Q4 2020 Cerence Inc Earnings Call
Thank you for standing by and welcome to the servants Q4, 2020, <unk> earnings conference call at.
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I would now like to hand, the conference over to your first speaker today, So Richard you're gaining vice President of Investor Relations. Thank you. Please go ahead Sir.
Thank you Dylan welcome to search is fourth quarter fiscal year 2020 conference call.
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 assets described in the press release proceeding today's call.
Severance makes no representations of total statements after the date hereof.
Good day shouldn't the company may refer to certain non-GAAP measures and pro forma financial information. During this call. Please refer to today's press release for further details on the definitions limitations in uses of those measures and reconciliations of non-GAAP measures to the closest GAAP equivalent.
Joining me on today's call are subject, one president and CEO upsurge market on workers CFO of service.
As a reminder, the only authorized spokespeople for the company, our Sanjit Mark and me.
Once again on this conference call, we will be demonstrating search technology. The prepared remarks will be reducing non foods coding technology driven by our neural AI based system called G. What you're about to hear our computer generated 40 schools of sundry Mark.
Following the voice called prepared remarks, the real Sanjay Mark will join the call for Q1 day.
Take close attention to see if you can hear the difference before.
Before him on tending the call over I would like to non several upcoming investor events. They are all virtual debt. So the exact timing bar participation is subject to change the conferences, including Wells Fargo TMT Summit 2020.
Raymond James' 2020 technology Investors Conference Needham growth conference in the 2021 Goldman Sachs Tech and Internet Conference. Please visit the events page on the investors section of the share its web site for the most up to date information on our participation.
Now onto the call Sanjay.
Welcome to everyone on the call and thank you for joining us to discuss sentences fourth quarter in our fiscal year results.
The majority of my comments will be on the achievements of our exciting first fiscal year as a standalone public company, but I would be remiss by not forced to abuse. The great results of our fourth fiscal quarter.
By all accounts, our fiscal fourth quarter was the best quarter in the company's history.
We had record revenue record gross margin record EBITDA and record cash collections.
On the financial performance of the company was amazing with 10% revenue growth year over year on 22% revenue growth sequentially.
In particular non-GAAP earnings per share to 61 cents per share was 88% above the midpoint of our guidance of 33 cents per share.
The outperformance was primarily driven by greater adoption of our products and services by the auto Oems the strong recovery the auto market, coupled with the prudent financial controls we have implemented in recent quarters.
As you can see in the guidance that we provided in the press release, we expect our first quarter revenue to be up approximately deep into 60 per cent compared to the same period in the prior year.
For the full year, we expect revenue to grow between 9% to 15% over fiscal 20.
We recently celebrated our one year anniversary as an independent company and despite the challenges from the on sort of go with 19, we are extremely pleased with the progress the company made during its first year.
We separated from nuance with minimal disruption delivered a steady stream of new products and technologies had record bookings, including two of the company's largest contracts in its history and deliberate fiscal year results on track or better than the guidance that we provided at the beginning of the fiscal year before the arrival of the bad debt.
Most importantly, we established said it is a leading company the very important conversation on it I speeds for transportation and mobility buying a lead role in a consumer's experience inside the car and with other forms of mobility.
Our participation as an independent company at the consumer Electronics show earlier in the year resulted in over 500 meetings with customers investors in the press.
By all accounts the show based us among the leaders for our technology and innovation in the car.
We also opened the NASDAQ market in hosted an analyst day to help introduce the company to investors and other stakeholders.
Among the key accomplishments during set into his first year you saw bookings increased by more than 70 per cent compared to fiscal year 19, resulting in an ending backlog of over $1.8 billion day.
These bookings included several highly strategic competitive wins with both our traditional Oems and also including a number of electric vehicle manufacturers, including deal accompany many consider to be that that's net of China.
We maintained our strong position in the embedded voice assistant market in expanded our portfolio of connected car customers.
As CEO my strategy is to drive the business with the priorities.
The priorities are to drive product innovation speed of execution and cost control.
Product innovation is the most critical element of a leading technology company and I drive that being very hard on this.
The steady stream of amazing technology and products, we have introduced during the first year is very exciting.
We enhanced our core technologies and leverage our embedded position inside the infotainment system to gain access to all the sensors cameras and microphones.
On this allows us to deliver new capabilities, such as disease detection emergency vehicle detection and many others.
We also introduced since either which can read articles with near human like inflection and sound that even that just how it works is an article depending on if it is news sports or something else.
One of the other key products introduced during the year was sentenced are the bluff enforced introduced in the China market, but now valuable in other geographic regions as a faster time to market lower cost solution for providing leading edge voice assistant capability in a car.
Since our on pre integrated with cloud based connected services and provides a turnkey solution for our customers.
