Executive Summary

Cerence’s Q3 FY25 beat the high end of guidance: revenue $62.2M and Adjusted EBITDA $9.0M; fifth straight quarter of positive free cash flow ($16.1M). Management raised and narrowed FY25 outlook for revenue ($244–$249M), Adjusted EBITDA ($42–$46M) and free cash flow ($38–$42M) .
Revenue quality improved: $0 fixed-license revenue in Q3 vs $20M a year ago; variable license revenue rose to $34.2M as OEM volumes and FX (EUR) aided results; connected services grew 17% YoY to $12.8M .
S&P Global consensus context: Q3 revenue beat by ~$7.4M ($62.24M vs $54.83M*), and Primary EPS (S&P basis) was positive ($0.12* vs -$0.10*). FY raise plus clean variable mix were likely positive catalysts* [Values retrieved from S&P Global].
Guidance frames a softer Q4 on seasonality and pull-forward: Q4 revenue $53–$58M, GM 68–69%, Adj. EBITDA $2–$6M; management cited Q3 pull-ins ahead of potential tariffs and expects no material fixed-license revenue in Q4 .
Strategic momentum: design win within VW Group for xUI, expanded JLR work; KPI traction (TTM attach rate up to 31%, PPU $4.91) supports pricing power and connected mix; non-auto wins (LG TVs) and IP enforcement (ITC complaints, Apple suit) broaden narrative .

What Went Well and What Went Wrong

What Went Well

Revenue and profit exceeded guidance; free cash flow remained positive for the fifth consecutive quarter. “We exceeded the high end of our guidance with revenue of $62.2M and Adjusted EBITDA of $9.0M… generated strong free cash flow of $16.1M.” – CEO Brian Krzanich .
Variable-license strength with cleaner mix: variable license revenue reached $34.2M (+48% YoY), with zero fixed-license revenue this quarter; connected services rose to $12.8M (+17% YoY) .
Strategic/customer momentum: xUI win within Volkswagen Group and expanded JLR work; six major customer programs started production; PPU TTM rose to $4.91 (from $4.47) as attach rates climbed to 31% (vs 27% a year ago) .

What Went Wrong

Top line down YoY due to prior-year fixed-license compare: Q3 revenue $62.2M vs $70.5M in Q3 FY24 given $20M fixed license in prior-year quarter .
Sequential step-down expected in Q4: guide implies ~7%–15% QoQ revenue decline as some Q3 volume pulled forward ahead of tariff uncertainty; no material fixed-license revenue anticipated in Q4 .
Ongoing macro/program timing risks: management noted pricing discussions with OEMs, program push-outs, and IHS indicating lower Q4 auto production; though FY outlook was raised, near-term volumes remain sensitive to macro and tariffs .

Financial Results

Headline metrics vs prior quarters (GAAP unless noted)

Metric	Q1 FY25	Q2 FY25	Q3 FY25
Revenue ($M)	$50.9	$78.0	$62.2
Gross Margin (%)	65.0%	77.1%	73.7%
Net Income (Loss) ($M)	$(24.3)	$21.7	$(2.7)
Diluted EPS ($)	$(0.57)	$0.46	$(0.06)
Adjusted EBITDA ($M)	$1.4	$29.5	$9.0
Net Cash from Ops ($M)	$9.3	$15.5	$23.7
Free Cash Flow ($M)	$7.9	$13.1	$16.1

Notes:

Q2 included $21.5M fixed-license revenue; Q3 included $0.0M .

Revenue by line item

Revenue ($M)	Q1 FY25	Q2 FY25	Q3 FY25
License	$22.7	$51.5	$34.2
Connected Services	$13.7	$12.6	$12.8
Professional Services	$14.5	$13.9	$15.2
Total	$50.9	$78.0	$62.2

Additional context:

Fixed-license revenue: Q1 $0.0M (no material) , Q2 $21.5M , Q3 $0.0M .
Variable license revenue (disclosed metric): Q3 $34.2M; Q2 $29.9M; Q1 $22.7M .

