CRNC - Earnings call transcript Q1 2021

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Cerence’s First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instruction] Please be advised that today's call is being recorded. [Operator Instruction] I would now like to hand the call over to Richard Yerganian, Vice President of Investor Relations for Cerence. ahead. go Please

Richard Yerganian

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

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

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

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

reminder, for are only the me. a and the spokespeople Company authorized Mark Sanjay, As

be cloning While last challenge the remarks any and technology Q&A, live to difference this conference quarter, one. call Sanjay, to to our amazed I for by will be from last prepared able were and quarter's tell the voice Mark you

to up-to-date section Annual our the Berenberg like Sanjay, Conference Institutional in of our Investors Summit. so for participate the Technology Tech participation. the that exact is include Events visit Disruption Industrial page and XXnd March, conferences of and Capital Baird's on most call XX; to Investor change. Mobility in website upcoming Internet Cerence's Conference; in Please Technology this Raymond are to XXXX several we virtual Annual The Mobility I to subject the over Cowen Goldman the plan Conference; timing events. the would the the information Wednesday, and Conference; events, James our the XXXX participation handing all and investor Before They announce Sachs on February Vehicle

call. the to Sanjay? on Now,

Sanjay Dhawan

Rich. to this be time. live Thank you, Fun

I'll in QX, for review near-term us update followed will fiscal a financial followed year-over-year year product our be to XXXX, during market indicators, QX, start to as fiscal the expansions about key This welcome performance a to and in everyone the of After growth. of by summary we delivered I'll revenue our results. record XXXX our $XX first then results. business you a key hand to in the Mark XX% thank comments call fiscal quarter the and detailed In and our discuss strong on performance record introductions are review joining innovation quarter. million, fiscal to environment initiatives and off over representing continue. So call, first we again fast the by the of for XXXX

our strong Our performance and services license, connected in services, was driven by professional our in growth businesses.

proud revenue extremely to an growth. for important the metric While is on profitable the growth revenue I'm how we business achieve drive Company,

adjusted a details to key of was strong million led this our later on approximately of every margin metrics, focus in $X.XX. intense call. non-GAAP will XX%, EPS XX% Mark or $XX the Our QX EBITDA a gross surpassed and non-GAAP expectations results margin, share in financial the Overall, and

him growth the to welcome particular, will to want and our strengthening I offerings in professional organization new of best. creating lead automotive even Sujal Shah us the this lead and group. have future in to and services this Harman service part our space, further experience business. to extensive seen hiring may from that announcement more has by in You recent Sujal our Sujal opportunities comes wish

non-financial our financial quarter, strong as were As there well. the highlights for as were results many

by okay three auto production the reasons. just the that is awarded know, the quarter combination win one in recently and to FCA formed infotainment PSA. achievements two of of received OEM you as that We in expected It's, the European top Stellantis. deal a and system, share for for name key of the is next-generation design all was the the of was This we European major win start a One were OEMs, to the important OEM XXXX.

competitor, had offerings testament we back second, the business a when deal in our Nuance. First, lost a our we product new ago customer of of offerings of the technology. just includes a And connected Motion our in was announced to and won still part a strength the that latest of many weeks been of apps couple Cerence innovative event, services at true

on deliver significant The Xevo, the bookings major with offerings, because standard a this cycle via so Motion execution Pay event. a into headline was much the Cerence revenue display is to This bookings our our revenue contactless of expect deal for and was event opportunities, market to shorter represents It speed Another calendar end and clearly products, for to one that new win our design in to it retain is powered our from the conversational-AI or of Cerence see Lear before innovation deal these us our vehicles agreement that Company, capability at we Xevo payments year. apps. is than new allows platform. Cerence of

Drive technology we in to of and core amazing technology it'd support, technology. services the human capability, on improved a market. a best cloud features the text-to-speech of Cerence conversational inside -- confident driver's extending we're speed car. the major capabilities. brand-new the Cerence the languages like car level represents Whether best either the digital a mobility be number the enhancements of response Drive event, our X.X expanded X.X, that introduced the very connected or accuracy, focused AI Drive available edge we full and this of the technology life from to X.X capabilities During or upgrade represents introduced combination We outside best-in-class Cerence of

