CRNC - Earnings call transcript Q3 2021

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Operator

Good day. Thank you for standing by and welcome to the Cerence Q3 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 conference is being recorded. now Rich hand Yerganian. would to call I host, your Instructions] like the to over [Operator Please ahead go

Rich Yerganian

Thank you. Welcome conference call. to Cerence's third quarter fiscal XXXX

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

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

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

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

X, Industrials September and September Events the events. participation Industrial website conferences upcoming most page Conference Jefferies Before Raymond Diversified section all the Conference virtual over RBC announce Mobility on handing the James Transportation XX, Investors include XX call of on on on the so up-to-date Evercore & Cerence several timing Sanjay, participation. I XX, to change. Cowen's They for Software Please on Conference XXXX Autotech The the visit our the are subject Conference the and information like Forum to September XX. Global September exact would of investor the in to August events, is on the our

call. on the to Now Sanjay?

Sanjay Dhawan

third joining you the on financial results. Thank us to call you, everyone XXXX Welcome to our discuss fiscal thank for quarter and Rich.

review events strong I'll by first in some during review that notable our of performance the followed financial quarter. place call, For our QX, took a

detailed the when performance. performance a headwinds then considering is and especially to our again, results. to to over Mark due key the case to review This update delivered strong I'll hand financial shortage. call license financial business our the Once Next, indicators we the semiconductor

was at by result of details the up from year-to-date minutes. in to cash product of adjusted XX.X% gross XX%. our million. high of range. growth Our business aided line high with revenue in range, results combining for few EBITDA was The come performance at the at better-than-expected EPS year-over-year. non-GAAP the at The year-over-year continued end model the XX% with came QX, and to guidance $XX.X in million our margin deliver non-GAAP year our variable a being license $X.XX full flow and strong end When our is of provide will operations expected in Mark forecast $XX.X or

first decision comments, During model, to all adoption, subscription product in and to The midterm renewals understanding second and did Analyst given feel, of since development delay especially model. important how Day. September the you XXXX We hold a variant live our our updates regard hoped the however, will City, early February he Mark's may on of the Delta was to York event to in Day Analyst us calendar to in later of until but be of XXXX XXXX unfortunately as model introduced happened we on first at it original rise year. published has adjacent new led our a our the had better in enter the our first COVID-XX We out. markets New event model has Much that updating in play to was model. positive you update also midterm in

a margins. and midterm of revenue a some expectations. improved The is been sustainable also make have our target result margin significantly able to gross We with in model improvements assumed higher

to management – communicate team the You shortly, these hear model be updated as a able these details very update to but will we're assumptions. pleased

the is target connected in of new the will help applications services. areas and midterm One our achieve us that

services we We others What and increase during include browse our partly sells bookings the category momentum before million XXXX third such and and in to saw conference especially applications this such was momentum as expectations come. the Tour these target of have we products was addition to Some in last model. these our Cerence bookings reasons discussed quarter connected that referenced we Life, to the than related new was for we able more This in for $XX Pay, and were connect still products Car extend. the bookings encouraging call. to revenue on Guide

several this achievements notable also had events in and We quarter.

license models During critical XX of begin for market some cars as hitting with BMW hottest a The SOP design car the follows SOP was range SOP. that OEMs reach more GM, company. on impressive, the the than or luxury from companies three – quarter, different record OEMs revenue Renault different Stellantis. the Ford, years also a and milestone, over cars high-end company. models than usually when cars a the Start-of-Production represents was of included point from for the win different services car at Toyota, Volkswagen, to connected include it two, such Mercedes more that after and is and generate and XX XX because The and JLR, quarter the from in new

for voice using regions agreement in provide the company especially are also make geographic car will dozen a voice channels driver, this look will and the it learn suggest favorite And in you to when technology, channels you have when console America may it North like changing not major as to the use the well. a their change is cars ability others system audio were your important. at for environment announced SiriusXM, represented, and with the AI, only SOPs entertainment customers this With through the their your including channel. true, will our the safer is in convenience but that We about why the China. leading to of an safety All

recognition the leading integrate to technology AI-powered an supplier Ignite will hands-free, the platform, was providing competitive with win secure and their capabilities automakers can with platform. quarter offer technology access This so HARMAN. during will Cerence's they X Another important truck conversational Tier leading combine powerful HARMAN to AI HARMAN's Ignite agreement drivers. voice their intuitive experience platform's Cerence's extensive into to a

and S&P hear capabilities. recognition XXX language First, with pleased sales market strong We a important In work core notified seek the were collaboration to leading Tier consistently expand of MidCap the our we example the so. the also to offers software a that successful collaboration AI, auto the entered entire Visteon's support case into Index. we growth XX-inch hard has presence to is of There is of to an as We will including it in during team by platform. in as do our were X Visteon addition two with Cerence XXXX, the The industry. inclusion other were ability SmartCore powering collaboration our leading, launch noting connected a however, the quarter: to Android-based technology of another solution supplier combine This the conversational our profitability. to in an global as a events the of two-wheeler took worth we index, and deliver manufacturer display and been over-the-air download will selected and motorcycle apps this

