Title

Presentation

Cerence Inc. misses on earnings expectations. Reported EPS is $-0.11654 EPS, expectations were $-0.01.

Operator: Good day, and thank you for standing by. Welcome to the Cerence Inc.’s First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, we will open up for questions. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today’s call is being recorded. I would now like to hand the conference over to your speaker, Kate Hickman, Vice President of Corporate Communications and Investor Relations. Please go ahead.

Kate Hickman: Hello, everyone, and welcome to Cerence Inc.’s First Quarter 2026 Conference Call. I’m Kate Hickman, VP of Corporate Communications and Investor Relations. Before we begin, I would like to remind you that the call may involve certain forward-looking statements. Any statements that are not statements of historical fact, including statements related to our expectations, anticipation, intentions, estimates, assumptions, beliefs, outlook, strategies, goals, priorities, objectives, targets, and plans are forward-looking statements. Cerence Inc. 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 8-K with the press release preceding today’s call, our most recent Form 10-Q, and our Form 10-Ks 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 Investors 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 Investors section of our website.

Before handing the call over to Brian, I would like to mention that we will be participating in the 38th Annual ROTH Conference taking place in March. Now onto the call. Brian?

Brian Krzanich: Thank you, Kate. Good afternoon, and welcome, everyone. I’m excited to speak with you today following another strong quarter of performance for Cerence Inc. We are pleased with our results this quarter, with revenue of $115.1 million and adjusted EBITDA above the high end of guidance at $44.6 million. Importantly, we generated record quarterly free cash flow of $35.6 million, demonstrating continued profitability. Tony will provide further details on our Q1 results later in the call. As I mentioned on last quarter’s call, we have three key priorities for 2026. They are advancing our business through leading technology, including our next-gen platform, XUI, maintaining cost diligence, and driving top-line growth.

First, we made important progress in driving our business through continued innovation, especially as we geared up for the CES in early January. On the ground in Vegas, we showcased the latest advancement to Cerence XUI, highlighting new LLM palette experiences spanning both edge and cloud. We demonstrated our Calm Edge small language model running across multiple chipsets, enabling faster performance, lower latency, and reliable in-car interactions, even when connectivity is limited. Plus, we showcased XUI running live in a Geely vehicle, marking the first public demonstration of a near-production car powered by XUI. And we showed off our Audio AI suite, including advanced multi-speaker and multi-zone capabilities. Importantly, within Q1, we completed the development of several of our new AI agents, which are now fully integrated into XUI but can also be implemented in non-XUI platforms.

At CES, for the first time, we demonstrated our mobile work agent developed in partnership with Microsoft. This agent turned your car into a trusted device with voice-first access to Microsoft 365 Copilot, Teams, Outlook, and OneNote. This was incredibly well received, and we have significant customer traction and active commercial negotiations coming out of the show with OEMs who want to bring this new agent to their drivers. We also debuted two new purpose-built AI agents that expand our portfolio beyond the in-vehicle experience into broader areas of the automotive ecosystem. The new dealer assist agent helps dealerships automate sales and service workflows like lead capture, test drive booking, and service scheduling while integrating with CRM and dealer management systems to improve responsiveness and efficiency.

The ownership companion agent enables OEMs to provide drivers with an always-on in-car service companion that supports diagnostics, maintenance guidance, and instant service booking, creating a more connected ownership journey and strengthening brand loyalty. The introduction of these new agents expands our reach and enables us to deliver an end-to-end full journey solution from vehicle purchase to regular in-car usage, to troubleshooting, and to service and maintenance. Overall, feedback from customers, partners, media, analysts, and investors was incredibly positive, including Cerence XUI being named Gizmodo’s best in-vehicle assistant in its best of CES 2026 awards. We look forward to continuing the conversations we kicked off at the shows.

On our second priority, of cost diligence and strategic capital allocation, in Q1, we paid down $30 million of principal of debt due in 2028 using cash on hand while maintaining our cash position to invest in future growth. In addition, we are continuing our attention to cost management and delivering strong cash performance. In Q1, we completed the implementation of the previously mentioned restructuring plan related to certain foreign operations, further reducing operating expenses and positioning Cerence Inc. for profitable sustainable future growth. For the remainder of fiscal 2026, we will remain diligent and maintain our attention to cost management. Lastly, in terms of our goal of driving top-line growth, we believe there are three key areas of focus.

