Q1 2021 Cerence Inc Earnings Call
Ladies and gentlemen, thank you for standing by and.
Welcome to San Francis first quarter 2021 earnings call.
At this time all participants are in a listen only mode.
After the Speakers' presentation there'll be a question answer session.
And I ask a question during the session you will need to press Star then one on your telephone.
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I would now like to hand, the call over to Victor again, Vice President of Investor Relations for Cerus.
Please go ahead.
Thank you Michelle and welcome to <unk> first quarter fiscal year 2021, corporates call before we begin and 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 severance mixing.
No representations to update those statements after the date hereof.
In addition, the company may refer to certain non-GAAP measures key performance indicators and pro forma financial information. During this call. Please refer to today's press release for further details of the definitions limitations and uses of those measures and reconciliations of non-GAAP measures to the closest GAAP equivalents.
Joining me on today's call are Sanjay Dhawan, President and CEO search and Mark Goldberger CFO of serves as a reminder, the only authorized spokespeople for the company are Sanjay Mark and me.
While many were amazed me our force technology last quarter, Sanjay Mark will be low for the prepared remarks, and Q&A and I challenge you to be able to tell the difference from last quarter's conference call to this one.
Before handing the call over to Sanjay I'd like to announce several upcoming investor events. They were all Horst virtual events. So the exact timing of our participation is subject to change. The conferences include this one state that 2021 Goldman Sachs.
And in our conference.
On February 10, and in March we plan to participate in the bedroom or a couple of industrial Technology conference. The Raymond James 42nd annual annual Institutional Investor Conference Baird's 2021 vehicle technology, and mobility conference and Macomb and mobility disruption summit. Please visit the events page and our investors.
Section of <unk> website for the most up to date information on our participation.
And I don't want from a call Sanjay.
Thank you rich and fun to be live this time so.
So welcome to everyone on the call and thank you for joining us to discuss our fourth quarter fiscal 2021 results I'll first review our strong performance in Q1, followed by a summary of the key product introductions. During the quarter. This will be followed by comments about the near term business environment and update of our key pro.
<unk> indicators, and then I'll hand, the call over to Mark to review the detailed financial results.
After a record fiscal year in fiscal 2020, we're off to a fast start and fiscal 2021 and is that initiated for innovation and market expansion and continue.
In Q1, we again delivered record revenue of 95 million, representing 23% year over year growth.
Our performance was driven by strong growth in our license connected services and in our professional services businesses.
While revenue growth is an important metric for the company I'm extremely proud on how we drive the business to achieve profitable revenue growth.
Our intense focus on this led to a non-GAAP gross margins of 75% and.
Adjusted EBITDA of approximately $40 billion or 42% margin and non-GAAP EPS was a strong 59%.
<unk>.
Overall, our Q1 results surpassed surpassed expectations and every key financial metrics and Mark will share. The details later in the call.
You may have seen our recent announcement further strengthening our professional services organization by hiring so without shot to lead. This group. So as that comes to us from Harman and has extensive experience in the automotive space and in particular, creating new service offerings that will lead to even more future growth.
And this part of our business and.
I wanted to just shop, so I want to welcome to Magellan and wish him the best.
And as strong as our financial results were for the quarter. There were many non financial highlights as well one of the key achievements in the quarter was debt. We were awarded a design win for a major European Oems and next generation infotainment system expected to start production in 2023.
We just received the okay to ship.
And the name of the European OEM is still entity.
And it's as you all know one of the top three auto OEM that was recently formed by the combination of FCA and PSA.
This win is important for two reasons first we won back back of customer debt had been lost to a competitor when our business was still part of nuance and second the deal includes <unk>.
Many of the latest connected services and apps product offering we announced just a couple of weeks ago at our sentence and motion event, a true Testament of the store.
<unk> of our new offerings and innovative technology.
And other headline event was our agreement with zero Alere company to deliver certain speeds conversational AI powered contactless payments and two week holds the way it vib Zeebo market platform. This deal is significant because it represents a major bookings for one of our new <unk> apps the book.
<unk> revenue cycle for these offerings is much shorter than our standard products. So we expect to see revenue from this deal before the end of the calendar year.
It is our speed of innovation and execution debt allows us to retain or win new design opportunities and that capability was clearly on display at our settlements and motion event.
During this event, we introduced amazing technology debt either represents best in class or brand new capabilities focused on extending or drivers for digital life from outside the car to inside the car.
And we introduced set and to drive to Darko <unk>.
<unk> upgrade to our core technology.
Set and strive to total features a combination of H technology enhancements and improved and expanded connected cloud services capabilities.
It would be the number of languages, we support the level of accuracy. The speed of response or the human like text to speech capability, we're confident sediments drive to Doctor and represents the best the very best of conversational AI technology available in the mobility market.