Boston by to I'm XXXX, focused We of continuing in building the a this for Information car. Bridget copilot pleased was efforts CIO Chief trusted a the Year the our Collins to her Cerence. company behalf path of named chosen also of our see Officer, was most category, on peers. fantastic are Bridget in recognized laser that all on CIO corporate of

I perfect of part in leadership in my example our of and level recognition, As talent release, the an team been sales a the of day has from said is one announcing team. press Bridget integral

Moving on our to KPIs.

reduction quarter of As positive XX-month by KPIs fell expected, due in trend period. affected COVID the the to as a out to cars of several produced more trailing most the the returned

Specifically, number. what in connected to cars number to increased with shipped of from the the positive technology cars percentage XX% and cloud had of been change a shipped turned a negative the XX% Cerence's

a XX% users of in cars. bringing systems Android infotainment easier capable largest that automakers market Auto. per year-over-year. more or main the are billings CarPlay this cloud indicative number car increased The of the growth active to and average Our connected The to Apple is the healthy increasing of is percentage to monthly than contributor increase use

interface automakers sure, momentum better the For are some position to clearly is contract. adoption machine the compete of in than growing in share mind and others human a for OEM-branded for but a well-implemented building drivers

and growth strategy a strong core to out. the continues leading Our for technology applications deliver in growth extends multifaced AI adjacent to It to new play of with conversational starts car markets. sustainable

transition the to customers the customers offer safest, enjoyable also the car, of innovation push life that We can a outside represents continue inside from envelope our inside their experience which car the their they seamless digital so for most car. to the

heard have say enter may I the repeating: it think with before, priorities. is You me I but three to team drive Cerence worth this

into has to new company, products I'm very of the independent Since spinout As the an a tech Cerence of must we number technology company, continue market. proud innovate. brought in to

in money you that our is designing to product third, products idea only for to quality. and and time are when execute to that your innovation an focus unless we a new because can Second, with on on you into customer business make cost turn idea, And shareholders. deliver ultimately, a

we good a of the the adjacent new These is previous we rely principles products I continue are as grow. to on think financial emphasis identified by to The how on efficiency. indication guiding the cost continues and developing will our entering we business performance put markets. the slide expanded have company

Our much long-term larger is the for that. vision than company

to can to you next more in also driver's will the brain be also road model. vision well. as this Mark? has trusted not only to a with update I'd AI our We us believe We details you the this from the is on like of of an with and the copilot. becoming cabin in see is midterm but driver hear our quarter, opportunity monitoring, voice. now car, monitoring is he Mark, goal the Our central Certainly, area QX application XXXX the combine to essentially big turn to so call over positive and review guidance future. the

Mark Gallenberger

$XX.X update I'll model. to review at the the and same an and XX% Revenue guidance quarter QX guidance our I'll fiscal first strong million our both for increase last those another I'll comments another came is for Sanjay. and top is midterm performance to $XX you, strong quarter. million $XX We then year. our which the Thank of bottom target our of XXXX delivered with end period in lines. fourth on from at higher follow million, provide a

mix. the were exceeded was product margin our Our very mainly and range. high-end guidance also strong by key profitability driven gross non-GAAP of The metrics XX.X%, favorable

adjusted XX% XX.X%, high-end was margin EBITDA was operating guidance of exceeded or $X.XX non-GAAP our share non-GAAP $XX.X and earnings our by Our $X.XX. per million margin the of

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

of let's breakdown a Now our review detailed revenue.

total last our strong year-over-year. up Our growth two by revenue license driven first, to revenue year was compared factors: was XX%

Our last up production. driven variable continued license was auto the from same in year quarter XX% recovery revenue by

quarter recall revenue the revenue to quarter trough impacted our our auto from down You slowing production semiconductor license believe during production. of may variable that impact QX the by last represented the on shutdowns. auto shortage We year the COVID-XX was due

lower the quantify, most we revenue the much business, exactly license production. semi direct our shortage is see from variable Although impacted our you where impact cannot would auto how

connected Second, from year-over-year which base continually business services excludes But growing Connected XX% customer our adopting our grew a revenue our to expanded new service Services connected legacy XX% importantly, due last new a strong year. offerings. our more revenue

was revenue revenue down schedules project service to timing affects recognition. X% simply the professional Our which of year-over-year, due completion

to Moving for on QX. guidance our

and production revenue the $X.XX reflects shortages the of consideration current of had uncertainties expected. continuing impact to risks auto XX% that Our year-over-year $X.XX and longer X% guidance than of are growth semiconductor into device to to takes we

is business auto impact up situation mind are the in our about quarter, guidance. impacted accounted of production only variable we and have monitoring believe shows Keep for which We the in directly one-third our given that in license any revenue. in by our closely

