Cerence Inc.

Q3 revenue was approximately $70 million, up 12% from $62 million a year ago and within guidance of $68 million to $72 million. Gross margin was 76% versus 74% last year, adjusted EBITDA was $13.5 million versus $9 million a year ago, and GAAP net income was $1.5 million with diluted EPS of $0.03 versus a net loss of $2.7 million and a loss per share of $0.06 last year. Free cash flow was $20 million, cash from operations was $20 million, and cash and cash equivalents ended at $128 million. For Q4, Cerence guided revenue of $61 million to $65 million, gross margin of 72% to 73%, adjusted EBITDA of $1 million to $5 million, net income of $1 million to $5 million, and diluted EPS of $0.02 to $0.10. For FY26, the company now expects revenue of $310 million to $314 million, gross margin of 78% to 79%, adjusted EBITDA of $66 million to $70 million, and free cash flow of $76 million to $82 million, up from the prior free-cash-flow outlook of $66 million to $76 million.

Brian Krzanich framed the quarter as evidence that Cerence has largely completed the first two phases of his turnaround plan: strengthening the foundation and then executing. He emphasized that xUI is moving from concept to commercialization, that agentic AI is gaining traction, and that non-automotive efforts are starting to move toward revenue contribution. His tone was confident and forward-looking, repeatedly pointing to 2027 as a growth year driven by xUI, connected services, and expansion beyond automotive.

Tony Rodriguez focused on the drivers behind the numbers: higher fixed license revenue, a positive shift toward recurring connected services, and cost discipline. He cited Q3 revenue of approximately $70 million, gross margin of 76%, adjusted EBITDA of $13.5 million, and free cash flow of $20 million, while noting that fixed license revenue was $12.5 million and that no additional fixed license revenue is expected in the rest of FY26. He also highlighted $128 million of cash, $9 million of expected full-year IP-related legal costs excluding the Samsung one-time cost, and the new share repurchase program to buy back up to $30 million of stock over the next 12 months while preserving flexibility for debt and investment priorities.

Analysts focused mainly on the xUI rollout, the timing and economics of the backlog, and the path to FY27 growth. Management said xUI should ramp significantly into 2027, with several OEM launches starting at the end of Q4 or beginning of Q1, and estimated that 2027 could see a couple million xUI vehicles on the road versus about 100,000 today; they also said xUI deals carry longer average life than prior products and higher per-unit pricing. On Q4, management said the sequential revenue step-down is mainly due to the absence of fixed license revenue and normal seasonality, not weakening demand, and they reiterated that connected services should keep growing and that non-automotive activity is beginning to contribute.