Cerence Inc.

Good day and thank you for standing by. Welcome to the SAHRN's third quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Kate Hickman, Vice President of Corporate Communications and Investor Relations. Please go ahead.

Hello everyone and welcome to SAHRN's third quarter 2025 conference call. I'm Kate Hickman, VP of Corporate Communications and Investor Relations. 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, objectives, targets and plans are forward-looking statements. SAHRN's 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 8K with the press release proceeding today's call, our most recent form 10Q and our form 10K filed on November 25th, 2024. 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 investor section of our website. Joining me on today's call are Brian Krzanich, CEO and Tony Rodriguez, CFO. Please note that slides with further context are available in the investor section of our website. Before handing the call over to Brian, I would like to mention that we will be participating in the Raymond James Industrial and Energy Showcase on August 13th and 14th and the Needham Virtual Semiconductor and Semi-Cav Conference on August 20th and 21st. Now onto the call, Brian.

Thank you, Kate. Good afternoon, everyone, and welcome to the Q3 2025, Serent's earnings call. I'm excited to speak with you today. We are very pleased with our strong results this quarter, exceeding the high end of our guidance with revenue of $62.2 million and adjusted a bit of $9 million. Importantly, we generated strong free cash flow of $16.1 million, marking our fifth consecutive quarter of positive free cash flow. And for the full fiscal year, we are raising and narrowing revenue guidance to $244 million to $249 million. This brings the low end of our guidance range above the previous midpoint. And Tony will provide further details on our results later in the call. We continue to make progress on our three key deliverables for 2025, advancing our AI roadmap, growing our business with new and existing customers, and continuing our transformation in cost management. First, we continue to advance the development of Serent's XUI, our next generation hybrid, agentic AI assistant platform. While we previously differentiated between XUI Gen 1 and Gen 2, it's important to understand that XUI is not a static product, but rather a dynamic platform that is continuously evolving with new capabilities and features like multimodal modality and emotion detection, rolling out over a strategic multi-year roadmap. In addition, XUI is designed to scale alongside our OEM customers development cycle, ensuring alignment with their evolving -to-market strategies and technical roadmap. We are firmly on schedule with the major milestones on this roadmap, highlighting our disciplined execution and commitment to delivering long-term, scalable value through AI innovation. And with that, we reach several important milestones for XUI within the quarter, including increasing language availability and advancing the platform's contextual reasoning capabilities. In addition, we continue to expand our partnerships with chip providers like ARM, enabling us to flexibly distribute and share computational nodes between CPUs and GPUs to deliver improved speed and performance on the edge. And we believe this approach makes XUI one of the most powerful and flexible agentic AI platforms in the automotive space. And we're gearing up for another exciting milestone in September when we will showcase XUI at the International Auto Show in Munich. In Q3, we also continue to define and advance our AI agentic strategy within XUI. We're focused on developing our own standalone agents, namely a real-time knowledge agent and an integrated navigation and EV charging agent, as well as empowering OEMs to integrate their own agents. Our CALM family of proprietary language models is critical to this effort, enabling streamlined interoperability by serving as the orchestrator that helps ensure consistent behavior and seamless integration across agents to deliver a seamless user experience. And we believe that the flexibility and openness of our architecture, alongside our unmatched automotive expertise, continue to be differentiators for Serence, especially as OEMs navigate the complexity and ambiguity of the current market while still looking for ways to improve the user experience in their vehicles. And we believe OEMs continue to choose Serence and are excited by XUI for three main reasons. One, our deep automotive expertise, which allows us to quickly and efficiently integrate into the OEMs hardware to access vehicle data and manage vehicle functions. There are up to thousands of automotive-specific operations and commands, along with complex hardware and software, that require intelligent integration to function. Two, our open agnostic architecture and business model. Technology is evolving rapidly, making it difficult for OEMs to predict the future. At the same time, their customers are expecting LLM-based solutions in their vehicles today. This puts automakers in a difficult position to having to make decisions today without knowing what the future will hold. This is a tailwind for Serence. As we offer the architectural and operational flexibility and domain expertise that can help them bridge this gap, enabling OEMs to bring LLM-powered capabilities to customers today and in the future, while also maintaining ownership over their brand experience and data. And third, our team. We believe we have the best in the industry working at Serence AI, and the majority of our team have long relationships with our automaker customers. This makes us easy to work with, as