Earnings call transcript Q2 2023

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Operator

Good morning, and thank you for standing by. Welcome to the Cerence Second Quarter 2023 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 Instructions] As a reminder today's conference is being recorded.

like Rich the of Yerganian, now your over Investor would today, speaker Senior I to conference hand to Relations. And Vice President go please ahead. Rich,

Rich Yerganian

Thank fiscal second you, to conference XXXX call. quarter Eric. Welcome year Cerence's

risks forward-looking and begin, considered to may today. filed certain Cerence preceding not uncertainties our those as assumptions, These statements call today's on statements. XX-Q statements filed call, expectations, the XX-K Form we XX, that that fact are subject differ including such to filings, may historical targets Any involve to to I remind actual our after estimates, forward-looking to statements and statements Form Before materially X-K SEC from our May representations you plans Form like no and results including November on with be release this to of statements cause be press XXXX statements. should also are XXXX. our would in makes statements XX, goals, related described which update the

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

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

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

to and information. X Investor specific few the would IR section mention over I we like weeks. the have conference the dates of events next call for our handing Before in upcoming website to to Please refer Stefan, Conferences that

Now onto call. Stefan? the

Stefan Ortmanns

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

results of high solid coming with above guidance. $XX million our over revenue end in delivered just We the

free includes than performing In to contributed cash $X million most addition, metrics This on focus strong over expected. profitability flow in quarter. generating our better of the operational excellence

global auto that total auto performance business includes core our means details to will well our new few rising in Cerence. with some vehicle level of minutes. a from penetration Our global the light of provide production XX%, continues that to technology of Tom perform XX%

competitive We maintain tech. half strong niche second against bookings. of both continue to multiple the a strategic Bookings expect strong we and solid identified wins position a year the of consumer with players included of first opportunities, for pipeline half a

rising better, IHS environment, in forecasting ramp have X%. remain effects assumption aligned the uncertain semiconductor for place, $XXX term the shortages of and any end demand X% we is our likelihood the of our revenue while of slowing economy remain from production global low the industry million with for Cerence Accordingly, fiscal million. interest offsetting is guidance the than in $XXX of full a growth. significant are near Cross original macroeconomic for rates better auto range our incrementally to slightly the year year auto on This raised fiscal

user I'm results, Officer. responsible recent providing a not lead for leadership Chief our Iqbal technology and is building part QX to global our as excited organization for Technology platform new our our vision it Cerence While and event and will technology announce of Arshad accelerating roadmap. innovative Iqbal experiences

smartwatch. the voice Motorola, like first exciting original wealth mobile the decade, senior most the in innovations shaped assistant, some of brings Google including first engineering development impressive having and technology, Android and development Iqbal's of experience leadership Android product first a smartphone, Lenovo. Google's the first includes industry Droid technology at the tablet, career He technology and roles AI past of

to achieve transportation customers, potential IoT, valuable expansion has our as we Iqbal look not just for That have of am to of automotive also expertise AI, Iqbal our and our be executed will leader spearhead outside confident immensely part he very goals, with transportation software for opportunities deep transportation. applying be to innovation market. Iqbal our and the I help across a leadership as destination working in technologies. ways that excited mobile team to next as but Chief us will industry continue the Officer. Product critical closely innovative Nils in AI I'm very Schanz,

for half This million. were Moving from of on second fiscal the $XXX to bookings, 'XX. the up XX% which half is first

always including is of from wins, from looks Additionally, while tech half opportunities the very competitor. sales niche two pipeline the important customer had In bookings of companies seven the strong. when the second three timing for difficult half, win-backs, one predict, a we strategic occur to first and

brand In other regions. win key luxury QX, a global customer strength This validates America of connected solutions the North this building for a services region. for success off in for further our the the with win-back competitive was

the benefit year. of implementation are added shorter. these is North calendar America for we and in an be this over later customer because this switching based They solution As our to already solution capabilities delivering cloud will America regions, our North other for

strategic China global the expansion. half support largest was to other first the of its One wins the with during carmaker in

broad Solutions provide in assistant expand their demonstrating of we with as globally, capabilities our in they Voice This Cerence's consistent more will support. leadership other China the turning than and languages languages. OEMs We portfolio to business look AI dozen a is unique Cerence to

