Q3 2025 Cerence Inc Earnings Call

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Speaker #2: Good day, and thank you for standing by. Welcome to the Serence Third Quarter 2025 earnings call. At this time, all participants are in a listen-only mode.

I'd now like to hand, the conference over to Katie Hickman, Vice President of corporate Communications and Investor Relations.

Please go ahead.

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Hello, everyone and welcome to <unk> third quarter 2025 conference call I'm, Pete Heckman VP of corporate Communications and Investor Relations before we begin I would like to remind you that this call may involve certain forward looking statements any statements that are not statements of historical fact, including statements related to our expectations.

Speaker #2: You will then hear automated message advising your hand is raised. To withdraw your question, please press star, one, one again. Please be advised that today's conference is being recorded.

Speaker #2: I'd now like to hand the conference over to Kate Hickman. Vice President of Corporate Communications and Investor Relations. Please go head.

The patients intentions estimates assumptions beliefs outlook strategies goal objective targets and plans are forward looking statements parents makes no representation to update those statements after today.

Speaker #3: Hello, everyone, and welcome to Serence's Third Quarter 2025 conference call. I'm Kate Hickman, VP of Corporate Communications and Investor Relations. Before we begin, I would like to remind you that this call may involve certain forward-looking statements.

These statements are subject to risks and uncertainties, which may cause actual results to differ materially from such statements and expectation 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-K filed on November 25, 2024 and <unk>.

Speaker #3: Any statements that are not statements of historical fact including statements related to our expectations and icipations intentions, estimates, assumptions, beliefs, outlook, strategies, goals, objectives, targets, and plans are forward-looking statements.

And 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.

Speaker #3: Serence 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 8K with the press release proceeding today's call, our most recent Form 10Q, and our Form 10K filed on November 25th, 2024.

The press release is available in the investors section of our website joining.

Joining me on today's call are Brian Cruzan, Etch, CEO and Tony Rodriguez CFO. Please note that slides with further contexts 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 Raymond James Industrial and energy showcased on August 13th and 14th and the Needham virtual semiconductor.

Speaker #3: 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.

In semi cap conference on August 20th in 'twenty, one now onto the call Brian.

Speaker #3: The press release is available in the Investor section of our website. Joining me on today's call are Brian Krzanich, CEO, and Tony Rodriguez, CFO.

Thank you Kate good.

Good afternoon, everyone and welcome to the Q3 2025 earnings call.

Speaker #3: Please note that slides with further context are available in the Investor section of our website. Before handing the call over to Brian, I would like to mention that we will be participating in the Raymond James Industrial and Energy Showcase on August 13th and 14th, and the Needham Virtual Semiconductor and Semi-Cap Conference on August 20th and 21st.

Cited to speak with you today.

We are very pleased with our strong results this quarter exceeding the high end of our guidance with revenue of $62 $2 million and adjusted EBITDA of $9 million.

Shortly we generated strong free cash flow of $16 1 million.

Speaker #3: Now, onto the call. Brian?

Speaker #4: Thank you, Kate. Good afternoon, everyone, and welcome to the Q3 2025 Serence earnings call. I'm excited to speak with you ay. We are very pleased with our strong results this quarter, exceeding the high end of our guidance with revenue of 62.2 million dollars and adjusted EBITDA of 9 million dollars.

Marking our fifth consecutive quarter of positive free cash flow.

And for the full fiscal year, we are raising and narrowing revenue guidance to 244 million to $249 million. This brings the low end of our guidance range above the previous midpoint.

Tony will provide further details on our results later in the call.

Speaker #4: Importantly, we generated strong free cash flow of 16.1 million dollars marking our fifth consecutive quarter of positive free cash flow. And for the full fiscal year, we are raising and narrowing revenue guidance to 244 million to 249 million, which brings the low end of our guidance range above the previous midpoint.

We continue to make progress on our three key deliverables for 2025.

Advancing our AI roadmap.

Our business with new and existing customers.

And then continuing our transformation and cost management.

First we continue to advance the development of <unk>.

Speaker #4: And Tony will provide further details on our results later in the call. To continue, to make progress on our three QT deliverables for 2025, advancing our AI roadmap, growing our business with new and existing customers, and continuing our transformation and cost management.

Our next generation hybrid agenda AI assistance platform.

While we previously differentiated between <unk> Gen, one and Gen. Two.

It's important to understand that <unk> is not a static product.

But rather a dynamic platform that is continuously evolving with new capabilities and features.

<unk> multimodal modality and emotion detection.

Speaker #4: First, we continue to advance the development of Serence XUI, our next-generation hybrid agentic AI assistant platform. While we previously differentiated between XUI Gen 1 and Gen 2, it's important to understand that XUI is not a static product.

Pulling out over a strategic multi year roadmap.

In addition.

<unk> is designed to scale alongside our OEM customers development cycles.

Ensuring alignment with their evolving go to market strategies and technical roadmap.

Speaker #4: But rather a dynamic platform that is continuously evolving with new capabilities and features like multimodal modality and emotion detection, rolling out over a strategic multi-year roadmap.

We are firmly on schedule with the major milestones on this roadmap highlighting our disciplined execution and commitment to delivering long term scale.

Scalable value through AI innovation.

So with that we reached several important milestones for <unk> within the quarter include.

Speaker #4: In addition, XUI is designed to scale alongside our OEM customers' development cycles. Ensuring alignment with their evolving go-to-market strategies and technical roadmaps. We are firmly on schedule with the major milestones on this roadmap, highlighting our disciplined execution and commitment to delivering long-term scalable value through AI innovation.

Including increasing language availability and advancing the platform's contextual reasoning capabilities.

In addition, we continued to expand our partnerships with chip providers like arm, enabling us to flexibly distribute and share computational loads between Cpus and Gpus to deliver improved speed and performance on the edge.

Speaker #4: And with that, we reach several important milestones for XUI within the quarter. Including increasing language availability and advancing the platform's contextual reasoning capabilities. In addition, we continue to expand our partnerships with chip providers like ARM, enabling us to flexibly distribute and share computational loads between CPUs and GPUs.

We believe this approach <unk> one of the most powerful and flexible agenda AI platforms in the automotive space.

And we're gearing up for another exciting milestone in September.

When we will showcase a July at the international Auto show in Munich.

In Q3, we also continued to refine and advance our AI adjusted strategy within <unk>.

Speaker #4: To deliver improved speed and performance on the edge. And we believe this approach makes XUI one of the most powerful and flexible agentic AI platforms in the automotive space.

We're focused on developing our own standalone agents.

Namely our real time knowledge agent and an integrated navigation and EV charging ages.

Speaker #4: And we're gearing up for another exciting milestone in September, when we will showcase XUI at the International Auto Show in Munich. In Q3, we also continue to define and advance our AI agentic strategy within XUI.

As well as empowering Oems to integrate their own agents.

Our com family of proprietary language models is critical to this effort.

Enabling streamlined interoperability by serving as the Orchestrator that helps ensure a consistent behavior and seamless integration across agents.

Speaker #4: We're focused on developing our own standalone agents. Namely, a real-time knowledge agent and an integrated navigation and EV charging agent. As well as empowering OEMs to integrate their own agents.

To deliver a seamless user experience.

And we believe that the flexibility and openness of our architecture.

Alongside our unmatched automotive expertise.

Speaker #4: Our call family of proprietary language models is critical to this effort. Enabling streamlined interoperability by serving as the orchestrator that helps ensure a consistent behavior and seamless integration across agents.

Continue to be Differentiators for <unk>.

Especially as Oems navigate the complexity and ambiguity of the current market, while still looking for ways to improve the user experience in their vehicles.

And we believe Oems continue to choose <unk> and are excited by X UI.

Speaker #4: To deliver a seamless user experience, we believe that the flexibility and openness of our architecture, alongside our unmatched automotive expertise, continue to be differentiators for Cerence.

For three main reasons.

One.

Our deep automotive expertise, which allows us to quickly and efficiently integrate into the Oems hardware.

Speaker #4: Especially as OEMs navigate the complexity and ambiguity of the current market while still looking for ways to improve the user experience in their vehicles.

To access vehicle data and manage vehicle functions.

They were up to a thousands of automotive specific operations of command along with complex hardware and software that require intelligent integration to function.

Speaker #4: And we believe OEMs continue to choose Serence in our excited by XUI for three main reasons. One, our deep automotive expertise, which allows us to quickly and efficiently integrate into the OEM's ware to access vehicle data and manage vehicle functions.

Two.

Our open agnostic architecture business model.

Technology is evolving rapidly, making it difficult for Oems to predict the future.

At the same time, the customers are expecting L O arm based solutions in their vehicles today.

Speaker #4: There are up to a thousand of automotive-specific operations and commands along with complex hardware and software that require intelligent integration to function. Two, our open agnostic architecture and business model.

This puts automakers in a difficult position of having to make decisions today without knowing what the future will hold.

This is a tailwind for Sarah.

As we offer the architectural and operational flexibility and domain expertise that can help them bridge. This gap.

