Cerence (CRNC) AI Stock Analysis

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Cerence

(NASDAQ:CRNC)

Rating:56Neutral

Price Target:

$10.00

▲(4.38%Upside)

Cerence's overall stock score is driven by financial challenges, including declining revenues and sustained losses. Technical indicators provide some support, while the earnings call offers a positive outlook with improved cash flow and strategic partnerships. However, valuation remains a concern due to negative profitability metrics.

Positive Factors

Cost Management

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

Financial Performance

Cerence delivered a 1Q beat and pointed to the high end of FY25 EBITDA and FCF guidance with 2Q guidance ahead of expectations.

Strategic Collaborations

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

Negative Factors

Financial Obligations

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

Market Penetration

Lack of traction with OEMs in China.

Production and Sales

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

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

Market Cap

$414.41M

Dividend YieldN/A

Average Volume (3M)1.89M

Price to Earnings (P/E)―

Beta (1Y)1.99

Revenue Growth-27.06%

EPS Growth-18.85%

CountryUS

Employees1,400

SectorTechnology

Sector Strength94

IndustrySoftware - Application

Share Statistics

EPS (TTM)0.56

Shares Outstanding43,258,064

10 Day Avg. Volume1,987,514

30 Day Avg. Volume1,892,035

Financial Highlights & Ratios

PEG Ratio>-0.01

Price to Book (P/B)2.66

Price to Sales (P/S)0.00

P/FCF Ratio10.66

Enterprise Value/Market Cap1.34

Enterprise Value/Revenue0.47

Enterprise Value/Gross Profit3.12

Enterprise Value/Ebitda-0.26

Forecast

1Y Price Target

$11.60

Price Target Upside21.09% Upside

Rating ConsensusHold

Number of Analyst Covering5

Cerence Business Overview & Revenue Model

Company DescriptionCerence Inc. provides AI powered virtual assistants for the mobility/transportation market worldwide. The company offers edge software components; cloud-connected components and related toolkits and applications; and virtual assistant coexistence and professional services. It also provides conversational artificial intelligence-based solutions, including speech recognition, natural language understanding, speech signal enhancement, text-to-speech, and acoustic modeling technology. Cerence Inc. is headquartered in Burlington, Massachusetts.

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: -4.20%|

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 experiencing financial difficulties with declining revenues and substantial net losses. The high leverage shown in the balance sheet poses a risk without improvement in earnings. Despite challenges, there is improvement in cash flow generation, indicating some operational efficiencies.

Income Statement

Neutral

Cerence has experienced a decline in revenue from $331.5M in 2024 to $254.3M in TTM 2025, indicating a negative revenue growth trend. The gross profit margin for TTM 2025 is 70.2%, showing strong product profitability. However, the net profit margin is significantly negative at -132.3%, highlighting substantial losses. The EBIT and EBITDA margins are also negative, reflecting operational challenges and high operational costs.

Balance Sheet

Neutral

The debt-to-equity ratio is 1.85, indicating high leverage which could pose a risk if earnings do not improve. The return on equity (ROE) is negative, consistent with current losses. However, the equity ratio stands at 22.4%, suggesting a reasonable level of equity financing compared to total assets.

Cash Flow

Neutral

Free cash flow has grown from $12M in 2024 to $37.3M in TTM 2025, indicating improvement in cash generation. The operating cash flow to net income ratio is positive, showing better cash conversion relative to net losses. However, the free cash flow to net income ratio is negative, reflecting ongoing profitability issues.

Breakdown	TTM	Sep 2024	Sep 2023	Sep 2022	Sep 2021	Sep 2020
Income Statement
Total Revenue	254.25M	331.50M	294.48M	327.89M	387.18M	329.65M
Gross Profit	178.58M	244.27M	199.31M	230.72M	286.11M	221.79M
EBITDA	-360.45M	-561.43M	-5.58M	-160.42M	91.93M	29.74M
Net Income	-336.59M	-588.08M	-56.25M	-310.83M	45.89M	-20.63M
Balance Sheet
Total Assets	665.55M	702.36M	1.30B	1.32B	1.71B	1.69B
Cash, Cash Equivalents and Short-Term Investments	122.78M	126.99M	110.36M	115.16M	158.86M	147.73M
Total Debt	276.16M	295.24M	289.33M	286.82M	288.12M	296.64M
Total Liabilities	516.28M	561.26M	602.72M	605.54M	673.78M	729.69M
Stockholders Equity	149.27M	141.10M	694.88M	712.95M	1.03B	957.76M
Cash Flow
Free Cash Flow	37.34M	12.20M	2.37M	-19.58M	62.34M	25.78M
Operating Cash Flow	43.69M	17.20M	7.50M	-2.14M	74.39M	44.79M
Investing Cash Flow	3.21M	4.38M	5.82M	-10.56M	-41.63M	-30.68M
Financing Cash Flow	-27.48M	225.00K	-5.33M	-19.61M	-41.51M	121.55M

Cerence Technical Analysis

Technical Analysis Sentiment

Positive

Last Price9.58

Price Trends

50DMA

9.35

Positive

100DMA

9.23

Positive

200DMA

8.68

Positive

Market Momentum

MACD

0.04

Positive

RSI

50.68

Neutral

STOCH

23.91

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 9.58 is below the 20-day moving average (MA) of 9.68, above the 50-day MA of 9.35, and above the 200-day MA of 8.68, indicating a neutral trend. The MACD of 0.04 indicates Positive momentum. The RSI at 50.68 is Neutral, neither overbought nor oversold. The STOCH value of 23.91 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 40 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 0 New Risks

Cerence Peers Comparison

Overall Rating

UnderperformOutperform

Sector (63)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
MITK	76 Outperform	$430.13M	33.38	6.11%	―	7.76%	―
EGHT	66 Neutral	$260.73M	―	-24.28%	―	-1.87%	61.90%
Sector *	63 Neutral	$34.60B	5.43	-11.64%	1.84%	5.30%	-18.55%
DOMO	58 Neutral	$655.43M	―	48.46%	―	-0.81%	9.83%
SMRT	56 Neutral	$181.78M	―	-22.66%	―	-25.43%	-135.09%
CRNC	56 Neutral	$414.41M	―	-109.88%	―	-27.06%	-18.85%
ONTF	52 Neutral	$221.30M	―	-24.47%	―	-8.39%	7.79%

* Technology Sector Average

Performance Comparison

CRNC

Cerence

9.58

6.42

203.16%

EGHT

8X8

1.93

-1.14

-37.13%

MITK

Mitek Systems

9.44

-2.77

-22.69%

DOMO

Domo

16.29

8.15

100.12%

ONTF

ON24

5.21

-1.28

-19.72%

SMRT

SmartRent

0.97

-1.45

-59.92%

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

BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.

HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.

SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.

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.Date of analysis: Jul 18, 2025