Q3 2020 Cerence Inc Earnings Call

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Before we begin I would like to remind you that this call may involve certain forward looking statements. These statements are subject to risks and uncertainties as described in the press release preceding today's call servants makes no representations to update those statements. After the date heroes.

In addition, the company may refer to certain non-GAAP measures and pro forma financial information. During this call. Please refer to todays press release for further details of the definitions limitations and uses of those measures and reconciliations of non-GAAP measures to the closest GAAP equivalent.

Joining us today, our son, Jay Dobson severance CEO, Mark Gallenberger, Sarah CFO enriched uranium severance VP of Investor Relations as a reminder, the only authorized spokespeople for the company, our son, Jay Mark and Rich I am here for the opening remarks, and there's a showcase for the new.

New segments neural text to speech innovations, which have been called risk taking by one of our most important customers before handing the call over I'd like to announce several upcoming investor events all of them have been converted to virtual events. So the exact timing of our participation is subject to change.

Please visit the events page in the Investor section of the segments website for the most up to date information on our participation. The conferences include the Raymond James Industrial Conference. The Jefferies Software Conference 2020, the RBC capital markets Global Industrial conference and the Evercore future of mobility.

The form now onto the call Sanjay.

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Thank you everyone on the call and thanks for joining us to discuss Utica.

Despite the challenging conditions.

Just continues to execute across the board.

You're getting into that deserves.

Want to acknowledge what do you just heard.

Inspirational <unk> newest products get into either.

Fixed the speech application keep people reading articles based on linguistic styles.

We ended with different types of corn.

Since we returned the advantage elitist capability there.

Yes processing hardware to bring amazing levels, well, you would like speech to the car.

Meters long reading capabilities, including the automate the prediction.

Greetings style emotional corn based on content.

Good day, and what do you view.

John do see.

The Brooklyn speech I already commented.

I mean did that since we there is quite breathtaking and empower the next generation hopper cars to interact with our customers on a whole new level.

Third Street or is just the lift example of stem cells in juniors using AI to push the boundaries of what is capable in the car.

Yes, we're pushing the boundaries.

Possible weren't doing that for many of our customers, including or do you.

Payment system in Singapore communication in entertainment system, but nowhere is this more demonstrated in the 2021 class of course if.

You look all the media promoting envy you were more cities cutting edge infotainment system Neil Sean.

User interaction voice control, a dime commented I see.

Voice IAI is the future in technology and automotive.

That said as you would agree on the same called Neil offered some interesting statistics he said.

No more cities users see voice is the most important control element in the car.

To put sort of the consumers believe voice commands make it easier to search for information. It 89 puts him say, which commenced make storage is faster.

He brown therell be a bleed in creating Dnbi you X experience.

Continuing our single new product introductions instead is paid.

Using advanced voice biometrics, David P. allows the driver to be purchases from the car using his his or her voice to what could be good payment.

Whether it be waterways being win for gasoline the Paul Barking your car or bring forward or drink on the goal since be provides a secure contactless payment system.

As the work continues to adjust to the realities of who would maybe quantify contactless technology, such as seven speed, which are based on voice.

Direction will become the preferred interface.

Well coordinated has impacted the global economy.

I had no impact on our ability to continue for diplomat innovative.

Based products in bringing to market.

Very proud of distorted team that even is approximately 75% continued work primarily from home.

There are dedicated efforts the company company's business showed resilience and continued strong execution.

We have stated that our combined revenues.

Allow us to delivered results into being posted better than the auto SAR estimated RBC global light vehicle sales were down as much as 45% in calendar Q2 compared to the same period a year ago.

Our peace sales declined less than 4%.

Through our worst seaport.

Door foresee quarter sales, our east Boston compared to fiscal year at 19 for the same period.

Secure secular trend driving our business continues to play out as the penetration of wouldn't system technology and connected services extend into more and more car makes and models. This has been an important.

Driver of our growth and we expect this trend to continue.

In the long term what would make you may actually have a positive going back to car sales. Once we get you on the near term economic headwinds.