We have introduced two new SaaS applications, our life and severance pay cash.
Our life and new suite of AI powered software as a service or SaaS offerings that provides drivers with the best and most up to date information about their cars, helping them learn about the cars capabilities or even scheduling service appointments when needed.
Since be uses voice biometrics to allow in car purchases using your voice to initiate the transaction and will generate revenue on a transaction basis.
I've already mentioned a few of the key products and technologies that we brought to market. This year, which leads me to my number two priority speed of execution you.
It is critically important to not only in a week, but too quickly translate that innovation into quality products and get them to market.
One of the most important functions within the company is our product management group chartered with turning ideas into products.
We have been extremely effective this first year and as we look to fiscal year 21 and be on the new product momentum will continue to race ahead.
The third priority to which I drive is cost control.
We have to innovate efficiently convert that innovation into new products, but also do so while keeping cost controls in mind.
How successful we are at these three priorities is what ultimately leads to our financial performance as a company and while Mark will review the details with you shortly I want to point out some key financial achievements for the year.
In February we announced our first quarter results and updated our fiscal year guidance to reflect better profit performance on key metrics, while keeping the revenue range the same.
Shortly thereafter, we hosted our first analyst day event in introduced a midterm target model for fiscal year 24, showing a 15% see GR from fiscal 19.
Then the pandemic reach our shows with the resulting impact on the auto industry, becoming quite severe to stay at home orders were implemented throughout the world.
We quickly made adjustments to our business saving approximately $12 million of cost in the second half of our fiscal year.
With the business holding up better than expected in our third quarter and the excellent results in our fourth we were able to deliver better results than the guidance that we had provided free Colby.
Another accomplishment during the year was our successful refinancing of the expensive debt debt, we received as part of the spin out.
This restructuring of debt is saving the company over $10 billion in annual cash interest expense.
Last quarter, we first presented to use cities of keep your eyes, which we think provides additional insight into our business.
We have updated those keep your eyes to reflect our fourth quarter results and have also added additional ones.
The new Pp eyes are two per white insight into the trends of using connected services by drivers of cars with our technology.
Overall, our keep your eyes continued to indicate strong business momentum.
Well connected cars shipped in fiscal 20 declined 16% when compared to fiscal 19 overall car production declined 19%.
Certainly call Weve had an impact on both our connected car shipments in car shipments as a whole.
The 14% growth in our billings per car is primarily driven by the expansion of connected services into more and more car makes and models.
This is consistent with the secular trend of increasing penetration of this technology.
The new keep the eyes, we are providing are related to the use of connected services in the car.
The chart on this page shows the number of active monthly users and the number of monkey transactions.
You can see the consistent growth trend over time than interrupted by the impact of covered and then the recovery.
Overall, we would expect that as more and more cars become connected debt. This chart ritual acceleration in both the number of active users in monkey transactions.
As we look to fiscal year 21, we expect to keep the business momentum going in.
In a recent study published by Adobe, 92% of people that use voice technology in a car say debt it makes them feel safer while driving from.
Writing enhance safety in a car is a core part of our mission.
The same study also reports that 86% of respondents feel that using voice technology outside the car makes them feel safer in the age of coated.
This has created additional opportunities for the application of Cedants technology to mobility solutions such as innovators.
We will continue to aggressively pursue innovation in our core technology launch new products and applications and expand further into adjacent markets such as to be on vehicles building mobility in others.
The future for since remains very bright and exciting.
I would also like to thank all of our segments employees for their support in the successful journey.
We cannot deliver these results without the dedication and support of sentences employees across the world.
I would like to turn the call over to Mark to review the financial results of the quarter and for the year.
Mark.
Thank you Sanjay offer.
I'll first review the strong performance for the fourth quarter, and then review our results for the full fiscal year I.
I will then provide guidance for our first quarter fiscal 21 and for the full year by all accounts, our fourth quarter results exceeded all expectations.
Revenue came in at $90.9 million almost $11 million above the high end of our guidance that higher revenue was driven by a strong recovery in our license business, which was up 43% over the third quarter, along with a 12% sequential growth in our professional services business.
Profit performance was exceptionally strong with non-GAAP operating margin coming in at 42% adjusted EBITDA of $40 million or 44% margin and non-GAAP earnings per share of 61 cents.
The lower spending plan that we implemented in April is the key factor for the elevated margins in the second half of the fiscal year, particularly in the fourth quarter. However, these cost savings will ultimately return in fiscal year 21, So I would caution investors and analysts not to read too much into the elevated margins achieved this quarter.
Regarding the breakdown of our revenues as previously mentioned, we had a strong recovery in our license business, which was up 43% from the third quarter and up 3% from the same period last year on.
Our variable license revenue recovered from the low point in the third quarter and was up 64% sequentially as auto production exhibiting very strong recovery during the quarter.