Yes.
During the <unk> and motion event, we also introduced a series of other new products.
Tenants extend for whites the ability for water drive would be use their voice to control apps on their Android or iOS beats smartphones.
Sentence extend removes the limitation of using your voice for a defined subset of apps on your phone and allows you to use your voice to control apps ranging from Microsoft teams to ordering a coffee through your Starbucks App.
This product plays a significant role and extending the consumers for digital life from outside of the car to inside the car no. One else offers this technology.
To truly extend once digital life into the car also means providing a seamless way for driver to interact with smart home and Iot systems.
This is exactly what <unk> said and connect allows you to do using your voice supporting multiple Iot and Big Tech ecosystems citizens connect allows the user to provide simple instructions or create custom smart home routines or rules.
Even if you use different ecosystems within your home sit and connect allows you to control them through one AI interface.
Sentenced to date is a new application that serves as a high quality professional tour guide in your car.
By selecting a preplanned trip or using the application of the goal set and Stuart can inform the user about the key points of interest and also book experiences like the restaurants museums and other attractions.
Sentence, Luke is a new product that has the capability to leverage geese technology and or the GPS location of the car to provide information on points of interest along the road.
Technology was recently demonstrated by Mercedes Benz as it travel knowledge product, which allows the driver to ask about the <unk>.
And if interest outside the car and the voice assistant responds with information described describing debt sales.
Sales look is currently in production now.
So and it's browse provides the intelligence of Internet search engines in the car using conversational AI.
And sprouts connect multiple sources in the real time index is continuously updated information from Internet sources, and using and uses machine reading comprehension to deliver the best possible response.
As I said earlier innovation is key to our growth and competitive advantages, but you know we shouldn't alone isn't enough. It's the ability to bring those innovations to market quickly with the highest quality and meeting we're surpassing the requirements of our customers I am happy to report we had several awards.
During the quarter recognizing the contributions.
The <unk> team has made to conversational AI technology and the car.
And one from a customer recognizing the rep.
Recognizing the value of said and as a partner.
While we value the recognition from customers. The one we received from Baidu is worth mentioning for two reasons first sentence was the only automotive supplier Baidu recognized for their 2020 Awards and second. It's another example of how it's a story of settings and big Tech north sentence or.
Victor.
As part of the sentence and motion event. We also formally launched conversational AI based platform for <unk>.
A decent market debt, we had been targeting the two Wheeler and building mobility markets that are approximately $90 million to really two wheel vehicles produced every year and we see the opportunity to penetrate this market with a truly unique solution.
As we have mentioned before we received our first win in this space late in fiscal 2020, and we believe we are well positioned for additional winds this fiscal year.
And the elevator market, we have made significant progress completing proof of concept demonstrations with two of the top five elevator manufacturers and the word.
The key to this business is that our product is capable of being retrofitted and retrofitted into existing leaders as well as incorporating into new installations. We are optimistic that we will have multiple elevator customers this fiscal year.
Just the innovation.
Expansion and acceptance debt I just discussed.
With the innovation expansion and be acceptance that I just discussed our PPI.
New to show good progress and I'll highlight two and particular.
The first was related to our average billings per car, which increased 40% year over year on a trailing 12 month leases.
And we previously compared year to date results to the prior fiscal year, but now are reporting on a trailing 12 months basis to provide a more accurate picture of the trends and the billings per car.
The other noteworthy GPI was that our adoption metrics continued to show a strong recovery following the impact of Covid and the middle part of the last year. We would expect this positive trend to continue.
We continue to see excitement from our customers about our product innovations and our long term growth opportunities remain bright in summary, the momentum created during our first year as an independent company.
Company and continue into our second year, we believe the new recent technology debt, we have brought to the market will keep the momentum going on.
Our focus has been on driver AI to enhance the experience and a safer more productive b, we will continue to expand in cabin AI using voice and increasingly other modality.
Longer term, we'll look for opportunities, where we can apply our AI skills into other areas like <unk>, we have a long term vision for the future of transportation and mobility and I'm.
I'm excited.
Really excited about the rules set and to play.
I would like to turn the call over to Mark to review the financial results of the quarter and our guidance for Q2 and for the year Mark.
Thank you Sanjay I'll first review the strong performance for the first quarter and then I'll provide guidance for our second quarter and an update for the full year. Once again, our results came in stronger than expected leading us to another record revenue for the quarter revenue came in at $95 million, which is $5 million above the high end of our guidance and.
For the 23% increase from the same period last year our.
Our profitability metrics were very strong and they all exceeded the high end of our guidance range. The non-GAAP gross margin was 75, 3% non-GAAP operating margin was 39, 7% adjusted EBITDA came in at $43 million for 42, 4% margin and non-GAAP earnings per share was <unk> 59.
