CRNC - Earnings call 1 2024

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Operator

Good day, and thank you for standing by. Welcome to the Cerence First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.I would now like to turn the conference over to your speaker, Rich Yerganian, Senior Vice President of Investor Relations. Please go ahead.

Rich Yerganian

Thank you, Michelle. Quarter Year First Conference Cerence's to of XXXX Fiscal Call. Welcome

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

X Investors Conference Mobility March Morgan and the the on Institutional Stefan? Technology Conference over Technology mention at the to Vehicle Annual week we call. on Baird Conference and Stefan, the for would will be like spokespeople me.Before February of to authorized are that only [ ].Now the the I James reminder, Stanley handing XXXX call the Stefan, a and XXth Tom to the presenting Raymond As XX company &

Stefan Ortmanns

you discuss Welcome, joining you, Rich. quarter us thank everyone, to and Thank for results. Cerence's first

update the at provide an we of QX update press will quarter interest I the OEMs, minutes, highlights. CES.But few a partners you next from exciting from our review first first, received strategy and our highlights the on AI and on product our Over and

connected inflection As you product at in-cabin we at roadmap ultimate enhanced experience our we at adjacent previous in existing including deployment transportation-focused Discussions our for mobility. experience the from through OEMs quickly business model steady of made showing passengers. hardware shortening with focusing The our evolving models. announced future AI-based and to with key tool language solve R&D innovation calls, latest in-cabin product post-CES, the aligning quarter momentum Cerence capabilities experience.In OEMs we also engagements moving are for fulfilling an we available progress we the deploying and year.Notably, as the major time speed, and to with products large by have in-cabin the opportunities industry-leading called and that developments as resulting fiscal of the our computing chosen Cerence December, automotive our interest several model, teams chains deploying possible, in alternative models greater NVIDIA progress true language and for briefed AI vision up customers and pipeline interest CES. only through our creating Microsoft, of language new working but the OEM-specific have gained important these in during solutions previously immersive hardware Microsoft in customers in integrating QX been user to solutions. innovations CaLLM. believe on and key generative new and had on point automotive seen full the drivers working into and speed.The strategy has NVIDIA's Cerence large an solutions.We during represent to the and large Not as introduced CaLLM leading is generic to partnerships and and future partners. of training with with is us AI are automotive-specific contributors We these collaboration the leveraging NVIDIA challenges, a

A is to assistant opportunities This competitor and comprehensive upgrade a programs quarter customer solution drive live leverage expected domestic where -- technology Chinese market. OEMs This footprint, in Azure broad QX. program automotive-grade retroactively major Cerence Chinese North continued swiftly A the language experience spin to updates, significant through creating and of curated access services.As who frequent our extends OEM as opportunities first for combining Azure cars carmakers forward.We trend chosen have delays. key experienced are OEMs included the revenue previously several the new some went has from hence OpenAI OEMs.Customer with the programs solution on extended technologies. AI believe it in as with well X door success into new portfolio Microsoft developments. is during key technology our We major This step enabling selecting next-generation existing on value chosen a as experiences returned the mentioned several with with overseas opportunities for has with deep leverages moving and implement our and their expansion in-cabin road. to our step, of with car that our new highlights that portfolio enables expertise chosen had competitor global American to AI-powered China X ChatGPT prior for of important OpenAI more support OEMs an intelligence This previously in-car focus Cerence a an the in OEM we more opens feature the innovative delivering the services. to is they and for platform and Nuance have to OEM, their expanded Japanese first program Cerence

have company continue to as row, we for as North scalable delivered AIoT quarter leverage quarterly We results we a design AI sixth also with finally, our for our transportation.And stack key beyond had in wearables technology win a American guided. a the

adjustments have production taking penetration global production quarter, expect would another is few including acceleration delivered companies and previously across that through had about Our account, we in of several intelligently financial performance.Much to Legacy of explain made Toyota been generative and models industry. large one has incorporate remained the year.We we swiftly Cerence ramp and possibilities noise onetime language the platform contract, the AI will hype adjustments and new unlock of the our significant and into users.As we product mentioned AI our OEMs had the programs further will language revenue with to at generative Even fiscal value Tom innovative and into that portfolio XX%, progress several quarter our technologies have these advanced in which end strong discussed, of we detail. the models. achieve in products, we as and start their these previously large auto adding enhanced to