For the full year, our license revenue declined 5% due to the impact of COVID-19, well auto production was down 19% over the same time period. According to IMS Hs.
Our fourth quarter connected services revenue grew by 9% year over year, driven by an increase of 23% from our new connected services for the year the growth for new connected services was 62% versus fiscal year 19, we expect our new connected services to be a key driver of our growth in the future driven by a combination of the secular to.
Kind of more and more cars, becoming connected as well as share gains.
Our professional services business grew exceptionally well this year at 33% and tends to be a leading indicator of future growth potential for our license and connected revenues as this business represents the upfront consulting work performed to customize and integrate our software solutions prior to start of production.
Not surprisingly our strong bookings performance. This year has led to growth in professional services.
For the fiscal year, we were able to exceed all the key financial metrics of the guidance, we provided before the onset of COVID-19.
This is a significant achievement considering the impact of virus had on the auto industry.
Our revenue performance reinforces our ability to continuously outperformed the auto SAR and our decision to adapt quickly by reducing expenses enabled the business model to outperform expectations.
Our fiscal year, ending backlog grew approximately 32% from a year ago and is slightly over $1.8 billion versus $1.36 billion a year ago.
The growth in backlog was driven by record high bookings of $836 million for the year, which is up 70 per cent compared to the prior year.
The backlog is comprised of $967 million for license $740 million for connected and $106 million for professional services.
This represents year over year growth of 59% for license, 12% for connected and 8% for pro services.
Our guidance for the first quarter reflects strong year over year growth of 10% to 16% while global auto production is expected to be flat to down 5%.
The business model will still benefit from the COVID-19 expense reductions taken in fiscal 2000 is those expenses will be added back during the course of the year.
As a result, the first quarter, we'll see enhanced margins, resulting in non-GAAP gross margin of 71% to 72% non-GAAP operating margin of 34% to 36% adjusted EBITDA $31 million to $35 million and non-GAAP earnings per share of 48 to 55 cents.
For the full fiscal year, we expect to grow the top line between 9% to 15% representing another strong year of growth.
The margins for the full year reflect the complete restoration of expenses that were reduced in fiscal 2000, and the elimination of our hiring freeze both to support the expected growth in the business.
We expect another strong year of adjusted EBITDA, and CFO generation and our non-GAAP earnings per share is expected to be in the range of 1.81 to 2.0 $5. So.
So in summary, we expect the momentum developed in fiscal year 2000 to extend to fiscal 21 would be on.
Our employees are focused on our three priorities of innovation speed of execution and cost, which is keeping the company not only on a steep growth trends, but doing so while delivering excellent financial results.
With a strong backlog that provides visibility well into the future a steady stream of new technology and product introductions and a strong business model severance is well positioned for long term profitable growth.
This concludes our prepared remarks, and now we will open it up to questions.
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Sure. Our first question comes from the line of Rajiv Gill from Needham and company. Please go ahead.
Yes. Thank you on congratulations on excellent results.
Some day question on the the growth that you're seeing in licensing both on the backlog, but also on the sequential.
I was wondering if you could maybe elaborate further in terms of what you're seeing there in terms of the attach rates and what is kind of making you outgrow the overall auto automotive market, even though you're not necessarily tied to auto production. There is a certain percentage of revenue is tied on a production and you seem to be on growing that just any color on the licensing and then just on the connected.
Services.
Being down on a.
The year over year basis, how do we think about connected services.
In terms of the attach rates for counter 21, what kind of main application do you think will drive.
The higher attach rate for connected services next year. Thank you.
Yes. Thank you. Thank you.
So in terms of.
The license revenue.
I think we have talked about the AR and accretion story.
You know what it will work basically what we see is that more and more voice conversation on the EIS, becoming more and more important.
More than reported its becoming strategic as they function.
For the automotive OEM, they're basically bringing debt technology more and more into.
What used to be mid to high end cars, but also to the low end cars as well. So that's the main reason why we can't give you cannot be no increase.
And grow faster than the auto SAR right.
Debt Crane will continue we're absolutely seeing debt and I.
I cannot.
Make it more per year, there you know the customer discussions.
Our basic you leading to.
Absolutely.
This technology being very strategic to.
To do on auto auto carmaker basically.
On the connected services same day right.
You know as you know on architecture is hybrid.
Hybrid so that we have.
Certainly part of our product runs inside the car.
You know what.
With cloud connectivity, we can provide.
Even better set of services.
And better interesting capabilities to our.
Moving to the driver of the car and we see a similar.
Similar trend basically operating debt as well as.
The thing is the fact that services gets recognized as a as a sales.
Revenue it sold debt that is.
Is recognized at that so obviously going to be not only the the growth rates are.
Slightly slower from.