Our ownership, we increase yes people decide to move.

From living in the city to suburbs or decide to porches week doesn't give you a public transportation.

We commented.

On our last earnings call that was approximately half our business is tied directly to the quarterly production of new cars. The other hub is not directly tied to current auto production.

Connected services, which is a SaaS revenue stream.

Was key in supporting fields for the quarter because the vast majority of connected services revenues are from cars that have wondered ship there was minimal impact on sales in the quarter. Our professional services business is also not by two car production in delivered another strong quarter.

Changes.

We made to our business with the only independent living have resulted in continued strong financial performance Mark will fill you in the details of the ordered quarterly results in a few minutes, but be able to still delivered non-GAAP net income was 12 million or 31 cents per share in June.

The rated approximately 24 million of adjusted EBITDA.

Even in this difficult environment our business.

Very well.

You may have noticed a new people in the press release, providing the Cds of key besides.

After much internal discussion Dick was decided that these TP eyes.

Investors the progression of our business.

You can see from the people are technologies call consistently ship in more than half. The cars produced globally. This prestowitz into really strong market share position, especially put our its technology.

Next quarter, we'll.

Keep be ice on the adoption of connected services in the car.

One of the most important metrics and the people our gross billings or guar shift showed strong growth compared to the prior year.

The backed off what would maintain the site is a group you strip is these statistics create a healthy picture of long term growth prospects for sense.

You may recall that in our Q2 earnings release, we reported very strong bookings for the first half of the fiscal year. The fight blend of business opportunities continue in Q3, delivering the second highest quarter bookings in the company's history. These bookings include several strategic wins with the company.

For key geographic markets be also hit our worst bookings in two decent market one important.

Two we beat goes.

Other for tractors.

Previously mentioned, we will provide a midyear bookings up deep in yearend backlog update.

This winter.

Due to the study piece of new technology that we are bringing to market.

Did that we should and our ability to deliver that continues to fuel the strong support from our customers on a global basis and why we have such a strong market position.

In Q4, we hope to see the force bookings for new products that enable us to achieve our 65 billion sensed the around revenue target in our 224, more recently announced Kevin Spacey and our previously announced Carlife.

Products are expected to be significant significant contributors to be similar define billion revenue target.

In other product, we have yet to initially announced his build received by customers, but we're not quite ready due partially to launch the product yet.

Lord views on that and others in the future.

Also looking at opportunities for aftermarket products to meet you'll be able to lead voice system technology for those cars under the on the road doped such capability.

Our pipelines of new products exceeded build beyond the ones I've mentioned earlier in my comments as we look to continuously advance the user experience inside the car. We do this by taking advantage of being embedded in in the car infotainment system, allowing us access to all of two sensors cameras and microport.

Throughout the car and leveraging that access to provide the driver to see first it was actually like user experience possible.

You know Weitian is what allows us to continue our market leadership position in for white, the opportunity to expand into adjacent markets.

Award, where voice interaction is becoming the preferred communications media, we will explore other potential are decent market such as cruise ships elevators or other mobility bees.

Products for the application of our technology.

While our medium to long term prospects remain strong forecasted for the near term remains challenging in the current business environment.

The global economy has begun to open up.

Our sales while down significantly.

I've been better than expected, we're hopeful that sprint continue.

Most of our customers are not boarding guidance, we have enough confidence in our business for way the coupons.

Mark will provide more details in his bombing.

I'd like to note during the fall over to Mark will review the financial results of the quarter Mark.

Thank you Sanjay.

I will first provide an update on the impact of Cobot 19 on our business and then I'll review our performance for the third quarter fiscal year 2020, and provide a recap of our successful refinancing during the quarter Lastly, I'll review our guidance for Q4 before taking questions.

While our China R&D facilities are essentially in full operation the rest of our locations remain mostly remote and we do not expect to return to normal workplace operations until the fall timeframe at the earliest but more likely once a vaccine is available those offices that have have open.

And have done so by following local guidelines.

