Morning, everybody. We're continuing on with our next session. Very pleased to have Cerence with us at the conference for a fireside chat. Lots of very interesting topics to talk about in automotive AI. From the company, we're very pleased to have Tony Rodriguez, Executive Vice President and CFO of the company. We'll keep it to a fireside chat session. If you do have any questions in the room, feel free to raise your hand. We'll get to you. I'm sure we'll cover a lot of interesting topics. Tony, good to see you. Thanks so much for being here. Thanks. Thanks Thanks for having us. Great. Maybe we could just begin, for those who are newer to the story, with maybe a brief overview of the company, the history, the opportunity, maybe a bit of a teach-in on what your story is today. Yeah, absolutely. The company's roots go back a long time, 25 years ago or so, in the original voice recognition software. We were part of Nuance Communications at that time. We were spun off in 2019 as really being a pure-play automotive software company in 2019. Today, we're a global leader in AI voice communication interaction within the automobile industry. We typically tout some of our metrics. We're in 50%+ of the cars that roll off the line have our technology in them. Our technology has been in 500 million+ cars. We've rolled out our, we're the first to have rolled out an automotive-specific LLM for the industry. We're at a position where we can utilize that AI agentic platform outside of automotive as well. Interesting. Maybe talk a bit more about how the product offering has shifted, and particularly now with AI, what the software can do, what's in it for consumers and automakers as they kind of go through this transition. Yeah. As consumers utilize AI in their normal life outside of automotive, it's becoming increasingly important for OEMs within the car. Consumers are expecting that type of interaction with it within the car. You think about how the technology has been in the past, it was very prescriptive. You had to hit a button, you talk to your car, and you had to be very specific on what you wanted it to do. What has transpired really is two things. One is connectivity. Outside, you'd be able to do things and address capabilities within your car, but also to look outside of your car for content and information, all within the same user interface. Connectivity has been enhanced. With AI and LLMs, now really the technology is more about a real natural interaction with the car. Whereas, again, you had to be before very prescriptive. Now you can have virtually unlimited ability to say something and have it be executed within car capabilities or outside the car. Terrific. Maybe talk about engagements with automakers as you present this technology to them. What's the receptivity from what you've seen thus far? How quickly do they want to shift to all these exciting LLM-based features? Yeah. I think that's the opportunity. When we think about our value proposition, one is our product and the fact that we were first in on voice interaction in a car. Again, now are in the same spot with regard to AI. AI is becoming so important to the OEMs that they're looking for trusted providers that can execute that. With our penetration within the industry, we are considered a very trusted advisor to be able to develop and implement technologies in a proven fashion that they're really looking to us to be that provider. It's because, again, the consumers are also demanding that technology within the industry. Absolutely. To go segue to just the question on the competitive set, what does it look like today? And how has it evolved in the last several years and now with the introduction of AI? Because you brought up a really good point around typically there's a stickiness that goes on with suppliers, trusted, being able to launch programs. How important is that? And maybe how has that shaped the competitive field today? Yeah. I think as we think about deals these days, we're still seeing the same competitors that we've seen over the last several years. Really, if we think about now our newer competition or what is our real competition, it is really big tech. That's both a competitive issue for us, but also an advantage, I think, because what we're seeing is that OEMs are somewhat reluctant to give up either the branding or the data or the interaction within the car to big tech. They want that really to be a brand experience within the OEM. You couple that with the fact that we're a trusted provider in there and that the advancements in AI are so important to the cars these days that we've become a, I think it's from a competitive standpoint, even though big tech is there, I think that it's somewhat of a moat for us to be able to help us compete. Terrific. How quickly does your technology, let's say you introduce something new at CES, can make it into production vehicles? I believe you have a faster cycle than typical in the auto industry, at least. I am just curious how that works. How does increasing OTA connectivity impact your business in the next few years? Yeah. So a couple of things. Yes, we are what used to be a 12-month process to work with an OEM and get into a head unit on the embedded side is much shortened now. We think that that is more in the three- to four-month time frame. It is really less a restriction for us as it is for the automotive industry and how quickly they overall are moving to the next models. I think that we can implement very quickly. With regard to OTA and connectivity, it is important for two aspects because we can do that over-the-air improvements and updates where when we were purely embedded before, we could not. Again, if you have an older car now that has all of that technology, it is very difficult to get that updated. Now with connectivity and over-the-air updates, that is much improved. Is there anything kind of hindering adoption from your automaker customers? Because it sounds like very natural, of course, you want to have AI, LLMs, all these features. If an engagement is not going well or at least delayed, what's a reason why that would be? Is it just the automakers trying to get their software-defined architectures correct? Is it just the timing complexity of all this technology coming together? Just curious how you think. It is the latter. It's the complexity of all the software within their vehicle and how long it's taking them to get to start a production on a newer model. The good news is we have our Cerence xUI product, which is