we know the ins and outs of how our customers work. Now as a result, we continue to see strong customer interest in XUI. In Fiscal Q3, we signed a deal within the Volkswagen Group for one of its brands to have XUI as the basis of its next gen system. We also expanded our work with JLR, bringing additional generative AI capabilities to their current platform, as we work in parallel to build their future in-car experience based on XUI. And importantly, we're continuing to see an increased PPU with these deals, and we continue to have a robust pipeline of ongoing customer interest, with a steady stream of proof of concept programs across North America, German, Japanese, and Chinese OEMs. Continuing on our deliverables for 2025, the second is to further grow our business with new and existing customers. We have a strong global momentum with our customers, including new design wins with Dahatsu and Hyundai, as well as program extensions and renewals with Great Wall Motors and GM. Six major customer programs started production this quarter, including a BYD program for outside of China that spans 14 languages, illustrating that Chinese OEMs continue to look at CERNs to support their global expansion. The previously announced generative AI program with SMART, as well as programs with Audi, Geely, Mahindra, Nissan, and PSA also went live within the fiscal Q3. Our commitment to partnering and supporting our customers is also being recognized. We received formal letters and appreciation of our collaboration from two major customers in China, and we signed a new professional services agreement with Mercedes-Benz. Our work with Mercedes-Benz signals our ability to deliver core foundational technology in coexistence with big tech and OEMs, evolving agentic AI strategies as evidenced by our work on the latest generation of MBUX that first rolled out in the new electric CLA. We continue our efforts outside of automotive as well, with deep focus on identifying new verticals where we think we have a solid value proposition and can win. We're being careful to understand these markets and the existing players within them, and we're working with vertical partners to help us with -to-market technology. This process, along with executing -of-concept programs, ensures we don't over-invest before we know we have a good product and a market. For example, we have developed a call center agent and are working to identify a -to-market partner for this offer. At this time, the agent is focused on service-related customer interactions in the car, where we can use our vast car knowledge and already ingested vehicle data to support incoming calls and requests. But we could see this solution being applied across a myriad of industries. We also formally announced our partnership with LG, which is leveraging our cloud, neural, and edge -to-speech to power voice interaction across its global television lineup, spanning 65 voices and languages across tens of millions of households. Seren's TTS enables LG TVs to quickly respond to user inquiries via natural spoken words, creating a more natural, human-like user experience and simplifying users' interactions as they search for content and programming. So for example, the user could say, find me movies with Tom Cruise, and the TV can respond out loud while displaying options on the screen, saying something like, you must like Tom Cruise. I looked up some of his movies. Do any of them interest you? Beyond the clear user experience benefits, Seren's TTS also enables LG to meet increasing accessibility requirements worldwide by ensuring that its television can be easily operated by people of all abilities. As a reminder, we believe the impact of our work to expand beyond automotive will be seen in our revenue and profitability in late fiscal 2026 and beyond. The third key deliverable for 2025 is to continue our transformation and cost management. As you can see from our continued strong cash performance, we are seeing the real benefits from this work, and it is being delivered to the bottom line for our shareholders. We continue to identify opportunities for further cost savings. Importantly, as we stated in our last earnings call, we did not see meaningful impact from tariffs on this quarter's results. For fiscal Q4, and therefore for fiscal 2025, we believe the impacts will remain limited. However, it's important to note that the situation remains fluid and may evolve over the remainder of the year. We are seeing third-party projections of vehicle volumes down approximately .5% for Q4, and we're seeing some programs continue to push out and be delayed. With this in mind, we're working cooperatively with our customers to find ways to optimize our partnership to best support them while also maintaining favorable conditions for tariffs. Lastly, we have a long history of investing in our technology, and we have and will continue to defend our strong IP. We want those who are infringing our intellectual property to know that we're serious about this effort. We have recently filed actions against Sony and TCL for their television's infringement of our voice technology patent. In conclusion, we're proud of what our team has accomplished this quarter, and are encouraged by our results and our ongoing opportunities. We believe that we remain well positioned to support our customers and differentiate by our combination of technology and innovation, our diverse and expansive customer base, and our deep automotive expertise. Our forecast for fiscal Q4 and 2025 demonstrates the strength of our products and the great work we've done to drive financial returns for our shareholders. With that, I'll turn it over to Tony.

