Cerence (CRNC) AI Stock Analysis

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Cerence

(NASDAQ:CRNC)

Rating:56Neutral

Price Target:

$10.50

▲(3.14%Upside)

Cerence's overall stock score reflects its financial struggles with declining revenues and high leverage. Despite this, the company shows potential for recovery due to strong earnings call performance, ongoing cash flow improvements, and strategic partnerships. Technical analysis provides a mixed outlook, while valuation remains a concern due to negative profitability.

Positive Factors

Earnings

Cerence reported a strong beat and raise, with one-time items impacting both quarters.

Financial Performance

Cerence's FY25 guidance highlights its progress in its transformation plan, with costs savings of $35-$40mn driving improved margins and positive FCF.

Partnerships

The recent collaboration with NVIDIA can enhance CRNC software capabilities and offer a unique go-to-market with edge LLMs.

Negative Factors

Financial Challenges

$87.5mn convertible note due in June 2025 poses a near-term financial challenge as management is exploring refinancing options.

Market Performance

Decline in royalties and units shipped, with 10.6mn cars supplied in 4Q24 down 14% y/y.

Market Presence

Lack of traction with OEMs in China.

Cerence (CRNC) vs. SPDR S&P 500 ETF (SPY)

Market Cap

$440.37M

Dividend YieldN/A

Average Volume (3M)1.14M

Price to Earnings (P/E)―

Beta (1Y)1.94

Revenue Growth-27.06%

EPS Growth-18.85%

CountryUS

Employees1,400

SectorTechnology

Sector Strength83

IndustrySoftware - Application

Share Statistics

EPS (TTM)0.56

Shares Outstanding43,258,064

10 Day Avg. Volume1,361,018

30 Day Avg. Volume1,138,204

Financial Highlights & Ratios

PEG Ratio<0.01

Price to Book (P/B)3.30

Price to Sales (P/S)0.00

P/FCF Ratio17.16

Enterprise Value/Market Cap1.29

Enterprise Value/Revenue0.44

Enterprise Value/Gross Profit3.45

Enterprise Value/Ebitda-0.29

Forecast

1Y Price Target

$11.40

Price Target Upside11.98% Upside

Rating ConsensusHold

Number of Analyst Covering5

Cerence Business Overview & Revenue Model

Company DescriptionCerence Inc. (CRNC) is a leading provider of AI-powered solutions for the automotive industry. The company specializes in developing voice recognition and conversational AI technologies that enhance the in-car experience for drivers and passengers. Cerence's products include voice assistants, text-to-speech systems, and natural language understanding solutions, which are integrated into vehicles to provide seamless, safe, and connected driving experiences.

How the Company Makes MoneyCerence makes money primarily by licensing its software and AI technologies to automotive manufacturers and suppliers. The company generates revenue through long-term contracts with these clients, who integrate Cerence's voice and AI solutions into their vehicles. Cerence also offers cloud-based services and support for its technologies, which provides additional revenue streams. Key partnerships with major automotive brands and technology companies contribute significantly to Cerence's earnings, as these collaborations expand the reach and adoption of its innovative solutions in the global automotive market.

Cerence Key Performance Indicators (KPIs)

Any

Gross Margin by Segment

Gross Margin by Segment
Shows the percentage of revenue that exceeds the cost of goods sold for each segment, revealing efficiency and pricing power across different parts of the business.

Chart InsightsCerence's gross margin trends reveal a notable recovery in Professional Services, with a recent uptick after previous volatility. The License segment remains robust, maintaining high margins despite macroeconomic pressures. Connected Services, however, shows a decline, reflecting challenges noted in the earnings call, such as headwinds in professional services revenue and exchange rate impacts. Despite these challenges, Cerence's strategic focus on AI solutions and new partnerships, as highlighted in the earnings call, suggests potential for future margin improvements and market expansion.

Data provided by:

Main Street Data

Cerence Earnings Call Summary

Earnings Call Date:May 07, 2025

(Q2-2025)

% Change Since: 1.80%|

Next Earnings Date:Aug 12, 2025

Earnings Call Sentiment Positive

The earnings call presented a strong quarter for Cerence, with revenue and EBITDA exceeding guidance, a marked improvement in free cash flow, and successful cost management. However, the company also faced challenges with professional services revenue, exchange rate impacts, and ongoing IP lawsuits. Despite these challenges, the positive highlights, such as new partnerships and successful product launches, suggest a favorable outlook for the company.

