Q4 2021 Cerence Inc Earnings Call
Good day, and thank you for standing by welcome to the <unk> fourth quarter 2021 earnings call.
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After the speaker's presentation, there will be a question and answer session.
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I'd now like to hand, the conference over to Richard <unk>, Vice President of Investor Relations. Please go ahead.
Thank you Liz welcome to services fourth quarter and fiscal year 2021 conference call before we begin I would like to remind you that this call me bolt certain forward looking statements. These statements are subject to risks and uncertainties as described in the press release preceding today's call service mix.
No representation 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 equivalent.
Joining me on today's call are Sanjay Dhawan, President and CEO of search and Mark Kellenberger CFO severance as a reminder, the only authorized spokespeople for the company are Sanjay Mark and me.
Before handing the call over to Sanjay I would like to announce several upcoming investor events. The conferences include the credit Suisse 20, <unk> annual Technology Conference on November 13th in Scottsdale, Arizona, and several virtual events, including the Goldman Sachs Global Automotive conference on December 2nd Raymond James Virtual Technology Investors Conference on December.
Sixth and the 24th annual Needham growth Conference on January 11th.
Please visit the events page in the investors section of the <unk> website for the most up to date information on our participation at these conferences.
Now onto the call Sanjay.
Thank you Jack good morning, everyone.
Welcome to everyone on the call and thank you for joining us to discuss our fourth quarter and fiscal year 2021 financial results.
For our call I'll first review, our strong financial performance.
In the fourth quarter and full fiscal 2021, followed by a review of some of the key products introduced during the year.
Boards are recognizing our leadership in one additional AI.
Notable events that took place during the year Nick.
Next I'll update our key performance indicators, and then hand, the call over to Mark to review the detailed financial results, including our outlook for fiscal 2022.
We're pleased that we have been consistent in delivering strong results on key profitability metrics throughout the first two full years.
As an independent company.
We're still in the midst of our customers' production constraints due to the semiconductor shortage, yet we were able to deliver year over year growth of seven 5%.
Revenue came in just about the midpoint of the range was aided by strong year over year growth in our licensed contract, which was up with people, but then from the previous year.
The degree that the semiconductor shortage will continue to impact our.
Production plan, it's still an open question as well.
The new fiscal year.
For the full fiscal year.
I'm, especially proud of our results given the challenges you could be semiconductor shortage impact on auto production and some lingering effect due to COVID-19.
<unk> growth was up 17% compared with fiscal 2020, and nearly all of the other profitability metrics.
If we could be above our original guidance provided at the beginning of the year.
Bookings at <unk>.
$190 million came in very strong, including nearly $120 million for our new product and service.
Which will provide the strong solid foundation for the revenue target for the product in our 2024 model.
We believe bookings will allow us to maintain market share for our licensed product and gained share for our connected trip.
These bookings led to a record backlog for the company of approximately $2 billion.
What I'm most proud of what's been back from a competitor with a European OEM.
This was business law when the business was still.
Part of Milan, and the win back represent validation of the <unk>.
But.
The team has done to continue to innovate and integrate our product to a level the competition will find hard to match.
For those of you I.
I've had the pleasure speaking with you have Gordon we talk about the three key principles that I drive the company innovation.
<unk> and <unk>.
As a tech company. It is imperative for us to continue to innovate and bring new products to market.
Our existing technology or provide new features or capabilities.
Thats, how we will maintain our technological and market share leadership.
I'm very proud of our R&D team that has delivered so many new products this year.
In some cases.
Brian will expand.
The product.
During the year in others such as the.
Right.
They were in production for the fourth time.
I'm, especially excited about our browser product.
Perfectly with our core.
It would be carbon.
Digital ecosystem.
Brown literally allows the driver to search that therefore, any information by using their voice while driving.
That is right.
Also a good example of VW accretion as the product went into inception from inception to startup production with one of the top customers in eight months.
I'm also excited about our <unk> or emergency vehicle detection product.
We're the first company.
To provide emergency.
Vehicle detection in the car and to be able to alert the driver so that they can safely get out.
Lee this is.
An important safety feature.
Will it be adopted more and more <unk>.
More and more automakers.
This capability is now in production.
Two of our new product.
And building mobility leverage our core technology for the car and Goodyear decent Mark.
Who will be elevated.
We have now won business in both of these decent market and believe they can be significant generators of revenue in the future.
As a company, we're laser focused on reaching the mobility space.
This focus allows us to work very closely with our customers to make sure. We're meeting their needs for their next generation infotainment system.
You can expect and you can expect another city framework enhanced technology and new products.
In fiscal year 2022 as well.
Of course, if the yield you would expect me to be excited about the new product, we have brought to market, but it's always great to get independent acknowledgment of what we have accomplished.