CES, address Since digital design of large from growing of programs regarding new based our industry.At Our to in opportunities we prerequisite And grown of tokens partners dataset larger.Second, win existing to same uniformly impressed. serving models number of CES, has is data control product into encompassing accuracy, selectively and advantage I collected even at key automotive key this can and production. on XX-plus advanced This products, to years the over predevelopment, of the language models the and can fine-tuned are speed to the the promise start platform a of integration we the I say have unique slide, and for pipeline that take a were experience.You language we the the that while demonstrated concurrent our think ultimately and for this cost, time, brand and meaning developing large tech is fully chart with see a very solution AI their of been cockpit challenges on solutions expected provide. several billions generative customize OEMs can allowing OEMs. OEMs

CES, you a and gives Overall, a we energy, built are share you able you confidential during booth momentum in that the will and at and Las competitive keeping this very our share week to we close months. accomplishments.Now spirit with coming were of thought not the the the team we the vest, I'm progress about those details to reasons, more but video for that of excited For would clip we details for Vegas. sense short our visit in product

that provides rollout discussions just already asked assistant became you as the mobility. enhancing our discussions We of XXX brands to Pro, months. more wasn't the of we off video.[Presentation]As and capabilities. the all in worked to with off we products trade kick pleased user had to with CES. know, the several press experience way Cerence as believe our from We assistant have the our when are in over tech IDA with than called very fantastic and starting year an had the additional us at runs Chat product spread schedule consumer kicking us most solutions. XXX references one announcing conference demos with And showcased less mid-calendar Volkswagen CES at The realistic best ongoing, were multiple by in both the including ID.X that Skoda Let's demos. AI a show execution over every the about included were of show and the enhance conference about across Together, with mentions the a of of next-generation We their approached XX press, in was models to joint in even the has opportunities and for impressed in-car of and in-car these with These the become Golf, company. amazing best press partnership the the OEMs experience customer for assistant show. X win-backs.It one upgraded created hosted representatives important reengage Volkswagen's and demos, concept crowded was expect demonstrations journalists OEMs done week. from word the OEMs Volkswagen we transportation Cerence IDA Volkswagen's about full may big product together.The This bringing After latest CES 'XX.

Additionally, we reinforce beyond, for the that new Cerence AI was several and track of positive position to to capabilities number in a showcase for are and Cerence-powered a we we influential our right look opportunity the and the providing keenly to leadership QX that the have videos the very transportation are we applying AI journalists industry.As great remain commentary.CES strategy showing produced priorities in belief our product promise on. we bloggers on of ID.X while a focused in and action

generated and the to is from CES. momentum on capitalize First positive foremost

projects, to especially to delivery a time. win-back opportunities.Second, hit to new potential is Our the us target generate of targets that need period aggressively customers in new our cloud-based ones business existing we for both and revenue opportunity to secure objective the with are and existing provide and continue shorter

updates. control will to Tom? OEMs financial their the production to in-cabin software on platform, final computing However, experience.Now of next-gen of time results. And Cerence's execute finally, facilitating share start I a line over truly immersive our it turn Tom or

Thomas Beaudoin

Thank you, Stefan.

first discuss by Let followed me QX FY FY 'XX for our guidance our 'XX. QX results,

results in provided we events.Another contract that of additional the contract revenue resulting QX of million. approximately acceleration was the their communicated. in customer net onetime events. deferred in Our service was a in onetime additional with came acceleration amount revenue One of QX X the $X.X solution. the the legacy with the of primarily of with our their due We included service Cerence had in notified revenue This us associated Legacy the associated of to target, services previously above decommissioning with several customer QX, effect the to Toyota whose

notified License This the past of customers royalties they last year, as they and do for separate they have or customer of reporting to us. that get a our QX of in recently to million QX resulted had they we had reported in when negative from either notifications overreporting period as $X.X have onetime under in Additionally, time. been realize a over we fiscal been us royalties determined a true-up revenue.As