For Q1 results are still benefiting from the cost savings that we implemented due to COVID-19 last year.
As previously mentioned these cost savings will return during the course of this fiscal year.
However, we believe that some of the gross margin improvements that we have seen and our connected services and professional services businesses are sustainable into the future and <unk>.
These improvements will be reflected and our long term model that we intend to update later this year.
During the quarter, we generated approximately $11 million of CFO and our balance sheet remains strong with total cash and marketable securities at $127 million.
During the quarter, we successfully renegotiated our term loan a with our banking partners, which is estimated to save the company $1 million and annual cash interest expense for key changes were a lowering of the interest rate spread by 50 basis points, removing the LIBOR flicks fixed for floor of 50 <unk>.
<unk> points and extending the maturity by 10 months to April 2025.
Now, let's review in more detail our revenue performance for the quarter.
Our record revenue was driven by three factors first our variable license product.
Revenue was up 21% from last quarter and up 8% last from last year, driven by continued strong recovery and auto production and setting the trough and the April may timeframe of last year due to COVID-19.
Second our new connected services revenue expanded 24% from last quarter and was up 55% year over year due to a continually expanding customer base adopting our new connected service offerings and third our professional services business grew 9% from last quarter and was also up.
And 55% from last year, driven by an increase and engineering activity and order to get customers ready for their start of production.
Additionally, our professional services revenue was higher than expected and the quarter due to the early completion of customer projects that resulted in and acceleration of about $2 million of revenue into Q1.
Moving onto our Q2 guidance, our revenue guidance for the second quarter of $92 million to $95 million reflects your year over year growth of 6% to 10% and takes into consideration. The current risks and uncertainties of the semiconductor device shortages that are impacting auto production.
According to IHS markit for semi and <unk>.
Conductor shortage issues are expected to be resolved by mid calendar year, and IHS does not expect and impact towards full year forecast, but rather a shift to the second half of the calendar year.
Due to our higher year over year revenue guidance for Q2, and the continued cost benefits from the expense reductions taken last year due to Covid. We are expecting all of our Q2 non-GAAP profit margin metrics to be up by 240 to 500 basis points versus the same period last.
Year.
For the fiscal year, we are updating our.
Our guidance to reflect our stronger than expected first quarter revenue and margin performance and also considers the risks and uncertainties surrounding the semiconductor device shortages that I previously mentioned.
Therefore, we are raising the bottom end of our guidance from $360 million to $370 million and keeping the high end at $380 million, which raises the midpoint of revenue to $375 million.
Also due to our continued strong profit performance.
We have also increased all of our profit margin metrics by up to 200 basis points specifically.
Specifically, we increased non-GAAP gross margin to be 74% to 5% to 75% non-GAAP operating margin to be 33% to 35%.
Adjusted EBITDA to be 35% to 37% non-GAAP EPS to be $1 91 to $2 10.
And CFO <unk> <unk> to be and the range of 67 million to $72 million for the year.
Adjusted EBITDA for the full year expected is expected to be and the range of $131 million to $140 million, which is up from our original guidance of $122 million to $135 million due to better than expected profitability and the updated revenue guidance. Please refer to our earnings press release.
Fortunately appendix of this presentation for more details of our guidance as well as our GAAP to non-GAAP reconciliation tables.
So in summary, the business delivered another solid quarter, our new products and technologies continue to enhance our competitive position, which is enabling us to maintain our strong market share.
And the business model continues to perform well as evidenced by our Q1 results and by raising our revenue and profit metrics for the year. The combination of strengthen our core business along with opportunities for new business from our new.
<unk> and adjacent markets paints, a bright future for severance.
This concludes our prepared remarks, and now we will open it up for questions.
As a reminder to ask a question. Please press Star then one is for.
Your question has been answered and you'd like to remove yourself from Q may press the pound key.
Our first question comes from Joseph Spak with RBC capital markets and your line is open.
Thanks very much for for the.
The question.
Sandra I, just want to sort of I guess off the bat.
Talk about how you see.
And the market here for evolving because I know nothing changes on your current programs are wins.
But since the beginning of this year, we saw Amazon at CES talk about selling the underlying access to to Alexa.
Companies, including <unk> Atlantis forward move to Android OS and that obviously comes with a Google voice and then on the earnings call they talked about integrating Alexa so.
I know and both of those instances there is nothing that precludes turns from being integrated.
But it does seem like on the Nextgen automakers might have more options going forward. So how do you view that development and.
And what is and your view with a.
If you will like a killer feature that keeps sorry.
Starting with the automakers and potentially more important customers using certain services.
Sure.
So Joe from my standpoint.
Nothing new here, we have said from day one.
When we were formed as a company that we always see big Tech multiple big Tech to coexist in the car.