home, Teams of to introduced phone tech coffee in do from a or Starbucks using car if rules. car. or ecosystems, into the a you control series technology systems. you apps voice is and Cerence gaze to by significant role AI new recently the through outside on-the-go, the the consumers' IoT Cerence inform updated restaurants, that Supporting interface. your Connect sources the car knowledge is provides road. whether points of uses point you is of can a production on allows you voice high-quality a we one's application information attractions. digital GPS allows and product on means serves your provides the POI, points leverage Browse offers their machine its Extend create location ranging technology museums their from was selecting Even now. of Internet with them the indexes a to Look control and the other life the apps the to describing and to also use capability ability Cerence user on ask smartphones. tour limitation continuously use from interest, key android Cerence comprehension deliver providing in car ordering through and/or one interest travel driver in demonstrated experiences your the about best to IoT search to Motion Mercedes-Benz new conversational a to voice Connect currently in what custom Cerence your the routines using to a Cerence product Cerence allows to No guide car, also smart interest of the also to extend car technology. During and subset inside driver possible allows other way a Internet along your Tour a to different pre-planned plays ecosystems that else as products. app. intelligence exactly full provide Cerence sources Extend The a truly event, Look Tour one the using provide professional simple AI. the as or the interact big application life iOS-based for of Cerence Connect information their a the to control defined Guide a of with assistant voice voice. use extending the Cerence home to digital this your connects Guide user reading the car for This To real-time, to or and of outside in Microsoft the apps which driver Browse like This engines allows has is response. product, seamless multiple new the smart the the book home your in multiple POI. instructions information Cerence about Cerence within trip for responds using removes and

from customers. is to those and highest advantages. innovation requirements quickly of competitive alone growth meetings Cerence's a the isn't awards happy key our report to the As the several to said had a I'm bring the the in it's to the and quality and of that car, the partner. has the value technology our with conversational customer ability market during recognizing as Cerence earlier, to quarter, one, enough, But surpassing recognizing innovations contributions made we AI were team I innovation

the value recognition Baidu the for we received one worth reasons. from customers, two is we from mentioning While

or Baidu it's a was big and how another Cerence XXXX second, supplier only it's big example the First, tech. not And automotive Cerence their for recognized tech, of story awards. Cerence of

this we targeting, markets. of are also for with a market see XX produced opportunity part markets we truly two-wheel two-wheeler solution. mobility been that to conversational two year, we vehicles AI-based and adjacent There Cerence event, formally penetrate building the As the approximately launched million platforms the unique every and have

In as demonstrations business our manufacturers have The XXXX, progress, well fiscal mentioned proof-of-concept additional year. the well believe have elevators late to with is we win of existing fiscal made received completing capable product in in wins into five top we first this installations. before, as retrofitted this significant world. and positioned As market, that incorporating for key being space the we in two we of we new is are this into elevator the our elevator

will elevator year. We are fiscal have we that customers optimistic this multiple

good that discussed acceptance the I particular. KPI the with expansion continued I'll two highlight -- innovation, the innovation, in and that and and show just just Just I our to discussed, expansion progress, acceptance

on to We of increased trends billings picture now XX-month prior more the provide the was our reporting fiscal a are year-to-date basis. accurate first related a to billings the The year, on basis compared in a average XX% car. results previously XX to car, trailing per but months per which trailing year-over-year

recovery strong was to year. last in We a the to expect following other adoption middle continue of positive the continue. that noteworthy KPI show the this part COVID The would of impact metrics trend our

our technology the the to our that market into bright. first independent we as will In and remain an product created momentum our see company continued about growth opportunities our We believe second the keep our to from going. innovation the customers brought during year. year continue We innovations excitement have long-term summary, momentum

productive more safer, drive Our focus on enhance the our experience a been to way. has AI in

using we We AI continue other look modalities. Road opportunities where AI. skills AI for other like to we will Longer expand our in-cabin term, and voice areas into apply increasingly can

for future financial results the like excited We QX role guidance play. very call have Mark long-term and year. mobility, review I and the turn I'm of the vision transportation and Cerence and a to Mark? would to about will our for over for the the of quarter to the

Mark Gallenberger

same then revenue the Thank first which guidance million for the review performance high the stronger-than-expected $XX and for quarter in the at guidance million, I'll and provide second the for you, came quarter. came our is our leading us record I'll our increase year. for results year. to Once above strong in period Revenue an update a of $X from the XX% full end again, last is another Sanjay. first and quarter,

the XX.X%. that metrics our they came margin was gross in and exceed The all profitability XX.X% earnings share per at guidance range. year. million operating EBITDA the The XX.X%. of was savings end Adjusted QX to benefiting are or we last from due still strong, Non-GAAP margin was non-GAAP implemented COVID $X.XX. and were Our results margin non-GAAP very $XX.X high cost

of As previously the return fiscal cost this will savings mentioned, year. during these course