Although the majority of our workforce is still remote we continue to deliver on key project milestones and our productivity has seen minimal impact as a result of these new work conditions.

We realized approximately $6 million of cost savings in the quarter due to the cost reduction actions that were taken in response to the onset of cobot. Thank team and our expected $8 million of Capex savings from our original plan is still on track.

Next this table provides a breakdown of the different revenue streams that make up our business.

And you can see that our overall license revenue in the quarter was down 26% from the prior year. This is directly related to the impact of covert 19 on auto production during the quarter as Sanjay mentioned in his comments. The license revenue is the part of our business that is most directly related to quarterly autos.

Since our cloud connected SaaS revenue grew by 27% from the prior year and professional services grew by 25%.

As mentioned on prior calls the growth in pro services is a leading indicator of future growth potential of our license and connected services as these projects move into startup production.

At approximately $75 million, our revenue for the quarter was down less than 4%, while global auto sales declined approximately 45% percent, resulting in significant outperformance above auto unit sales during the period.

Year to date revenue is up 8% compared to the same time period last year, despite the impact of covert 19.

License prepay contracts were $14 million in the quarter down from 16 million in Q2, but up from $11 million a year ago.

Non-GAAP gross margin for the quarter was 68.7% and slightly lower than last quarter due to lower volume and product mix and specifically driven by the drop in license revenue, which carries nearly 100% margin.

Non-GAAP operating margin for the company was strong at 28.4% and adjusted EBITDA was $23.8 million or 31.8% of revenue.

Our non-GAAP net income was 12.1 million or 31 cents per share and our cash flow from operations was $19.3 million, which was a significant improvement over the previous quarter.

Given the difficult business environment over the last several months, our Q3 results represent a great quarter of execution and financial performance.

We successfully refinanced our debt by replacing a very expensive term loan b with the combination of 875 million dollar convertible note a 125 million dollar term loan.

And a $50 million revolving line of credit.

The refinancing resulted in approximately 50% reduction of our cash interest expense and this translates into over $10 million per year and cash interest savings and has a substantial accretive effect on non-GAAP net income.

We ended the quarter with approximately $133 million of cash up approximately $37 million over the previous quarter approximately $23 million under the increase is attributed to the additional debt net of fees, while the balance of approximately $13 million is attributed.

To our strong free cash flow generated during the quarter.

While the business environment remains volatile and with about three to four months of experience operating under these new conditions, we feel comfortable providing guidance for Q4. Therefore, our guidance for Q4 is for revenue to be up sequentially and to be in the range of $76 million to $80 million.

Representing a 4% sequential growth at the midpoint.

We expect non-GAAP gross margin between 68 and 70%.

Non-GAAP operating margin between 27 and 29%.

Adjusted EBITDA between $23 million and $26 million non-GAAP EPS between 30 cents and 35 cents.

And CFO of approximately $24 million, putting our full fiscal year CFO at approximately $43 million, which is within the original range of our guidance that we provided at the beginning of the year.

We're also maintaining our fiscal year 2024 mid term target model, including revenue of $600 million that we provided at our analyst day in February.

In summary in spite of covert 19th impact on our business, we delivered a great quarter. The performance reflects both the resilience and operating performance potential up the company.

While the auto industry may have slowed by the onset of covert 19, our midterm and long term growth targets remain on track.

Competitively we remain in a strong leadership position and through continued innovation, we expect to maintain if not extend that lead.

This concludes our our prepared remarks and now we will open it up to questions.

Ladies and gentlemen, if you have a question.

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Yes.

Yeah.

Our first question.

Fine.

Okay.

Okay.

Great. Thanks, so much Steven and and congratulations on the on the great results.

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My first question you made a comment on I believe that the last two two calls about your market share of of Wayne.

One point being 90%.

Plus just curious without.

Does the hard number are you still seeing that sort of momentum we've gotten see havent heard too many other major announcements whether it's from from from Google I think you actually winning back some of your business from Valvo Geely. There. So just maybe something about market share and sort of.

Bookings success.

