Revenue and Profitability Beat
Q2 revenue of $64.2M exceeded the high end of guidance ($58–62M). Adjusted EBITDA was $7.2M, also above the guidance range of $2–6M, demonstrating outperformance versus expectations.
Cerence
· CRNC
May 7th, 2026
Summary
- Earnings Call Date:
- 2026-05-07
- Change Since:
- -6.26%
- Next Earnings Date:
- 2026-08-11
Earnings Call Sentiment
PositiveThe call presented clear operational and commercial momentum — revenue and adjusted EBITDA beats, strong cash flow, growing recurring connected services (+21% YoY), PPU improvement (+5% YoY), and significant XUI and GenAI customer wins including BYD entering production. Management raised full-year revenue, adjusted EBITDA, and free cash flow guidance. Headwinds were largely timing-related (notably a sharp YoY decline in fixed license revenue) along with higher near-term OpEx due to lower capitalization of R&D and increased legal/IP expenses. Given the breadth of wins, cash generation, and upgraded guidance outweighing the timing-driven negatives, the tone is constructive.
Company Guidance
Cerence guided Q3 revenue of $68–72M (including about $10M of expected fixed license deals), gross margin of 75–76%, adjusted EBITDA of $8–12M, net income of $(1)–$3M and EPS of $(0.02)–$0.07. For fiscal 2026 they raised and narrowed full‑year guidance to revenue $305–320M (midpoint $312.5M), adjusted EBITDA $60–70M (midpoint up ~8%), reaffirmed gross margin of 79–80%, projected net income $(3)–$7M and EPS $(0.07)–$0.15, and raised free cash flow by $10M to $66–76M (a ~16% increase at the midpoint); they also expect full‑year income tax expense of roughly $18–22M. Management noted Q2 results of $64.2M revenue, $7.2M adjusted EBITDA and $13.6M free cash flow as the basis for the outlook and highlighted supporting metrics including five‑year backlog of ~$971M, adjusted total billings of $239M (up 7% YoY), pro forma royalties of $40.3M, PPU of $5.09 TTM (up 5% YoY) and connected cars shipped +12% TTM.
Strong Cash Generation and Free Cash Flow
Generated $14.1M cash from operations and $13.6M free cash flow in Q2. Company ended the quarter with $108.3M cash and cash equivalents and raised full-year free cash flow guidance by $10M (a 16% increase at the midpoint) to $66–76M.
Recurring Revenue Momentum — Connected Services
Connected services revenue grew to $15.3M, up 21% year-over-year, reflecting higher attach rates and expansion of the connected installed base, improving revenue visibility and recurring mix.
Variable License and Billings Growth
Variable license revenue was $31.8M, up 6% year-over-year. Adjusted total billings were $239M, up 7% year-over-year, indicating strengthening top-of-funnel and billing momentum ahead of revenue recognition.
PPU Growth and Installed Penetration
PPU increased to $5.09 on a trailing twelve-month basis, up 5% year-over-year. Approximately 50% of worldwide auto production included Cerence technology, consistent with historical penetration (~50%). Connected cars shipped increased 12% on a trailing twelve-month basis.
Product Wins and Production Starts — XUI & GenAI
Multiple strategic wins across XUI and GenAI: BYD began production with XUI; other named wins include JLR, a VW Group brand, Geely, BMW, Ferrari, Suzuki India, Toyota Europe (adding generative AI), and a multiyear, multiplatform win with a major Japanese automaker (win-back from a hyperscaler). Billings for XUI are ramping with revenue expected to flow in FY2027 and beyond.
Raised Full-Year Guidance
Full-year revenue range raised and narrowed to $305–320M (new midpoint $312.5M). Adjusted EBITDA range narrowed to $60–70M (midpoint increased by 8%). Gross margin guidance reaffirmed (79–80% full year) and net income/EPS ranges narrowed.
Operator
Good day, and thank you for standing by. Welcome to the Cerence Inc. Second Quarter 2026 Earnings Conference Call. At this time, 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 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 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 Inc.’s Second Quarter 2026 Conference Call. 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, priorities, 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 11/20/2025. In addition, the company may refer to certain non-GAAP me...
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