KPIs and operating metrics

KPI	Q1 FY25	Q2 FY25	Q3 FY25
Percent of worldwide auto production with Cerence tech (TTM)	51%	51%	52%
Pro Forma Royalties ($M)	$36.7	$39.7	$43.2
Consumption of Fixed Contracts ($M)	$14.0	$9.7	$9.1
Average PPU (TTM, $)	—	$4.87	$4.91

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($M)	FY25	$236–$247	$244–$249	Raised & narrowed
Adjusted EBITDA ($M)	FY25	$28–$34	$42–$46	Raised & narrowed
Net Loss ($M)	FY25	$(35) – $(29)	$(28) – $(24)	Less negative
Net Cash from Ops ($M)	FY25	$39–$45	$48–$50	Raised
Free Cash Flow ($M)	FY25	$25–$35	$38–$42	Raised
Gross Margin (%)	FY25	67%–69% (implied from reconciliations)	72%	Higher
Non-GAAP Total OpEx ($M)	FY25	$144.8–$145.8 (not previously disclosed)	$144.8–$145.8	N/A
Provision for Income Taxes ($M)	FY25	N/A	$9.4	New detail
Revenue ($M)	Q4 FY25	N/A	$53–$58	New
Gross Margin (%)	Q4 FY25	N/A	68%–69%	New
GAAP Net Loss ($M)	Q4 FY25	N/A	$(22) – $(18)	New
Adjusted EBITDA ($M)	Q4 FY25	N/A	$2–$6	New

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3)	Trend
AI/xUI platform progress	xUI launched/advanced; POCs; NVIDIA/Microsoft partnerships; multimodal edge demos at Auto Shanghai	VW Group brand win on xUI; expanded JLR; agentic AI roadmap on schedule; September showcase planned	Improving
Connected adoption & PPU	TTM PPU disclosed at $4.87; connected cars up; attach ~29% in Q2 (quarter)	TTM PPU $4.91; connected attach TTM 31%; 12M units shipped Q3	Improving
Tariffs/macro & volumes	Tariffs seen limited in Q2; monitoring; customers seeking pricing; Q3 guide assumed minimal tariff impact	Some Q3 pull-forward ahead of tariffs; Q4 seasonally lower and no fixed deals; IHS projects lower Q4 auto prod	Mixed/Headwind near term
Pricing & program timing	Pricing pressure discussions; aiming for win-win via broader scope; some PS softness	Pricing talks continue without broad cuts; some program push-outs; holding share; in finals on RFQs	Stable
Non-automotive expansion	Disclosed pipeline (kiosks, other verticals) with partners; TV/MBUX examples	LG TV voice globally; new VW IDA enhancement; SiMa.ai hardware partnership announced later in Q4	Building
IP enforcement	Active actions vs Samsung; filed against Microsoft/Nuance in Q2	Filed ITC complaint vs Sony/TCL; filed patent suit vs Apple	Intensifying
Cost discipline & cash	Restructuring savings; free cash flow inflecting; repay 2025 converts	Fifth straight positive FCF; cash+securities $79M after paying 2025 notes; no intent to add debt	Improving

Management Commentary

“We exceeded the high end of our guidance with revenue of $62.2M and Adjusted EBITDA of $9.0M… Based on our strong performance in Q3 and our guidance for Q4, we are raising and narrowing full fiscal year revenue guidance to $244 to $249 million, as well as raising guidance for Adjusted EBITDA and free cash flow.” – CEO Brian Krzanich .
“Variable license revenue was $34.2M up 48% year over year… we recognized no fixed license revenue this quarter compared to $20M in Q3 last year… higher-than-expected volumes, possibly due to manufacturers producing ahead of potential tariff impacts, and benefit from favorable exchange rates.” – CFO Tony Rodriquez .
“In fiscal Q3, we signed a deal within the Volkswagen Group for one of its brands to have xUI as the basis of its next gen system… expanded our work with JLR… increased PPU with these deals; robust pipeline of POCs across North America, German, Japanese, and Chinese OEMs.” – CEO Brian Krzanich .
“We ended the quarter with $79+ million in cash and marketable securities… comfortable operating at this level with expectation of continued positive cash flow… absolutely not [adding debt].” – CFO Tony Rodriquez .
“We continue to see strong customer interest in xUI… our Calm family of proprietary language models is critical… an orchestrator enabling consistent behavior across agents.” – CEO Brian Krzanich .