So let me start in Hi, Chris and then I'll hand over to Mark if he wants to add.

So Chris.

We didn't mean really focused.

In the quarter on on bookings.

And.

That said the ceded in my.

Opening remarks.

The.

Our really proud to have.

And highest bookings quarter in the history of our company.

Given this was a cooler 19 vector quarter I was keeping my fingers crossed because we were.

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In order for our customers were distracted, obviously with production issues and and so on and so forth still.

Our sales team.

Working closely with the customers were able to closing rate is very solid bookings and that basically if you know.

It comes back to I think in terms of.

Our range remains.

Correct.

As you said before I know into nine deals there and we bid for we.

So.

Overall, we are maintaining that our win rate.

Which really comes back to the product in Big innovation in store I also said in my remarks, Chris there.

You know with no travel happening in now.

In this last quarter. Our teams work really focused on product. We should you will see some of the new product announcement, but there are some really interesting and exciting one.

Which would help us with.

Hopefully maintaining the future win rate as well.

Mark anything you want to add to that please.

No I think I think you think you covered that Sanjay.

I think I think the business continues to do very well competitively.

You know when whenever we do compete.

You know those win rates that we've seen historically have not have not materially change. So so thats why.

I think our market share is pretty solid today and that should continue into the future.

Great and then maybe just on on that.

The core business and some of the strengthened in the quarter I mean, if we look at the license revenue, obviously, almost 20 points above production sort of implies.

Depending upon the the calculation that your your ASP is up up nicely and you've talked about this becoming a larger portion of that.

Business about.

Doubling that the license per per car, but should we should we assume that maybe some of these higher end products and be you acts and maybe some of that you can't disclose have already launched so that this sort of ASP trend.

In licenses is something that we can think about over the next several quarters because obviously.

You'll be shifting more and more unit to those of those higher end.

That hiring mix.

Yes, so so I can start and Sanjay you can can add to it but but I think you know in terms of.

But we're seeing some good asap and on the billings right now you could see in the new Capesize year to date, we've seen an increase of about 7% price versus the prior year.

Yeah, I think as we continue to add more the features to that software stack, we're going to be.

Well to drive higher Asps.

You know also keep in mind when when you have a connected car in conjunction with the edge license that we have that becomes additive and so as more and more cars become connected you know our total revenue per vehicle will will be growing.

Just because you are now layering on top of your edge license revenue that connected license revenue. So thats. Another component that we think that trend, obviously, if with more cars going to connected in the future that trend of layering on top of our of our core edge SP should should it.

Help our revenue per vehicle overall.

Okay, great. Thanks, so much again mark.

Yes.

Thank you.

Yeah.

Yes.

Great. Thank you.

Thanks, guys, great job Wawa, just really impressive what you've gotten done here.

Several if I can sneak them in here first on the connected side I'm curious on these recent wins, what the landscape looks like on those deals, particularly as it relates to what what is your arbitration role in the latest wins and how is that different to what you might have seen 12 24 months ago and same thing along the lines of the ecosystem of others.

Elutions right. Your vision of this connected likes that everybody has their platforms of choice, but just how are you seeing that play out in the in the most recent connected wins.

Sue.

The.

In a most recent connected win.

As you know.

I'm just using one of the few examples.

300, Steve has us coexist with.

Alexia auto.

And you know I have said.

Okay. So Dave.

C.

Absolutely everywhere for consumer Tech company and.

Kuwait exists.

Our because what does the customers want is the Warner the are not to be separate technology island, but an extension of his or her digital life.

In the digital life of consumer is more than just a.

You know single consumer debt company.

Includes Apple, Google Amazon, others, right and so from since standpoint in the work we are doing is.

Basically applying that philosophy across the board.

And you will see.

Although we have launched our cognitive arbitrator that does.

Both recall wouldn't be start reiteration and also intent based arbitration in the car.

But we're not stopping there you will see.

This quarter or some other absolutely bidding innovative products that I'm really excited about that further or kind of you know.

Extend this philosophy.

Being the consumer to bring he's a hard disk.

