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Good day, and thank you for standing by. Welcome to the Cerence Inc. fourth quarter 2025 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'll need to press star 11 on your telephone. You will then hear an automated message advising 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 turn the conference over to your speaker for today, Kate Hickman. Please go ahead. Hello, everyone, and welcome to Cerence's Fourth Quarter 2025 Conference Call.

I'm Kate Hickman, VP of Corporate Communications and Investor Relations. Before we begin, I would like to remind you that this call may involve certain forward-looking statements. Any statements that are not statements of historical fact including statements related to our expectations, anticipations, intentions, estimates, assumptions, beliefs, outlook, strategies, goals, objectives, targets, and plans, are forward-looking statements. Cerence Inc. 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 11/25/2024. 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 Krzanich, CEO, and Tony Rodriguez, CFO. Please note that slides with further context are available in the Investor section of our website. Before handing the call over to Brian, I would like to mention that we will be participating in the Raymond James TMT and Consumer Conference on December 8 and the Needham Growth Conference on January 13. In addition, Cerence Inc. will also be exhibiting at CES in Las Vegas from January. Now on to the call. Brian?

Thank you, Kate. Good afternoon, and welcome, everyone. I'm excited to speak with you today and reflect on my first full year as Cerence's CEO. It's been a great year for the Cerence team and our customers. And I couldn't be happier with the performance. Over the past year, we strengthened the financial and operational foundation of the company and significantly increased positive cash flow generation. Beating nearly every metric and putting us on solid ground for executing on our future growth plans. We've made significant progress with our XUI platform, including meeting all our technology milestones while driving strong customer interest and adoption. We paid down $87.5 million of our debt using cash on hand while maintaining our cash position for the future. And we secured our first successful outcome in our efforts to protect and monetize our intellectual property. As a result, we believe that Cerence Inc. has the right foundation for long-term sustainable growth in fiscal 2026 and beyond. All of this has led us to posting strong results for this quarter. Again, delivering above the high end of our guidance range. With revenue of $60.6 million and adjusted EBITDA of $8.3 million. And importantly, we generated strong free cash flow of $9.7 million. For the full fiscal year, revenue was $251.8 million. Adjusted EBITDA was $48.1 million, and free cash flow grew almost threefold year over year to $46.8 million. And PPU increased to $5.05 for the trailing twelve-month period, up 12% from the same period last year. Tony will provide further details on our results later in the call. As you've heard us discuss in recent quarters, we are deeply committed to monetizing our intellectual property and protecting it against infringers. Last month, we resolved our suit with Samsung, which, among other things, resulted in Samsung agreeing to pay Cerence Inc. a one-time lump sum payment of $49.5 million. This payment is pursuant to a confidential cross-license agreement with Samsung, which limits our ability to provide specifics. Nevertheless, we believe that it's an important milestone in our strategy and a proof point for the broad applicability of our technology across different industries and verticals. I'd also like to share a bit more about our approach to IP monetization and how it fits into our long-term strategy. While we always prefer to enter licensing deals without resorting to litigation, we expect to take all necessary steps, including litigation, to ensure that we receive fair value for our foundational IP. And this is why we currently have actions against Apple, TCL, and Sony, among others. And we have a multiyear roadmap of potential future and are consistently evaluating if new lawsuits are warranted. We believe IP monetization will be a continuing ongoing revenue stream in the future that will help to support our nonautomotive business growth. The payment under the Samsung licensing agreement, as well as the expected cost related to our other active suits, are incorporated into our fiscal year 2026 guidance, which Tony will discuss. It's important to note that the process for these lawsuits is long, so as we move through fiscal 2026, we will keep you apprised of any important updates. Now taking a moment to look back at Q4. We continued to make progress on our three key deliverables: advancing our AI roadmap, growing our business with new and existing customers, and continuing our transformation and cost management initiatives. First, in terms of advancing our roadmap, we continued our development of Cerence's XUI with the addition of several new languages and ongoing advancements of our core tech and audio AI solutions, which are the basis for the XUI experience. We also hosted another successful demo at IAA