First, increasing adoption of Cerence XUI, driving greater penetration of our stack in existing programs, which we believe will deliver increased PPU. To give you a sense of how we’re progressing with customer adoption of XUI, as of today, we have now five significant customer programs for XUI. There’s the previously mentioned programs with JLR and a brand within the Volkswagen Group. At CES, we announced our plans with Geely for their cars shipped outside of China. In Q1, we received a new award from another major Chinese EV OEM, leveraging XUI for their overseas development in five languages. We received an award from a major volume global automaker, which we look forward to sharing more about in the future. These programs are currently on track to hit the road during the calendar year with strong PPU growth.

There are a few important things to note about these deals. One, that we have a strong win rate for XUI and that these wins have been against big tech competition. This not only tells us that XUI is needed in the market, but we believe offers a good indicator of how we’ll perform in the outstanding RFQs we have on the table. Two, all of these programs have PPUs that are higher than our current run rate, demonstrating clear value and OEM willingness to invest. We continue to see strong customer traction outside of XUI as well. In Q1, we signed several important deals. A win that brings our generative AI apps, that’s Cerence ChatPro and Car Knowledge, to additional countries with HKMC. Audio AI wins with GM, Mercedes Benz, and Daihatsu. An upgrade to our latest neural TTS for Mercedes.

We contracted development of Slovenian language to help our customers meet regional language requirements, expanding our product offering. Importantly, on the GM Audio AI deal, this was a competitive win back that brings our speech signal enhancement, one of the highest margin elements of our software stack, to GM’s next-generation infotainment platform across all brands. This lays out the foundation for potential adoption of additional elements of our Audio AI suite with this major North American automaker in the future. We also saw eight programs start production, including BYD, GWM, and HKMC. Trucking programs with Scania and Ford trucks also went live this quarter, marking continued strong momentum in adjacent transportation markets and building upon our existing work with Daimler Trucks, Volvo Trucks, PACCAR, and Iveco Trucks.

Our second area for potential growth is increasing the number of connected vehicles shipped, resulting in an expansion of our connected service business. As Tony will detail, we continue to see growth in connected services as customers continue to adopt connected solutions, and we believe this momentum will continue. This is a key pillar of our long-term growth strategy, providing high-quality, predictable revenue. Third, we have an opportunity for growth in our non-automotive businesses. In Q1, we continued to operationalize our strategy and model, and we spent time at CES meeting with new customers and validating our approach to bringing the power of agentic AI and voice to new industries, including one of the leading digital signage players worldwide that is interested in integrating our solutions across their portfolio.

We have good momentum with awards expected through Q2 and beyond. As a reminder, we believe the impact of our work to expand beyond automotive will be seen in our revenue and profitability starting in late fiscal year 2026 and beyond. This is reflected in the fiscal 2026 guidance we provided last quarter. We believe our IP monetization strategy will continue to yield benefits for Cerence Inc. As we mentioned on our last quarter’s call, we resolved our suit with Samsung, which among other things resulted in Samsung agreeing to pay Cerence Inc. a one-time lump sum payment of $49.5 million. We recorded this patent license revenue in Q1, and we believe the resolution of this suit marks an important milestone in our IP monetization strategy. We have cases with Sony, TCL, and Apple outstanding.

As a reminder, with most cases taking multiple years to reach resolution, this is a long-term strategy. In conclusion, we believe we have strong technology and customer momentum and are on solid ground to execute on our future growth plans through the rest of fiscal year 2026 and beyond. For Q2, we expect revenue of between $58 million to $62 million and adjusted EBITDA of $2 million to $6 million. We’re pleased to reaffirm our full-year guidance that we provided on last quarter’s call. Tony will provide further details on this. We believe that Cerence Inc. has the right foundation for long-term sustainable growth, and we’re incredibly proud of what our team has accomplished this quarter. With that, I’ll turn it over to Tony.

