Q1 2023 Cerence Inc Earnings Call
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Good day and thank you for standing by welcome to the parents Q1 2023 earnings call. At this time all participants are in a listen only mode.
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I would now like to hand, the conference over to your speaker today rich you're gaining in senior Vice President of Investor Relations. Please go ahead.
Thank you welcome.
Welcome to <unk> first quarter fiscal year 2023 conference call before we begin I would like to remind you that this call may involve certain forward looking statements. So it makes no representation to update those statements. After today. These statements are subject to risks and uncertainties as described in our SEC filings, including.
The form 8-K with the press release proceed with today's call. Our Form 10-Q, we filed today and then art form.
Our 10-K filed on November 29, 2022.
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.
Press release is available at <unk>.
Our website joining.
Joining me on today's call are Stefan <unk> CEO of search and Tom Bogan CFO of <unk> as a reminder, the only authorized spokespeople for the company are Stephane, Tom and Mike and myself.
Before handing the call over to Stefan I would like to announce that we will be presenting at the.
Virtual bare 2023 vehicle technology and mobility conference on February 15th and in early March at the Morgan Stanley Technology Conference now onto the call Stephane.
Thank you rich and welcome everyone and thank you for joining us to discuss our first quarter earnings.
I'm pleased to report we had a strong start to the fiscal year driven by our core auto business.
Each of the key financial metrics provided in our guidance came in above the high end of the range.
Tom will share the details with you shortly.
At our Investor Day in November we laid out our strategy for long term sustainable growth for <unk>.
What we are calling destination mix, we described the evolution of our technology and the role it plays in the car of the future and immersive companion that goes beyond conversational AI extending to all aspects of the user experience inside the cabin for both drivers and passengers and <unk>.
Even outside the car.
We also provided our long term target model, which reflects not only the increasing level of adoption of current of our current technology with programs already awarded but also the future adoption of a greater suite of technology that surrounds sort of break through the market.
This was an important event that allows us to share with all of you.
<unk>, we have for the future of cigarettes.
In Europe .
The first quarter showed continued success across customers and product innovation.
Working with our customers, we delivered 47 as a peace start of production in the quarter, including 18 initial program launches.
We signed two competitors wouldn't bet construct in the outlet space one in Europe , one in China.
These are significant because both represent takeaways from consumer tech.
And validates our continued competitive edge.
Our experienced enlarge language models combined with our deep mobility experience and expertise.
Expertise is vital to drive innovation and expand our position as the category leader.
In addition to various competitive design wins, we added two new logo wins, one in Europe for our tool and one in China for to beat Us.
The two Wheeler win now brings the total of two reader customers two seven and we expect that number will be even higher by the end of the fiscal year.
Yeah.
Two wheeled vehicles continued to be an important adjacency, providing a growth area for severance.
And our destination next strategy.
While we are seeing slow improvements the macro environment remains a challenge semiconductor shortages are still impacting our production or through.
There has been some improvement of the supply.
We are hopeful that the slow, but improving trends for excess to semiconductors continues these.
These shortages have led to a pent up demand for autos, where in many areas inventories remain low.
And the concern about a potential global recession in 2023.
But that does not appear to have had any impact on out of production at this point.
The latest forecast from IHS aligned to our fiscal year is 4% to 5% growth year over year.
After our strong first quarter, we are slightly raising the lower end of our full year guidance.
We remain confident that we can achieve the goals, we set for the fiscal year and continue to deliver predictable and medium and long term sustainable growth in.
In addition to the business highlights for the quarter I would like to also share with you some key innovation highlights across our products.
With our razor sharp focus on innovation, we have distinguished competitive advantage. It is evident that our customers rely on us to jointly create unique mobility experiences for their customers.
At the outset motive industry transition to electric vehicles. This experience will become an increasingly important aspect of differentiation for our customers.
Continued innovation is key to our customers' missions and to our future growth and the strong momentum for our current products and technologies provides a solid foundation as we extend our expertise to other areas.
At the core of our current product portfolio is seran assistant to Red Oak.
The foundation of our co pilot offering.
This product is a perfect example of what we refer to as scalable AI wherever we can take a product developed for the out of the industry and with minimal engineering apply it to an adjacent transportation market such as to beat us.