$X.XX We basis. to to between between share and million per and non-GAAP generate $XX $XX on a of expect million $X.XX adjusted EBITDA

guidance. our For the based we expectations have fiscal full our year QX year on updated

November EPS are can you original and of margins you we As we in now materially forecasting guidance communicated our year. profit that revenue, higher to estimates versus back last see

our around executives that from world We to to monitor planning well. were the posted. We hold and our international Although, to the you target we date hold XX remain decided auto contemplate in virus results now the is than presented in related restrictions to the year the and and by industry the event update not key to in XXXX have shortages resulting early of would that COVID-XX Because first York did despite model a to unexpected that reaffirms we the of of they ago. the fall. increase February an that continue last the you cases were a alive are during City. Analyst on Day but September in we guidance, We in event, developments travel we variant. but midterm participate, original delivering New event have later in the expected about transformation we effect event event this still which semi digital better months or have live And hoping prefer don't been delay will due lifted specific from we to delta keep

So to with to model our We mid-term for event, target waiting changes growth provide update than categorized buckets; today. an rather decided we that and in profitability. our two you

growth. automobiles. AI connected and According AI the products HIS, getting cover for into have rates I'll that services increased forecasted are to designed Edge penetration and First,

being new as and renewals model Extend is lower mid-term by offset connected service such auto Entertainment, IHS streams and offerings our added forecast to We've production this Browse. However, post-COVID. Connect including new revenue

announced target markets, two these markets now Additionally since plans elevators two-wheelers reflected our in to Analyst our midterm and Day, are last enter and model. we've adjacent

improvements made we've our sustainable to our margin based past the Second, on I'll assumptions XX updated months. over business that We've profitability. cover

our from First, Cloud XX% by successful providers. increased XX%, of our has third-party negotiating margin One to connected our project more favorable and assumption with driven architecture contracts some

seeing assumption expect And to on SG&A XX%. margin improving sustainable us enabled to to thirdly, which our from of our our we are business both our model of functions we utilization good increasing Secondly, grow. scale as services professional rates, progress delivery have increase our continues economies XX% in and

As see changes you revenue fairly expected improvements. are these significant can drive to some

the adjacent First, contribution including on to and applications target and the This and contribution factors, including we've and due $XXX is a a million elevators estimated original increased in million line greater top from two-wheelers $XX from services contribution million. new from services. markets, $XXX new stronger to several from professional

expect our which during back-end to of bookings this for confidence have targets. fiscal of in we them services, us to in connected more offset be to linear applications they're growth the these more cars. to curve. account, We top this production and from year seen able according initial non-linear achieve revenue going and penetration some into to auto new gives not be contribution being going But of but lower loaded, by XXXX forecasted meaning Keep in mind follow HIS, is the they're line a takes increasing

to lower $XXX it basis margin improvement million. We points XX%. to be we raise XXX offsetting to which overall all-in-all, in target services by of perspective, expected element in non-GAAP new sustained of gross margin connected So markets, the and have increased than pleased are we more of are revenue From from our able margins mobility by our expected solution. the an to the a some services see professional delivery hardware

this $XXX leads operating revenue. scale drop-through and significantly modeling to a non-GAAP million million, we or to EBITDA to $XX $XXX in of gross our on model, XX% the economies higher For incremental All million an previous higher margin, XX% improvements adjusted rate. XX% SG&A revenue now margin higher compared due a original than of are or

we had quarter performance. another of summary, in So, financial excellent

from auto semiconductor the cautious of by transformation shortages the are near digital to we tailwinds to remain secular industry. the impacting we caused continuing the the in industry, due the term auto benefit While

in focus we This your same Our now prepared concludes target our profitable shareholders remain and the a and questions. and on long-term business crafting strong as will our the growth, innovation will model and the future. take prospects demonstrated our into updated benefit our model at remarks and company well time while

Operator

Capital from your Joseph of And line Spak question Instructions] first comes Markets. with [Operator the RBC

Joseph Spak

to Thanks XXXX a wanted updated dive so I to bit forecast. much little first the in everyone.