Our that's the philosophy that we have in our you know in our products and innovations but.

At least one of the major cloud deals coming back to your portion ahead.

Great exists.

With the lack south.

I'm just trying to remember if it is anything.

That.

Yes, no I'll just stop right, there and maybe offline I'll follow up with you as I dig a little bit more deeper with my colleagues both double.

China.

And the architecture there.

Fair enough and then with respect to.

I guess is we've been.

Talking a lot of people in and around your ecosystem. There is certainly an impression amongst those that work with severance that the company has got notably more agile and responsive easier to deal with and I'm kind of curious I know you made some changes early on with respect to R&D you touched on the innovations, but I guess as I try to understand we're the.

Real surge in innovations when that surge comes and how long. It takes you know those changes in development really yield results certainly you've got a lot of innovation now is this already reflecting the changes that you've made it seems like it might be a little early for that.

And the bulk of the substantive changes youve made or not yet.

Visible or how should we sort of broadly think about that.

So.

Firstly, the whole pieces off the beaten up that is was to get everything enabled us to focus.

Now.

In transportation and mobility and that was the will pieces okay.

Creating shares because we were as you know about a year ago.

The lift than a year ago a.

Smaller division over larger company and now be focused in transportation and mobility gives me and my team.

The.

The the freedom to going if you don't move fast into we fast.

So what.

Absolutely be proud of our management team across the world.

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We did did not and BT to you to execute on now on those products I would say were only about one heard.

In two going up you know sharing with the with all of you somewhat the.

New product innovations, we're still half due to the way in terms of the new stuff that we have been working on as you know product cycles pay you know roughly.

We had one to two years they do.

Yes.

Get it done that.

Good.

And so on so we're in that cycle right now.

Of all Bob.

Revaluating the company in focusing.

Our goal my goal is very simple if you look at one of the slight that.

Is there in the earnings package, you will basically the benefit of how.

We have.

The four of the business late which.

We continue to.

Grow in support with.

Products, any Norwegian and new technology, and then we're basically.

[music].

The ending the quarter of the business in four different areas with Jive list in this.

In this strategy strategic plan slide slide and you will see a new apps.

With.

Has that sort of revenue two of them to be able to announce towed when we are working on that we plan to announce.

But in the coming months.

Looking at adjacent markets.

I commented on that a little bit we have our first win in the two Wheeler.

Market in last quarter, we're looking at into other adjacencies to automotive.

We're looking at extending the consumer digital life cognitive arbitrator was the first move but we have couple of other moves that we're working on that.

Later this year in you know finally, we're also looking at how do we get into cars.

That that have been shift before with down you know the.

You know.

Sort of technologies rate, so how do we take it order car and make it could if you don't look at you live and drive like the Tesla right. So.

From a user experience standpoint, so we're looking at all or last base to grow our Tamar Sam.

And.

Beat the can do that with products and innovations.

Great. If I could then what sneak one last printed mark the as it relates to the the license is I know.

A while back I think you had a propensity to to move away from Prepaids.

We saw bump last quarter and it was certainly well ahead of my number this quarter as well you are strong on all lines, but that one continues to remain stronger than I would've expected what is it about the behavior of the buyer preference that's leading to that number being so strong and do you expect that's that's kind of the way we should think about it going forward.

Yes, I know it's a good question are you know we had initially target about $40 million pre pays for the whole fiscal year.

But it's difficult to predict because they can be lumpy.

Typically a you know a small number of customers and depending on the size of those deals that could really drive some of the lumpiness. So it is it is a little bit of a challenge to predict.

Exactly when and how much those prepays are going to be.

So I think I think for the for it for for this fiscal year instead of being a 40.

Going to be in that and that 50 to 53 million range for the year.

I think our bias is is to continue to.

Hold those prepays flat to down the core over the long term, but I think I think just the first year here its system, it's been a little bit more challenging to to predict when when those opportunities arise I think the good news, though is with.

With.

Some of the short term.

Uncertainties locking in some of these prepays certainly does help not only on the revenue, but also how helps us on cash flow during during these difficult periods. So.