You May recall <unk> co pilot runs directly on the vehicles had unit with advanced AI deeply integrated with call centers and data to understand complex situations, both inside the Baker and around wireless securely integrating X technology with cloud services to make driving more intuitive connect.
And enjoyment.
It's clear that mobility Oems see the advantages <unk> copilot brings to their vehicles as Q1, so for automotive design wins from customers in Europe and China.
With <unk> assistance to the Oh.
Foundation, Sir on stride, our offerings specific to the tubular market was awarded three design wins in the quarter, including a key win for a major Japanese manufacturer, where we had to compete against both consumer tech and niche competitors sounds right offers unique features like providing the right of it.
This friction free navigation route planning and writing records, enabling a safer more enjoyable experience.
By using their voice write offs cannot navigate listen to music and other media adjust settings, and even control the smart home devices, all without taking their hands off the Henry broth or their eyes off the road.
Further expanding the reach of our technology service link as a comprehensive solution that purchased the technology gap between connected and not connected cost by providing the ability to capture vehicle diagnostic centers and telemetric data as well as Scott geolocation and as I.
Useful information that is delivered to the end user through our mobile app with a rich user interface with.
<unk> connected vehicle digital twin at its foundation.
<unk> is able to apply cloud based intelligence on this data to enhance driver safety security comfort and convenience.
When we first introduced this product last September we had already secured an important customer win in India, which is already contributing to revenue for the company. In Q1, we won our second customer also in India demonstrating continued adoption for this new solution.
These key wins for <unk> link and certain strike indicate continued adoption and adjacent and expansion markets proving that we are focused on the right areas that can support continued long term growth.
And lastly, during the quarter, we had a customer launched a significant expansion of capabilities leveraging our cartilage product innovation is an upgrade to the Oems existing solution and makes accessing digital owner's manual information and remote vapor controls as easy as possible delivering.
Additional value for the drivers.
Customers can shift with the assistant both in the cap and via Facebook messenger from anywhere.
In vehicle specific questions.
Starting locking unlocking their vehicles.
The system's average generative AI to understand more and that voice comments and provide more engaging responses.
I am very excited about our current lineup of products and our growth and important adjacent markets.
But even more so for the products yet to come under the leadership of Chief Technology Officer, <unk>, <unk> and Chief product Officer, New fronts.
This slide May look familiar to you from our Investor day, but we feel it's important to revisit to continue to grow our sales and all what we have accomplished in the past 12 months and where our focus is moving forward.
We have the customers the innovation innovative product and technology and strong competitive position to deliver long term sustainable growth.
It is all about execution.
As you heard from me in November and as remains true today. Our goal is to deliver on what we have promised to our customers and investors.
We have had a strong start to the fiscal year and we are focused on keeping the momentum going.
Yeah.
Before I hand, the call over to Tom to review, our Q1 results and Q2 guidance in detail I want to reinforce the key points of our destination next strategy best.
Destination next applies to all aspects of our business.
Its shapes, our product strategy as we innovate to deliver a truly immersive companion experience in the car.
It positions us as a key partner to our customers.
Seek to create unique branded experiences.
Our served addressable market over the next seven years, providing excellent opportunities for growth once we get past the FY2023 transition yet.
And it puts the company on a path to deliver strong growth profitability and cash generation over the long term.
The entire company is behind our destination next strategy.
Im excited to keep you informed as we continue to make progress towards our long term goals.
I will now turn it over to Tom.
Thank you Stefan I'll come back to guidance in a moment, but.
But first I want to share more on our Q1 results.
One of our goals has been to develop a track record of doing what we say.
With our strong Q1 results, we are providing another positive data point in accomplishing this goal.
We are committed to continuing to build upon this trend to establish a proven track record of predictable performance.
Q1 revenue came in at $83 7 million well above the high end of our guidance.
This is due to a combination of better than expected strength in our core business.
With higher than anticipated anticipated contributions from connected services professional services and <unk>.
Fixed contracts.
Consumption of existing fixed contracts in the quarter was lower than originally expected due to a longer projected consumption time.
For the Q1 prepaid deal.
Then our model.