in Munich in September, where we showcased our flexible, agnostic approach partnering with CEMA.ai as well as MediaTek to bring advanced low-power conversational AI to vehicles. We also furthered the advancement of our Agentic AI strategy, partnering closely with Microsoft to roll out a mobile work agent that enables people who choose to work in the car to do so more safely and securely through voice-first access to Microsoft 365 Copilot, Teams, Outlook, and OneNote. With XUI's automotive-grade agentic architecture, the mobile work agent can seamlessly and proactively orchestrate between Copilot and other domains like navigation to enable a cohesive and context-aware user experience. Through our partnership with Microsoft, we're turning the car into a trusted device, something that we believe our competitors cannot deliver. Looking forward to 2026, we're gearing up for our next big milestone, CES in Las Vegas, where we'll continue to showcase the latest innovations in Cerence's XUI and our core tech. We'll also demonstrate new AI agents focused on vehicle service and dealerships, part of our strategy to expand to other areas of the automotive ecosystem to drive additional revenue opportunities. In terms of customer adoption, we continued development of our two previously mentioned XUI customer programs, JLR and a brand within the Volkswagen Group. Both programs are on track and are expected to hit the road in 2026. We also continue to build the XUI pipeline with additional POCs with large global automakers, including some North American OEMs, where we are working to regain market share. Thus far, we're seeing positive momentum in converting POC programs to deals. Our second key deliverable is continuing to grow our business with new and existing customers. We signed several important deals in Q4, including with Toyota to bring our Gen AI-powered solutions into their vehicles, with Ford to expand the presence of our audio AI across their lineup, and with an autonomous trucking company for our emergency vehicle detection solution. Other key wins in the quarter included BMW, Honda, and Great Wall Motor. We also saw nine programs start production in Q4, including BYD, Subaru, and Geely. Outside of automotive, we continue to operationalize our new strategy and distributor model with a focus on three key areas. First, expand our work with partners like Microsoft and NVIDIA. Second, continue to double down on our work with distributors to grow in areas like voice-powered kiosks and logistics. And lastly, as mentioned, continue our IP monetization efforts. As a reminder, we believe the impact of our work to expand beyond automotive will be seen in our revenue and profitability in late fiscal year 2026 and beyond. And this is reflected in the fiscal 2026 guidance. Our third key deliverable is continuing our transformation and cost management initiatives. As you can see from our continued strong cash performance, we have driven real benefits from our work and are delivering it to the bottom line for our shareholders. Continuing our attention to cost, we initiated a restructuring plan in Q4 with respect to certain foreign operations intended to further reduce operating comp expenses and position Cerence Inc. for profitable sustainable future growth. We expect to incur the majority of the restructuring expenses related to this plan to complete its implementation in Q1. For the remainder of fiscal 2026, we will remain diligent and maintain our attention to cost management. In conclusion, we are incredibly proud of what our team has accomplished this quarter and in fiscal year 2025 as a whole. As we look to fiscal year 2026 and beyond, there are several key vectors for our ongoing growth. First, increasing adoption of Cerence's XUI and driving greater penetration of our stack and existing programs, delivering increased PPU. Second, increasing the number of connected vehicles shipped, resulting in expansion of our connected services business. And third, growth in our nonautomotive business towards the end of the year. This includes our IP monetization efforts, which we believe will continue to yield benefits and provide an ongoing revenue stream. And as a reminder, with most cases taking multiple years to reach resolution, this is a long-term strategy. We look forward to building on the strong foundation set in fiscal 2025 for long-term, sustainable growth in fiscal 2026 and beyond. While Tony will walk you through the details, we expect fiscal year 2026 revenue to be in the range of $300 to $320 million, marking a 23% year-over-year increase at the midpoint. And this reflects the patent license payment from our Samsung cross-license as well as anticipated 8% growth in our core technology business, which excludes professional services. And we expect professional services to shrink as our newer technology requires less time and engineering to deliver, and OEMs and tier ones continue to grow their internal capabilities. And we expect adjusted EBITDA of $50 to $70 million and free cash flow of $56 to $66 million. We're motivated by all we've achieved in the last year, and believe we have an exciting path ahead of us as we transition into a new phase of growth for Cerence AI. I'll now turn it over to Tony to take you through the details.

