Earnings call transcript Q3 2023

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Operator

Good day, and thank you for standing by. Welcome to the Cerence Quarter Three 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] Please be advised that today's conference is being recorded.

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

Rich Yerganian

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

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

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

Tom CEO our Cerence; Ortmanns, Joining Chief Stefan Beaudoin, of me Officer. Cerence on call today's Iqbal Technology of CFO and Arshad, are

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

September Goldman San on Mean a James will that would I Investor September X, on like Vehicle Conference be XX. Lean, in to mention Franciso handing Before over Tech the Virtual Green presenting Conference the at Communacopia call Investor we in and Raymond Sachs Stefan, to

call. the onto Stefan? Now

Stefan Ortmanns

quarter like our developments you, you Welcome joining to quarter in the I’d Rich. were third us to and important everyone There highlight. results. for Thank discuss thank several

with high of come guidance. revenue in results delivered we approximately at million the our of end solid First, $XX

to In all net addition, our associated contributed than better performing income, excellence except with GAAP a our financing. metrics, expected, profitability included charge which strong focus on convertible debt operational for

we pleased on the the progress months call. the has made committed last key on organizational to invest three Operationally, our last extremely with delivered structure I'm we XX an company principles. committed to creating everything in

for First, AI the transportation continue to innovation lead space. in

delight on with time quality customers Second, and products. our

win his of we generative will language large strategic models support to in the using deep core detail relationships game Iqbal to position that products to important enhancements a AI our Cerence Third, these changing of in remarks. a OEM put partner innovation customers, AI. updates At in and strong to for long-term are unique level, accounts and these us our growth. application automotive our are the At technologies. our making commitment several product and deliver favorable high with expertise

us one our future vision, Bringing companion. product the immersive step to closer

enhance incorporating customer our to a Cerence AI platform inputs expand to continuously we prototype functionality. positioned As remains as mobility capitalize experience, new transformative well the trends AI within into strive on and product result,

of mix well live global business from total of level This of vehicle XX% quarter production outer penetration some XX%. continues penetration. technology with means increasing the perform And that to core is auto Our rising level have to new consecutive endorsement third we our associated includes continues this That global Cerence. this seen be elevated a nearly expansion technology. Tom penetration two Cerence’s on in of in the years. of This will a product few figure with comment to is now minutes. the market highest straightforward superior

year. remain quite our ability QX a the environment, a to we of level full visibility and about macroeconomic fiscal and deliver creating While there are some in strong our confident crosscurrents, uncertainty

issue, an shortages production. semiconductor rates, outer and concern While for demand becoming the effect auto global of the of modus remains are and on economy rising interest a the less slowing uncertain industry

and have our full this for monitoring are considered QX We this closely and year guidance.

as in pleased the make XXXX a the issuance loan product approximately convertible sizable variable solid business, model new aspects restructured half proceeds the innovation, rate results financial destination the key We off a believe our we that debt the use and target pay with the notes is a the in future achieve performance. for maturity continue vision our across the transaction. and next, all cash new to quarter, Overall, margins. our of term areas with is we debt our of of rate. across, markets, ability coupon of our was to to objective we winning generation a EBITDA progress of long strong objective our revenue double to to digit to we half by next million to The XXXX, advance savings term back high to net notes, Also business from through future achieving and we of business moving Securing the customers. interest and effect buy the platform success. term with And growth new is portion $X our one where our year long win at successfully key are of at interest existing for of keys the

new I'm that many in the you means say life. As strategic of technology the several are to generate and wins, program's I'm can the additional in in years. ones for you QX, we know designed of happy had revenue many contract expecting a This QX. once supplier for

our auto two we strategic In core had business wins.

competitor services. where The we connected a first provide to major for OEM was Japanese displaced

The Korean for major car vehicle second a technology our detection was company. emergency for

We players in our make when chose wheeler competitors, were excited cycle the moto progress including brand We to iconic and over also other and truck two several tech. continue technology consumer markets. niche