Would be.
A bad assumption to say that debt 22 hours of my life I spent outside the car and I have a certain digital life and then when I get into the car, it's a totally different.
Digital life, which is.
Separate doesn't work right from a user standpoint, you always one kind of seamless and the second thing that we have always said also is debt.
And the Big Tech ecosystem is not limited to one Big Tech company and.
And I would challenge anyone to paint true their own digital life and you'll get the answer that your digital life includes.
Amazon includes Google includes Apple includes Microsoft and so on and so the big kind of reason.
Reason for the co exist is that we work.
Purely with the Oems to provide the.
The big deck independent.
Multi big Tech.
And.
Expedience ecosystem bridges, basically twice right and so debt remains <unk>.
The key interesting thing and the opportunities that you talked about and others basically where we if you look at our products like connect we're connecting to not just.
Apple.
Iot home ecosystems are Amazon or Google or.
Samsung Smart pens, or LG, <unk>, Q or others, we do it all right basically and and we become kind of debt.
Debt bridge. Similarly, when you look at our extended product, it's not only for Android for Android and it's what I always right. So.
Debt becomes kind of the interesting reason why debt.
Coexist story becomes strong.
Thank you for that.
I guess my second question would just be.
On the guidance.
And you mentioned and SME shortage and IHS is calling for the recovery and the second half, although it does seem like expectations, there might be slipping a little bit but.
You don't have the benefit of that December quarter that they are counting on and you and your guidance.
And I think it looks impressive here that youre able to.
As you pointed out market rate raise the mid point. So can you just walk through maybe the offset there and what youre seeing more.
Organically and that's giving you that confidence.
Yeah, So I think.
The.
And the increasing penetration rates, we see that continuing.
Debt trends like and.
And in the past.
And so that's not slowing down so regardless of what's happening with short term auto production.
Those penetration rates not only on the embedded but also on the connected those those rates are continuing.
To happen, so I think that.
It gives us comfort debt, we are still growing.
Above the auto Saar last year for example, we had a we.
We had a phenomenal year, we were well well above.
Although production, which was down 19% when our business was up about 9% year over year.
This year, we are forecasting has to be higher as well above what what's happening with auto production, but I think I think it's really comes down to the technology and the increasing secular.
Tailwind debt that were enjoying and the auto space.
Great. Thanks, I'll hop back in the queue.
Our next question comes from Rajiv Gill with Needham <unk> Company. Your line is open.
Yes, Thank you and congrats on an excellent momentum in your business and the marketplace is quite impressive.
The growth that Youre seeing and professional services.
It's been kind of consistent.
And improving.
How do you think about that business line this year, but also.
And the future about growing that business kind of what are the steps that you envision and <unk>.
And those lines, how do we think about the margins and that business I know you talked about.
<unk> been improving that what are the drivers to improving the margins on the profit line.
Yeah sure I can start and Sanjay if you want to add some color.
I'll start on the on the margin side, we are making improvements that we think are sustainable.
And those those improvements are really around shifting some of the actual activities that are being done.
And to lower cost locations, specifically in India and into China, and we think those improvements for those changes are going to help us improve the gross margins of our pro services.
Which we believe will be sustainable and as I mentioned earlier, we do plan to update our longer term.
<unk> model.
With some improved margin assumptions for.
The pro services business and addition to the connected we just wanted to give ourselves a little bit more time make sure that.
The business model for new business model proves itself out before.
Reset expectations on those assumptions and I think Sanjay might want to talk a little bit about the revenue.
Yeah. So.
No.
The main reason for Rps business is doing and are strongly support our.
Product and Dr.
Our product integration into.
Our customers' products. So so we really.
Steve and focused on debt and.
And those integrations are exists in the car and also in the cloud.
And we continued to expand our rps footprint as well around all of that and stuff, but remember our core focus is our product business.
And our license.
And the SaaS cloud services.
So on and so forth.
And while while.
While I see.
PS contributing strongly and I will be happy for that day, and I'm really proud of the PSD two improving the gross margin and so on and so forth and also expanding as well because the Dod is getting more and more digital so there are more and more integrations needed with not just voice and.
The interesting thing about voice and conversational AI is touching every part of the connected car and so we do get involved and kind of you know.
Various different integrations, including with.
Vision and.
Other new technologies, which are coming into the car other new sensors, which are coming into the car and.
And we will continue to do that and.
Again like I said the opportunities are huge and <unk>.
But we stay very focused on kind of making sure that the <unk> is very focused on our.
For supporting our core product integrations.
And Mark.
There was a 39% sequential drop and fixed prepay.
And obviously that business is lumpy one day.
And how youre thinking about prepay this year.
Yes, so so prepays can be lumpy.