Thank you, Brian. Good afternoon, everyone, and thank you for joining our Q3 FY25 earnings call. We appreciate your time and interest in our company. Today, I'll be reviewing our Q3 results for fiscal 2025 and providing some guidance for our fourth quarter and resulting full fiscal year. Let's get into the Q3 operating statement. For Q3 FY25, we reported total revenue of $62.2 million, which was above the high end of our guidance range of $52 to $56 million. We saw strong contributions across all of our revenue lines. Variable license revenue was $34.2 million, up 48% year over year, reflecting solid utilization across our customer base and reflecting more in period revenue from licensed shipments as compared to the prior year quarter, given the lower level of recent fixed contracts than in historical periods. We saw higher than expected volumes, possibly due to manufacturers producing ahead of potential tariff impacts and received benefit from favorable exchange rates on the euro. As expected, we recognize no fixed license revenue this quarter compared to $20 million in Q3 of last year, reflecting our continued strategic shift away from large upfront license deal. To reiterate, fixed license arrangements involves customers paying early on a non-refundable basis in exchange for discounted rates. While these deals provide short-term cash benefits and meet certain customer needs, we've made a deliberate decision over the past two years to strengthen our pricing strategy and better align revenue recognition with product delivery. Historically, fixed license revenue reaches high at $70 million annually. Last year, it totaled $30 million. For this fiscal year, we planned approximately $20 million in fiscal Q2, primarily tied to budgeting cycles of our Asian-based customers. Going forward, we are comfortable in this $20 million range annually. As a result, while total license revenue declined .6% year over year this quarter, the underlying mix continues to shift toward more recurring and scalable usage-based models versus upfront fixed license arrangements. Connected services revenue was $12.8 million, up 17% year over year, driven by steady growth in our connected install base. Professional services came in at $15.2 million, down 8% from prior year, reflecting a lower mix of custom work and greater implementation efficiency. Gross profit for the quarter was $45.9 million, yielding a gross margin of 74% compared to 72% in Q3 of fiscal 2024. The increase was largely due to a higher mix of technology revenue, offset by the absence of high-margin fixed license revenue. Non-GAAP operating expenses came in at $39.6 million, a 3% or $1.1 million reduction year over year. Q3 of last year benefited from a $2.4 million bad debt recovery. Otherwise, the year over year reduction would have been 11%. This reflects focused expense management while maintaining strategic investment in R&D. As a result, our adjusted EBITDA for the quarter was $9 million, which is well above our guidance range of $1 to $4 million. Our GAAP net loss for Q3 was $3 million, compared to a net loss of $314 million for the same quarter last year. In Q3 of last fiscal year, the company reported a goodwill impairment charge of $357 million. This was a non-cash charge that only affected our GAAP results. From a metric standpoint, we shipped 12.4 million units this quarter, an increase from a 12.1 million in prior year. We also grew our number of connected cards shipped by 12%, underscoring the continued momentum of investment in vehicle connectivity. We captured 52% of worldwide auto production, remaining in line with our historical penetration. Adjusted total billings were $226 million, an increase of .5% year over year, and consistent with plan. As a reminder, when we look at total licenses shipped, pro forma royalties is an operating measure we use representing the total value of variable licenses shipped in a quarter, including the shipments from fixed licenses where the revenue was previously recognized upon contract signing. We refer to the shipments where revenue was recognized in a prior period as fixed license consumption. Our pro forma royalties were $43.2 million, which were higher by $3.5 million, as compared to $39.7 million in Q3 of last year. However, the consumption of our previous fixed license contracts totaled $9.1 million this quarter, lower than the same quarter last year by about 7% and in line with expectations. This drops more of the pro forma royalties into revenue in the current period as compared to a year ago. As discussed in previous calls, we anticipate a lower level of consumption given our lower level of fixed contracts than in historical periods. Our PTU metric increased to $4.91 for the trailing 12-month period, up from $4.47 for the same period last year, reflecting continued implementation of our improved pricing strategy and an increase in the adoption of connected solutions. When evaluating our liquidity position this fiscal year, we have been successful in reducing our total debt by $87.5 million using cash on hand. In Q1, we repurchased $27.4 million in principal value of our 2025 convertible notes and fully repaid the remaining $60.1 million in June. Combined with our $16.1 million of positive free cash flow during the quarter, our fifth consecutive quarter of generating positive free cash flow, we ended the quarter with $79.1 million in cash and marketable securities. We're comfortable in operating the business at this levels supported by the expectation of continued positive cash flow. Now turning to our guidance. For Q4, we currently expect revenue to be in the range of 53 to 58 million. As mentioned, we believe some portion of the Q3 upside was due to higher than expected production within the quarter, possibly due to OEMs producing ahead of tariff impacts in Q4. In addition, we expect no material fixed license revenue to be signed in Q4. And we expect to see normal seasonality where volumes in Q4 tend to be lower than Q3. With no fixed license revenue forecast in Q4, we expect gross margins to be in the range of 68 to 69%. Gap net loss to be at the range of 18 to 22 million and adjusted EBITDA to be in the range of two to 6 million. With that, given our strong performance in Q3 and our Q4 guidance, ranges for full fiscal year expectations for revenue, adjusted EBITDA and free cash flow have improved and narrowed. Revenue guidance is moving from a range between 236 million and $247 million to a range between 244 and $249 million. This brings the low end of our guidance range above the previous midpoint. In addition, we are raising our adjusted EBITDA guidance range to 42 to $46 million. And our expected free cash flow range has increased to 38 to $42 million. To summarize, we believe our Q3 performance demonstrates meaningful progress across variable revenue, recurring connected services and expense discipline. We remain confident in our long-term strategy and we are actively managing our expenses while continuing to invest in innovation and customer value. Thank you again for your continued support. With that, I will turn it back to Brian to close our remarks.