Speaker #4: Technology is evolving rapidly, making it difficult for OEMs to predict the future. At the same time, their customers are expecting LLM-based solutions in their vehicles today.

Needling Oems to bring LLM powered capabilities to customers today.

And in the future while also maintaining ownership over their brand experience and data.

Speaker #4: This puts automakers in a difficult position to having to make decisions today without knowing what the future will hold. This is a tailwind for Serence.

The third.

Our team and we.

Believe we have the best in the industry working at San Jose and.

And the majority of our team have long relationships with our automaker customers.

Speaker #4: As we offer the architectural and operational flexibility and domain expertise that can help them bridge this gap, enabling OEMs to bring LLM-powered abilities to customers today and in the future while also maintaining ownership over their brand experience and data.

This makes us easy to work with.

As we know the ins and outs of how our customers work.

Now as a result, we continue to see strong customer interest in <unk>.

In fiscal Q3.

We signed a deal within the Volkswagen group for one of its brands to have <unk> as the basis of its next Gen system.

Speaker #4: And third, our team. And we believe we have the best in the industry working at Serence AI. And the majority of our team have long relationships with our automaker customers.

We also expanded our work with <unk>, bringing additional generative AI capabilities to their current platforms as.

Speaker #4: This makes us easy to work with, as we know the ins and outs of how our customers work. And as a , we continue to see strong customer interest in XUI.

As we work in parallel to build their future in car experience based on ex U R.

And importantly, we're continuing to see an increased <unk> with these deals.

Speaker #4: In fiscal Q3, we signed a deal within the Volkswagen Group for one of its brands to have XUI as the basis of its next-gen system.

And we continue to have a robust pipeline of ongoing customer interest or.

With a steady stream of proof of concept programs across North America, German Japanese and Chinese Oems.

Speaker #4: We also expanded our work with JLR, bringing additional generative AI capabilities to their current platform. As we work in parallel to build their future in car experience based on XUI.

Continuing on our deliverables for 2025.

The second is to further grow our business with new and existing customers.

Speaker #4: And importantly, we're continuing to see an increased PPU with these deals. And we continue to have a robust pipeline of ongoing customer interest with a steady stream of proof of concept programs across North America, German, Japanese, and Chinese OEMs.

We have a strong global momentum with our customers, including new design wins with the Hudson and Hyundai.

As well as program extensions and renewals with great Wall Motors NGL.

Six major customer programs started production this quarter.

Including a BYD program for outside of China, That's been 14 languages.

Speaker #4: Continuing on our deliverables for 2025, the second is to further grow our business with new and existing customers. We have a strong global momentum with our ustomers, including new design wins with Bahatsu and Hyundai.

Illustrating that Chinese Oems continue to look at cerus to support the global expansion.

The previously announced generative AI program with smart as well as programs with Audi Geely Mahindra Nissan and PSA also went live within the fiscal Q3.

Speaker #4: As well as program extensions and renewals with Great Wall Motors and GM. Six major customer programs started production this quarter. Including a BYD program for outside of China that spans 14 languages.

Our commitment to partnering and supporting our customers is also being recognized.

We received formal letters and appreciation of our collaboration.

Speaker #4: Illustrating that Chinese OEMs continue to look Serence to support their global expansion. The previously announced generative AI program with Smart as well as programs with Audi, Geely, Mahindra, Nissan, and PSA also went live within the fiscal Q3.

From two major customers in China.

And we signed a new professional services agreement with Mercedes Benz.

Our work with Mercedes Benz signals, our ability to deliver core foundational technology and coexistence with big Tech and Oems evolving agenda AI strategies.

Speaker #4: Our commitment to partnering and supporting our customers is also being recognized. We received formal letters and appreciation of our collaboration from two major customers in China, and we signed a new professional services agreement with Mercedes-Benz.

As evidenced by our work on the latest generation of <unk> that first rolled out in the new electric CLA.

We continue our efforts outside of automotive as well.

With deep focus on identifying new verticals, where we think we have a solid value proposition.

Speaker #4: Our work with Mercedes-Benz signals our ability to deliver core foundational technology in coexistence with big tech and OEMs. Evolving agentic AI strategies as evidenced by our work on the latest generation of MBUX that first rolled out in the new electric CLA.

And can win.

We're being careful to understand these markets and the existing players within them.

And we're working with vertical partners to help us with go to market technology.

This process along with executing proof of concept programs ensures we don't Overinvest before we know we have a good product and a market.

Speaker #4: We're continuing our efforts outside of automotive as well. With deep focus on identifying new verticals where we think we have a solid value proposition, and can win.

For example, we have developed a call center agent and are working to identify and go to market partner for this offering.

Speaker #4: We're being careful to understand these markets and the existing players within them. And we're working with vertical partners to help us with go-to-market technology.

At this time the agent is focused on service related customer interactions in the car.

Where we can use our vast car knowledge and already in just the vehicle data to support incoming calls and requests.

Speaker #4: This process, along with executing proof of concept programs, ensures we don't over-invest before we know we have a good product and a market. For example, we have developed a call center agent on our working to identify a go-to-market partner for this offering.

But we could see this solution being applied across a myriad of industries.

Yeah.

We also formally announced our partnership with LG, which is leveraging our cloud neuro and edge text to speech to power voice interaction across its global TV lineup.

Speaker #4: At this time, the agent is focused on service-related customer interactions in the car. Where we can use our vast car knowledge and already ingested vehicle data to support incoming calls and requests.

Spanning 65 voices and languages across tens of millions of households.

Terence TTS enables LG Tvs to quickly respond to user inquiries via natural spoken words.

Speaker #4: But we could see this solution being applied across a myriad of industries. We also formally announced our partnership with LG, which is leveraging our cloud, neural, and edge text-to-speech to power voice interaction across its global television lineup.

Creating a more natural human like user experience and simplifying users' interaction.

As they search for content and programming.

So for example, the user could say.

Speaker #4: Spanning 65 voices, and languages across tens of millions of households. Serence TTS enables LG TVs to quickly respond to user inquiries via natural spoken words.

Finally movies with Tom cruise.

And the TV can respond out loud, while displaying options on the screen, saying something like.

He must like Tom cruise.

I looked up some of his movies do any of them interest you.

Speaker #4: Creating a more natural, human-like user experience and simplifying users' interactions. As they search for content and programming. So, for example, the user could say, "Find me movies with Tom Cruise." And the TV can respond out loud while displaying options on the screen, saying something like, "You must like Tom Cruise." I looked up some of his movies.

Beyond the clear user experience benefits.

Terence TTS also enables LG to meet increasing accessibility requirements worldwide by ensuring that its TV can be easily operated by people of all abilities.

As a reminder, we believe the impact of our work to expand beyond automotive will.

Will be seen in our revenue and profitability in late fiscal 2026 and beyond.

Speaker #4: Do any of them interest you? Beyond the clear user experience benefits, Serence TTS also enables LG to meet increasing accessibility requirements worldwide. By ensuring that its television can be easily operated by people of all abilities.

The third key deliverable for 2025 is to continue our transformation and cost management.

As you can see from our continued strong cash performance.

We are seeing the real benefits from this work.

And it is being delivered to the bottom line for our shareholders.

Speaker #4: As a reminder, we believe the impact of our work to expand beyond automotive will be seen in our revenue and profitability in late fiscal 2026 and beyond.

And we continue to identify opportunities for further cost savings.

Importantly.

As we stated in our last earnings call, we did not see meaningful impact from tariffs on this quarter's results.

Speaker #4: The third key deliverable for 2025 is to continue our transformation and cost management. As you can see from our continued strong cash performance, we are seeing the real benefits from this work.

For fiscal Q4, and therefore for fiscal 2025.

We believe the impacts will remain limited.

Speaker #4: And it is being delivered to the bottom line for our shareholders. And we continue to identify opportunities for further cost savings. Importantly, as we stated in our last earnings call, we did not see meaningful impact from tariffs on this quarter's results.

However, it's important to note that the situation remains fluid.

It may evolve over the remainder of the year.

We are seeing third party projections of vehicle volumes down approximately two 5% for Q4, and we're seeing some programs continuing to push out and be delayed.

With this in mind, we're working cooperatively with our customers to find ways to optimize our partnership <unk>.

Speaker #4: For fiscal Q4, and therefore for fiscal 2025, we believe the impacts will remain limited. However, it's important to note that the situation remains fluid, and may evolve over the remainder of the year.

Best support them, while also maintaining favorable favorable conditions for sure.

Lastly.

We have a long history of investing in our technology.

Speaker #4: We are seeing third-party projections of vehicle volumes down approximately two and a half percent for Q4. And we're seeing some programs continue to push out and be delayed.

And we have and will continue to defend our strong IP.

We want those who are infringing our intellectual property to know that we're serious about this effort.

Speaker #4: With this in mind, we're working cooperatively with our customers to find ways to optimize our partnership to best support them while also maintaining favorable conditions for Serence.

We have recently filed actions against Sony and Tcl for their televisions infringement of our voice technology patents.

