Cerence 2025 Q3 Earnings Narrowed Losses and Raised Guidance

Cerence reported mixed results for Q3 2025, narrowly missing revenue expectations and significantly improving its net loss from the prior year. The company raised and narrowed full-year guidance for revenue, adjusted EBITDA, and free cash flow, reflecting stronger performance and cost control measures. Despite a 11.8% year-over-year revenue decline, the company’s net loss shrank by 99.1%, and its free cash flow reached $16.1 million, marking the fifth consecutive positive quarter.

Revenue

Cerence reported total revenue of $62.24 million for Q3 2025, representing a 11.8% decrease compared to $70.54 million in Q3 2024. Within the revenue breakdown, License revenue accounted for $34.18 million, Connected services contributed $12.84 million, and Professional services brought in $15.22 million. This segment composition highlights a continued reliance on license revenue, although the company emphasized a strategic shift toward variable revenue streams.

Earnings/Net Income

Cerence narrowed its losses significantly, reporting a net loss of $-2.72 million in Q3 2025, a 99.1% reduction from the $-313.54 million net loss in Q3 2024. On a per-share basis, the net loss improved from $-7.50 to $-0.06, a 99.2% improvement. These figures underscore the company's progress in improving its financial performance, driven by cost efficiency and strategic adjustments.

Price Action

The stock price of Cerence has edged up 0.12% during the latest trading day, has edged up 0.59% during the most recent full trading week, and has plummeted 19.44% month-to-date.

Post-Earnings Price Action Review

The strategy of buying Cerence (CRNC) shares after a revenue raise quarter-over-quarter on the financial report released date and holding for 30 days resulted in poor performance over the past three years. The strategy yielded a return of -66.58%, significantly underperforming the benchmark return of 51.69%. The excess return was -118.27%, and the strategy's CAGR was -30.98%, indicating substantial losses and a lack of growth. The strategy also had a high maximum drawdown of 0.00% and a Sharpe ratio of -0.26, reflecting significant volatility and risk.

CEO Commentary

Brian Krzanich, CEO of Cerence, highlighted the company's progress in transitioning to variable revenue and reducing reliance on fixed license contracts, which he believes will enhance visibility and financial stability. He also emphasized continued innovation in AI and Cerence xUI, as well as strategic priorities in expanding cloud offerings and technology partnerships. Krzanich expressed confidence in the company's ability to drive cost efficiency and deliver improved financial performance, while remaining cautious about broader market dynamics, including automotive production trends and global economic conditions.

Guidance

Cerence provided guidance for Q3FY25 with total revenue expected between $52M and $56M, gross margin between 66% and 68%, net loss between $(10)M and $(13)M, and diluted EPS between $(0.24) and $(0.31). Adjusted EBITDA is forecasted to range between $1M and $4M. The company anticipates continued transition from fixed to variable license revenue, which is expected to impact revenue visibility and mix, and reiterated a focus on cost efficiency initiatives to improve financial outcomes.

Additional News

Cerence announced the results of its third quarter fiscal 2025 on August 7, 2025. The company reported a revenue of $62.2 million, net cash provided by operating activities of $23.7 million, and a free cash flow of $16.1 million, marking the fifth consecutive positive quarter. Cerence raised and narrowed its full fiscal year guidance for revenue, adjusted EBITDA, and free cash flow. The company also continues to advance innovation and gain customer momentum for Cerence xUI, its hybrid LLM-based platform.

The company will host a live conference call and webcast to discuss its results. Additional details regarding guidance will be provided during the company’s earnings call. Investors and analysts can access the webcast on the company’s website, with a replay available 90 minutes after the call.

Cerence also provided key performance indicators for Q3FY25, including a 52% worldwide auto production with Cerence Technology (TTM), a 12% change in the number of Cerence connected cars shipped (TTM over prior year TTM), and a 3% change in Adjusted Total Billings (TTM over prior year TTM).

For the fourth quarter and full year fiscal 2025, Cerence expects revenue in the range of $53 million to $58 million, with gross margins projected between 68% and 69%. Net loss is projected to be in the range of $22 million to $18 million, and adjusted EBITDA is expected to be in the range of $2 million to $6 million.

The company’s full fiscal year ending September 30, 2025, is expected to see revenue in the range of $244 million to $249 million, with net loss projected in the range of $28 million to $24 million. Adjusted EBITDA is now expected to be in the range of $42 million to $46 million, with net cash provided by operating activities projected in the range of $48 million to $50 million and free cash flow expected in the range of $38 million to $42 million.