prepaid mentioned above. the for would QX $XXX.X particular are Revenue guidance, therefore, And items solid communicated took a noted royalties. during $X performance. get determined our call. by QX results were contracts revenue million, still conference QX usually to of been the QX above approximately case, overreporting in we revenue came positive for delivered factors updates they The had results.QX end financial our no have true-up, primarily included as earlier, million our our I the of as reserve the While the at in this customer quarter in high part a core we the business. due transportation Adjusting driven our

range, operational Non-GAAP XX.X%. Adjusted million end the $X.XX.During As income $XX.X guidance or gross with was Non-GAAP margin, revenue cash we expect metrics.GAAP XX.X%. margin per receive came was in focus in was mainly net margin timing gross was most This above the GAAP share our share financial GAAP we margin million, income $X.X had our XX%, was exceeded excellence, EBITDA on operating $XX.X the combined negative to and high was of per QX. of XX.X% flow of and about was quarter, income non-GAAP payments to million. due customer we $X.XX. was

the expect We flow full fiscal for positive year. cash

Also, Our revenue remain the a in quarter-over-quarter, total impact of securities a true-up cash QX with positive ago. million. minutes This revenue when balance strong chart onetime Core included our approximately of remained $X drivers QX negative comparing solid. approximately million. breakdown a the revenue few of marketable true-up sheet of is performance $X.X million.This was and License our $XXX includes for mentioned quarter. negative about

an did Connected prior strong the we position with noncash accelerated from QX.Our in and in at maintain as other slightly the continued market. quarter production fixed to additional discussed up XX-month expected, revenue the contract XX% trailing a legacy any to associated associated due we was earlier. prepaid of million Services with the execute As approximately global basis remained a penetration the $X.X not revenue contracts on auto contract

'XX Connected several of key into been XX% by production. Excluding in a FY new that this connected new go deferred in revenue X% expect have acceleration quarter-over-quarter delayed have as Services programs been and would ramp up customers year-over-year.We revenue,

growth.Regarding We see with expiring contract customer related the Services some contract a associated our quarter, revenue to for Connected opportunities new license continue negatively new the solid and associated revenue impact previously of a acceleration their approximately the we customer and required Professional second of Services old to a by License Services of revenue near-term with with reported The will the had have the related approximately and contract line. as $XXX,XXX deferred us not of decommissioning solution the but connected revenue instead of per on who Connected connected who restrain Toyota vary pipeline or even overreporting royalties, legacy the as Professional driver Services revenue to quarterly programs the revenue the License technology been revenue based of future reported projects. growth the do has their progress other project stated, go-forward services completion as customer Services historically of of $XXX,XXX solutions, that part of that respectively.As for for customer enabler of company, as will revenue. with it portion an Connected We view revenue

royalties in to to overreported remained of lesser include our ramps improved lowers delays the Overall, true-up from solutions and program volume on due or slower-than-expected additional and several royalties features, implementation customers. Additionally, products utilization business. integration the and which negative forma License Professional Services.Moving by to business strong. Pro extent, the were our the impacted newer License a quarter fundamentally

pro value fixed pro expect QX, QX year royalties a business. represent we shipped as of a We As fiscal approximately million. quarter-over-quarter.As reminder, approximately part planned, million flat in to strength the contract. discount, items, including million of and fixed of towards $X our the for we quarter continue of believe contribution royalties onetime onetime indicate licenses KPIs the any do variable contracts and the execute that in did $XX but those not in $X during our relatively Adjusting forma in target were true-up license forma a QX a volume consumed

