CRNC - Earnings call transcript Q2 2022

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Operator

Good day, and thank you for standing by. Welcome to the Cerence Q2 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the conference over to your speaker today, Rich Yerganian, Senior Vice President of Investor Relations. Please go ahead.

Rich Yerganian

Christie. you, Thank Second Cerence's Year Conference XXXX Welcome Quarter Call. to Fiscal

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

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

Ortmanns, me of of Tom Cerence; today's and CFO are Joining on Stefan CEO Beaudoin, call Cerence.

spokespeople and Stefan, company authorized for As the myself. a Tom the are reminder, only

over announce go The the Before timing Institutional June Virtual X, exact Investor change, our website Events our Xth Conference York would Stefan, Needham conferences to investor IR upcoming handing events. so the June I Consumer Conference Global the the Tech to several X subject Conference The information. Annual and on like Technology call and Craig-Hallum of XXth please participation is of section to latest to Baird XXXX June in the Annual on X. New the Automotive on virtual include for Services

Now on Stefan? to call. the

Stefan Ortmanns

joining discuss our to you second us Rich. you, for and earnings. everyone, Thank thank Welcome, quarter

range solid financial we the quarter. continuing you at either for As of or disruptions We release key production. metrics delivered quarter end results auto met against high most the our morning, this backdrop the in saw the in a of in for were

conditions strong market about from in COVID-XX of up the opportunities. we matrix, in all pipeline role strong our day, of of and bookings addition production. for Since second and playing a industry: including we impact in see bookings factory year. in the pleased half challenges the semiconductor to the with competitive the every XX% first in performance. period the our due the especially to shortages, the auto half several In Ukraine, a same contribute from see I'm prior news year, takeaway the very potential major shutdowns to We to delivered continue year, city the quarterly

are confident these and the managing We carefully guidance. headwinds, year the business despite we our through challenges, full in remain

into performance to our Before welcome outlook, officers. dig want executive we our I and new

I'm pleased our First, welcome Counsel. new to as Cerence Salinas Jennifer to General

recently company have fortunate has She leader, a who Cerence the In of weeks, Jennifer most General at tremendous We Lenovo. and Counsel to proven of Infrastructure Global an the legal the are served team. team. Litigation progressive Head Jennifer to addition just is X and on Group as public to be experienced Solutions

Board. successful very operational his office. and last an software with his us Marc change knows new and the the recall our as he be I'm CFO finance track X.X Tom active He for time Tom to led our and automotive Montagner. Second, and Tom welcome instrumental Beaudoin and from have where and CFO known departure operations then Many business leading extremely in as he excited record our welcome well, Mark join to my Tom leading at Tom It's first, then of its business in director our a him role proven today. you Nuance, pleasure execute. experience I've was on the has years helping confident for role Nuance transformation will a spin industries. and to us that years, in from of significant Cerence of driving the I'm

strong last of before to same up a will and share first mentioned period At I a performance. few the half compared in him I beginning our bookings from $XXX were hear the observations. bookings million, turn our half year. highlights first call, over, will moment. XX% You But it At I the

on $XXX perspective the at additional year for achievement, For bookings XXXX our entire million. fiscal were

markets in ability in to our the Our strong due accounts and is traditional our position industry competitive and automotive to reach markets. automotive continued success beyond

our OEM us our half also platforms. announced customers, significant with Regarding current bookings existing expansion OEM with our largest with large including were a of history their we Greater with in competitive program a to the underway and position, XX% help previously contract, that next-gen expansion its called American a significant an European It China. first for in includes,

note, new seen contracts, Of world's China they we Aside to from secured Cerence in including we unique have to turn car expand acceleration wins also a as companies, These regions. newer Chinese hottest important create EV market. China, AI EV X of EV in experience into several areas. with other makers traditional automotive, X signing out the

supplier want in only with deliver aggressive the portfolio to experience the the they are vehicles. their We coverage plans and support and language the

growing contract the expansion heavy signed our major in example success in offering. of space. represents this recently our new prime is European This customer for A supplier Assistant Another our Cerence fourth truck on trucking.