In conclusion, we're proud of what our team has accomplished this quarter and are encouraged by our results and our ongoing opportunities.

Speaker #4: Lastly, we have a long history of investing in our technology. And we have and will continue to defend our strong IP. We want those who infringe in our intellectual property to know that we're serious about this effort.

We believe that we remain well positioned to support our customers and differentiate by our combination of technology and innovation are diverse and expansive customer base.

Speaker #4: We have recently filed actions against Sony, and TCL for their television's infringement of our voice technology patents. In conclusion, we're proud of what our has accomplished this quarter.

And our deep automotive expertise.

Our forecast for fiscal Q4, and 2025 demonstrates the strength of our products and the great work, we've done to drive financial returns for our shareholders.

Speaker #4: And I'm ouraged by our results and our ongoing opportunities. We believe that we remain well-positioned to support our customers and differentiate by our combination of technology, and innovation.

With that I'll turn it over to Tony.

Thank you Brian.

Good afternoon, everyone and thank you for joining our Q3 FY 'twenty five earnings call. We appreciate your time and interest in our company.

Speaker #4: Our diverse and expansive customer base and our deep automotive expertise. Our forecast for fiscal Q4 and 2025 demonstrates the strength of our products and the great work we've done to drive financial returns for our shareholders.

Today I'll be reviewing our Q3 results for fiscal 2025, and providing some guidance for our fourth quarter and resulting full fiscal year.

Let's get into the Q3 operating statement.

For Q3, FY 'twenty five we reported total revenue of $62 2 million.

Speaker #4: With that, I'll turn it over to Tony.

Speaker #5: Thank you, Brian. Good afternoon, everyone, and thank you joining our Q3 FY25 earnings call. We reciate your time and interest in our company. Today, I'll be reviewing our Q3 results for fiscal 2025 and providing some guidance for our fourth quarter and resulting full fiscal year.

Which was above the high end of our guidance range of $52 million to $56 million.

We saw strong contributions across all of our revenue lines.

They are the license revenue was $34 2 million.

Up 48% year over year.

Speaker #5: Let's get into the Q3 operating statement. For Q3 FY25, we reported total revenue of 62.2 million dollars, which was above the high end of our guidance range of 52 to 56 million dollars.

Collecting solid utilization across our customer base.

And reflecting more in period revenue from licensed shipments as compared to the prior year quarter, given the lower level of recent fixed contracts.

In historical periods.

Speaker #5: We saw a strong contribution across all of our revenue lines. There, the license revenue was 34.2 million dollars, up 48% year over year reflecting solid utilization across our customer base.

We saw higher than expected volumes, possibly due to manufacturers producing ahead of potential tariff impacts.

And received benefit from favorable exchange rates on the euro.

As expected we recognized no fixed license revenue this quarter compared to $20 million in Q3 of last year.

Speaker #5: And reflecting more in-period revenue from license shipments as compared to the prior year quarter, given the lower level of recent fixed contracts than in historical periods.

Reflecting our continued strategic shift away from large upfront license deal.

Speaker #5: We saw higher than expected volumes, possibly due to manufacturers producing ahead of potential tariff impacts. And received benefit from favorable exchange rates on the euro.

To reiterate for fixed license arrangements involves customers paying early on a non refundable basis in exchange for discounted rates.

While these deals provide short term cash benefits and meet certain customer needs. We've made a deliberate decision over the past two years to strengthen our pricing strategy and better align revenue recognition with product delivery.

Speaker #5: As expected, we recognize no fixed license revenue this quarter compared to 20 million dollars in Q3 of last year. Reflecting our continued strategic shift away from large, upfront license deal.

Historically fixed license revenue reached as high as $70 million annually.

Speaker #5: To reiterate, fixed license arrangements involve customers paying early on a non-refundable basis in exchange for discounted rates. While these deals provide short-term cash benefits, and meet certain customer needs, we've made a deliberate decision over the past two years to strengthen our pricing strategy and better align revenue recognition with product delivery.

Last year, it totaled $30 million.

For this fiscal year, we planned approximately $20 million in fiscal Q2, primarily tied to budgeting cycles of our Asia based customers.

Going forward, we are comfortable in this $20 million range annually.

As a result, while total license revenue declined 26.

Speaker #5: Historically, fixed license revenue reaches high as 70 million dollars annually. Last year, it totaled 30 million dollars. For this fiscal year, we planned approximately 20 million dollars in fiscal Q2 primarily tied to budgeting cycles of our Asian-based customers.

6% year over year this quarter, the underlying mix continues to shift toward more recurring and scalable usage based models versus upfront fixed license arrangements.

Connected services revenue was $12 $8 million.

Up 17% year over year, driven by steady growth in our connected install base.

Speaker #5: Going forward, we are comfortable in this 20 million dollar range annually. As a , while total license revenue declined 20.6% year over year this quarter, the underlying mix continues to shift toward more recurring and scalable usage-based models versus upfront fixed license arrangements.

Professional services came in at $15 2 million.

Down 8% from prior year, reflecting a lower mix of custom work and greater implementation efficiency.

Gross profit for the quarter was $45 9 million.

Yielding a gross margin of 74% compared to 72% in Q3 of fiscal 2024.

The increase was largely due to higher mix of technology revenue offset by the absence of high margin fixed license revenue.

non-GAAP operating expenses came in at $39 6 million.

Speaker #5: profit for the quarter was 45.9 million dollars, yielding a gross margin of 74% compared to 72% in Q3 of fiscal 2024. The increase was largely due to higher mix of technology revenue, offset by the absence of high-margin fixed license revenue.

A 3% or $1 $1 million reduction year over year.

Q3 of last year benefited from a $2 4 million bad debt recovery.

Otherwise the year over year reduction would have been 11%.

This reflects focused expense management, while maintaining strategic investments in R&D.

As a result, our adjusted EBITDA for the quarter was $9 million, which.

Speaker #5: Non-GAAP operating expenses came in at 39.6 million dollars, a 3% or 1.1 million dollar reduction year over year. Q3 of last year benefited from a 2.4 million dollar bad debt recovery.

Which is well above our guidance range of $1 million to $4 million.

Our GAAP net loss for Q3 was $3 million.

Compared to a net loss of $314 million for the same quarter last year.

Speaker #5: Otherwise, the year over year reduction would have been 11%. This reflects focused expense management while maintaining strategic investment in R&D. As a result, our adjusted EBITDA for the quarter was 9 million dollars, which is well above our guidance range of 1 to 4 million dollars.

In Q3 of last fiscal year, the company reported a goodwill impairment charge of $357 million.

This was a noncash charge that only affected our GAAP results.

From a metric standpoint, we shipped $12 4 million units this quarter.

Speaker #5: Our GAAP net loss for Q3 was 3 million dollars, compared to a net loss of 314 million dollars for the same quarter last year.

An increase from one of $12 1 million in prior year.

We also grew our number of connected cars shipped by 12%.

Speaker #5: In Q3 of last fiscal year, the company recorded a goodwill impairment charge of 357 million dollars. This was a non-cash charge that only affected our GAAP results.

Underscoring the continued momentum and vehicle connectivity.

We captured 52% of worldwide auto production.

Remaining in line with our historical penetration.

Speaker #5: From a metric standpoint, we shipped 12.4 million units this quarter, an increase from 12.1 million in prior year. We also grew our number of connected cars shipped by 12%.

Adjusted total billings were $226 million.

An increase of three 5% year over year and consistent with plan.

As a reminder, when we look at total licenses shift pro forma royalties as an operating measure we use representing the total value of variable licenses shipped in a quarter, including the shipments from fixed licenses, where the revenue was previously recognized upon contract signing.

Speaker #5: Underscoring the continued momentum in vehicle connectivity. We captured 52% of worldwide auto production, remaining in line with our historical penetration. Adjusted total billings were 226 million dollars, an increase of 3.5% year over year and consistent plan.

We refer to the shipments where revenue was recognized in a prior period as fixed license consumption.

Our pro forma royalties were $43 2 million, which were higher by $3 5 billion as compared to $39 7 million in Q3 of last year.

Speaker #5: As a reminder, 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 the shipments from fixed licenses where the revenue was previously recognized upon contract signing.

However, the consumption of our previous fixed license contracts totaled $9 $1 million this quarter lower than the same quarter last year by about 7% and in line with expectations.

Speaker #5: We refer to the shipments where revenue was recognized in a prior period as fixed license consumption. Our pro forma royalties were 43.2 million dollars, which were higher by 3.5 million dollars as compared to 39.7 million dollars in Q3 of last year.

This drops more of the pro forma royalties into revenue in the current period as compared to a year ago.

As discussed in previous calls, we anticipate a lower level of consumption, given our lower level of fixed contracts.

Speaker #5: However, the consumption of our previous fixed license contracts totaled 9.1 million dollars this quarter. Lower than the same quarter last year by about 7% and in line with expectations.

In historical periods.

Our PTU metric increased to $4 91.