Thanks, Tony. In closing, we're pleased with our results this quarter and proud of what our team has accomplished. Through the remainder of the fiscal 2025, we remain focused on our key deliverables, advancing our AI roadmap, growing our business with new and existing customers and continuing our transformation in cost management. And we look forward to sharing more on our view for fiscal 2026 in the next quarter's call. We'll now open it up for questions.

As a reminder, if you'd like to ask a question at this time, please press star 1-1 on your touchtone telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Nick Doyle with Needham.

Hey, guys. Thanks for taking my questions and congrats on the PTU progress. Can you expand on what drove the increases this quarter? Was that across both license and connected services? And you talked about six programs, these GEN-AI programs going into production, but it's right to think you're talking about that's too early for that to really impact a PTU line this quarter. So any more detail there would be great. Thank you.

Sure. And you're right. It's too early for those to impact PTU. As we know, it's a trailing 12-month number, and those will come in as we really deliver against that. But yeah, on the delivery for Q3, it was across all three lines. So if you think about the embedded side, we saw more volume from the embedded license this quarter. So if you remember from previous discussions on revenue recognition for the embedded licenses that are shipped, those would get recognized in quarters. So we saw a higher volume there. And because of that higher volume, the way the fair value works for fair value accounting is some of it, when we originally booked these contracts, some of that value goes to professional services. And so when we saw higher value on the embedded side, we also had an increase in the usage side of professional services. So you saw it embedded up, you saw professional services up as well. And then from a connected side, we saw an increase as we noted, but that was really kind of in line with expectations. You know, we've talked about this before. Remember that our customers self-report their royalty volumes. And so, you know, we have to accrue a certain amount until we get those royalty reports. And in some periods, we have catch-up, you know, kind of true-ups to what we've accrued to what this actually came in. So we also had some additional true-ups, which impacted the embedded line and the professional services line as well. And those are normal for the business, but they, you know, I think they were a little bit higher than normal this quarter. And then lastly, we saw an increase in the euro exchange, the dollar that benefited all of the line items as well.

Yeah, Nick, I think part of the rest of your question was, you know, six new programs. Are they affecting PPU this quarter? You're right. No, they'll go into implementation over the next quarter or two, depending on the program. You know, we are seeing, as Tony said, more connected devices or vehicles. We're seeing some upgrades as OEMs, you know, choose to push out some of the newer programs, but then we can offer them upgrades through the cloud, things like that that are driving the PPU. So more connected, more features. The cloud gives us the option to really have that flexibility, to offer them things that we can download overnight,

literally. Thanks. And then a clarification. I mean, sometimes you call out what that true-up number was. Was it not material enough to call it out this quarter?