Our fitness including core grows top on mobility are the bookings our for AI This X X-wheeler Cerence with combines as experience group Drive capabilities a won more our new which strong a mentioned than Collectively, now comprising XX% customer, connected wins last our opportunities. conference new market offering finally, new and with business the We call, product continues innovation sign X-wheeler customers, under function, we of some our falls these services new we new backlog. as And the worldwide. to a of attract ridership new X-wheeler transforming ride such manufacturers. customers. as added

key the several and priorities. of the pipeline, the such pipeline year, a $X.X our end backlog fiscal first quarter second With focused fiscal solid half As pleased reported the at on and billion. 'XX, a that we of approximately And are second we the robust. the strength I'm remains second of after in attractive half now reminder, for half

we the are opportunity. the First, future, our new to plan leveraging to are wins These biggest deeply serve design contributor pipeline. and our strong accelerating on we single capitalize momentum every we focused on by bookings and market across

customers intensely on to by committed our high-quality implementations deliver products and delighting remain schedule to budget. we Second, and on continuing

intently expect key this, will successful are of half year, potential. programs is We significant success. services of which future indicator which a leading we on customer future And the launches, part us for position to second increase focused bringing several for for business in revenue professional the another

our are of we Third, in the with business return. long-term the highest call funds -- please? that to turn finally, advancing and and financial best to will And the sustainable manner areas operational And now Tom, quarter. positions rates Tom a innovation allocating that, and plans continue that return I our to the we company strategy will review over generate of the to achieve of growth. results prioritizing

Tom Beaudoin

Thank Stefan. you,

for recently, mentioned, from Stefan the separating most Nuance, and business for and stronger-than-expected working the the now I Cerence year contribution to in came the all of opportunities look I in forward then of high end to on look in provide maximize full the review our professional at played the our Revenue firsthand $XX.X Board future Cerence. the to guidance third and performance role the you. I'll slightly and forward our with of exciting quarter guidance As and the know company a meeting quarter from above I since spin. guidance. due business the potential know million, our services. for the extremely company well, I'll review to serving ahead team from I the growth Stefan

was guidance. metrics of in Non-GAAP gross earnings share Our key XX.X%. profitability at million the $XX was margin, the metrics per midpoint Adjusted margin XX.X% profitability performed EBITDA well and came were as $X.XX. Non-GAAP or operating most XX.X%. of margin non-GAAP was

balance strong of and total $XXX and with we During from approximately remains marketable approximately quarter, cash generated flow sheet million million. the of securities $X cash operations, our

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

the breakout some We have minimum prepay the contracts. into fixed additional added fixed our commitment from of the separating contracts insight licenses,

collection. communicated, of revenue between previously of recognition delivery. difference cash of each of full signing value is the As types the and taken the X The the the timing same. is mainly The is time contracts at contract for

typically upfront, time auto contracts, and our per cash contract, at prepaid is of the commitment the For the for cash paid license paid is minimum production.

revenue XX% and of revenue drop-off of was license primarily well legacy lower same by consumption down production fixed Services from due license year, X% as from the the year was of and from combined the auto our down Connected effects variable contracts. as production. expected to driven auto was last quarter revenue which lower previously Our last contract, communicated

and of because contracts Services expiring technology, older renewal. not for Connected revenue candidates therefore, for was new Our down

contracts next million a full about We Connected fiscal this to year, to create the expect For Services these headwind fiscal growth. negatively affect growth expiring don't year. $X

is customers a connected customize implement as indicator services the in customers' revenue and services professional team next-generation X% Growth future quarter-over-quarter. in services pro year-over-year to license up services Finally, technology XX% our directly professional Cerence our individuals of platforms. was revenue interfacing with the are and and key

Moving for guidance into QX. our

slide guidance that auto this war and Our semiconductor the are third detailed production. quarter of of shortages, factory takes the shutdowns into and cause device uncertainties consideration on the Ukraine the effects affecting

can we as Collectively, guidance from However, QX. our business the our shift impact represents positive the QX seen have these continuing over quickly. in in events trends on the business past,

the We are year. full for guidance fiscal affirming

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

factors impacting our as near remain long-term to industry, cautious remain the the prospects above, we While upbeat. in term due the outlined auto

the growth, while and the This time, model now profitable into that at shareholders the future. remarks, prepared the driving focus business will you. well and open company on same Our questions. innovation our our will and Thank is a benefit we for call concludes

Operator

question from [Operator comes first Instructions] David Jefferies. And your Kelley,

David Kelley

luxury tough maybe the specifically seen same of the underlying think But been to to shift wanted technology vehicle adoption. couple Clearly, we've about a the bit, with been Connected compounding quarter there. I ongoing the a at impact auto it's Maybe a of premium pullback. subscription there's and time, drivers and the years and the Services, revenue we dig production, mix into for for starting so kind

subscription that the decline drivers talk you maybe business, what of can Services year-over-year? seeing you're the So in about Connected

Tom Beaudoin

financials, bit all just I all, the about think Maybe, business a let first and Stefan of parameters. me understand sure then little make talk can we the

breakout So a Connected little further Services. we of have provided

So that about previously. we, I talked the contract we the think, Services separated new had have legacy from Connected historically