Thank you, Brian. Afternoon, everyone, and thank you for joining us today. Appreciate your time and continued interest in our company. Today, I will walk you through our Q4 and full year results, highlight the key drivers behind our performance, and provide guidance for the upcoming quarter and full fiscal year 2026. We ended fiscal 2025 on a strong note, delivering results that exceeded expectations and reinforcing the momentum we've been building all year. As Brian mentioned, Q4 total revenue was $60.6 million, surpassing our projected range of $53 million to $58 million. For the full fiscal year, revenue reached $251.8 million, exceeding our earlier expectations. This performance reflects broad-based strength across our business, disciplined execution, and continued progress in driving growth during the year. Variable license revenue for the quarter was $31.6 million, up 25% year over year, fueled by strong customer utilization, solid in-period shipments, and a tailwind from favorable euro exchange rates. We had no material fixed license deals in the quarter or Q4 of last year. Importantly, we believe this continued shift toward recurring scalable usage-based models strengthens our revenue quality and visibility. For the full year, total license revenue grew 13%, a healthy expansion considering that we had lower fixed license contracts in the current year by about $8 million. Q4 connected service revenue came in at $14.2 million, up 17% year over year, reflecting a continued expansion of our connected installed base. For the year, connected services revenue was $53.4 million, which compares to $133.4 million in fiscal 2024. Though that prior year figure was an anomaly as it included a one-time $86.6 million noncash benefit from a decommissioned legacy contract. Excluding that, connected services actually grew 14% year over year, which we believe shows a steady demand and growing recurring scale. Professional services revenue for Q4 was $14.2 million, down 18% year over year as we continue to standardize our product offerings, streamline custom projects, and gain efficiency in implementations. Also, under applicable accounting rules, certain professional service revenue is deferred when it is included as a component of life licensing pricing. For the full year, professional services declined 21% year over year but was directionally consistent with our focus on higher gross margins. Gross profit for the quarter was $44 million, yielding a 73% gross margin, up from 4% in Q4 of last year, which we believe provides a clear demonstration of the improved mix towards technology revenue. Operating discipline remains a major focus. Q4 non-GAAP operating expenses were $38.3 million, down 3% year over year, reflecting strong cost control while continuing to invest in innovation and growth. For the full year, non-GAAP operating expenses were $146.1 million, down $28.5 million or 16% from last year, highlighting the expected sustained benefit of our cost realignment initiatives. These efficiencies translated into robust bottom-line performance. Q4 adjusted EBITDA was $8.3 million, well above our $2 million to $6 million guidance range. For the full year, adjusted EBITDA reached $48.1 million, doubling our initial expectations when the year began. That is a powerful statement of execution, discipline, and scalability. Our GAAP net loss for Q4 narrowed to $13.4 million from $20.4 million for the same quarter last year. For the full fiscal year, GAAP net loss was $18.7 million. We also made significant progress on our balance sheet during fiscal 2025, we reduced total debt by $87.5 million using cash on hand, and we ended the year with $87 million in total cash and marketable securities. We generated $9.7 million in positive free cash flow in Q4, our sixth consecutive quarter of positive free cash flow, and $46.8 million for the full fiscal year. We are confident in our liquidity position and believe that we will be able to continue funding strategic initiatives from operating cash generation. From a metric standpoint, we shipped approximately 11.7 million units for the quarter, an increase from 10.6 million in the prior year fourth quarter. We also grew the number of our connected cars shipped by 14% on a trailing twelve-month basis, underscoring the continued momentum in vehicle connectivity. Also on a trailing twelve-month basis, 52% of worldwide auto production included Cerence technology, remaining in line with our historical penetration. Adjusted total billings were $230 million, an increase of 8.4% year over year. Our five-year backlog metric is currently approximately $1 billion, up slightly from where it was two quarters ago. As a reminder, our five-year backlog may not be indicative of future actual revenue. As previously discussed, when we look at total licenses shipped, pro forma royalties, and the operating measure we use representing the total value of variable licenses shipped in a quarter, including shipments from prior fixed licenses where revenue was previously recognized upon contract signing. We refer to shipments where revenue was recognized in a prior period as fixed license consumption. Our pro forma royalties were $39.6 million, which were down slightly as compared to $41.9 million in Q4 of last year. Consumption of our previous fixed license contract totaled $8.5 million this quarter, better than the same quarter last year by about 49% and in line with expectations given the lower level of fixed contracts than in historical periods. This drops more of the pro forma royalties into revenue in the current period as compared to a year ago. Our PPU metric increased to $5.05 for the trailing twelve-month period, up 12% from $4.50 for the same period last year, reflecting continued implementation of our improving pricing strategy and an increase in the adoption of connected solutions. Looking ahead, we believe 2026 is shaping up to be an exciting year of growth and profitability. Again, as Brian mentioned, we expect total revenue in the range of $300 to $320 million. At the midpoint, this represents a 23% year-over-year increase. This includes a $49.5 million patent license payment, which we expect to account for as revenue finalized in Q1. A year-over-year comparable $22 million in expected new fixed license contracts, while absorbing modest headwinds from the anticipated continuing reduction of professional services revenue. At the midpoint, we anticipate high single-digit growth in our technology run rates, across both variable license and connected services, underscoring durable demand and expanding recurring contribution. Operating expenses are expected to remain largely stable with an increase primarily related to legal costs tied to IP licensing. For the full year 2026, we expect adjusted EBITDA of $50 million to $70 million, free cash flow of $56 million to $66 million, and gross margins between 79-80%. For Q1 FY 2026, we expect revenue between $110 million and $120 million, again including the $49.5 million patent license payment which we expect to account for as revenue, and roughly $8 million in expected fixed license contracts. Adjusted EBITDA is expected to be between $30 and $40 million. To summarize, fiscal year 2025 was a year of strong execution, improving profitability, and sustained momentum. We exceeded our targets, strengthened our balance sheet, and positioned the company for a year of accelerating growth in fiscal 2026. Our 2026 outlook reflects not just higher revenue and margin expansion, but also the realization of the value of our strong foundational IP portfolio and continued growth from our recurring technology lines. We're confident in the resilience of our business built to drive ongoing innovation, customer success, and long-term shareholder value. Thank you again for your confidence and continued support. With that, I will now turn it back to Brian to close our remarks.