And so it's more it's more concentrated.
So as we've seen in the past they can go up and down and so forth last year, we did about $54 million and Prepays and.
We do expect prepays to be down.
This year we.
And historically, we've been in that range of low <unk> to low <unk> and I think we're going to stay in that range. So last year, we were at the higher end of that range.
This year I would estimate, we'll probably be around and the middle of that range and so that's where we see it trending this year.
And last question Sanjay how do you think about increasing ASP growth for for your services and your.
And obviously, providing a tremendous amount of value to the OEM you enable a myriad of applications.
Yes, the Asps are still.
Fairly low compared to other services and the business other applications that are being offered and the vehicle.
So I'm wondering what are the steps that you're taking to improve the ASP and.
And when you think we'll see that improvement.
So.
And so rajeev.
Core business model.
Was set in a certain given way.
The company had.
When I first stepped in as the CEO about and all.
Almost 15 months back now right.
And.
And what we're doing very systematically is to enhance <unk> core business model and overnight, we cannot change that core business model because that's been in existence for many years and OEM are used to buying in.
In a certain way.
The core to our increasing the ESP strategy is going to be and our new products and new innovations and.
I cannot be more proud of.
How are.
Management and R&D teams have executed over the last year.
I Hope you had seen defendants and motion event, which was and we brought all of our cattle and a new product innovations out.
And.
And these are not just product announcements as we mentioned we're getting.
And we already have multiple design wins on these which will show up as kind of you know increased.
ESP and increase revenue in the coming quarters and years basically.
<unk>.
It's up.
Faisal is slower given the.
The way auto works right, but having said that we're trying very hard to bring in kind of our apps business.
Online to contribute revenue earlier and.
Foster.
And we're making progress.
And we're working very hard for it.
Great. Thank you.
Our next question comes from Mark Delaney with Goldman Sachs. Your line is open.
And I guess, good morning, and thanks for taking the questions.
And I was hoping first to follow up about the coexistence with big Tech companies and that can be talked about.
And good evidence of that but I was hoping you could elaborate a bit more and talk about how you're seeing your content per vehicle trend. When you are and one of those coexist and types of situations as opposed to.
The other day and being more of a standalone technology, because I think for the question is about what sort of price you can get for your technology.
Other services also being offered.
And I realize the company is doing a lot of net.
New technologies and and those are additional monetization opportunities. So if you could help investors sort those out and perhaps with some examples there would be helpful.
Sure.
So we have not seen any major swings.
From a coexistence standpoint, and Marseille and jump after me as well and I'm just thinking aloud are basically looking at.
Almost.
It doesn't and cars are so that we coexist with.
A big tech or not and so we've been able to kind of maintain our pricing position.
With the value.
Added by US and then buy our products and then kind of you know the <unk>.
<unk> market is to obviously expand would be.
With all the new new cloud services and <unk>.
Apps and other offerings basically.
There are.
Some new discussions happening couple of Oems.
Our.
So from a coexistence standpoint, and those are little too early for me to comment on kind of what the what the pricing and back would be obviously, our goal would be Duke and <unk>.
Dean and enhance right.
Of the core or tech and and also be expanded.
Products and technologies.
Mark anything you want to add please.
I think that's correct.
Yes, yes, I think I think that's accurate depiction.
Depiction Sanjay.
And that's helpful. Thank you for the comments there and then for my second question I wanted to better understand the growth and billions per car, which was very nice at that 20% growth.
But you mentioned you changed the calculation about how youre coming up with that figure to be a little bit of a different time period. So would.
Would you be able to provide us with how that metric would have looked last quarter. If you had reported under this current methodology. Thank you.
Yes, we could we could certainly we can certainly do that the only the only real difference is debt.
Last year, we were using fiscal year to date.
Versus the prior fiscal year, a fiscal year 19 fiscal year 19 and.
And the reason why we did that is we didn't have the specific data.
In fiscal year 2018, so we could only use fiscal year to date information and comparing it to fiscal year 19, now that we're into the new fiscal year. We we can use a trailing 12 month versus the prior.
Trailing 12 month period, and so now we can compare it that way, but and.
So yes, we can.
Last quarter was exactly the same answer because.
It was the full fiscal year, so we use fiscal year 'twenty.
Versus fiscal year 19, so the actual measurement for the result would be exactly the same as what we reported last.
Last quarter, because it was trailing 12 months versus the prior year trailing 12 months.
Got it makes sense. Thank you very much.
Our next question comes from Chris Mcnally with Evercore. Your line is open.
Good morning, guys. Thanks.
Thanks, so much maybe from.
Two questions one to Mark and just on just for modeling and then and Sanjay we could talk a little about the long term I guess mark.
Trying to figure out is you used to have that great rule of thumb, 10% to 15% growth above production.