Tony Rodriguez: Thank you, Brian. Good afternoon, everyone, and thank you for joining us today. We appreciate your continued interest in Cerence Inc. I’ll walk through our first quarter fiscal 2026 results, highlight the key drivers of the quarter, and then share our outlook for Q2. For 2026, total revenue was $115.1 million, up $64.2 million or 126% from $50.9 million in the prior year period. We believe it’s important to start by highlighting the continued positive progress in our core technology business, including variable and fixed license revenue, our recurring connected services revenue stream. Excluding the impact of patent license revenue, our core technology lines delivered solid growth and stability, reflecting steady customer utilization, continued adoption across our programs, and the increasing importance of our recurring revenue base.

Variable license revenue for the quarter was $30.59 million, up 34% year over year, driven by steady customer utilization, more in-period shipment recognition, and continued adoption across our core programs. Fixed license revenue was $7.8 million in the quarter. These fixed license deals were not present in Q1 of last year, as they were primarily reported in Q2 of the prior year, creating a timing difference. Importantly, for the full fiscal year, we continue to expect fixed license revenue to be comparable to the prior year, and we view this as a time shift rather than a change in underlying demand. Connected services revenue was $14.5 million, up 6% year over year despite a $2 million true-up benefit in the prior year quarter. Without this prior year true-up, connected services revenue would have increased over 20% year over year.

This connected services revenue line represents a recurring revenue stream driven by continued expansion of our connected install base and remains a key pillar of our long-term growth strategy, providing high-quality, predictable revenue and improved visibility over time. Now turning to a strategic milestone achieved during the quarter. During Q1, we recorded $49.5 million of patent license revenue, reflecting the successful resolution of our patent litigation with Samsung. As previously disclosed, this resolution includes a one-time lump sum payment to Cerence Inc. The agreement is part of a confidential cross-license arrangement, which limits the level of detail we can provide. That said, we believe this outcome represents an important validation of the strength and breadth of our IP portfolio and a strong proof point for the applicability of our technology across multiple industries and verticals.

Including the patent license revenue, total license revenue for the quarter was $87.8 million compared to $22.7 million in the prior year. Professional services revenue was $12.8 million, down 12% year over year, reflecting our continued focus on standardization, scalability, and margin improvement, as well as the impact of revenue deferrals when services are bundled with license arrangements under applicable accounting guidance. Gross profit for the quarter was $99.4 million, representing a gross margin of 86%, up from 65% in the prior year period. This improvement reflects the favorable mix shift towards license revenue as well as continued discipline across cost of revenue. Turning to operating expenses. Total non-GAAP operating expenses were $57.3 million, up $23.2 million compared to Q1 of last year.

The increase was driven primarily by the legal costs associated with achieving the patent license outcome this quarter. These costs were directly tied to the patent license value creation and are not reflective of our ongoing run rate expense structure. Additionally, while total R&D spend remained fairly comparable year over year, R&D expense increased as a smaller portion of our R&D costs qualified for capitalization as internally developed software, resulting in higher expense to R&D. Resulting adjusted EBITDA for Q1 was $44.6 million, representing a 39% margin, compared to $1.4 million or 3% in the prior year period. This reflects strong operating leverage, disciplined cost management, and the benefit of the patent license revenue. GAAP net loss for the quarter was $5.2 million compared to a $24.3 million net loss in the same quarter last year.

Another key accomplishment during the quarter was the continued deleveraging of our balance sheet. During Q1, we repurchased $30 million in principal value of our 2028 convertible notes at a discount to par, using $37.9 million of cash generated from operating activities. We produced $35.6 million of free cash flow, a record for any quarter in the company’s history. While not necessarily indicative of future results, we have generated over $100 million of free cash flow over the last eight quarters. We ended the quarter with $92.1 million of cash and marketable securities, and we believe that the company remains well-positioned to fund strategic initiatives while continuing to strengthen our balance sheet. From a metric standpoint, approximately 11.9 million cars were produced that included Cerence Inc.