The higher amount of fixed contracts in the quarter remained within the framework of 40 million fixed contracts for the full year.
Because of the high Rep.
We exceeded all of our profitability metrics, we guided for the quarter.
non-GAAP gross margin was 74% dynamic.
My name is comment.
non-GAAP operating margin was 25%.
Adjusted EBITDA was 19 7 million or 23, 5% margin.
And non-GAAP earnings per share on the similarity.
All these metrics came in above the high end of our guidance.
During the quarter cash flow from operations was approximately negative $2 1 million.
Our CFO CFR was negative in the quarter.
We expect positive <unk> for the full fiscal year.
Our balance sheet remains strong.
With total cash and marketable securities of approximately $120 million.
Yes.
There is a breakdown of revenue of the quarter.
Variable license revenue was up 22% from the same quarter last year.
And 38% quarter over quarter.
The increases were due to reduced consumption of fixed licenses.
Slowly improving auto production and.
An increasing penetration.
New connected services revenue was down 12% from the same quarter last year and up 3% from last quarter.
The year over year decline was the result of several disclose factors such as lower production of connected cars over the last two fiscal years due to semiconductor shortages and expiring contracts for all of the technology.
Separate from the legacy contracts.
Finally.
Our professional services revenue was up 3% year over year and down 5% quarter over quarter.
Professional services are a key indicator of future license and connected services revenue.
As the pro services team includes the individuals who directly interface with customers to customize and implement sciences technology on next generation OEM platforms.
We don't see professional services as a revenue growth driver for the company.
God acts as an enabler for future license and connected revenue.
Moving on to the details in our license business.
Overall, the licensed business remains strong.
And thats, adding slow improvement from the issues that have plagued auto production over the last few years.
We saw fixed contracts in the quarter, whereas $19 million.
$18 million as prepaid contracts and approximately $1 million as a minimum commitment deal.
This was slightly above our estimate going into the quarter of $18 million.
We continue to manage fixed contracts to an approximate $40 million level for the full year.
While there was a small minimum commitment deal in the quarter, we did not expect minimum commitment deals moving forward.
Pro forma royalties were up 5% year over year, and 7% quarter over quarter due to increased auto production.
Consumption affects licenses declined 14% during the same period.
While difficult to accurately predict we do believe that the consumption of fixed contract licenses should peak in fiscal 2023.
Yes.
The majority of our Kpis continue to indicate strengthen the business.
Our penetration of global auto production with a trailing 12 months increased to 52% from 51%.
This means over half of global auto production include some level of science technology.
Of the total $11 5 million cars with balanced technologies.
Those that used our connected services increased 4% quarter over quarter.
We also saw a big increase in monthly active users.
19% year over year <unk>.
Indicating increasing popularity among consumers of our technology.
Now turning to revenue guidance for Q2 and the fiscal year.
One factor that we have an impact on our quarterly revenue is the value of fixed contracts in a quarter.
Fixed contracts were $19 million in Q1.
We expect <unk> contracts of approximately $4 million to $5 million in Q2.
Approximately $15 million in Q3.
In Q4.
Taking that integrates consideration we are guiding to 64 to 68 million for Q2.
With Q1 behind us and greater visibility into our fiscal year.
We are also raising the lower end of our full fiscal year guidance.
From 270 to $2 $75 million.
You can see on the slide our revenue guidance and the effect of the associated financial metrics.
Overall, the business continues to perform as we outlined at our Investor day.
And we remain focused on innovation and execution to achieve our long term goals.
Yes.
This concludes our prepared remarks, and now we will open the call for questions.
As a reminder to ask a question. Please press star one on your telephone and wait.
For your name to be announced to withdraw your question. Please press star one again, please standby, while we can compile the Q&A roster.
Okay.
Our first question comes from Luke junk with Baird. Your line is now open.
Hi, good morning, Thanks for taking my question.
Wanted to start with the mechanical question. This morning, and Tom can you just help us understand the lower than expected consumption of fixed contracts this quarter.
Then you mentioned I had something to do with Prepays is that timing related mix related is it right to think that this doesn't flow through to the full year guidance or not thank you.
So.
Yes.
As we've talked about previously we typically are prepaid gets consumed.
