Cerence (CRNC) Q3 FY26 earnings call: guidance and Q&A

What are the financial implications of the XUI backlog, including the new Stellantis win, for revenue and profits once fully ramped, and how long will this take?

XUI is expected to drive significant growth in FY27, with a projected couple of million XUI cars on the road. It will result in higher average price per unit and longer connected vehicle license terms (average 7 years). The impact will be gradual as programs ramp up, contributing to both revenue and profitability growth.

“If I looked at 27 in total, I think you should see a couple million cars on the road X, Y versus the 100,000 that we have today. financially what that'll mean is we get paid the same way we do with the prior products where we get um the connect the the license fee when the product uh the car is shipped from the factory and then the connected uh fee over the life of the connection and what we're seeing is these licenses for connected vehicles are actually going longer we said in the past that our average was like three years, uh, the average of the XUI deals would be more close to seven years.”

asked by Mark Delaney · answered by Brian Krzanich

Can management provide qualitative insights into the FY27 revenue trajectory, including key puts and takes, ahead of formal guidance?

The company expects high single to low double-digit overall growth in FY27, driven by strong growth in connected services (fueled by XUI), increased average price per unit from XUI, and significant growth in the non-automotive space. Non-automotive is expected to grow faster as a percentage than automotive. This outlook does not include potential IP monetization.

“If I look into 27, yes, I think overall, you'll see us in the high single to low double digits overall growth. But again, what I think you'll see is strong growth in connected because the XUI vehicles will be the driver of a lot of those connected vehicles. You'll see strong growth in PPU as connected as XUI continues to grow more into the product base. And then, we plan on having significant growth in the in the non-automotive space for next year.”

asked by Mark Delaney · answered by Brian Krzanich

Are there any factors outside of normal seasonality impacting Q4 production schedules and licensing revenue, or have things been relatively stable?

Management highlighted some volume declines in Q3 year-over-year due to strong prior-year comparisons (tariff build-ahead). However, for Q3 to Q4, they do not see any material changes off of current volumes beyond a slight, typical seasonal decrease. The variable license business remains sensitive to broader market volumes.

“But as we think about Q3 to Q4, I don't see really any movement off of those volumes other than potentially. We look back in history and there is oftentimes a slight decrease in our Q4 in, you know, with regard to volumes, but not anything really material that we're seeing.”

asked by Unknown Speaker · answered by Antonio Rodriquez

Could management provide an update on the BYD XUI launch and details on the competitive environment and key parameters for the Stellantis win?

BYD is part of the 100,000 XUI vehicles on the road, with the ramp progressing well by geography and language. Feedback on XUI has been positive. For competitive wins like Stellantis, the sales cycle is long (at least six months), involving RFQs, technology proposals, and significant support. Competition narrows to one or two vendors, with differentiation primarily based on features and support rather than price, leading to significantly higher average prices per unit for XUI deals.

“What's interesting to me is it's not been a price war. It hasn't been, well, we need another dollar out of this or something like that. It's really been more about features and support. Can you support all of the interconnects they want, the connections? to other third party products that they're trying to do to personalize the vehicle.”

asked by Unknown Speaker · answered by Brian Krzanich

What is driving the implied rebound in variable license and pro forma royalties in Q4, excluding fixed license revenue? Is it a rebound in unit volume or percentage of cars shipped?

The Q4 outlook reflects a return to typical seasonal production vehicle output numbers. The company expects continued strong growth in connected services, similar to the 20% YoY growth seen in Q3. This, combined with normal seasonality, supports the Q4 numbers. Additionally, some non-automotive activity contributes to the increase.

“what you're really just seeing, like Tony said, was we see kind of a return to the typical seasonal Q4 output numbers from production vehicles. We're seeing more and more connected. We saw 20% year-over-year growth in the third quarter in connected. You know, we're going to see similar kinds of growth in the fourth quarter for connected as well.”

asked by Daniel Hibshman · answered by Brian Krzanich