The technology leveraging strategic wins AI solutions. to focused of at innovative and competitive and AIoT new innovation, were superiority hold India the technology and core bring and wins we These the Europe, position remain transportation U.S. of the product products markets. reinforce other new to This sharply our continued on strong strategic in our the we the

the improve for is innovation in developed we language Cerence automakers a time to Car demonstrating in such One enhancements and further the to of and Most generative to experience. latest Cerence Car models made all aspects to intelligence Knowledge, capability our car. have large the Knowledge, enhance leveraged AI car recently, continued leverage AI example product real valuable recent drivers their enables that about we credible

sourced With the with combines this status answers. about are version, leverage is to Car user driver can purely to the enhanced the provided the ask drivers manual and very more. questions data the sensor results with Cerence's the tailored and data the becoming Knowledge Knowledge car's tailored specific car Because are pipeline questions car, accurate. be can Car OEM for popular from are provide features, responses specific data about strong enhanced confident with vehicle a OEMs version. from

like newest our quarter, [Auto] of we experience. technology integration. released the foundational latest Capabilities, features Cerence and the Talk, Emotional immersive This During also for TTS, new Music the Assistance, Just Apple includes version companion version

a for wheel wig is or a as whether person upward. the to just the sounds. was the assistant what steering Hi driver and to it Cerence, more to the of simply pressing will need respond button Just to want on the another Instead it talking for they No is car do saying Talk or car. understand if the a person request in speaks

Just talk individual. another to you your to like would car

in Truly technology new the currently summer shipping being this platform Benz integrated groundbreaking This Mercedes the technology. is in E-Class.

two the two we The be expect first and QX. into to in started product our Cerence right more with customers production

two Ride enhanced wheeler to AI of new uses At noise environment but ways our the unique technology account Assistant for technologies audio features provide the its a our include two Cerence open to in wheeler. applying for market. core, These features cabin Cerence

but team the creates unique done job amazing levels user expect, some the for our challenges experience. language noise achieving would natural environment has you needed an an accuracy As for enjoyable understanding achieving

emotion technology, During emotional driver. network states Neural QX, detection Text-To-Speech product. Using enhance several based the technologies, key our continue address can emotional the AI we to the including our assistant of

emotional driver a of and accordingly. [indiscernible]. fear, can how the similar on hear road technology to It is if state. experiencing the a calming is other situations for deliver the system voice is inflection truly surprise respond based responses can our in example, For verbal appropriate rage, using including pitch amazing This driver's

coverage also we detection accurate for continue and expand the of XXXX extensive found offer most emergency vehicles to vehicle we throughout We and world are upwards believe coverage. our unique There the emergency and technology. refine

AI EVD on In fact, customers based our top. one others out of came technology and compared solution two our to our

The in advancement our quarter was biometrics the significant other with capability. we made voice

of product have biometric can Much data. an that person identifying used human our person or to and characteristics digitally identification, systems, developed voice is for be version used for unique this updated identify a voice technology. devices provide to fingerprinting can We like access

era, accurately where voice types different popular is an an who recognize order important. enabler or In to an of many request able vitally increasingly transactions is placing being making a is of

about excited about market bringing have really Iqbal we and teams elevate I'm under our engineering front, new innovation equally what excited And offering. to our of be Nils. will I'm innovations the product done leadership the the On to

would I our about operational have which the of QX Tom year. the to over priorities goals. call from business full at Cerence on and the aspects in the hand our of is to strong well expectations, for customers' model excellence to I and meeting securing all business second The QX delivering set results our exceeding guidance team and detail, and the about year managing our all half is bookings, a guidance. full review aligned It meeting I summarize for company excited fiscal these covers Before like

I over will now turn Tom. to it

Tom Beaudoin

Stefan. you, Thank

revenue to above deliver expected point combination and we high to back positive want professional on with commitments. came than This the our our first, goal $XX.X are With than a QX a on core our But license, share million to moment. in from for contributions of due QX results. business QX our of guidance and another end guidance. in in anticipated come consistently results, at I'll QX services. connected better is our to services strength data more a higher I strong providing

with and XX.X%, margin most expectations. fixed gross was negative margin operating New and the in was we $X.X our X.X% we was exceeded $X.XX. non-GAAP of X.X%. key of quarter. Adjusted the profitability per quarter existing the Non-GAAP contracts million was on fixed metrics in contracts consumption EBITDA Based guided share was loss or higher revenue, margin for non-GAAP line

margin guidance exception end for at with a the operating came bad midpoint above EV adjusted the the Both margin reserve non-GAAP in EBITDA including debt $X.X of our a metrics, range. customer. high and operating EBITDA, the and specific adjusted million these were non-GAAP metrics With of of

positive Cash expected. quarter, from as flow we $X.X million. was returned the to approximately cash flow During operations

million. $XXX strong approximately securities balance cash marketable with sheet remains of Our and total

license lower is the Variable compared and of fixed quarter-over-quarter. due licenses, a to quarter. increase essentially XX% last production quarter breakdown the revenue from improving increasing were last was up auto to of same penetration. year and The There consumption year flat revenue for slowly

connected quarter last X% from down X% was up revenue quarter. services last the and year, New from same

technology, older several three cars legacy over semiconductor result due contracts connected of lower of separate and year-over-year disclosed the expiring last was The from to decline the such years production for previously as the factors fiscal shortages contracts.