X for factors new think split elements. the have we probably we've the the that through at trends into I these With the legacy. is Nuance, contracts And understand are this them of I Cerence pre-spin, old respect out that of affecting one continue So expect are the headwind acquisitions Services, in we that to Connected to people year. creating $X next some don't were million as that FY And 'XX. that noted,

Stefan Ortmanns

and morning, Tom, Okay. David. good Thanks,

words So let Services. Connected me also add a to few more

connected. had last more largest the And at had also, heard, fantastic OEMs we we It also signed Connected the first contract one as of our had half mentioned have comprising new history. we year, in already total the you of backlog. Services and At X end As $X a is bookings, with have billion. we to now of XX% than of the European

traction for production, of we we with new So But well see We Services, are connected. also on I here Services. well to recovery lot also depends in auto new Connected also especially right? our positioned on heavily the are overall, think positioned and a yes, Connected it the respect of products

David Kelley

here about then contracts. more Okay. of in of give the And impact Can you the a of the quarter? Got impact maybe the fixed the noted And thinking headwind consumption license year? bit on us the ongoing helpful. it. the back ongoing half that how That's color into you're you

Stefan Ortmanns

Yes.

first, will ask also me Tom for Let his and view. I then go

think XX% been yes? years, the of have couple couple within range looking in over over for the of licenses practice to years, the our of and back when it's long-standing the a revenue total last I XX% for business, fixed last recent a on Now fiscal second trend of tick will that continue customer request, of XX%, of the the And yes? we to we first half the expect saw the half year. for the up based year,

of some practice. supplier our of some common They we prefer first in know are and some also regions for it's of these a customer, Now types the all actually pressure. tier under tremendous contracts, that and

a customers, competitive to especially raising to course savings, was environment; benefit we our reflected during also potential of for with cost us cementing are, the is half are their this them And upsell we and costs. we strong first highly one, are two, our The bookings program. our So material relationships the in right; a have winning benefits huge given example, year. specific three, in

Tom Beaudoin

Yes.

all patent noted, very a particularly think which has that to regional manage this with, I XX%. from can XX% So a I to see All about to contributed been involved factors Nuance manufacturers the auto that time. some to auto And been Stefan have been buying the the large the mobility Stefan a And provide commitments under strong we than this is They have division tick a very organizations. with pressure the XX% environment. lot would since up what from I as doing up some and the that XXXX. about practice prepaids. costs, was long that customers and we business, that customers pattern of minimum provide I talked on are very have in discounts on note contracting within purchasing this also but particularly for quite smaller the discounts to a

lower are have does on a cash course, I flow prepaid. different quite of discounts point Now impact, the but would the out than it

Operator

comes from Gill from question Raji next your Needham. And

Raji Gill

contracts. the Just a follow-up on fixed

in think drive just that discounts seemed contracts getting they're price clarify. want to like because to it pay I the were cost. because the customers wanted more past, fixed I they And entering down

kind So expecting kind you're so be contracts of into assessment? the that seems the that that level to That order higher that to second fiscal in fair type of X of discounts. these be -- sales the continuing the at price benefit Is would from are for contracts a customers to enter of year customer of half XX% maintain indicative continuing. the to behavior

Tom Beaudoin

done way. capital good seeing we're job And said, the we I sales customers we've our of, maybe a pipeline what there. seen this as prefer team That's think strong has trying are minimize the contractual Yes. of to that I some from a in discounts in And position.

So do cash that get we time. over

Raji Gill

between the mentioned prepay contract versus there fixed difference see you that So the again was to -- trying the contract.

that was how can a said bit think be indicative Maybe discount. a You I mean, go the there will then because, forward? kind are longer-term you change much of is on the I this to a you in elaborate discount you more challenge that and little of of pricing of trend? offering customers And kind the get contracts impact these did margins and gross as a the

Tom Beaudoin

Yes.

a time X be the that the this Just as contracts upfront; more we a had broke The And commitments, is broken and a provided, produced. and where The minimum out out which as discount. we've significantly the what the cash lower both are cash the said, information overall fixed new fairly autos of prepaves, still contracts: to ticked this then higher that discount. minimum on prepaids types a the under is have It is have commitments percentage clear, are is of little we've historically an revenue. benefits which customers. as we up

then, to develop months. And We over continue plan we second expect be as that months, of that assessing couple few course, the half. in long-range our of next we'll the

Raji Gill

I see.

the Okay. the million. And business, portion to $X legacy of kind Connected is then on of the Services dropping

forecasting And that headwind then you a -- that mentioned be Can overall of expect the million you $X in despite driving on you sorry, what's grow So the we that to -- in go-forward the kind the connected beyond kind above growth about headwind? of just and kind connected, new revenue. of that $X should is talk that still million range basis?

