CRNC - Earnings call transcript Q1 2020

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Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Cerence Q1 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. Instructions] [Operator

like Rich conference Relations. Yerganian, Please ahead, now speaker to Thank hand go Mr. today, VP sir. to would over the your you. I of Investor

Rich Yerganian

XXXX Cerence's Quarter to Welcome Jerome. you, Fiscal Thank Year Conference Call. First

after Cerence we update in that call date you preceding the the These are press may to and those risks call. statements. this subject forward-looking release I to like makes certain uncertainties Before to begin, statements remind statements no would representations involve as hereof. today's described

In may pro to refer non-GAAP forma closest and for definitions, certain financial press measures of Please those the further reconciliations today's the addition, GAAP call. limitations non-GAAP refer equivalent. we of to measures and details of information and during to uses release this measures

Sanjay CEO; call Mark Joining and Cerence's today's CFO. me on Dhawan, Cerence's is Gallenberger,

As are company for a Sanjay, authorized Mark the reminder, spokespeople myself. the only and

to events. Before I'd Sanjay, handing few like a call investor over the announce upcoming to

Next Nasdaq institutional hosting week very still on February you to Day available, an There attending send sell-side e-mail. so restricted in are limited analysts. me York MarketSite at is Attendance is space please if and be City. Analyst an in New interested investors XXth, we will the

the from However, the be accessible general and our to will event webcast public website.

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participating Niguel, be XXnd also Annual Laguna California will We XX. in – at March the Annual Roth on Conference

to call. Sanjay? on the Now

Sanjay Dhawan

strong a on and Cerence Rich, off call. start. to you, to everyone the Thank welcome is

to that was The good with ago that in quarter, every EBITDA. quarter. revenue the gross out major delivered quarter the to the on issues surprises well on continuing minutes. a we the margin The an from and including to and well financial few Nuance, exceeded plan be Cerence began better-than-expected and into details or over Our guidance metric. metrics result results company stand-alone on thought margins independent year led as by was business just executed financial company separate more up first to and and you no stand business in separate the adjusted met a about work share operating a The executed. our key in will Mark other quarter

With the in revenue now win. the growing we license had In start mostly are the us, design laser-focused XX It with mechanics separating starts to of car starts from Nuance XX QX, after the on months profitably we that business. different production wins cars XX months behind generate once production.

for seven Our over the smaller niche success the approximately success of during continue large decisions large competitors geographic with design both include, regions, quarter. tech rate giants – wins rate These XX%. five wins reflecting and un-bated across decisions

the signed One business. of the one was of quarter history contracts of in we the the the largest deals in

Our and for us. to technology leading and are languages for XX dialects over the distinct advantage AI automotive support assistant competitive different voice ability

and entertainment Detection We Emergency we lead such the advance new patent-pending information in deliver that as continue and will Vehicle products our safety, car, extend our as innovate to capability.

or is tech One giant misconceptions the it is tech not in car story. that or major technology competitive cases, belief it The either giant. is and Cerence the of is environment the the Cerence reality a in about story that an most

where full our can request a same the specify into their that requests assistant, you -- customers appropriate they life digital are themselves Our white-label is at specifically routing or that virtual our to cognitive channel AI uses then a while do all need simply technology car, and not the request time virtual the service Amazon, determine, assistants. service, the or There car customers to to This is no arbitration providing this of third the best of help a driver. experience or request to extend what and Baidu, it's the is goal to access solution something Google, We whether so to the is have to do OEM to rest. China, to that Tencent. party. Apple Alibaba if will the the in to allows Seamless technology brand the the Microsoft do our

another our continues a and to As the digital, create one customers key car that brand becoming become we to the more is the OEM differentiator in enable driver from experience differentiation. car to

of portfolio. into enhancing product and independent an behind on focus now mechanics out the spinning With is our expanding company us, our