You can see from the slide.
Our AI technology leadership is recognized by companies and organizations from around the world.
Baidu award is especially pleasing because in some ways.
Could be considered.
In particular the old.
So really recognized.
<unk> Chinese company.
The automotive news pace award for <unk> is another one we are especially proud of them.
One of our newer application.
Sure.
These awards recognize not only the leadership, we all put in conversational AI technology, but also our ability to execute.
Delivered new product to our customers.
There is the <unk>.
Dedicated to our customers.
And we worked extremely hard and collaboratively with our customers.
Several of these awards that he presented.
While fiscal year 2021 was a good one from the perspective of our financial performance.
There were also several important accomplishments, we expect to keep that momentum going.
Firstly, we had several wins in tubular market.
One with the leading global provider of tubular motorcycle and four wheel APB we.
We expect of course product dark production with or without technology in calendar 2022.
Second we have been talking about the potential of our technology in the elevator market or some tightened up.
I am excited to report that we have won our first business.
It is with one of the top manufacturer.
In the World and we are excited to help them create the future using conversational AI.
We expect to expand further in this market during the fiscal year.
We have also won our first business in another different market that we have not yet closed.
You will hear more about this in the near future.
Chip.
We had.
Ultimately 100 billion in bookings, what our new products and services.
Richard.
80% of our total bookings for the year the interest in these new products.
<unk> been very high and bookings in fiscal year 2021 was what gave us confidence to raise our revenue target for these products in our fiscal 2020 for modern Ms shared with you last quarter.
While the a different market and new apps and services are key to our future growth, we still have a laser focus on strengthening our core business.
We have.
Added 14, new logo.
The year, meaning 14 distinct pieces of business. We did not already have this included five competitive takeaways, including three in China.
At 174, we have record number of bookings.
Startup production during the fiscal year.
Auto production recovers, we would expect to be.
This high number of applebee's to be an added acceleration to our business.
In summary this.
2021 was a very good year for setting the foundation for <unk>.
Pension up the business, we fully expect to build on this success in fiscal 2022.
Moving on to our Kpis.
That is those people then continued strength in the business.
Auto production, maybe down due to the semiconductor shortage.
We continue to ship, our technology and more than one of every two card produced on a global basis.
More importantly, we saw an increase of 20% in the number of cars produced with our connected services compared to the total auto production.
Growth of 9% for the same time period, our strong growth is likely due to a combination of the penetration of connected car technology and market share gains.
Our average billings per car increased a solid 8%.
Year over year.
Average contract duration continued to expand primarily due to the increases.
Connected contract with longer subscription PDL.
While it's still a positive trend the data on PPI showed a slowdown in monthly active users.
We believe this is attributable to the lack of availability of new part and COVID-19 will impact on RBC in different parts of the world.
I want to close my remarks by reminding you of our long term vision for the company. Our goal is to be described drove AI, bringing up the costs essentially becoming a driver.
Copilot.
With that we will see significant opportunity in the combination of vision and AI with application and driver monitoring as well as root in cabin monitoring.
This is an area you will hear more from us in 2022.
Finally, before turning the call over to Mark I'd like to acknowledge the launch of our inaugural ESG report this past Thursday.
Do you believe we are good stewards of the principles of ESG and this report is a significant <unk> been sharing that with all of you you can download the full report from our website.
I'd like to now turn the call over to Mark. So he can review with you the details of the quarter and full fiscal year and provide Q1 guidance.
And our initial guidance for fiscal year 2022, Mark.
Thank you Sanjay I'll first review another strong financial performance for our fiscal Q4, and then I'll provide guidance for our fiscal Q1 as well as fiscal year 2022, we delivered another solid quarter of top line growth and even stronger bottom line performance revenue.
In at $98 1 million, which met our original guidance of $97 million to $101 million and as a seven 5% increase from the same period last year, despite very difficult part of production conditions due to the semiconductor shortage.
Most of our profitability metrics remained very strong and exceeded the high end of our guidance range and non-GAAP gross margin was 78, 1%, mainly driven by favorable product mix. Our non-GAAP operating margin was 37, 2% adjusted EBITDA was $38.
8 million or 39, 6% margin and our non-GAAP earnings per share of <unk> 66 cents.
Exceeded the high end of our guidance by <unk> <unk>.
During the quarter, we generated more than $23 million of CFO and our balance sheet remains strong with total cash cash equivalents in marketable securities of approximately $166 million.
Now, let's review a detailed breakdown of our revenue.
Our strong revenue growth compared to last year was driven by three factors.
First our total license revenue.
Was up 11% year over year, while our variable license revenue was down 13% from the same period last year due to the semiconductor shortage, we outperformed auto production, which declined by 16% for the same period.