It seems like with production moving around and <unk>.
And we see essentially different growth rates and connected and professional that may not be the case anymore is there any way that we could think about any rule of thumb for the outgrowth.
Going forward, even if it's on an annual basis, just something rule of thumb.
Because obviously youre going to grow a lot about but it seems like it it moves around year to year. So just would love. If you guys have thought or anything like that true.
Yeah.
That's a tough one.
It does it does move around last year.
We were we had a 28% or 28 point spread.
Well above the 10% to 15%.
And it's almost like looking at.
Trends right and if you look at the last for five years.
And we've been consistently above we still think that's the case going forward because the penetration rates are not slowing.
I think I think last year, because we were so far above.
It just makes this year a little bit tougher for for.
Compares right, so, we're probably a little bit a little bit under that spread but still above.
Auto production is going to be doing clearly clearly still still better than that but but maybe not quite as high as what we've seen historically I think it's just going to ebb and flow.
There's a lot there's a few things to consider right. One is prepays were planning to be lower this year. So that's going to that's going to have to be reflected in net spread.
The legacy our legacy connected business, that's a flattening effect this year.
As we all know.
Net programs coming through and and so.
We're not projecting any year over year growth.
For fiscal year, 'twenty, one for that business versus fiscal year 'twenty. It's flat. So that has an impact as well. So it's hard to give you a specific rule of thumb. If you will because it's a combination of many different factors that debt will ebb and flow, but I think the underlying.
Fundamentals of the secular tailwind that remains intact, and that's where the penetration rates are continuing for the embedded.
And the penetration rates are continuing for the connected.
And so that's what I would suggest you kind of focus on as those penetration rates.
And that makes sense and I think going forward.
And sort of have to think about the license businesses is really the only business that we can do the rule of thumbs and and even there we would probably have to sort of taken into account for year over year compares for the prepay.
So that makes and then and Sanjay.
Youre going to update later in the year on 2020 for I think we're all looking forward to that as it seems things are moving and the right direction.
Can we maybe just focus on and so.
Long term assets of the 2020 for guide that $75 million.
And that you had given looking at these future drivers and things like car license and severance pay.
Could you just talk about your confidence and that one sort of line item do we have enough visibility.
And out so that we booked.
And that much business out through 2024 or.
The pipeline looks extremely encouraging.
Just curious given the long term nature and the potential there.
How much visibility do we have now versus sort of we suddenly things to unfold over the next couple of years.
Yeah, so in the.
Last quarter, we book to bills.
And will contribute to revenue.
<unk> deadline.
So these are.
Real bookings.
No we don't break them down.
From a numbers standpoint, but there are significant bookings day so.
So that's that was good at least started now right. This cash.
Current quarter, we have a strong pipeline.
And I am expecting more band too.
Deals debt.
And we'll be book to this current quarter and that will also contribute towards debt.
Revenue revenue line.
We expect.
<unk> revenues and this year this year we are.
Only assuming very little contribution from debt, but then obviously kind of and always.
And more and more cars ship would be it would be we'd be apps and the new connected services.
The revenue was up so.
And now I'm feeling confident about the progress Chris.
Chris It is hard work, we're working extremely hard.
And very focused to kind of.
Work step by step with it.
M to kind of bring these new capabilities in.
Great. Thanks, guys.
Our next question comes from David Kelley with Jefferies. Your line is open.
Yeah.
Hi, good morning, guys.
Okay.
Just wanted to start with the Atlanta announcement.
Can you give us a bit more color on the technology relationship there and then maybe how you're thinking about the size of that incremental opportunity.
Sure.
Okay.
So.
Mark I'll start and maybe.
And you can.
Jump in.
On the to answer the size and all that.
So the.
<unk> opportunity was basically with.
No.
The official statement that we've got clearance to mention just a few hours back was.
<unk> has extended its partnership agreement to the cars of mixed generation of steel and its reading it from model from the email from the <unk> team.
So that's the official statement that we're allowed to say.
At this stage.
It's their next Gen platform.
I can't go into the details of it because obviously, it's for them to announce right and so that.
<unk>.
Having little bit difficulties, David to kind of go into more specifics I want to.
But I can't right.
But we're extremely proud and happy to be brought in because this was.
And one platform debt.
And we had.
For the sentence was formed when sentence was still part of nuance auto we had lost to a competitor and.
We're just honored.
And extremely proud to be brought back and in the Nextgen.
Mark.
I don't think that we can talk.
Great.
Yes, Unfortunately, we can't get specific on.
Any one particular customer unless we get their specific approval or okay and at this point we don't.
With that said, though.
It's a it's a win that we feel is notable.
We feel that because it was a win back.
That in and in and of itself is notable and just given I think given the size of this customer I think you could sort of.
