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DATE

Thursday, Aug. 6, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

• Vice President, Corporate Communications and Investor Relations - Kate Hickman
• Chief Executive Officer - Brian Matthew Krzanich
• Chief Financial Officer - Antonio Rodriguez

TAKEAWAYS

• Total Revenue -- $69.6 million, representing a 12% increase year over year driven by fixed license contract execution and connected services growth.
• Adjusted EBITDA -- $13.5 million, an increase of 51% year over year that exceeded the high end of the guidance range due to favorable margin mix and operating expense discipline.
• License Revenue -- $41.6 million, up 22% year over year reflecting higher fixed license contributions during the quarter.
• Fixed License Revenue -- $12.5 million, exceeding the company's internal projection of approximately $10 million for the period.
• Connected Services Revenue -- $15.5 million, growing 20% year over year due to the expansion of the connected installed base and higher attach rates.
• Professional Services Revenue -- $12.5 million, a decline of 18% year over year as management continues to focus on standardization and higher-margin implementations.
• Non-GAAP Gross Margin -- 76%, increasing from 74% in the prior year period primarily due to favorable revenue mix from fixed licenses.
• Free Cash Flow -- $19.6 million, an increase of more than 20% year over year supported by operational cash generation.
• Full Year Free Cash Flow Guidance -- $76 million to $82 million, raised from the previous forecast of $66 million to $76 million.
• Vehicle Production Volume -- 11.4 million units for vehicles equipped with Cerence technology, a decrease from 12.4 million units in the prior year period.
• xUI Vehicle Deployment -- 100,000 vehicles on the road currently use the next-generation xUI platform, which management expects to ramp significantly in fiscal year 2027.
• Fiscal Year 2026 Non-Auto Revenue Target -- $7 million to $9 million, with management noting that non-automotive initiatives are transitioning from proof points to revenue contribution.
• Share Repurchase Authorization -- $30 million, representing the company's first-ever stock buyback program to be executed over the next 12 months.
• Non-GAAP Operating Expenses -- $42.7 million, compared to $39.6 million in the prior year period, reflecting legal costs associated with intellectual property enforcement.
• IP Legal Costs -- $9 million, the expected full year fiscal 2026 expense for protecting and licensing the company's patent portfolio.
• Adjusted Total Billings -- $240 million on a trailing 12-month basis, representing 6% year-over-year growth.
• Q4 Revenue Guidance -- $61 million to $65 million, reflecting normal seasonal production patterns and the absence of planned fixed license revenue.
• Q4 Adjusted EBITDA Guidance -- $1 million to $5 million, impacted by lower expected gross margins in the absence of fixed licenses.
• Full Year Revenue Guidance -- $310 million to $314 million, narrowing the previous forecast range as the fiscal year approaches completion.
• Cash and Cash Equivalents -- $128 million, providing flexibility for strategic investments and the potential for discounted debt repurchases.
• xUI Average Connection Life -- seven years for current deals, which is more than double the historical average of three years for connected vehicles.
• Trailing 12-Month Connected Car Shipments -- 4% increase year over year, while recurring connected services revenue grew 20% in the same period.
• Non-GAAP R&D Expense -- $26.5 million, up from $24.4 million in the prior year due to lower capitalization of internally developed software.
• Variable License Revenue -- $29.1 million, down 15% year over year due to regional mix and a strong prior year comparison involving manufacturer build-aheads.

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RISKS

• Rodriguez stated that "our unit volumes came in below the broader market this quarter," as vehicle production with Cerence technology fell 8% while global light vehicle production declined roughly 2%.
• Rodriguez noted that the company is navigating a "period of program life cycle transition with some programs winding down faster than their replacements are ramping."

SUMMARY

Management reported the transition of the xUI platform into its commercialization phase, noting that initial production has commenced across multiple brands. The board of directors authorized a $30 million share repurchase program, reflecting the company's focus on capital allocation following improvements in cash flow and profitability. The company is expanding its agentic AI portfolio beyond the cabin to include exterior vehicle interaction and non-automotive vertical markets, such as industrial operations and dealerships. Management indicated that while automotive remains the core business, non-automotive initiatives are expected to grow at a faster percentage rate in the coming fiscal year.