Our variable license revenue is where you would see the most direct impact from lower auto production, which is partially offset by the continued increasing penetration of embedded AI technology getting designed into autos.
Our fixed license contract revenue increased 53% year over year as a result of two larger than normal deals that closed in the quarter.
Second while our connected services revenue was basically flat from last year and includes a onetime adjustment of $1 $7 billion to correct, an amortization schedule on a hosting contract with.
Without the adjustment our new connected services revenue would have been up 18% year over year.
And lastly, our professional services revenue was up 9% year over year due to the increase in the number of customer projects and activities that we have going on.
Moving onto a summary of the full year, we delivered excellent results that were significantly higher than the original guidance that we provided at the beginning of the fiscal year <unk>.
Despite the challenges our customers have had to face due to the semi shortages, we delivered better than expected results on nearly every metric.
On the top line, we achieved we achieved 17% growth year over year, which is approximately $17 million higher than the midpoint of our original guidance.
We also delivered strong year over year growth in every profitability metrics, including adjusted EBITDA growth of 34% and non-GAAP EPS growth of 49%.
Additionally, we generated over $74 million and CFO, which is an increase of 66% versus last year.
All in all our second fiscal year as a public company continued to demonstrate the companys capacity for growth and the ability to deliver strong bottom line results.
Now, let's review a detailed breakdown of our revenue for the full fiscal year.
All three product and service areas contributed to the sequential growth.
License revenue was up 23% over the prior fiscal year due to growth in both variable and fixed licenses. Despite the impact of semiconductor shortages on auto production are variable license grew 19% year over year, which is about 10 points higher than the auto production growth of nine.
Percent for the same time period.
As previously mentioned our variable licenses the portion of our business most directly impacted by changes in auto production, yet, yes, we were able to deliver growth due to the continued penetration of conversational AI technology being designed into more autos as well as the number of Sop piece, we had.
During the year.
Our fixed contract license grew 31% the amount of fixed contracts are difficult to predict and while this year. They totaled $71 million, we expect that number to come down in fiscal 'twenty two.
Our total connected services revenue was up 12% for the year driven by growth in our new connected services, which was up 31%.
However, excluding the onetime amortization adjustment that I previously mentioned, our new connected services growth would have been 36%.
With or without the adjustment our growth in new connected revenue was quite strong.
And our professional services revenue was up 9% year over year, while that growth is important. It's also worth noting that our non-GAAP gross margin improved from 12% in fiscal 'twenty to 'twenty, 1% in fiscal 'twenty, one as we continue to make sustainable improvements to our service delivery model.
Due to the due to the strong bookings during the year, our ending backlog increased by $200 million to a record of approximately $2 billion.
The biggest driver of growth in our backlog was due to our new connected services business as more and more vehicles get connected.
Backlog for our professional services also grew nicely, which is consistent with the increasing need for our engineering resources to support our customers on a global basis.
And as expected our legacy connected backlog continues to bleed off over time as we continue to provide the connected services to the legacy installed base.
Speaking of our legacy connected business as a reminder, that the legacy connected business is a one off connected contract that was part of an acquisition that nuanced did back in 2013.
We have already explained how this legacy contract would be a cash flow headwind to our <unk> for fiscal year, 2020, one because most of the cash associated with the revenue that we are now reporting was collected by nuance prior to the spin.
The cash flow headwind attributed to this contracted now behind us and now our deferred revenue is expected to return to be a source of cash starting in fiscal 'twenty two.
However, the revenue amortization has peaked in fiscal 'twenty one.
And as expected to wind down starting this year you can see from this chart. The annual revenue contribution for the duration of this legacy contract with the largest drop of $23 million occurring this fiscal year.
So as we provide guidance for fiscal 'twenty to 'twenty.
$23 million decline in legacy revenue will have an impact on our year over year growth rate.
Turning to our full year guidance, our fiscal 'twenty two revenue growth is expected to be in the range of plus 3% to plus 10%.
This assumes using the most recent IHS auto production forecast of zero growth for the same period.
However, after adjusting for the $23 million drop in our legacy connected revenue our pro forma growth would be in the range of plus 9% to plus 16%.
Keep in mind. This guidance also assumes an expected decline in our fixed license revenue after a record setting amount of $71 million last year.
Our market share remains steady and the revenue and the revenue guidance reflects this assumption as we previously talked about we generally expect to grow about 10 to 15 points above auto production, which is expected to be flat. This year. According to IHS and so our pro forma adjusted growth of plus 9% to 60.
10% is generally in line with our expected growth rate above auto production.
Additionally, the adjusted growth rate for this year is consistent with last year's growth of plus 17% in the year prior a plus 10%.