will be in later have However, long-term businesses professional we connected services believe update that seen these services And into improvements this and reflected the to year. we intend sustainable in future. that are our gross our that we improvements model some margin of the

marketable During securities CFFO, and the approximately million sheet $XXX quarter, our remains we strong million. balance generated with cash and $XX at of total

the by XXXX. is During we interest were our fixed points, LIBOR a basis renegotiated by interest The expense. of changes $X our which basis loan with key cash maturity Company to to term XX removing of points partners, successfully in the floor million XX and months save spread A the rate lowering extending April annual banking the estimated quarter, the XX

revenue record more the quarter. in performance detail review our let's for driven by was The factors. Now, revenue three

since our recovery up year, due April, was trough and by in variable revenue last a license May year strong of driven of COVID. the X% from auto from production First, frame time continued XX% quarter last product the up last in hitting to

our our new expanded quarter last was Second, third, revenue services adopting year-over-year grew customer an new offerings. their professional to from X% due and base, And XX% and continually our increase XX% a to in last up connected connected XX% expanding also production. get by from customers of start business driven from ready activity was last order year, services quarter for in engineering service up

in acceleration professional the revenue projects $X of about early in the into customer services of our that to expected quarter completion Additionally, due higher an was than revenue QX. million resulted of

guidance. QX our to on Moving

are taken to due the continued the but second XXX margin versus reductions calendar of year-over-year quarter year. issues Due up current semiconductor and XX% X% profit for are to impact all benefits Our we second to from for are device by does the forecast, to non-GAAP semiconductor metrics our not year-over-year and half the shift last market, a revenue points of our into the to revenue year. be consideration the cost full of resolved year million $XX to to guidance million of growth auto and that uncertainties its mid-calendar takes the and period to rather risks shortages basis to to QX, According be $XX year, guidance same shortage higher production. the the of expect XXX year expected COVID, QX expecting expense by impacting IHS IHS an reflects last

of risks For the are performance we device the the are to uncertainties margin guidance our fiscal and reflect I Therefore, semiconductor our year, we from revenue mentioned. the surrounding strong end end to have that guidance raising points. first at shortages $XXX we also all quarter updating and bottom which stronger-than-expected our high considers to XXX metrics and our of due up million, increased also margin and basis midpoint the $XXX profit million Also of to $XXX to million continued million. keeping revenue the raises $XXX profit our performance, previously by

and of to $XX adjusted non-GAAP is XX%, full to to XX%, EBITDA to and to operating the guidance. guidance be our guidance the to in range details EPS to presentation our appendix CFFO million as tables. $XXX be increased expected we be gross to release be our non-GAAP Adjusted XX% non-GAAP EBITDA of be million XX% of $XXX the XX%, to press due or GAAP to million, $XX for be margin $X.XX is non-GAAP to which better-than-expected Please the million our Specifically, of up from original margin to updated $X.XX to revenue reconciliation of for profitability year $XXX this well to million to to the more XX% refer range in $XXX to as year. the earnings million for

another summary, delivered solid in the quarter. So business

our continues enhance us perform metrics maintain our by market share. to for QX to position, And model our by strong as continue the and which technologies our products and evidenced raising and results to revenue business profit new for competitive enabling of remarks, questions. well Our the for along we year. A open prepared to new concludes our products will strength in and Cerence. opportunities it core adjacent up from with our combination for and our future new markets, business bright thanks now This is business,

Operator

Spak RBC Instructions] [Operator first question Joseph comes with Our from Markets. Capital

is Your open. line

Joseph Spak

here we wins. see of on saw sort off CES because I Amazon Alexa, But very current I programs you I the know since beginning bat, the underlying the want companies, about access talk nothing the evolving question. at about changes Thanks guess, just this your or selling for to including the much Sanjay, talk to to year, for market how of, Stellantis.

on to obviously they OS, comes then earnings integrating talked and Google moved Android that Alexa. with Ford And call, Voice. the about

the might forward. seem So of it precludes automakers there's does I But in have gen, more going Cerence like both instances, that know on integrated. options those being nothing next

you more automakers you the So with what And view a that customers view, feature Cerence keeps potentially, in Cerence services? and your killer how using that do will, the, is, the development? importantly, like if

Sanjay Dhawan

Sure.

digital So the were day tech formed multiple new It from the in tech, we my one, co-exist would have to XX want right? the is here, digital the Amazon, see big you'll of to and includes a assumption Doesn't which get From have And the And different to standpoint, spend is second a tech totally digital nothing user big bad we ecosystem that includes always a would big Joe, car, kind get say standpoint, And I life. as said certain through that, we a work, so company, be life when digital thing life own separate. life, that their one of not Microsoft, seamless. challenge Google, hours I we company. from tech and I my that also is said the I big that your always into car. answer to And anyone car, limited includes always think when includes it's have outside a life. then on. Apple, you

