Q1 2024 Cerence Inc Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the CERENCE First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Good day, and thank you for standing by and welcome to the <unk> first quarter 2024 earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need a press star one on your telephone you will then hear an automated message.
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Operator: Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker, Rich Yerganian, Senior Vice President of Investor Relations. Please go ahead.
Today's conference is being recorded I would now like to turn the conference over to your Speaker Rich uranium senior Vice President of Investor Relations. Please go ahead.
Richard Mack: Thank you, Michelle. Welcome to Cerence's first quarter of fiscal year 2024 conference call. Before we begin, I would like to remind you that this call may involve certain forward-looking statements. Any statements that are not statements of historical fact, including statements related to our expectations, estimates, assumptions, strategy, goals, targets, and plans should be considered to be forward-looking statements. We make no representations to update those statements after today.
Yeah.
Thank you Michelle welcome to <unk> first quarter of fiscal year 2024 conference call before we begin I would like to remind you that this call may involve certain forward looking statements any statements that are not statements of historical fact, including statements related to our expectations estimates assumptions strat.
<unk> goals targets with wins should be considered to be forward looking statements. So it makes no representation as to update update those statements after today.
Richard Mack: These statements are subject to risks and uncertainties that may cause actual results to differ materially from such statements as described in our SEC filings, including the Form 8K with the press release preceding today's call and our Form 10K filed on November 29, 2023. 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, as well as Reconciliations of Non-Gap Measures to the Closest Gap Equivalent.
These statements are subject to the risks and uncertainties, which may cause actual results to differ materially from such statements as described in our SEC filings, including the form 8-K with the press release preceding today's call and our Form 10-K filed on November 29 2023.
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.
Richard Mack: The press release is available in the IR section of our website. Joining me on today's call are Stefan Ortmans, CEO of Cerence, and Tom Beaudoin, CFO of Cerence. As a reminder, the only authorized spokespeople for the company are Stefan, Tom, and myself. Before handing the call over to Stefan, I would like to mention that we will be presenting at the Baird 2024 Vehicle Technology and Mobility Conference on February 29th, and the Raymond James 45th Annual Institutional Investors Conference and the Morgan Stanley Technology Conference the week of March 4th. Now onto the call, Stefan.
Press release is available in the our IR section of our website.
Joining me on today's call are Stefan import routes CEO search term voting CFO serves as a reminder, the only authorized spokespeople for the company are Stephane, Tom and me.
Before handing the call over to Stefan I would like to mention that we will be presenting at the peer 2024 vehicle technology and mobility conference on February 20, <unk> and.
And the Raymond James 40, 50, institutional investors corporates and the Morgan Stanley Technology Conference the week of March Port.
Now onto the call Stephane.
Stefan Ortmans: Thank you, Rich. Welcome, everyone, and thank you for joining us to discuss Cerence's first quarter results. Over the next few minutes, I will update you on the highlights from our first quarter and provide an update on our AI product strategy and the exciting interest we received from OEMs, partners, and the press at CES. But first, a review of our Q1 highlights. As we have briefed you on previous calls, the R&D and product teams at Cerence have been working at full speed integrating the latest developments in generative AI and large language models into our automotive and adjacent transportation-focused solutions. We believe our enhanced products and future roadmap represent an industry-leading inflection point for the in-cabin experience for drivers and passengers. Not only are existing customers showing interest in deploying our new solutions as quickly as possible, but we have also seen interest in deploying our new innovations from OEMs that had previously chosen alternative solutions.
Thank you rich and welcome everyone and thank you for joining us to discuss <unk> first quarter results.
Over the next few minutes I will update you on the highlights from our first quarter and provide an update on our AI product strategy and the exciting interest we received from Oems partners and press Etsy ads, but first a review of our Q1 highlights.
As we have briefed you on previous calls the R&D and productivity et cetera has been working at full speed integrating the latest developments and generative AI and natural language models.
Our automotive and adjacent transportation focused solutions.
We believe our enhanced products and future roadmap represented industry, leading inflection point towards the in cabin experience for drivers and passengers.
Not only our existing customers showing interest in deploying our new solutions as quickly as possible.
But we have also seen interest in deploying our new innovations from Oems that had previously chosen alternative solutions.
Stefan Ortmans: Discussions with these OEMs and customers gained momentum during Q1 and post-CES, resulting in a greater pipeline of business opportunities as we progress through the fiscal year. Notably, we made steady progress during the quarter in aligning our product strategy with key partners. We announced major engagements with NVIDIA and Microsoft leading up to CES. The hardware and tool chains available to us through these partnerships are important contributors to fulfilling our vision of creating the ultimate AI-based immersive in-cabin experience. In December, we introduced the CERENCE Automotive Large Language Model, called CAAN. CAAN is an automotive-specific large language model leveraging NVIDIA's computing and hardware capabilities for the training of generic and OEM-specific models.
