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Date

Thursday, May 7, 2026 at 4:30 p.m. ET

Call participants

  • Chief Executive Officer — Brian Krzanich
  • Chief Financial Officer — Tony Rodriguez
  • Chief Revenue Officer — Christian Mentz

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Takeaways

  • Total revenue -- $64.2 million, exceeding the high end of the $58 million to $62 million guidance range.
  • Adjusted EBITDA -- $7.2 million, above the upper end of the $2 million to $6 million guidance range.
  • Free cash flow -- $13.6 million, with guidance for the full year raised by $10 million, an increase of 16% at midpoint.
  • Variable license revenue -- $31.8 million, representing a 6% year-over-year increase.
  • Connected services revenue -- $15.3 million, up 21% year over year due to a higher attach rate and expanded connected installed base.
  • Professional services revenue -- $11.3 million, a 19% year-over-year decrease attributed to standardization efforts and revenue deferrals from bundled deals.
  • Fixed license revenue -- $5.8 million, down from $21.5 million in the prior year period; management stated this is due to contract timing, expecting full-year results to remain consistent with the prior year.
  • Gross margin -- 74%, compared to 77% in the prior year, primarily affected by a lower mix of fixed license revenue.
  • Non-GAAP operating expenses -- $43.3 million, with R&D expense rising to $27.5 million mainly from lower software capitalization and difficult year-over-year comparisons.
  • GAAP net income -- $1.7 million, versus $21.7 million in the prior period.
  • Diluted EPS -- $0.04, compared to $0.46 in the prior year period.
  • Cars produced with Cerence technology -- 11.3 million units this quarter, compared to 11.6 million in the prior period.
  • Connected cars shipped -- Increased by 12% on a trailing twelve-month basis.
  • Auto production penetration -- 50% of worldwide auto production featured Cerence technology, matching historical levels.
  • Adjusted total billings -- $239 million, a 7% increase year over year.
  • Pro forma royalties -- $40.3 million, up from $39.7 million in the prior year period.
  • Five-year backlog -- $971 million, up from $960 million a year ago but slightly down from year-end due to timing of contract finalization.
  • PPU (price per unit) -- $5.09 on a trailing twelve-month basis, a 5% year-over-year increase.
  • Q3 2026 guidance -- Revenue of $68 million to $72 million, gross margin of 75% to 76%, adjusted EBITDA of $8 million to $12 million, net income between -$1 million and $3 million, and EPS between -$0.02 and $0.07.
  • Fiscal year 2026 guidance -- Revenue projected at $305 million to $320 million (midpoint $312.5 million); gross margin range reaffirmed at 79% to 80%; adjusted EBITDA expected at $60 million to $70 million (midpoint increased by 8%); net income guided to -$3 million to $7 million and EPS to -$0.07 to $0.15; free cash flow guidance set at $66 million to $76 million.
  • XUI wins -- Cerence (CRNC +3.44%) secured BYD as a new customer with XUI systems now in production, in addition to contracts with JLR, Geely, and a multiyear multiplatform win-back from a Japanese automaker previously using a hyperscaler.
  • Audio AI and GenAI adoption -- Cerence signed Audio AI deals in Q2 with BMW, Ferrari, and Suzuki India, and expanded GenAI-based platform deployments including Toyota Europe and JLR's over-the-air GenAI update.
  • Intellectual property enforcement -- Cerence recently filed a patent infringement action against Amazon and confirmed ongoing matters with Apple, Sony, and TCL, with no near-term IP revenue expected but court dates set for late calendar 2026.

Summary

Cerence (CRNC +3.44%) reported both revenue and adjusted EBITDA above guidance, driven by growth in variable license and connected services revenue, amid lower fixed license and professional services contributions. Management disclosed new XUI program wins including BYD and a major Japanese automaker, noting that recently signed deals carry higher PPUs and are expected to contribute materially from fiscal 2027 onward. The company affirmed disciplined cost management, with the rise in R&D expenses attributed to lower capitalization rates rather than new hiring or investment. Gross margin decreased due to product mix, while cash flow performance led to an increased full-year free cash flow outlook. No IP revenue was realized in the quarter, but management emphasized active litigation as part of a long-term strategy and disclosed increased legal expenses were built into full-year projections.