We in products, initially Vehicle Car My that vehicle Detection for Electronics to familiar emergency detect one. our approaching cloning and of an that speeds targeted then a market, offers, ability the with solution China engage Emergency to driver, leading the is voice instead infotainment the more safely recently out way. allow to you up My market. a several ARK, the an unfamiliar Show Consumer voice so Voice alert can at technology announced get they the of new early January. AI that time comprehensive to will provides car Cerence in

more a goal new in products position auto product to the exhibitor time Life that pushing of industry. as AI car, product over an envelope while revenue it. voice-powered the the in and reinforcing XXX-plus CES was car adding leader meetings for Cerence examples first more ownership as enhances assistant led different these in life product product phases of cycle, of the sell in at avenue to AI delivers annual and interest and of for revenue providing our per the and our These with products that opportunity increasing our car's model. as technology It Car our recurring are also an the car, and an Lastly, demos,

a of opportunities strong and are we portfolio new deep summary, expanding start independent business with profitable as products pipeline In delivering off of growth. company business model, to and new a a an

per Analyst plans Day, will you car. more for able about our week content our If add you to next are more join hear us to

our to and are solely looking products new some being we how information new of new Additional streams revenue add car without tied to about cycles.

results to over turn to of now to financial the Mark review call quarter. like the the I'd

Mark Gallenberger

you, review first for guidance year update provide strong the fiscal full then first year and fiscal to Thank for and our XXXX performance guidance. an of I'll QX the quarter Sanjay.

performance you ago. can our Cerence's the chart, to roughly SAAR from than margin, As as first stand-alone faster We the see approximately quarter to our automobile. auto the -- grow a continues GAAP Services growth technologies flat for period a by the increasing edge Connected for company. up strong demonstrate to by ability and the the year and SAAR driving revenue a to our driven penetration compares compared X% in was a quarter of same This auto significant delivered

and all that, The metrics importantly, margin and after cash flow operations bottom $X.X operating Most and Revenue exceeded of was $XX.X related expectations. to up better from guidance for the strong million were gross line $X.X margin expense our due stand other expected adjusting range EBITDA adjusted our management. million non-GAAP within than expenses. was were or cash million

of the portion million X% penetration component the license year-over-year year. of decrease license from This license QX table that of streams in provides revenue, million of our revenue this of and $XX.X was is to year We our contracts this a a to can down breakdown which due was -- demonstrates this quarter. last but The of in grew the is rate in continued of the overall products technology. $X.X the you prior in prepaid indicator variable our year, better key from revenue variable the X% the up that the revenue different market see the believe metric and strength embedded a the make

As before, performance result we the in the reduce stronger bottom-line expect prepaid of company. use we time potentially which over that have of contracts something stated is will to

delivered same year. in Our compared business another quarter Connected of a growth prior XX% Services period with the in QX to strong increase the

as model This More Services importantly, of increasing the grew we the year-over-year. to Connected the of vehicles. continued availability and XXX% our in Connected adoption rapidly new refer the technology reflects Services

number revenue revenue pipeline of growth. for is Services Our that build advantage the reflecting Professional future Connected Professional Services are rose license The to our a XX% new enablers key customer are Services year-over-year, and continuing projects and streams. increasing our competitive of team

the and adjusted EBITDA margin reaffirming on upward are last on revising key due our December we management. non-GAAP call FY CFFO cash guidance revenue flow profitability metrics than are better operating we margin expense While provided and including our XXth, XXXX to gross non-GAAP expected

non-GAAP also We quarter. for introducing EPS for are and full year the guidance the

on and rate Our EPS XX.X million calculation before tax count of shares. a XX% is net tax a in income assumption approximately non-GAAP the share

for is a QX growth the for at sequential guidance midpoint. growth year-over-year XX% and Our

another the All of of strong indicate quarter financial metrics performance. profit

company. independent a start In summary, an had strong we've as

market profit to for market As leader, a for we The bringing a company business new are and pipeline see is innovative performance fiscal products continue of strong beyond. be opportunities. revenue strong we we the and growth and year result poised new the to

concludes and we to prepared up questions. This it our will remarks open now

Operator

first sir. Our Rhee Thank go [Operator you question Craig-Hallum. comes Van ahead. from from Instructions] Please Jeff

Jeff Van Rhee

some or of just the you can more color landscape, the deal? guys. even you size competitive can the on big A about questions number referenced around Maybe that on Congrats in The Yes, put bounds great. that quarter. some that? you booking bit talk quarter, of a

point? could And at see maybe share lines filing the you along we'll somewhat those in RPOs the suppose RPOs I then but this the