our who services as will progress includes XX% Finally, services X% down customer and revenue Professional the year-over-year down or was directly team on the completion pro customers individuals the acts but quarter-over-quarter. instead professional based platforms. company, services projects growth services for to technology with interface on generation vary licenses We next customize OEM and an connected implement driver like revenue. don't revenue and professional the see for future Cerence's it as of enabler

license growth. Moving the remains from issues Overall, X% production production quarter of on over royalty have plagued This increased the Pro to auto to slow the in improvement technology. indicating and year-over-year due and few a forma were third details pro last quarter-over-quarter that our up royalties in the years. strong is license row auto business. the penetration our forma of business was and X%

fixed worth quarter $X.X of approximately in estimates quarter million contracts all our as in $X was into going contracts. prepaid million. the with This the signed We line

an of execute approximate QX million continue as in continue million the expect no $X to full expected range $X $XX we year. negotiate had fixed to contracts We contracts QX. the of approximately We in We million for fixed fixed million to to to $XX in level initially these QX manage contracts in now and on opportunities.

period last contracts in in $XX of of XX% range million. compared strength licenses $XX the million Full the year the to year. of indicate business. Consumption to The are fixed now majority be to KPIs continue same our to expected fixed declined

over Our half XX months penetration production Cerence the XX% includes global Technology. of increased from level global XX% auto of to auto production last This means for of some trailing quarter.

that connected million use Technology, increased Of quarter-over-quarter. Cerence services those cars XX.X the total XX% our with

billings negative increase in a of a indicating X% XX% users, technology. popularity FX increasing of We points. The among large saw KPI year-over-year impact monthly declined consumers also car active X our per percentage including

contracts quarterly have guidance on our of in is revenue factor of the revenue the to the turning for Now year. the year, value and QX second fiscal fiscal fixed that one an impact will half

X to fixed million for As into approximately QX I million that QX. mentioned earlier, we $X revenue consideration, QX. we guiding and Taking to million from of in are $XX $XX million in $XX expect contracts

into half our With fixed $XXX fiscal half, contribution behind expected end of million are first we the contracts us in from $XXX range the account year to low and raising million. from guidance taking second the the

You can the on financial this and slide guidance associated see the revenue of effect the metrics.

Overall, at the And half long we perform as the year. excellence, on we goals. beginning strong outlined the the to in remain term and business operational continues focused our second bookings of innovation, to achieve fiscal

prepared our the open now and concludes remarks call will This questions. we for

Operator

line Van open. question And comes Please Jeff from is Group. Craig-Hallum first [Operator Instructions] with ahead. Jeff, our Rhee go your Capital

Jeff Van Rhee

here. units, It of like everything connected a looks Thanks questions. tracking Great. and taking for bunch quarter. real nice to well like things is the Guys,

In of What's Cerence [indiscernible] going the car that's few terms per TTM, billings billing last on per with quarters. the unit? way. wrong I think of very couple the decelerated going

Stefan Ortmanns

It's of it OEMs little a are Jeff. quarter. the Thanks, is - and each bit mix reporting how

that noted FX an was quarter. also impact We this there

some projects programs, are new talked and dictated by higher of And ones do also carry of about the the new OEMs. a the we've some implementation as Those and previously is that PPU. driven really of which

into through that and of the those reporting production quickly getting programs flowing is therefore billings some the So financials. the they're how and royalty

programs. is, it of a a then of it bit newer So in a slight and bit delays some is bit is mix, the of it of FX

Jeff Van Rhee

number or you that year the think maybe do about over little duration next the two? longer a over next still How

Tom Beaudoin

PPUs some it's mean still drive we the expectations innovation talked about host. the to Well, Investor of the the in of that in about, critical. we I side and and embedded talked with new growing we both have that technologies bookings, as as continue for Day particularly stronger connected on Stefan

Jeff Van Rhee

you projections then of just Great. pretty sense talked not models gave FYXX? had at EBITDA sort out the the obviously about And other, one of Investor a target years, November but guidance, for Day, dramatic formal or in growth us

But is just come both production. you well wheeler as uplifts some go and start a that and these the contracts about production hinged on the as in have two talking side of were particularly to of yet that to new of price start

the wheelers. two question the as key of platforms starts as both well is So production I automotive on the guess

Just talk about how those are tracking?

