Cerence Inc.

Good day, and thank you for standing by. Welcome to the CERN's second quarter, 2026 earnings conference 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 will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kate Hickman, Vice President, Corporate Communications and Investor Relations. Please go ahead.

Hello, everyone, and welcome to SARINS' second quarter 2026 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, anticipations, intentions, estimates, assumptions, beliefs, outlook, strategies, goals, priorities, objectives, targets, and plans are forward-looking statements. SARINs make 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 preceding today's call, our most recent Form 10Q, and our form 10-K filed on November 20, 2025. 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 Kruzanich, CEO, and Tony Rodriguez, CFO. In order to provide expanded access to our leadership team, we'll also be joined by Christian Mentz, our Chief Revenue Officer, for the Q&A portion of the call. 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 TD Cowen 54th Annual Technology, Media, and Telecom Conference on May 27th. Now on to the call. Brian?

Thank you, Kate, and good afternoon, everyone. Starting with the key results for our fiscal second quarter, we delivered another strong quarter with revenue of $64.2 million and a destiny bid of $7.2 million, both above the high end of our guidance. Free cash flow came in at $13.6 million. Now, these results reflect both discipline execution and continued stability in our core automotive business. And as usual, Tony will provide more detail shortly. Before we dig in more detail on the corner, I'd like to discuss some of the recent market moves in the AI and software space. My belief as to why CERNS is in a unique position and why our customers continue to choose Ference. Our technology excels in the automotive environment, where reliability, safety, and deep integration matter. Ference AI's solutions are fully customizable, flexible, and deeply integrated with one of the most complex technical environments on the planet, the car. The environment requires a thoughtful, optimized orchestration of LLMs, SLMs, and agents, giving drivers seamless access to whatever they may need, regardless of connectivity. Serence is differentiated in our ability to deliver this, thanks to our unique domain expertise and experience integrating into vehicles. Our broad AI-native tech portfolio are both embedded in cloud solutions, backed by our proprietary automotive-specific data set. and our skilled team also differentiate us from our competitors. Plus, we have a flexible architecture that gives our customers the freedom to leverage the latest AI innovation, including from our partners like Nvidia and Microsoft, while helping future-proof their products by not locking them in to one ecosystem or model. We know that three years from now, today's best general-purpose LLM or parking agent is likely not to be the one that is here today. And with Sarence AI, our customers can easily evolve their offerings to best serve their end users. This is what sets us apart from general purpose AI models. That's why we continue to secure major wins across our portfolio against technology and platform providers, big tech, and hyperscalers. As I mentioned on our last quarter's call, we have three key priorities for 2026. The first is advancing our business through leading technology. Second, maintaining our cost diligence. And third, driving profitable top-line growth. And we continue to see strong momentum for CERN's XUI. In addition to JLR, a VW Group brand, and Geely, I can now also name BYD, a major Chinese automaker, as a new customer who is leveraging XUI for its overseas programs. BYD is also the first to start production, with cars rolling off the lines as we speak, a very exciting milestone for our team. I can also give a bit more detail on the major global automaker we mentioned last quarter's call. This is a multi-year, multi-platform contract with a Japanese automaker with significant volume, and importantly, a win back from a hyperscaler. These wins speak volumes of our technology and team, and we are encouraged by the strong economics. All programs signed to date carry PPUs that exceed our current run rate, reinforcing both the value of our platform and OEM's desire to invest in next generation in-vehicle experiences. We also have additional opportunities in late stage discussions and strong pipeline of RFQs and POCs. With the strong win rate we've seen thus far for XUI deals, we believe we'll continue to see success in these pending opportunities. From an XUI revenue standpoint, buildings are already ramping up. with more revenue to flow in fiscal year 27 and beyond. Importantly, this timing is consistent with our expectation that the transition to XUI will be a multi-year rollout. And as Tony will explain, some recent wins are not yet reflected in the backlog as contracting and implementation needs to be finalized. Outside of XUI, we have a broad, sticky technology portfolio that continues to keep us deeply embedded with