For the trailing 12 month period up from $4 47 for the same period last year, reflecting continued implementation of our improved pricing strategy and an increase in the adoption of connected solutions.

Speaker #5: This drops more of the pro forma royalties into revenue in the current period as compared to a year ago. As discussed in previous calls, we anticipate a lower level of consumption given our lower level of fixed contracts than in historical periods.

When evaluating our liquidity position this fiscal year, we have been successful in reducing our total debt by $87 5 million using cash on hand.

Speaker #5: Our PTU metric increased to $4.91 for the trailing 12-month period, up from $4.47 for the same period last year. Reflecting continued implementation of our improved pricing strategy and an increase in the adoption of connected solutions.

In Q1, we repurchased $27 4 million in principal value of our 2025 convertible notes and fully repaid the remaining $61 million in June.

Combined with our $16 $1 million of positive free cash flow during the quarter, our fifth consecutive quarter of generating positive free cash flow. We ended the quarter was $79 $1 million in cash and marketable securities.

Speaker #5: When evaluating our liquidity position this fiscal year, we have been successful in reducing our total debt by 87.5 million dollars using cash on hand.

We're comfortable in operating the business at this levels supported by the expectation of continued positive cash flow.

Speaker #5: In Q1, we repurchased 27.4 million dollars in principal value of our 2025 convertible notes. And fully repaid the remaining 60.1 million dollars in June.

Now turning to our guidance for Q4, we currently expect revenue to be in the range of <unk> $53 million to $58 million.

Speaker #5: Combined with our 16.1 million dollars of positive free cash flow during the quarter, our fifth consecutive quarter of generating positive free cash flow, we ended the quarter with 79.1 million dollars in cash and marketable securities.

As mentioned, we believe some portion of the Q3 upside was due to higher than expected production within the quarter, possibly due to Oems producing ahead of tariff impacts in Q4.

Speaker #5: We're comfortable in operating the business at this level supported by the expectation of continued positive cash flow. Now turning our guidance. For Q4, we currently expect revenue to be in the range of 53 to 58 million.

In addition, we expect no material fixed license revenue to be signed in Q4, and we expect to see normal seasonality where volumes in Q4 tend to be lower than Q3.

With no fixed license revenue forecast in Q4, we expect gross margins to be in the range of 68% to 69%.

Speaker #5: As mentioned, we believe some portion of the Q3 upside was due to higher than expected production within the quarter. Possibly due to OEMs producing ahead of tariff impacts in Q4.

GAAP net loss to be in the range of 18% to $22 million and adjusted EBITDA to be in the range of $2 6 million.

Speaker #5: In addition, we expect no material fixed license revenue to be signed in Q4. And we expect to see normal seasonality where volumes in Q4 tend to be lower than Q3.

With them given our strong performance in Q3, and our Q4 guidance ranges for full fiscal year expectations for revenue adjusted EBITDA and free cash flow have improved and narrowed.

Speaker #5: With no fixed license revenue forecast in Q4, we expect gross margins to be in the range of 68% to 69%. GAAP net loss is expected to be in the range of $18 million to $22 million.

Revenue guidance is moving from a range between $236 million and $247 million.

To a range between 244 and $249 million.

Speaker #5: And adjusted EBITDA to be in the range of 2% to 6 million. With that, given our strong performance in Q3 and our Q4 guidance, ranges for full fiscal year expectations for revenue, adjusted EBITDA, and free cash flow have improved and narrowed.

This brings the low end of our guidance range above the previous midpoint.

In addition, we are raising our adjusted EBITDA guidance range to $42 million to $46 million and our expected free cash flow range has increased to <unk> $38 million to $42 million.

Speaker #5: Revenue guidance is moving from a range between 236 million and 247 million dollars. To a range between 244 and 249 million dollars. This brings the low end of our guidance range above the previous midpoint.

To summarize we believe our Q3 performance demonstrates meaningful progress.

Across variable revenue recurring connected services and expense discipline.

We remain confident in our long term strategy.

Speaker #5: In addition, we are raising our adjusted EBITDA guidance range to 42 to 46 million dollars and our expected free cash flow range has increased to 38 to 42 million dollars.

And we are actively managing our expenses, while continuing to invest in innovation and customer value.

Yeah.

Thank you again for your continued support.

With that I will turn it back to Brian to close our remarks.

Speaker #5: To summarize, we believe our Q3 performance demonstrates meaningful progress across variable revenue, recurring connected services, and expense discipline. We remain confident in our long-term strategy and we are actively managing our expenses while continuing to invest in innovation and customer value.

Thanks, Tony.

In closing, we're pleased with our results this quarter and proud of what our team has accomplished.

Through the remainder of the fiscal 2025, we remain focused on our key deliverables.

Advancing our AI roadmap.

Growing our business with new and existing customers and.

Speaker #5: Thank you again for your continued support. With that, I will turn it back to Brian to close our remarks.

And continuing our transformation and cost management.

And we look forward to sharing more on our view for fiscal 2026.

Speaker #4: Thanks, Tony. In closing, we're pleased with our results this quarter and proud of what our team has accomplished. Through the remainder of the fiscal 2025, we remain focused on our key deliverables.

And the next quarter's call.

We will now open it up for questions.

As a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone telephone.

Speaker #4: Advancing our AI roadmap, growing our business with new and existing customers, and continuing our transformation and cost management. And we look forward to sharing more on our view for fiscal 2026 and the next quarter's call.

And wait for your name to be announced.

To withdraw your question. Please press star one one again.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Nick Doyle with Needham.

Speaker #4: We'll now open it up for questions.

Hi, guys. Thanks for taking my questions and congrats on the progress.

Speaker #2: As a reminder, if you'd like to ask a question at this time, please press star, one, one on your touchstone telephone. And wait for your name to be announced.

Can you expand on what drove the increase this quarter.

Was that across both license and connected services.

Speaker #2: To withdraw your question, please press star, one, one again. Please stand by while we compile the Q&A roster. Our first question comes from a line of Nick Doyle with Needham.

And you talked about fixed programs. These gen III programs going to production, but its right to think that's too early for that to really impact of PPD line this quarter.

So any more detail there would be great. Thank you.

Speaker #6: Hey, guys. Thanks for taking my questions. And congrats on the PTU progress. Can you expand on what drove the increase of this quarter? Was that across both license and connected services?

Sure.

And.

You're right, it's too early for those to impact PPE as we know it's a trailing 12 month number and that those will come in as we really deliver against that but.

Speaker #6: And you talked about six programs these Gen AI programs going into production, but it's right to think, you know, that's too early for that to really impact a PPU line this quarter.

Yes.

The delivery for Q3 is this across all three lines. So so if you think about.

The embedded side, we saw more volume.

From the embedded license this quarter so.

Speaker #6: So any more detail there would be great. Thank you.

Speaker #4: Yep. Sure. And you're right. It's too early for those to impact PPU. As we know, it's a trailing 12-month number and those will come in as we really deliver against that.

And if you remember from previous discussions on revenue recognition for the embedded licenses that are shipped those would get recognized in quarter. So we saw higher volume there.

And because of that higher volume.

Speaker #4: But yeah, on the delivery for Q3, it was across all three lines. So if you think about the embedded side, we saw more volume from the embedded license this quarter.

And the way the fair value works for fair value accounting is some of it when we originally booked these.

These contracts some of that value goes to professional services.

And so when we saw higher value on the embedded side.

Speaker #4: So if ou remember from previous discussions on revenue recognition for the embedded licenses that are shipped, those would get recognized in quarters. So we saw a higher volume there.

Also had an increase in.

Increase in the usage side of professional services. So you saw embedded up you saw.

Speaker #4: And because of that higher volume, the way the fair value works for a fair value accounting is some of it, when we originally booked these contracts, some of that value goes to professional services.

Professional services up as well and then from a.

A connected side, we saw increases as we as we noted but that was really kind of in line with expectations. We've talked about this before remember that are our customers.

Speaker #4: And so when we saw a higher value on the embedded side, we also had an increase in the usage side of professional services. So you saw embedded up, you saw professional services up as well.

Our self report their royalty volumes and so we have to we accrue a certain amount until we get those the royalty reports and in <unk>.

Some periods, we have catch up.

True ups to what we have accrued to what this actually came in so we also had some additional true ups, which impacted the embedded line and the.

Speaker #4: And then from a connected side, we saw an increase as we noted. But that was really kind of in line with expectations. You know, we've talked about this before.

Professional services line as well and those are normal for the business, but.

Speaker #4: Remember that our customers are self-report their royalty volumes. And so we have to accrue a certain ount until we get those royalty reports. And in some periods, we have catch-up kind true-ups to what we've accrued to what this actually came in.

I think they were a little bit higher than normal this quarter and then lastly, we saw a.

Increase in the <unk>.

Euro exchange the dollar debt.

All of the line items as well.

Speaker #4: So we also had some additional true-ups which impacted the embedded line and the professional services line as well. And those are normal for the business, but they I think they were a little bit higher than normal this quarter.

Yes, Nick.

The rest of your question was.

No.

