CRNC - Earnings call 4 2023

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Operator

Good day, and welcome to the Cerence Q4 2023 Earnings Call. [Operator Instructions] As a reminder, this call may be recorded.I would now like to turn the call over to Rich Yerganian, Senior Vice President of Investor Relations.

You may begin.

Richard Yerganian

Thank you. Welcome to Cerence's Fourth Quarter and Full Fiscal Year 2023 Conference Call.

would certain remind forward-looking I call that begin, involve may statements. we like you to this Before Any statements strategy, that forward-looking including plans statements are be statements. not statements to should expectations, of our estimates, to assumptions, considered goals, and related targets be historical fact, to X-K results described Cerence subject press recent our forma August pro Form key release to including refer Form XX-Q the from X, statements XXXX, measures, today's to as call and differ preceding and addition, our statements financial may filed representations which information SEC the and Form company non-GAAP uncertainties, indicators no on those our statements the during materially and makes certain today.These may in most this to filings, after performance with update are risks cause actual such XX-K.In call. equivalent. Please of details the measures reconciliations for of refer non-GAAP of the definitions, GAAP release today's to those to and uses and further measures press limitations closest in of The Cerence; is IR are of Beaudoin, Ortmanns, CEO our Product the today's on Officer. Cerence; press call CFO Chief available website.Joining Tom Nils of me Schanz, Stefan release the and section

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Stefan Ortmanns

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Nils Schanz

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Stefan Ortmanns

Thanks, Nils, for Product sharing Strategy. Cerence's AI

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Thomas Beaudoin

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Operator

Instructions] Our first from Baird. with question Luke Junk comes [Operator

Luke Junk

you hoping bridge formally fiscal fiscal can us to help the prior just indication the guiding what starters, from For you're 'XX for XXXX build now.

some plus you pieces terms pretty contracts. in moving in straightforward fixed focus of that target Maybe if numbers. parts piece the this I think on contract of can we're seeing core the the are in the just updated reduced other legacy for the

Stefan Ortmanns

that? take to want you Rich,

Richard Yerganian

Sure.

contracts had in about which model period, about consumption the going shift, push QX million fiscal million fiscal that differs one $XX that was 'XX. X-quarter the you we 'XX, QX guidance from in X was consumption consumption 'XX, an year consumption to The if $XXX -- had was to in the fiscal of period and X-quarter there again, quarter if a our into fixed at one talked how X remember, the look million. So, consumption $XXX

is fixed So of $XX $XX that's the down million. million of contracts factor reduction second factor.The million from the to one $XX

we originally prepay 'XX, fixed when a for was the using provided million it or target a contract. So $XX

piece you total million million million. $XXX again, been, then guidance million if would the that the Now which gave are to for we those X adjustment in that's -- $XX is the if the $XXX for weren't factors those for take the fiscal 'XX the And today, adjustment $XXX play, was third $XXX million. [ ].So pieces have that to

Luke Junk

then Got that generative the And just it. mentioned bigger AI right language have on models. with you programs proof-of-concept a picture going and you large now question,

Just customer getting this and reception said as how to close pivot, how think make programs you platform. should ultimately a just differently, booking measuring we bookings Or are? software those to on you're relative wondering yourself new this

Stefan Ortmanns

It's Stefan here.

Let hand will to me first, over take I and it then Nils.

So, data, what that also over that quarter, AI.As we and bookings models It's next access with of very, platform going far China, note moving AI it's of over earlier, and also big couple America, have know in differentiated makers. also, for direction And OEMs.Nils, we now Asia software general. any car are as the we NLU combination but generative across globe programs the CES his OEMs, live solution, I here called integrated you is here, right, discussed also last months to very will of right, a large advancing good. also, of platform. large we with with Cerence largest with AI, in-car our also beyond in now automotive in of I Nils created highly into the we see and quarter in quarters feedback that also, language data, the this extremely go XX see the course, proactive data, of with last announcement with have also will think at mentioned also we all innovative side? the your is year North proof-of-concept mentioned here. sensitive in The across positioned you complete Europe, with sure.Nils had globe; also, And calendar Pacific have first first one We're will right, we from the mentioned you a comments solution the additional couple well next Assistant