Tom Beaudoin

Yes.

me the let on of clear the Services. make So elements Connected just we're sure

Connected an technology on it's It's amortization to left. predictable. subscription the back million are very out, that based will you the out. contracts. contract. has contract $X that highly -- there's XX It quarters XXXX In as headwind schedule, pointed old is legacy Services, and run It's there these goes that So so on new a

are of Cerence Those moved million a may Nuance. that renewal. them came through as XXXX. was a in have classified be not auto to exist but Some on when platform, not $X technologies done acquisitions different customers technology renewable. The will headwind part of of wouldn't That course,

Raji Gill

contracts Right, technology. on the the because all will be new

Tom Beaudoin

And I'll -- correct. the Yes, Stefan about talk let

Stefan Ortmanns

growth the with also China flavors also for program vectors see That new to just we respect history. our expansion various in right, strong biggest right, all with deal revenue referring original connected expansion, services. and was for also products some here, And to here, again

what applications, CES are a will and overall, us we new we think growth products, see here I and showed off this in new confident our keeps Connected see also right we So new our taking a good at now that also Services. traction

Raji Gill

And in just last was question, I’ll back step Connected XX.X the Services – XX.X. queue.

kind you’re kind So about of that’s the of give of you in a us you Can half. mentioned going what to terms thinking in of magnitude? sense ramp second

A –Tom Beaudoin

we revenue, Well, the the elements on don’t of specifically yes. guide

Operator

from question is Junk of Baird. Luke And your next

Luke Junk

I guidance. want to the with start

and but the I I'm extent? maybe fourth to the fairly at maintain guiding to a And year you more in if assumption. on the I during for the within full Or significant guess, better guidance wondering understand wanted look fundamental range if standpoint just ramp. guidance, what implied from later any going a I imply midpoint, importantly, quarter it is So you're does that at year specifically the

Tom Beaudoin

strong had half. as in the noted we bookings, we So first

strong We -- programs, drive which have revenue. strong through those will will implementations to to which services. see professional help higher PS of bookings, We we'll the equate also

of So we will achieve those to believe us that that elements put out. the guidance it's we allow all

Stefan Ortmanns

And maybe one comment. additional

Thomas, fiscal professional some that we right, earnings for mentioned -- right. we predict strong in year. deals. we on important, -- We what of see services see call, are strong last the specialty So the absolutely And the we performance the also a equally working second

Luke Junk

picture wanted X announcement X-wheeler reset Okay. for the for the during the on half, you to can little And The gears. bigger ask that question first us just awards I opportunity picture switching bigger of then you, stands where company? Stefan.

Stefan Ortmanns

X-wheelers, yes. the For

especially as X also of a lot traction of won the program Asia Pacific. think right, on We side, see X-wheeler years this we launched ago, X.X top the here manufacturers. X-wheeler So in I we so

So on we XX broader new is level market core features X-wheelers on just yearly I on right? attractive what the us. X-wheeler to AI adding to mean, a picture, on basis, roughly leveraging application also described million very an it, And a the the call are a million stack, XX and we in here.

So important meaning connected potential all a see hybrid right? market and the overall, of services. And for future. we in for an a cloud solution, us, edge us it's lot And that's

Operator

Craig from question of Rhee Jeffrey Van A Hallum.

Jeffrey Van Rhee

Sure. I've couple. got a

on the First, prepaid.

the so explanation for the the get XX now? guide was I different since original you're to But Obviously, models. think XXX. last of last XX guiding now is until the to I guide My XX given quarter changed year. X what's you're question far. the

Stefan Ortmanns

the weeks, So of customers that actually is the we biggest change lot from right, the seeing Asia over are of especially from a couple region. last inquiries

Jeffrey Van Rhee

I'm Okay. Can levels to mentioned have you observations particular to But talk connected has in some modern usage you've the of trends sure you're renew. you and some and aren't connected systems watching there, connected What usage about got usage? connected? got and You closely. very usage headwinds and out going of the legacy systems got more absolute

Stefan Ortmanns

in transactions. monthly of doing some right? tremendous car, example, and when the in right, of the OEMs, with for tools, Amazon also with car, solution, We with usage see a can right, we're users. a number analytics comparing Echo this growth active So usage compare Same the our a and right? in an You

for China, overall, also overall, decline it's the down picking shut some a were right? into direction. So course, other the up, COVID. But right it's in of short trending we hand, On cities saw

