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1. Company Snapshot

1.a. Company Description

Cerence Inc.provides AI powered virtual assistants for the mobility/transportation market worldwide.The company offers edge software components; cloud-connected components and related toolkits and applications; and virtual assistant coexistence and professional services.


It also provides conversational artificial intelligence-based solutions, including speech recognition, natural language understanding, speech signal enhancement, text-to-speech, and acoustic modeling technology.Cerence Inc.is headquartered in Burlington, Massachusetts.

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1.b. Last Insights on CRNC

Cerence Inc.'s recent performance was driven by strong Q3 earnings, beating estimates with $0.09 per share, compared to a loss of $0.34 per share expected. The company's AI-powered user experiences continue to gain traction, particularly with Volkswagen, as they advance their partnership to deliver next-gen in-car conversations. Additionally, Cerence AI has filed a patent infringement lawsuit against Apple and developed a mobile work AI agent integrating Microsoft365 Copilot, enabling hands-free mobile work. These advancements showcase Cerence's commitment to innovation and IP protection. (Source: Q3 earnings report, company announcements)

1.c. Company Highlights

2. Cerence Inc. Delivers Strong Q1 2026 Earnings, Driven by Revenue Growth and Record Free Cash Flow

Cerence Inc. reported a robust first quarter of 2026, with revenue reaching $115.1 million and adjusted EBITDA of $44.6 million, surpassing guidance. The company's actual EPS came out at $0.99, significantly beating estimates of -$0.01. Variable license revenue grew 34% year-over-year to $30.59 million, while connected services revenue increased 6% to $14.5 million. The company also recorded $49.5 million in patent license revenue from the resolution of its patent litigation with Samsung. The strong financial performance was highlighted by record quarterly free cash flow of $35.6 million.

Publication Date: Feb -20

📋 Highlights
  • Q1 2026 Financial Outperformance: Revenue $115.1M and adjusted EBITDA $44.6M exceeded guidance, driven by $4M lower legal costs from Samsung settlement and deferred R&D projects.
  • Record Free Cash Flow: Achieved $35.6M in Q1, reflecting strong operational efficiency and cost discipline amid strategic growth initiatives.
  • XUI Platform Momentum: Secured five major customer programs with high PPU growth expected, alongside partnerships with GM, Mercedes Benz, and Daihatsu.
  • Connected Services Growth: Patent license revenue surged $49.5M from Samsung litigation, while connected services revenue rose 6% YoY to $14.5M.
  • Future Revenue Catalysts: New deals with major automakers (e.g., BYD, GWM) and a five-year backlog will boost TTM billings, with PPU pricing above $5.05 expected to drive margins.

Operational Highlights and Growth Initiatives

Cerence made significant progress in driving business through innovation, showcasing its next-gen platform, XUI, at CES. The company completed the development of new AI agents, including a mobile work agent developed with Microsoft. With five significant customer programs for XUI, high PPU growth is expected. The company also saw strong customer traction outside of XUI, signing deals with major automakers like GM, Mercedes Benz, and Daihatsu. Eight programs started production, including BYD, GWM, and HKMC, demonstrating the company's expanding presence in the automotive sector.

Financial Guidance and Outlook

Cerence guided Q2 2026 revenue between $58 million to $62 million and adjusted EBITDA of $2 million to $6 million. The company reaffirmed its full-year guidance, with revenue between $300 million and $320 million and adjusted EBITDA between $50 and $70 million. Cerence ended the quarter with $92.1 million of cash and marketable securities, providing a solid foundation for future growth. Analysts estimate next year's revenue growth at -8.8%, indicating a challenging environment, but the company's strong Q1 performance and reaffirmed guidance suggest a positive outlook.

Valuation and Key Metrics

Cerence's current valuation metrics show a mixed picture, with a P/E Ratio of 1088.27 and P/S Ratio of 1.16. The EV/EBITDA ratio stands at 8.07, indicating a relatively reasonable valuation given the company's growth prospects. The Free Cash Flow Yield is 20.42%, highlighting the company's ability to generate cash. With a ROE of 0.22% and ROIC of 0.09%, Cerence's profitability metrics are relatively low, but the company's focus on driving top-line growth and advancing its business through leading technology is expected to improve these metrics in the long term. As CEO Brian Krzanich noted, the Q1 results demonstrate the company's "great start to fiscal 2026, with significant deals signed on XUI, demonstrating the technology's power and competitiveness."