Thanks, Tony. In closing, we are pleased with our results this quarter and incredibly proud of what our team accomplished in fiscal year 2025. For fiscal year 2026, we are focused on three key priorities: driving top-line growth, advancing XUI, and maintaining cost diligence. We believe we have an exciting path ahead and we look forward to sharing more on our Q1 progress in next quarter's call. We'll now open it up for questions.

Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. If you would like to remove yourself from the queue, press star 11 again. We also ask that you please wait for your name and company to be announced before proceeding with your question. The first question that we have today is coming from the line of Jeff Van Rhee of Craig-Hallum Capital Group. Your line is open.

Great. Thanks. A couple. Maybe you start with the IP side. Congrats on the win there. Just to be clear, was that flowing through at a pure profit? And then I'd probably get back into it, but I want to avoid any mistake. What is the assumption for '26 in terms of legal expense?

Hey. It's Tony. Hey, Tony. Thanks for the question. Yeah. A couple things on that IP side. So, yes, you know, we expect that to flow through revenue so that yeah, at a gross the gross amount of $49.5 million. This first one that really we closed in our ongoing process to monetize, you know, our IP outside of automotive, we did this on a contingent basis with the attorneys, so those costs will be recorded in Q1 as well. And I'll give you some numbers in there. It was actually, I think, in our 8-K as well. But so and, you know, it was the international customer. So there was also some withholding tax within Korea. So at the end of the day, that payment will flow through down to the bottom line. And the net amount would be minus roughly again, anticipating that that would be in revenue in Q1. 24, called $24 million of legal cost and a bit of withholding tax as well.

Okay. Yep. And then your second question Yeah. And I was the ongoing legal. Yep. Yeah. Yeah. And so the way we're looking at this now is that you know, we have an option of how we pursue these. Right? And we believe that we will utilize our external legal costs to do it more of an hourly basis to get a higher return kind of on these type of events. And, accordingly, we're looking at the kind of midrange of guidance of about you know, 7 to 8 million of additional legal costs this year.

Okay.

And that's in our guidance. Yes.

Yep. Very helpful.

And then, you talked about the ramp in interest in XUI and some ramping in the proof of concepts, the POCs. Can you just put a little finer point on that? Any quantification, any scope you can put around the degree of increase in interest for that?