Six new programs are they affecting TPU this quarter.

Youre right no they'll go into implementation over the next call.

Or two depending on the program.

Speaker #4: And then lastly, we saw a increase in the euro exchange to the dollar that benefited all of the line items as well.

We are seeing as Tony said more connected devices vehicles.

We're seeing some.

Some upgrades as Oems.

Speaker #7: Yeah. Nick, I ink part of the rest of your question was, you ow, six new programs are they affecting PPU this quarter? You're right.

Two is to push out some of the newer programs, but then we can offer them upgrades through the cloud.

Things like that that are driving that PPA. So more connected more features.

Speaker #7: No, they'll go into implementation over the next quarter or two, depending on the program. You know, we are seeing, as Tony said, more connected devices or vehicles.

The cloud because us the option to really have that flexibility.

To offer them things that we can we can download.

Overnight literally.

Speaker #7: We're seeing some upgrades as OEMs choose to push out some of the newer programs but then they're, you know, we can offer them upgrades through the cloud.

Thanks, and then a clarification I mean, sometimes you call out what that true up number was.

Was it not material enough to call it out this quarter.

And I think what we've said in the past and we have a material number with any single.

Speaker #7: Things like that that are driving the PPU. So more connected, more features, the cloud gives us the option to really have that flexibility. To offer them things that we can download overnight, literally.

Customer and I think there was nothing material within a single customer, but but we had true ups across the board that we're probably a little higher than that in previous quarters and again those as we as we as we do those it's a normal course of how we record revenue rate. This week as we get actuals versus what we've accrued for.

Speaker #6: Thanks. And then a clarification, I mean, sometimes you call out what that true-up number was. Was it not material enough to call it out this quarter?

In the past so so nothing material for any single, but but.

Speaker #4: Yeah. And I think what we've said in past that we have a material number with any single customer. And I think there was nothing material within a single customer.

Fair amount compared to previous quarters overall.

Understood and a bit of a macro question here just what are your customers, saying in terms of auto production in the next.

Speaker #4: But we had true-ups across the board that were probably a ittle higher than in previous quarters. And again, those as we do those, it's a normal course how we record revenue right as we as we get actuals versus what we've accrued for in the past.

Six months I mean, you mentioned this in your script Tony.

Investors are concerned about weekend weakening second half and some of that's contemplated in the guide but are you thinking this will impact the December quarter as well like I guess, how much do you think Chris Paul then companywide Industrywide just from your point of view. Thank you.

Speaker #4: So nothing material for any single, but a fair amount compared to previous quarters. Overall.

Speaker #6: Understood. And a bit of a macro question here, just what are our customers saying in terms of auto production in next six months? I mean, you mentioned this in your script, Tony.

Let me start and then Tony can go into more detail, but.

So each quarter, we've kind of told you we don't see much of an impact in the next quarter.

Speaker #6: I think investors are concerned about weakening second half and some of that's contemplated in the guide, but are you thinking this will impact the December quarter as well?

In tariffs.

Things like that.

And so far that's held we do think there was a certain amount of build ahead in Q3 that occurred.

Speaker #6: Like, I guess, how much do you think was pulled in company-wide, industry-wide just from your point of view? Thank ou.

It's a little bit hard for us to pin it down exactly.

Speaker #4: Let me start and then Tony can go into more detail, but so each quarter we've kind of told you we don't see much of an impact in the next quarter in tariffs and things like .

How much Nick was but thats a little bit why.

Q3 was so high in Q4 is kind of more of a standard quarter Laura.

Just some of the build ahead, we're seeing.

And then but on the overall year, we're actually up and we've raised our guidance and raised the bottom of our guidance above the mid point. Prior that's all shows that we believe the year will end out strong right.

Speaker #4: And so far, that's held. We do think there was a certain amount of build ahead in Q3 that occurred. It's a little bit hard for us to pin it down exactly.

As we go onto next year I'm, just going to be honest with you, we're not going to try and forecast next year, yes, we have some initial IHS data.

Speaker #4: How much, Nick, was, but that's a little bit why Q3 was so high and Q4 is kind of more of a standard quarter where that's just some of the build ahead we're eing.

That suggests there is some decrease in volume what we don't know is there is a bunch of as we've talked about the number of POC and new programs, we've talked about the six that we.

Speaker #4: And then, but you ow, on the overall year, we're actually up and we've raised our guidance and raised the bottom our guidance above the midpoint prior.

One this quarter those all have to be factored into that.

Speaker #4: That's all shows that we believe the year will end out strong, right? As we go on to next year, I'm just going to be honest with you, we're not going to try and forecast next year yet.

We are offsetting we believe the connected vehicles will grow so all of those things will.

Balance each other.

Sit down and figure out how 2026 in Q1 of 2026 fiscal looks.

Speaker #4: We have some initial IHS data that suggests there's some decrease in volume what we don't know is there's a bunch of, you ow, we talked about the number of POCs and new programs we talked about the six that we won this quarter.

As we go through this quarter and we will give you those numbers at the end of the quarter, but right now we believe Q4 will hold to our numbers.

It means a strong year raising guidance raising midpoint raising above the midpoint of the prior forecast so closing out the year strong.

Speaker #4: Those all have to be factored into that. So we have offsetting we believe the connected vehicles will grow. So all of those things will, you know, balance each other.

Speaker #4: And we'll sit down and figure out how 2026 and Q1 of 2026 fiscal looks as we go through this quarter and we'll give you those numbers at end of the quarter.

Yes, I think that's well said and I think if you think of our second half when you combine Q3, and our Q4 guidance. We're ahead of kind of where our second half was so so yeah, maybe a little bit of pull forward, we factor that into a little bit of a volume decrease and in Q4, but the other side of it is as I mentioned, we had some true ups.

Speaker #4: But right now, we believe Q4 will hold to our numbers. It means a strong year. Raising guidance. Raising midpoint. Raising above the midpoint of the prior forecast.

This is kind of across the board this quarter well.

Speaker #4: So closing out the year strong.

You know that part of it is a little bit of catch up but the other side is kind of new run rates for some of these programs that we have to bake into.

Speaker #6: Yeah, I think that's well said. And I think if ou think of our second half, when you combine Q3 and now we're Q4 guidance, we're ahead of, ou know, kind of where our second half was.

And certainly a little bit higher bake those into our overall volume run rate. So a lot of puts and calls but that's reflected in our full year guidance, which now is higher than as we as we said from last quarters.

Speaker #6: So yeah, maybe a little bit of pull forward. We factored that into a little bit of volume decrease in Q4. But the other side of it is, as I mentioned, we had some true-ups.

Pulled that guidance upward.

Speaker #6: You know, this kind of across the board, this quarter will, you ow, that part of it is a little bit of catch-up, but the other side is kind of new run rates for some of these programs.

And.

We'll take a look at how that impacts 2006, as we finish up here.

Very helpful. Thanks, guys. Thank you.

Speaker #6: That we have to bake into and insert a little bit higher bake those into our overall volume run rates. So a lot of puts and calls, but that's reflected in our full year guidance, which now is higher than as we said from last quarter's we've pulled that guidance upward.

Our next question comes from Colin Langan with Wells Fargo.

Oh, great. Thanks for taking my questions.

I guess just following up on some of the recent comments. The guide does imply I think about a 10% decline at the mid point quarter over quarter in sales.

Speaker #6: And you know, we'll take look at how that impacts '26 as we finish out the year. Really helpful. Thanks, guys.

You mentioned about a two 5% production decline.

It might get a little worse, but.

Why why the big Big move down is that related to some of the trucks in the quarter or is there other factors we should consider.

Speaker #4: Thank you.

Speaker #2: Our xt question comes from Colin Langen with Wells Fargo.

Speaker #8: Oh, great. Thanks for taking my questions. I guess just following up on some of the recent comments, the guide does imply I think about a 10% decline at the midpoint quarter over quarter in sales.

Got to stop.

I mean, thats, what we didn't.

Attempting to communicate is some of that was <unk>.

Volumes from Q4 into Q3, so if you look at it Q3.

Speaker #8: I think you mentioned about a 2.5% production decline I think it might be a little worse. But why the big big move down? Is that related to some of the true-ups in the quarter or is there other factors we should consider?

Really exceeded even the top end of our guidance for Q3.

And we believe some of that was pull in from Q4 its people.

We're trying to as Oems were trying to get ahead of the tariffs that were supposed to kick in in August.

Speaker #4: No, I mean, you've got to stop and I mean, that's what we've attempting to communicate is some of that was pullings from Q4 into Q3.

So some of that was simply a pull in from.

Q4, let's call it into Q3 to get ahead of that curve.

But when you look at the full year and you take a look at Q4 and Q3 combined because remember quarter to quarter, we're going to we're going to bounce around as production.

Speaker #4: So if you look at Q3, we've really exceeded even the top end of our guidance for Q3. And we believe some of that was pulling from Q4 as people were trying to as OEMs were trying to get ahead of the tariffs that were supposed kick in in August.

Varies a bit.