• CEO Krzanich reported a new xUI deal with Stellantis, which is expected to deploy the platform across multiple brands and regions.
• Management confirmed that the first customer for its mobile work agent, developed with Microsoft, is a global premium automaker with a rollout starting in the fourth fiscal quarter.
• CEO Krzanich noted that JLR honored the company with its "exceptional creator recognition" award for fast-tracking the partnership into an AI-era collaboration.
• The company launched a dealer assistant agent at an Infiniti dealership in Michigan, reporting a 20% increase in sales opportunities and a 30% increase in service appointments.
• Management noted that xUI programs support a higher average price per unit than current products due to increased software content and agentic capabilities.
• CFO Rodriguez stated that the fourth quarter revenue step-down is driven by the timing of fixed license contracts rather than a change in the underlying health of the business.
• The company continues intellectual property enforcement efforts against TCL, Apple, and Amazon, though potential monetization is not included in the current financial forecast.

INDUSTRY GLOSSARY

• xUI: Cerence’s next-generation AI-powered user interface platform that provides a conversational interaction layer for vehicles.
• Agentic AI: AI systems capable of taking action and completing tasks in context, such as booking appointments or managing service calls, rather than only responding to voice commands.
• PPU: Price Per Unit; the revenue generated per vehicle equipped with the company's software.
• Adjusted Total Billings: A key performance indicator that excludes professional services and fixed licenses, adjusted for the consumption of fixed license contracts.
• Connected Services: Cloud-based software and features delivered to vehicles over a data connection, generating recurring revenue.
• Fixed License: A contract arrangement where a customer pays a set fee for a specified amount of software usage rights, often recognized as revenue at the time of contract execution.

Full Conference Call Transcript

Operator: Good day. Thank you for standing by. Welcome to the Cerence Third Quarter 26 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' 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 would then hear an automated message advising that 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, Corporate Communications and Investor Relations. Please go ahead.

Kate Hickman: Hello, everyone, and welcome to Cerence's Third Quarter 26 Conference Call. Before we begin, I would like to remind you that this call may involve certain forward looking Any statements that are not statements of historical fact including statements related to our expectations, anticipation, 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-Ks with the press release preceding today's call, our most recent Form 10 Q, and our Form 10 k filed on 11/20/2025. 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 Investors section of our website.

Joining me on today's call are Brian Matthew Krzanich, CEO and Tony Rodriguez, CFO. 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 a Raymond James 26 industrial showcase on August 13 and the Needham Virtual Semiconductor and Semi Cap Conference on August 19. Now onto the call. Brian?

Brian Matthew Krzanich: Thank you, Kate, and good afternoon, everyone. Now before we dig in, I would like to briefly reflect on Cerence's progress as I approach my 2-year anniversary as CEO in October. And when I stepped into the role, we established a clear road map 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. Now we said the second year would be about execution. As we approach the end of fiscal year 26, I believe we have delivered better as well. We advanced our technology road map 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 are now beginning to see the early stages of our next chapter, xUI is entering into commercialization phase, Our energetic 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 us executing against its strategy. Delivering strong financial performance. And positioning itself for future growth. In Q3, we delivered another strong quarter with revenue of approximately $70 million in line with our guidance. Adjusted EBITDA above the high end of our guidance at $13.5 million and free cash flow of $20 million.

Importantly, we continue to grow our recurring connect services business. With revenue up more than 20% year-over-year. This growth further increases the recurring portion of our revenue mix. Enhancing visibility into the future performance. And demonstrates the value of the connected platform we built across our installed base. Looking ahead to the rest of the fiscal year, we are again raising our fiscal year 2026 free cash flow guidance. Now to $76 million to $82 million. And narrowing most of our remaining forecast. As we approach the end of fiscal year 2026. Given the continued cash generating strength of our business, I would 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. But 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. And 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 am pleased to share that our board has authorized Cerence's first ever share repurchase program.

And this reflects our confidence in the business the progress we have 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. adds another tool to that approach. The stock repurchase program 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 the competitive position. As vehicles become more software defined, automakers are seeing a differentiated user experiences that reinforce their brand improve customer satisfaction, and create opportunities for recurring revenue. that is 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 an interest in our next generation platform is growth.

Cerence's 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 thousand xUI-powered cars on the road. An important milestone in bringing this technology to market and consistent with what we have said in the past.