  • Brian Krzanich highlighted a robust automotive software pipeline, stating, "We have said there have been six bids and we have five wins so far. If we close another this quarter, that would be six out of seven."
  • The company confirmed its five-year backlog does not yet reflect all recent contract wins due to the timing of contract finalization.
  • Early XUI revenue ramp is underway, with significant contributions expected next year as deployments expand and revenue recognition shifts from billings to revenue over time.
  • Outside automotive, management reiterated focus on select verticals, with small initial financial contribution from non-auto markets expected by fiscal year-end, aligning with stated guidance.

Industry glossary

  • XUI: Cerence’s next-generation user interface, a customizable in-vehicle AI and conversational interface platform for automotive OEMs.
  • PPU: Price per unit; the average royalty fee Cerence receives for each car produced with its technology.
  • OEM: Original equipment manufacturer; an automaker or vehicle producer employing Cerence’s technologies in its vehicles.
  • POC: Proof of concept; an initial project validating technology use for a prospective customer.
  • RFQ: Request for quotation; a procurement document inviting suppliers to bid for providing products or services.
  • SOP: Start of production; point at which production of vehicles or systems commences.
  • GenAI: Generative artificial intelligence; AI that produces generated content, such as vehicle voice assistants utilizing large language models.
  • LLM: Large language model; AI model trained on extensive datasets to understand and produce human language.
  • SLM: Small language model; a less resource-intensive language model optimized for specialized or limited computing environments.
  • NRE: Non-recurring engineering; one-time engineering fees for developing custom software or systems.

Full Conference Call Transcript

Joining me on today’s call are Brian Krzanich, CEO, and Tony Rodriguez, CFO. In order to provide expanded access to our leadership team, we will also be joined by Christian Mentz, our Chief Revenue Officer, for the Q&A portion of the call. Please note that slides with further context are available in the Investors section of our website. Before handing the call over to Brian, I would like to mention that we will be participating in the TD Cowen 54th Annual Technology, Media, and Telecom Conference on 05/27/2026. Now onto the call. Brian?

Brian Krzanich: Thank you, Kate, and good afternoon, everyone. Starting with the key results for our fiscal second quarter, we delivered another strong quarter with revenue of $64.2 million and adjusted EBITDA of $7.2 million, both above the high end of our guidance. Free cash flow came in at $13.6 million. These results reflect both disciplined execution and continued stability in our core automotive business. As usual, Tony will provide more detail shortly. Before we dig into the quarter, I would like to discuss some of the recent market moves in the AI and software space, why Cerence Inc. is in a unique position, and why our customers continue to choose us.

Our technology excels in the automotive environment, where reliability, safety, and deep integration matter. Cerence Inc.’s AI solutions are fully customizable, flexible, and deeply integrated with one of the most complex technical environments on the planet: the car. The environment requires a thoughtful, optimized orchestration of LLMs, SLMs, and edge/cloud inference, giving drivers seamless access to whatever they need regardless of connectivity. Cerence Inc. is differentiated in our ability to deliver this and our unique domain expertise and experience integrating into vehicles. Our broad AI-native tech portfolio of both embedded and cloud solutions, backed by our proprietary automotive-specific data set and our skilled team, also differentiates us from competitors.

Plus, we have a flexible architecture that gives our customers the freedom to leverage the latest AI innovation, including from partners like NVIDIA and Microsoft, while helping future-proof their products by not locking them into one ecosystem or model. We know that three years from now, today’s best general-purpose LLM or parking agent is likely not the one that will lead then. With Cerence Inc. AI, our customers can easily evolve their offering to best serve their end users. This is what sets us apart from general-purpose AI models. That is why we continue to secure major wins across our portfolio against technology and platform providers, big tech, and hyperscalers.