As we did last year, we will update our fiscal 'twenty two guidance throughout the year as more clarity about the semi shortage environment has received.
Recall that last year due to Covid. We initially provided guidance of $360 million to $380 million and continued to increase our estimates throughout the year and ultimately delivered $387 million in revenue exceeding the high end of the original range. We believe it's prudent for us to factor some level of conservative.
And so our guidance due to the ongoing semiconductor shortage plaguing the auto industry and the continued uncertainty of the timing of when the semi supply chain will ultimately be corrected.
Regarding our EBITDA guidance, we're continuing to make investments in our business, particularly in R&D.
So that we keep extending our technology lead and translate those investments into higher topline growth.
Although our EBITDA guide of 37% is down from our record setting margins of 40% last year recall that we cautioned investors a year ago that our margins were temporary temporarily inflated due to the COVID-19 cost reductions and that we plan to add back those.
Throughout fiscal 'twenty one despite.
Despite our increase in R&D, we still expect to deliver strong EBITDA margins in the mid to high Thirty's.
We continue to improve the cash flow conversion of the company with <unk> to EBITDA conversion, increasing from 39% in 2020% to 48% last year and now projected to be over 51% this year.
Moving on to our guidance for Q1, our revenue guidance of 91% to 96 million reflects a year over year change of down 3% to up 3% or essentially flat while according to IHS auto production is forecasted to be down 21% for the same period.
We've taken into account not only the IHS forecast, but also the current risks and uncertainties of the semiconductor shortages impacting auto production.
The good news is that auto production appears to a trough in the August September timeframe and is starting to pick up again.
Keep in mind that about a third of our business is directly impacted by auto production in any given quarter, which shows up in our variable license revenue.
We expect to generate between $31 35 million of adjusted EBITDA and between 47, and <unk> 50, 353 earnings per share on a non-GAAP basis.
So this concludes our prepared remarks and now we'll open it up to questions.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
Withdraw your question press the pound key.
Our first question comes from Chris Mcnally with Evercore.
Hey team.
Okay, let's see where to start and maybe.
If we could start on the on the Big picture.
Obviously, we're getting a lot of questions would just love to have you.
Our reiterated outlook of 2024 has anything changed since you initially gave that that outlook for $700 million a couple of months ago.
So let me start and then on.
Mark do add in.
Right.
So from a from my standpoint, no nothing has changed we stand by our guide for fiscal <unk>.
24, and feel really good about it.
As you heard in my prepared remark.
The new product.
Contribute to unlock towards that guide and 20% up our bookings of about $120 million.
Was it was that from a bookings standpoint.
We are.
So have we'd be announcing some new.
Aftermarket products, we have received an award letter or one of them already which is not part of our bookings yet.
It will be part of our.
Fiscal.
Quarter, one bookings so from that standpoint, I feel good that our new products are further.
Reviewing toward.
The.
The contribution.
And lastly.
For the.
Once again on the new product side. The elevate Rfps you saw saw me mentioned that'd be half.
One one of the top manufacturers of elevators as is our customer in <unk>.
In fiscal 'twenty, one having said that we have decided not to take any bookings from that contract yet because.
We want to be cautious about what bookings to be reported to the street and.
And so on and so forth and.
But the contract is one we will be shipping for revenue in this in this current pits.
In the new fiscal year fiscal 'twenty Pete.
But we have not taken any bookings yet because we want to be cautious about.
It's a new market for us.
Want to see sort of.
The volumes and trends and so on and so forth from.
From that customer so the net net basically as you know in the fiscal 'twenty for Margaret.
The core business is going strong and we stand behind.
The growth that you have projected in our core business, whether it's the license or connected services or professional services and the new business.
New apps and devices.
We're making very good progress so from my standpoint, no change to the fiscal 'twenty four model, Chris Mark anything you want to add.
Yes, I think the only thing the only other thing.
Thing I would add is the fact that the.
The secular secular tailwind are still there as it relates to more and more penetration of this technology getting designed into automobiles.
IHS.
<unk> has increased their projections for penetration rates and so I think that's that provides a nice offset to some of the some of the downward effects that not only COVID-19 provide had on auto production, but also on the semi shortages.
And so that gives us.
Also confidence that.
Even though auto production is down over the last year and a half or so offsetting that is the increasing penetration rates and the other thing I'll mention is the fact that you know a lot of these new products that we've designed.
And are now starting to get.
Wins for that.
That revenue will be backend loaded and so.
The bookings that we're seeing today gives us gives us that level of comfort that the revenue will will come in into that 2024 target model.
Okay.
Super clear I appreciate it on 20 <unk>. So if we can maybe then talk more about the near term.