FYXX be in and from segment and wheeler started two beyond. two should year. growth the in in this While production is segment solutions to revenue Four revenue wheeler contribution expected small this QX support

we strategic pipeline the key sales strong, I'm laser opportunities Our is on confident our drive win to focused forward. finishing team and business will fiscal year

We market will QX with opportunities. adjacent our backlog contribution continued and extremely provide expected call, to our update you and capitalizing Tom continue to be on an on with upon and growth. revenue building On our their core pleased success and bookings strong earnings

We focus some customers, meeting and means on strong for our competitive you, important investors. it commitments repetitive of our very to strongly new opportunities highlight as near I advantage, to may want including opportunities. maintaining exceeding and and vitally to in or you, be our our our of a for are us, excellence locking down This to back business again While customers’ operational several operational our believe long-term in wins our priorities success. they technology, expectations employees to front continuing meeting

results better we are a fiscal track beginning anticipated year. deliver fiscal to We of the strong than the year at on

our deliver Nils look Officer while about enhance the Schanz, wide the customers of array And how can generative our models to can these users. in truly Chief plus a to execute with direction With Product the role joining excited three us that looking to Iqbal our our to has teaming the future today. experience immersive leveraging technology brief immediate how the of latest language and ago, and in advancements a I'm excited large had I offerings. experience forward product Cerence car uniquely have company a help up to how call we technology. for AI us vision delighting and are I'm our Officer we're Iqbal? impact. an continuing Technology you unite will Since Iqbal are companion to to he maintaining on the Arshad, on months Chief end play And and in forward branded our customers. Igbal

Iqbal Arshad

a leading Cerence is the extensive language as strategic the and models AI you, uniquely latest of With unmatched knowledge in and expertise in transportation, into the rich well experiences. of car. Thank history positioned Stefan. groundbreaking to AI innovation, decades creating We methodical vertical advances bring user AI to generative the industry automotive application of and bring in on a focus as experience large

are the capabilities existing this a experiences. generative taking empower At in AI. customers the foundational well Through These product AI of develop the us significant is our immersive As core to user models transformer and user experiences, generation car are enable our models. high based applications deliver extend new we offering companion. that problems of portfolio. future generative AI models harnessing base implementation powered language realizing intuitive strides by vision of These large an value focused as interfaces, seamlessly Assistant our on user next envision in of AI by we towards solving multimodal our we as voice keenly to architecture, Cerence

it The request. handles with deep The a Cerence customizability show Next more optimized their and Assistant, new both multi-step adapting within single tasks powered cares learns. Cerence me Please intuitive provide generative to users, Assistant Assistant’s you natural, interactions. capabilities. to allow accurate Cerence and automaker deftly our end as users Generation to effortlessly to queries some AI complex and customers it is of preferences assistant’s

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powered value Designed customers Cerence journeys. These The these will AI existing to drivers features. our helpful who meaningful to be to available friendly, from enjoyable. will adds greatly Next Assistant daily generative and capabilities Generation new be benefit Cerence

gain offers Cerence continue car contextual quarter's to discussed earnings queries. all product to users we knowledge Cerence time generative car for our to real addition powered during knowledge traction car Assistant, call. a last In answers AI related

large leverages to models globally This adopt are the just language associated and a beginning. the specific expanded We car is with and by customers car product that engaged data knowledge the OEM. supplied with

industry recognition, tune experiences. speech, the neural communications our expanding based AI and and are car create LLM our in emotional automatic to technologies leveraging of text edge We user AI, curated architecture automotive future audio with our like on to speech transportation biometrics, fine data leading

review it the Tom results I over more to will now detail. to in turn QX

Tom Beaudoin

share on fiscal QX our I and first I a details Thank Iqbal. the results. full guidance will moment. want in review more year QX to for But you, our

our consistently due end results shy on to strength my revenue high million just step continue at on QX commitment QX of in guidance. our to million guidance. the deliver is our This in $XX.X at of business. $XX came core Our

new we our planned a we guide QX QX. than was for last As I closed expected. explain higher of in few on in Consumption it originally a contracts contract minutes. why fixed fixed will call,

for of at million, with $X.X operational profitability $X.XX. quarter. combined X.XX%, metrics margin we in X.X% focus of excellence. adjusted was and end the positive guided the loss high range, margin was margin came a was revenue the XX.X%, gross most or EBITDA key our As non-GAAP We operating share non-GAAP Non-GAAP exceeded per the was on