As I mentioned last quarter, we have three key priorities for 2026: first, advancing our business through leading technology; second, maintaining our cost diligence; and third, driving profitable top-line growth. We continue to see strong momentum for Cerence Inc. XUI. In addition to JLR, a VW Group brand, and Geely, I can now also name BYD, a major Chinese automaker, as a new customer leveraging XUI for its overseas programs. BYD is also the first to start production, with cars rolling off the lines as we speak—a very exciting milestone for our team. I can also provide more detail on the major global automaker we mentioned on last week’s orders call.

This is a multiyear, multiplatform contract with a Japanese automaker with significant volume and, importantly, a win-back from a hyperscaler. These wins speak volumes about our technology and team. We are encouraged by the strong economics—programs signed to date carry PPUs that exceed our current run rate, reinforcing both the value of our platform and OEMs’ desire to invest in next-generation in-vehicle experiences. We also have additional opportunities in late-stage discussions and a strong pipeline of RFQs and POCs. With the strong win rate we have seen thus far for XUI deals, we believe we will continue to see success in these pending opportunities.

From an XUI revenue standpoint, billings are already ramping up, with more revenue to flow in fiscal year 2027 and beyond. Importantly, this timing is consistent with our expectation that the transition to XUI will be a multiyear rollout. As Tony will explain, some recent wins are not yet reflected in backlog as contracting and implementation need to be finalized. Outside of XUI, we have a broad, sticky technology portfolio that keeps us deeply embedded with OEMs and integrated with their platforms, even if they split their sourcing and go in a different direction for their voice stack. A good example is our Audio AI suite.

We signed Audio AI deals with several OEMs in Q1, including GM, Mercedes-Benz, and Toyota. Our progress continued in Q2 with several significant wins, including BMW, Ferrari, and Suzuki India—maintaining our position in these programs, keeping our seat at the table, and securing recurring business even when coexisting with competitors, giving us the opportunity to expand over time. We also signed a new program with Toyota Europe that includes adding generative AI capabilities to their existing Cerence Inc. Assistant-based platform, demonstrating that our GenAI solutions like ChatPro continue to serve as a strong option for OEMs to bring LLM-based capabilities into the car.

In addition to the BYD XUI program starting production, several learnable programs leveraging tech across our portfolio also started production this quarter. JLR went live with ChatPro via an over-the-air update, bringing GenAI to cars already on the road as they continue developing their future platform based on Next UI. We also expanded our presence in smart brand vehicles with the addition of our GenAI-powered car knowledge solution to their existing Cerence Inc.-based platform. Other key starts of production include Toyota, Renault, Changan Mazda, Audi, HKMC, Great Wall Motor, Mercedes-Benz, Subaru, and Geely.

Outside of automotive, consistent with what we have said in the past, we are concentrating our efforts on high-value verticals where our strength in edge solutions, quality, reliability, privacy, and a domain-focused approach matter most, and where we believe we have a clear right to win. Specifically, we are prioritizing dealership AI, commercial and industrial operations, and select IoT and robotics applications. Rather than selling voice as a standalone component, our approach is to deliver full vertical solutions combining voice, LLMs and SLMs, orchestration, and workflow integration into purpose-built vertical packs.

In terms of go-to-market, we are scaling responsibly through a mix of direct engagement with our core verticals and distributor-led expansion in areas like kiosks, logistics, and defense, where we leverage existing partners for broader domain reach and co-sell leverage. We are encouraged by early customer traction and continue to believe the initial financial contribution from non-automotive markets will begin as we exit fiscal year 2026, consistent with our prior guidance. To update our intellectual property strategy and ongoing enforcement efforts, earlier this week we filed a patent infringement action against Amazon, reflecting our conviction in the strength and breadth of our patent portfolio.

We have invested for years to develop this foundational IP embedded in and underpinning our core voice and conversational AI technologies deployed across our products and customer programs. We actively protect and commercialize this technology as part of the ordinary course of business. When we identify unauthorized use, we will pursue appropriate remedies to enforce our rights, protect our platform, and safeguard the value of our innovation. While the timing of IP-related outcomes can be difficult to project on a quarterly basis, we view these efforts as an integral part of sustaining and enhancing our operational business over the long term.