Android, OEMs And to voice, so were ecosystem for is products basically we our bridges tech kind become not of or look connecting you home Smart or or where others, and right, that ThinQ it when kind interesting of do the And talked becomes -- or of about with right? opportunities reason Extend at big Amazon Google becomes story Similarly, Android, it's provide others and that independent strong. remains for to kind of or that ecosystems Connect, at you So the thing. not the co-exist we Apple right? big so through why kind the key that things we for product, if And the like interesting only just and LG the experience it's the IoT basically, Samsung reason iOS, we our basically it's for you we're bet multi-big all, look that the purely bridge.

Joseph Spak

second a on is and IHS and does have But might although benefit that it seem be bit. in in my your slipping there just like calling expectations half, on be second the December mentioned you shortage the quarter you don't guess, question the guidance, I semi the that counting would guidance. recovery of for little they're the

as impressive here to, looks I you out, midpoint. it So, Mark, the that you're able think raised pointed

maybe more organically you there, you the giving can that's seeing walk what So just confidence? you're offset through that

Mark Gallenberger

Yes.

So, trend we that that I think past. the increasing rates, continuing penetration see in like the

And that's down. slowing not so

regardless Connected, So the the short-term with happening but auto of what's rates, on those continuing those to embedded production, not rates are penetration on happen. also only

X% our So I year. the we gives were that Last year, example, higher production. production, are in well, auto business and was We secular think that year-over-year. above the This a us was down to up be to XX%, the auto enjoying the which for growing above really when as above that think we us had space. we tailwind technology down what's year, But comes happening well increasing are we're forecasting phenomenal auto still I about with SAAR. it comfort well auto

Operator

Our next Gill from Company. Needham & Raji with question comes

open. Your line is

Rajvindra Gill

quite steps the I What drivers you business margins that marketplace. been but have you're impressive. on think this are Yes. line? think what do also and about in excellent you improving. mean, that. services, about business? you the improving that know about of would those in how Wondering lines, to in about are the Congrats along how talked in business of you that that the I growth future services momentum line and The the the consistent It's envision? kind margins business, improving professional growing kind seeing in year, that been on it's your the we

Mark Gallenberger

Yes. to the start. on And Sanjay, color. Sure. margin if I side. add want you some can start I'll

for being are mentioned into those believe are are those pro that the plan And services, changes out to making a services with the a those in bit we some in pro addition make improve to some I Sanjay model And And before specifically the those China. which done business think we us the margin little We improvements us reset improved do little we to sustainable. please? of locations, update India activities margins we assumptions. to will improvements We shifting target sustainable. sure on our our lower-cost more that Connected. actual want earlier, that are or new expectations improvements time be and assumption talk gross to into around business might are we And longer-term just give itself going the model of the think want think I revenue, as help bit proves about really to

Sanjay Dhawan

Yes.

reason into is main for the product integration products. our strongly to Raji, business support our customers' PS So our

-- as we around that. PS car exist So, But on we expand integrations is our to of all in And remember, core the in cloud. in focus stay very well focused kind a those And product and continue the are footprint our stuff. our business. also that of

Our license, services and the so SaaS cloud so on and forth.

I'm very digital. because see of and the the I as PS contributing proud so to strongly, and so the and while happy on margins improving team and gross PS car that, more expanding also and well more forth getting and is I'm very for So

voice. interesting AI and conversational the The and part more needed about not every just So, of connected with is, voice are car. thing integrations there more touching it's

integrations. the huge said, but like are that our do kind that. get sure and are focused making so technologies PS, various core of other very coming is involved focused we the we'll And on vision kind sensors, of coming card. core continue different we which into I new to on very integrations, other which -- including do product new our And stay are and car in PS again, And supporting the with in into the opportunities

Rajvindra Gill

Obviously, Wondering business sequential fixed this thinking year? there how lumpy. in about that is prepay And Mark, you're drop was a prepay. XX%

Mark Gallenberger

Yes.

be lumpy. can prepays So more concentrated. It's

we prepays, down $XX to range. So, XXs year, low as forth. to Historically, in do expect we've down range of we've be XXs seen year. that and did to we're we in been so in and stay go in and the can I this million about think and going low prepays past, Last up they that

the higher that of would the range. So year, that end in I we were estimate we'll probably be middle This range. of last year, around at

where year. that's so, see it we And this trending

Rajvindra Gill

for question, services? a obviously last amount Sanjay. do the about you're And And think your providing value tremendous growth How ASP of you increasing to OEM.