At 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 volumes pick up. 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 are bringing to our customers Cerence AI was recognized at JLR's Global Supplier Excellence Award 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 key enabler in their ability to adopt a new AI capabilities faster and innovate with confidence. That expectation paired with our disciplined delivery and sharp road map alignment is now their blueprint for future facing technology. And 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 road map with the prospect 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 2 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 stand alone basis. And not only can these agents be deployed within the 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 are in talks with several other automakers to deploy our mobile work agent in the near future. Now beyond xUI and our agent road map, 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 technology We are also making progress in extending our voice AI and agentic capability 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, security, and domain specific integration translate well and provide a meaningful competitive advantage. 1 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 is been a 20% increase in sales opportunities driven by always on lead engagement and qualification. And nearly 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 of our Agentic solutions can deliver. And with tens of thousands of car dealerships worldwide, we just 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 26. 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 27 road map 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 will continue to keep you posted as additional progress is made. As we approach the end of fiscal 26, I wanna close with the 4 drivers. That underpin our belief in Cerence's long term value. First, as 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 x UI 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. And with that, I will turn it over to Tony.

Antonio Rodriquez: Thank you, Brian. Good afternoon, everyone. And thank you for joining us today. We appreciate your continued interest in Cerence. Today, I will review our third quarter fiscal 26 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 million 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 service revenue. Total license revenue was $41.6 million up 22% year-over-year.

Reflecting the higher fixed license contribution this quarter. Fixed license revenue was $12.5 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. Variable license for the quarter was $29.1 million down 15% year-over-year. 2 factors drove the decrease. First, the comparison was against an exceptionally strong prior year quarter that benefited from higher than normal production. 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 markets 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. This was compounded by a period of program life cycle transition with some programs winding down faster than their replacements are ramping.

That said, we have not seen a change in pricing or economics to our existing programs, and we have continued to experience recent design win activity. Connected services revenue was $15.5 million, up 20% year-over-year driven by continued expansion of our connected installed base and a higher attach rate. We believe that this growth underscores the increasing importance of connected service revenue within our business model and provides improved visibility into future performance. Professional services revenue was $12.5 million, down 18% 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. Gross margin for the quarter was 76%.

Compared to 74% in the prior year period. And in line with the high end of our guidance range of 75% to 76%. The improvement over prior year was driven primarily by favorable revenue including the higher fixed license contribution. Along with continued discipline across cost of road. Adjusted EBITDA for the quarter was $13.5 million an increase of $4.5 million or 51% year over year and ahead of our high end of our guidance range of $8 million to $12 million with revenue finishing near the midpoint of our range, this outperformance was driven by favorable margin mix and operating expenses below plan.

A portion of the expense variance was timing-related and is expected to normalize in the fourth quarter. While the remainder reflects our continued cost discipline. Total non GAAP operating expenses were $43 million compared to $40 million in the prior year period. Non-GAAP R&D expense was $26.5 million up from $24.4 million reflecting lower capitalization of internally developed software rather than an increase in overall investment. Total technology spending remains stable. Non GAAP sales and marketing expense was $4.6 million down year-over-year by about 8%. But consistent with continued investment to support our customer base and long term growth initiatives.

Non GAAP G&A expense was $11.5 million up from $10.1 million reflecting normalized general operating cost as well as additional legal expenses associated with our ongoing efforts to protect, enforce, and license our IP portfolio. Excluding the onetime legal costs incurred in Q1 to secure our patent license agreement with Samsung, we expect full year fiscal 26 IP related legal costs of approximately $9 million. From a GAAP profitability perspective, Q3 net income was $1.5 million with diluted EPS was $0.03. Versus a net loss of $2.7 million and a net loss per share of $0.06 a year ago. On taxes, the Samsung related withholding tax is spread across the year through our estimated annual effective tax rate.

So it is not confined to the quarter in which it incurred. That front loaded our tax expense in Q1 above the expected full year total and impacts taxes even in quarters with little or no pretax income like here in Q3. We continue to model full year tax expense of approximately $20 million consistent with our prior projection range. With a significant tax benefit expected in Q4. During Q3, we generated $20 million of cash from operations and $20 million of free cash flow. Continuing our strong cash conversion performance.

We ended the quarter with $128 million in cash and cash equivalents which we believe provides significant flexibility to invest in our strategic priorities while further strengthening the balance sheet. As we evaluate capital allocation, we continue to maintain a strong financial position and invest in the business, while deploying excess capital toward opportunities that offer the highest risk adjusted returns. In the current environment, that may include discounted debt repurchases, share repurchases, and selective strategic investments that support our long term growth objectives. Putting that framework into action, earlier this fiscal year we repurchased a portion of our 2028 convertible notes at a discount to par, reducing interest expense and leverage.