And with tariffs coming in going out adjusting every months week sometimes.

That's going to cause some of this fluctuation you got to take a look at that long term. That's why we are.

Speaker #4: So some of that was simply a pulling from Q4, let's call it, into Q3. To get ahead that curve. But when you look at the full year and you take a look Q4 and Q3 combined, because remember, quarter to quarter, we're going bounce around as production varies a bit and with tariffs coming in and going out, adjusting every month, week sometimes, you know, that's going to cause some of this fluctuation.

We are very confident in.

We are raising the year.

We're raising the bottom end of the year even.

Above the mid point.

The prior guidance that shows you the strong combined back half of the year.

So it's really just pull ahead, yes, it's that and then the volume number we do look at overall IHS projections, which is that's the two 5% that we discussed but we also have to think about our specific customers within that population and I believe that they were.

Speaker #4: You've got to take a look at that long term. That's why we're we are very confident in, you know, we're raising the year. We're raising the bottom end of year even.

As you can see our volume was up a little bit higher than even IHS. If you look at our volumes for for Q4 for Q3, you can see that we were hired them year over year and quarter over quarter than the IHS numbers. So correspondingly.

Speaker #4: Above the midpoint of the prior guidance, that shows you the strong combined back half of the year. So it's really just pull ahead.

Speaker #6: Yeah, it's that. And the volume number, you know, we look at overall IHS projections, which is that's the 2.5% that we discussed. But we also have to think our specific customers within that population.

We would pull that down in similar fashion, so a little bit higher than the 2%.

In anticipation of how much was pulled forward coupled out with I'm not sure a lot of our revenue.

Speaker #6: And I believe that they were, you ow, as you can see, our volume was up a little bit higher than even IHS. If you look at our volumes for Q3, you can see that we were higher than year over year and quarter over quarter than the IHS numbers.

It gets recorded in the tail end of the quarter.

As we get royalty reports and so forth. So I don't know what the euro will look like.

In the last month of our fourth quarter. So we've got some pulled.

Speaker #6: So correspondingly, I ink we would pull that down in similar fashion. It's a little bit higher than the 2% in anticipation of how much was pulled forward.

Pull back there and then some of the troops that we've seen.

Similarly.

We don't want to anticipate that we'd have the same amount of kind of.

Speaker #6: Couple that with, you ow, I'm not sure, a lot of our revenue gets recorded in the tail end of the quarter. As we get royalty reports and so forth.

True up volume as well so so in fact at all for all three of those things in and Thats why you see.

Speaker #6: So I don't know what the euro will look like in the last month of our fourth quarter. So we've got some pullback there. And then some of the true-ups that we've seen, similarly, you know, we don't want to anticipate that we'd have the same amount of kind of true-up volume as well.

The revenue kind of coming down a little bit in Q4, but but still if you look at it.

Our solid Q4, if you think about it apples to apples to where we were would have been a year ago.

Without any fear.

Fixed in either of the quarters.

Got it.

And you flagged that you paid down the debt in the quarter with cash.

Speaker #6: So we factored all three of those things in. And that's why you see the revenue kind of coming down a little bit in Q4.

How should we think about your cash balance now.

Do you think minimum cash needs are and.

Speaker #6: But still, if you look at, you know, it's a solid Q4. If you think about it, apples to apples to where we would have been a year ago.

Considering sort of adding.

Adding some debt to boost the cash cushion in the future.

Find where you are now.

Well I'll answer that.

Speaker #6: Without any fixed in either of the quarters.

Absolutely not.

Think about adding debt.

Speaker #8: Got it. And you flagged that ou paid down the debt in the quarter with cash. How should we think about your cash balance now?

No no.

Could there be a scenario.

Potentially looking at the 2028 converts and and.

And refinancing those well, they're they're trading at below par. So there could be some math there that that you could refinance those but if you think about our cash balance we ended the quarter with 79 plus million of cash and marketable securities. The way we look at it as we can we can absolutely run business with that level of cash on hand as a cushion.

Speaker #8: Where do ou think minimum cash needs are? And are you considering sort of adding some debt to boost the cash cushion in the future?

Speaker #8: Or are you fine where you are now?

Speaker #4: Well, I'll answer that last piece. Absolutely not. I'm, you know, thinking about adding debt, no. Now, could there be a scenario of potentially looking at the 2028 converts and refinancing those while they're ing up below par?

And considering that we still project that we will be cash flow positive in the future. So.

Our goal would be of course, just like we did in this year, where we paid off all of our.

Speaker #4: So there could be some math there that you could refinance those. But if you think about our cash balance, we ended the quarter with 79 plus million in cash and marketable securities.

Our requirement for $87 million from cash on hand that as we build that war chest going into 2028 that we could conceivably do the same and not have to either.

Speaker #4: You know, the way we look at it is we can absolutely run the business with that level of cash on hand as a cushion and considering that, you know, we still project that we will be cash flow positive in the future.

Certainly not add to the debt number.

Even not refinance and.

And be in a position, where we don't impact liquidity. So so I think we're at a very solid base right. Now now we will always look at the capital markets and see if theres an app.

Speaker #4: So, you know, our goal would be, of course, just like we did in this year where we paid off all of our requirements, the 87 million, and from cash on hand that as we build that war chest going into 2028 that we could conceivably do the same.

More optimal.

Recipe in that mix, but but right now it's very solid and we don't have any anticipation of adding to the debt.

Speaker #4: And not have to either add, certainly not add to the debt number, but even not refinance and be in a position where we don't impact liquidity.

Got it alright, thanks for taking my questions. Thank.

Thank you.

Our next question comes from Jeff Van <unk> with Craig Hallum.

Speaker #4: So I think we're at a very solid base right now. Now, we will always look at the capital markets and see if there's an, you know, a more optimal recipe in that mix.

Great. Thanks for taking my question and congrats on the free cash flow looks great.

The a couple of questions first on <unk>, obviously with the connected products you've got some visibility into the features that people want Im curious if theres any discernible trends in there that are surprising you in terms of what's being used or not used and along that same line you talked a bit about you talked about some of the capabilities, but as you move more into AI centric offerings whats the million.

Speaker #4: But right now, it's very solid and we don't have any anticipation of adding to the debt.

Speaker #8: Got it. All right. Thanks for ing my questions.

Speaker #4: Thanks. Thank you.

Speaker #2: Our xt question comes from Jeff Van Ree with Craig Hallam.

<unk> to differentiate from Tech bellwethers.

Speaker #6: Great. Thanks taking the question and congrats on the free cash flow. Looks great. A couple of estions. First, obviously with the connected products, you've got some visibility into the features that people want.

Sure.

So.

Okay.

<unk>.

There's a lot of.

That I can answer with this but let's start actually with the second part of your question about how do we differentiate because there are also talks to you about what our people using what is connected nearly get ya.

Speaker #6: I'm curious if there's any discernible trends in there that are surprising you in terms of what's being used or not used. And along that same line, you know, you talked bit about AI.

Speaker #6: You talked some of the capabilities, but as ou move more into AI-centric offerings, what's the main opportunity to differentiate from tech bellwethers?

Okay.

The way, we differentiate there are and I tried to talk about it in the call was.

Speaker #4: Sure. So there's a lot of that I can answer with this, but let's start actually with the second part of your question about how do we differentiate?

One we believe our technology is leading edge right, we're moving into a world, where we're multimodal, we can use sensors and cameras in the vehicle.

And really.

Speaker #4: Because I also talked to you a bit about what are people using and what this connected really gets you. The way we differentiate, there are, and I tried to talk about it in the call, was, you ow, one, we believe our technology is leading edge, right?

A lot of feature capability to the vehicle second is we're agnostic. So when you talk about big Tech.

They tend to lock you when theyre going to lock you in to use a certain navigation tool you've got to use certain loans.

Speaker #4: We're moving into a world where we're multimodal. We can use sensors and cameras in the vehicle. And really, you know, add a lot of feature capability to the vehicle.

And every time somebody does a callout tornado alone.

What's the nearest.

Mexican restaurant, who won the football game last night tell me about the weather.

That costs money.

Speaker #4: Second, is we're nostic. So when you talk big tech, you know, they tend to lock you in. They're going to lock you in to, you know, we've to use a certain navigation tool.

And as those prices change.

More competitive market comes Oems want to be able to move across the <unk>.

Speaker #4: You've got LLMs. And every time somebody does a call out to an LLM, you ow, what's the nearest Mexican restaurant? Who won the football game last night?

Marketplace to optimize the features and the cost and our option of agnostic and able to work with any of them really allows them to do that not a big deal for these guys. It also future proof them right we.

Speaker #4: Tell me about the weather. That costs money. And as those prices change, as more competitive market comes, OEMs want to be able to move across the LLM marketplace to optimize the features and the costs.

See a lot of development going on now all arms right now and you don't know who is going to be necessarily the leading.

Player in that space two years from now if you lock yourself in two.

Google only answer in Amazon only answer than Youre locked in.

Speaker #4: And our option of agnostic and able work with any of them really allows them to do that. And that's a big deal for these guys.