Yeah. And I think what we've said in the past, we have a material number with any single customer, and I think there was nothing material in a single customer, but we had true-ups across the board that were probably a little higher than in previous quarters. And again, as we do those, it's a normal course of how we record revenue, right, as we get actuals versus what we've accrued for in the past. So nothing material for any single, but a fair amount compared to previous quarters overall.

Understood. And a bit of a macro question here. Just what are your customers saying in terms of auto production in the next six months? I mean, you mentioned this in your script, Tony. I think investors are concerned of a weakening second half, and some of that's contemplated in the guide, but are you thinking this will impact the December quarter as well? I guess how much do you think was pulled in company-wide, industry-wide, just from your point of view? Thank you.

Let me start, and then Tony can go into more detail. But so each quarter, we've kind of told you we don't see much of an impact in the next quarter in tariffs and things like that. And so far, that's held. We do think there was a certain amount of build-ahead in Q3 that occurred. It's a little bit hard for us to pin it down exactly how much, Nick, was, but that's a little bit why Q3 was so high, and Q4 is kind of more of a standard quarter, where that's just some of the build-ahead we're seeing. And then, but in the overall year, we're actually up, and we've raised our guidance and raised the bottom of our guidance above the midpoint prior. That all shows that we believe the year will end out strong, right? As we go on to next year, I'm just going to be honest with you, we're not going to try and forecast next year yet. We have some initial IHS data that suggests there's some decrease in volume. What we don't know is there's a bunch of, you know, we talked about the number of PLCs and new programs. We talked about the six that we won this quarter. Those all have to be factored into that. So we have offsetting. We believe the connected vehicles will grow. So all of those things will, you know, balance each other, and we'll sit down and figure out how 2026 and Q1 of 2026 fiscal looks as we go through this quarter, and we'll give you those numbers at the end of the quarter. But right now, we believe Q4 will hold to our numbers. It means a strong year, raising guidance, raising midpoint, raising above the midpoint of the prior forecast. So closing out the year strong.

Yeah, I think that's well said. And I think if you think of our second half, when you combine Q3 and our Q4 guidance, we're ahead of, you know, kind of where our second half was. So, yeah, maybe a little bit of pull forward. We factored that into a little bit of a volume decrease in Q4. But the other side of it is, as I mentioned, we had some true ups, you know, this kind of across the board this quarter. Well, you know, that part of it is a little bit of catch up. But the other side is kind of new run rates for some of these programs that we have to bake into, you know, and sort of a little bit higher, bake those into our overall volume run rates. So a lot of puts and calls, but that's reflected in our full year guidance, which now is higher than, as we said from last quarter, as we've pulled that guidance upward. And, you know, we'll take a look at how that impacts 26 as we finish up the year.

Really helpful. Thanks, guys. Thank you.

Our next question comes from Colin Langan with Wells Fargo.

Oh, great. Thanks for taking my questions. I guess just following up on some of the recent comments, the guide does imply, I think, about a 10% decline at the midpoint, a quarter over quarter in sales. I think you mentioned about a two and a half percent production decline. I think it might be a little worse. But why the big, big move down? Is that related to some of the troops in the quarter? Or is there other factors we

should consider? No, I mean, you've got to stop. And I mean, that's what we've been attempting to communicate is some of that was pull-ins from Q4 into Q3. So if you look at Q3, we've really exceeded even the top end of our guidance for Q3. And we believe some of that was pull-in from Q4 as people were trying to, as OEMs were trying to get ahead of the tariffs that were supposed to kick in in August. So some of that was simply a pull-in from Q4, let's call it, into Q3 to get ahead of that curve. But when you look at the full year and you take a look at Q4 and Q3 combined, because remember, quarter to quarter, we're going to bounce around as production varies a bit. And with tariffs coming in, going out, adjusting every month, week sometimes, that's going to cause some of this fluctuation. You've got to take a look at that long term. And that's why we are very confident in raising the year, or raising the bottom end of the year even, above the midpoint of the prior guidance. That shows you the strong combined back half of the year. So it's really just pull ahead.