Building on that, as Brian mentioned, today we announced that our board has approved our first share repurchase program. Authorizing the repurchase of up to $30 million of our common stock over the next 12 months. We intend to execute through open market purchases funded from cash on hand and free cash flow while preserving the flexibility to keep investing in the business. And to address our remaining outstanding convertible notes. The program does not obligate us to repurchase any specific amount and we expect to stay disciplined as we consider our capital allocation priorities. From a metric standpoint for Q3, production of vehicles with Cerence Technology totaled 11.4 million in the quarter compared to 12.4 million a year ago.

Connected cars shipped increased 4% on the trailing 12-month basis, while recurring connected services revenue grew 20%. Reflecting higher attach rates and per unit economics. Adjusted total billings were $240 million, up 6% year-over-year. Pro forma royalties were $38 million compared to $43 million in the prior year period, reflecting the lower production volumes. Fixed license consumption within that quarter totaled was $8.7 million. Before turning to guidance, let me put the xUI wins Brian discussed into financial context. From an accounting perspective, we recognized revenue as licenses shipped and as connected services are delivered. So new program wins flow through our reported results in stages rather than all at once.

For multi year platform transitions such as xUI, that cycle plays out over several years. As a result, the wins we have announced are not fully reflected in our current revenue run rate, And for connected services, the near term impact will show up first in billings with more meaningful revenue contribution phasing in during fiscal 27 and beyond. These programs carry attractive per unit economics that we expect to support both revenue growth and margin as they scale. Also, consistent with Brian's comments, our current outlook continues to assume only modest initial contribution from non-automotive programs as we exit FY 2026. With the larger opportunity remaining primarily a fiscal 27 and beyond growth driver. Turning to the fourth quarter.

With respect to the sequential progression there are 2 dynamics to keep in mind. First, our third quarter results included $12.5 million of fixed license revenue. And consistent with the timing driven nature of these arrangements, we are not contemplating any fixed license revenue in the fourth quarter. Second, we expect to a normal seasonality with production volumes often stepping down a bit from the third quarter to the fourth. Together, this means we expect fourth quarter revenue to be lower on a sequential basis.

For the fourth quarter, we expect revenue between $61 million and $65 million gross margin between 72% and 73%, expected EBITDA between $1 million and $5 million, net income in the range of $1 million to $5 million and diluted EPS between $0.02 and $0.10. I want to be clear that this guidance reflects the timing of fixed license revenue and ordinary seasonal patterns, not a change in the health of the underlying business. Excluding the fixed license revenue recognized in Q3, midpoint of our fourth quarter revenue outlook is higher than our underlying Q3 revenue level.

Our per unit economics have remained intact, Our recurring connected services revenue up 20% year-over-year, has continued to grow, and our design win momentum is expected to support future volume. A couple of further notes on the fourth quarter. First, because the fourth quarter does not carry the high margin contribution from fixed license, we expect gross margin to normalize below the 76, percent we reported in the third quarter. Second, as we discussed previously, the Samsung IP license resulted in an unusually high tax expense earlier in the year, particularly in the first quarter. The expected fourth quarter benefit is incorporated into our Q4 and full year outlook.

Taken together with our year to date results, this Q4 outlook is contemplated within the full year guidance I will walk through next and reflects the same disciplined execution we have delivered through the first 3 quarters of the year.

For the full fiscal year, we now expect revenue of $310 million to $314 million gross margin of 78% to 79%, GAAP profitability in the range of net loss of $1.1 million to net income of $2.9 million Diluted EPS of a loss of $0.02 to an income of $0.06 adjusted EBITDA of $66 million to $70 million and free cash flow of $76 million to $82 million an increase from our prior outlook of $66 million to $76 million In closing, we delivered solid execution this third quarter with growth in total revenue, gross margin ahead of guidance, continued strength in our recurring connected services, and year over year profitability growth.

As we look to the remainder of fiscal 26, we remain focused on disciplined execution, strong cash flow generation, and maintaining the financial flexibility to support long term profitable growth. On our next call, we expect to provide our initial fiscal 27 guidance and an update on our strategic priorities. With that, I will turn it back to Brian.