Whereas you to cerus and we can go anywhere.

Whether it be.

Speaker #4: It also future-proofs them, right? We see a lot of development going in LLMs right now. And you don't know who's going be necessarily the leading player in that space two years from now.

<unk>.

Claude or you want to use Google <unk>.

Whoever it is.

We're able to do that.

What are people using they're starting to use this as they see the value in this and really what we're going to show at the International Auto show in Munich.

Speaker #4: And if you lock yourself in to a Google-only answer or an Amazon-only answer, then you're locked in. And whereas you choose Serence and we can go anywhere.

Next month.

Is really the true agenda nature, where your where your car becomes a partner and you can literally just talk to it.

Speaker #4: Whether it be Claude or you want use Google LLMs or you want to, whoever it is, we're able to do that. What are people using?

And we're seeing people more and more.

Enjoy that feature Hey, my Cedar Court.

System knows them to turn on the floor.

Hey.

Speaker #4: They're starting to use this as they see the value in this. And really what we're ing to show at the International Auto Show in Munich in next month is really the true agentic nature.

I want to I want to look at whats the Moonlight Tonight.

Let me openness.

Highlight and let you look out right.

Being able to have that natural discussion is where people are enjoying. These features this is where the real authentic value comes.

Speaker #4: Where your car becomes a partner and you can literally just talk to it. And we're eing people more and more enjoy that feature. Hey, my feeder cold.

And just like what we explained with the TV with LG or you can just say hey, what are all the.

Speaker #4: And the system knows then to turn on the floor heat. Hey, you know, I want look at the, you know, what's moon like tonight?

Tom cruise movies that are available right now.

It allows you to just ask questions in a natural way and get answers back that are meaningful and helpful. That's what people are using.

Speaker #4: Well, let me open this skylight and let you look out, right? Being able to have that natural discussion is where people are enjoying these features.

Got it helpful and on the sales front.

Speaker #4: This is where the real agentic value comes. And just like what we explained with the TV, with LG, where you can just say, hey, what are all the Tom Cruise movies that are available right now?

Can you talk about just new bookings in terms of do you feel you are taking share holding share losing share.

Curious what Youre seeing there and then just last for me modeling related for 26, I realize you're not giving a guide but can you can you give even early thoughts on maybe.

Speaker #4: It allows you to just ask questions in a natural way and get answers back that are meaningful and helpful. That's what people are using.

The consumption do you think is a reasonable gross consumption of prepaid for the year that you think is a reasonable range.

Speaker #6: Got it. Helpful. And on the sales front, can you k about just new bookings in terms of do you feel you're taking share, you know, holding share, losing share?

So prepay.

We've said that we are very comfortable in that same $20 million.

I was I was asking consumption not not actual prepay just the consumption.

Speaker #6: I'm curious what you're eing there. And then just last for me, modeling related. For '26, I realize you're not giving a guide, but can you give even early thoughts on maybe the consumption you think is a reasonable gross consumption of prepaid for the year that you think is a reasonable range?

Licenses.

Yes.

You think of consumption you saw really.

The first and second quarter, our consumption was higher and you've now seen a kind of a run rate of consumption for the last two quarters and $9 million range right.

And so which again means meant that in the second half and this is why our variable license was up so much.

Speaker #4: So prepaid's easy. We've said that we are very comfortable in that same 20 million.

It's one of the components of why it was up 48% is that more of it fell to the bottom line. So when sometimes people here well Gee you didn't have prepaid.

Speaker #6: Oh, I was asking about consumption, not actual prepaid, just the consumption of licenses.

Speaker #4: Oh, yeah, yeah. So I, you know, you think of consumption, you saw really the first and second quarter are consumption was higher. And you've now seen a kind of a run rate of consumption for the last two quarters in like $9 million range, right?

This quarter is that a bad thing you'll note, we've consciously reduced that number annually to this $20 million roughly $20 million number what that means is as we do that that more of that variable ship.

Speaker #4: And so, which again meant that in the second half, and this is why our variable license was up so much. You know, it was one of the components of why it was up 48%, right?

Shipments that go out false to in period revenue. So we're about $9 million of consumption right now we haven't put guidance out for this but our consumption certainly year over year will not be up it will it will be down just by you.

Speaker #4: Is that more of it fell to the bottom line. So, you know, when sometimes people hear, well, geez, you didn't have prepaid to this, you ow, this quarter.

Speaker #4: Is that a bad thing? ell, no. We've consciously reduced number annually to this 20 million dollar, roughly $20 million dollar number. What that means is as we do that, that more of that variable shipments that go out falls to in-period revenue.

The level that you've seen historically are fixed.

It's a big consumption. It has to go down for the entire year.

And then I guess.

Got it and I will go ahead I was just going to repeat the question, but I'm not sure what about Sharon.

Speaker #4: So, you know, we're about $9 million in consumption right . We haven't put guidance out for this. But, you ow, our consumption certainly year over year will not be up.

Yes, I'd say right now our shares kind of holding where its been.

We're not losing anything that were currently in there is a few.

Speaker #4: It will be down just by, you know, the level that you've seen historically of fixed the consumption has to go down for the entire year.

RFP is out right now.

That we'll see over the next quarter or two.

Are out for bid and it's.

Speaker #4: And as far as.

We're very competitive we typically made it past round one and we're in the final round of selection. So right now we're holding.

Speaker #6: Okay. You got it. No, go ahead. I just going to repeat the question, but on the sure gain question. Yep.

Speaker #4: Yeah. I'd say right , our shares kind holding where it's been. We're not losing anything that we're currently in. There's a few RFQs out right now.

I'd say its share wise were flat.

Okay, great. Thank you.

Sure.

Okay.

Our next.

Western comes from Mark Delaney with Goldman Sachs.

Speaker #4: That we'll see over the next quarter or two. That are out for bid and it's we're very competitive. We've, you know, typically made it past round one and we're in the final round of selection.

Hi, Thank you for taking the question do you have a mine cooked on for Mark Delaney maybe.

Maybe just on the non automotive.

Expansion that you guys are doing and congrats on the algae news can you maybe help size kind of what that looks like in terms of revenue as that ramps in fiscal 'twenty, six and onwards, and how we should think about maybe something like a <unk>.

Speaker #4: So right now we're holding. I'd say it's, you ow, share-wise we're flat.

Speaker #6: Okay. Great. Thank ou.

Speaker #2: Our next question comes from Mark Delaney with Goldman Sachs.

Large application for our non auto market relative to auto and how that pipeline of just general non auto deals.

Speaker #6: Hi. Thank ou for taking the questions. Do you have Aman Gupta on for Mark Delaney? Maybe just on this non-automotive expansion that you guys are doing and congrats on the LG news.

Continuing to evolve.

Sure.

So I can't give forecast for 'twenty, six but I can give you a general.

How we view those kinds of markets in Tvs is a is a good one to just let's focus on.

Speaker #6: Can you maybe help size kind of what that looks like in terms revenue as it ramps in fiscal '26 and onwards? And how we should think about maybe something like a PPU in a large application for a non-auto market relative to auto and how that pipeline just general non-auto deals is continuing to evolve?

Typically the.

The.

Price per unit is going to be less.

Partly because the complexity of the application is not quite there youre not having all the car knowledge and.

Having to do navigation along with.

No.

Real time knowledge like wonderful.

About game and things like that you're physically just doing searches within.

A dataset that's tied to your provider and things like that so that the <unk> tends to be a lot less but the units are quite a bit more right. If you just take a look at the number of.

Vehicles sold versus the number of Tvs sold worldwide.

You can far away out pace.

Vehicles, if you add a couple of the major TV providers, you can get to a fairly large number.

So we look at it from that perspective.

And that it's going to be a lower PPA, but it's lower technology and a bit simpler and implementation, it's mostly cloud based at all.

<unk>.

We're not going to do forecasts for 2006, Oh, yes, sorry.

Yes.

As you know the PPE number that we started last quarter, giving continued this quarter as an automotive <unk> thats part of obviously our primary market. So so when we think about.

Outside of automotive.

I'm not concerned about a decrease in overall GPU because effectively as Brian mentioned, it will be a lower <unk> higher volume, but more importantly, it will be additive revenue once those markets start to.

So that's the way you should probably think about it.

Alright. Thank you for that color. That's very helpful. And then maybe for the second one going back to the auto market I think last quarter, Brian you spoke about some potential pricing pressure from customers and <unk>.

Given some of the tariff changes how has that evolved or are you still seeing that pricing pressure and then some.

Similarly related are you seeing any continued delays with new awards or design activity. I know you mentioned some program push outs in your prepared remarks as well.

We're not going to do forecasts for 26 billion yet. Sorry. Yeah. And and thinking about that as you know, the the PPU number that we've started last quarter giving you and continued. This quarter is an automotive PPU, that's part of that is our primary market. So so when we think about um, you know, outside of Automotive, uh, you know, I I'm not concerned about a decrease in overall PPU because that effectively, you know, as, as Brian mentioned it'll it'll be a lower PPU, higher volume but more more importantly, it'll be additive Revenue once, um, those markets start to um, progress. So, um, that's the way we you should probably think about it.