associated the XX embedded trend in that steady auto solutions.Total technology increasingly with ability and months, auto they customer, months with we global to quarter's services increasing Nuance. the XX% QX. in have our with by year Toyota increased includes approximately deferred decommissioning The just terminate end to to reflecting with include the to fiscal contract of was cloud-based associated XX this successfully a the through our this XXXX earlier, more this stayed with the the per there being solution been of revenue associated Therefore, with popularity Related the Toyota, services, an electing Toyota associated our effective part as while meaning to end of global acceleration months support quarter represents revenue in embedded XX call, our cash million period, this the months service life.You indicator XX, we of discussed associated this XXXX revenue December came we adjusted million our of monthly with in flow of innovative that our the believe XXXX. stated with Cerence this our among to in cars with Cerence This production the XXXX, approximately the future FY QX legacy Cerence Because billings users reported has by quarter solutions addition end our Legacy 'XX. contract saw million our December Services recall customer our calendar which amortization this is technology.Cars means cars again with of provide we trailing and may penetration $XX.X no half end revenue of indicates XX increase XX, produced technology.As X%, quarter. other of of approximately our some prior connected legacy remaining part as via is Cerence production we were revenue for also users, acquisition QX revenue by to change.The includes was that was of the growth. such for achieved revenue last Prior connected million contract in with were would in leading $X.X the change, contract shipped services contract $X.X for at associated scheduled revenue. informed Connected the than shipping the increased XX.X of connected contractual growth solution, on the XXXX The customers by in the over with first active service deferred service trailing As in accelerated of was offering and an potential a of cars conference new termination revenue a other our trailing once of XX% revenue resulted over reported which the connected Cerence of our year-over-year, large customer contract. level believe

As new Connected and $XXX,XXX approximately lower QX by year. I our the turning per be mentioned revenue revenue forward.Now quarter moving fiscal to Services for earlier, will guidance

We are to $XX $XX guiding to million million. our be from QX revenue

QX We QX. approximately $X expect million include to in fixed revenue contracts in

the be throughout evenly relatively to quarter-to-quarter.For may which the to year We are final full the of contracts we best with million. our projection to fiscal couple time this balance with in we satisfactory the of of can customers, in as that vary between at be fixed amount year, $XXX remainder the QX this for of million result would revenue of we we actual $XXX annual to ensure contracts $XX provide expect fiscal estimate approximately million process to continue a vary The achieve execution caveat spread the negotiating can terms.

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

margin for improved operational a and asset GAAP the indemnification interest year QX.In to our the fiscal our on and Non-GAAP was income near significant release. foreign can regarding GAAP technology the business income, income.The non-GAAP success new due and gain now margin summary, operating is favorable in guidance our in in to alike. into discussions focused resounding an to excellence. ultimately a net and term, see, company restructuring exchange adjustments are for net company, products were The income our and net while operating to updates net and remain we customers revenue goal these to new existing and income advance charges growth due there from the margin, CES EPS you net for with potential As

our expect with questions. call our our we reminder, to earnings for prepared conjunction in a As now will we concludes open release.This update the QX remarks, backlog X-year and

Operator

line first Craig-Hallum is come Instructions] Van going [Operator question with Our Capital from Jeff to Group. Rhee of the

Jeff Van Rhee

somehow A more little in connected. couple, that new they color were more exactly that given to was customer going they were a a And And a Toyota? with correlated with just again, that excluding stay little just, just then on apparently to Was a that were the they maybe left what start maybe doing. Toyota? color, there Toyota surprise was vision

Thomas Beaudoin

thank So you. Jeff,

had they contract. a So separate

that. So was understand truly to X to to that was were don't expected kind solution. we I their certainly of obligations them we their to also a cancel think with and overall contractual had and Tier what them what activities Toyota. mean, wait that I for relationship

at bit didn't they after notified So hadn't QX actually we little because informed got the notification we a us legacy contract, bit been little why a our on time. that's include and it from Toyota that we in

Jeff Van Rhee

conclusion was to longer they so because because had were were a going leave? were that or direction the was a was explanation that you that it leave logic and away foregone if the leaving had to they fit? product they because wasn't no And changing What to partner simply they

Thomas Beaudoin

they Pretty by back contractual us what the much was arrangement know with also We informed also came with but service they got same ending Toyota to Toyota. They that the were service. associated Toyota they logic don't and And exactly us with Toyota, that that that informed therefore, told our were was their [indiscernible]. Legacy. canceling