You know, we actually are a little bit more receptive during these uncertain times to lock in some of these these licenses now versus waiting for the future.

Sounds good thanks again guys.

Thanks.

Our next question comes from.

Okay.

All right. Thanks, very much for taking my questions and congrats on a great quarter.

So I wanted to ask what are they keep you guys actually starting to disclose it looks like billings per car was up.

In the year to date, 7% year on year and Thats, excluding the legacy contract I was hoping you could maybe unpack that for us a bit in terms of what's driving that increases at the connected business and.

I guess in general how does the pricing for the new connected business compared to the legacy contract. At this point you feel like you stopped in light of site and Tech and.

Steady increases there and revenue per car from connected business. Thanks.

So, yes, so Chris I can.

So do you want to start or you want me to.

Let me.

Quick comment in the amount of handed over to you So sure Mark.

Thats okay.

Mediations adopted Chris.

So Chris.

Firstly, we saw.

Very helpful. The.

New bookings on connected services.

In the last quarter it was our.

Hi.

If you compare between.

Connected in edge bookings as a ratio.

Last quarter.

To be happy about that.

Secondly.

I think the some of the new product.

That.

We had talked about previously which is.

Enhancing our core platform with multi modality.

You know Beast.

Traction, which are tied to the power centers. These cars. These these products obviously add too.

The billing.

Our growth number and thirdly.

On the on the on the connected as tight as well.

The reason, we called the legacy the legacy is that would have any different business models.

Almost six seven years back.

But from a do you get up you know.

Connected services.

Revenue model.

We had in the larger bookings.

Here in North America and that was also.

Basically.

Exceeded our DSP sort of our guidelines as well so all in all that good if you know basically those elements are reading into.

Into this growth not have.

Mark.

Give little bit more color mark.

Yes, I think you covered the majority of those points Sanjay I was going to.

Just mentioned that excluding legacy contract, obviously isn't is pretty important if just because.

That was a very.

Very different model and that's why we've excluded the legacy contract, which which by the way is winding down any ways from a from a billings perspective, and its winding down as we had expected.

This this fiscal year.

Okay, Great and then I guess my second question, where does the on.

Free cash flow obviously, there is it really next meeting the quarter on EBITDA.

Pre cash was a little bit lighter than than what we had not I know you also mentioned that yet a contribution from prepaid licenses. So.

Do you mind talking a bit about some dynamics.

Free cash flow and how we think about the rate of EBITDA converting to free cash flow going forward as well.

Yes. So you know the reason why made a comment in mice in my prepared remarks around.

Our CFO, which is.

Given where we think we're going to be at the end of the fiscal year. We're we're right on we're right on plan as to what we originally laid out almost a year ago, which was to be in this range of 42.

50 ish million of CFO, and so that was even before cove. It and we think that we're going to be in that 43 43 million of CFO range. So.

No surprises we said we said we would be in that range. We think we're going to be in that range and.

We attributed that to the drop in the legacy contract and how that's winding down and so that.

What we've been very open about that we've been talking about that issue for over a year now and and Thats playing out as we expected so thats where.

The conversions from EBITDA down to CFO, we said that that was going to put.

Put a put a headwind.

On on that conversion rate for this year and also going into fiscal year 21. Once we get into 22 things will start to normalize when deferred revenue becomes a source of cash again and so.

We're almost there I'd say, we're about halfway through that period, and I'd say that we're pretty much right on plan in terms of what that conversion.

Has been in terms of EBIT da.

Alright, thanks, very much and congrats again on the quarter.

Thank you.

Thank you.

Yeah.

Hello.

Hi, good morning, and thanks for taking my question.

And maybe to start with the the 2024 guidance commentary you reiterated your outlook I was just curious to your views on what has changed since you publisher chart targets in February clearly the auto industry itself has reset.

So your initiatives have to be gaining traction here. So how much of the confidence stems from improved visibility to new product initiatives and customer reception to those versus say visibility tied to accelerating adoption of connected cars and your core product leadership.