Yeah, it's that. And the volume number, we do look at overall IHS projections, which is that's the two and a half percent that we discussed. But we also have to think about our specific customers within that population. And I believe that they were, as you can see, our volume was up a little bit higher than even IHS. If you look at our volumes for Q3, you can see that we were higher than year over year and quarter over quarter than the IHS numbers. So correspondingly, I think we would pull that down in similar fashion. It's a little bit higher than the two percent in anticipation of how much was pulled forward. Couple that with, I'm not sure, a lot of our revenue gets recorded in the tail end of the quarter as we get royalty reports and so forth. So I don't know what the euro will look like in the last month of our fourth quarter. So we've got some pullback there. And then some of the true ups that we've seen, similarly, we don't want to anticipate that we'd have the same amount of true up volume as well. So we factored all three of those things in and that's why you see the revenue coming down a little bit in Q4. But still, if you look at, it's a solid Q4. If you think about it, apples to apples to where we were, would have been a year ago. Without any fixed in either of the

quarters. Got it. And you flag that you paid down the debt in the quarter with cash. How should we think about your cash balance now? Where do you think minimum cash needs are and are you considering sort of adding some debt to boost the cash cushion in the future or are you fine where you are now? Well,

I'll answer that last piece. Absolutely not. Think about adding debt. No, now, would there be a scenario of potentially looking at the 2028 converts and refinancing those while they're trading at below par? So there could be some math there that you could refinance those. But if you think about our cash balance, we ended the quarter with 79 plus million in cash and market securities. The way we look at it is we can absolutely run the business with that level of cash on hand as a cushion and considering that we still project that we will be cashflow positive in the future. So our goal would be, of course, just like we did in this year where we paid off all of our requirements, the 87 million in from cash on hand that as we build that war chest going into 2028 that we could conceivably do the same and not have to either add, certainly not add to the debt number, but even not refinance and be in a position where we don't impact liquidity. So I think we're at a very solid base right now. Now, we will always look at the capital markets and see if there's a more optimal recipe in that mix. But right now it's very solid and we don't have any anticipation of adding to the debt.

Got it. All right, thanks Jake, my questions. Thank you.

Our next question comes from Jeff Van Rie with Craig Hallam.

Great, thanks for taking the question and congrats on the pre-cashflow, looks great. The couple of questions, first on, obviously with the connected products, you've got some visibility into the features that people want. I'm curious if there's any discernible trends in there that are surprising you in terms of what's being used or not used. And along that same line, you talked a bit about AI, you talked about some of the capabilities, but if you move more into AI-centric offerings, what's the main opportunity to differentiate from tech bellwethers?

Sure, so, you know, there's a lot that I can answer with this, but let's start actually with the second part of your question about how do we differentiate. Because that also talks to you a bit about what are people using and what does connected really get you. The way we differentiate, and I tried to talk about it in the call was,

one,

we believe our technology is leading edge, right? We're moving into a world where we're multimodal, we can use sensors and cameras in the vehicle and really add a lot of future capability to the vehicle. Second is we're agnostic. So when you talk about big tech, you know, they tend to lock you in. They're gonna lock you in to, you know, you've got to use a certain navigation tool, you've got to use certain LLMs. And every time somebody does a call out to an LLM, hey, you know, what's the nearest Mexican restaurant? Who won the football game last night? Tell me about the weather. That costs money. And as those prices change, as more competitive market comes, OEMs want to be able to move across the LLM marketplace to optimize the features and the costs. And our option of agnostic and able to work with any of them really allows them to do that. And that's a big deal for these guys. It also future proofs them, right? We see a lot of development going in LLMs right now. And you don't know who's going to be necessarily the leading player in that space two years from now. If you lock yourself in to a Google only answer or an Amazon only answer, then you're locked in. And whereas you choose Syrinse and we can go anywhere, whether it be, you know, you know, quad or you want to use Google LLMs or you want to, wherever it is, we're able to do that. What are people using? They're starting to use this as they see the value in this. And really what we're going to show at the International Auto Show in Munich next month is really the true agentic nature, where your car becomes a partner and you can literally just talk to it. And we're seeing people more and more enjoy that feature. Hey, my feet are cold. The system knows then to turn on the floor heat. Hey, you know, I want to look at the, you know, what's the moon like tonight? Well, let me open this skylight and let you look out, right? Being able to have that natural discussion is where people are enjoying these features. This is where the real agentic value comes. And just like what we explained with the TV with LG, where you can just say, hey, what are all the Tom Cruise movies that are available right now? It allows you to just ask questions in a natural way and get answers back that are meaningful and helpful. That's what people are using.