OEMs and remaining integrated with their platforms, even if they split their sourcing or go in a different direction for their voice solution. A good example of this is our audio AI suite. In Q1, we signed audio AI deals with several OEMs, including GM, Daihatsu, Mercedes-Benz, and Toyota. Our progress continued in Q2 with several significant wins, including BMW and Verratti Suzuki India. Maintaining our position in these programs means we keep our seat at the table and secure recurring business, even in co-existence with competitors, giving us the opportunity to expand over time. We also signed new program wins with Toyota Europe, that includes the addition of generative AI capabilities to their existing service assistant-based platform, demonstrating that our GenAI solutions, like Chat Pro, continue to serve as a strong option for OEMs to bring LLM-based capabilities into the car. In addition to the BYD XUI program starting production, several notable programs leveraging tech across our portfolio also started production in this quarter. JLR went live with ChatPro via an over-the-air update, bringing GenAI to cars already on the road as they continue developing their future platform based on XUI. We also expanded our presence in smart brand vehicles with the addition of our GenAI-powered car knowledge solution to their existing service-based platform. Other key startup productions include Toyota, Renault, Chang'an Mazda, Audi, HKMC, Great Wall Motor, Mercedes-Benz, Subaru, and Geely. Outside of automotive, and consistent with what we said in the past, we are concentrating our efforts on high-value verticals where our strength in edge solutions, quality, reliability, privacy, and domain-focused approach matter most, and where we believe we have a clear right to win. Specifically, we are prioritizing dealership AI, commercial and industrial operations, and select IoT and robotics applications. Rather than selling voice as a standalone component, our approach is to deliver full vertical solutions, combining voice, LLMs, and SLMs, orchestration and workflow integration into purpose-built vertical packs. In terms of go-to-market, We are scaling responsibly through a mix of direct engagement with our core verticals and distributor-led expansion in areas like kiosk, logistics, and defense, where we leverage our existing partners for broader domain reach and co-sell leverage. We are encouraged by early customer traction, and we continue to believe the initial financial contribution from non-automotive markets will begin as we exit fiscal year 26 consistent with our prior guidance. To give an update on our intellectual property strategy and ongoing enforcement efforts, earlier this week, we filed patent infringement action against Amazon, reflecting our conviction in the strength and breadth of our patent portfolio. We have invested for years to develop this foundational IP that is embedded in and underpins our core voice and conversational AI technologies, which are deployed across our products and customer programs. We actively protect and commercialize this technology as part of the ordered course of our business. When we identify unauthorized use, we will pursue appropriate remedies to reinforce our rights, protect our platform, and safeguard the value of our innovation. While the timing of IP-related outcomes can be difficult to predict on a quarterly basis, we view these efforts as an integral part of sustaining and enhancing our operational business over the long term. Turning to our outlook, for Q3, we expect revenue between $68 and $72 million, and adjusted EBITDA between $8 and $12 million. For the full year, we are raising the midpoint for both revenue and adjusted EBITDA guidance. We now expect revenue to be in the range of $305 million to $320 million and adjusted EBITDA to be the range of $60 to $70 million. And we are raising our free cash flow guidance by $10 million, which represents a 16% increase at the midpoint. Tony will provide further details. We are pleased with our results this quarter And as we reach the midpoint of fiscal year 2026, I want to close by anchoring on our four strong value drivers we continue to see for Sarence AI. First, Sarence plays a key role in the automotive AI stack and across the global automotive ecosystem, creating durable, recurring revenue. Our long-term relationships with global automakers enable us to drive growth in our core business by expanding within existing platforms and transitioning OEMs to XUI over time. Second, our XUI wins will drive PPU growth as they scale, which will drive increased total company growth over time. And third, we continue to deliver strong free cash flow while maintaining our focus on disciplined capital allocation. Our business model supports debt reduction, balance sheet strength, and strategic and operational flexibility. And lastly, we are driving new income streams. As we've discussed previously, our expansion outside of automotive and our IP enforcement efforts are expected to be long-term sources of potential incremental value creation. And with that, I'll turn it over to Tony.