Really the potential for your Tam Sam or orders right. There's only about a year ago, you talked about almost 80%, 90% win rate and it seems like there is at least a $2 billion core.
Market out there for voice AI.
Sanjay without putting it.
A timeframe on it like could we is the proposals that you're going after whatever share you get 80% plus is there a potential order number over the next couple of years, where we could start to move into the sort of the 1 billion plus.
Order range, just maybe talk about the size of business that's out there for for bidding on over the next 12 months to 24 months.
Hum.
Early.
We're happy.
Happy with the.
Booking that.
We reported.
500, it maybe Lillian.
Which is pushing our backlog to $2 billion.
Last year we.
We reported 835.
And bookings.
But our normal run rate.
Used to be.
In the 400 to 450 million per year.
This loss in fiscal 'twenty one.
There was no one.
European contract with a large European OE.
<unk> debt.
Debt.
Is going through some internal kind of restructuring of their purchasing and other departments, which basically moved the contract out from fiscal 'twenty one into 'twenty two.
You know otherwise.
Again, we're really confident we're going to get back and.
Further add into our bookings towards the.
The goal of.
Crossing $1 billion in.
And bookings.
As you all know.
Of course that bookings are lumpy in nature, it's really hard to predict.
But as long as we're making good progress in adding to our backs.
Backlog.
Really confident about the prospects of <unk>.
Of the company in the future.
We work really hard to.
Secure our core.
Wins, we work really really hard to kind of you know.
<unk>.
Our into our existing market you heard me earlier talk about some of those.
Some of the progress there as well so so overall.
Yes.
Hi.
Happy with the 600 million bookings yes.
Would I like to see more heading towards the $1 billion that you mentioned are absolutely no question Blake.
The Tam expansion and the Tam opportunity is clearly there and you have heard me say that especially on the connected services side right. So.
Fingers crossed.
I will.
We'll we'll keep marching towards that goal.
That's great and then I'm going to be greedy and just ask a third question because I know this question will be asked by everyone else. So I apologize for people, but behind me in the queue, but on the connected revenue.
We understand the legacy comes off but when we think about the new.
Q3 to Q4, we had a move sequentially from 14 million to $11 million and we tend to think about that as that install base. So sequential positive business could you just talk about the quarter over quarter move in new connected in any seasonality that affected that number. Thanks. So much.
Yes.
The majority of our revenue is simply an amortization schedule, but there are some contracts that are usage based and those will ebb and flow from one quarter to the next and then also.
We did have that that onetime adjustment.
To correct, an amortization schedule in Q4, so that that entire amount did hit Q4.
<unk> connected new connected revenue.
Okay. Thanks.
Our next question comes from Mark Delaney with Goldman Sachs.
Yes, good morning, and thank you very much for taking the question. So can you talk a little bit about how to think and contextualize through the December quarter revenue guide.
You commented on how your outlook is outgrowing IHS is you have auto production on a year on year basis, but.
The industry production rates are starting to pick up sequentially and I think IHS is expecting that as well.
Your December quarter revenue guide is for revenue to me to be down quarter to quarter.
Maybe you can talk a little bit on some of the puts and takes there that are leading to that.
Yes so.
You have to look at what we are.
Sort of modeling internally for our Q1 revenues.
And if it's if you look at the Q4 revenues, we did have a large amount of fixed contract revenue, which we don't expect to repeat to that same level.
No.
And last.
In last quarter in Q4.
If you look at if you look at the slides, we had $25 million of fixed revenue.
Fixed license revenue that is and so thats, a pretty substantial number and we don't expect that to repeat so when you factor that down that number down quarter over quarter, Thats really whats driving it but.
But we do expect variable licenses, which is most tightly coupled to auto production, we expect that number to increase sequentially.
Got it and in terms of the number of vehicles with.
Sharon's technology installed I mean, you did talk about a good competitive win rates and if I.
Competitive wins.
The percentage of vehicles produced with serious technology, I think it's been moving sideways and.
Coming in at I believe 53%.
Can you talk a little bit more and more on that maybe what's constraining the attach rates of your technology.
One of your Kpis. Thanks.
Yes.
Yes, so I think I think some of that.
It is.
Driven by the fact that we are using trailing 12 month data and I think.
Some of the Covid impacts are still.
Being factored into the TTM results.
If I'm looking at some of the data that we don't publish on a quarterly basis.
We are seeing that trend, increasing so I think as we get further into this fiscal year and we drop off some of those older quarters that should that should probably help but.
That kpis.
Just also just also to add Mark.
We put a press release out last quarter.
And then you heard me mention 174 P.
That happened in fiscal 'twenty one.
174 startup production is a record for <unk>.
What our company so.