Brian Matthew Krzanich: Thanks, Tony. In closing, we are proud of our performance as we approach the end of fiscal 26. We believe that our results reflect strong execution solid cash generation, and continued customer momentum. Together with a disciplined approach to capital allocation. We believe the underlying trajectory of the business remains strong. Connected services continues to be our excellent growth engine. The economics of our recent wins have been attractive and the xUI and the agent programs discussed today are expected to position us well for growth as they scale. The story of fiscal 26 has been 1 of execution. We believe that the story of fiscal 27 will be 1 of growth.

Powered by the foundation we have built the customer commitments we have delivered, and the opportunities we see ahead with xUI and outside of automotive. We remain confident in our strategy and execution. And we are excited about the path ahead. And with that, we will open up the line for questions.

Operator: Thank you. To withdraw your question, please press 11 again. Comes from the line of Mark Delaney with Goldman Sachs. Your line is now open.

Mark Delaney: Yes, good afternoon. Thank you very much for taking the questions. Congratulations on the xUI win with Stellantis. I am hoping to better understand the financial implications of the xUI backlog, including the recent win, and now I think you have 6 in total. Understood the comment around that taking time to ramp up, but maybe you can help investors to better understand what those existing wins will mean for the business for both revenue and profits when they do fully ramp. And how long that may take to occur.

Brian Matthew Krzanich: Sure. I can start. This is Brian. And then Tony can jump in probably with some of the more high level detail of the finances. But you know, we said there is about 100 thousand vehicles on the road right now with xUI. And it is really pretty good considering really starting production was just a little over a month ago.

So, you know, for me, the ramp is off and going We have several more OEMs that should do start production, say, at the end of Q4, beginning of Q1, You know, we do not actually control exactly when, and there is a lot of, oh, you know, partners that have to come together to deliver the on time launch. But you know so I really think that number is going to go up significantly as we go into 02/2027. So you know, if I looked at 2027 in total, I think you should see you know, a couple million cars on the road with xUI. Versus, you know, the 100 thousand that we have today.

Financially, what that will mean is that we get paid the same way we do with the prior products where we get the connect the license fee when the product the car is shipped from the factory. And then the connected fee over the life of the connection. And what we are seeing is these licenses, for connected vehicles are actually going longer. We said in the past, that our average was, like, 3-ish years. The average of the xUI deals would be more close to 7 years. So we are seeing much longer times for those. So for 2027, it will--xUI will xUI and connected will be the growth engines in automotive.

For us We have not forecasted 2027, so I expect it to still be relatively minimum, you know, as they ramp up In Q4. As we go into 2027, it will fuel the growth along with connected. All the xUI models are connected, so it kind of has a double whammy. You get paid more for xUI. And they are all connected. We have not given an exact price for what the xUI deals are. The price per unit, but it is significantly higher than the current price per unit that we quote in our earnings calls for our current product. So I but we have not given an exact number for that.

And part of that is because it varies depending on the features that everybody chooses and some of that, but all of them are significantly higher. Than what we are quoting today.

Antonio Rodriquez: Yeah. And just to summarize that, I think it is exactly right. The impact of xUI is that it is a growth driver both to revenue and to profitability. But it does take time to ramp the old programs down. Ramp the new programs up. But, you know, it will be you know, it will result in higher PPU over time as those ramp up. And with a higher PPU and, you know, creates the operating leverage that we have talked about.

Brian, I have always talked about you know, our goal is to have a growing business that is increasingly profitable, and we have shown that over the last probably, you know, 8 quarters now that we have been together. So, yeah, this will you know, xUI means, you know, again, revenue growth and increasing profitability growth.

Mark Delaney: Very helpful context. My other question was about the revenue trajectory into next year. Very much recognize your comments around you need to wait for next quarter for the quantitative guidance I do think last call, the company suggested that revenue next year could grow high-single to low-double digits. So if you could speak a little bit qualitatively on how you think about the top line trajectory into 2027, if you have any early thoughts there and any key puts and takes? Thank you.

Brian Matthew Krzanich: Sure. I can start again, and Tony again can give you kind of the breakdown with a little more financial detail. But again, we tried to give you a little bit of a grounding this quarter by giving you, hey. there is 100 thousand xUI vehicles on the road. And, you know, I expect nonauto to be you know, $7 million to $9 million. That kinda gives you the baseline from this year for where we are at. Right? By the time Q4 ends, expect, you know, the xUI number to be significantly higher than that 100 thousand. Right?