a vehicle. enable other fairly to applications. are of being low You myriad compared services the other ASPs the that -- Yet, the offered in business in applications still are

I'm what we'll you're So, when taking do that are think steps wondering the to improve the you improvement? ASPs that and see

Sanjay Dhawan

management year. and be new -- these core teams cannot of R&D proud product had new announcements. have So products increasing over systematically event, back Raji, in last the model not XX core of hope months what when I was product set It had now, is CEO business we in I a as right? certain -- stepped And way about Company are our almost I that the ASP given innovations and we was which of first because The our the very the product brought And our innovations. that strategy Motion business OEMs -- used model to to kind for that's more cannot to change of in out Overnight, seen the core business and and we existence certain was how been way. Cerence buying executed the model. you doing just kind are in are core enhance that years, many in new all is a

which -- show we multiple increased up these, quarters as As kind on ASP basically. and we're will of already in design wins have revenue mentioned, we the years, coming increased and getting

contribute we're of faster, to apps kind business is slower given in So, working we're making we're earlier, way hard But hard very said and very right, right? the the works, it. cycle our trying auto to bring online and that, for having progress, revenue

Operator

with next Mark Sachs. Our Delaney question from Goldman comes

Your open. line is

Mark Delaney

first can seeing if of of a good those I tech think how the standalone about at was companies of are there's services your those evidence the Company technology, you about when seeing other opposed realize additional the of talk price Company vehicle monetization content the co-existence I talked one your more and as sort to could a I what about card? offered elaborate hoping lot more new types are I you with is doing a is co-existence being that. you're the But you up question to for in and about per being technology? was get bit technologies hoping also and opportunities. of follow big trend

could So short helpful? be perhaps if you those help investors would out, some examples

Sanjay Dhawan

Sure.

So, jump we cars well, major loud thinking you co-existence seen from can as not. Mark, almost so we looking not at a basically swings I'm here, any or me tech have that after just big co-exist dozen a or standpoint. And with

and expand So, apps the to basically. a discussions and the offerings, other OEMS, are buy cloud with by kind able There new value-added new we've to of And then position are our also Mark, of some be the goal pricing been the us services our to And then on and of and add, early obviously comment for couple enhance, the products. maintain with products me too kind core pricing of co-existence all happening, anything which strategy, Mark, from standpoint. and those are technologies. the maintain kind of and be. right, our to little impact would tech also what you Obviously, a would a want of to kind please? is expanded

Mark Gallenberger

that's Yes. Yes. think I correct. No,

depiction, accurate I Sanjay. think that's

Mark Delaney

comment XX% you for bit a mentioned But nice you Thank the I helpful. growth. second wanted to the in a growth which little figure my question, changed you was you're very of at calculation different billings for there. per you coming That's that car, period. be about understand how the to better time the then And with up

us have you'd reported provide with you under current to able be So looked would last if that would quarter, this methodology? how metric

Mark Gallenberger

we the certainly real versus that can in 'XX. fiscal year 'XX. The why is, only last we reason prior the difference fiscal back year-to-date do And have were data that. the fiscal did we using is or year fiscal specific year didn't Yes, that year, we

year information use only could we to fiscal year-to-date it and So, comparing 'XX. fiscal

can we use trailing a the Now that fiscal versus we're into trailing the period. year, prior new XX-month XX-month

can we it the last and -- the -- now But because can same fiscal so, we year. was yes, full that quarter way. And it was exactly so compare answer

use year 'XX fiscal 'XX. fiscal year we versus So,

measurement trailing XX So, the it we actual last XX or reported what the the was quarter months prior be the result year would same months. exactly trailing because versus as

Operator

Our comes Chris next with Evercore. McNally question from

open. Your line is

Chris McNally

the that Maybe rate that case of out XX% little long and around questions. around about an for rule production may bit lot could basis, if seems moves One the forward? figure to the any going obviously, above, with thumb a I you're production. could a great growth Even rule obviously, and but annual growth thumb be to on seems guess, we have is we of what that there think connected it's we're year-to-year. of thumb XX% if rule any like outgrowth talk in different just not about such on two trying a moving term. just because, to going grow professional way it Is of it you like anymore. then Sanjay, Mark, and above to Mark to It the used model something

that like love So, if thought through? you anything guys I would just have

Sanjay Dhawan

case we've consistently looking had move still a Last like four to the because That's you we tough right? if well that's five XX%. around. we look years, XX% XX-point the going so last not spread, Yes. It trends, been slowing. forward or the above, at penetration are think rates almost above one. year, It's the XX% does or at And

clearly a under above, were last bit we've is because still just maybe think we're going right? this to far year that. doing, that high as little but be we historically. tougher still probably what above year, But as bit it what quite compares, auto a better so So than spread, not for little I production makes seen