On average over six quarters.
The particular prepay that we did in Q1 that projected consumption on that particular deal is estimated at about eight quarters.
So from our modeling and from the way, we had set our plans and guidance.
That has a positive effect.
In the short term.
Understood. Thank you and then.
Follow up I, just wanted to ask a bigger picture question Stefan So I'm wondering if there is.
Any additional color you can provide on the copilot win backs in particular, maybe if we could discuss key system capabilities. Do you think that helped to drive this went back versus the competing consumer Tech and I don't know if you could comment also on your previous positioning with these customers if that makes sense. Thank you.
Yeah.
Thanks for your question Luca and good morning.
Yes, so our assurance assistant to the so called <unk>.
Copilots why it is actually well received here.
Thats the OEM sites.
We had various design wins.
Last quarter in Q1.
One was against a big Tech giant and another one was also.
And China also was also tech Giants.
And then we had also some very competitive design wins against the Big Tech players here.
And what we see here from the market is actually outstanding right in all my discussions with the Oems right. They say, okay, well this really cooled solution right extremely fast and the response time behavior.
Broad coverage, but of course also into a deep learning and what we said also general AI search capabilities here right combined.
Combined with proactive AI for example, leveraging <unk> data and also leveraging the information or answer surrounding <unk>.
Inflammation.
Also this kind of weather forecasting here right and that was extremely well received.
We have a great prototyping solution here.
We.
I want to work with us together also.
Seeing copilot as a foundation.
And most of the cases, they want to have also a kind of their oil blending and experienced.
Okay got it. Thank you for the color I'll go ahead and leave it there for now.
Please standby for our next question.
Our next question comes from Colin Langan with Wells Fargo. Your line is now open.
Oh, great. Thanks for taking my questions. Just first question guidance is just to confirm is it based on IHS and IHS has actually come down for September year end. So.
That incorporated in what is offsetting sort of that weekend.
Maybe let me start first and then I will ask author Tom for putting his color to it right. So.
In general right. So.
As Kim down roughly 3% from 6% year over year.
In the range of two 5% to 3%.
Because actually hand in hand, with our projection from the beginning of our fiscal year.
Yes, we had we had baked in when we had that our original planning.
We had taken a relatively conservative approach interestingly enough IHS has come down more to the numbers that we were projecting.
We don't use.
Solely IHS and our forecasting because.
We get.
Reporting from all of our customers every quarter on their royalty. So we use a combination of.
Overall market trends and that what we're seeing from our.
Individual customer royalty reports.
And Thats, how we base our guidance.
Got it okay that makes sense.
And if I look at slide nine.
Like new connected services.
Yes, I think you highlighted something like a 19% increase in monthly users.
That line hasn't really moved very much not really showing growth. So what is sort of keeping the growth back in that.
New connected segment when should that start to inflect back upward.
It's a combination I mean as we've talked about previously.
There are some older platforms that are not up.
Hello.
That are kind of winding down we've also lost kind of two years.
Of.
Revenue because cars were much lower.
$20 million a year of production.
And that represents connected opportunities that we would've had the amortization of those revenues coming in in the current periods.
As we talked about at Investor day.
There is a number of wins that will start to go into production.
The second half of this year and into FY 'twenty for a lot of those wins include some of our connected services, which youll start.
Help us to drive growth.
Let us more towards the growth projections that we had in 'twenty four 'twenty five.
Going forward.
The usage I think is important.
Not directly correlate to revenue because the revenue.
Connected services that are shipping on the cars.
But what it does do is to show that our technology is being used more is being accepted that several of our new enhancements are being recognized by the drivers and the passengers.
Sure.
Maybe let me add a bit color to adhere right. So I think what I just mentioned at the beginning right co pilot certain sling sense right. They have all connected component tried and they will go lives over the next 12 to 18 months.
Mrs specific Oems.
We see also a really an uptick here.
An active subscribers right. So one one OEM reports also.
A big jump in.
Adoption of our so called connected services offering.
We are working also with.
Eating premium OEM.
So cause.
Additional expansion of their current cloud with this new cloud domains. This new proactively.