Got it, helpful. And on the sales front, can you talk about just new bookings in terms of, do you feel you're taking share, holding share, losing share? I'm curious what you're seeing there. And then just last for me, modeling related. For 26, I realize you're not given a guide, but can you give even early thoughts on maybe the consumption you think is a reasonable gross consumption or prepaid for the year that you think is a reasonable range?

So prepaid is easy. We've said that we are very comfortable in that same 20 million.

No, I was saying, I was asking consumption, not actual prepaid, just the consumption of licenses.

Yeah, yeah. So I think at consumption, you saw really the first and second quarter, our consumption was higher, and you've now seen a kind of a run rate of consumption for the last two quarters in like a $9 million range, right? And so, which again means, meant that in the second half, and this is why our variable license was up so much. It was one of the components of why it was up 48%, right? Is that more of it fell to the bottom line. So, when sometimes people hear, well, geez, you didn't have prepaid this quarter, is that a bad thing? Well, no, we've consciously reduced that number annually to this roughly $20 million number. What that means is as we do that, that more of that variable shipments that go out falls to in period revenue. So, we're about $9 million consumption right now and we haven't put guidance out for this, but our consumption certainly year over year will not be up. It will be down just by the level that you've seen historically have fixed. The consumption has to go down for the entire year.

And as far as share gain goes- Yep, you got it. No, go ahead, I was just gonna repeat the question, but on the share gain question.

Yeah, I'd say right now, our shares kind of holding where it's been. We're not losing anything that we're currently in. There's a few RFGUs out right now that we'll see over the next quarter or two that are out for bid. And it's, you know, we're very competitive. We typically made it past round one and we're in the final round of selection. So, right now we're holding. I'd say it's, you know, share wise, we're flat.

Okay, great, thank you.

Our next question comes from Mark Delaney with Goldman Sachs.

Hi, thank you for taking the questions. You have a man grouped on for Mark Delaney. Maybe just on this non-automotive expansion that you guys are doing and congrats on the algae news. Can you maybe help size kind of what that looks like in terms of revenue as it ramps in fiscal 26 and onwards and how we should think about maybe something like a PPU in a large application for a non-auto market relative to auto and how that pipeline of just general non-auto deals is continuing to evolve?

Sure, so I can't give forecasts for 26, but I can give you a general, you know, how we view those kinds of markets. And TVs is a good one to just, let's focus on. Typically the price per unit is going to be less, partly because the complexity of the application is not quite there. You're not having all the car knowledge and, you know, having to do navigation along with, you know, real-time knowledge like, you know, who won the football game and things like that. You're typically just doing searches within a data set that's tied to your provider and things like that. So the PPU tends to be a lot less, but the units are quite a bit more, right? If you just take a look at the number of vehicles sold versus the number of TVs sold worldwide, you know, you can far and away outpace the number of vehicles. If you add a couple of the major TV providers, you can get to a fairly large number. So we look at it from that perspective in that it's going to be a lower PPU, but it's lower technology and a bit simpler of an implementation. It's mostly cloud-based and all. And we're not going to do forecasts for 26 though yet. Sorry.

Yeah, and thinking about that, as you know, the PPU number that we've started last quarter giving and continue this quarter is an automotive PPU. That's part of our primary market. So when we think about, you know, outside of automotive, you know, I'm not concerned about a decrease in overall PPU because effectively, you know, as Brian mentioned, it'll be a lower PPU, higher volume, but more importantly, it'll be additive revenue once those markets start to progress. So that's the way you should probably think about it.

Thank you for that, Carl. That's very helpful. And then maybe for the second one, going back to the auto market, I think last quarter, Brian, you spoke about some potential pricing pressure from customers and given some of the tariff changes, you know, how has that evolved? Are you still seeing that pricing pressure? And then similarly related, are you seeing any continued delays with new awards or design activity? I know you mentioned some program push-outs in your prepared remarks as well.