Nils Schanz

one. just maybe Yes,

I upgrade you, I introduced summarized. in add can would the is we field. that, the platforms well You to basically, But with really existing have products what

these we or in deploy updates products go cases, and these customers with live next here some live will cloud deploy over-the-air weeks. via here. to basically, this in And X via go So us, only quarter also we or this allows calendar the mentioned, do And in first programs updates. as

Luke Junk

in. I can sneak just more if And one

models, and away as learning to car look terms maybe of partnership just the large AI a indication, R&D what might think question mid-term in adjacencies a In the we at pivot for a as you that how respect about and high Tom, from well? in like should level,

Thomas Beaudoin

Sure, Luke. Yes.

assess reinvest every So, savings heavily drive and and to invest efficiencies year we we that the team, we We continue with that. R&D. Iqbal some and in then

strong to a at talked generate continue Services our amount sales from areas. be look those And we're some will standpoint. I of think business. mid-term fair leverage to and revenue relatively targets and of we a as margins of I have the you if a R&D we hit will where little leverage think to marketing think continue But licensing gross XX%-plus bit about of EBITDA, the we've of in consistent, Connected percent I previously, G&A, trying through X

Stefan Ortmanns

software-based platform also And around of utilize new that can the our comment additional our platform for we beauty segment. our is non-transportation one data and

Operator

Our next with question comes from Fargo. Colin Wells Langan

Colin Langan

called I the now it your if at year of $XXX of go the to $XXX question. for Day million. we And 'XX, target would If sort last on Investor of, of a $XXX items, million to the sort ex Just look versus the guidance it the last million million special it to midpoint below follow-up was you million $XXX at I first guess still year. then is $XXX out adjusted 'XX the be target

So, of is near-term, I lower driving what key? long-term sort is mean, What the that lower. outlook? substantially

Stefan Ortmanns

Maybe will and let comment me it tackle ], yeah. words first, Tom, then you more [

Tom, years, years. the reduced move that organic compared Day Investor FY also strategic prepayments where also also we $XX and believe generative focusing return opportunities. the future.For we in a of made language for not respect models million investment we from million focusing large to in case outer have okay, have strongly right? to $XX the a Then said, AI with the generative on we mentioned, upcoming the baked we have last on Toyota We AI, and are to in So, will year's 'XX, what please. the We Rich had higher other opportunities but right?

Thomas Beaudoin

covered think I well. you it Stefan, Yes.

the those bit the lower right therefore alignment effect a prepaid So talked the served revenues as really we of I we those and adjacency of are feel, the then, our and A technologies X is it the better that think of think really Stefan, course, amounts. drivers, lower from business, legacy thing is some and for through is think little And we to right? that about which refocus partnerships. what and opportunities Nils pull-in

Colin Langan

market partners, sort any targeting of letting of examples The not you're that to I And opportunities go what now? you're guess?

Thomas Beaudoin

the think adjacent there Nils activities refocusing core. core the I Nils? remember that's if just think that, Well, that you the were I Is to product out supplying our in on some add data can strategies some investments X presentation, investor we're information there not in and laid to anything and you

Nils Schanz

I in with full our really AI. some the of the have have portfolio we mean, the wanted No, back to time and architecture we instance, LLM-based these there, couple we expand, upgrading for initiatives, presented field. in That's exactly. of right, focus. biometrics generative And programs to now shifted that more the

Colin Langan

to contracts consumption million, And even like we the change just when of revenue new out? on a frame where down stabilizing? with fixed now of kind those that of Is time XXXX it. lastly, versus Got think sort that $XX should

Stefan Ortmanns

that's Colin, correct.