And we will probably give you the number again at the end of the year just to, again, kind of set the baseline If I look into 2027, yeah, I think overall, you will see us in the high-single to low-double digits overall growth. But, again, what I think you will see is strong growth in connected because the xUI vehicles will be the driver of a lot of those connected vehicles. You will see strong growth in PPU as connect as xUI continues to grow more into the product base. And then, you know, we plan on having significant growth. In the non-automotive space for next year.

We have not given you the forecast for that, but you can think of it as my expectation is non-automotive will grow faster as a percentage than the automotive space for next year. And so you put those together, and that is how you get to that. Well, it should be high single digits to low double digits. But then, you know, it is gonna be increasingly better as we go through the year. I expect it is gonna be growing much faster as we exit 27. Because more and more of it will be connected and more and more of it will be non-automotive.

So it will it will be a nice steady ramp as we go through that year. We have not given the numbers yet. You know, I would love to give you what we are thinking right now, but I am I am held to my forecast process. But, yeah, that is what is gonna drive it and fuel the growth.

Antonio Rodriquez: Yeah. And a couple caveats. Of course, when we talked about the those growth rates, that we see in our core business, it was, for the technology growth again. I think we have said before that, you know, professional services as they become more efficient will decrease as a percentage in the mix. We still think there is a strong base, in professional services, but we it is we do not believe that is growing. We think that is kind of a base number. And that it is important to the business, but it lower as a percentage of the mix.

And as Brian mentioned, the non automotive will kind of be of the growth the real growth from percentage standpoint growth engine in the future. Albeit at a smaller base out of the blocks.

Brian Matthew Krzanich: And then just remember, none of those And we have said that we have forecasts include anything about IP monetization. currently, efforts are going with TCL, Apple, and Amazon in that space. And we do not forecast those because we do not really we cannot absolutely predict the schedules. And so if I miss by a month because of court dates or whatever, I need to be careful. So those would all be on top of that. We have a couple of those that are due to go to the court before the end of the year. This year. And then, you know, some more into next year.

So I see that as on top of everything else we have talked about from our core technology.

Mark Delaney: Thank you. I will pass it on.

Operator: Thank you. Our next question comes from the line of Itay Michaeli with TD Cowen. Your line is now open.

Itay Michaeli: Hey. Great. This is Justin on for Itay. How's everyone doing?

Brian Matthew Krzanich: Good.

Itay Michaeli: So quick questions. Tony, maybe the first 1 for you. Appreciate you highlighting the, Q4 seasonality. Anything outside of normal seasonality that you might be seeing at least in current production schedules, volatilities that may be hitting kind of Q4 on the licensing side? Or have things been, like, relatively stable? Obviously, the you know, the second half production environment's a little bit more volatile at this So just trying to get a better understanding of what you might be seeing there.

Antonio Rodriquez: Yeah. I think we kinda highlighted that a little bit in the in the call. So, you know, again, from a volume standpoint, Q3 over Q3 a year ago, I think we saw some volume declines primarily because, again, there were some volume ramp in Q3 a year ago given the tariff positions. But as we think about Q3 to Q4, I do not see really any, you know, really movement off of kind of those volumes other than potentially we have looked back in history, and there it is oftentimes a slight decrease in our, Q4 in, you know, time frame with regard to volumes, but not anything really material that we are seeing.

So but you gotta remember that ours is, again, a volume business on the license variable side. So, you know, you know, we think about the broader market and our specific piece of the broader market, you know, that is volume is always important. But I do not see anything really, changing much from Q3 to Q4.

Itay Michaeli: Perfect. Appreciate the color there. And then, Brian, maybe a couple for you. Maybe any update or that you could share on the BYDX UI launch? How are things progressing? what is going on there? And then maybe double clicking a little bit on that Stellantis win kind of what were the key parameters and benchmarks that you were comped against and maybe how the competitive environment was within that business quoting? Sure.

Brian Matthew Krzanich: So you know, when we said 100 thousand vehicles on the road, BYD is a part of that. And there is another OEM that is a part of that as well. So there is there is more than 1 OEM in that 100 thousand. You know, what happens is they go they ramp these things by geography, and by language and sometimes by model, especially in some of the other in some of the larger OEMs where they have maybe, you know, 10 different models. Of vehicle, they will they will launch them kind of sequentially. From a BYD perspective, though, it is going well. We are we are continuing to add more geographies. And more languages.

We are up to 20, we said now. And so we add them as they require based on their production ramp. And the feedback's been really good. The feedback's been very positive on xUI from a user end user standpoint and just the production capability of being able to build a vehicle in. And develop the software into the vehicle. So for us, we think the ramp's going quite well.