Q2-2025 Updates

Positive Updates

Exceeded Revenue and EBITDA Guidance

Cerence reported Q2 2025 revenue of $78 million, surpassing the guidance range of $74 million to $77 million. Adjusted EBITDA also exceeded expectations at $29.5 million.

Fourth Consecutive Quarter of Positive Free Cash Flow

The company generated a strong free cash flow of $13.1 million, marking the fourth consecutive quarter of positive free cash flow.

Increase in Connected Services Revenue

Connected Services revenue in Q2 was $12.6 million, reflecting a positive sign of increased demand for connected vehicles.

Successful Launch of Cerence XUI

Cerence launched its hybrid Agentic AI assistant platform, Cerence XUI, reaching significant milestones and showcasing it in multiple languages.

Strong Customer Interest and New Partnerships

The company reported continued customer interest in their offerings, with new partnerships and deals with top automakers like JLR and Renault.

Significant Cost Management Achievements

Non-GAAP operating expenses were reduced by 32% compared to the same quarter last year, highlighting successful cost management and restructuring efforts.

Negative Updates

Headwinds in Professional Services Revenue

There was a decrease in professional services revenue, which was down year-over-year by approximately $4.8 million.

Impact of Euro to Dollar Exchange Rate

Revenue was negatively impacted by the euro to dollar exchange rate, although this was neutral to profitability due to a corresponding reduction in operating expenses.

Ongoing Lawsuits and IP Protection Costs

Cerence is involved in ongoing lawsuits against Samsung, Microsoft, and Nuance for IP infringement, which could pose financial and operational risks.

No New Fixed License Revenue Expected

No material fixed license revenue is expected to be signed for the remainder of the fiscal year, potentially impacting future revenue streams.

Company Guidance

During Cerence's Q2 2025 earnings call, the company reported exceeding their high-end guidance with a revenue of $78 million and an adjusted EBITDA of $29.5 million. They also generated a robust free cash flow of $13.1 million, marking the fourth consecutive quarter of positive free cash flow. Consequently, Cerence raised its full-year guidance for both adjusted EBITDA and free cash flow. The company achieved a gross margin of 77%, surpassing the high-end of their guidance range, and ended the quarter with $122.8 million in cash and marketable securities. Despite facing macroeconomic challenges, including potential impacts from tariffs, Cerence remains optimistic, citing strong customer interest in their AI solutions and significant progress in expanding their market reach beyond automotive, as evidenced by a new partnership with Code Factory to introduce VoiceTopping. Additionally, Cerence is strategically investing in IP protection, with ongoing lawsuits against Samsung, Microsoft, and Nuance for patent and copyright infringements.

Cerence Financial Statement Overview

Summary

Cerence is facing significant financial challenges, characterized by declining revenues, persistent losses, and increasing financial leverage. While the company shows some ability to generate cash from operations, its profitability and equity position are weak, posing risks to financial stability and growth.

Income Statement

Negative

Cerence's income statement shows a concerning trend with declining revenues and increasing losses. The TTM (Trailing-Twelve-Months) revenue is significantly lower than previous years, and the company has been unable to generate a positive EBIT margin, indicating operational inefficiencies. The gross profit margin, although stable, is overshadowed by substantial EBIT and net income losses.

Balance Sheet

Neutral

The balance sheet highlights a weak financial position with a declining equity base and a high debt-to-equity ratio, indicating financial risk. The equity ratio has decreased over the years, suggesting less reliance on equity financing. Cerence's increasing liabilities relative to assets pose a risk, though the company maintains a reasonable level of cash and short-term investments.

Cash Flow

Neutral

Cerence's cash flow statement shows some resilience, with positive operating cash flows in the TTM period, despite negative free cash flow growth in prior years. The operating cash flow to net income ratio indicates that cash generation is better than accounting profits suggest, yet the overall cash flow situation reflects the company's struggle to generate consistent positive free cash flows.