Operator

Needham. Quinn Our next question comes with from Bolton

Quinn Bolton

that clarify of in figure? connected to just coming First, to decline Toyota legacy out wanted that the entirely the backlog. due Is the

Stefan Ortmanns

it. Yes. That's mostly

Connected think of future we well, performing services due provided, forward. big you basis, the few be And growing to going been connected can quarters. I and revenue stated, quite as deferred and some we schedule. think, has quite from As of indicator at new other revenue, the to we metrics it's the that But you services billings a see of been a the have growing on been has go-forward if last connected Services, kind the which think historically well. growth growth, a best the that our look Even then, across little amortization lags going it's driver bit I the

Quinn Bolton

your mean the beyond? fiscal pricing of second seeing you've of of us perhaps 'XX of you're the looking of question effect I delaying Kind some give quarter, And because services you you a connected the it. delayed higher-priced vehicle into a per at the times Got out as talked the last I of sort wondering, SOPs about amortization. kind of couple move you can is, push some mentioned offerings. and I think of how had outlook, just

Thomas Beaudoin

But be growth come think It's So total the total updated basis, the guidance of start why we to couple plan to across those us into we're and lower with PPU. growth see OEMs, high revenue average the a that. wherein solutions and some there. to is a billings continuing across of on have better a market preferred PPU indicator good penetration our growth a some is that and SOPs the been our in it an all the 'XX billings OEMs, of supplier factored they multi-year of delayed from a continuing in moving the will at bit across

all about high across So them. carry the products talked pretty a that PPU Nils

Stefan Ortmanns

Yeah.

we what can factors. maybe is here actually X So say

So SOPs, services first of into driving also he's right? Special we OEMs, all, our thanks visibility also across have because Niels professional high to the globe.

across for a cloud. mentioned and on new innovations Nils cars opportunities meaning upselling, programs, thirdly, have on meaning Secondly, new indeed now we embedded also bringing is what for see cars, road. PPU the And SOP higher we

Quinn Bolton

those pretty of a to the but assume thinking color at provide PPU would AI I good about the of LLM able and new in if might sort offerings? any LLMs perhaps first softwares, additional talk, was on PPU? Yeah. second generative comes goes calendar wondering offerings production how affect the you around you you to And AI, sort software was Can third be does a the new my just or which how first quarter. talked lot probably and that be you that deliver question pricing you're about in of that as that into going

Stefan Ortmanns

everything We the one worldwide. with during you sure. of big a announcement for But cannot share CES see here, largest carmakers will

Nils, We programs side? our are LLM-based any addressing your new already also but with additional new from comments cars, SOP architecture.

Nils Schanz

No, exactly.

them we demand I OEMs, say, from lot we here. exactly our from a supporting As all not customers, But of let's said, basically, share, presented. all with you will the pricing see details our products

our really and provide our the support about they not which hear managing plugging between layer safe and from customers in it's Chat So to ensuring is performance and GPT. them, best infrastructure they need really Instead, cost, not end clearly here to that reliable provide sufficient. just in information, this user. the We

Operator

Our with Goldman Mark next Sachs. comes Delaney question from

Mark Delaney

under different Or better was will deferred a I dynamics the just going acceleration to Cerence customer still Toyota. XQ to after be fiscal the Is Toyota First, understand program a revenue? hoping forward? with the of of they not meaningful selling

Stefan Ortmanns

Yes.

partner and of are Toyota Toyota, Toyota, we North So Europe Japan, mother-co. the America, the preferred Toyota

Tom back reminder, the goes to referred to, what XXXX. program, a As

low So traffic in competitive after or was -- and I the right. clearly they to this almost to mean, compare it now decision, and came car, years, XX, new technologies the XX and it there applications not was also

still, So opportunities. and year are Toyota with -- we but 'XX other model working on

Mark Delaney

Okay.

you the even so focus. types shipping contract maybe would outlook perhaps if sales and shifting multi-year -- assume mean newer higher would under I And under new perhaps maybe programs these the some newer their be more they're

Stefan Ortmanns

newer on with all Assistant programs, Cerence our technology. It's always and the based latest right, greatest

Mark Delaney

you of contracts. slowing mentioned Tom, consumption fixed the and on maybe implies $XX just I of year million was this for down, guidance it's question other coming My Okay. consumption. think fiscal

us consumption to So understand decline? maybe starting better help the licenses reason is that the the of

Thomas Beaudoin

$XX any we 'XX, made starting Yes. year million. Well, to fixed in And then on where million. basis, to decision contracts. it's this starting do it go-forward we this the didn't And a a of we QX combination $XX year, of then limited

and be 'XX future, And doing deals. we're to of burning minimum we're less further both contracts a just the off kind levels fixed lot and 'XX deals. adding in consumed then not any commitments the and the we're in from back to So, commitment higher minimum you, remind

Operator

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

Jeff Van Rhee

start couple to if with could a Maybe you. Nils, I

you're versus some little -- hybrid might bit versus on obviously of with the LLMs, cost you On examples what like are architecture. the external sounds it effective further effective use non-cost Expand going a a where not?