technology in the quarter, flat from 11.9 million in the prior year first quarter. We also grew our number of connected cars shipped by 14% on a trailing twelve-month basis, underscoring the continued momentum that we are seeing in vehicle connectivity. Also on a trailing twelve-month basis, 51% of worldwide auto production included Cerence Inc. technology, remaining in line with our historical penetration. Adjusted total billings were $231 million, an increase of 2% year over year. As previously discussed, 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 shipments from prior fixed licenses where 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 $39.8 million, which were up as compared to $36.7 million for Q1 of last fiscal year. Consumption of our fixed license contracts totaled $8.7 million this quarter, lower than the same quarter last year by 38%, but in line with expectations given the lower level of fixed contracts than historical periods. This drives more pro forma royalties into revenue in the current period as compared to a year ago. Similar to our five-year backlog metric, we will provide the details of our PPU metric in the middle and the end of each fiscal year. That said, we expect the PPU metric to increase by the end of fiscal 2026. Looking ahead to Q2 fiscal 2026, we expect revenue to be between $58 million and $62 million, gross margins between 71-72%, a GAAP net income at about breakeven with EPS between negative $0.01 and positive $0.08, and adjusted EBITDA between $2 million and $6 million.

The Q2 revenue guidance reflects some fixed license revenue, but not to the extent of Q2 last year where virtually all of last year’s fixed license deals were recorded. We are also reaffirming our full-year fiscal 2026 guidance as previously communicated, with revenue between $300 million and $320 million, adjusted EBITDA between $50 and $70 million, free cash flow between $56 and $66 million, and gross margins between 79-80%. In summary, Q1 marked a strong start to fiscal 2026, highlighted by solid core technology performance, an important IP milestone, and continued progress towards sustainable profitability and balance sheet strength. We believe Cerence Inc. is well-positioned to execute against our strategy, expand recurring revenue, and deliver long-term shareholder value.

With that, I’ll turn it back to Brian.

Brian Krzanich: Thanks, Tony. So in closing, we’re pleased with our results this quarter and incredibly proud of what our team accomplished as we start 2026. We remain focused on the three key priorities: driving top-line growth, advancing our business through leading technology, including XUI, and maintaining cost diligence. We believe we have an exciting path ahead and we look forward to sharing more on next quarter’s call. We will now open it up for questions.

Receive real-time insider trading and news alerts

Operator: As a reminder, to ask a question, you need to press 11 on your telephone. Wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Jeff Van Rhee from Craig Hallum Capital Group. Your line is open.

Jeff Van Rhee: Great, thanks. Thanks for taking my questions, guys. A couple for me. On the Connected side, I’m curious about the mobile work agent. Just, you know, where does that rank in terms of the agents in XUI other capabilities as you’re layering in a lot of sort of AI-centric capabilities? Is that top of the list in terms of what customers are most enthusiastic about? It sounded like you were sort of messaging extremely strong demand there or interest there. And then along those lines, just any sort of framing around the impact that can have on your ARPUs going forward?

Brian Krzanich: Sure. So this is Brian. Jeff, I can start. The Microsoft Outlook or Office 365 does not require XUI, and that’s the good thing. It’s a cloud-based solution that actually just makes the car a trusted device and then puts our LLM on top of that. So we manage the request. So when you put a request in that says, for example, “Hey, I only want to get messages from Jeff while I’m driving to work because he’s the most important person I need to talk to this morning,” it will filter all that and manage so you’re not distracted while you’re driving. What’s good about that, the fact that it is cloud-based is it can go on existing vehicles that are maybe two to three years old that have a connected capability as well. So what we’re seeing is the interest is not only in the future forward-looking XUI systems, but we have OEMs coming to us and saying they’d like to put this on vehicles back two and three years.

So it’s quite positive. We haven’t talked about pricing yet, but it will be an additive, and it will add to our PPU. Did that answer your question, Jeff? I mean, I want to make sure I got it.

Jeff Van Rhee: It does. It does. In terms of an existing car, if you make it available to an existing vehicle, is that a revenue event? Or is that just getting people addicted to the technology and you get the revenue down the road? How does that work?

Brian Krzanich: It would be a revenue event for us.