Except for the our GAAP key guidance. high of by refinancing metrics came net end income, which Most of debt. financial the our convertible was in impacted above

as had During million. negative quarter, $X.X negative approximately flow expected, we was cash flow, operations cash the from

flow cash the QX and positive for expect year. We in fiscal full

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

license variable from the slightly was and quarter, quarter-over-quarter the for consumption. down of level revenue of revenue dropped to breakdown last year, expected our a Here's due fixed same quarter XX% than higher contract

yield in penetration single component the As as solutions you use in strong to level gaining We market further XX% our emerging is production expansion see, a and for point due markets, as position auto emerging higher the to a this to higher global TTE view in of revenue rose launching maintain moments, business will strategic partially which penetration per a with in we lower OEMs potential of markets. a car. few continue opportunity eventual and market,

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

revenue one $XXX,XXX time recall the may Adjusting of up true-up true-up, a quarter-over-quarter. was approximately customer. had last we from You for connected quarter; new a

to We have customers up been ramp key our and delayed services into that to go several programs connected by FYXX in production. expect new continue

Finally, our was professional and down services year-over-year, X% and XX% expected, revenue quarter-over-quarter. down as

vary revenue project on future As and we connected instead as have previously, completion do revenue. as of We growth not enabler will driver the or services company, for customer progress an services a based for the projects. stated professional but license professional

Additionally, products and improved for include professional which requirement solutions the services. and features, newer our integration implementation lowers

details Moving that over is improvement few auto have in license last issues indicating license production business. strong remains on plagued years. to our the business the and from the Overall, the

to was growth deal. receding, be X% true-up increased production and This demand Pro higher to of growth to production have Part led to royalties macro royalties to in was revenue X%. operating this had due While slow interest and forma calendar their and one customer the especially the IHS technology. reduce reported the X% royalties time to of potential semiconductor as penetration quarter quarter-over-quarter commitment customer Forma million. and in year-over-year of that the other factors minimum a our approximately due Most seems were a economy the $X production pro auto shortage of rates year up under reported was consumption the this have under a in and with upside growth.

see higher result, consumption a the in you expected As can quarter. than

represented true-up. Our QX years, even royalties amount forma adjusting two highest pro in when over the for the

we last out pushed expected As call the from discussed we QX an quarter, QX. to fixed in contract

As contracts the signed million a Since the within in will be result, and fixed the we of expected QX. year. we full contract $XX quarter no we fixed have did commitment closed, our staying for

recall, have you stated contracts model assumed consumption we previously As we fixed on period. prepay quarter an may six based

We have QX eight and consumption had quarters, FYXX. signed lower also to extending in that consumption fixed over versus through FYXX noted contracts our expected the we leading consumption an model

we prepaid of in lower consumption quarters in contract shorter consumption of fixed model. than estimated in four FYXX higher The contracts yield model will expected the an net we $XX versus signed consumption FYXX. period our approximately our million FYXX The and QX of signed effect has

providing additional are quarter regarding an as contracts. you point this data We fixed

fixed balance of fixed $XX less business. of six at $XX KPIs FYXX We of and inventory million, the of The to strength of $XX XXXX. from of at balance balance in end indicate the addition the the million million approximately end at expect fiscal XXXX be consumption. at approximately the approximately continued our currently new down million assumes year end the contracts end fixed approximately be million each estimate contracts, FYXX. The of fiscal to of contracts We in the of majority $XXX to quarter $XX the expected