a full agentic multimodal platform, AI interaction platform. The good news is that we've that's expected to be done in the end of this calendar year and again, to be rolled out in OEMs in 2026. There are components of that that are already using AI and components of that now. What they can do is if they're making smaller adjustments, say, we can utilize our technology now and get into updates in current models and as they plan for their future models with the full suite. Got it. Perfect. How should we frame the long-term opportunity in auto when thinking about the percentage of connected and maybe even software-defined vehicles as well as the PPU metric that you shared last quarter, which is very helpful, by the way. Thank you. In terms of directionally, where could that go in a world where all this technology exists and those architectures that the automakers are bringing are finally about? Yeah. I think that, and you're seeing it in advertisements, OEMs' advertisements. There's a focus on technology that you're seeing in those advertisements and a lot of focus on voice that you're seeing in those advertisements. I think it's within the industry, there's an increasing component of software. For us, we believe that our newer products can ascribe a higher price. When we think about our PPU and the metric that we put out, one thing to remember is that it is representative of what we believe the technology value is per car right now that we're in. There are certain levers that we can use to increase that PPU and see as the opportunity going forward to increase revenue. You've touched on some. One is the fact that these are more valuable to the consumer and therefore the OEM and can ascribe a higher price for these enhanced technologies. Price is one. The other is that even we've given the metric that we're in every other car that rolls off the lot. Of that 50% penetration, not all of it has our full stack. Some of it has just certain components of our stack. As we are trusted advisors within the industry and they're adopting newer, broader AI products, our hope, of course, is to increase PPU by getting more of the stack within that penetration. Penetration within the penetration. Within those, it's the embedded piece and the connected piece. How many of the cars are going to be more cars are going to be connected? Between the connected adoption rate, our higher price, and selling within our relationships more of our stack, we believe that we can, that's the opportunity to increase PPU within the industry. The other side of that equation is volume. We know that we're in a unique time right now with tariffs in the industry and overall volumes and expectations. We believe that there's certainly opportunity on the PPU side. Absolutely. As cars get more advanced, could your revenue model even evolve depending on customer and customer usage of the AI LLMs features where the more they're used, the value goes higher? It could. We're not there yet. You think about utilizing the LLMs. I mean, we think about our Cerence xUI too, the full platform multimodal. Part of that includes the visual side of it too. You're driving along and you see on one hand, safety standpoint, you see a road sign. You can actually interact with the car and say, what did that road sign say? The other side of it is you see a billboard. What did that billboard say? What's the phone number? If you're able to connect to there, could there be a revenue model for the OEMs that would be more beneficial to them and therefore wanting us in the car? Could there conceivably be a way to monetize that as well? I think there is, but that's very early stages at this point. Yeah. Yeah, that sounds very exciting to integrate it with the outside sensors and be able to move with that. Maybe talk about the company's relationships with SOC providers, tier one suppliers. For those who are newer to the story, kind of where do you fit in that value chain? How do you kind of work with different partners? Yeah. We've talked about our relationships with NVIDIA and most recently Arm. In those, for us, it's really having trusted partnerships which enhance the performance of executing our software. You think about the compute time, latency, and all of those things. Being connected and having good partnerships with these SOCs are critical for us because it's asking the car to do a lot more and to have those capabilities and to be able to produce it at a balancing with the OEMs, the performance and the connectivity cost for them as well. I think those relationships are critical from an SOC standpoint. Tier ones, when we say we're in virtually all the major automotive manufacturers, some of those are direct with OEMs and some are with some of our great relationships with our tier ones, Harman and others where Panasonic and others that we've actually received awards within their programs for our technologies. Absolutely. Maybe going back to adoption and the broader opportunity, can you talk about the differences you're seeing regionally, perhaps, including what's happening in China? Just give us a bit of a landscape on how the different global markets are adopting and your positioning in those respective markets. Yeah. I think certainly China moves much quicker than anyone else. When we think about us selling into China, we have not been overly successful selling China within China. I think there's a lot of limitations there with regard to competitors within the country that are nationally supported, et cetera. Where we are good there is China outside of China. When they're manufacturing, especially they're selling quite a bit to European countries and we have the language capabilities. We do well. China manufacturers outside of China and worldwide manufacturers selling into China. If we put China aside, I think the adoption rates are very similar for European manufacturers and U.S. manufacturers. All are effectively clamoring for UI, AI products that consumers are demanding. Absolutely. When you think about typically adoption of new technologies in automotive started at premium luxury levels and kind of worked their way down, it seems like yours could be scaled much faster. Are the automakers thinking about it along typical lines of we start high and move low? Or could your business actually see much more rapid adoption across mass market vehicles as well? I think they're similar. Because yes, I mean, we think about certain features. Yes, the broader features are at the higher price points. But when you think about