I think few There's to this it's and year. things just we're to be right? ebb lower going prepays, flow. planning is a to One consider,

year. So our this that The that's that's flattening going to be a business, have legacy to connected legacy in -- spread. effect reflected

an As we that know, all to coming program is end.

projecting year-over-year 'XX, for year fiscal flat. year not that versus we're 'XX any for fiscal it's So, business growth

well. So that impact has an as

combination and secular underlying connected. continuing a will, factors penetration are think many continuing will where of of So, fundamentals for embedded the rates you ebb thumb, the the intact. it's flow. I a But that hard give rule tailwinds, the to of the remains different it's for penetration the if That's you specific that are because and rates

of would penetration that's is so rates. kind those you I And focus suggest on what

Chris McNally

you're No, business sense. to that think I that sort thumb, And the about account and do for almost update really sort forward, that have think we'll prepaid, the later year-over-year we so only make I XXXX. we going makes then into know to probably safe. Sanjay, of the license on there, of to And as take rule of business the even year have going in the the can compares

the just you one we out that Cerence seems right and visibility I moving things there, that enough we longest the focus years? that extremely think to looking of the versus now confidence nature you had these in to next item? business or that maybe looks curious, still are of sort how as Could of long-term at on the so of sort we encouraging? and of Do much forward out have given, booked pipeline things just line Pay? XXXX $XX Could do need we term the that potential to Just like aspect future XXXX it about in much Car we're looking unfold guide, given drivers, Life talk have the all direction. your over sort million visibility we couple the things that

Sanjay Dhawan

Yes.

will deals, booked two quarter, to So that in revenue we last contribute line. the which

but real more pipeline that I'm will So good. that don't So, right? current quarter, At than and strong we We break there them a that these standpoint, started have deals a significant revenue This current be bookings, least it are was contribute two now, this that are line. expecting right? number towards also from bookings. will down quarter booked

and very the connected kind But ship revenues new year. as small we cars year, little only apps that. and obviously, expect services, more revenue with up. the in contribution This are We from this goes the of assuming then more

work. kind capabilities So focused kind and is take with new as OEM every hard feeling work We're I'm step-by-step in. it working confident extremely of very to these of progress. bring about now, hard Chris, to -- the of

Operator

comes Jefferies. with Our from next Kelley David question

is open. Your line

David Kelley

on more that size the to color thinking And start with of can us there? bit you announcement, Maybe a relationship just about how incremental the wanted opportunity? the you're maybe give Stellantis technology then

Sanjay Dhawan

Sure.

you all So, -- answer Mark, to and can size the I'll jump that. start and maybe on in the

from of with opportunity Cerence was of back the the the to basically partnership to clearance next-generation it mention got the So, extended its accounts reading was agreement official that statement from we've Stellantis. e-mail, I'm team. a the hours just has cars few

had proud to we're say before it into David, be little formed. So one in auto, think stage. next I and right? difficulties, still we the of but for obviously, bit Nuance Mark, platform. was can right? we this extremely kind about in don't can't, was a the price, and that because, want to competitor, I When so because can't a that's brought Cerence be to honored so It's into go more of details we're happy that to them lost go this official that's to, gen. their But had in, next-gen allowed to much specifics, was Cerence we're I part right? it's we proud the platform talk having and And I just brought of that statement extremely back it at announce, to

Mark Gallenberger

said, of a is because With think, was customer, of that their Yes. mentioning. could given assumption okay. Yes. we that that on deal this get sort win any this that And in I feel a it given back, don't. we it's point, win a particular or one feel that think Unfortunately, at we unless and We notable. we I size can't approval like the specific you is we specific customer And get like notable feel worth was just make itself of it's it notable. that though, an

David Kelley

fair. announcement. thought may give it gears I'd to be Okay. shot. That's And Xevo switching the this I a all

to referenced You cycle. revenue bookings quicker the

you Just But but have color here, into I'd could again, get walk specifics level, us transaction assume be curious work? would to basis. business great? a of of more it's some to get if that just that around curious, don't through, you high maybe how the structure revenue

Mark Gallenberger

it Xevo can if a the would fill it's you But I'm platform. like in blanks. any Sanjay, you and I or to sure said, it's not revenue-sharing start, Yes. get through and funneled like transaction-based want approach,

And so our with would Xevo. be arrangement

they you. what of those of would we be And the it. would administrative relationships. our as there the managing get transactions have those piece portion so, then, They out And occur would be marketplace, a in work, doing

then based a upon would it's that on And by paid so, of type -- -- arrangement we revenue-sharing transactions. from get And by Xevo paid transaction.