Yeah, I'd say there's still pricing discussions. We haven't done any pricing reductions per se. What we've done is come back and we've talked about this in the past is, you know, how do we make this a win-win for both sides? And what we've tried to do is say, look, you know, we can lower your overall costs by giving us more of the business, maybe more of the features, and we'll give you a lower cost for that bigger picture. That way it's more revenue for us and a lower price point for them. So we have several of those offers out. And Tony talked about the TPU going up this quarter, just in general, so that shows you that we didn't have to do any dramatic price reductions from that standpoint. And then there was a second part of your question. Oh, push-outs. We are still seeing a few programs push out. There's several that are, quote, you know, as I said, our cues are out, we're in the final stages. They should, several of them, close this quarter. We'll see, or do those push out? We haven't, as I mentioned in one of the earlier questions, we haven't had any major losses where we were competitive and, you know, we were trying to do win-backs or we had the business before and we've lost it. There haven't been any of those, but there are still several that have pushed and we have several that are coming due and we're hoping those will close and of course hoping that they'll close in our favor, but we'll have to wait through the quarter.

Thank you very much for taking the questions, appreciate it.

As a reminder, if you'd like to ask a question at this time, please press star one one on your touchtone phone.

Our

next question comes from E. Ty McKaylee with TD Cowan.

Great, thank you, good afternoon. I'd like to dig in into some of the XUI wins that you talked about before. Could you share some more detail around your number of models that you've launched with, the particular OEM, just the penetration levels there and the kind of mix between more premium luxury models versus mass market, I think you mentioned VW as one of the wins, maybe, as an example.

Sure, so I can't give you like, other than what we gave in the prepared marks, I can say it was somebody within the VW group, but I'm not able to tell you exactly which group and which models, which brand within that group. We did mention JLR as an example. In general, what we're seeing with those programs is that we are seeing an increase in PPU. They are typically going across the brand, so it's not just the luxury end, it's at least down through the mid, I'll call it the mid-level, mid-section of the brand. There's some very low-end brands that maybe they go into other GOs and things like that, that can be offering lower levels of the subscription, but in general, it's pretty broad across the brand as far as a model standpoint, but I'm just not at liberty to tell you there's marketing plans and announcements between the two companies that I just, VW group and all is about as far as I can go with that as an example.

Yeah, no, I totally understood that. That was actually helpful. Thank you. Just as a follow-up, as we think about non-auto ramping and late fiscal 26 and beyond, should we think about any incremental OPEX to support that growth as well, or do you think you can achieve that growth kind of with your current OPEX base?

No, I do not expect OPEX growth. I mean, for example, Tony and I did a review today on how we're becoming more efficient by using artificial intelligence internally to help us write our code, to do some of our Q&A work, to build more tools that allow us to do analytics against our software at a much faster rate. So we think there's just in there, we can get 15 to 20% productivity improvement within our engineering team just by doing that work over the next year and expanding that into a broader. I'll tell you, right now, we're kind of early in those stages, but we believe we can continue to grow that capability. And so our goal is to push that across the company and to fund our growth through that efficiency. And so we are going through that. We have regular forums that we're reviewing at my level. The group's progress in this space. And we're talking about how to really make it measurable for next year so we can really see the productivity improvement. And the team is really excited about that because they look at this as a way to get up to go and do new work and new things. It's actually fun for them to use these tools and they don't see it as a risk to their job or anything, they see it as an enhancement in a way that they can be more productive and get more done and do things that they actually didn't have time to get done in the past, but make the product and the job much better. So no, I'm not gonna fund it with increased OpEx. I'm gonna continue to make improvements in OpEx next year and instead fund this through productivity.

Perfect, that's very helpful, thank you.

That concludes today's question and answer session. I'd like to turn the call back to Brian Krzanich for closing remarks.

So I just wanted to close with thank you everybody for taking the time out of your busy days to listen to our earnings call. We're really excited about the results we had in Q3. We're closing out the year as we've talked about strong by raising our guidance for the full year from a revenue and from a NIDDA and pre-cash flow. And we look forward to talking to you at the end of our fiscal Q4 and giving you the results for Q4, but also our forecast for 2026, which I know based on your questions is what you guys are all looking forward to and need in order to continue to help us look at this company. So thank you very much for your time.

This concludes today's conference call. Thank you for participating. You may now disconnect.