at in X% like license at looks volumes sort I the I global if that guess and what of segment was So look looking early put when XXXX that volumes. look is and lower to the for first production it's you in behold I IHS segment it maybe

So $XX the that just million. flat order take keeping of magnitude that since saying to rates interpretation? that right you're of $XX million are is the sort you it up call Is making

Mark Gallenberger

is that Yes, correct.

what seeing or some forecast penetration take showing HIS, are lower calling seeing the IHS We in the like are But from is rates rates. you're seeing. increase production you're which updates we

speaking And keeping they so offsetting the numbers those we're generally think and comfortable with are. two I where

Joseph Spak

And just this. of on then Okay. the component margin

raised know XX%. Services, Connected So that I you from

mid-XXs I think But before could you've that you're kind around even that of there. that settle in hinted already level.

sort guess sort markets. dollar that of then the margin because I markets mobility other it's smaller the was, there? thought a I bit you leveraging know a were surprised I to new amount, So, I'm that it's of surprised tech is little was further curious as just I you're the And lower I'm upside just why using there of sort but a

a that So could bit? just maybe you little explain

Mark Gallenberger

Yes.

be in technologies. hardware I obviously leveraging of There component first. a a generally margin I'll total is we it cover factoring are element of There mobility that combine lower component. a solution, think that for hardware when you new terms component. an of is So, will the markets But which going in blended existing to be with

put over first change we want conservative just to... some launched to model, why where out months assumptions. margins. the to things did Relative too what try further gate develop margin starts those ourselves we new be for XX% room of because coming certainly And our similar we ago aggressively. there And think potentially we when if have areas XX model increase somewhat so market want and But we that's time we to to are we we out entering as this to can then don't those to analyst

Joseph Spak

understand didn't I like -- thought up Sorry quickly that that I could mobility What properly on motorcycle follow segment. the markets. I just maybe that's is if like new on hardware the

with voice providing thought the the providing But I or whole box you're with the think I Visteon? So voice, you just were thing component? the

Mark Gallenberger

Sure. Sure. Yes.

but a too, it's little where think would can of elevators. we think the on hardware Sanjay the be cover what I there and elevator -- more bit a side I on

Sanjay Dhawan

Yes.

-- the is Xs like lot with space of the the working so-called hardware Joe Bosch hardware. And in right? there So who runs no the on the phone X-wheeler also our of head Tier provide rider. really others We're the Visteon software units, a

running AI. their a of Mark really built hardware long So there. AI is and there no is is on referring the There side. capabilities. of The a elevator is life Mark of that installed Edge have no that were retrofits in with to. kind And elevators hardware elevator component hardware what is capability Because elevators shipped of a component there have existing we is Edge mentioning piece with large base

Our in model though core very well. business SaaS just to business is software as very, clear elevator the be

is so lower and sort and product kind of shipping core, on. the put really the referenced auto were product to hardware AI leveraging at a slightly common piece we of of margin. Although, this out, are you which across that we that is forced But to

Joseph Spak

you I the Mark, connected on sorry cut And off margin.

Mark Gallenberger

XXs. Analyst blew to XX model introduced the months we assumption. running and of had the XXs low We connected now When kind ago, that we're high we first margins. Day XX% through -- margin Yes

future. into We that can So even like sustain we're there. feel we the

as We pressure legacy connected a will the have time. declines – bit of revenue some over little

But time. we've little these we on right be puts a over that now like And little bit the a able assumptions. pressure them to be better margins. of done tend to with bit conservative always comfortable we're the in to blended with past, So XX%. it's improve But

Joseph Spak

guys. much, very Thanks

Operator

Junk the Beard. comes of question from next line with Luke Your

Luke Junk

taking for Thanks morning. Good questions. my

like the that. you First questions I the And the little here? two-wheeler couple give bit you highlighted then is overall commercial a does couple in momentum, could, a Apple, point nature market markets. related you One including to to speak of do mile in to you if encouraging. bites Obviously, market? that Obviously, you're on of the the that relationship in a market? tipping effectively, of Visteon in closer more wanted to which is two-wheeler your this the relationship now getting overall ask had with feel XXXX And

Sanjay Dhawan

Yes.

