Cerence(US:CRNC)2023-08-08 16:19Financial Data and Key Metrics Changes - Q3 revenue was approximately $61.6 million, at the high end of guidance, driven by strength in the core business [12][32] - Non-GAAP gross margin was 66.5%, and adjusted EBITDA was $2.8 million, or 4.5% margin [12][40] - Professional services revenue decreased by 24% year-over-year and 8% quarter-over-quarter, not projected as a growth driver [14] Business Line Data and Key Metrics Changes - Core auto business penetration rose to 54%, the highest in nearly two years, indicating strong market position [7][42] - Variable license revenue dropped 16% year-over-year due to higher fixed contract consumption [41] - New connected services revenue increased by 3% year-over-year, but decreased by 3% quarter-over-quarter [41] Market Data and Key Metrics Changes - Cars produced using connected services increased by 50% year-over-year, reflecting a growing trend in connected vehicles [16] - Monthly active users rose by 29% year-over-year, indicating increased consumer adoption of technology [16] - Pro forma royalties were up 7% year-over-year and 6% quarter-over-quarter due to increased auto production [42] Company Strategy and Development Direction - The company is focused on innovation in AI for transportation, operational excellence, and securing strategic accounts for long-term growth [33][35] - The introduction of generative AI and large language models is central to enhancing product offerings and user experiences [9][38] - The company aims for double-digit revenue growth with strong EBITDA margins, emphasizing the importance of winning new business [34][35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in visibility and ability to deliver strong Q4 results despite macroeconomic uncertainties [7][35] - The semiconductor shortage is becoming less of an issue, but rising interest rates and a slowing global economy remain concerns [7] - The company expects revenue guidance for Q4 to be between $72 million and $76 million, raising the full-year guidance midpoint to $288 million [45] Other Important Information - The company successfully restructured its debt, resulting in annual cash interest savings of approximately $8 million [34] - The balance sheet remains strong with total cash and marketable securities of approximately $116 million [13] Q&A Session Summary Question: Follow-up on billings and sales targets for FY24 - Management indicated that billings per car metrics are affected by production delays and emerging market opportunities, with guidance for FY24 to be provided in November [47] Question: Average contract duration changes - The average contract duration is influenced by deal mix and OEM production schedules, still reflecting long-term commitments [48] Question: Revenue models for large language models in cars - Management discussed potential revenue models, including licensing and subscription models, as they explore new applications and partnerships [51] Question: Performance of connected units and buyer behavior - The increase in connected units is seen as indicative of a larger trend, supported by design wins and improved service quality [57] Question: Two-wheeler contributions and design wins - The two-wheeler market is expected to grow, with several design wins contributing to future revenue [63][64] Question: IoT use cases and technology development - The company is exploring non-transportation opportunities and has developed technologies exempt from current field of use restrictions [69][70]