Cerence(US:CRNC)2023-02-08 16:42Financial Data and Key Metrics Changes - Q1 revenue reached $83.7 million, exceeding the high end of guidance due to strong performance in core business and connected services [97] - Variable license revenue increased by 22% year-over-year and 38% quarter-over-quarter, attributed to reduced consumption of fixed licenses and improving auto production [98] - Non-GAAP gross margin was 70.4%, non-GAAP operating margin was 20.5%, and adjusted EBITDA was $19.7 million, all metrics above guidance [120] Business Line Data and Key Metrics Changes - Professional services revenue was up 3% year-over-year but down 5% quarter-over-quarter, serving as an enabler for future license and connected services revenue [9] - Connected services revenue decreased by 12% year-over-year but increased by 3% quarter-over-quarter, impacted by lower production of connected vehicles [51] - The penetration of global auto production for the trailing 12 months increased to 52% from 51%, indicating strong adoption of Cerence's technology [10] Market Data and Key Metrics Changes - The company secured significant design wins in both Europe and China, indicating strong demand in these markets [4][94] - The two-wheeler market is highlighted as a growth area, with the number of two-wheeler customers increasing to seven [95] - The latest forecast from IHS predicts a 2.5% growth year-over-year in auto production, aligning with the company's fiscal year [50] Company Strategy and Development Direction - The "Destination Next" strategy aims for long-term sustainable growth, focusing on delivering immersive experiences in vehicles and expanding the addressable market [3][6] - The company is committed to innovation and has established a strong competitive position in the automotive industry, particularly as it transitions to electric vehicles [74] - The strategy includes leveraging scalable AI technology across adjacent markets, enhancing the product portfolio and customer experiences [90] Management's Comments on Operating Environment and Future Outlook - Management acknowledges challenges from semiconductor shortages but remains optimistic about improving supply and demand dynamics [50] - The company is confident in achieving its fiscal year goals and has slightly raised the lower end of its full-year guidance from $270 million to $275 million [50][100] - Management emphasizes a focus on execution and innovation to drive long-term growth and profitability [81] Other Important Information - The balance sheet remains strong with total cash and marketable securities of approximately $120 million [8] - Cash flow from operations was approximately negative $2.1 million for the quarter, but positive cash flow is expected for the full fiscal year [78] Q&A Session Summary Question: What is keeping growth back in the new connected segment? - Management noted that several connected components will go live over the next 12 to 18 months, with an uptick in active subscribers expected [17] Question: Can you provide updates on bookings and consumption? - Bookings will be updated in Q2, with good wins in Q1, but consumption is expected to be lower due to a specific prepaid deal taking longer than anticipated [22] Question: How does the company view competition from generative AI technologies? - Management sees generative AI as a complementary technology rather than direct competition, leveraging their automotive expertise to enhance offerings [113] Question: What is the visibility into fiscal year 2024 growth? - Management indicated improved visibility into fiscal year 2024 due to recent design wins and stabilization in fixed contracts [108] Question: Can you elaborate on cost management strategies? - The company is implementing cost initiatives to drive efficiency while continuing to invest in R&D and technology to support innovation [116]