Like Mark like you said beckman, but its TTM.
<unk>.
But.
We're making good progress there.
Okay.
Our next question comes from Luke junk with Baird.
Yeah. Good morning, Thanks for taking my question.
First.
The EBIT margin guidance and just hoping we could put a finer point on bridging to the midpoint as we look at some of the big moving pieces here between mix R&D and other factors.
And really the question here is as I look bigger picture versus what you've said for the 2024 targets should we interpret the current year is sort of the biggest step function change in those dynamics relative to where you were in fiscal 2021, and we're working on a couple of years out.
Well, yes, because fiscal 2021.
As we've been mentioning for over a year now that 'twenty. One that's gonna have inflated margins throughout the year as we brought a lot of those colgate expense reductions back into the P&L.
And so even though even though we benefited short term from those COVID-19 expense reductions.
And we delivered record setting margins.
Going into 'twenty two we are.
Factoring in the fact that all of those Covid expense reductions are now back into the P&L and that we're also going to continue to invest in our in our R&D to continue to innovate and to continue to extend our technology lead and so you will start to see increases in R&D both on.
On a dollar basis and as a percent of revenue.
That's going to be probably the single biggest driver.
And so back.
Back to your point I think I think 'twenty, two is probably going to be the year in which you will see the.
The most year over year change to some of the margin assumptions. However, the targets that we have laid out for 24 in the target model.
We expect to be able to hold those margins, even even with these these more.
These more expenses that we're building into.
The R&D expense line for fiscal 'twenty two.
Okay, great. Thank you that's helpful kind of America maybe.
Maybe a question for you Sanjay you had bigger picture.
Multiple conquest awards mentioned, both in the release and.
Going through the.
Going through the commentary today and I'm. Just wondering you had mentioned three of those were in China is there anything that we can glean competitively about sort of where the industry is going or what competitors are looking for that.
Essentially yes.
Where competitors are going that need those customers choose your solution versus peers.
I just returned.
So on my second.
Europe trip.
In UK, France last week I was in Germany, a few weeks before that.
Go with opening.
It started traveling.
Good.
And going and seeing the customers after almost 18 months.
Virtual sort of interactions with the customer customers Zander.
One thing that I am consistently hearing from our customers and by the way are also being to Detroit as well as myself.
And.
The one thing that I am consistently hearing from the customers that the road map.
There can be a put together as you know.
Over the last couple of years as an independent company he's a solid roadmap.
Where we are.
<unk> the best in embedded AI technology, which is coupled with the best of connected services.
And apps portfolio, which basically allows the customers to bring multiple big tech.
And the digital life of a consumer in the car. So I feel very good about our product positioning.
And this is coming firsthand.
Sitting in the room now over the last month month, and a half with.
The top 10 top 15 Oems around the world.
And getting there very direct feedback with regards to our product portfolio.
I think we're we just need to work keep working hard on continued.
The journey.
The new.
Designs.
The vehicle architecture.
And continue to deliver.
The products that we have been discussing with our customers.
I'll leave it there thank you.
Our next question comes from Colin Langan with Wells Fargo.
Oh, great. Thanks for taking my questions.
Wanted to follow up on the quarter over quarter decline in connected services, you mentioned, the amortization adjustment, which I think it would still be down sequentially, even including that you also mentioned usage based contracts.
Be down quarter over quarter.
Why would that fall is that a seasonal reason or is there something else I'm not saying, that's a kind of I guess I think like many people thought that was more of a kind of a steady rise.
The adoption.
Yes, we've had we've had some we've had some prior quarters, calling where.
The usage, just simply ebbs and flows and I think it also ties back to.
The one slide that we've got.
And in the presentation deck, where things have slowed down a bit in terms of monthly users and so forth.
And so I don't have a specific reason for why the decline has happened.
But part of it could be.
Fewer fewer cars.
Covid related and so forth, but we don't we don't view that as any trend or anything concerning its just sometimes these usage contracts will ebb and flow.
From one quarter to the next.
And that's the piece that could move some of the.
Revenue up or down from one quarter to the next but I think I think.
The key takeaway is.
You look at over a four quarter eight quarter trend, we continue to see.
<unk> growth and our new connected revenue line.
That's really the.
Punch line is that that trend is continuing to grow.
Okay got it.
And then just I'm sure you saw.
Last week downtown announced.
Back I know there.
The vast majority of your comp set.
I'm sure our questions are going to come up I mean can you just remind us sort of how you compete against them and how your technology might be different in some ways.
People might start lining here both companies up against each other.
Sure.
Always respect our competitors and downtown is a great company to compete against.
Competition bring the best out and all of Us and we welcome it.
B.
Surprised as hell on the valuation.