Jeff Van Rhee: Okay. Got it. And then on the numbers front, you called on a number of interesting bookings or signings, including this major volume global automaker in Q2. I’m curious in terms of TTM billings, is that going to show up? Are we going to start to see TTM billings growing in Q2? And maybe even just a preview of backlog that’s going to be reported at the end of Q2. Are those going to step in there where we should see some meaningful uptick both in backlog and TTM billings when we wrap up Q2?

Brian Krzanich: So I’m going to let Tony talk about how it’ll see in the in the a in a profile. But if I take a look at that, we talked about JLR and the Volkswagen Group vehicle coming in late summer, let’s call it. The other ones are we’ve said the other ones are all going to come in this calendar year. But that’s really started production, and they’ll ramp. Right? So remember, we get paid both when the car ships out of the factory and then for the connected portion when the car drives off the dealer lot. So the revenue from a pure revenue stream won’t start until late summer. And will start to ramp, right, as the vehicles kind of go through their normal ramp in both geography and volume. And then a lot of it will really happen at the back end.

So I was trying to do by showing all five is that, you know, we’ve I’ve gotten a lot of questions in the past. Hey. I said, you know, we have six RFQs out, and we’re, you know, got two guys already signed up with JLR and the Volkswagen Group. Company. I wanted to give you guys an additional update that we’re continue now we’re actually, you know, signing more deals and seeing good growth. And good PPU growth out of this technology. And so those those six RFQs are turning into actual deal side. Yep. How does that loop for you guys?

Jeff Van Rhee: Got it. Got it. Then maybe the other part of the question, just maybe for Tony, is the should we expect are these signings that you’re putting up and that you’re talking about here big enough that we should assuming continued trend and continued strength in Q2 that we should start to see backlog and TTM billings pop by the end of Q2?

Tony Rodriguez: Yeah. These will be reflected in a five-year backlog, of course, because, you know, once the contracts are signed and then as you know, you’ve been familiar with this, that we project the volume over a contract period or at least it’s over five years in the five-year period. And, apply the contract price to the to that volume, and so you will see it in in backlog next quarter.

Jeff Van Rhee: Okay. And just last for me, and I’ll let somebody else jump on. Also on the connected side, just curious, based on the metrics that you’re watching, how is usage of the existing in-car connected systems trending? I think back in the day, you used to hear some metrics around how frequently people were interacting with the system. Just what trends and what learnings with respect to sort of apples to apples usage of a person who has connected in their car over time are you seeing?

Brian Krzanich: Yeah. I’d tell you that if you have one of the older systems, the usage is, you know, pretty good early on when you first get the vehicle, and then it kind of drops off. That was before LLM’s really available. If you look at vehicles from, say, let’s say, the Cerence Assistant and onward, we’re starting to see more and more usage. We don’t publicly talk about, you know, what’s the percentage and all, but what we’re seeing is as functionality has increased, and ease of use has increased, we’re absolutely seeing stronger usage of the product. And we think as you add things like the Microsoft Suite, the Office 365, and all of that, it’s just gonna, you know, really massively increase the usage rate of these products.

Jeff Van Rhee: Got it. Great. Thanks for taking my questions.

Brian Krzanich: Thank you.

Operator: One moment for our next question. Our next question will come from the line of Mark Delaney from Goldman Sachs. Your line is open.

Aman S. Gupta: Hey, guys. You have Aman on for Mark. Thanks for taking the questions. I guess, sticking with the XUI and AI product front, thanks for the updates on the pipeline there. Maybe if you can help parse out the interest from, you know, more of the western OEMs versus, you know, you talked about getting two wins, one with Geely and one with another China OEM for overseas business. You know, how is that pipeline relative to the Western OEMs? And are you seeing any difference in time to market from when you sign one of these agreements and actually start of production? And EPPU as well would be helpful. Thank you.

Brian Krzanich: Sure. So let’s see. So as you just described, three of the five are, I’ll call them from Western or more classic OEMs. And so we’re seeing, you know, strong interest. We still have, you know, several other OEMs we’re talking to in negotiation and deal preparation that tend to be more Western as well. I’d tell you, you know, if I take a look at the JLR and the Volkswagen one, they’re running about as fast as the Chinese ones. So I don’t see a huge difference. I’d say the western OEMs are becoming especially kind of the lean ones are becoming more and more aggressive about their timing and bringing this stuff to production. So I’d tell you right now, three to five West or more classical OEMs versus the two Chinese brands.