position. production cars continuing of XX% technology auto our reflects were quarter. Cerence of of production Quarter. up some increased auto million for and and in last from penetration the This XX trailing year-over-year XX% This shipped global includes approving means to months, over strong with Our global is half XX% the the production competitive technology. Cerence level environment XX.X

the use year-over-year, ability cars being provide our more our Cars services to innovative successfully reflects connected based increased growth connected our produced the cloud trend XX% and that and more solutions. and of with customers of

large including basis a primarily XXX KPI FX Billings points. in of users We increase of indicating declined active popularity saw per a increased technology. is The to consumers due also negative car monthly XX% impact among our product year-over-year, mix. X% decline

components where for our are important are Some new these drive the they emerging license penetration full adopt initially and are business of stack. and to our penetration of per contributing from OEMs growing customers software that components markets driving increased is technology. opportunity higher to of These car adopting coming as the wins revenue over time additional

platforms. the we The OEM of trend the are over see quarters. other trend our next factor on last price generation this a conference per which start in higher positive to and call driven KPI higher delays mentioned production, We expected next a car few in macroeconomic and

we million. and as Now approximately turning fix expected, QX fiscal earlier, the I revenue to $XX guidance QX of contract mentioned for as close year,

for providing tight narrow closed to $XX first to strong $XXX $XX strong and fiscal raising million revenue from to For and three sources. knowledge strong full to guidance guidance already full million, quarter QX, million results, our QX, are our other With visibility range the of million. a to fixed $XXX midpoint million we year our $XXX of year to range of for due revenue our the are contract guiding is we visibility QX. The

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

business Overall, the continues to perform.

on open remarks. to This at long and operational the beginning now we our fiscal bookings for call questions. the strong term we we achieve excellence, our goals. the remain concludes And in will half As the prepared outlined second year, of focused innovation,

Operator

Instructions] [Operator

Wells Colin comes with Langan question Fargo. first line of from Our the

Colin Langan

for my great. questions. Oh, Thanks taking

billings I follow were down you to made again on year-over-year. on some up want think Just comments they

is ‘XX. I going XXXX some lower? tracking think cost at to is there launches of pushed if And ‘XX XXX much? in talked your the are from of mean, Investor to Day, XXX coming these actually to you kind billings risk of about ‘XX now? get is you sales too in I targets out How lower,

Tom Beaudoin

Yes, different. the are so all, metrics first but related of

were -- embedded which both were OEMs by we'll metric. our of our during think a use, but driven time And and will as two for does car, accelerated to And ‘XX they additional that emerging have additional guidance With leveraging winning across those OEMs. talked over a you chain as factor penetration we the So adding the some the includes opportunity of that supply delays which car, per one of those out, TTE opportunities TTE I cars, components out get start of new that OEMs about, markets. is OEMs. the billings which where some some respect penetration business our And November. provide of just month the a is for markets in and in embedded of to of in have we've talked components, some numbers and And use relatively technology. highest pointed then and or also and XX the production seen this those with updated It's we about has a in some with connected, trailing higher it's per provide more provide higher factor of shortages, I delayed. therefore it winning those for with an lower billings association features our think

Colin Langan

caller. the for Thanks it. Got

Just question. a second

it of What the What is shrink? the stood QX years. contract The X.X other as causing in to them? think contract seven driving sort duration was was was KPI out that is I it years, average contract,

Tom Beaudoin

It's sign OEM It's how OEMs. just play it a level for mean, long those I schedules. deals and depends issue a quite out. up still a for deals how of still commitment mix production on it's

Operator

with Luke Baird. from Our next comes the line question Junk of

Luke Junk

specifically, for I'm or fiscal with ‘XX what wanted wondering start taking solutions the up single outlook that how you've through per questions. Good XXXX. were outlook fiscal contemplated lens in follow I a just of expecting the they the Billings standpoint component metric just vehicle in starters, And to car for you're to spoken from extent, morning. really already content again general, you. question per what in today, to on the the for Thanks thank impact