Yes, so so I can start in Sanjay you can add some color, but we still believe pretty strongly about the f. why 24 target model that we put in place pre Cove it.

Once again, it's a longer term model of course and.

And so.

We don't see any changes to the secular story right I mean cars are getting more connected.

Increasing penetration continues of the digital car. So all of those elements, whether pre covert or post covert those elements have have not have not really changed and so thats going to be obviously, a key driver for us to.

Hit that target model.

Three or four years from now.

And so that's largely intact and so I think that in conjunction with the fact that we we continue to invest pretty heavily.

We're innovating delivering new products.

Which are being well received in the marketplace. All those things combined gives us the the confidence in and not adjusting that target model.

Because even though that theres, a short term blip in auto production in auto sales this year.

Long term the the thesis and the sick and the secular story is still intact.

Sanjay analysts if you want to add anything else.

Yes, I do I do want to add a couple of things that are very important portion so.

Basically from a new booking standpoint, we're focused on on.

Cars in systems that will be yes.

Going to design shifted see like 24 see like 25.

So we already have up pretty strong backlog.

We disclosed started the year that you can do the math based on some of the bookings.

Entry that.

Mark and I shared with you.

Last quarter this quarter et cetera, So, we're obviously going to be adding to our backlog, which is what's going to kind of you know.

Gives us the confidence in the in the model that we presented to you.

And on top of that we are what I said into February analyst meeting was that we upfront.

The new product onto the existing installed base to going to further grow our is.

So grow our revenues right both short term in winter. So I think these these things combined basically gives the confidence in the India Fytwenty model that shared with you.

Okay got it that's really helpful color and maybe a follow up on that last bookings point and you referenced bookings this quarter being the second highest in history.

I would also assume there was some natural pull back and the opportunities just given the broad disruption day to day business I was curious to hear your visibility into the go forward bookings pipeline should we expect that to accelerate pretty aggressively into the fourth quarter and 2021.

So our of our pipeline looks strong.

For the current quarter and.

No as we get into next fiscal year as well.

Peacefully co were 19 creative destruction no question, having said that.

The.

The oral transportation mobility like I said in my Mark.

Prepared remarks.

Our view that.

If people want to buy more cars in north use year transportation short term rate.

Fuel and up in afford the activity.

I will tail.

From an R&D spend standpoint for the Oems were seeing them.

Still committed to the.

The new product.

Architectures, new product design.

You should use the experience.

As as it is a key.

[music].

Product innovation is.

Something that they're willing to invest it so.

We're not seeing any major changes too.

You know long term view.

Because remember like I said the decisions that they're making today is for cars those ship 345 years outbreak basically so.

Those those programs.

By the Oems.

Okay, Great Super helpful and thanks again for taking my question.

Thank you.

Question.

From a line.

Your line.

Thanks, Good morning, everyone.

Sunday, They say imitation is the since here as far enough lottery and with that with the new MB you access class experience now that other auto companies have seen that product and how the entaire experience can be voice centric have you seen increased interest from some other competitors and automakers.

Absolutely yes.

Net.

The best sales tool that I bought this quarter.

Every.

Sales die in our company has the there with our contribution onto that platform.

So on and so for that those discussions are happening because.

Oems, where do you know others learn from what's possible.

It goes partnership with us So we're absolutely.

Yeah.

Hi, great, maybe on and severance pay and reader initiatives that you're not adding I realize it's still early days, but specifically I guess with pay product. How does is there anything could tell us about how the financial model works since there was announced with a bunch of other partners as well.

Yes, so firstly we're.

We're not trying to be a payment gateway.

There are plenty of payment gateway there we partner so.

We're not the clearing house with inventory we partner for that we're trying to do be pleased to meet their contact list the mean.

Much more simpler and easier for OEM, bringing our.

So that you can drive up to partner were 50 than say.

Hey, Mercedes Bay $50 on 15 that Youre right.

Bringing voice biometrics and other integrations with partners to be the.

Knybel such expedience right.