Itay Michaeli: Very helpful. Appreciate it.

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, Brian Tony. This is Daniel on for Jeff. On maybe sort of if you wanna characterize how the typical sales cycle for x u y looks like, how long are these conversations, what is the competition like? Maybe you could use Stellantis as an example, but typical xUI sales cycle.

Brian Matthew Krzanich: You know, boy, the sales cycle they are not short. You typically you know, it starts with the OEM producing an RFQ. And oftentimes, especially if we are already involved with that OEM, we help them generate what the RFQ should look like as far as what kind of features they wanna look for and, you know, what is what is the technology out there capable of. So that starts the process From there, you usually have to come in with a proposal that includes what the technology is, what your hardware requirements are, What we often do is bring in vehicles are actually running the technology.

And bring them for example, we went into 1 large OEM back in the spring with the vehicles to their headquarters and brought their whole board of directors to the to the meeting to sit in the vehicle and actually see what was capable. And then you start kind of getting into the pricing and timing.

And oftentimes, what is really important is the amount of support you are willing to give because the integration of the software, it is not a simple download like you do on your phone or your PC. there is a great deal of integration with the OEM, the tier 1, hardware providers, you know, other software providers that you all have to do to get to that point and it is the amount of support you are willing to give. So we oftentimes have engineers sitting in the OEM to really help develop the product. That all takes probably on average 6 months at least. I have got some that are going well beyond that now.

Because then you are kind of waiting for their process. From a competitive standpoint, what usually happens is kind of, like, everybody shows up at the beginning, and they usually narrow it down to 1 or 2, usually 2 of us at the end. And then it is kind of a runoff. Interestingly, to me is it is not been a price war, It has not been, you know, well, we need another dollar out of this or something like that. it is really been more about features and support. You know, can you support all of the interconnects they want? The connections to other third party products, that they are trying to do to personalize the vehicle.

And then the amount of support you will give in launching the vehicle and getting this thing to production. that is really been more what is kind of the debate at the end. And then, yeah, there is a little bit price. I am not gonna say there is nothing. But we have not gotten to a point where we think it is a race to the bottom. Like I said, the prices we are getting right now are quite a bit higher than what we currently quote for our PPU. Great.

Jeff Van Rhee: And that is helpful. And then on kind of Q4 and just what is implied as I look at it in our model, I think the Q4 uptick x fixed license, it looks like it sort of implies a rebound in variable license in pro forma royalties, maybe something like a 10% jump in variable pro forma. Just your thoughts on Q4? what is your visibility? Are you expecting a rebound in unit volumes sort of an end customers or maybe in percentage of cars shipped with? Just what are you thinking to get you to that Q4 number?

Brian Matthew Krzanich: You know, we always have pretty good insight into the numbers and, you know, we are already a little bit into the fourth quarter. Right? So we have some insight into this number set. What you are really just seeing, like Tony said, was we see kind of a return to the typical seasonal Q4 output numbers. From a production vehicles, we are seeing more and more connected We saw 20% year over year growth in the third quarter in connected. You know, we are gonna see similar kinds of growth in the fourth quarter for connected as well. So, you know, we just continue to see our kind of We are back to seasonality.

We are back to a normal Q4. And you know, we are we are seeing more and more connected. And that kind of gets us to our Q4 number.

Antonio Rodriquez: Tony, if there is any Yeah. The only other thing I would add is we would think about some of our non-automotive areas. We see some activity of that I really will not get into specifically or into details, but there is some non-automotive increase in the number as well.

Jeff Van Rhee: Okay. that is helpful. Thanks, guys.

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

Brian Matthew Krzanich: Yeah. I just would like to say thank you, everybody, for coming to our third quarter earnings call. We really look forward to our fourth quarter where we can present our 2027 road map and forecast. We are excited about the work we are already doing lining up to that. Like we said, it is it is the year of growth for 2027. Where xUI really helps fuel that growth, the connected vehicles percentage will continue to increase, as we said.

And then it is going to be a year where, you know, we will see more and more of the non-automotive space growth, and we expect that space to grow at a rate much faster than the automotive portion of our business as well. So we look forward to seeing you in December for the fourth quarter results and our forecast in the 2027. Thank you for joining, and I would just like to thank the whole Cerence team for a great quarter. Really great execution and great results. And with that, I will say good evening.

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