For all of our capabilities. So that we can bring those services cloud services too as a picasso costs being on their own. So we have plenty of opportunities and as Tom mentioned correctly right. I think we are still in this.
Transitional year suffering still a bit from the ultra production over the last two to three years.
But we're seeing more and more opportunities for connected services.
Got it alright, thanks for taking my questions.
Please standby for our next question.
Our next question comes from Raj Bindra Gill with Needham. Your line is now open.
Yes, Thank you and congrats on good results and good transition with this turnaround story.
Question on the visibility if I can.
I know at the Analyst day, you talked about kind of 95% visibility.
Enter into fiscal year 'twenty three.
And then you talked about I believe 75% visibility into fiscal year 'twenty four.
If I look at the slides.
On slide 12, you're kind of increasing your visibility for this year by by about a couple of points to 97% for the full fiscal year Im wondering how youre thinking about the visibility into.
Into the growth here in fiscal year 'twenty four.
Changed given some of the design wins you are talking about.
Given some of the more stabilization in the fixed contraction is that also applied some of the longer term targets in fiscal year 'twenty five 'twenty six.
Raj Thank you.
Thank you.
We are happy about our Q1 and continuing to sell the story.
Yeah, clearly we have stronger visibility too.
Through FY2023.
As you know we report bookings semi annually, so we'll be updating our bookings in Q2.
And clearly we had.
Good bookings in Q1 that will help with that visibility for FY 'twenty four.
Thanks.
I hope to have more to say around.
Yes, more specifics around how we're tracking to that FY 'twenty growth.
The initiatives that we laid out in Investor day.
But everything that we accomplished in Q1.
<unk> us towards that.
Towards that journey in delivering those results.
Great and if you could maybe update us on the field the abuse agreement I believe it's ending in two years, if you could just.
Clarify that and.
Once that fill the visa agreement.
Over what other markets can you start.
Start to license your IP. So so also I think that's also a key focus area actually we have three vectors here right. One is the execution on our core roadmap.
<unk> explained.
Automotive adjacency transportation segments right. The other important aspect is driving innovation.
And the third one is also paving the way for post <unk> opportunities and you know we have hired a very strong.
<unk> development team also has a separate episode R&D team underneath right and they are working already on some opportunities.
For this fiscal year and we hope that we can also report <unk> revenue is driven by this deemed by the second half and the second half of this fiscal year.
And we are evaluating other opportunities.
Let's say October 24, so I think that's one of our key focus areas also and also part of our destination next strategy.
Yes.
Just to make sure everybody understands.
As we laid out in Investor day.
We have the transportation adjacency markets that are starting to take traction that that stephane talked about today.
And then we have.
What we call the non transportation and as Stephane said, we've already seen at retail and just for clarity. There are a couple of technology areas that are not subject to the <unk> and <unk>.
So we're able to lead that group and they are able to drive solutions.
And even some revenue prior to the <unk> the opportunity expands and that's why we're trying to get this through seeded and working well so that when the <unk> expires and now less than two years.
Have a well developed team and capabilities to then look at expansion of all of that post the exploration.
And the other important aspect is also you know at the analyst day would be presented three pillars here right scalable AI and then the.
Multi sensory experience platform plus tools.
Companion immersive companion solution right scalable is also key to success and we can easily apply those technology to Azzam rockets beyond transportation.
More or less at no cost.
I appreciate it thank you.
Please standby for our next question.
Our next question comes from Jeff Fan Yang with Craig Hallum. Your line is now open.
Great. Thanks, Thanks for taking my questions guys and thank you for the increased transparency I appreciate all the incremental data points over time, we're getting here it's very helpful.
A couple several questions if I could jump through these fairly quickly I think Tom you referenced bookings just just to be clear to your bookings meet the plan for the quarter and net net I know you don't publish an outlook in terms of what youre thinking internally for the year, but has has the annual outlook on bookings changed say versus 90 days ago, and then along the same.
Lines, just just wanted to make sure I am clear the consumption number I think you talked about at the Investor day was roughly $75 million of consumption expected in 'twenty three is that still the number.
So just on bookings I mean, well update bookings in Q2, and the reason we do it semiannual MBA.
That lumpy.
We did have some nice wins.
In Q1, I think stephane alluded to that.