On the adoption standpoint, and so on but there is no different from our current thing on it if anything we expect connected services.
The look forward next year to be.
A big growth driver for our business.
Than anything else and you will see some exciting you connect.
Connected services products that we'd be releasing at December with tool in on hoping.
The growth rate even more.
Very good and just from my follow up Mark when looking at the peak.
The piece parts of licensing connected services.
So just on licensing to prepay.
There was a 46% growth year over year and prepay.
Do we think about prepaid going into next year.
This year, obviously because of COVID-19, there extenuating circumstances, which change.
Buying pattern for customers. So how do we think about net revenue stream next year and then on the connected service decides that the legacy self.
So from from.
Three percentage growth year over year.
How do we think about legacy revenue going into next year, and how does it kind of roll off throughout the throughout the quarter. Thank you.
Okay sure.
So the first question as it relates to Prepays.
Last year, we did 54 million.
In fiscal year 20 year before it was around 43 million.
If you go back to fight 18, it was around 53 or 54 million. So we seem to be in this range of low fortys to low fiftys, so going going into fiscal year 21.
I, certainly would expect us to be within that range.
If you recall in the past I have said that we're we're just we're sort of we're sort of bias towards reducing prepays. However, that's not always the insight our control because we have we have our customers demand as well and so that sometimes ebbs and flows so I think going into EPS.
On slide 21 might my view is that it would be it would be down from from fiscal year 20.
But but certainly I think it's going to still be be within the range that we have seen over the last several years, which is low fortys to high or low fortys to low fiftys. So long.
Long winded question or answer to your question, but I think that thats about the range that we're going to see.
For EPS like 21.
Regarding the legacy.
And net revenue.
We are seeing.
That revenue plat towing in fiscal year 21, So last year, we did about 63 million.
In legacy connected revenue for the full year I would expect for EPS, why 21 that to be flat year over year and then starting in fiscal year 22, you will start to see a decline in that legacy revenue.
As debt as that program just winds down and by the time you get to fiscal year 26, 20 fiscal year 26 should be the last year, and which we'll see some revenue probably down is on.
$8 million range in fiscal year 2006.
Thank you very helpful.
Thanks.
Thank you on.
Next question comes from the line of Daniel Ives from Wedbush. Please go ahead.
Yes. Thanks.
And great quarter.
Again can you talk about geographically just hold on in China, and India as markets and and sort of what that represents in terms of a growth opportunity over the coming years.
Mark I'll start and you can jump in.
Okay.
So you know.
I think China, we have been very focused in China, almost 10 years now.
And.
I have.
Very good market share for China.
China for China OEM.
Oems.
We absolutely have a leading mark.
Market share 80, 90 per cent for local Oems shipping cars into China, So that stops.
The median leadership, but even for China for China, where we compete with some of that local.
Oh.
Computer because were neck to neck in terms of our market share.
In that space, So we announced number on you.
Customers in almost four or five customers in the last quarter, you know Neil being one of them and and others as well so overall.
I think we're making great progress there basically and as you know China remains a.
A weighty.
It has the largest new cash.
Our shipment in any given year.
And so and we are bidding in equity.
Nicely on India.
India is a smaller market that's going to be the China auto.
But.
We're debt.
Definitely participating debt as well.
We did sign a one off the top three on local auto OEM.
In the quarter. So that was that was a great win for us.
Hopefully I will get the permission to announce the name suit and.
We're making progress, but clearly a smaller market as compared to China, having said that we're all so.
You know what we have talked about the two we their speech, we announced on worse do we live customer in China.
Last quarter and.
Sure.
Also progressing with the leader manufactures both in India, and China, because that's also a huge market, where our technology like ours can be sticky really.
The drivers.
Oh, what a hands free.
Usage, we've got our hands, they're supposed to be able to see getting real and eyes on the road. They can beat that we use technology from income from guidance do you kind of you know Additionally, I will be.
Services. So we're looking at that speed as well and in active discussion with number of companies index speeds as well.
Mark.
Yes, and so on the other thing I would add is.
No.
China, China market for Us you've got you've got two drivers right indigenous Chinese Oems as well as the the foreign Oems that sell into into China, I think we've got.
Very good market position in both of those.
Those areas.
I think the introduction of some of our as Sanjay mentioned, some some of our technology for two wheelers, that's where we're going to see some good growth as well as you know the severance ARX product.
Product, which is really geared towards some of the lower end lower cost markets and so that would also be I think good opportunity and fertile ground for us to grow inside of markets, such as China as well as India.
Great. Thanks.
Thank you on.
Our next question comes from the line of Chris Merwin from Goldman Sachs. Please go ahead.
Hi, Thanks, so much for taking my question and congrats on a gross finish to the year.
Wanted to touch on the backlog it looks like that increase I think that that 400 million.