Making assumption that.
It's a notable deal that we feel like it was worth mentioning.
Okay. That's all fair I thought I'd give it a shot and.
And then maybe switching gears to the.
And vivo announcements.
And the quicker bookings to revenue cycle.
Just curious maybe high level, if you could walk us through.
And you don't have to get into specifics here, but how the revenue structure of that business would work I would assume that's more of a transaction basis, but just curious to get some color around that would be great.
Yeah, I can start and Sanjay I'm not sure if you want to fill and any blanks, but.
Like like you said, it's like a revenue sharing or transaction based approach and it would get funneled through <unk>.
Through the <unk> platform and so.
No.
Our arrangement would be.
Zippo and so they would be managing those.
Those relationships they would be doing the administrative work and what have you and then.
As those transactions occur out there and the marketplace, we would get we would get a portion of our piece of it and so it's a revenue sharing type of arrangement based upon transactions and then we would get paid by.
Paid from <unk>.
Zero on that transaction.
Okay perfect. Thank you for sure.
Our next question comes from Jeff Van <unk> with Craig Hallum. Your line is open.
Great. Thanks for taking my questions guys just outstanding execution here, just continuing on a really solid performance coupled for me I know you don't quantify as it relates to the bookings are you do periodically, but can you give us some color and even even quantitatively about the bookings this quarter.
And you know any observations I think about the size scope and sort of different twist to what you booked for what you thought you'd book and along those same line same thing on pipelines and sort of talk about the pipeline composition. Obviously, you have a lot of new products I suspect youll have some commentary about some of these new products you already have starting to fill the pipe, but any other observations edge connect.
Did places youre, succeeding things that are lagging maybe those two critical pieces, maybe a bit more color.
Mark.
Yes, so so.
Yes, Youre right about bookings, we don't do it quarterly and we mentioned this I think last year and as a reminder for everybody. We we give mid year update.
For our bookings and then year fiscal year and update to our bookings and our backlog. So we're.
We're going to stick to that because bookings can be can be lumpy from one quarter to the next and we think thats the right practice, but not do it once a year, but do it twice a year.
And so with that said I think I think we'll we will defer our commentary on bookings until our next earnings call.
However pipeline pipeline remains strong as we continued to expand.
Our product offerings.
And also into adjacent markets and that is naturally expanding.
The number of opportunities that we have going into our pipeline and so that's the color I can provide at this point.
Maybe win rates on unconnected deals can you comment on that.
Yes, I think I think the win rates are unchanged, we are not seeing any any <unk>.
A difference from what we've seen historically.
Fair enough and then just last one on the PFS side, obviously very good number there and very good leading indicator for what's really going on out there.
From a utilization standpoint, where are you with respect to the capacity organization.
Sanjay I don't have that number handy.
Sure if you have it.
Sure.
About.
Running close to 80% utilization, so utilization as defined build to billable.
And in a build to available. These are the two numbers, we track Jeff right. So.
Build to billable and built two available and we are and our EPS.
There is.
By the way a few more percentage points that they can improve right. So.
With the appointment of <unk> Who's our new PFS had he comes from Harman.
Organization and.
Understands is extremely well.
So the trick of improving the gross margin debt are two things number one to look at the Cogs.
So basically kind of use.
And as much.
Offshore as possible and the right mix of offshore and onshore so and prove the Cogs and the second trick is to improve the utilization. So those are the two things that he's focused on.
Okay. One last brief one if I could COVID-19 what are your assumptions now I know some you may.
And some cost return clearly when you come back to more normalized environment, what are the assumptions and our model with respect to coming back what what magnitude of sort of back and the office do you ultimately expect and any thoughts on timing.
Yeah. So so.
We did have some some significant cost savings last year, we are starting to two.
Bring those expenses back in.
And I think for Q1, we were a little bit behind our hiring plan. So that's that was part of the benefit and.
And Q1 as it relates to the margins.
Youre going to see more incremental.
And if those expenses coming in Q2, probably about the same magnitude and Q3 and and things are going to start to level off as we get into Q4, probably still going up but not at the same rate. So by the time. We're finished with this fiscal year I would expect all of those COVID-19 savings.
That debt.
Book last year to kind of find their way back into the P&L along with the removal of the hiring freeze, which is which was really a cost avoidance that we had last year and so we will.
Net net have have higher head count.
Relative to last year, because we and throws that hiring freeze.
However, we did say that.
On the gross margin line connected and pro services some of those expenses.
And we think are not going to be coming back just because we're making some sustainable improvements and.
We'll be giving you an update to that long term model.
And then and the coming months.
Sounds good congrats on the performance thanks, yes.
Yes, but I just want to add.
One thing debt.
I am just extremely proud of our team of how we're executing on on profitability I tried to say that and my comments as well.