Turning to our outlook: for Q3, we expect revenue between $68 and $72 million and adjusted EBITDA between $8 and $12 million. For the full year, we are raising the midpoint for both revenue and adjusted EBITDA guidance. We now expect revenue to be in the range of $305 to $320 million and adjusted EBITDA to be in the range of $60 to $70 million, and we are raising our free cash flow guidance by $10 million, a 16% increase at the midpoint. Tony will provide further details. We are pleased with our results this quarter.

As we reach the midpoint of fiscal year 2026, I want to close my section by anchoring on four strong value drivers we continue to see for Cerence Inc. AI. First, Cerence Inc. plays a key role in the automotive AI stack and across the global automotive ecosystem, creating durable recurring revenue. Our long-term relationships with global automakers enable us to drive growth in our core business by expanding within existing platforms and transitioning OEMs to XUI over time. Second, our XUI wins will drive PPU growth as they scale, which will drive increased total company growth over time.

Third, we continue to deliver strong free cash flow while maintaining our focus on disciplined capital allocation; our business model supports debt reduction, balance sheet strength, and strategic and operational flexibility. And lastly, we are driving new income streams. As discussed previously, our expansion outside automotive and our IP enforcement efforts are expected to be long-term sources of potential incremental value creation. With that, I will turn it over to Tony.

Tony Rodriguez: Thank you, Brian. Good afternoon, everyone, and thank you for joining us today. We appreciate your continued interest in Cerence Inc. I will walk through our second quarter fiscal 2026 results, highlight key drivers for the quarter, and then share our outlook for the remainder of the year. For the quarter, total revenue was $64.2 million, exceeding the high end of our guidance range of $58 to $62 million. The variance from $78 million reported in the prior year period was primarily attributable to the timing of fixed license contract execution rather than any change in underlying demand.

Notably, our core technology business remains resilient, highlighted by steady variable license revenue and continued growth in our recurring connected services revenue, reinforcing the strength and durability of our business model. Variable license revenue for the quarter was $31.8 million, a 6% year-over-year increase, reflecting steady customer utilization and consistent program performance. Connected services revenue was $15.3 million, up 21% year-over-year, driven by continued expansion of our connected installed base through a higher attach rate. This growth underscores the increasing importance of recurring revenue within our business model and provides improved visibility into future performance.

Professional services revenue was $11.3 million, down 19% year-over-year, reflecting our continued focus on standardization and higher-margin implementations, as well as the impact of revenue deferrals when services are bundled with license arrangements. Fixed license revenue was $5.8 million this quarter, compared to $21.5 million in the prior year period. As discussed, fixed license revenue can vary quarter to quarter based on timing of contract execution. The prior year quarter included a higher level of fixed license agreements, creating a difficult year-over-year comparison.

Taking into account year-to-date performance and our current expectations for the remainder of the year, we continue to expect full-year fixed license revenue to be comparable to the prior year, and we view this quarterly variance as timing-related rather than structural. Gross margin for the quarter was 74%, compared to 77% in the prior year period. The decline was primarily driven by lower fixed license revenue mix, partially offset by continued discipline across cost of revenue. Total non-GAAP operating expenses were $43.3 million, compared to $34.1 million in the prior year period. R&D expense increased to $27.5 million, reflecting lower capitalization of internally developed software and lower technology cost of goods sold rather than an increase in overall investment.

Additionally, the prior year quarter benefited from a $2.1 million R&D tax credit catch-up, creating a difficult comparison. Importantly, overall, total technology spending remains stable. Sales and marketing expense was $5.1 million, driven by higher employee-related costs and marketing activities consistent with continued investment to support our customer base and long-term growth initiatives. G&A expense was $10.7 million, reflecting normalized general operating costs as well as additional legal expenses associated with our ongoing efforts to protect, enforce, and license our IP portfolio.

As discussed previously, the prior quarter included elevated legal costs related to the execution of the Samsung patent license agreement, and as Brian noted, we continue to view IP licensing and enforcement as a long-term value driver rather than a near-term factor. Despite increased expenses, adjusted EBITDA for Q2 was $7.2 million, exceeding the upper end of our guidance range of $2 to $6 million. From a GAAP profitability perspective, net income and EPS were both within our guidance ranges. Q2 net income was $1.7 million and diluted EPS was $0.04, compared to $21.7 million and $0.46, respectively, in the prior period.