Tom Beaudoin

QX But our get Thanks, all when to to for continuing really some more show take on guidance is continuing look will And of comment we're we're countries. new does OEMs grow. us newer the users just of you guidance. a I at some look in all Luke, almost some and range much November. the it growth car active KPIs, does do we'll a across embedded I plans longer the I if provide mentioned. And are opportunities the business, connected factor and that FYXX, the these things can't ‘XX that that it I win think provide we think these And of with billings to per emerging continuing

don't so thing. And I it. bad think Got it's a

Luke Junk

Got And a it question, picture a follow bigger just then revenue it. question maybe going forward. models of for up, my

the press of on know. of proposition the label Cerence the the that for top enabler large and we in discussed an as idea consumer positioning all sitting release So tech car, models language white

that like, think more connected, sort paid be can thoughts out something that incrementally? Thank one you to wondering Are this? share subscription more you. we of can conceiving you extent that's Or just license might as what can what like like? revenue models look for And of see model any time? would you that come Just on you get

Stefan Ortmanns

, and Maybe take question put this let volume me OEM.

can and improve for have overall, also are with AI, seen what very the penetration products, the and integration OEMs. we model, generative foundation, video, solid think have with on applications, for in across them. right? of in our OEMs how we business business we globe opportunities. the the our And we I conversational discussion we And relationship the model, are knowledge, But AI we and go strong said cannot Tom big language a working right. into think And and IP to the on large what Iqbal our we what I example, high was based now, right, side is Also also further And here? the technology models on have solution. That's on And on quality expensive. of efficient, we So so rock bit and new also huge a a good Iqbal add team efficient right, car quite have Maybe rate. the mentioned are you just all covering , details ChatGPT also I prototyping here. the are very and your cost want a from topics. do privacy working you that's

Iqbal Arshad

the No, more for be specific I think answer than I'll covered to most part. other you've that. there's Unless any happy questions.

Operator

Nicholas Our comes line the from Needham. next of question Doyle with

Nick Doyle

Hey, thinking guys, the ask about for thanks wheeler year. contributions wanted I two you're questions. next taking my to how

production, term You had million the adjacencies. coming differences around kind difference total making production, XX-XX Those up assumptions. of longer and talked in transportation units about your these from

then make just So units? that the pipeline? about what of wins, they think design three year, Do coming Thanks. This in these of three a seven how wondering out are these models? big And talked -- decent you those of are quarter. wins that first -- up I also, portion

Tom Beaudoin

design we've so wins. -- Yes, hand on a it of you. Yes, land to Stefan, number me it, had over with let

market about in think in a, the half production And in some and QX. size I The two go is more new you going it's a wheeler QX this have the had for auto. some we us. is market

see to have wrap. how we'll this So

the production, to as are of not reports, big these in and and and hybrid kind it's these FYXX. we But ramping, comments here, they solutions. start get As some contributor of a royalty said into be to we going go

to have the life transportation agreement. amortized in it, it'll So we'll provide of market some of service on connected adjacency get, particular Then again, over updates the side will this of some November. of get some the it

Stefan Ortmanns

last that wins, production let eight in here me quarter. just also design And have total add in maybe into four went we so live

will North that there's mentioned. I also globe, Europe. also Tom as And revenue in think Japan, and distributed I it's India, right see America, in China, we FYXX in expect in volume, the growth also mass across

Nick Doyle

Got one Is it. that to just like they're the side And maybe market then two And question? or can related to immersive for how one components. with that of what taking wheelers the two customers What and the are? component they're wins, related tell and is Thanks. adopting emerging or components liking the containing. us are more much to working two then the you software really how

