Cerence Inc.

Good day, and welcome to CERN's fourth quarter 2024 earnings call. At this time, all participants are listening on remote. After this previous presentation, there will be a question and answer session. To ask a question, please press star 1-1. If your question hasn't been answered and you'd like to remove yourself from the queue, please press star 1-1 again. As a reminder, this call may be recorded. I would like to turn the call over to Jason Gold, Investor Relations at CERN. Please go ahead.

Welcome to CERNS' fourth quarter of fiscal year 2024 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, estimates, assumptions, beliefs, outlook, strategy, goals, objectives, targets, and plans, should be considered to be forward-looking statements. CERENS 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 as described in our SEC filings, including the Form 8K with the press release preceding today's call, our Form 10K filed on November 29, 2023, and our most recent Form 10Q. 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 IR section of our website. Joining me on today's call are Brian Krzanich, CEO of CERNS, and Tony Rodriguez, Interim CFO of CERNS. Please note that the slides with further context are available in the investor section of our website. Now onto the call. Brian?

Thank you, Jason. Good morning, everyone, and welcome to the Q4 2024 CERNS earnings call. I'm excited to talk to you this morning as CERNS' new CEO. While Tony will walk you through the details of our Q4 and fiscal year 24 earnings, I'm very proud of what the organization has delivered for Q4. The top line revenue of $54.8 million and adjusted EBITDA of negative $1.9 million, both exceeded the high end of our guidance. I couldn't be more proud of what the team has accomplished and the head start this gives us for 2025. Before I give you our forecast for 2025, I'd like to spend a few minutes now to talk to you about my vision for Ceres, which also gives you insight into why I chose to come to the company. So, CIRNS is at the forefront of the revolution that is occurring in the automotive industry as AI, specifically generative AI and large language models, grow in use and importance. CIRNS already has a large footprint in the automotive space with a broad range of products that bring voice assistance to the vehicle, including 28 design wins in fiscal year 24. Our vision moving forward is that every product in our solution portfolio will have artificial intelligence and specifically large language models built into them to bring simplicity and convenience to in-car interaction. And this is not a transition that will happen far out in the future, but rather one that has already begun in earnest. This is evidenced by the strong momentum we've seen for our generative AI solutions. with 10 customer wins and six program launches for these products in fiscal year 24, including Volkswagen, Renault, Skoda, Audi, and Smart. And importantly, more Gen AI programs shipped than any of our competitors and key wins across our solution portfolio with automakers like BMW, Great Wall Motor, and Zeker. It's worth mentioning that in these deals we've signed so far, our generative AI solutions are commanding unit economics that meaningfully exceed the rest of our portfolio, fueling PPU growth on the cloud side. These first deployments also show an increase in overall usage and adoption, and this is based on a small sample size and short timeframe, but we are encouraged by these results. This quarter, we also signed our first customer deal for the first generation of our new AI platform, which is based on a proprietary family of language models. By the fourth quarter of this year, we will launch the second generation of this platform, which leverages large language models across the entire solution and allows us to greatly simplify and speed up how we bring new products to the market. In fact, just last week, we introduced Calm Edge, which builds on our strength in embedded solutions as the first LLM running in automotive on the edge, allowing for advanced and simplified voice interaction with the vehicle, even when not connected. We did this in collaboration with Microsoft, who selected SIRENS as their preferred automotive industry partner as they announced their adapted AI models ahead of this week's Ignite conference. Microsoft is partnering with SIRENS and other industry leaders like Bayer and Siemens to create fine-tuned models pre-trained using industry-specific data to address customers' top use cases, as was highlighted in Microsoft CEO Satya Nadella's keynote earlier this week in their Ignite conference. The implementation of LLMs is an important transition for voice in the vehicle, and I want to spend a moment explaining why. In most cars today, in order to interact with the various systems in the vehicle, You have to use very specific commands. For example, to enter an address, you have to use navigation or to operate systems within the vehicle like air conditioning or windows. With the implementation of LLMs, we removed the need for script for interaction. And the assistant's ability to understand complex and multi-step commands in natural human language becomes virtually limitless. The vehicle now becomes an assistant that saves you time and simplifies your life. In addition to our deep technical expertise, the world's leading automakers and tier one suppliers love to work with CERNs because we're a uniquely neutral and highly specialized supplier, living and breathing automotive and speaking the same language as our customers, unlike our competitors. As auto OEMs face the threat of commoditization, much like what was seen in the mobile handset industry years ago, They are becoming increasingly focused on the in-cabin experience as a differentiator from their competitors, as well as the main touchpoint between their drivers and their brand. And they're also choosing to partner with Ference to drive their in-car experiences forward. Now looking at fiscal year 2025, we're issuing initial fiscal year 2025 revenue guidance of $236 million to $247 million. with related adjusted EBITDA in the range of $15 million to $26 million, and free cash flow in the range of $20 million to $30 million. And this anticipates a return to profitability that represents both our strong market position, partnerships with vehicle OEMs, and the hard work the organization has already done in terms of cost reductions, which Tony will cover in detail in a few minutes. For fiscal year 2025, we will transition from doing broad cost cutting to simplifying and streamlining our organization and our structure to continue taking cost and spending out of Serence. It's been my observation that Serence has been burdened by the operational and business process and complexities that resulted from the company's 2019 spin from Nuance. With a new set of eyes, I believe that I can provide a perspective to find more efficient and productive ways to accomplish the same task, while also finding opportunities to vastly improve our speed to market and get exceptional products into the hands of our customers at a more rapid and competitive pace. This is my first earnings call as CEO of Ceres, and I hope you see the vision and potential of the company that I do. And that led me to joining the company. CERNS is bringing AI and large language model capabilities to the vehicle now, not just in the future. Fiscal year 2025 will be a year of execution, streamlining the company and bringing these industry leading products to our partners in the market. Our fiscal year 2025 plan is to return the CERNS to profitability, a critical step to fuel the future growth. CERNS is a strong company with an exciting path ahead. It's now my job to turn this strong company into a great business. With that, I'll turn it over to Tony to go through the details of our quarterly numbers, our guidance, and our restructuring activities. Tony?