<unk> cautions with these Oems and customers gained momentum during Q1 and coast CES.
Resulting in a greater pipeline of business opportunities.
We progressed through the fiscal year, notably we made steady progress during the quarter in aligning our product strategy with key partners, we announced major engagements with Nvidia and Microsoft leading up to see ads.
The hotspot and too which means available to us through these partnerships are important contributors to fulfilling our vision of creating the ultimate AI based immersive and Kevin experience in December we introduced the <unk> automotive Flash language model called <unk> Com.
In automotive specific large language model, leveraging and Bds computing and hardware capabilities.
The trading of generic and OEM specific models.
Stefan Ortmans: Cerence is working with NVIDIA to solve several key challenges, including shortening time to deployment by moving at true AI innovations. The collaboration with Microsoft focuses on the evolving in-cabin user experience and the future of connected mobility. We are combining our deep expertise and comprehensive AI-powered in-car assistant portfolio with the innovative technology and intelligence of Microsoft Azure OpenAI Service. As a first step, the focus is on delivering a curated automotive-grade in-cabin experience that leverages JetGPT and Azure OpenAI Service. This enables OEMs to swiftly implement next-generation experiences in their new car programs, as well as retroactively upgrade cars on the road. This extends customer value through access to more frequent feature updates, hence creating new revenue opportunities for OEMs. Customer highlights during the quarter included several key developments.
It's working with Nvidia to solve several key challenges.
Including shortening time to deployment by moving at true AI innovation speed.
Collaboration with Microsoft focusing on the evolving and Kevin user experience and the future of connected mobility.
We are combining our deep expertise and comprehensive AI powered incur assistant portfolio with the innovative technology and intelligence of Microsoft Azure services.
As a first step the focus is on delivering a curated automotive grade in cabin experience.
Just chat GPT and Azure openly Ais services.
This enables Oems to swiftly implement next generation experiences into new car programs as well as retroactively upgrade cars on the road.
This extends customer value through access to more frequent feature updates, hence, creating new revenue opportunities for Oems.
Customer highlights during the quarter included several key developments a major north American OEM extended an existing program with <unk> as the competitor solution. They had previously chosen has experienced significant delays.
Stefan Ortmans: A major North American OEM extended an existing program with Cerence as the competitor solution they had previously chosen experienced significant delays. Additionally, a Japanese OEM that chose a competitor solution prior to our spin from Nuance returned to Cerence for some of our key enabling technologies. This is an important first step with the OEM, and we believe it opens the door for expanded opportunities moving forward. We have previously mentioned our success in China with OEMs who have chosen our AI technology and broad leverage language portfolio for the expansion of their global footprint. There were five major platform programs went live with three Chinese OEMs in Q1.
Japanese OEM that has chosen a competitor solution prior to our spin from nuance returned to <unk> for some of our key enabling technologies.
This is an important first step with the OEM and we believe it opens the door for expanded opportunities moving forward.
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We have previously mentioned our success in China with Oems, who have chosen our AI technology and brought leverage language portfolio for expansion of their global footprint. There are five major platform programs went live with <unk> Chinese Oems in Q1.
Stefan Ortmans: This trend continued with several more car makers selecting Cerence to support their overseas program and is expected to drive new opportunities in the Chinese domestic market. We also had a key AIoT design win with a North American company for wearables as we continue to leverage our scalable AI technology stack beyond transportation. And finally, for the sixth quarter in a row, we have delivered our quarterly results as guided. Our penetration in global auto production remained at 54%, and we had several new platform programs achieve the start of production that we expect to ramp as we progress through the fiscal year. We had several one-time adjustments in the quarter, including the previously mentioned revenue acceleration of the Toyota Legacy contract, which Tom will explain in further detail. Even taking these adjustments into account, we would have delivered another strong quarter of financial performance. Much noise and hype has been made about the possibilities that generative AI and large language models will unlock across industries.
This trend continued with several more car makers selecting <unk> to support the overseas program and is expected to drive new opportunities in the Chinese domestic market.
We also had a key Iot design win with a North American company for Roberts as we continue to leverage our scalable <unk> technology stack beyond transportation.
And finally for the sixth quarter in a row, we have delivered our quarterly results and guidance.
Our penetration in global auto production remained at 50, 554% and we had several new platform programs achieve start of production that we expect to ramp.
We progress through the fiscal year we.
We had several onetime adjustments in the quarter, including the previously mentioned revenue exploration of the Toyota legacy contract.
Which Tom will explain in further detail even taking these adjustments into account we would have delivered another strong quarter of financial performance.