You know I mean, I'll, let you guys sort of do the math there.
But at $20 million revenue were 20 times there their revenue.
Pes then the company has been out there for 16 plus years right.
No.
The revenue piece aside.
On the product side.
Two three years back when I.
First joined as the CEO of Exterran.
One of the areas that I felt.
The area that we were very strong was embedded AI.
Embedded in the car.
Our cloud portfolio needed a refresh.
From my standpoint, my assessment, and and I brought in a CTO, which was focused he's not auto Guy E. The cloud Guy and his his charter with our product management team was to strengthen our cloud portfolio today.
I felt two three years back that our cloud portfolio was weaker as compared to our competition.
And and our R&D team under our Cpus guidance work.
Amazing wonders in terms of putting together, a absolutely market leading cloud portfolio.
And again don't take my word on at peak, the word of our customers and our customers.
Recognize that and as I said to you in our.
Press release as well that we're winning back some of the customers you know there was a European customer.
Who was lost to our competitor here.
Before my time before that it was.
By now as a independent company.
And and and we have one that we have won the next generation of that customer back with.
Please embedded and cloud portfolio debt.
We have as a company so and the feedback like I said from my trip.
Touching Oems really directly over the last couple of months in Germany in Detroit in.
In France, and so on gives me the confidence to make the statement here on this call.
Okay. Thanks for the color and thanks for taking my questions.
Our next question comes from Ravi Gill with Needham <unk> company.
Yes, thanks for taking my questions.
Mark on the on the fixed prepay clash licensing revenue business.
It was $25 million in the quarter it looks like that's going to be up.
About 31%.
'twenty, one getting to that $70 million $71 million.
When we're looking at fiscal year 'twenty two.
And as you factor in your overall guidance.
How do we think about the prepay revenue I would assume that.
That line of the business would dropped fairly precipitously.
And then it will be offset by higher growth in licensing variable and new connected and other new applications, but just wanted to get in the extent of the drop off in fiscal year 'twenty two four for prepay given it's so high.
And what drove the above average growth in prepay.
The September quarter, because it was quite significant.
Right right.
Yeah. So.
So as I mentioned on my prepared remarks.
It was driven by two larger than typical deals that we had closed in the quarter.
And if I look at historically, we may have made.
Maybe one large deal.
Any given quarter, which which tends to.
As I mentioned before it tends to swing those numbers around and they are difficult to predict the size of those deals.
And so it's very unusual to have to happen at the same time, and that's really what sort of drove the spike in Q4.
Typically I say typically it's one customer or it's a series of customers on smaller deals, which typically would keep us in that $10 million to $15 million type of range.
And so that was just it was just that timing, which drove it I think if you look into fiscal 'twenty two.
We do expect it to recede.
We certainly don't think it's going to be a repeat of last year, where we had a $71 million record.
If you look at our historical range, we've typically been in that low fourteens to mid 50 type range. If you go back three years or four years, that's typically been the range from one year to the next so this this past year did did exceed our historical ranges.
And I think I also mentioned to you in the past that if we deviate from those historical ranges.
On the upside that's good for short term, but it also does create a little bit of a pressure on our on our next year.
Sometimes a year after growth because we have been consumed or the customer has to consume those those those licenses. So because we were outside that range.
That does put a little bit of a damper on growth rates for next year and possibly into fiscal 'twenty three as well.
As those.
Those licenses get consumed.
Right now it's hard to predict exactly where that number is gonna be but I would say that it's going to be.
Down.
12.
$13 million to $14 million or so year over year, so that kind of gets you back into our historical range.
At the higher end of the historical range, that's what I'm anticipating.
Got it I appreciate that and when you're thinking about your fiscal 2004 target of $700 million.
And you're reiterating that it does imply a fairly significant ramp reacceleration in revenue growth in fiscal year 'twenty three.
And then kind of continuing into fiscal year 'twenty four.
I'm just curious.
What's giving you the confidence confidence that that visibility.
Given that we've seen.
Prepaid being a bit lumpy and we've seen some of these kind of changes in the usage case for the new connected revenue.
Is it just the kind of the new applications and new mobility markets that are adding it are you seeing something in the attach rates for new connected.
Giving you confidence to.
Hold that target of $700 million as you look at these new cars that are going to be being produced including your cloud connected voice revenue does that.
Is that giving you kind of confidence that.
You can get to that 700.
I think yeah.
I'll start and Sanjay may want to jump in as well, but I think I think really the bottom line is the <unk>.
The secular tailwind and the on the digital car is not slowing down in any way in some ways. It's actually accelerating so those penetration of this technology is continuing to be pretty strong and and.
Auto production I think is a speed bump you know things are kind of because the auto production being lower because first because of COVID-19 and second because of the semi supply chain.