And there is.
And you can compare us to.
No.
And in many other companies and kind of delivering 42% EBITDA. This year and then increasing the guidance for the whole year, just really proud that we're able to deliver profitable growth.
That's something that Mark believes and I believe in.
And we're just proud debt.
And our teams able to deliver today.
Yeah, absolutely. Thanks.
Our next question comes from Michael Phillips, with Banbury and capital markets. Your line is open.
Hey, good morning, guys. Thanks for taking my question just one quick one really I believe originally for 2020 for outlook wasn't baking and much in terms of renewals on the connected services side. So I was just wondering if you have sort of any better visibility into sort of the expected renewal rates on the connected side and sort of where those renewals stand today and maybe maybe you could remind us.
When a bulk of those renewals will start to start to happen.
Yes, so you're right about our model, we were conservative and we didn't factor in any renewals and our 2020 for model, mainly because we just don't have any data points.
So far we still we still have that one that we announced.
Last quarter. So that's that's really the only.
Update that we've got which we provided last quarter I think I think as we get more and more.
Over the next year, so we'll get more comfortable as to what those renewal rates will look like.
But I think with that said.
The consumer is wanting the cars to be connected so I think I think just the demand and the adoption rates.
<unk> that you thought and our slide deck.
As those trends continue I think the consumers who are ultimately going to be pushing for that connected for that connected car and for that connectivity to continue. So I think I think that that should bode well for us in terms of.
The future ability for these for these renewals to come to fruition.
Michael.
And just completely coincidence.
<unk>.
Dry with 2017 BMW and.
And this weekend I did personally.
And paid BMW $225.
For a package to connected services package per year.
To provide connectivity and to my car right. This is this weekend. So I can in a share price transaction with you and and.
And if you go to connected drive the BMW USA Dot Com, you will basically seek and up the packages that they have for we just different connected services and I bought the.
There was a $50 150, and then Theres a $2 25, so I bought for $2 95 package, because the connectivity and my car was.
Had expired as part of the new car purchase right and it's.
And the subscription.
And I appreciate that was great color and.
And I know you provided some of the moving pieces around for.
From a services revenue and some of that was pulled forward into into Q1, but maybe if you can talk about sort of the growth.
Expectations for new connected versus the variable revenue and edge and what's really driving the growth and the updated mid points of your fiscal year guidance that would be helpful. Thank you.
Yes, so the new the new connected and we see that continuing.
The growth trends there continue to be to be good.
And and pro services, we had a very very strong year last year.
And year over year, it was up 55%.
Part of that was driven by an acceleration of some some PS revenue into Q1, and so I would I would expect.
For Q2.
The <unk> revenues to be down.
Because of that and that's been reflected and the guidance that we have given but.
But I think year over year, PFS should should be up as well.
And so I think I think on all fronts, whether it's the license business.
The connected new connected business as well as our Pes business all of those businesses.
We expect all of them to be up year over year and so.
All that's been factored into our current guidance, we haven't gotten more granular.
On the specific revenue streams.
But at the corporate level.
And that's how we kind of.
The buildup to our total guidance for the year being plus 12% to 15% year over year and each one of those individual biz.
Business lines, and we expect to be up as well.
Got it thank you very much.
Yes.
As a reminder to ask a question. Please press Star then one.
Our next question comes from Dan Ives with Wedbush Securities. Your line is open.
Hi, This is strecker on for Dan.
Just the recent GM headlines and electronic vehicles, and then just the massive EV push overall can you sounded I talk about how that just plays into this earnings growth story potentially over the next couple of years. Thanks.
Yeah. So.
As you know, we have announced to many many GM and many many.
<unk>.
Our partnerships over the last and how many quarters rate and.
From our standpoint.
And what assumption in the pieces of what we do is that the card is getting more digital.
Which basically means it's getting more connected more electric more autonomous more shared and and the user.
Interaction.
Using AI is going to play a more and more important growth thats. The core thesis behind <unk> and as you saw and my slide that I presented to.
<unk> and motion and also in the earnings today, we're really focused on driver AI cabin AI Road AI that's.
And Thats, our focus because our core assumption is that the Dod is getting more digital and connected and electric and with that basically AI is going to be play a very important role and be in the drive and interactions in the Cabot interactions and the road interactions and what we want to do is be.
Each be a premier company focused on providing day.
AI platforms for that.
And that's our core thesis.
Thank you.
There are no further questions I'd like to turn the call back over to Richard Gagnon for any closing remark.
Thank you very much and thank.
And you for joining us from the call. This morning, and we hope to see you and one of our upcoming conferences.
Over the next few weeks, thank you and have a good day.
Thank you gentlemen.
This concludes the conference you may now disconnect everyone have a great day.
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