On tax, recall that withholding taxes associated with the Samsung license provide an unusually high effective tax rate this year. We continue to model full-year income tax expense of approximately $18 to $22 million, unchanged from our projection last quarter. Q1 represented the peak quarterly tax expense, and we expect meaningfully lower tax expense for the full year through the income tax benefit recorded in Q2 and expected in the second half. Importantly, Q2 profitability exceeded expectations driven by operating performance, despite the absence of IP license revenue compared to last quarter and lower fixed license revenue compared to the prior year.

During Q2, we generated $14.1 million of cash from operations and $13.6 million of free cash flow, further demonstrating strong cash conversion and the benefit of connected billings outpacing GAAP revenue over time. We ended the quarter with $108.3 million of cash and cash equivalents and believe the company remains well positioned to fund strategic initiatives while continuing to strengthen the balance sheet. Our strong cash generation from operations provides meaningful capital allocation flexibility. From a metric standpoint, approximately 11.3 million cars were produced that included Cerence Inc. technology in the quarter, compared to 11.6 million in the prior year period. Connected cars shipped increased 12% on a trailing twelve-month basis.

Fifty percent of worldwide auto production included Cerence Inc. technology, in line with historical penetration. Adjusted total billings were $239 million, an increase of 7% year-over-year. Our pro forma royalties were $40.3 million, up from $39.7 million in the prior year period. Fixed license consumption totaled $8.8 million and benefited the current quarter, as more pro forma royalties converted to revenue in the current period compared with last year. As discussed, we expect the quarterly year-over-year comparisons to flatten out as we exit fiscal 2026 and continue to keep annual fixed license revenue consistent.

Our five-year backlog is approximately $971 million, up from $960 million a year ago and down slightly from year end, as not all recent wins we have highlighted are yet reflected in our reported backlog. As a reminder, backlog may not be indicative of future revenue. Our PPU metric increased to $5.09 on a trailing twelve-month basis, up 5% year-over-year, reflecting continued pricing discipline and increased adoption of connected solutions. Looking ahead to Q3 and the remainder of 2026, we expect continued stability in our variable license revenue, ongoing growth in connected services, and potentially favorable variability in fixed license timing during the second half.

For Q3, we expect revenue between $68 and $72 million, including $10 million of expected fixed license deals; gross margin between 75% and 76%; adjusted EBITDA between $8 and $12 million; net income between negative $1 million and $3 million; and EPS between negative $0.02 and positive $0.07. Our full-year outlook has improved. For the full year, we are narrowing the range of revenue to $305 to $320 million, increasing the midpoint to $312.5 million. We are reaffirming gross margin range of 79% to 80%. We are narrowing the ranges for net income to negative $3 to positive $7 million and EPS to negative $0.07 to positive $0.15 while maintaining the midpoints.

We are narrowing the range of adjusted EBITDA to $60 to $70 million, increasing the midpoint by 8%. In addition, we are raising full-year free cash flow guidance $10 million, or 16% at the midpoint, to a range of $66 to $76 million. In closing, we delivered strong execution in the quarter with stable performance in our core business. We continue to benefit from strong visibility driven by our backlog and long-term OEM relationships while we further improve the quality of our revenue through continued growth in recurring connected services. As we look ahead to 2026, we remain focused on disciplined execution, strong cash flow generation, and maintaining the financial flexibility needed to support long-term profitable growth.

With that, I will turn it back to Brian.

Brian Krzanich: Looking at the quarter and through 2026, we are proud of our performance. Our results reflect strong execution, solid cash generation, and continued customer momentum alongside a disciplined approach to capital allocation. Our priorities remain clear: driving profitable top-line growth, advancing our technology, and maintaining cost discipline. We remain confident in our strategy and execution through the second half of this year, and we are excited about the path ahead. We will now open the call for questions. Our first question—

Operator: Thank you. To withdraw your question, please press star 11 again.