And then on consumption.
Consumption will be a little bit lower because of this.
One particular prepaid where we have modeled kind of six quarters.
It's probably going to be eight quarters, but that can vary too Jeff because it's all based on.
Actual shipments from that particular tier one.
So it could be it could be even sooner.
Okay.
That's helpful and then Stephane.
As it relates to generative AI and in particular the GPT.
Large language model is looking very disruptive I know bard and some others are coming but the GPT and some of the things thats been able to demonstrate seem to take a pretty significant leap forward in terms of what these large language models can do giving you play in in those worlds, but within a specific vertical do you see that as competition co op petition.
How do you view that and then.
As you were just referencing a minutes ago, you've got the exploration of the Mou.
Does that suggest the future <unk> opportunities also ends up being a bit more competitive given what these guys are demonstrating just love to hear your thoughts there.
I think I don't see them as.
Derek competitor right. So we have already created a prototype with GBT, but also enhance with our deep knowledge about the car knowledge right.
<unk> mobility experience.
So for example.
Applications such as browse.
We just also announced.
<unk> College, which went live as the North American multi OEM right and you're bringing those information onto together you have some general knowledge.
But also the automotive transportation specific knowledge right and this actually our goal and we are already in discussion with some of the Oems what we can do together.
Okay.
Okay fair enough I'll leave it there thank you.
Please standby for our next question.
Our next question comes from David Kelley with Jefferies. Your line is now open.
Hi team. This is Gavin Kennedy on for David Kelly. Thanks for taking my questions can you provide us with more details on your progress in transportation Adjacencies. It looks like sarin threat, specifically, one three more design rewards with two wheelers and Youre two Wheeler customers are now up to seven so how should we think about this in the context of your prior transportation.
<unk> sales target of 1 million in fiscal year, 'twenty, three and I believe 6 million in fiscal year 'twenty four.
You know Thats, a two wheeler market is a very important market to us here right.
Compared to <unk> automotive, producing roughly $50 million to $60 million two wheelers on a yearly basis.
I'm really proud about this big design wins for one of the big brands in Japan.
When we won.
Evaluation done in North America against the Big Tech players and some niche players right and the <unk>.
Feedback was amazing right with respect to our.
<unk> of our solutions right.
One in terms of technology and also with respect to application. So we're doing exactly what <unk> is looking for.
That's one important aspect so.
To lead us on the other hand, you mentioned also last quarter. We had also some significant design wins in the truck space.
Also we can easily adapt our assurance cope on it to the needs of trucks here.
So overall, we're doing pretty well.
Important.
Launch, which I mentioned to Dave was also record two cents link where we are also connecting no non connected costs via smartphones.
To solutions to give you a better driver experience wise, we can also monitor.
Towards the behavior of the driver Geo location and so on before so I think we're doing quite a lot also going beyond the typical natural language processing here right and combining all pieces together I think that's actually what we want to do right driving this immersive experience.
For the transportation markets.
Yes.
In these markets.
Stefan.
Two.
There is.
So most of these are connected element.
And therefore, the revenue growth, we will build over time as you have to take that portion of the revenue and amortize it over the service life.
The particular solution.
Got it that makes sense and then as a follow up just switching gears I believe at the Investor Day, you mentioned the cost management strategy to improve Sorensen I believe these <unk>. These savings excuse me were included in your planning discussions can you provide any more details here on the cost actions you've been taking or is there any low hanging fruit that you've addressed.
In the near term. Thank you so I think youre, absolutely right and good working here with a well known well known consulting company together.
So and also that we have and our refocus on innovation R&D and customer deliveries.
What we have noticed two organization CTO office and CPO.
For the office.
Run by new tons from Mercedes C joined US a couple of months ago.
And we're trying to optimize here the organization.
For our driving more efficiency.
Productivity and.
And we are also on a good track and yes, you are right. That's part of our plan for this fiscal year.
Tom.
A lot of our cost initiatives were designed to drive efficiency and then Stefan just talked about.
To drive alignment as we implemented the new leadership team across the company.
Okay.
We've done very well on that and that program is well in place and being implemented.
I do want to say, we're also investing right.
It's important that we continue with our innovation strategy.
And so.