Q&A Highlights

PPU and revenue drivers: Management noted PPU uplift is driven by greater connected adoption and feature take rates; true-ups were “across the board” but not material for any single customer; FX tailwinds from EUR also helped .
Q4 sequential guide and pull-forward: Some Q4 production was pulled into Q3 ahead of tariff timing; IHS volume expectations and reduced true-ups inform Q4 revenue range; no fixed-license revenue planned in Q4 .
Capital and debt: Company finished paying 2025 converts; comfortable at ~$79M cash and securities and targets continued positive cash flow; no plan to add debt, may consider opportunistic 2028 convert actions .
Pricing and share: Ongoing pricing discussions structured as broader scope for lower unit cost; no major competitive losses; in final rounds on RFQs; overall share “flat” in core Western OEMs .
Fixed-license consumption: Running ~$9M per quarter in H2; as fixed-license volume declines structurally, more variable shipments drop into in-period revenue .

Estimates Context

Metric	Consensus (Q3 FY25)	Actual (Q3 FY25)	Surprise
Revenue ($M)	$54.83*	$62.24*	Beat by ~$7.41M (~13.5%)*
Primary EPS (S&P, $)	-0.10*	0.12*	Beat by ~+$0.21*
EBITDA ($M, S&P)	$0.98*	$2.62*	Beat*

Number of estimates: EPS 4; Revenue 6*.
Notes: Primary EPS and EBITDA figures reflect S&P Global “Primary”/consensus methodologies and may differ from GAAP or company-adjusted disclosures. Values retrieved from S&P Global.*

Key Takeaways for Investors

Mix quality is improving: zero fixed licenses in Q3 with strong variable and connected performance; supports durability of revenue and cleaner conversion to margins .
FY25 outlook raised across revenue, profitability, and cash, despite near‑term macro/seasonality—suggests execution resilience and expense control traction .
xUI momentum and attach-rate gains underpin long-term PPU expansion; VW/JLR activity and LG TV win broaden platform relevance in and beyond auto .
Near-term watch items: Q4 seasonal dip and potential residual tariff/macro effects; limited fixed-license revenue expected; monitor auto production and FX .
Cash profile healthier post-2025 convert payoff; mgmt not inclined to add debt; optionality around 2028 converts as markets evolve .
IP enforcement (Sony/TCL ITC, Apple suit) introduces optionalities/risks; not in base outlook but could impact sentiment and long-term economics .
For modeling: assume lower fixed-license run-rate (~$20M/year historically, concentrated in Q2) and higher variable/connected contribution; Q4 guide embeds lower volumes and no material fixed deals .

Guidance Changes – Detailed (Reference)

Q4 FY25: Revenue $53–$58M; GM 68–69%; GAAP net loss $(22)–$(18)M; Adj. EBITDA $2–$6M; no material fixed-license revenue expected .
FY25: Revenue $244–$249M; GM 72%; GAAP net loss $(28)–$(24)M; Adj. EBITDA $42–$46M; Net cash from ops $48–$50M; FCF $38–$42M; Non‑GAAP OpEx $144.8–$145.8M; tax provision $9.4M .

Additional Relevant Disclosures and Press Releases

Volkswagen Group in-car assistant enhancements powered by Cerence Chat Pro (multi-turn, natural interactions) .
ITC complaint vs Sony/TCL to block import of infringing smart TVs; district cases also filed .
Patent infringement lawsuit filed against Apple covering text input/recognition and voice command monitoring .
LG partnership: Cerence TTS across global TV lineup; accessibility and natural interactions at scale .

S&P Global estimates disclaimer: Asterisked values (*) in the “Estimates Context” section are retrieved from S&P Global consensus via the tool and may reflect S&P “Primary”/normalized definitions rather than GAAP.

Cerence Inc. (CRNC)·Q3 2025 Earnings Summary