Operator: From the line of Mark Delaney with Goldman Sachs. Your line is now open.

Mark Delaney: Yes, good afternoon. Thank you for taking the questions. Brian, you mentioned vehicles using XUI are now coming off the production line. Can you provide context on how the product is being received at the auto OEMs, and any early feedback you can share from consumers who now have XUI in their cars?

Brian Krzanich: Sure, Mark. First, if my voice sounds a little slurred, I had my tonsils removed a couple of weeks ago and I am still recovering, so please ask again if anything is unclear. BYD is the OEM currently shipping. Other OEMs will start to ship in the June–July timeframe through the end of the year. BYD just started shipping two to three weeks ago, so we do not yet have consumer feedback. We will be collecting that over this quarter, and by the end of Q3 we should be able to provide an update.

As far as how it is being received at other OEMs, I have brought our CRO, who is directly in front of customers, to give you on-the-ground feedback. I will hand it to him now.

Christian Mentz: Thanks, Brian. The BYD launch happened in April, two weeks ago. Feedback from OEMs we are working closely with leading up to SOP is that they appreciate the technology’s performance, the rich feature set, and the automotive-grade integration. Our LLMs have been fine-tuned specifically for automotive use cases. Fast latency and our collaboration model—where we sometimes have agile teams working directly with OEMs to integrate the tech and then support them post-SOP—are also resonating. As we receive consumer feedback, we will continue to work with customers to improve the technology over time.

Mark Delaney: That is helpful. As a follow-up, can you provide perspective on medium- to longer-term revenue growth? The five-year backlog fell from six months ago, but you mentioned it does not have all the wins. Fifty percent of vehicles shipped had Cerence Inc. technology, down from about 52% at year-end, but PPU is growing, you have XUI engagements, and some non-auto opportunities. What does all this mean for the medium- to longer-term revenue potential of the company?

Brian Krzanich: You cannot look at this business on a quarterly basis. Our backlog dropped slightly, but that is on roughly a $1 billion base, and as we said it did not include several deals due to cutoff timing. We do not expect that number to change much over the year and think we will exit around $1 billion. Looking five years out, even if we did not sell anything more, that backlog still provides strong visibility. As for growth, until we get more insight into outside-automotive and IP enforcement, the core business can grow in the high-single- to low-double-digit range year over year.

Near-term growth will be fueled by more connected cars, and then XUI, where deals we are signing are generally multiples of our current PPU. We will start adding in IP and outside-automotive as we get more insight by the end of this year. Tony?

Tony Rodriguez: Agreed. We have not given guidance for fiscal 2027, but our core technology business feels strong. Remember, the piece growing is connected; we get those billings and then recognize revenue over the subscription period. So even as XUI ramps at the end of this year and into 2027, that will first help billings and cash flow, with revenue following over time. For midterm growth beyond a year or so, traction outside automotive will contribute.

Operator: Thank you. Our next question comes from the line of Jeff Van Rhee with Craig-Hallum Capital Group. Your line is now open.

Jeff Van Rhee: Hey, this is Daniel on for Jeff Van Rhee. Brian, on connected traction, is it fair to say the outperformance this quarter was driven by connected versus fixed license and professional services? And on connected in particular, that acceleration is not XUI flowing through yet, as Tony said—so where is that connected strength coming from outside of XUI?

Brian Krzanich: The outperformance was driven by a couple of things. First, connected continues to be our leading growth engine. You are right—it is not XUI yet. Even for BYD cars shipping today, revenue will be amortized over the life of the contract, so you will not really see the compounding impact of XUI until next year. Today’s connected strength is from our current technologies, like ChatPro, which bring LLM capabilities into the vehicle via a connected experience. That has strong usage and interest. Second, we have been bringing down the fixed revenue stream, and with that we are doing far fewer discounts.

Historically, there were often double-digit discounts for extended early-pay licenses; we have reduced that, guiding to about $23 million of fixed this year, bringing discounts into single digits—closer to WACC—so net price realization is higher, which increases real-time revenue. Those are the two big drivers, along with our teams continuing to sell Audio AI and platform enhancements. Tony?