We've baked all of that into our guidance going forward.
The cost savings that we've achieved efficiency.
The efficiency and productivity initiatives.
Combined with some.
Continuing investment.
And all of our investments are really in the R&D and technology areas to support our innovation agenda.
Okay. Thanks for taking my questions.
As a reminder to ask a question. Please press star one one on your telephone.
Please standby for our next question.
Yeah.
Our next question comes from Chris Mcnally with Evercore. Your line is now open.
Thanks, so much team.
Stefan.
Thomas if I could ask.
One of the things that you provided which is really helpful is the pro forma royalty to sort of to sift through.
On the licensing sort of the underlying trend.
And this.
This quarter, you showed 5% year over year growth.
But we have roughly seen sort of a flat lining in this in this number when we look at on a two year basis.
And so one of the other questions that I think investors are trying to look forward is when will that underlying metrics sort of move up so that we incorporate some of the large orders that we've seen that you've talked about some of the launches and connected but I think seeing that essentially what is paid usage of your licensing.
Move forward, well given sort of some.
I'm confident that the higher secular growth versus sort of a low single digit outgrowth that youre doing.
Hey.
So Chris.
Let me talk about in the Investor day.
There is a number of programs that are coming to <unk> will start shipping cars that have.
Deeper.
Sets of our solution, which drives a higher price per unit.
Also get some additional volumes.
<unk>.
From those deals so I think youll start to see that that line hopefully.
I'll start to tick up over the next.
A few quarters going into <unk>.
Show some some strong growth.
In FY 'twenty four.
Okay.
That's great and just maybe as a follow up.
This call, but I think maybe.
Metric that would be helpful going forward with sort of a.
Percentage of of units.
<unk>.
Launched percentage in 'twenty, four 'twenty five versus 23% 22, something that we could start to kind of make our own estimate for <unk>.
There's a lot of moving variables, but order of magnitude does that start to become <unk>.
<unk> percent to 10% above production growth has become 10% plus about production growth something in that order of magnitude give us sort of the angle of 2025, because we see the orders, but I think we are trying to connect the pieces just to get into 2020 that would be super helpful.
Okay.
Thanks.
Thanks Keith.
Thanks, Chris.
Please standby for our next question.
Our next question comes from Mark Delaney with Goldman Sachs. Your line is now open.
Yes, good morning, and thank you for taking the questions first when you think about some of the new.
New wins and some of the take backs that you referred to are those consistent with the trend higher in pricing over time that was something that was articulated at the analyst day.
So, yes, I think I think overall we have.
Various new opportunities right across the globe not just Europe , but also in North America, primarily and also in China. Some great opportunities I think overall, we're in a very competitive environment, but what I said at the beginning I think we are.
Then even before in terms of competition right with our new products right.
The flexibility we are offering to Oems.
And you bring also more and more features on the embedded side, but also on the cloud side and that was actually what we also mentioned at the analyst day that we see a nice increase in the PPO, that's already embedded and I think we will also show that I'm seeing over the next couple of quarters on the connected side.
We see also a nice upside, but overall I think we're doing pretty well.
Okay. That's helpful. Thanks, and then the second was on the connected business I believe in the past the company has talked about.
Component of revenue, that's tied to usage of the products and whether or not when you.
Your technologies on vehicles are drivers actually engaging with it and using it maybe you can talk a little bit more on what youre seeing in terms of.
Underlying usage rates broadly and was there any impact from usage rates on revenue in the quarter.
We remain today today most of our contracts.
On the connected side.
We're not tied to usage, we do have a small amount and we actually saw a slight.
Benefit this quarter.
From one of those contracts.
And then I think going forward as more and more of the Oems move to over the air updates that will also help us too.
Implement more of our solutions are in cars that are on the on the road.
Also help us with.
Additional opportunities to have more usage or activation type.
Type type of avenues, so that was the.
It was small but it was a positive thing this quarter on one of our one of our deals.
Thank you.
At this time I am showing no further questions I would now like to turn the conference back to rich for closing remarks.
Thank you for everyone.
And for joining us on our conference call. This morning, and we look forward to engaging with you in the future have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly.
Lower Johan during Q&A, you can dial star one one.
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