Out of the last year and that's almost 30% growth can you just give us a sense of that Inc.
Incremental backlog that was generated how much of that was license first connected and then also how should we be thinking about the timing of that backlog being recognized as revenue in the coming years. Thank you.
Yes, so so the license the license backlog grew quite a bit went from about 600 million last year to over 960 million.
End of this at the end of this year, so year over year growth on that portion was almost 60% so pretty pretty substantial growth there.
Cannot followed by connected and then lastly pro services, but yes in terms of our overall growth we had over $800 million in total bookings when you factor out what we shipped out of backlog this year.
Total growth in the backlog.
You know it was it was about 30 32, 33%. So it's a very very strong year from for bookings.
Regarding how thats going to share.
Shipments in terms of revenue over the next several years.
You know that gives us a lot of good visibility.
Clearly.
I would say I don't have the numbers in front of me, but I would say.
50% or more of this backlog is likely going to ship over the next three.
Three year period.
And so we've mentioned those numbers in the past I think I think those numbers are still valid.
You know in terms of how much will ship over the next several years.
And that of course that 50% every year its its going to be much higher.
This year of course.
You know first and then as you get further out there with those percentages naturally decline a little bit.
But but all in all it gives us good good visibility into the business. It really sets us up for for for good growth in the future gives us some predictability as to what's going to be happening.
Over the long term and there will be obviously ebbs and flows right. We had we had one add this year, which was coded where things kind of slow down.
But I do expect things to pick up.
Next year on year and beyond.
Great. Thank you and just one clarification Tim.
In terms of the it sounds like licenses faster source of growth in the backlog, but I guess on Jay you mentioned earlier that connected is going to be a bigger driver of the business in the future. How do we kind of square those two things obviously, both pieces of the business are growing very well, but just trying to understand.
What's going to be the bigger driver going forward here. Thanks.
Yes.
Sorry go ahead. Please go.
Go ahead sorry.
No. So what that growth that was going to say was that.
We have introduced.
A number of.
New product flow quarter in that you will see some more interesting connected services products that debt.
Absolutely brand new innovation that obviously were.
In early stage discussions with number of Oems and combined.
On spec you know these.
Also along with this we plan to release, our what we call. Our one book takes cloud, which basically will will completely refreshed our cloud performance cloud offerings in cloud services and the early discussions we're having with number of Oems. There's a lot of interest in the March.
I don't bees.
These new products and I expect the.
Bookings and.
Revenue growth as I look forward.
We'll we'll drive.
The the growth even more I mean, if you look at year over year, our new connected services grew mark what about 60% rate or something like that.
As compared to the.
The legacy right. So the growth is pretty strong on the new connected services. If you take the legacy effect out.
That makes sense, thanks very much.
Thank you.
Your next question comes from the line of Chris Mcnally from Evercore. Please go ahead.
Thanks, so much on a detailed guidance and then fantastic that will continue in Q2 and price.
One one model question and then.
One auto Tech question. So on the model itself on I know you guys on.
Your assumptions, our bottoms up and not based on test per se, but just curious how conservative you may be on the actual global production number when we look I get this plus 13, LMC plus 15% to 16% and that's going to help drive your license revenue in particular, so just any detail that you can you can add.
Around that.
Sure I can start and Sanjay you want to fill in.
Yes, we do we do a bottoms up based upon our backlog, we try to sanity check all those those estimates with.
You know with with third party forecast information.
You know I think I think when you look at our growth in fiscal year 20, we grew 9%.
Year over year, while auto production for that same time period was 19 down 19%. So we had a we had a 28 point spread.
In fiscal year 20, however, when you when you look at some of the Prepays that we did in fiscal year financing you adjust that to be kind of flat year over year.
Probably accounted for about four points of growth.
So if you adjusted for that relative to our guidance for fiscal year 21, you could effectively add another four points, which is just to kind of get to an apples to apples comparison on.
You know on the effects of Prepays.
And then and then of course, you got to factor in what I've mentioned before which is the legacy connected is plateauing, whereas historically that.
That was growing each year now, we're just going to see that non.
Growth in fiscal year 2001.
So.
On that.
Those two points in conjunction with you know there is still a fair amount of uncertainty out there as it relates to COVID-19ien.
From flare ups here and there may.
May put certain certain forecast at risk.
So we just want to make sure that we are conservative you know going into the year, just because covert is still an unknown quite frankly.
Pardon.
We can follow up but it sounds like license is still going to be quite quite strong next year, if we take that sort of a 10% to 15%.
Growth that you have for the total business and an assumed that not much in professional we can pretty much lay that.
Maybe not equally but it sounds like it will be a little bit stronger than even connected for sort of for next year's growth.
I think I think license will we will continue to show growth.
And I think on.