Operator

comes Our Craig-Hallum. Jeff from with Van next question Rhee

line Your is open.

Jeff Van Rhee

I can do the A solid Just But up about outstanding for don't you this even along bookings scope, relates quantitatively couple what execution what here, sort observations, me, give about know same color of twists quantify different you as book? to us some it performance. periodically. And just you or continuing really you on you bookings think, you'd pipeline. thought lines, same the those the size, quarter? to Any I booked thing or

But some lagging, pipe. two suspect succeeding, lot obviously, critical starting composition, edge, places pipeline products you'll commentary those other pieces, observations, the color? already new any have of a you more have about have a the of you talk that bit connected, things fill new some to you're maybe are of about Sort products these maybe

Sanjay Dhawan

Mark?

Mark Gallenberger

Yes.

last as midyear backlog. and a right everybody, bookings it reminder give for don't we you're update And about quarterly. mentioned and this, update We bookings fiscal year-end And yes, So do our bookings. to year. our for I think, our we

going from we're it that's lumpy bookings year, practice. but do quarter to the can to that stick and one a once right it next, a twice the because to do we But not be So, think year.

call. we'll bookings said, until our on commentary that with earnings so And I defer think our next

to also the number is we as that going adjacent And markets. naturally our that into product continue However, offerings pipeline. into our expand expanding opportunities pipeline strong we remains of and have

that's color point. so, at this And I can the provide

Jeff Van Rhee

you on rates on Maybe that? win connected comment deals. Can

Mark Gallenberger

Yes.

win the think I are rates unchanged.

We are not difference what any historically. from we've seen seeing

Jeff Van Rhee

PS very you what's leading good number a with one utilization organization? Fair enough. there where and going side, capacity very the From indicator respect last really for standpoint, Then to the there. good on a just out are on obviously,

Mark Gallenberger

it? I'm handy. sure that don't Sanjay, have if have you number I

Sanjay Dhawan

Yes, we're about utilization. close to running XX%

billed utilization available. we right? numbers to and to are our to available, bill These to we Jeff, So has So XXs. bill billable are defined and billable two billed and in the track,

Jeff Van Rhee

is... There

Sanjay Dhawan

PS of extremely the percentage understands with and way, this By PS a who's points improve organization can more he that they our the appointment few Sujal, Harman's right? So new well. Head, from comes

of number the are margin, things: much use the in there So, possible mix trick the right look improving offshore one, gross at offshore COGS, so to of the kind as basically onshore. two of as and

And to the COGS. utilization. improve improve trick is second So the the

he's on. are two those So, things the that focused

Jeff Van Rhee

come thoughts environment. know Okay. I sort mentioned back One now? last expect coming on are could, if the brief ultimately the What COVID. back of are normalized some return magnitude back? and cost to one, in office What to of What more I timing? respect any assumptions do your in model assumptions with you clearly you you when the

Mark Gallenberger

Yes.

So, expenses we those did have bring back starting last some to in. significant cost year. We're savings

plan. QX, we our for hiring think little behind bit a I were

that of as to relates it the the part So margins. QX was in benefit

see and to QX. to QX start in incremental at going more Probably same get then same about the going rate. magnitude the still going things in, QX, coming are not level expenses into we as in probably off You're of up, to those but

time of year the hiring cost removal last was took avoidance a finished by all with would into way that of really expect COVID back along we those savings So we the P&L, of fiscal this had year. kind find we're with their which I that the year, to freeze, the last

unfroze that year relative to And have so, we net-net we last because hiring headcount will freeze. higher

we'll that coming making an just months. some we're say the to the those pro be in services, you expenses, However, giving we model And coming be back line, some we connected because of and long-term not did improvements. gross think, on margin to sustainable update going are that

Sanjay Dhawan

team then add Yes, of to the my but thing and this one just in I proud on -- companies just year the us of delivering of we're EBITDA extremely -- I I'm increasing year. guidance to XX% profitability. kind Jeff, that as compare you to want well. many, say I mean, tried whole there many and how our is that comments can executing other for

very that proud something we're that. team growth, we're profitable to deliver that's our believes and I able believe to Mark Just proud is to able just that, in. And that deliver