Visteon, a So of for great out of who's kind systematically is other choice, to want to and market so our the touch we're the We're to have other model cars you look, two-wheeler delighted so of basically transportation. AI – one phone and – on two-wheelers not is important so auto. And well. penetration to I'm the be rider, is the as of you two-wheeler very and as have to the in rider platform are relationship adjacencies to important well modes when with a we kind also safety. this because a communicate do and definitely besides and and the those very two-wheeler is into very with can't trying just for forth. riders there reach And but a are times I'm other safety what

and AI features conversational role. extremely important out these important plays very a bringing is So

we're working markets. across And right We're X the also now in or both either indirectly the so China, through Tier channels directly engaged with India. different OEMs

two-wheeler heavily engaged are in of who controls Japan, We about market. the XX%

further in – traction. earlier that the to also put a press and OEMs announce in But We we very and with we're happy release are the out Europe a weeks Tier States. we're engaged Xs certainly back relationship looking forward United few and definitely in joint to this

Luke Junk

for you Thank that. color. great That's

I model. view informing that know that was in And you possibility any a down the the specifically, that the there renewals? Second can specifically, connected renewals would model be on now revenue And decision? XXXX what's waiting there share fact your wanted it that road. this But data general the on just you're you're the is I'm behind that and connected wondering ask thought I adding about to question to

Mark Gallenberger

Yes.

So Day, where I had data have or think last our we've we two Analyst since points one renewals.

looking to our So to that's those subscription period. year are multiple extend see their customers beyond cars encouraging original that

think new those to our I even is period. be seeing in are connected also, we're of with trending what subscriptions longer some

know that that, So, to there's in they're commit and value customers time. that gives willing for us upfront that the indication periods longer of that

And so – looking at when of and scheduled our some we the should as upside. like also contract are of then there felt be internal some to original ending, some periods

We haven't are disclosed that exactly of based upon newer XXXX contracts what already that upside the is of previous were. are actually couple built data of that what into fiscal seen factoring extending now the year the beyond a contracts some into of model, we've our but some we that points some fact and

Luke Junk

you there. I'll and Thank ahead it both leave for go Great. that color.

Operator

question next Goldman Sachs. Your with the Delaney line from comes Mark of

Mark Delaney

vehicles Good hoping percentage evolve? thanks to much with and vehicles good it's for technology how of pretty of recent a technology think you Cerence the the some going on into, model. is I in volume. XXXX the how positive vehicles would for may give production into Cerence new taking a many those that for probably quarter, this ramp guys The well programs a morning, good Yes. has you input and think, indicator about visibility talked that very as you up important And about expectations I as your forward? them to number questions. that question of most I expect was start start have

if that you the And could also talk touch model expectations you to look on penetration about see how maybe about, that what like? evolving? rate may your XXXX So

Mark Gallenberger

Yeah.

that yeah, data We penetration IHS ago. ago. have rates some believe think at the penetration the time. for around going rate XX was cars over – from XX side connected those I rates, months So looked connected grown months penetration I to for they're to particular of in XX% continue grow it on

the Now, in range. high it's XX%

tried factor our so And analysis. we've to into that

some is the that is total of for fact offsetting the XXXX that volume forecast post-COVID. However, lowering IHS

between hold flat core decided the see when to and the takes those the that we've the two, stream puts business. revenue So portion we for of

out of So articulated the that's how sort of kind built we've and model.

Mark Delaney

you're Okay. model. on maybe $XXX of side, And one but talk million I XXXX mean, your you're revenue you're That's or signing on even given bit advanced years a the discussions more yet where in you of you've probably already could pretty margin on out. in getting into already And degree years to of XXXX are that also helpful. commentary some contracts the launches the right, hand, maybe helpful for having the point one cars in multiple three on little length. the visibility for not production, in terms

also good some So these consideration potential of see have visibility, some per it, you can content I you've into newer but – in feeding a vehicle that's markets.

Thanks. more logic having the So piece Is you of well on is about as it? conservatism talked of on that sort margins. some, there that of holding uncertainty maybe, for revenue side the or equation,

Mark Gallenberger

I you to we've sales cycle how auto, So know it's right? I a got years. cycle in -- a three two the mean, think, Yes. long of

substantially XXXX, fiscal strong So And think, I year it year. pretty gives us we a for outlook. good had bookings

given exact, $XXX prior believe to was year. another fiscal six the recall, be If over it also was ending for an which I us. We've already months than to year significantly very higher $XXX March for this you shaping be good the year, for up was million. you million, which it update is

the us XXXX into which and is think, indicator, that, visibility beyond. more gives leading those bookings, and all So more confidence I

so, a comes And to of momentum. lot bookings really down that it

also had over and into of indication real quarter, we this is for bookings getting past a SOPs those think I production. revenue just that record translating time an the ramped into

ramped more bookings first get and that, then well, you SOPs evidence into I So it's is you that ultimately, execute -- think those volume as production.

those though just even SOPs, those the starting we are -- just think to had ramp. will record quarter, I a

new start once hit those years, in will. out to those those and you So stride, if see you'll new cars benefits products right, their

probably not prime And one a lot it's volume right be where change quarter take time it into their to will production. which by production. of in XXXX, So you step ramp those SOP a like then of function those the middle for for and the does in lights, flip