Mark Gallenberger

specific of to bookings terms of want can't fiscal for the in bookings year. backlog provide we really each quarter quantify. at only provide we don't information So, the end We the

to in disclosing where amounts kind we that's So, really of specific unfortunately the line terms bookings. the of of the draw have

be sort next. As one of quarter to you from lumpy can bookings know the

the that's down the path amounts to want disclosing from next. the so bookings to the don't quarter one And why one go reasons of actual of we

OEM a significant you is with this in to many was come. a as for to position little was substantial. that securing just win OEM had of mentioned, this bookings major It years and a However, bit European our for color next-generation really give Sanjay opportunities

of we history. go. far second history you And I would think at say even the umbrella largest as really the its was in If booking I as this under the Cerence that that's look can Nuance

Jeff Van Rhee

Okay.

guide. the be reiterated just wanted annual to clear. You I

those was? given the the to Is think with for sub revenue billings breakdown of it reiterated connected an sort is here I year last You had deferreds? the -- as respect quarter outlook also same that being the and

Mark Gallenberger

the or to earlier. Yes, revenue billings updates that deferred the that correct. provided had is we No

Jeff Van Rhee

on questions then And I guess product, here. the Okay. international two ARC

with does that to business out-of-the-box U.S.? On obviously talk come in does more then So there of if if U.S.? the to that And When when means this product about what headlines, international/China point? the launch packaged the one just your respect to the that come also at does China the to you that in ready-to-go coronavirus ARC sort offering. mentioned anything an question

Sanjay Dhawan

Sure.

Let me take that.

in China. product ARC So the started we that with

now We make partnerships announcements right leading it on bundle their hard once along that. more relationships those that X some a few to are to up, with And discussing work are with take Tier we'll global. formed

was second But part shared taken virus that regards monitoring into that of coronavirus stage is. as with question The with QX as you the your to at we our have that this situation today. very closely. We're we serious forecasting

basically very we're provided very, situation have that. but the the stage, looking impact at already that the impact So at see we we this in don't that are of a planning little you. closely. already major kind for And We we are forecast monitoring

Jeff Van Rhee

of And it The connected cognitive has arbitration frequency tech you're you those are changed? individuals? you lot with talk seeing competitive I coexist mentioned lines, landscape Okay. seeing if you're a just When about -- giants. one in then how And there. the the along and competitors? those could. those side then of then last Who on deal a the the how One

and question? instances better those Just maybe maybe phrase ASP where ASP the connected to on with does How Maybe the vary? way are that's talk giants. a to coexisting the deal you the

Sanjay Dhawan

Right.

-- So to has not had is earlier. changed I think what we you the shared drastically competitive with landscape

and a So it that from the is right iFlytek competitive others show the -- players are niche basically or up the standpoint. ones SoundHound the

being tech over is again over validated piece coexistence the with and The giants.

wanting basically don't my want life I've be consumer car. island. remarks are They a said car of in as digital inside the that extend the to So separate to different prepared customers a

and arbitrator tech is a different crystallized. So want cognitive it Google, the router the white-label or a voice various services digital to of to also so the architecture they be do providing that can in be kind that and providing extension basically life extended intelligent others, ecosystems Amazon central routings the they getting want further

experience gives we architecture ASP have of of and that pay willing willing of terms also The them the for any OEMs coexistence for seen not In services these to the pay and data. control to pressures. the the also are control

ASPs result enhancing. a as the So I further think are

plan on revenue car. double my said And to focused plan around like the things do Analyst how go our average car? we revenue in very Day in through two increase remarks prepared our I detail one, more lot we next to are number We per week, a to per

wanting annual capability with we to, new recurring our portfolio. revenue add our to are also secondly And SaaS products

you'll more meeting analyst details week. Day hear next So in -- our Analyst

Jeff Van Rhee

my questions. taking for Thanks Perfect.