Nils Schanz

Sure. sure. Yes,

is we keeping parameters optimal. So, do are the really basically, what trying to model

allows So in the applications really And you of structure.On us only let's that, smaller, needs a your automotive and embedded. say, systems the to context point cloud the then fine-tune cost is the bit have we the window much manage to which really in-car viable a should cost OEMs. of and know

solutions So ask us embedded. that the for should clearly OEMs see cover the we still also

a OEMs.So, for fine-tune that's we support solution can that new or covered it we to third-party we queries the clearly decide So and proprietary with automotive-specific basically, need. together AI can can which LLM data based is conventional our our we stack customize on it are forwarded OEM, built. means and our LLM to the by the auto where cases really the what have with And which be basically there, our use

Jeff Van Rhee

the -- forgive Okay. adjustments, I And did QX, -- of Tom, then, Toyota? the it, you if impact break on EBITDA the me out missed Toyota the impact

Thomas Beaudoin

a but is No, -- there very it. a to small deferred it's component revenue

So, mostly revenue of is pull-in that profit.

Jeff Van Rhee

Yes. enough. Got Fair lastly, Connected. then And it. maybe on

on you've Just learnings and made data. very incorporating curious respect gathering, you're improvements some your to what Obviously, process Connected? with valuable from getting analyzing usage

some you insights. and that to improve try to to gain efforts think I the capture ability had

have Just there? changed what might

Stefan Ortmanns

I clarity, side? mean the a from -- just technology on Jeff, for

Jeff Van Rhee

process-wise. from No,

lot features, the have like have the want get a what getting a and on Curious really questions of and get asked insights using. initiatives of of consumed. kind were you In are exactly people steps understanding Connected lot those and what about insights initiatives you capabilities on I've past, what internally So, were precise It if on usage. to more functions, there been sounded implemented usage.

Thomas Beaudoin

following. Jeff, is So what the here, we see

also at OEMs, to actually shows a XX% adoption specifics also XX%. right. more success.We we as OEM right. improve adjust also a more adapt and can team, we comparing That's customers, personalized year-over-year, have year-over-year see drivers passengers. to up this how looking and that year-over-year, our creating user, further adopted So information are growth by our even and with where for also the This together right? the customers here, the actually about looking and and we Nils key platform is by finally of or solution monthly active when it's When

are collaboration in we is while most So, are the partner as this the making OEMs overall, of And also of related close we with the innovation progress. great OEMs.

Operator

Evercore Our Chris McNally next question comes from with ISI.

Chris McNally

team all so Thanks appreciate and much numbers. I the

for to the XXXX back million.So, step to is there's number Colin's understand that the within say old even non-transportation. $XX XXXX core going basis which Can We I closer So adjacencies the fair for of $XXX million. sort multi-year $XXX it, the be $XX translating is the to that number, a was and would at from question. that fixed it conversion your million pulling So wanted some transportation guess looked and do out But to plan, bit million. to some auto little into that We follow-up $XXX auto? within of million backlog core and we also to guess I walk? revenue

Thomas Beaudoin

] then on as map road you're next depending why one which bookings SOP-ed, prepay provided the total production, deals you're to the much new in the be and into offerings on That's years, strategy talked we depending of and our so on again, the backlog and the and the auto will business, and it's out. on visibility we most looking the think chart of to are that strengthen it Nils and the focused think both of [ year the although our the roll they about. the that but at, over embedded connected won trying year that deals and at.And the side we reflective technology already of break don't out we've is insights on deals product all I from kind said, that conversion, besides of what we've I the things we've looking how think of done need what couple then, is continued new I this periods deals contribution

Chris McNally

ramp. this ex services But like the XX, -- the to look connected $XX endpoint, the today. on I I Toyota. slide, million at roughly, think if you wanted appreciate I that XXXX, one from million, provide looks we Because down I'm the Okay. you Slide one And under think $XX

I stick think out-years Can expectation connected? bigger a on hockey X%, At guide walk clean point the of through I $XXX in on a CAGR. Toyota. one was sort there connected think $XXX million, there of of million the versus X% sort was an of connected you

of trajectory receiving that outside the than forecast you're lot later a for the those of now coming billings is connected window, Just the of launches even meaning XXXX?