Stefan Ortmanns

think So that actually enhancement solutions. contribution penetration for typical bring this right overall, opportunities, a new the to to cost like OEM the here. let's third emerging I That's for car mid in party enabling also us low future was the compensation range high play, opportunity cars creating with solution audio gives OEMs markets our but in branded AI, speech range. signal say for They're starting AI huge that also for in results,

Operator

Our line next I name. the question pronounce Daniel, sorry, your from comes I'm last can't of

Unidentified Analyst

is this Daniel Hey, on for Jeff, Craig-Hallum.

connected the up number XX% of the on year-over-year, see units. units it I Just really performance, strong

in terms than that that the indicative the we've been that larger buyer reaching mass is change view behavior? see or of as lumpy a seeing of sort really that of larger in a how you view of a would connected? of you on there you trend, product success terms that while? more momentum. the would capabilities in Is a is if more of as of wondering, strength Just in Do trend numbers sort critical a And

Stefan Ortmanns

hand I Tom. then will over So to for us start it and let me

call I of have services. driving our quarters, win we're globe, on on we And quite this couple wins, reported side. the services, three, last we especially more again, clearly benchmarks think the innovation, foundation. back also opportunities. last in the the new various connected lot also And we And our order also, way advantage also improved across this discussion Tom? And a in also as over globe. a we I of and because overall, the across So was are quality design the is for said, for connected and have, in this clearly connected four

Tom Beaudoin

had that mean adjust up the right, a us you as quarter sits adjust top have of we're a key mean, $XXX,XXX you and connected it our said, on starting but some we true-up that customer provides you're as great underreported, immersive next do destination cabin, I I elements where when to for Yes, of opportunity of to a the our and previous from even to bit a it see little we growth because embedded going there. some few the Stefan end these for split of out also weren't legacy most contracts programs forward. renewals, we to And about said coming schedule, the some programs We've quarters we that's live. separate. that separate that amortization they last and there just talked the of from they're one older newer that's that were that going replaced were the And on for part, platforms technologies their probably over older newer

start to gets minimized, effect of platforms those take the as So kind effect. and tailwind continue to wind newer of the down that

connected pretty there, opportunities, of to products. Iqbal we're a the that are what being it was about, talking around plays the excited enhancements about and to made lot So, the

Unidentified Analyst

on the IoT us what in refresh release the nature in that actually in cases, And Or July nuances is reiterate the the had there one just to tech press And at we're kind the sort an is of agreement timetable? go a about to with with that. development? freedom follow to back really this or ability customers Thanks to out just what of adjacencies? where is you working partner of you use on just then for for actually jumping me guys that up talking can -- enter

Stefan Ortmanns

huge planning now, a year ‘XX. field we imagine, from think, we restriction, I October And recently have was this see we the here. stack here press here, of release expires future as where go we already also have in for The can So in. we beyond no, for devices. in was the new from And use embedded a restriction [inaudible] a also potential us, that also also are ‘XX. you the can AI us FOU areas Microsoft, optimized and There

Tom Beaudoin

short that by developed play. that technologies the in and term or two owned Cerence we three were But there's can

audio, audio our in stack. it's Some our of

Some of speech. its text our in to

also spin. over of biometrics at have own the time what our from voice We came separate the technology, developed

there as the that said, next those exempt are And pursuing year. are are Stefan that in restrictions. from So opportunities then no there pretty FOU we're for year particular now a from the areas much

Stefan Ortmanns

fully established development for have and we us, business people. also and team on Yes, opportunities dedicated non-transportation R&D a

Operator

I to closing you. the this remarks. Rich to showing time. no would questions like further I Thank for back at now conference am turn

Rich Yerganian

of you. to summer. Thank Thank us morning. everyone you forward this for joining Brittany. rest call the you, having look thank We the And further on the Enjoy discussions.

Operator

Thank you today's so you Great. participating. call. concludes conference Thank much. This for

now may You disconnect.

Cerence (CRNC) 8 Aug 232023 Q3 Earnings call transcript