Jeffrey Van Rhee

a bit little a up backing level. very just then high And to Okay.

the in do future? What how of diligence the X is here? learnings the avoid I we've CFOs in turnover X front, the point, And due broken? of and CEOs that door this you mean, revolving process terms the mean got are on at months. X I In kind leadership

Stefan Ortmanns

closely with Board the think working are I here. we

unfortunately, He So Mark my a think me March let So it then extensive but fit. And he the Board and had right? for And connected. Marc in was with is role November G&A right? Tom consultant for well not process, is year, position, Nuance, financial more I now with I he retirement everything right? could is in after years Tom I CFO fit He wasn't everything. then spin member. consulting And software, hear think yes? now, he excited serving mobility and experience. a fully automotive, identified the knows as CFO, I'm CFO was -- mean, in right? an knows search, right? Cerence Gallenberger really would in we now, it right? in than He space, working natural running of Nuance, short-term we responsible the the a brings policies. a quite this until Chief the the was He broken, the XX from to feel way, the active all good during from planned. also that was search, view, his when at And referring a in yes? right, He And calendar when -- but from I'm the strongly the of quite role explain you right? different Mark He Montagner, is is Transformation Office, interim -- put together, familiar the call he including And a

Jeffrey Van Rhee

Yes. I'm certainly time. with known him Okay. for mean a Tom. long , I've familiar I

seems I'll to bookings. brief there. disagreements get terms I turns, process many issues. other the of start no to sort of just to in there. relevance. One leave It when point think question fade this explanation in you So the it

seeing You implementations on to win strong are you And leading then mentioned is rates you've in I'm what seeing win coexist? in What particular, curious What connected rates where you and that arbitration just in coexisting, the you're are pricing, pretty coexisting? bookings. argument. you're connected? when learned in when cognitive what you right,

Stefan Ortmanns

capabilities, solutions. think the branded the I And own want of or of uniquely of big an afterwards, provide OEMs, And So data reasons. a for global I OEMs for think platform advantage want their to data we Two, potential experience. we the right? here OEM-friendly our X OEMs own most monetization that's multi-assistant are they positioned most with One, right? the

interesting just tools simple very [wake OEMs, we logic. And technologies the then supporting business the like the they from and words] are the talk, all flow to OEMs. own business new and have We

Operator

question from Delaney Mark of your is And next Goldman Sachs.

Mark Delaney

in hoping was revenue to understand revenue the per vehicle revenue company's part I in opportunity. of First, -- terms vehicle per of trajectory long-term increase the

couple you booked spoke big a had you of programs You about. that

kind So you're when revenue and look big those can us of a those was what vehicle prior per maybe contracts? compare per vehicle you expecting of a you new what about won on to at give customers how you've sense couple the revenue these programs with

Stefan Ortmanns

Yes.

also uptick more So in because we to we adding see an our price it. per unit, new are more applications so and

can about to we then unit increase we to more think for are Cerence takes about time. on, it. dce, And not just going right, adding Just applications on are the the browse, which Assistant course, unique connected the X-wheelers is It we think mentioned. right, for our side, co-pilot, and also actually think karaoke, of right, solution also some more price. add new we And X-wheelers, more about about also new what think trucks, right, but a

last call, right. discussed also We earnings

So the well a is bookings here, right? what takes to And here, game long-term we positioned. are also ship conversion

future. So confident with very overall, our I'm

Mark Delaney

That's question consumption struck. these upfront are Okay. deals color. helpful second directional being on is that of license My

years you these of well prior sell ahead more expectation When sold there been a in Maybe talked as that? range as production going this mid-$XX consumption be about of was to licenses you've when I going to of fixed auto change licenses, million fixed think before point? Has what could to about does for the at this in year. that this think consumption broadly, your expect prior you're the about consumed? production. license talk the you get sold years licenses company had out year in you be But updated to

Tom Beaudoin

the guide No, assessment practice trade-offs it. and particular so the long-standing as on consumption levels. But said, deals. been And we a the a to is on continue make flow this we these don't we to there's

Operator

showing no the back questions further comments. And any turn I the to to further at for speakers would [Operator over Instructions] this I'm time. like call

Rich Yerganian

you everyone a thank joining to you morning, for have for conferences. Thank our you, day. and the meeting and a us or at of on we Christie, and this see you, upcoming have one with call Thank you hope good

Operator

you conference concludes Thank call. this for participating. And today's

disconnect. now may You

Cerence (CRNC) 10 May 222022 Q2 Earnings call transcript