Yes.

I'd say, there's still pricing discussions we haven't done any pricing reductions per se.

We have done is come back and we've talked about this in the past is how do we make this a win win for both sides.

We've tried to do is say look yields.

Uh thank you for that call. That's that's very helpful. And then maybe for the second 1 uh going back to the the auto market. I think last quarter Brian you spoke about some potential pricing, pressure from customers and giving some of the Tariff changes, you know, how is that evolved? Are you still seeing that pricing pressure and then

We can we can lower your overall cost by giving us more of the business maybe more of the features.

And we'll give you a lower cost for that bigger picture that way, it's more revenue for us.

Sim, similarly related. Are you seeing any continued delays with new awards or design activity? I know you mentioned some program push-ups in your prepared remarks as well.

yeah, we um

And.

And the lower price point for them. So we have several of those offers out.

And Tony talked about the TPU going up this quarter.

In general so that shows you that we didn't have to do any dramatic price reductions from that standpoint.

And then there was a second part of your question.

Oh push outs.

We are still seeing a few programs push out there's several that are quote.

I said our.

Um, and um, and a lower price point for them. So we have several of those offers out

<unk>, we're in the final stages.

Should several of them close this quarter.

We will see or do those push out.

As I mentioned in one of the earlier questions. We haven't had any major losses, where we were competitive and we were trying to do when docs or we had the business before and we've lost it hasnt been any of those.

Um and Tony talked about the PPU. Going up this quarter uh just in general. So it shows you that we didn't have to do any dramatic uh price reductions from that standpoint. Um,

And then there was a second part of your question.

Um,

Oh push-ups. Uh,

But there are still several that have pushed and we have several that are coming due and we're hoping those will close and look.

Of course, hoping with all closed in our favor, but we'll have to wait through the quarter.

Thank you very much for taking my questions I appreciate it.

As a reminder, if you'd like to ask a question at this time. Please press star one on your Touchtone phone.

Our next question comes from <unk> Kalia with TD Cowen.

Great. Thank you good afternoon.

To dig into some of the ex UI wins that you talked about before.

Just some more detail around your number of models.

The we are still seeing a few programs push out. There's several that are quote you know as I said the rfqs are out, we're in the final stages, they should several of them, close this quarter. Um we'll see or do those push out. Um we haven't like as I mentioned in 1 of the earlier questions, we haven't had any major losses where we were competitive. And you know we we were trying to do win backs or we had the business before and we've lost it. There haven't been any of those. Um, but there are still several that have pushed and we have several that are coming due and we're we're hoping those will close. And, and of course, hoping we will close in our favor but we'll have to wait through the quarter.

<unk> launched with the particular OEM, just the penetration levels, there and the kind of mix between more premium luxury models versus mass market. I think you mentioned VW is one of the wins maybe.

Thank you very much for taking the questions, appreciate it.

As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your touchtone phone.

As an example.

Our next question comes from, eai me with TD Cowen.

Yes.

Sure.

A great. Thank you. Good afternoon.

So I can't give you like there than what we what we gave in our prepared remarks.

I want to dig in.

You talked about before.

Um, to share some more detail around.

I can say it with somebody within the VW group.

With the particular.

But I'm not.

Okay.

Able to tell you exactly which which group in which models.

Brand within that group we.

We did mentioned <unk> as an example.

In general what we're seeing with those programs.

We kind of mix between more premium luxury models versus Mass Market. I think you mentioned uh you know VW as as 1 of the wins maybe you as as an an example.

Is that we are seeing an increase in TPU.

They are typically going across the brand.

So it's not just the luxury end it's.

At least down through the mid I'll call. It the mid level mid section of the brands. There is there are some very low end brands that maybe they go into other geos and things like that but.

Sure. Um so I I can't give you like uh there then what we what we gave in the prepared remarks. I you know I can say it's was somebody within the VW group, um, but I'm not.

you know, able to tell you exactly which which group and Which models uh which which

Can be offering lower levels of the subscription but in general it's pretty broad across the brand as far as the models standpoint, but.

Brad within that group, uh, we did mention jlr, um, as an example.

In general, what we're seeing with those programs.

Is that we are seeing an increase in PPU.

Just not at Liberty to tell you.

There is.

Marketing plans announcements between the two companies.

VW group.

And all of that's about as far as I can go with that.

Example.

Yes, no absolutely totally understood that that was actually helpful. Thank you just as a follow up as we think about non auto ramping in late fiscal 'twenty six and beyond should we think about any incremental opex to support that growth.

Or do you think you can achieve that growth kind of with your current opex space.

I do not expect Opex growth.

For example, Tony and I did a review today on how we're becoming more efficient by using.

Um, there are typically going across the brand, um, so it's not just the luxury end. It's um, at least down through the mid, I'll call it. The mid-level mid-section of the brand. There's, there's some very low-end brands that maybe they go into other GEOS and things like that, but, um, um, can be offering lower levels of the subscription, but in general, it's pretty broad across the brand uh, as far as a model standpoint. But I I'm just not at Liberty to tell you. Um, there's, you know, marketing plans and announcements between the 2 companies that I I just um, VW group and and all is like about as far as I can go with that as an example.

Artificial intelligence internally to help US right our code to do some of our Q&A work.

To build more tools that allow us to do analytics against our.

Software.

Think about non-auto ramping and late, fiscal, 26, and Beyond should we think about any incremental Opex to support that growth?

Much faster rate. So we think there is just in there we can get 15% to 20%.

Uh as well. Um, or do you think you can achieve that growth kind of with your current, uh, Opex space?

Productivity improvements within our engineering team.

By doing that work over the next year and expanding that.

So a broader uptake right now where we're kind of early in those stages, but we believe we can continue to grow that capability and so our goal is to push that across the company and to fund our growth through that efficiency.

And so we are going through that we have regular.

Like.

Forums that we're reviewing at my level.

No, I do not expect Opex growth. I mean, um, for example, Tony and I did a review today on how we're becoming more efficient by using artificial intelligence internally to help us write our code, to do some of our Q&A work, um, to build more tools that allow us to do analytics against our software at a much faster rate. So we think there's just in there that we can get 15% to 20% productivity improvements within our engineering team.

The group's progress in this space and we're talking about how to really make it measurable for next year. So we can really see the productivity improvement.

The team is really excited about that because they look at this as a way to get up to go and do more work in roofing, it's actually fun for them to use these tools.

And.

And they don't see it as a risk to their job or do you think they see it as an enhancement in a way that they can be more productive and get more done and do things that they actually didn't have time to get done in the past but.

Just by doing that work over the next year and expanding that, um, into a broader, I'll tell you right now, we're, we're kind of early in those stages, but we believe we can continue to grow that capability. And so, our goal is to push that across the company and to fund our growth through that efficiency. Um, and so we, we, we are going through that we have regular, uh, like

The product and the job much better.

So no I'm not going to fund it with increased Opex are going to continue to make improvements in opex next year and instead funds this through productivity.

Perfect. That's very helpful. Thank you.

That concludes today's question and answer session I'd like to turn the call back to Brian <unk> for closing remarks.

So I just wanted to close with thank you everybody for taking the time out of your busy day to listen to our earnings call. We're really excited about the results we had in Q3.

We're closing out the year as we've talked about.

Strong by raising our guidance for the full year.

So we can really see the productivity Improvement and the team is really excited about that because they look at this as a way to get up to go and do new work and new things. It's actually fun for them to use these tools and um and and they don't see it as a a risk to their job or anything. They see it as an enhancement. In a way that they can be more productive and get more done and do things that they actually didn't have time to get done in the past, but make the product and the job much better. Um, so no, I'm not going to fund it with increased Optics. I'm going to continue to make improvements in Optics next year and, um, instead fund this through productivity.

From a revenue and from an EBITDA and free cash flow.

Perfect. That that's very helpful. Thank you.

And we look forward to talking to you at the end of our fiscal Q4.

Giving you the results for Q4, but also our forecast for 2026, which I know based on your question is what you guys are all looking forward to and need in order to.

That concludes today's question and answer session. I'd like to turn the call back to Brian Krzanich for closing remarks.

Continue to help US look at this company. So thank you very much for your time.

This concludes today's conference call. Thank you for participating you may now disconnect.

So, I just wanted to close with. Um, thank you, everybody for taking the time out of your busy days to, to listen, to our earnings call. We're really excited about the results we had in Q3. Um, we're closing out the year as we've talked about, um, strong, uh, by raising our guidance, for the full year, uh, from a revenue and um, from Aida and free cash flow.

Um, and we look forward to talking to you at the end of our fiscal Q4, uh, and giving you the results for Q4 but also, our forecast for 2026, which I know based on your questions is, uh, what you guys are all looking forward to and and and need in order to to continue to help us. Uh, look at this company. So thank you very much for your time.

Includes today's conference call. Thank you for participating. You may now disconnect.