the wide adoption of interacting with your phone, consumers are demanding that now. I think that the consumers will push a higher adoption of the connected products and the AI products. Perfect. Maybe shifting to non-automotive opportunities as well. Maybe give us an overview of what you're pursuing, what's maybe most exciting across non-auto. I know you came up on the conference call as well. I thought it was pretty interesting. Yeah. When we think about non-auto, we still think of transportation. Two-wheelers, focus on two-wheelers and trucks and utilizing the technology there. Outside automotive, the company has already got our toe in outside of automotive. That's we're in Garmin watches and LG TVs and others. We haven't pushed it. I think since Brian Krzanich, our new CEO, has been on board, there really is let's focus on winning in automotive. Start to look at where we can compete and where our AI agentic platform can be utilized outside of automotive and enhance user interaction with these. We did announce the kiosk-related voice relationship. That's an example of where we can go in, use a partner, have effectively high margins, and limit, which is very critical to us, the profitability aspect of our business. We have worked hard at the end of our fiscal 2024, going in 2025, to produce a 2025 year where we're increasing profitability, increasing positive cash flow. We want to make sure that when we look at the opportunities outside of automotive, that we look at it in that fashion. That how can we move forward and grow the business there, but do it in a smart fashion? Absolutely. Maybe within sort of non-auto, auto verticals, like trucking, two-wheelers, maybe talk about what your are those opportunities as well to kind of where you can maybe leverage the auto side? Yeah, absolutely. I mean, because those are certainly transportation is similar to automotive. The utilization within trucks, as an example, is something where it's very similar. We're seeing, quite honestly, higher price points within those lower volume areas within transportation. There definitely is a synergy there and an ability to execute. We're seeing that already. Absolutely. Maybe one if there's anyone, there's a question. Can I just leave one in? Sure. On the LLMs. You mentioned obviously being the first to push out the auto-specific LLM. When we think about the evolution of these LLMs and the scalability to kind of get to that embedded nature of a car, can you maybe talk about the progress behind that? Where do you guys stand on kind of going into that vertical and maybe how that kind of plays out from a pricing point of view relative to cloud-based oriented solutions? Yeah. Good question. I think that we talked about opening up the 25-year history of being connected in the automotive industry and voice and how that has evolved into where we are today. The most recent real push for AI and LLMs has been important. All that history allowed us to have a real specific, even though we call it, it is called our product, Cerence Assistance LLM, it is really a small language model, right? Because it has to be able to be embedded. Right now we are utilizing it on a connected basis. Ultimately, in the next version, it will be an embedded product and still allow you to do all those capabilities without the connection, but having all those natural language capabilities for the in-car usage. That is important, right? Because it is really about the adoption of that and the usability. If you in the old technology, people, if you hit the button and you had to be so prescriptive that you really said, well, I can figure this out and push the button on my seat heater instead of asking it to turn on my seat heater, right? It is our history and our relationship that allowed us to create that auto-specific LLM and to be able to utilize some of the SOCs and everything to be able to use that without a connected feature, but having those same capabilities when the car has been critical. From a price point, yes. When we think about our newer products, they are ascribing a higher rack pricing right now. What we are seeing out of the blocks, again, limited because we are just selling those products, have seen a higher price point. Typically, that's been on the connected side, which we've been able to sell even now. When we get to that point, the license side will go up as well because that's a much more capability within the car. That's super insightful. Yep. Maybe a couple of questions on the business itself. I know last year you took a number of actions to improve operational efficiency. You talked about growing profitably this year. Maybe review some of those actions and kind of how you're thinking about kind of driving further margin performance going forward. Yeah. I think the company was in a tough spot a year ago. We retracted our guidance for the fiscal 2024 year and pulled our 2025 guidance. From a market standpoint, it was in a gray area. What the company did prior to me coming aboard said, okay, look, if this is our new run rate on revenue, we need to really rationalize our expenses. For us, the majority of our costs are people-related costs. We really took a hard look at everything we were doing within technology and basically every department within that organization to see how we can be more efficient and did a very successful restructuring in Q4 of last year. Brian came on board in October of 2024, literally the first week of our new year. He's an experienced CEO, Intel and CDK. He believes too that there are other opportunities within this that can look at all facets of what we do to get better at what we do. We think we talk about AI. How is AI helping our technologists? How do we code more efficiently and do those? That helps us either maintain, as we increase revenue, maintaining a certain cost base or reducing that cost base. We are also looking at AI throughout the entire organization to see how to improve processes and be more efficient. We have things like how many legal entities we have and how many official sites we are in and other ways that we can reduce costs. We see more efficiencies within the business, but we did a big chunk to execute that profitability in Q4. I think that we do have operating leverage as the business grows of being able to still maintain, not having a variable cost that rises as revenues grow, that really we can maintain or decrease those operating costs while growing the business. Very helpful. Maybe just a quick follow-up on that. As you