Operator

Thank Sachs. from go comes Goldman Chris you. from Merwin [Operator Instructions] Our question ahead. next Please

Chris Merwin

connected Thanks a I legacy Okay, imagine be stepped nicely contract just specifically off, taking just step-up ask being change in down. like unpack color big while sequentially there but $X I for us million by in the there? really any by what's just for great. rolling question. revenue. that was about influenced the Can driven It deferred you wanted the by about think happening other that's my deferred and I Thanks. would helpful. to that maybe stepped short-term looks deferred long-term very up

Mark Gallenberger

Yes. to is amortized term roll we're comes That's seeing long-term of it moving into the we where next really short the some the get the into XX we're what new over contract will year, seeing as down fiscal down which months. legacy -- Chris

and was really that's good as you the total an change including in then quarter which the revenue see. there. And look long-term increase so the you key is short to And driver there deferred mentioned, -- was in there if at

or had that's the see pretty really contract where fiscal terms years. winds next into peaking plateauing expected of in revenue fiscal as as to start additional five So contract much it legacy this year this six declines see -- but the down year the will lines. in to some that you'll we you then and year and revenue it's as future then going years deferred the slowly color But relates over next

Chris Merwin

or the And where the the same those on expected renewals signed your are it. going Got usage worse doing originally in seeing on there, then for on or of renew as can they how they the cars. you and better expectations terms share that on were they business, connected any color number OEMs the contracts of when they

Just those through? curious how renewals are cycling

Mark Gallenberger

sure add is rate the an of the provide at. may Sanjay some one and color. that want metrics But I'll obviously we that's trend. Yes, key insight of little a to look bit And upward additional into on that adoption I'm clearly

usage are the of Services. seeing Connected definitely We and more more

We right line. increasing natively are cars seeing penetration of an are that connected manufacturing out of the

as So is very more for the getting it to connectivity that services all industry hosting relates of and us. good news for

Sanjay Dhawan

in increasing. said because forth a and said every increasing, that, couple so the contracts of closely onwards. -- on cycle you little contracts the still renewal very, years' Having we cycle the I said as we're which time long exponentially exponentially be adoption renewal is and and right like monitor And Yes. so very the Chris, Mark away month bit cycle is will know these renewal coming from are

which to obviously the car means the adoption to per absolutely usage, are And very services on then these more. exponentially, see and day so be the per So and the be the more people we're per car in usage -- adopt finding to that it use in them useful, forth. driver use and -- usage, increasing and so to thrilled we're monitoring basically

kind So would that renewals Connected of obviously the the of translate into Services.

Chris Merwin

one grew prepay. last me. I X% for license of quarter the the maybe revenue the then impact And in great. That's ex like think looks at It variable really

relative the your component in in revenue should that if the I going we that -- how just trajectory wrong. that And of of about me ex come -- I'm think license to think that you expectations? growth how come was did quarter prior can in correct XX% forward? But prepay

Mark Gallenberger

Yes.

right, component So be it year-over-year. to XX%. X% the you're is about was quarter, And going auto Last to that variable up was tied really the I think shipments.

going variable down would flattish is – side maybe to sequentially potentially the license the quarter so think And with on that probably on the of this because be say coronavirus. I even I

We XX% shipping revenue of have Asia. about into our do

still speed this are things then point. bump be our conservative do next that's and licenses. of we year for catch good seeing anticipating speed bit sort if and a be may up of a just guidance reaffirming at growth But and to why variable there FY you temporary because what probably XXXX you we beyond will we're hit if just a three we think the anything months, the that think – bump related so I if the with be very still are we just think, to will it's That's really look year-over-year full I accelerate. And and would coronavirus,

lumpy. Prepays of can quite past as potential But be you seeing now prepays. pipeline a were down This know we're good bit. a they quarter right they

QX, to would we sequentially. I think So would that prepays expect for be up

Chris Merwin

very helpful That’s Okay. for Thank much. you me. color. That’s it very

Mark Gallenberger

Sure.

Operator

Thank you.