Mark Delaney

you. Thank

Operator

Your Langan the from next Fargo. of Wells is line Colin with question

Colin Langan

Thanks Hello. my taking for question.

on any ramp? that, mean, think sort -- -- seeing going next going following -- up is to that How to we targets that kind Services. already won? quickly to And assume my something has hit are thing And there to I start of Just make and already your how new long, And two-wheeler how you've some Connected vehicles is services? start it much market And markets of out in actually many I won? how the going guess is of be I about should terms within Same year? has of anything of with in SaaS could or contribute mean, to that large be how is I we're color much need in on new these there's the ramping? might mobility, is that that question actually -- And your backlog sorry. terms how how yet?

Mark Gallenberger

Yes.

you that Sanjay, So, you want want to me to? one or start

Sanjay Dhawan

certainly can I start No, that.

year, we two-wheeler connected will now which I'm for of new and markets new We have is saying current apps, next revenue services will by the were initially in the in and QX say fiscal mobility Services will revenue revenue the have confident year, and year. Connected the in for current both both but current to also that have fiscal we apps and calendar year. So in also fiscal we market that,

good. that's So

question start much breakdown the when the of backlog, was how the the our fiscal backlog that have refresh for year. terms of is -- at model. back But your -- the in year the already from of of a XXXX the in come next -- in how don't we I much of end revenue Secondly, we back --

missed So refresh our in anything that there next call say, put to we're at we it. we conference November about that. feeling when more to our some the obviously we'll street. in that – we numbers come that And Was reason current will That's October/November during point, to basically. else in But back color update backlog these model the I confident Colin? needless give try about the

Mark Gallenberger

be will of some in sort core cycle yes ramp products the of of these the products. of on our same new some design think I these as terms some of for

in going of we assumptions. And why the target nonlinear revenue into be remarks, fiscal terms I in up will ramping think those I think revenue mentioned so that's my be it's to prepared XXXX as how

that other had I with loaded products design of some -- following tends some will because a question is a be And it newer for I it. little business. -- So you think these back-end the think cycle back-end up of that loaded more that similar be these how and ramp core products bit was our was to

Sanjay Dhawan

this doesn't more thing one missed I analysis in And the -- I Mark. TAM. right? asking TAM reference. that add think bit analysis so these the to little we But have Colin you we And a TAM of doing a was is, What's a Right numbers the market that than I were just now we we view of of all were to deck struggled what the management-only think a you view have numbers. about for products the just for more give are including available not thinking your validate who independently independent And a party rather of TAM -- to kind TAM of management TAM and information TAM. right the management do are getting third

So Mark certainly as release you the kind the the I to include with to of analysis share not target we we model, decided hope in that this decided of in TAM but well. and future

Colin Langan

key XXXX Got margins. the follow-up. that? quick services it. pretty I is on drivers And guess in just I professional jump big one mean of your What

Mark Gallenberger

Yes.

twofold: One we're is rates component. the focused It -- utilization improving And those that's one really it's so of people-driven. So on resources.

is of onshore mix shift resources. offshore to the component and other The

of And we that's labor that costs. overall as our improving some change so, mix

Colin Langan

for you taking much my question. Thank very Okay.

Operator

Company. the next Raji line question Needham comes Gill with & of Your from

Raji Gill

thank Yes, on that for taking you the year I my target. XXXX questions fiscal appreciate target. questions of A couple and updated

and markets? the the So, you clarity for wondering of the services new as in mobility how terms revenue to as plan revenue recognize well I'm recognition? Any applications new there

Mark Gallenberger

transaction going are to those be A of based. Yes. lot

we'll revenue be recognizing as clearly, transactions see So, those we occurring.

it's going of follow model. so to that And revenue type

period are that going be with And would to those or subscription of similar schedule There do track some amortization subscription be were based life have period. subscriptions to subscription our which what may those that connected the less we over I an -- Some that will based. are guess more element. the --

Raji Gill

degradation connected X%, that Got as of Connected basically the so overall increasing Edge that the in X% business it. staying Cloud would based the be well on of coming the fiscal attach get from as rates XXXX likewise, guidance, terms with over IHS. And would number it target, the the any for down flat kind increasing. on course new offset with think years unit original But those year and be the though might would I of ASPs I units X%,

that even just a unit correction. surprised be I'm of that bit small if a So, would number there's kind flat

that could your So, you kind if those keeping just of clarify numbers same. of of the process terms thought in maybe

Mark Gallenberger

Yes.