Our pro services, even though we're coming off of a very strong year.
I would also expect pro services to grow year over year as well just because we've got a very good pipeline.
Of of new opportunities and new design wins, so I don't think I would put all of the growth in license.
I think I think also pro services is going to show good growth not to mention that the new connected services. That's that's been growing so it's a smaller base of course, but it's still showing very good growth.
62%.
Year over year growth on on the new connected services. So I would expect all of our three line items to grow year over year.
You know, it's not going to be all just in license.
Okay. That's from mid maybe it's hard to nail down a specific number but it sounds like that the growth is continuing to be good and all day.
Perfect maybe on.
On to that couldn't you tack on.
When you you talked about the $75 million to 2024 in your first CMV and the new revenue streams. The three thats opportunities and I think you've talked about Carlife sounds fantastic way to get details on on maybe even in the third one soon.
Could you just order of magnitude talk about the order book on those specific opportunity. Maybe you can just car license on patients. They don't announce how much of the 800 million plus booking again ballpark just to gauge how early are we in on OEM interest per dose per dose product.
So so Chris firstly.
Thank you for recognizing the damage [laughter].
The engineered me was really excited about using market, Mike loans, and I think thats, what I think were the worst we're earning call was done.
Bye bye flowed, while Mark and I were sitting a cup of coffee and meet people are current.
Una [laughter] contracting experience.
And clearly we need to train our model is a little bit more on financial terms rates I. I could see the on the.
Our loan book was getting little jittery, when it came to non-GAAP in some of those words [laughter], yeah annual EBITDA, yet and I hate to say net.
On the word I could give you.
Yeah, I think the financial terms, we need to trade more so to my team.
Great job, but let's treat the model more on some of the financial term, but coming to your question the on the number.
For the new SaaS is small we signed our first.
From a contract with a big OEM, but it was a small contract because they won't do.
Obviously, you'll see it go through.
Some more.
Work on the on the new products before they can if you don't make a bigger commitment, but we did sign one in the last quarter.
There were couple.
GAAP look bigger discussions going on which I was hoping will be signed in Q4, but they have been below what into kind of Q will do and what what we are finding Chris is that.
Or some of the apps.
Customers you know.
Remember these are Rev share transaction you know.
Hi book.
Models, where they are tied to not be the Cogs book the car the Cogs up the car.
Really no maybe when how repurchase.
When it comes to kind of you know made a purchase in connected services, which on a different business model that is little bit more deeper discussions that happen, but our pipeline for the new product.
New services is very strong and I hope to kind of you know come back with the.
So hopefully.
Hopefully major you know.
When in the fiscal 21.
Okay, great well look look forward to that thanks again guys.
Thank you on.
Our next question comes from the line of David Kelley from Jefferies. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions and also really appreciated the on the demo it's great.
Maybe starting with the the margin guidance I, it's interesting it looks like you're effectively guiding to your longer term 2024 target this year.
Just wondering mark if you could walk us through maybe the assumed timing impact on the roll off of some of those covert related cost cuts.
Benefits, we'll see this year and then from where we stand today do you see any upside to that 2024 EBITDA margin target of 35 per cent given how we're tracking thus far.
Sure sure and I I'll.
I'll answer your last question first and.
Yes, given given our performance even when I when I adjust out the short term savings that we realized because of the cobot actions that we took.
I think long term, our our analyst model that we put in in place for free 20 fours conservative as it relates to the margin profile I.
I think it's still a little early for us to go in and update those numbers, but I want to give it a little bit more time, but I do believe that we as we assumed like 65% connected services margin per employee 24, we're doing up close to 10 points higher than that already.
For pro services, we assume 10% gross margin.
For EPS why 24.
Last last last quarter, we did you know.
20, 20% plus and so.
One data point does it doesn't necessarily you know Dick.
Dictate from new trend, but but I I do believe that.
We are we are going to be updating that model.
And make those assumptions you know more in line with what we think is going to be achievable.
And so I think bottom line is on those those assumptions probably were a bit.
Conservative.
But I think once we get to our next analyst day, we'll we'll we'll be sure to.
Update those those numbers on share that with everybody at the appropriate time.
And so in terms of your first question, we will be bringing back those expenses that we we cut back in the second half of fiscal year 2000.
You know the way I look at it is in Q1 will probably be adding back around 3 million to 4 million.
Of those expenses and those would stay in for the bet for the whole fiscal year.
And then we would probably add another 2 million.
In Q2.
Maybe another two to 3 million in Q3, and then about another final million in Q4. So you know that's.
Thats about it if you kind of look at how it gets feathered in that's about the the 30 million dollar increase in fiscal year 21 on backs.
Relative to our annualized run rate in Q4, you know this of course is non-GAAP. So take out the stock based comp expense and depreciation amortization. So thats, how I kind of look at how were feathering in those expenses.