Tom Beaudoin

not drive with to And future the kind year. core and the strong Well, continue fiscal I reflected any year we the have of will updating this we continue we're of Stefan bookings? period. end program the OEMs. backs then of those at talked mean, client implementations win in about, But the as wins as do to that

Stefan Ortmanns

things. So Jeff morning, let me Good add here few Stefan. a

Jeff Van Rhee

morning. Good

Stefan Ortmanns

with with I OEMs, think OEM we both are OEMs. all here making also Chinese with heard but you this right, also progress North leading American European

we side, QX. in wheelers Two two live have great in wheeler the seven now On here. wins, went that's total

wheel next of one in India, in SOP legendary - big a also the America. manufacturer in another go top brand then will North expecting live are and We QX three two

Jeff Van Rhee

sounds last excited? like it's you coexist commented in Okay, pipeline, and great. the And a do bit looking notice just of point. than obviously that got Maybe environments. the you particular just other at all about several products, that this you one has times the strength right expand like pipeline then, little magnitude of any geographies What pretty kind what

Stefan Ortmanns

just think, So Ola Mercedes. CEO was a I is also feature. by launched This talk of noble presented we Kallenius, have just that

is cost couple working expenses, models here. also with this for know see our a can great sensitive car Yes we're have but We As we now a knowledge all quite generative years approach also doing here. that yes AI. for imagine, very of new language and a we ChatGPT appetite with created you large

emergency see vehicle also new a We appetite EBD for here detection.

tech. wins, are of point again, an our progressing my new design Assistant, various big had view way Cerence We strategic We also with right., from excellent in

on view. are we So in track my

Jeff Van Rhee

so much. Great. Thanks

Operator

next is ahead. from question Fargo. go from Standby Colin, next comes open. line the Okay. Colin Wells Langan for our Please and your caller

Colin Langan

Oh, my great. for taking questions. Thanks

bookings, of $XXX you $XXX think follow-up the I million. lot think on full was reported last million Just the I year year a

like from getting annualize last down So pace, these some second if first year. step doing about seem for are what How Any think we sort half a of reason full contracts should I the moderation you the year of it were pushed the into does half? that?

Stefan Ortmanns

morning, Yes, Colin, hey good here. the for thanks question and

difficult lumpy are and here. the the timing So, bookings predict to

half bad not first comparing with XXXX second XX% growth we the is all. which when half think a this at I of of of XXXX, see

second with quite also solid are very a will this strong the for very we And pipeline, opportunities convert bookings identified have opportunities bookings. We in we that half. confident strong

Colin Langan

Okay. bookings year comp, just or that thought I year so will because mean still is tough last this the a is high? it's grow

Stefan Ortmanns

provide guidance here, said at day. also on also on but are don't we We the bookings we here earnings track what

Tom Beaudoin

add I OEMs. contracts length that entire is by - quite length can of And the value contract. the would those the vary just of of the estimated bookings widely

five Sometimes they're years, years, XX year we've contracts. seen seven

So significant of platforms. still about, can amount some number as of be we've win we we've that winning lumpiness had a of backs. And talked

had We at haven't losses all. many

we the above of of with the year, indicator to revenue years. in But a to, have the next think strong for medium first two, was year to five alluded there half. pipeline this over Stefan the four, we the half growth last and the we update I at five-year of why will visible as three, year, second kind to second which the of tried backlog that's our good model, which along last at think guidance this of move I the end kind of is And year, end a

Colin Langan

color. helpful that's it, Got

either inflation there of still or Just raised of sort margin operating than rounding? gross unchanged? guidance it's a sort income question, and SG&A sales just are why you slightly, quick Is

Tom Beaudoin

a did some debt specific some That factors. had into million FX of we impact, better have bad Well, a goes that G&A. had also reserve issues bottom that and to other having of with line, against We up we customer. interest customer the because we believe vendors. take other - some made EV $X.X in is the income couple We

middle made bit other why level, in still a shortfall. a and OIE kind of We're that's little we guidance in see of the the but you it activities. up then So of

Colin Langan

Got right. questions. my Thanks it, all taking for

Operator

question ahead. comes and is Goldman Please for next your Standby our go with Delaney caller next from Mark Sachs. open. line the Mark,