Ultimately if the demand is still there on demand is still there.
On the penetration rates continue to grow even above expectations. Then we're in a very strong position competitively.
We continue to.
Maintain our dominant share on the embedded side.
And we do see.
Growth potential.
And market share gains on the connected side not to mention some of the good progress we've already been able to talk about with with some of these new markets.
Yeah. Thanks Mark.
From my standpoint.
Thank you.
You look at our model and.
The four categories of revenue that we break the model down to the edge AI.
<unk>.
Mark just commented on so.
Feeling good about the target $300 million there.
For connected AI, the biggest piece that I'm focused on is the new apps and services.
We're.
We're expecting a contribution of about $90 million there.
It's single digit in 2021.
And this is where sort of the bookings that we are making is extremely important for this new business.
We say, we have booked $120 million in fiscal 'twenty one for <unk>.
Some of these new products and then lastly for the Newbuild Newbuild Billety market once again.
In the in fiscal 'twenty, one it's single digit millions going to about $65 million as you've seen the model.
Let me once again.
Sure.
You noticed in elevators.
Started making good progress there with a major win.
That I mentioned to you we have not even taken any bookings against that yet, although we expect revenue in fiscal 'twenty two on that.
And.
And the reason is we're being cautious too.
Since that's a new market for us we want to understand it better.
Before b sort of come back and share more details but.
Feel good about that $65 million target.
Debt that we have set out for fiscal 2024.
The last item is the professional services.
I don't see any problems at all going from $75 million in fiscal 'twenty, one 210 in fiscal 'twenty four.
So yeah overall as I break down the model and kind of go line by line and so on.
The team is working hard too.
To achieve our goals.
Our next question comes from David Kelley with Jefferies.
Hi, good morning team.
Just starting with the contract duration step up.
Some mix shift contribution, but really it was a meaningful uptick even from last quarter I think a year plus and that I believe are trailing 12 months metrics. So.
<unk>, if there was or youre seeing some meaningful duration step off with some of the recent wins you've had.
If theres anything else, maybe we should be thinking about strategically that's been a driver and could continue to be a driver of that uptick.
Yes, so so in terms of.
That metric I did look at it as well because it looked like there was a.
Pretty nice uptick.
Quarter over quarter and actually it has to do with the TTM a factor right. The trailing 12 months were.
A year ago there was.
You know there was that there was a.
A different concentration.
<unk> of our bookings and there werent as many connected contracts so a year ago.
One quarter, it had a shorter duration and so that.
Quarter has now dropped off from the TTM. So.
It's just naturally increased.
For this quarter, because that that last quarter dropped off a year ago. So that was that was just more from a formulaic point of view, but I think when you look at the.
The trend overall, we are seeing more and more of our customers willing to.
Commit to longer contract periods.
I think a lot of that has to do with the fact that.
The connected cars here its here to stay and it's going to continue to grow and they see the real value and making sure that.
Those cars on the road stay connected and and.
They are willing now to commit for longer periods than they have historically and so I think that's starting to show up in our results.
Okay got it. Thank you that's helpful and then maybe Sanjay.
Question strategically.
<unk>.
Wins in China, we tend to think of that market as being a bit faster.
The auction so just curious as to how you view Sharon's as broader China momentum into next year and then maybe one quick follow up on that I know you don't break out 'twenty four targets regionally, but could you give us a sense of how you've been thinking about China as a contributor to some of the longer term targets.
Sure.
So I think.
China Chinese OEM.
It really competitive space for sure.
We have one major.
Competitor and I flight Tech there.
And I think you've heard me say, we share roughly or slightly higher in the independent reports that I saw.
A few months back our market share China for China.
Oems and the cars shipped in China.
We're a little more than 40% in market share our competitor.
Also roughly 40% slightly below us and then 20% is everybody else.
We're very focused on.
Growing.
Our share there.
And some of the competitive bids you saw.
Reaffirm what in China, which supports my statement that.
We're making progress against our competitors as well and once again our.
Our full portfolio.
The main reason because.
Embedded AI, we will always be.
Very strong as they traditionally as a company so.
Overall.
Oh I see yes.
Any progress there.
You know.
And continue its difficult to forecast towards that.
Actual market share would be next year, following the <unk> and so on and so forth.
But in terms of you know.
Looking at the competitive space.
And our progress there.
I feel good about.
Taking that.
41, 42% market share in crossing the 50%.
Near future.
Okay, great. Thank you.
That concludes today's question and answer session I'd like to turn the call back for closing remarks.
Thank you everyone for joining us on today's call and we hope to see you at upcoming Investor events. Thank you when you have a good day.
Thank you. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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