expansion XX on XXXX So, the months target I put had original connected the piece, we think already ago. model that we ASP originally out factored into

so we're ASP those expansion in still And in factoring model. this

unlike recognized in keep the is to mind an amortization the thing variable quarter, schedule. is in other are The licenses there which

there cars right effect COVID, year amortization to schedules. of past lingering going because the and so were And that's on so fewer shipped those a have over

And so you mind that to in as well. got keep

of by is rates lot connected offset rates for fact increasing. take cars the or the a penetration that's the that However,

kind we changes looked what, this different judgment I all that in those all the said happening. and all about of are it's all some of and so at know because flat think all factors be to And took you going of

Raji Gill

that I see. flow increased the from And operations, $XX cash million. you by for

debt. target? off thinking Wondering new of you're about this You talked some how in updated the about capital paying structure light

Mark Gallenberger

same believe our funded. there's plans funding the through is investment. the is plans ways strategy we that which to other high-level think priority inorganic structure accelerate fully if grow priority first investments, next the are The are I is and which the external our our and to see still keep capital organic can Yes, we

investment, recall then those of you the expect an – as an pay piece this company more activities debt. CerebrumX those a the in would down to and is we we to do earlier small investment, investment analytics year, And last data If opportunities arise.

are I still think same. those the priorities

We haven't those changed priorities.

any invest pay there's excess the And the of cash, grow inorganic. business down if debt. second accelerate so first, then and And the organically,

increased we unchanged. are whether in EBITDA we million [indiscernible] – underlying the the but priorities had so the And

Raji Gill

Appreciate it. Thank you.

Operator

of next Filatov Michael Your Berenberg. question from line with comes the

Michael Filatov

to I my rate maybe guess maybe assumption, renewals a just there. Connected context? base of would today rolling you percentage then details And be mean the into expect the of year around maybe detail would digging as around surprised business, ASP a on help possible those little any that taking or provide sort it's Hi, what fiscal fiscal initial revenue be some Thanks little your but for just of Again, the what Services renewal you by off question. more flat, could XXXX the outlook provide again. year XXXX? contracts maybe assumptions I your

Mark Gallenberger

Yes.

own just to deal data still different give to limited how going premature going you these somewhat because unfortunately. think like one think will. of data very be and their unfold. or little I don't it's is Each uniqueness, points points have those are extrapolate all I And a level specifics we to have we if into two to

it at way, a not thinking of be comes be percentage to to I bit think it But think it's renewals, I you're It's there's when I the those types a to premature going level, high cars. right mean about going So of to specifics. right? give a XXX%.

original older years period as probably renewal I but long naturally not will now. cars think those be still durations, because those multiple in terms of are as contract probably the just

those I are what the factors. cars and seeing using more these a And is And of getting I then connected think more technology. of couple I'm that fact influencing are good so the news users and more actually think are is

for more renewals so demand and be going think ultimately, the becomes as period. original extend in consumer is end because engage for one technology opportunity beyond to the us that – it's And of that's more I think so the these be the And to giving an us because I driving there's those user-friendly customer going opportunities contract it, to the right? our cars to

Michael Filatov

the then Got outlook. one And it. of other question year Understood. away stepping XXXX fiscal from sort just

of Google One competitor, of your that right? this – own the have Is you talked ability system ecosystem of its sort before services this the notable offer sort plug-and-play think whatever. and with its advantages system, with I GAS guys that about to

to build ecosystem, of around compete that working So is sort Sanjay Google that more is, model provide Cerence's little a you of to parties whether against could internally help similar what out your a sort Cerence's maybe offers? building strategy strategy detail that it or a other ecosystem

Sanjay Dhawan

there and big to also trying tech may to want stopping in tech trying supporting ecosystems, be that. not competing very support. Chinese be to the to ecosystems their that ecosystem. tech the Amazon Google different are sort in trying neutral build with to or the we're is big -- ones ecosystems, the on because focused So of this or know big various with way we're we Apple be we're with to we're HARMAN any for companies, So out approach ecosystems, may closely to coming example, trying again Ecosystem ecosystems that one as which or my we're the custom here, remarks. also support just a OEMs We're working is Instead But compatible of referenced example Ignite any such that well, not that custom we're ecosystems board on I right? to

Michael Filatov

Understood. Thanks lot. a

Operator

from line question Kelley of next comes Jefferies. Your David with the

David Kelley

Hi, good morning guys.

and question. a the being starting term guide, what to seeing heading fourth I clearly this Just you line? the less the understanding sequential think if shorter schedules. specifically cycle Maybe But primarily the and here. all with a then be top modestly variability just sales and talk in QX to about you're could term the exposed you're ongoing the wondering higher would a visibility quarter flat And about longer target production discussion. into hearing license to variable We're