As well as the the on freezing of the hiring.
Okay, Great that's super.
Super helpful. Really appreciate all the color there and then maybe just a question on the I think you guys disclose 14% growth in billings per car I believe that fiscal 2020 number youve talked about the layering impacted connected sales on the on top of licensing book. They also seem to be in the early stages.
On the cycle recovery that benefits licensing just curious how you all are thinking about day ASP expansion opportunity at.
This year in 2021.
Yes.
Yes, so you know.
I think I think the ace the expansion that we saw last year you do have the layering effect on you know you once more and more cars get connected you're adding that revenue per vehicle on top of your your embedded.
And so that helps with that debt release helps drive debt that 14% year over year growth.
But that's not the only thing we're also seeing ASP expansion.
With for example, our license products, because where we're adding more features and functions more bells and whistles that you can do.
Demonstrate value and customers are willing to pay for that additional value. So we are seeing.
Expansion not only because of the layering effect of connected services, but also.
Just be because we're continuing to innovate and add more features and functions. We can get some some growth there as well.
All right great. Thank you appreciate you guys, taking my question. Thanks again.
Thank you.
Next question comes from the line of Joseph Spak from RBC capital markets. Please go ahead.
Good morning. Thanks, Thanks, so much on on.
Just going back to.
On your outperformance.
Yes, the industry on this.
Especially on a portion of the business that is tied to production to the variable portion we've definitely been outgrowing that over.
Overtime, but very specifically in the quarter that was down about 12%, which actually is below would be a collection was which was maybe down 3%. So was there something unexpected there.
There or is that just sort of yes on timing of some of the programs that you guys are on.
Yes, So I think I think it's a couple of things one on one is a little bit of timing there, but also in Q4 of last year. There was some some accounting true ups that flow through that that that revenue that license revenue line.
Which which I think kind of drove that number a little bit higher in the quarter and that's why you know it.
You tend to want to look at you know year over year or trend lines versus just one quarter alone because there could be certain things that are that could potentially skew the numbers and.
Sure drew you arrive at the wrong conclusion, so thats why if you look at like 20 variable license versus free 19, GRW a license we were down 15%, while the whole industry was that on 19 or 20%. So we wish we still outperformed from from from that four quarter perspective, but in Q4 of last year there.
It was some some true ups that helps.
Increased the revenue in that quarter of last year.
So thats sort of the spread you would expect the outperformance from a variable portion even sort of expect.
I would expect I would expect outperformance over over a trend period.
And.
With with with the technology getting.
More and more penetrated insight vehicles, it's it should be natural to assume that over those trend periods, we should be outperforming the auto production.
Okay.
And then just.
Bigger picture and then more forward looking.
As we think about some of the new products on to pay et cetera.
Uh huh.
Any more any sense, yet and talking to the automakers are customers.
In terms of.
Hi, this is really going to work on the adoptions or take rates are there.
The automaker or dealers are going to pay for it or whether to not.
A follow on on.
Shoulders of the consumer.
And maybe to follow on to that also one of the things we've been hearing a lot about turning the pandemic is right.
Customers for instance, looking for more convenience or.
Touchless pay et cetera. So was there anything you've seen even in those vehicles you have out there already on conversations or customers that gives you more confidence that customers are going to want to keep these services.
[laughter].
So I'm just about all of any questions.
Yes.
Firstly.
You know I can absolutely say categorically that the compositionally speed is becoming more and more important.
You know from an OEM standpoint on into customer discussions every be all over the water then.
Thats, one single message that I hear again, and again and again second.
Second.
The.
Well, we did get our worst.
Newlove connected services I'd mentioned in my press release in the comments basically it's a small renewal so we don't know but not.
Not a big number to kind of you know in a book.
Just about but you know the.
It's a good trend that debt customers care about the services in the car and these were cars that were shipped six seven years ago and B are they did that did you on with us to keep the service that lie in those cars, which are fairly order cars on the road hope.
Good point I would make is debt.
On the on the connected services side, you know that is you know loans.
You know in from the you know.
Sales discussions going on.
The model that emerging is going up you know that you mean, many Oems are bringing that out you know for example.
If you go to a you know BMW USAID dot com connected services, you will see a whole menu all connected services.
Perches using a week they've been number and basically the cost that you know we're back to the consumer.
They'd be the Bakken connected services, you will see our voice.
As the connected services, while you know that when when you buy BMW four years before you have to go on them and the LD micro beat even legal services and and what worked on what I'm getting from William that more and more customers are getting used to kind of in a bind connected services through.
OEM and once the consumers do you know what portion of that that revenue growth down to us.
Okay. Thank you very much.
Thank you.
As a reminder to ask a question you would need to press star one on your telephone to withdraw your question. Please press the pound key.