grow the business, in a best case scenario, everybody wants to adopt the technology. Are there incremental costs to launch product or is it pretty scalable? No, it's scalable within our organization. That's where I really think we have the operating leverage. Perfect. One thing I want to go back to on the business. I think on the last earnings call, you mentioned some discussions with your automaker customers on pricing and discounts. Curious where those discussions sit today and maybe an update. There has not been a lot of movement since the earnings call. Again, I think Brian's comment was, hey, look, we are in a very unique position with tariffs and the impacts on automotive manufacturers. There are these initial discussions around pricing. What did not come out of there, which should be clear, is that yes, those discussions are happening. I think the way we look at it is, look, we can help you save on your cost per car. Think about by reducing our overall rates, but we do not only do that. That is our existing products. We would only do that if we can get more of the stack, right? We will help you as a manufacturer decrease your overall cost by giving you a reduction of it. For us, it would be a slight hit on margin, but give us more revenue dollars and more gross profit dollars. That is kind of our approach on pricing. Yes, as the new products come out, those are the rack rates for those because they are more valuable and are higher. Could we see some discount off of a higher price than our existing prices? Yes. Nothing has been, we have not really finalized anything there. We do see those pressures, but we think we can help manufacturers while still growing our revenue. As you migrate effectively into those embedded solutions for next-gen product, do you see that as the potential to unlock incremental convenience features for the consumer whereby previously you're gated by connections and whether or not there's availability to access effectively the cloud via the pipe to the car? If you're embedded, does it, for example, will OEMs enable more convenient features that kind of allows your technology to effectively go into different spaces that hasn't been previously in old iterations? Yeah, I absolutely think so. Those are still more within the car, but more optimizing those features within the car. Again, I think that the connected aspect will still have to, as you think about whether it's directions or finding a favorite restaurant or a football score, those are still going to need a connected piece. Within, I think as consumers get more used to using those in their daily life, they're going to expect that in the car. Hopefully a connected piece so that they're interacting with their car, doing those same things outside of the car. They're going to expect it within the car. To have those embedded LLM within the car, you're able to talk more like you would do it with a connected feature. As investors kind of look ahead, what would you say are the most important metrics to track for the company and the industry? Yeah. I mean, from the broader industry, we should all be looking at overall IHS volumes and where those volumes are. For us specifically, you start thinking about, again, our penetration rate. I think you need to put that in context with that 50% is worldwide volumes, as we've described. We're not really in China within China. You have to kind of factor that into that 50% of worldwide volume. I think that's an important metric. The connectivity rate is important. I think we said it's around 29% for a trailing 12-month period. I think that looking at that and tracking the connectivity rate will be important because that will hopefully lead to increased PPU as well. Our adjusted cash flow, which is a trailing 12-month adjusted cash flow. Excuse me. The adjust for it doesn't include professional services, really technology cash flow, and adjust for prepaids and other things. It really shows the direction of our business because we mentioned that our connected feature, we bill when the car is shipped, but we don't recognize that. We recognize it over a subscription period. That billings number helps give you a little visibility into where that connected revenue will be in the future as well. Gotcha. The billings and cash flow are critical. What are your goals, the company's goals over the next six to 12 months? Yeah. Top of mind, of course, is the continuation of the Cerence xUI agentic multimodal platform, right? Is completing that. As we've said, we're on track for the end of this calendar year and hopefully getting into then vehicles in the beginning of 2026. That's the most important. As you think about that product, how does that increase revenue? What does that mean to price? What does that mean to penetration? Even though we're in 50% of every vehicle, not every vehicle has our full platform. They may be using, because of IP reasons or others, only a piece of our technology stack. How do we win more of that technology solution within those cars? Utilizing our product to really enhance revenue. At the same time, looking at profitability. It's at the top of mind of both Brian and myself to say, how do we run a growing business that is increasingly profitable? Absolutely. You guys have won some very big contracts on the AI side. Can you just talk about maybe how those are going with Growth Guidance and the other players? Yeah, yeah. And we've, so a couple of things. We've won some already that have components of the overall platform, the Cerence xUI platform, right? We've won those and those are implemented and working and I think are well received. When we think about something like JLR that we announced, that's really utilized in the beginning of 2026. You got to think about that relationship as more of being the basis of their new infotainment system and using Cerence xUI for that. I think those wins have been important and I think that they've been well received. We're at the beginnings of the revenue impact of those relationships because again, if we announce that we've won something, we got to get to start a production. If it's the full suite, then some of that embedded revenue will come in once we start billing for that. The connected piece will be over time. The impact of revenue is still really more in the latter 2026 into 2027. Great. I think with that, we are over time. So we'll end it there. Tony, thank you so much. Great discussion. Learned a lot. And thank you, everybody, for your great questions. Thank you. Thank you.