Thomas Beaudoin

think how better it's Yes, it's I visibility that, of programs bit said, these I as it's into but also, a are ramping.

multi-year in they're we've we're here It's going of their we across deals. And to Some this they're that a confident but ability still presented. kind think get the about the as XX%-plus we to number. in target out. stuff of to I'm mean, how some I deliver, this rolling OEMs just have lost growth the confidence overall out years bigger lot the have of have how really these really not rolling this out changed It's programs model lines. high

Operator

Our next TD with Jeff comes from Osborne Cowen. question

Jeffrey Osborne

flesh to Toyota. wondering EBITDA the Tom, impact if I you out was could

revenue pieces, You between line, there the went a variables the but moving flow-through, thinking the substantial. fiscal in in that through impact other Is looks 'XX, lot perhaps particular the what's of? pretty on I'm not

Thomas Beaudoin

collected strong of much you the at gross of models you why I kind the was margins business. the business.There all and dollars and Jeff can that's because QX Van the more were still along is few revenue. overall mid-XXs previous with high I into of associated million a of think as said cash the from expenses XX% very on high cash pretty accelerated very, some that of some today. deferred that, get revenue to with that But most But will with previously, we course, gross no No, assume up of was impact see was And with margin, a basis. a again, cost pretty deferred margin that the on the end Rhee, to

with the previously too. came those So associated cash

Jeffrey Osborne

just it. ones. quick X Got And other

them? accepting is there from million that? OEMs to you Or to the risk the move million already With have any license the $XX had side, $XX on with conversations

Stefan Ortmanns

done right a the days we right? as OEMs. give recall, as is a of Well, Xs. in to ask the Japan standpoint, contracts these have Tier But almost we the really used process they're They think just it's programs with business exclusively are savings customers, about, try more, the prepaid from to small Xs. and with are OEM. is us And over cost so that in those discounts Korea, talked driver also on Cerence by that OEMs. that production, continue done contract thing if and for just we've the you Tier business with And predominantly through never with to driven initiative the They're to years the what's of they're group minimize more done for and the to those.And happened decision-making may our associated is a

continuing it's did.That So risk to a amount off process. we to of kind we minimal being there's those limit try of weaning the said, that to think

said This to and we down last year, X. as take see how by go didn't year, So, in it we'll goes we years. we're it to half trying future

Jeffrey Osborne

Got it. of just SOPs fiscal 'XX last was others. the what 'XX? VW quantified for one to and impact new My you the Have is results guys delayed the or guidance

Stefan Ortmanns

for No. each No, not specifically OEM.

Jeffrey Osborne

it in or not a there aggregate a that Is substantial is way doing number? of

Stefan Ortmanns

presented from need X-year plans.And small presented amount with number year I new in going into new achieve there's need committed 'XX, now. we FY backlog then it's to achieved that forward. associated insights to And OEMs, new we all think we all provide with achieve visibility last November it's whole drive, the we numbers opportunities of the why a going a of updates and relatively that production kind factors we update deals the we standpoint, just associated -- to go bookings which schedules that's the and to that that numbers have numbers the these that the the visibility twice against these of we're of to the of how the better a to

Operator

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

Richard Yerganian

with Thank upcoming and today's for to and call. you but Difficulty], conferences and you. a we see lot you, Have had CES. day. thank little on various bit talk Apologizing you hope especially us good meeting information at to of late, Michelle, soon a [Technical joining going Thank and we all cover, a for at

Operator

Everyone, disconnect. and great you. day. Thank the you This may does now a have conclude program

Cerence (CRNC) 27 Nov 232023 Q4 Earnings call transcript