Operator

Our Markets. Capital with next Michael question comes Berenberg Filatov from

is line open. Your

Michael Filatov

believe, of one, wasn't renewals quick much really. services terms I one originally, outlook side. your in the connected Just in baking XXXX on

stand those of So, renewals us expected wondering side the and renewal start of those the sort if when sort to will I And better sort into of both rates visibility you happen? where of of could today? have you was on remind just any renewals maybe connected

Mark Gallenberger

Yes.

were about don't in and our didn't renewals We model, just mainly we any conservative, XXXX any have in because our we points. model. factor right you're So, data

have far, still So we that we that one last announced quarter.

So got, the we that's provided last update we've quarter. which only that really

cars said, I or to connected. think we'll the next But year I as what more is to so, we the over comfortable and like. consumer as rates more, that get look those think get with wanting more will be the renewal

be the rates, pushing think connected and demand slide going ultimately for for the are continue. just consumers car adoption think I saw continue, KPI connectivity to I that our trends that in those So the and that deck, as you that to

So, that for us come bode should well these future terms of fruition. the for I in ability renewals think to to

Sanjay Dhawan

And right? BMW. connectivity per to package -- services a I to year into weekend. car, $XXX provide this personally, just BMW I package XXXX at Michael, completely I my this drive -- for This I coincidence. paid connected weekend, did is

with I if there's different I and there's -- the transaction see drive.bmw.usa.com, think, go $XXX. $XXX, So, one, bought $XX to you there's, for can a then kind a various And of I you. the services, have share that packages they and basically connected you connected by will

expired -- because package the had I purchase, of $XXX was right? connectivity a yearly new car the So, car part my as it's And the bought in subscription.

Michael Filatov

should of of the some know what's I forward helpful? variable provided into But pieces was pro around moving the guidance, year edge, you that the revenue That really services updated the in Thank appreciate. sort new of versus for and color. the expectations pulled can you QX. midpoint if connected some growth great growth be I your talk was driving And of that revenue maybe and about fiscal you.

Mark Gallenberger

Yes.

the was growth it that Part see So, in trends very, PS continue up some strong very into year-over-year, last we pro we revenue by of The had to XX%. a that acceleration connective, services, an QX. there be And good. And driven of continuing. was year. new year

should be the I been down we PS And the be so, But I that, would to up think year-over-year, that expect revenues and QX, that's given. PS of because for as in had reflected well. guidance

And new of so, the I connected, well those expect the think business, year-over-year. all connected them up as the as whether on all it's our we business fronts, of businesses, to PS license be business, all

so, guidance. all our And been that's factored into

one be more gotten build revenue well. haven't And XX% guidance year-over-year. up being those to year total up we to as XX% the granular of expect at how We each our on business to plus we the individual specific level, of for that's lines streams. kind But corporate the

Operator

Dan Our from Instructions] with Securities. comes next Ives Wedbush question [Operator

line open. is Your

Strecker Backe

is This for on Strecker Dan.

over push the potentially couple can of massive GM you. in that with growth into and the vehicles plays recent Sanjay, Cerence story next the years? electronic then talk just just the So Thank how you, overall, EV about headlines just

Sanjay Dhawan

Yes.

the thesis do Cabin that connected, we using my AI you saw more and thesis. more role the is at in AI, autonomous, of car the AI in is as basically be our and to interactions, want also thesis very digital earnings EV we know, you is car in basically, Cerence. important our interaction many, So focus we going Motion cabin slide And that, today, the right? many AI And interactions. the connected have in the focused shared. core which you getting on that presented quarters, That's what a in role. many from is And is electric. in core play platforms more with Road Driver many, over digital, That's the more play user as on important right? standpoint, is partnerships company, announced the the And behind getting last going our GM many the focused are more to I -- what core getting Cerence very providing assumption it's and is driver more means more road interactions, That's that. to electric, and core basically we the the a in more premier our And because assumption AI, to for do that AI,

Operator

closing for There to back Rich are questions. remarks. over turn to call any I'd like further no Yerganian the

Richard Yerganian

conferences weeks. good see and call next and Thank for you at and very have over one to you hope morning, the you this Thank joining our the upcoming us you, much, a day. of thank on we few

Sanjay Dhawan

you. Thank

Operator

the and this conclude gentlemen, does Ladies conference.

have may You a now disconnect. great day. Everyone,

Cerence (CRNC) 8 Feb 212021 Q1 Earnings call transcript