Mark Delaney

the very thank much taking for questions. Yes, you

these handful win achieved of the to more spoke bring PPU that to of how Cerence? into you could it. perhaps years? a capabilities quarter the you little mentioned a that back were You in led to did some does backs? you win the more the that commentary on coming of backs behind have articulated aggressively fit higher the on customers previously you And price some order to in in And that and But technology pricing elaborate bit trending of

Stefan Ortmanns

Okay. Good morning, Mark yes.

all I In - doing and for we the OEMs connected right here, about rock of where the into evaluation imagine faces was benchmarking. continuous solid can QX, actually back think also are a niche now right? player that America North most And technology you it's beat services. as again on some we

It's the the all mean, we're last with some of it's our with nothing and to has about a here, expertise. And right. about It theme. what our bringing I improved AI performance earnings. I also more do And pricing said stack, in AI also more expertise cloud very with vertical all

Mark Delaney

Okay.

So look win backs when PPU? that at overall, still increasing the of of view with consistent is you these kind

Stefan Ortmanns

yes. Yes,

Mark Delaney

some to you that's signed, the correctly, contracts be Why Tom, cadence And around you And then, fiscal helpful. in Okay, that other third will around was is so XQ. what fiscal if then one some going my - these heard of the was revenue go mentioned movement quarter I is fixed now when around? okay. XQ. XQ, moving thank

in of for the else comes can you timing XQ? just the share getting anything you third guys back and Thanks. Is or anything quarter, normal to but margins? was It reason do in on there the around then step better - sort are down trying

Tom Beaudoin

pretty we've this talked fixed as for have a of about, stated contracts a the X to have good we group visibility pretty small As customers. consistently, pipeline is we've -we Tier

And doing as the of new expires be a kind we And year, much one know to opportunities, rest it's pipeline they so fixed And already that in deal. and other discount position activities. we'll couple would of a want look we for important these feel I Stefan control talked be when contract these. with or those. to negotiate better up We to a do do these about the either as really at that for levels as of one we've are because that we more think on the I,

So achieving these. on revenues we're already

be under contract The customer expiring. may a that's fixed current

a to sales levels those some So not line customers up gives looking level an effective and basis. respects organization, a but the that of in them that I flow those of for they're win-win timing the with around that even cash the important cost on think on up provides the affects consumption forward it's the what's the discount really also appropriate discount some too line but go with reductions high

So only reason. that's the real

Mark Delaney

Thank right. stand Please you. All by.

comes Gill question from your next ahead. Rajiv, Needham. Please line is open. with go Our Rajiv

Nick Doyle

is Rajiv Nick this on Gill. for Hi, Doyle

there two quarter. one last were again Just win quarter I guess about back and wanted this the to ask

this Just or and at you the player Day? between Analyst just kind if targets, included the affect back versus back And if if those difference more little already player? about there's it's your the how you incremental tech long Thanks. you model in then from a won talk of any if could bit provided winning big term niche

Tom Beaudoin

handle Let the part actual -- I'll the back. and about talk first win Stefan, you then me can

expectations have platforms we goals they from standpoint, some and medium back. and from to the Just and cases, bookings come models come term and from extensions win come and a they from sometimes new they long drive modeling financial sometimes

term longer mean, out I towards So to of will all factors models these roll the November. which in help drive us

Stefan Ortmanns

to backs platform terms benefits terms were new driven convince our and the in of terms on could this full this stuff assistant. OEM's also technical also the at We also And looking solution of is for steering of actually our in offering accuracy win response new solution, easy so when called on flexibility that we could our the integrate. by for right, all show And the addressed the vertical experience we With fast coexistence. user right? of top customization behavior, the time assistant needs in OEMs. And steering of and

Nick Doyle

Thanks. was and for your kind what in for the the And raise And then increase? my are 'XX. follow-up, of assumptions the entirety autos the of 'XX really IHS's Thanks. driven by

Tom Beaudoin

meant I assume you 'XX.

had modeled in about yes, with we was less X% time the than which So, IHS. significantly originally at

I So X%. like think expense they were The X%. to up moved

them So about our with think in royalty really reporting, by saw, back is point we're as we've I the as XX some plus increased over a penetration the trailing and our you portion line raise that at we've X% of looked at months.

combination a it's of So those factors.

Nick Doyle

Thanks.

Stefan Ortmanns

Thank and hopefully will Great. at touch in and upcoming this a see investor morning, all you the of we conferences Thank joining you for some have events. and you day. be us and good

Operator

your you in This Thank participation conference. does the program. today's conclude for

You disconnect. may now

Cerence (CRNC) 9 May 232023 Q2 Earnings call transcript