Tony Rodriguez: Those are the two largest areas. From an outperform standpoint, there is strength in the visibility of the license business and our OEM penetration. We also saw some volume-related outperformance with certain customers this quarter.

Jeff Van Rhee: Thanks. And Tony, on modeling R&D non-GAAP OpEx: it looks up sequentially from about $22.5 million to $27.5 million. Is that a new baseline? If so, what were the investments and how should we think about the roadmap?

Tony Rodriguez: That is effectively the baseline you should model for the remainder of the year. One driver is less capitalization—we had more CapEx in Q1 as certain programs rolled off internally developed software capitalization, so those costs flowed into OpEx in Q2. There was also some delayed timing of R&D that came on in Q2. So yes, this is effectively the run rate for the rest of the year.

Brian Krzanich: To add, this is mostly headcount moving from CapEx to OpEx, which is a good thing—it indicates projects moving into production. You may see some headcount move back into CapEx next year as we develop next-generation XUI and work outside automotive that qualifies for capitalization. Overall headcount is flat—we are disciplined—so cash spend should be stable.

Operator: Thank you. As a reminder, to ask a question at this time, please press star 11. Our next question comes from the line of Thomas Blakey with Cantor Fitzgerald. Your line is now open.

Thomas Blakey: Hi, thanks for taking my questions, and congratulations on the strong quarter. In prior conversations, you mentioned XUI orders coming in a little stronger than expected. Can you talk about the pipeline to sustain momentum for XUI?

Brian Krzanich: There are a couple of other POCs. We were at a large OEM earlier in April presenting XUI for their next-generation vehicles, and at least one other is active. We are on OEM timelines: they put out a bid, we present, and one strength is we bring multiple vehicles running XUI—like BYD and Geely—so they can experience it in-vehicle. I hope to have at least one resolved by the end of Q3. We are not losing to others; we are awaiting decisions. Christian?

Christian Mentz: I am confident that in Q3 we will close at least one more. We are in active bidding and POC work with several global OEMs. Timing is not always precise, but the pipeline and demand are solid.

Brian Krzanich: That would bring us to very strong momentum in a short period, showing demand. We have said there have been six bids and we have five wins so far. If we close another this quarter, that would be six out of seven.

Thomas Blakey: Thanks. As a second question on non-auto: can you expand on expected timing and scope, and how hard you plan to step on the accelerator on the IP business from an expense perspective?

Brian Krzanich: Non-auto will contribute small numbers—at most a couple of million dollars this year—mostly NRE for POCs. We will not focus on broad consumer electronics. We target domains similar to automotive where machinery and integration are complex and general-purpose LLMs need unique tuning and training—industrial robotics, aerospace, and extending into dealership and post-purchase end-user experiences for OEMs, such as an OEM-branded app that helps owners with vehicle features and usage. Christian?

Christian Mentz: We are disciplined and focused on areas that can scale into meaningful recurring businesses, not one-offs, leveraging competencies built over years in automotive.

Tony Rodriguez: Regarding legal costs, we have anticipated a bit more legal expense in the second half, and it is included in our profitability expectations.

Brian Krzanich: On IP, the current pace is about right. We closed Samsung, and we have active matters with Apple, Sony, TCL, and now Amazon—enough to cover most of this year. We shifted to paying legal fees as we go rather than profit-sharing as we did with Samsung. We have projected no revenue from any of these, though several have court dates toward the end of calendar 2026. We will keep you updated; timing is hard to predict by quarter.

Operator: Thank you. I am currently showing no further questions at this time. I would like to hand the call back over to Brian Krzanich for closing remarks.

Brian Krzanich: Thank you, everyone. We are very excited about the potential of Cerence Inc. and where we are headed. The strong cash flow and disciplined performance across the organization—from our engineers launching XUI programs and upgrading existing programs to our finance, legal, and HR teams—show we are firing on all cylinders. We are positive about our future and appreciate you attending the call today. Thank you very much.

Operator: This concludes today’s conference. Thank you for your participation. You may now disconnect.