We have about this is Brian Jeff We have about half dozen POCs going on with different OEMs. In various levels of the XUI platform, whether it's kind of a continuum XUI that has a variety of options and capabilities. And so that's kind of the number of companies that we're working with or partners that are looking at XUI right now. And you saw we also announced several more ChatPro and certain subscriptions add-ons this quarter and implementations.

Mhmm. Great. Just two last, if I could sneak them in. One on the, connect Connected, nice sequential pickup there. Any if I recall, there are several ways you can take that revenue. I could be mistaken there, is there anything in there that is pull forward, true up, or what I would call sort of an unusual way of taking connected, or is that a clean number?

No. There's really only one way that I know of. And maybe Tony has more But it is always over the life of the contract. And so there's no pull forwards or unique accounting that's being done here. We take a look at the total value of the contract. We look at the lifetime, they're anywhere from one to ten years. There's some that are as long as ten years. The average we've said in the past has been about three. Stays that way still. And so we would break that revenue then out over that three-year period.

Yeah. And so, yeah, definitely, it's clean. I think you're right. You follow us enough to know that, you know, in the case of where we get a billing where we, you know, we continue to monitor activity within the connected side. And if we believe that we work with our OEM and there was any potential underreporting, if we get catch-up billings within connected, we will you know, the relate to past services, we will recognize some of that. But, this quarter was, was rolling out of that.

Okay. Great. Congrats on that. That's not unique about connected. Those true-ups are just it's volume related. Right? And sometimes, takes a while for us to get all of the volumes correct. Between the OEMs and ourselves. Correct.

Yeah. No. Totally understood. And maybe last then, just on the, you talked about sort of the non-automotive opportunities. Ramping in the out year. Maybe spend a second there and sort help us rank order top one, two, three, in the nonautomotive bucket.

Sure. You know, I again, I put our IP monetization in that bucket as well. Right? We set in here. We have other suits going on. And you know, we have a multiyear large list of opportunities in that space. And you really have to take a look at that Those are mostly us getting paid for our technology in nonautomotive space. And in fact, it's all of that. Right? Including the Samsung one. It's nonautomotive revenue. So I do want to clarify that. That is using our technology in a nonautomotive space that we are getting paid for and should have been paid for. We'd always prefer to just do a standard license. But we'll defend it in other words. The other spaces for the nonautomotive I tell you, the first one is the kiosk space. We actually did an implementation this last quarter in South America with a bank. Implementing voice into the kiosks. We have several other POCs going on with kiosks and various types of applications moving forward. So I'd say that's the first priority. Or the first opportunity that's coming due. Then we have we've talked about it in the past. What we call Vinnie. Which is our phone answering chat service. That can be implemented. We're targeting again, spaces that we know. So we're looking at dealerships and automotive space. Basically, you can answer phones, make appointments, do things for the, like, just for your CRM or your service space. There's also other applications in with OEMs in that space as well. Answering a lot of their calls since we already ingest all of the owner's manual. So those would be the first, like, two that I'd tell you that are near term and the products are ready. In fact, those will be at CES in demonstration mode. You'll be able to come see those at our booth in CES.

Mhmm. Thanks so much. Appreciate it.

Bye.

Yeah. I say, you know, the competitive landscape hasn't necessarily changed dramatically. From the standpoint of who our competitors are Right? You know, there aren't we're not seeing anything new or unique What we would say is that you know, more and more of the technology is becoming large language model based. And you're seeing more and more agentic AI in the products. And that's driving you know, the competition more than, I'd say, new players or new additions. So it's the same ones, and I tell you, you know, it's we've talked about them in the past. Google is there. Amazon's there. Those are the big two that we're usually competing against. Thank you.

Thank you. At this time, if you would like to ask a question, please press 11 on your telephone. And I'm not showing any more questions in the queue. So I'd like to turn the call back over to Brian for closing remarks. Please go ahead.

Yes. Thank you. So, again, I would just like to thank everybody. Those were great questions, and I appreciate everybody's time. We're really excited about the results we had for both Q4 2025, but full year 2025. And we're feeling like we really have set the foundation for growth as we go into 2026. And we look forward to talking with you guys at the end of the first quarter here and, you know, showing you great results again and laying out more and more of our strategy for 2026 as we move forward. Thank you very much for the call today. And we look forward to talking to you again later on.