And the business model Lou already when we do because were heavy there.

Those discussions with various different Oems right now, but it's very much feedstock revenue share.

Okay.

Mark maybe just just finally and thanks for the comments on the Twentytwenty for model, but.

Given that there's such a high recurring nature of the revenue and even on the portion that is volume dependent.

That's generally sourced years ahead so.

Can you, let's now how much of that 600 million would you say is secured right now.

Yes, I havent done all the math to that I can really share with you in terms of a specific number.

Clearly clearly our backlog is quite large.

We only disclose backlog once once a year, but.

You can probably do a roll forward of our bookings year to date.

At least six months year to date and see that it's that it's fairly substantial and about that that backlog about 50% of it.

You know is probably going to turn into revenue over the next three years.

And then the other 50% is beyond that so I can give you sort of that anecdotal.

View of the World.

But to give you a specific number I don't I don't Unfortunately have with that but yes, we do have great visibility I mean, the bottom line is we do have very good visibility.

These contracts are multi year they they extend for.

Sure for many years into the future because our customers don't just make a decision based upon one model year. They base it off of a a multiple year platform decision. So that once you're locked in that's the luxury of being in this business right. You are afforded that kind of visibility. So that's that's really.

What what sort of color I can provide you at this point.

Thank you I appreciate that.

Thank you.

Income from Jefferies.

Okay.

Hey, good morning, most of that I've been asked but I just wanted to get a market better handle on how to think about opex over the next few quarters, yet some of sturdy measures as covert started things picked up pretty sharply on sales and marketing Gionee here. This quarter, how should we think about the next few quarters there.

Yes. So we did you know at the start of the pandemic, we decided to act quickly and adapt quickly to this environment, it's always better to go deeper than than what you feel like you need to just so that you're ahead of the curve and so I think we were we were.

Satisfied with that decision.

Now that were it feels like what kind of pass the worst period now we are looking to add back some of those expenses.

But we're going to be we're going to be somewhat conservative because.

There is no vaccine and we're not out of the woods entirely.

From a global economy perspective, and so in Q4, we will be adding back some of those expenses, especially as it relates to professional services. So that we can make sure that we we deliver projects on time or even ahead of time.

Once we get into the next fiscal year, we are doing that planning process right now and then we'll be we'll be providing some guidance in three months from now on the next earnings call as to how do we want to start adding back some of those those head count.

That we that we basically put on hold for the last three to four months I do expect you know our return to some growth of our head count in in fiscal year 21, but it's going to start first with contractors, because that's where you can turn those on quickly and turn them off quickly.

And we want to be probably a little bit more conservative as it relates to adding permanent head count, but certainly I think going into 21, if things continue to move in this direction, we will be heading back those expenses.

Got it that's very helpful. And then I think you mentioned originally that they intend for this year was to spend about 35 million and Capex and then I think you pulled a.

Out of that are deferred that.

So should we think about sort of 27 for the year and then that eight pulling through next year, which I think the intention. Originally it was spent about 7 million here in Capex. So his next you're going to be closer to 15.

Yes, so so I think I think your math is right on fiscal year 20.

Originally thought 35.

We took 8 million out a bit so it's about 27 for this fiscal year going into next year I want to take the entire eight and just push it into into next year.

I think I think we're going to be able to see some.

Savings you know as it relates to the $8 million and not have to just push it all into next fiscal year. So next year, we've talked about a six 7 million dollar run rate capex it might be a little bit higher next year because of the $8 million push but it won't be it won't be the entire eight.

Maybe.

Roughly speaking maybe half.

Okay. That's helpful. In the last question just a clarification did you say in the prepared remarks that you would have either have announced to SaaS contracts carplay.

Our car pay and care or you will be announcing those next quarters I was confused as to the timing if certainly had the press releases about them, but it was unclear do you actually the booking and for those.

No.

Before we announced the products and we expect like if that you in.

The previous statements that we hope to have the bookings this quarter, we're engaged with several customers and.

Some of them our late stage discussions right.

Excellent. Thanks.

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