settlement, which was expected and disclosed last quarter. Stripping that out, core revenue was approximately $65.6M, up 29% YoY from $50.9M in Q1 FY25.

The real beat came on profitability: Adjusted EBITDA of $44.6M exceeded the high-end of guidance by $4.6M, reflecting strong operating leverage as the Samsung revenue flowed through at high margins.

What's Driving the Revenue?

The quarter's revenue composition tells an important story about Cerence's diversifying business model:

Key takeaways from the revenue breakdown:

1. IP Monetization is Working: The Samsung settlement validates CEO Brian Krzanich's IP monetization strategy, representing "an important validation of the strength and breadth of our IP portfolio and a strong proof point for the applicability of our technology across multiple industries."

2. Core License Business Growing: Variable license revenue grew 34% YoY, driven by steady customer utilization, more in-period shipment recognition, and continued adoption. Pro forma royalties were $39.8M for the quarter.

3. Connected Services Expanding: Connected services revenue of $14.5M was up 6% YoY despite a $2M true-up benefit in the prior year. Excluding that, connected services would have grown over 20% YoY. This recurring revenue stream remains a key pillar of long-term growth.

4. Professional Services Declining by Design: The 12% decline reflects continued focus on standardization, scalability, and margin improvement.

How Did the Stock React?

CRNC's stock reaction was bifurcated:

The after-hours selloff reflects several concerns:

1. Q2 Guidance Reset: With the Samsung payment behind them, Q2 revenue guidance of $58-62M represents a sharp sequential decline and only modest YoY growth.

2. Valuation Concerns: At ~$485M market cap, CRNC trades at ~1.5x forward revenue — not expensive, but investors may be questioning the sustainability of the IP monetization tailwind.

3. Automotive Headwinds: Despite strong results, the auto industry remains challenging with ongoing production curtailment risks and pricing pressure from OEMs.

Year-to-date, CRNC is down 6.7%, underperforming broader tech indices. The stock is trading 36% below its 52-week high of $16.74.

What Did Management Guide?

Management reiterated full-year FY26 guidance and provided Q2 outlook:

Key guidance observations:

• Q2 is a trough quarter: Adjusted EBITDA guidance of $2-6M is dramatically lower than Q1's $44.6M, reflecting the absence of one-time patent revenue. Q2 revenue guidance also reflects less fixed license revenue than Q2 last year, when virtually all of FY25's fixed license deals were recorded.

• FY26 guidance reaffirmed with confidence: Management noted Q1 outperformance provides "much confidence in achieving the full-year EBITDA estimate." Some Q1 expense savings represent timing deferrals into later quarters.

• Tax Rate Complexity: CFO Rodriguez explained the 117% effective tax rate is driven by a set amount of foreign withholding taxes (~$18-22M for the year, including Korean withholding on the Samsung settlement) against near-breakeven pre-tax income. This creates a mathematically high rate that isn't reflective of a typical tax structure.

What Changed From Last Quarter?

Notable shifts:

1. Debt Paydown Continues: In Q1, Cerence repurchased $30M in principal value of 2028 convertible notes at a discount to par using $37.9M of cash from operations.

2. Samsung Legal Costs Better Than Expected: The EBITDA beat was partly driven by $4M in lower-than-anticipated legal costs associated with the Samsung settlement, as fees were on a contingent basis.

3. XUI Progress: Cerence now has five XUI programs in progress with major automakers, with the first xUI-powered cars expected to hit roads in calendar 2026. Three of the five deals are with Western/classic OEMs, with strong pipeline of additional Western OEM discussions underway.

4. New AI Agents Launched: Q1 saw the completion of several new AI agents fully integrated into XUI:

   • Mobile Work AI Agent (with Microsoft): Turns the car into a trusted device with voice-first access to Microsoft 365 Copilot, Teams, Outlook, and OneNote
   • Dealer Assist Agent: Automates dealership sales and service workflows (lead capture, test drives, service scheduling)
   • Ownership Companion Agent: Provides always-on diagnostics, maintenance guidance, and instant service booking

Key KPIs and Operational Metrics

The operational metrics paint a picture of a business holding share in a challenging market while successfully driving connected services adoption — a higher-value, recurring revenue stream. Management noted PPU is expected to increase by the end of fiscal 2026 as XUI programs ramp.