Stefan Ortmanns

year and we they an new example, Toyota, Nevertheless, to new nowadays to invited especially and we 'XX. Jeff. for Good and model Legacy to The CES, programs, us with morning, opportunities a upcoming right, back in programs, started informed focusing excellent been looking are actually And So solutions, Toyota us it's on maybe also came they have XXXX, at have relationship program beyond fashioned discuss program in Jeff. and have very as right? a year old when then reminder, and model here. compared parallel 'XX

Jeff Van Rhee

headwinds could in. you I from bounds an if in you then of And X connected. annual just basis? put old had -- other sneak headwind some Helpful. is Tom, how around think quick revenue contracts Okay. much I Can in remaining a other that script just referenced, on The some that ones you the

Thomas Beaudoin

split there the because a amount sometimes exact end of haven't out programs ramp some its We and there's delay.

So momentum on a I think the the in starts some it and other think positive Connected And couple some we'll in ramps of the of see there's start we're that next in production of I quarters seeing growth indicators to Services. OEMs. delayed again, some piece XXXX. is by And

Jeff Van Rhee

Yes.

do Okay. alternatives? that maybe as users then at the if And quote the just are using technology And company on of I obviously, the high-level guess you overall how but end last, satisfaction best the here, gauge a look the your Stefan, the landscape, very you question versus you XX%.

the a So avenues while the folks are questions. have lot they Android use interact that of vehicle Auto, CarPlay, steady, Apple they're your to in there share vehicle.So in-car consume can with X in but systems is or the

Just how because might of of those solutions? that think Auto you gauging used end-user I in CarPlay in and commentary are And measured XX%. share within about other any what's the the your Apple not car, then be versus solution satisfaction some actually getting Android market

Stefan Ortmanns

view, key our there maybe, in actually, X view, pillars. are in my So Jeff,

at say with clear globe.Secondly, have right? diversified, information the getting valuable strong innovation heavily feedback relevant is, have I with even also experience, immersive we Day, some really, goal Because OEMs lead are think First a we OEMs of ourselves a company, across drive Investor important to at a digital over computing the from more are right, And And actually the brand market experience, solution the mean, all, tech supplier now us. moving you now big can crystal they the they CES But opportunity with also right, customer are huge post-CES, OEM was and to I a very achieved also and or have I also know That sharing need their strong innovation we're for we equally right?So all base right? advantages in-cabin understand with last giants, we our technology platform. cockpit okay, and customization, engaged that important partner. supplier, we users, from this this full providing leading we for us said, component with and engagement.

compelling you best architecture, can with, one OEMs We say large the And that right? model hybrid commercialized products really are language demand and yes, CES providing of from at a in-cabin was other experience the is with and in this solutions huge those right? terrific, have in we just right, but mid long short term, mean, we our also of We the opportunities rate in hybrid, XX%, the amazing huge key calendar NVIDIA and in now rollout.I is upselling term, that therefore, also And right? accelerating solution. global new for to generative languages end languages hybrid the large And promise language AI here, still this year, have market partnered supported by and player cloud-based. embedded the model bring market the we means are that with of a topic, right? And is are in others to our compared XX a penetration

we I track. good very, overall, think a So very on are

Operator

come from Needham Bolton the to going & Company. with Quinn is question next of our line And

Nicolas Doyle

on Nick for is Quinn. Doyle This

X% on key remain SOPs touch while billings to be production then you sales by auto talking how additional Your maybe think that these data might auto thinking lately. about delays last from the adjusted X% that OEMs expand strong the year this impacted you and total Can growth this quarter. relatively sounds you're are delays, decelerated on reason quarter point? you're the like slightly program you It it about.And can seeing

Thomas Beaudoin

Stefan the second talk billings. piece. Yes, growth in I can and then Quinn, about take we I'll part mean, saw first maybe the again,

few in growth accelerated see we'll think I over billings quarters. next the

of I think and timing number. in that a little it's just bit billings a seasonality