We’re seeing additional Western OEMs with interest from a TPU standpoint. All we’ve said publicly is that, you know, the prices we’re getting for XUI on these deals is significantly higher than what our current listed PPU is that we’ve talked about, which is around $5. I think it’s $5.05, if I remember correctly. Tony can correct me if I got that off. That we published last quarter. So we’re seeing a good significant increase in PPU from these deals. And they’re all a little bit different because they all, you know, they take different features and stuff like that. So they’re, you know, you’ll see, as Tony said, you’ll start to see it in backlog. And then you’ll start to see it in revenue in the back half of this year. Into fiscal 2027. It’ll be more and more significant.

Aman S. Gupta: Understood. Thank you for that color. And then maybe one a little more on the financials. I think EBITDA came in a couple million above the high end of your Q1 guide, but you maintain the full-year guide. Are there any, you know, puts and takes or things we should be thinking about through the balance of the year? Is it, you know, how should we think about the full-year guide being maintained relative to the Q1 guide beyond some of those metrics?

Tony Rodriguez: Yeah. And a couple of things. One is, you know, yes, we did overachieve on EBITDA, and that was good. We’re one quarter in, though, right? So what we want to look at is as we think about the rest of the year, we typically wouldn’t change guidance unless there was some significant movement, you know, that would guide us that way for the full year. So what it does is provide us really confidence. Q1 certainly provides us much confidence in achieving the full-year EBITDA estimate, which we’ve reaffirmed. So, you know, and I would think that some of that is, you know, a little bit of deferral of some expenses in Q1 into the other three quarters. So we’re still, I guess, like we reiterated that, you know, reaffirming guidance for the full fiscal year, and this just gives us, you know, good confidence in that range.

Aman S. Gupta: Thank you very much.

Operator: Thank you. Once again, that’s star one one for questions. One moment for our next question. Our next question will come from the line of Itay Michaeli from TD Cowen. Your line is open.

Itay Michaeli: Great. Thanks. Good afternoon, everybody. Just to follow-up on the EBITDA question, can you just dimension what kind of allowed you to beat the range in fiscal Q1? And then to just clarify perhaps what the EBITDA was excluding the settlement in the quarter?

Tony Rodriguez: Sorry. Sorry, guys. Yeah. Let’s talk a little bit about the beat first. So a couple of things. One is we had some good news with regard to legal costs associated with the Samsung settlement. So as I think we’ve discussed in the past and certainly in Q4 when we talked about it is that the patent license agreement part of that was that the legal fees were on a contingent basis. And we were able to look at that agreement and achieve about $4 million better in legal costs associated with that. So that was part of the beat. The other one related to compensation. So, looking at a couple of R&D projects that have got deferred, so that’s assisted in OpEx in the quarter. It’s really two main areas.

Itay Michaeli: That’s helpful. And then maybe secondly, on the new win with the major volume global automaker, maybe just walk us through maybe, Brian, just how the competitive process went and kind of what you think kind of led to your win there? And maybe going forward, how you think about your win rate going forward just given some of the recent traction you’ve experienced?

Brian Krzanich: Yes, sure. This is Brian. You know, I’m excited by the progress we’ve made, right, to have the five deals signed considering we really, you know, officially launched the XUI product in the back half of last year, calendar year. It’s significant. And all of the competitions, it’s coming down to there’s usually just a couple of us left in the running at the end. And it becomes less about things like price and all. You know, price is always a bit of a part of the negotiation. But, really, at the end, it comes down to a couple of things. One, capability of the technology. Do they have belief that you’re going to deliver what you say you’re going to deliver? And for us, we’re able to show up with a vehicle like we did at CES, fully functional, with the XUI fully operating and including things like the Microsoft Outlook Office 365 fully functioning, running in the vehicle live.