Q&A Highlights

The earnings call Q&A provided additional color on key investor topics:

On the Microsoft Mobile Work Agent (Jeff Van Rhee, Craig-Hallum):

CEO Brian Krzanich highlighted strong demand for the Microsoft 365 integration, noting it's cloud-based and doesn't require XUI, meaning it can be deployed on existing vehicles that are 2-3 years old with connected capability.

"We have OEMs coming to us and saying they'd like to put this on vehicles back 2 and 3 years. So it's quite positive... it will add to our PPU." — Brian Krzanich

On Western vs. Chinese OEM Pipeline (Mark Delaney, Goldman Sachs):

Three of the five XUI deals are with Western/classic OEMs, and management sees no significant difference in time-to-market between Western and Chinese OEMs.

"The Western OEMs are becoming — especially the leading ones — more and more aggressive about their timing and bringing this stuff to production." — Brian Krzanich

On Competitive Positioning (Itay Michaeli, TD Cowen):

Krzanich explained that wins are coming down to technology capability, team confidence, and customization flexibility rather than price. The ability to demonstrate live, fully-functional XUI at CES gave OEMs confidence in delivery.

"It really comes down to the technology and the team and less about the price. And that's really how we win." — Brian Krzanich

On EBITDA Beat Drivers (Tony Rodriguez, CFO):

The $4.6M EBITDA beat was driven by two factors: (1) ~$4M in lower legal costs due to contingent fee structure on the Samsung settlement, and (2) timing of R&D projects that deferred some compensation expense.

What's Next for Cerence?

Near-term catalysts to watch:

1. CES 2026 Success: Completed in January, Cerence showcased XUI running live in a Geely vehicle — the first public demonstration of a near-production car powered by XUI. The company was named Gizmodo's "Best In-Vehicle Assistant" in its Best of CES 2026 awards.

2. IP Litigation Progress: Active suits against Apple, TCL, and Sony could yield additional settlements. Management emphasized this is a multi-year strategy.

3. XUI Production Launches: All five XUI programs are on track to hit the road during calendar 2026 with strong PPU growth. JLR and VW Group are targeting late summer, with revenue ramping in the back half.

4. New Customer Wins in Q1:

   • GM audio AI competitive winback bringing speech signal enhancement to GM's next-gen infotainment across all brands
   • Mercedes-Benz upgrade to latest Neural TTS
   • HKMC expansion for generative AI apps (Chat Pro, Car Knowledge) to additional countries
   • Eight programs started production including BYD, GWM, HKMC, and trucking programs with Scania and Ford trucks

5. Non-Automotive Expansion: At CES, Cerence met with new customers in industries beyond auto, including a leading digital signage player interested in integrating Cerence solutions across their portfolio. Awards expected through Q2 and beyond.

6. Roth Conference: Cerence will participate in the 38th Annual Roth Conference March 20-24.

Bottom Line

Cerence delivered exactly what it promised for Q1 FY26 — the Samsung settlement flowed through as expected, and the core business showed healthy underlying growth. The 27% EBITDA beat demonstrates strong operating leverage when high-margin IP revenue is in the mix.

CEO Krzanich closed the call with confidence:

"I think [the XUI deals] are clear indicators of the power of the technology and our ability to compete in this marketplace against whoever our competitors are at the time... We're set up for a great Q2."

However, the after-hours selloff (-13%) suggests investors are concerned about the path forward. Q2 guidance of $58-62M revenue and just $2-6M Adjusted EBITDA represents a significant step-down, and the stock's performance will likely depend on:

1. Evidence of XUI traction driving PPU expansion — management confirmed all five XUI programs have PPUs higher than the current ~$5 run rate
2. Progress on IP litigation against Apple, TCL, and Sony
3. Connected services growth sustaining the 14% TTM pace
4. Microsoft Mobile Work Agent adoption — can go on existing vehicles and represents incremental revenue

At $9.37 after-hours (if it holds), CRNC trades at just 1.3x EV/Revenue on FY26 guidance midpoint — cheap for a company with a clear path to profitability and potential IP optionality. But with competition from Google and Amazon intensifying, execution risk remains elevated.

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Related: Cerence Company Profile | Q4 FY25 Earnings Transcript