McNally comes Evercore ahead. Our from go next question ISI. from Please Chris

Chris McNally

Maybe you the so for of what because of to the on about have talk lumpiness Could versus the going a of way want everyone's how maybe forward? to you're last able license variable? on. that's prepay clients percentage I as that Guys, to Meaning, are Thanks to us focused follow-on that the how do for ideal I control the think a use percentage manage prepays ratio you think that much just business licensing What's about prepay of question managing would to? much. love the you internally? kind

Mark Gallenberger

not happens Cerence on it a to It's what is because just difficult manage, Sure. dual this. Chris. relationship. just Yes it's deciding Sure, – not

they sometimes to difficult so predict. are And

around it it $XX think were sorry, like around I they to – $XX stated I million I'm have and XX year the Last million XXXX in was XXXX think are million limit fiscal down $XX looking total we year previously, was it was or fiscal $XX million. about we year prepays. As to –

given is targets as it company. public terms hold will be would prepaid those down. clearly to decide can I not our internal then Our year-over-year. year should now any that And see quarter, – like in a right year-over-year flat where targeting to lumpy down to you But set In want first in to out those targets. years we targets of increase be we to flat and but think

Chris McNally

Is you And next-gen guys That's great. several wins, way – high European the talked very the the environment. don't have about have given you a there big you you absolute about that talked level the booking but the the in think helpful. Okay uncertainty from to OEM. on level think to for us activity higher ASP, about one going seven about for we disclosed then on numbers that's the that the bookings of questions,

know an uncertainty obviously term. You talked the revenue in quarter Sanjay ratio targets XX%-plus talked the over the basis current win about absolute I still But medium a car about is on this you medium about can ambitious last of but currently? inhibiting per sort we think revenue on is bookings of the term. of level environment very doubling XX% supportive outgrowth the

Sanjay Dhawan

for I plan that than in is had higher QX as we running QX plan, in well standpoint a QX. are The QX it both bookings from in way at looking forecast our actuals. – QX And in internal well a from when and look at as the we significantly

OEM the our net in two one and with in new with two in in one seven The So one booking Europe, making wins Korea. that America, happy OEMs. business we Japan, existing in were new China, progress in are we're very new

design across We're variety can a as right? wins it's wide globe see. the So new winning you

in remarks XX two two had in one -- mentioned one in in that we we Europe, SOPs. my America, China, repeat took prepared Japan, in Korea. in I I one

license in into So will to the programs production revenue these which which convert are coming years. went now

overall progress with the we're progressing. So are things comfortable quite the way

We will target have we that growth deliver the been experiencing.

Chris McNally

the environment months ago apply that's one. fantastic. only case? well? to ratio made the does sort of still I you one That of that, mean sort confirm That's last win a as wanted current And just XX% if but to the couple comment just of,

Sanjay Dhawan

Yes is. Yes. it

Chris McNally

Thanks so much guys. Perfect.

Operator

you. Thank

Wedbush. from Our next question ahead. from Please comes go Daniel Ives

Daniel Ives

and solid Yes, another quarter.

it like view X that M&A about should over months you how talk Just months? Thanks. next the call going to M&A tactical X

Sanjay Dhawan

Sure.

our grow able further So I growth. look has do to I first we line. want is profitably to bottom- organic at and absolute believe both top-line focus that to that can -- business expansion. that and organically we And are say firmly once

the very and been So we're on a so question I have we growth. with and response forth. Chris' we're per as to focused bookings very team on And management organic the car as the the mentioned revenue so increasing -- comfortable of earlier that

we In our very further complete platforms piece consulting makes terms of OEM at and looking provide plus-plus closely We're OEMs. to inorganic portfolio to how our software our are absolutely what to and the customers looking actively at expand automotive with sense. solutions further voice add

review obviously, have taken that first on. not firm stage we that would Board obviously not Board once and so but we at yet, decide any then comes it strategically the the actively, We otherwise, looking the we are and But as to makes a proposal and team both and yet. with sense management are right target

Operator

closing Thank you. to would Investor I queue of Instructions] questions for like over I at [Operator Yerganian, this remarks. ahead. the further in call turn Please time. President no Vice go Relations to Rich the show

Rich Yerganian

much a that Again on are there call our the and very seats very just next you joining you thank available Thank us this everyone few Day Analyst to for week. reminder morning.

Otherwise in on please if it e-mail. from as drop So day. our be you will have for are interested us and a you Thank joining -- me well. good an website our all attending simulcast

Mark Gallenberger

Thank you.

Operator

this gentlemen, Thank conference concludes and for call. Ladies you participating. today's you. Thank

You day. disconnect. may now Good

Cerence (CRNC) 11 Feb 202020 Q1 Earnings call transcript