TTM	Sep 2024	Sep 2023	Sep 2022	Sep 2021	Sep 2020
Breakdown
Income Statement		Total Revenue
244.06M	331.50M	294.48M	327.89M	387.18M	329.65M
	Gross Profit
164.79M	244.27M	199.31M	230.72M	286.11M	221.79M
	EBIT
-398.80M	-579.94M	-27.20M	38.33M	60.59M	14.83M
	EBITDA
-638.33M	-561.43M	-5.58M	-160.42M	91.93M	29.74M
	Net Income Common Stockholders
-636.22M	-588.08M	-56.25M	-310.83M	45.89M	-20.63M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
107.99M	126.99M	110.36M	115.16M	158.86M	147.73M
	Total Assets
617.53M	702.36M	1.30B	1.32B	1.71B	1.69B
	Total Debt
270.06M	295.24M	289.33M	286.82M	288.12M	296.64M
	Net Debt
165.96M	173.75M	188.18M	191.97M	159.69M	160.58M
	Total Liabilities
496.83M	561.26M	602.72M	605.54M	673.78M	729.69M
	Stockholders Equity
120.70M	141.10M	694.88M	712.95M	1.03B	957.76M
Cash Flow		Free Cash Flow
23.42M	12.20M	2.37M	-19.58M	62.34M	25.78M
	Operating Cash Flow
29.27M	17.20M	7.50M	-2.14M	74.39M	44.79M
	Investing Cash Flow
3.95M	4.38M	5.82M	-10.56M	-41.63M	-30.68M
	Financing Cash Flow
-26.73M	225.00K	-5.33M	-19.61M	-41.51M	121.55M

Cerence Technical Analysis

Technical Analysis Sentiment

Positive

Last Price10.18

Price Trends

50DMA

8.64

Positive

100DMA

10.35

Negative

200DMA

7.77

Positive

Market Momentum

MACD

0.14

Negative

RSI

58.52

Neutral

STOCH

68.92

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For CRNC, the sentiment is Positive. The current price of 10.18 is above the 20-day moving average (MA) of 9.14, above the 50-day MA of 8.64, and above the 200-day MA of 7.77, indicating a bullish trend. The MACD of 0.14 indicates Negative momentum. The RSI at 58.52 is Neutral, neither overbought nor oversold. The STOCH value of 68.92 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for CRNC.

Cerence Risk Analysis

Cerence disclosed 39 risk factors in its most recent earnings report. Cerence reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 2 New Risks

Our process optimization and cost-reduction efforts may not be successful. Q3, 2024

The transition in our Chief Executive Officer and other senior management positions will be critical to our success, and our business could be negatively impacted if we do not successfully manage these transitions. Q3, 2024

Cerence Peers Comparison

Overall Rating

UnderperformOutperform

Sector (62)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
MITK	78 Outperform	$467.49M	36.28	6.11%	―	7.76%	―
Sector *	62 Neutral	$11.80B	10.37	-7.29%	2.91%	7.39%	-7.96%
DOMO	58 Neutral	$588.19M	―	48.46%	―	-0.81%	9.83%
CRNC	56 Neutral	$440.37M	―	-109.88%	―	-27.06%	-18.85%
ONTF	56 Neutral	$234.89M	―	-24.47%	―	-8.39%	7.79%
EGHT	51 Neutral	$243.41M	―	-24.28%	―	-2.23%	19.48%
SMRT	51 Neutral	$172.43M	―	-22.66%	―	-25.43%	-135.09%

* Technology Sector Average

Performance Comparison

CRNC

Cerence

10.18

6.88

208.48%

EGHT

8X8

1.81

-0.72

-28.46%

MITK

Mitek Systems

10.26

-1.34

-11.55%

DOMO

Domo

14.63

7.78

113.58%

ONTF

ON24

5.53

-0.09

-1.60%

SMRT

SmartRent

0.92

-1.51

-62.14%

Cerence Corporate Events

Executive/Board Changes

Cerence Appoints Marion Harris to Board of Directors

Positive

Mar 20, 2025

On March 17, 2025, Cerence Inc. announced the appointment of Marion Harris, a former Ford executive, to its Board of Directors, effective April 1, 2025. Harris, with over 25 years of experience in automotive and financial services, is expected to bring strategic insights to Cerence AI as it continues to innovate in the automotive and mobility markets. His appointment is seen as a move to strengthen the company’s leadership with his deep expertise in digital transformation and customer satisfaction.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.