3. NewsRoom

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Cerence Inc. (CRNC) Q1 2026 Earnings Call Transcript

Feb -05

Source: seekingalpha.com

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Cerence (CRNC) Q1 Earnings and Revenues Surpass Estimates

Feb -04

Source: zacks.com

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Cerence Delivers Strong Q1 FY26 Results, with Record-Setting Free Cash Flow, Adjusted EBITDA Above Guidance, and Accelerating Technology and Customer Momentum

Feb -04

Source: globenewswire.com

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Neusoft Teams With Cerence AI To Build Next-Gen Intelligent Car Cockpits

Jan -22

Source: feeds.benzinga.com

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Neusoft and Cerence AI Sign Strategic Cooperation Agreement to Deliver an AI-Powered Automotive Cockpit Platform

Jan -22

Source: prnewswire.com

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Geely Auto Selects Cerence xUI to Power its Next-Gen, LLM-Powered In-Car AI Experience

Jan -05

Source: globenewswire.com

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Cerence Announces Repurchase of $30 Million of 1.50% Convertible Senior Notes Due 2028

Dec -24

Source: globenewswire.com

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Cerence: A Conversational AI Automotive Specialist With Multiple Tailwinds Going For It

Dec -10

Source: seekingalpha.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (23.48%)

6. Segments

License

Expected Growth: 27.15%

Cerence Inc.'s license growth of 27.15% is driven by increasing demand for AI-powered conversational AI platforms, expansion into new markets, and strategic partnerships. Additionally, the growing adoption of voice-activated technologies in the automotive and IoT industries, as well as the need for enhanced customer experience, are contributing to this growth.

Connected Services

Expected Growth: 13.53%

Cerence's Connected Services segment growth is driven by increasing demand for cloud-based voice assistants, rising adoption of electric and autonomous vehicles, and growing need for personalized in-car experiences. Additionally, strategic partnerships and collaborations with major OEMs and technology companies are fueling growth, as well as the company's continued innovation in AI-powered conversational AI and natural language processing.

Professional Services

Expected Growth: 26.37%

Cerence Inc.'s Professional Services segment growth of 26.37% is driven by increasing demand for AI-powered conversational AI solutions, expansion into new markets, and strategic partnerships. Additionally, the company's focus on innovation, customer satisfaction, and cost optimization have contributed to this growth.

7. Detailed Products

Cerence Drive

An AI-powered automotive software platform that enables OEMs to create personalized, intuitive, and immersive in-car experiences.

Cerence ARK

A cloud-based platform that enables the development, deployment, and management of conversational AI experiences across various industries.

Cerence Studio

A suite of tools and services that enables the development, testing, and deployment of conversational AI experiences.

Cerence Voice AI

A conversational AI technology that enables devices and applications to understand and respond to voice commands.

Cerence Mobility

A suite of solutions that enables the development of connected and autonomous vehicles.

8. Cerence Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Cerence Inc. faces moderate threat from substitutes due to the presence of alternative speech recognition technologies.

Bargaining Power Of Customers

Cerence Inc. has a diverse customer base, which reduces the bargaining power of individual customers.

Bargaining Power Of Suppliers

Cerence Inc. relies on a few key suppliers for its technology and components, giving them moderate bargaining power.

Threat Of New Entrants

The speech recognition technology market is highly competitive, and new entrants can easily disrupt the market with innovative solutions.

Intensity Of Rivalry

The speech recognition technology market is highly competitive, with many established players competing for market share.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 29.40%
Debt Cost 3.95%
Equity Weight 70.60%
Equity Cost 16.77%
WACC 13.00%
Leverage 41.64%

11. Quality Control: Cerence Inc. passed 2 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Vacasa

A-Score: 4.7/10

Value: 7.6

Growth: 3.6

Quality: 3.5

Yield: 0.0

Momentum: 9.5

Volatility: 3.7

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Digital Turbine

A-Score: 3.9/10

Value: 5.1

Growth: 3.3

Quality: 4.4

Yield: 0.0

Momentum: 10.0

Volatility: 0.7

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Sprout Social

A-Score: 3.4/10

Value: 6.5

Growth: 6.0

Quality: 4.5

Yield: 0.0

Momentum: 0.0

Volatility: 3.7

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Cerence

A-Score: 3.2/10

Value: 5.1

Growth: 3.8

Quality: 2.8

Yield: 0.0

Momentum: 7.0

Volatility: 0.3

1-Year Total Return ->

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Expensify

A-Score: 3.2/10

Value: 8.7

Growth: 2.7

Quality: 4.0

Yield: 0.0

Momentum: 1.0

Volatility: 2.7

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Upland Software

A-Score: 2.6/10

Value: 8.0

Growth: 3.1

Quality: 2.4

Yield: 0.0

Momentum: 1.0

Volatility: 1.0

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

7.92$

Current Price

7.92$

Potential

0.00%

Expected Cash-Flows