Sure. Our next question comes from the line of Jeff Van Rhee from Craig Hallum. Please go ahead.
Great. Thanks for taking my question guys loans the demo at just a real real compelling, but appreciate you taking the question couple from me on the connected car wins can you talk about the competitive landscape, who you're seeing what a typical deal looks like and in particular do you feel like you're holding your market share gaining share.
No.
Overtime hours, just a sense of how you see your share there are trending and then second secondly, if you look at the pipeline coming into 21, how does the the the scope of the pipeline now compared to 12 months ago, I mean, obviously a huge booking.
Bookings year, and just wondering what you can share with respect to color about the size of the pipeline at this point.
Sure. So firstly you know the I'll answer the second question first the.
The volume is absolutely a bigger order of magnitude bigger as we enter book 21, Although we had a great booking book with food.
Can't be you would think debt, we would have a pipeline that.
But he did a bit and you have to go and rebuild it but the good news is that with the introduction of new products and technologies.
And they are a very active we've been engaged sales force.
We're able to kind of going on maintained.
Pipeline, which is you know on what if I compare that to the startup that book 20 is north of two were flat glass right from where we were when we started.
Good 20.
So to that.
On that that debt.
That's going great.
I'm sorry, what was your question.
And on the connected car competitive landscape and to share.
Yes, so no no major change there.
We saw a one OEM b bench jie, Li adopting <unk>, who own wall will.
Okay. So that was going to be on nights when back we've seen one or two other bid back from other competitors during the during the fiscal year. You know that are from Brooklyn, similar discussion going on right now. So so overall you know I'm a.
Feeling quite good about our competitive landscape and how we're going to be no competing I think the biggest piece here, but you know on just how we're competing against our.
Competitors.
You know what is the Silicon valley based downtown door.
Ah I like Tech based in China.
China.
I think we continue to work closely on the.
Extending the digital light on bookings you, but in the car and making sure you know day that we coexist weighted well with the likes of Big debt company, whether those are big pick company debt and U.S. or Chinese big Tech companies or other big debt companies. So our.
Product strategy there.
Pretty aligned with what we're hearing from Oems and consumers.
Great if I could just sneak in two quick ones on the the two Wheeler I don't know what you can share with respect to Tam or unit pricing, but just get a fair number of questions people kind of wondering what the opportunity and scope of the opportunity is there and then on connected services.
You know in terms on looking at the bookings the individual bookings and when they go live is there anything in terms of a bubble or wave. If you will have on units that are expected to ship as you look over the next 612 18 months any particular windows, where you see a lot of prior bookings are about to go live and start shipping.
[noise]. So let we started that Mark maybe you can jump in yeah.
So I think you know Luke to orderly or for us to share the trend on the two Wheeler base.
You know we're in active discussions with.
About three more Oems right now and.
And were you.
You know.
Were positively surprised because the.
The the value of this technology and what would one would think that it will be on average is the would be much much lower than the on road just because the cog is is lower right.
In the automotive cog cog, but that you know were positively surprised so but give us a little bit more time to kind of you know get GAAP.
A couple of more be under our belt. So that we're not just me.
These statements are based on one or two deals right.
Mark you want on sort of the connected services pushed it yeah. So I think on the connected services. We we are we are expecting you know.
So peak season, and a continued ramp up of you know of our revenue as well as our billings right. Our connected billings would would obviously be a more of a leading indicator.
Because of the amortization schedule, we have with the revenues. So yes, I think I think for for 21, you're going to see you're going to see decent growth there, but I think in 22, you will start to see even even more esso piece, hitting and you're going to start seeing an accelerated growth in our new connected billings.
Yes.
Kind of like a like.
A steeper slope in in fiscal year 2002 versus versus 21. So.
I think I think thats, the sort of the horizon and as we as we've talked about in the past fiscal year 20 and 21.
Would be declines in our deferred revenues and then you'll be you'll see that slip and become it's become a source of cash again.
In fiscal year 2002, and so it's playing out the way we expected it.
I think heading in fiscal year 2000, it was a little bit more pressure just because the COVID-19ien production being down.
But in terms of the overall shape of.
Of how of how the change in deferred revenue is is going to flip from 22, and that's largely going to get be driven by a nice increase in connected new connected billings in fiscal year 2002, but we are seeing some growth and 21, but I think more growth even more so in 22.
Great Great real nice execution your cash thanks appreciate it.
Thank you.
I'm showing no further questions in the queue. At this time. This concludes our county I'd like to turn the call back over to Mr., Richard the gain in for closing remarks. Please go ahead.
Thank you Dylan and thank you everyone being on the call. Thanks for your support and interest from the company. We look forward to engaging with all of you in the near future have.
Have a good day. Thank you.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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