So that gives them confidence that the technology is there. It can go. It can do what we say. So that’s the first thing. And then it’s about the confidence in the team’s ability to actually work with the OEM. And we have a long history of that with our team. And then just the overall technology capability of your product. Right? What can it do? And we have a lot of things that differentiate us, everything from, you know, some of the agents we’ve added, like the Microsoft one, the audio technologies we’ve added. So it really comes down to the end. It’s more about the technology and the team and less about the price. And that’s really how we win. And then it’s oftentimes around customization. They’ll have things that they want that are unique to their brand or to the product they’re trying to deliver.

And our ability to be very flexible in that space and deliver those customizations in a timely manner is oftentimes a differential too. That was in some of the earlier ones a clear differentiator.

Itay Michaeli: Terrific. That’s very helpful. Thank you.

Operator: Thank you. And I’m not showing any further questions in the queue. I’d like to turn it back over to Brian for closing remarks.

Tony Rodriguez: One thing before Brian probably kicks in too that we should probably clarify a little bit because we talked about the EBITDA beat. Which was great, you know, as we’ve said, we were very successful profitability quarter and cash flow quarter. And as we think about the GAAP financials, if you look at the earnings release and look at the pre-tax income compared to a year ago, it was a pretty dramatic improvement year over year. And we beat EBITDA. We actually beat our we didn’t we don’t put guidance out for pre-tax income, but the pre-tax income was actually better than anticipated similar to EBITDA. That said, you can see in our materials that we had an effective tax rate of 117%. And what’s a little bit wonky about these taxes is many of you know, the analysts aren’t called, but understand FIN 18.

And that fact that what you do each quarter is you project your anticipated tax rate for, you know, for the full year you put into each quarter. So the fact that and you can see that this quarter was 117%. So what that really says is for the full fiscal year, we expect a tax rate of about 117%. That said, we still, like, we’ve mentioned, we’ve reiterated or reaffirmed our net income guidance of negative $8 million to positive $12 million. But what’s a little bit wonky about that is that we have a certain amount of tax that we are going to pay this year. Part of it is the withholding tax associated with the patent license agreement that we did this year with, you know, in Korea. So that’ll be a big chunk with foreign withholding tax. We also have other entities that we pay for and withholding tax.

So there’s a certain amount of set tax that we are going to pay, and we’re so close to breakeven that that percentage really impacts, you know, is impacted by the actual results and then had that set amount of tax as opposed to what most people think about is you think about a tax rate and you apply that to again, a little bit higher or lower earnings. So I guess way to think about this if you’re doing your modeling is to think that we’re probably gonna have a, you know, an actual tax provision in the range of probably $18 to, you know, call it, $22 million. And then if you see that, 117% effective tax rate that we use this you can really back into the, ex of pre-tax income for the whole year by taking the net income average, which is negative eight to 12.

Middle of that is roughly two. And then you can well, if you had to gross that up to get to, you know, if you’re gonna have rough midrange taxes of about 20 million, that means pre-tax income of about 22. So a midrange guidance. So, it’s a little bit wonky, this one. So the fact we overachieved in, pre-tax income and applied that 117% of FIN 18 rate actually increased our net loss even though we had a better than expected pre-tax loss. So a little confusing, but certainly, if the folks on the call have subsequent discussions, if you wanna talk a little bit more about taxes, we can.

Itay Michaeli: Okay. Thanks, Matt, Tony. That was very helpful.

Brian Krzanich: I know that that whole tax situation was a little bit confusing for everyone. To close, I just wanna say, you know, it was a great Q1 and start of our fiscal 2026. You know, we’re really happy with the deals we’ve signed on XUI. I think they’re clear indicators of the power of the technology and our ability to compete in this marketplace against, you know, whoever our competitors are at the time. And so I’m really proud of what the team’s both delivered and accomplished this quarter. You saw the great earnings, the great results that we’ve had, record free cash flow. And we’re set up for a great Q2. And so I just I look forward to talking to everybody at the end of this quarter. You know, I think you’ll be happy with our results, and with that, I’ll talk to you all during the quarter and look forward to talking to you on this call at the end of Q2. So thank you very much.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Receive real-time insider trading and news alerts