Mark Gallenberger

Yeah.

as That's down shortages influencing rightfully portion you So line. into license of short-term, a And our translates lot the that semi right? said really to the revenue it our model. of comes variable

calendar it shortages first of when being to semi ago, That's seeing there's to was XXXX the year. And It's us that all half about -- not calendar we now well. think second a the event half case. talks think I and about so as event six-plus not be I has going started spilling the for first thought be out into turned the a months

throughout been just shortage the industry. the for longer it's So been industry taken it's pervasive it semi just it's correct auto the fairly to -- -- that's --

into auto is we reports little seen guidance where for try production QX. be to I actually, would to QX. QX, And factor be think a our our so that for calendar expected we as down which best fiscal quarter-over-quarter I've as can bit

that we as We customers our best dial So we forecast, try of telling well. we in also for as but can. lot short-term sense IHS to us are to as a the a what try use get

I what that's we're pro The last services two flat think that's model. the quarters. basically so to been trying And

some of I upon our think dates. completion based

pro services probably ramping up sequentially. to You see start the

And QX. model so that's how we built for up the

David Kelley

view Okay, target with great. XXXX That's relationships as to meaningful maybe business raise We services, really helpful. fairly development with business. the for OEMs. tend for future it And revenue an indicator for sticking there that Cerence Pro or

driving that give us bit you a And So of -- we're think if on hoping could services you just about how maybe professional what's color raise? opportunity?

Mark Gallenberger

Yes.

a want very I Pro in I can we've good think So what target. the our since well. is, today and we see services, originally start set to growth jump may But in we as Sanjay had

performance I since $XX good our upon set target conservative for we months it's was us. frankly. then ago, XX the quite million revenue growth that think when based been on originally the side And

I We we valuable more being, then we services car car, customers and want say what some And beyond these still on also that do but we would have more value to leverage our right? in too. looking to front. done we're but to And add go what in resources, work with the traditionally our to conservative basically just we're want so traditionally beyond less do Pro the

as top going that's to line think that help we to grow So well. us

David Kelley

Okay. Perfect. for taking Thanks question. my

Operator

from line question of Van with comes Your Rhee the Craig-Hallum. next Jeffrey

Jeffrey Van Rhee

for Thanks Great. question. taking

give There delivered you bookings. with that the realize it hit was it in reasonable update though some and target or midyear even the you the a a in the hit you Just aspirations could 'XX I the was bookings think for me. start possibly huge couple Maybe year. had been to fiscal.

feel still the same. You

give aspiration. outline comment the on that's like reasonable or feel quantitatively maybe quarter? about the of You of a qualitative don't still bit And quarter, it for in a the again, can it you bookings little value while you

Sanjay Dhawan

come That we're end still achieving details feeling aspiration back with And of about to aspiration. we'll there that is good QX. and Yes. it

Jeffrey Van Rhee

factors of the sort Anything sales finalists as or about On mean, a there competitive if interested bookings the you'd just I'd major win color be wins. of to new front maybe little the real-time are sort last the deciding win? who I observe or environment? of couple you took your business why last bake-offs major cycles Maybe you around got

Sanjay Dhawan

basically architecture So discussions the competitive others the show players the discussions. then and tech bake-offs. environment in kind Symphony like is similar. iFlytek, The architecture the SoundHound for And bigger up up niche in shows big the coexistence of with

changed. So that element not has

customers cloud. kind broadened think we're portfolio from reactions of of especially our positive seeing the I quite about

cloud-only that's -- the well. kind wins overall, against cloud have I positive losses positive And on. so portfolio previously so of some reaction seeing and are of good think and that as lost may wins We Cerence

nothing as with is product red the getting our because proud an that our I'm our amount and something -- I is of think the amazing are the goodwill and employees well. our and other obviously of extremely delivering and in getting the creates positive running R&D PS into feedback colleagues PS done there shift, from where colleagues. team that programs results Because but of also that of customers SOPs we the is customers that

we're I we and expect sure to reported to these us in schedule programs. we deliver the our that that make to hard as Board programs quality Board have OEMs really working the really, the red no deliver to meeting and week, So last

Jeffrey Van Rhee

helpful. guys really Thanks tough market, Appreciate execution That's again. thanks it. impressive Yeah. so

Operator

other There at this are time. questions no

Mark Gallenberger

joining form. to a call. to day. And engaging investor sooner us you morning today's you than on joining we'll great be thank this for rather again forward any and Well, Thank conferences hopefully, again. for later, all at have able us We in in look other or upcoming person meet you with

Operator

today's conference concludes call. This

disconnect. now may You

Cerence (CRNC) 9 Aug 212021 Q3 Earnings call transcript