Stefan Ortmanns

also also the looking higher have of some delayed because see here for more had which really Quinn, will calendar then here next positive just years, And some they also program, X for PPU SOPs, go delay great mass a one us.And right? And than volume of said, been also X diversified of That's this the within at this it's and have platform. which another months, we delays months, there live great live X go informed was also a who is OEM we will that year. has XX customer here and in OEM, big messages week as

heard They're preferred for And AI. also comes leveraging their the partner conversational market. BYD. have in-cockpit as it European You are experience here important you the becoming we more know, to when about

and let So are will also earlier, the we some as over but said OEMs.And us they we a software the know are track, the when on on updates have kind doing also still air. you they of OEM start production, good this of dependencies defines

Nicolas Doyle

what win? that? part think FOU? -- talk company why the limited of And I this X had the about had size of win? piece stack technology guess you -- about then And Is you drove it You can wasn't the the bigger tech or big your timing XQ the quarter win million Okay. AIoT 'XX. with a a $X I than in -- it's fiscal by

Stefan Ortmanns

X in last we that's also here, North have North so progress And America X for right? X [ also companies, space. technologies the X are product launches, What we still FOU, wearables.We America applicable had great win home, in couple under design with selling ]. made in well-known over China the So we have for are another non-transportation industrials big are months, and QX in which the we in Korea, of in

embedded AI and audio solutions example, text-to-speech. For

Thomas Beaudoin

Yes.

the FOU. I the that that able then clearly restrictions. Those be we contract short mean to prior expiration what were we've that. we've no And were will the on elements October, of been in there there now were bit that's little certain defined all what Microsoft. a advance we -- to that's said And just with Nuance, in So along pursuing. as the of term,

Stefan Ortmanns

on Quinn, focus, are with and IoT, our discussion we health, also and and home also companies, office. America, industrial is And smart North wearables, in well-being especially big

Thomas Beaudoin

Yes.

of have but October, will wait ready. getting those until Some to we're

Operator

comes Goldman from And [Operator next the Instructions] of our Mark line Sachs. Delaney with question

Will O'Brien

can OEM any give And color on the you feedback us And give interest? at featured on O'Brien Will is additional is you you the Mark CES? for This Chat some opportunity? Delaney. which broad PPU how to OEM on Pro, color based Can

Stefan Ortmanns

OEMs, OEMs good from So, feedback really Yes, morning was Japan OEMs Korea, in from and North big China. OEMs, all again. it European American amazing

that's NLU Pro, our new Chat are not maybe but seen Assistant you beyond right. sure Plus, with going Chat a think you're clearly Cerence have we I game Pro, with changer also also whether

So clearly have amazing. market changed the dynamic in the was here.Feedback we

Some of can hey, the OEMs our told when have me car. actually, it we in

our We sales and OEMs. force discussions with have also various

side. share I ASAP, have hope going as earlier, opportunities, Really, I everything I on Chat the goes revenue share road. imagine you also saw it on here. here, revenue. what also looking will it possible think Skoda. also to announcements on huge we cars and also mean, our VW our cars soon at are also which Pro.When you as they drive their address far cannot But that mean, is, are there also future you the to as press own, here, I bring PPU, we here. want can the also mentioned And as right, both and can to we And drive in They're on beyond from trying it can

Will O'Brien

sneak one can question. in I if more then And

added all OpEx give on? company working color gross business? the kind GenAI additional the some opportunities you focus are for And margin the or of with on these GenAI, you there the on what can of company's applications opportunity mean any for So new that does with

Stefan Ortmanns

very are OpEx we to So here, right? costs sensitive incremental are know no there required. actually You

here very partnership our partner sensitive partnership for a here, important with good are lot are also overall, is also Tom solution, very hybrid of expect also on on You gross have right? worth to side, very, very by not mentioned a track.It quite we reasons, but edge are using meaning that This to heard we we mention we cloud. as privacy we also side, us. are here, cost right? a embedded our So and a margin, And our with doing also Yes. part the here, engagements, for efficiencies. to costs now embedded And NVIDIA. just about is story And

Operator

over to Thank remarks. for closing to I Rich any the you. would conference And now turn like Yerganian back

Rich Yerganian

you day. you of other Have joining on at good Thank for upcoming look thank a the times. Well, to call conferences we everyone this at forward seeing And or morning. you. to us some the

Operator

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

disconnect. You may now

Cerence (CRNC) 6 Feb 242024 Q1 Earnings call transcript