Much noise and type has been made about the possibilities of generative AI and large language models will unlock across industries.
Stefan Ortmans: Cerence is one of the few companies to swiftly and intelligently incorporate these innovative and advanced technologies into our products, adding significant value to our OEMs and their end users. As previously discussed, we have enhanced our product portfolio with generative AI and large language models. Our advanced solutions address several key challenges regarding accuracy, speed, and cost while at the same time allowing OEMs to control and customize the solution to their unique brand and digital cockpit experience. You can see from the chart on this slide the number of programs in pre-development, meaning a prerequisite for a design win and ultimately for start-up production.
<unk> is one of the few companies to swiftly and intelligently incorporate these innovative and advanced technologies into our products, adding significant value to our Oems and end users.
As previously discussed we have enhanced our product portfolio with tenet of AI and natural language months, our advanced solutions address several key challenges regarding accuracy speed and cost.
At the same time, allowing Oems to control and customize the solution to the unique brand and digital cockpit experience.
You can see from the chart on this slide the number of programs in pre development, meaning a prerequisite for a design win and ultimately for start of production since the U S. The pipeline of opportunities has grown even larger.
Stefan Ortmans: Since CES, the pipeline of opportunities has grown even larger. Second, concurrent with our integration of large language models into existing products, we are developing a new platform that is expected to fully take advantage of the promise generative AI and large language models can provide. This is based on our fine-tuned, growing automotive data set and composed of billions of tokens of data collected over the 20-plus years we have been serving the industry. At CES, we selectively demonstrated this product to key OEMs. And I think I can say that, uniformly, OEMs and tech partners were very impressed. For competitive and confidentiality reasons, we are keeping the details of this product close to the vest, but we'll share more details with you in the coming months.
Second concurrent with our integration of large language models into existing products. We are developing a new platform that is expected to fully take advantage of the promise generative AI and much language modes can provide.
It's based on our fine tuned growing automotive dataset and compassion billions of tokens of data collected over the 20 plus years, we have been serving the industry at CES, we selectively demonstrated this product to key Oems.
And I think I can say that when you formally Ams and tech partners about very impressed.
For competitive and confidential reasons, we are keeping the details of this product close to the vest, but we'll share more details with you in the coming months overall I am very excited about the progress and accomplishments.
Stefan Ortmans: Overall, I'm very excited about the progress and accomplishments. Now, for those of you that were not able to visit our booth at CES, we thought we would share a short video clip that gives you a sense of the energy, team spirit, and momentum we built during our week in Las Vegas. So, let's run the video.
Now for those of you that were not able to visit our booth at CES. We thought we would share a short video clip that gives you a sense for the energy team spirit and momentum we built during our week in Las Vegas.
Let's run the video.
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Stefan Ortmans: Our goal at CERENCE is to create better AI experiences for end users. It's all about a safer, more personalized, and more convenient journey. Here at CES, we showcased our advancements in generative AI and how we make our products way more powerful with the help of large language models. Our flagship product, CERENCE Assistant, a full stack AI experience which we have deployed to more than 15 customers, is now powered by generative AI and can handle very complex questions and an endless number of multi-intents.
Our goal is to create better AI experience with <unk>, it's all about a safer more personalized and more convenient journey.
Guarantee yes, we have showcased our advancements and generated AI and how we make our product is way more powerful with the help of large language model.
Our flagship product <unk> at this time.
Full think AI experience, which we have deployed already to more than 15 customers is now powered by generated AI and can handle very complex question and the endless number of multi tenant.
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Stefan Ortmans: Another highlight was our launch of CERENCE Chat Pro. CERENCE Chat Pro is a cloud-based new service where we bring the capabilities of large language models like chat GPT to drivers globally. We have launched Chat Pro with Volkswagen, and in the first half of 2024, Volkswagen drivers in Europe and North America will be able to enjoy a better voice AI experience in their cars.
A number of highlights was our launch of <unk> jet drone Darrin to jet fuel is a cloud based new service, where we bring the capabilities of large language model like Chuck GBT to drivers globally, we have launched chapter with Volkswagen and in the first half of 2024 BW drivers in Europe and north.
<unk> will be able to enjoy a better white the ikea in their cars.
Stefan Ortmans: This solution was developed in record time from idea to product in only three months, and we will continue to upgrade the Volkswagen fleet with more innovation to come out of our portfolio. Another huge milestone for us was the announcement of two major partnerships. We will work with Microsoft to bring Azure OpenAI services and their co-pilot capabilities into our product portfolio. Also, we have announced a partnership with NVIDIA to develop the first automotive-grade LLM, and we will soon launch this in new cars with the ability to build hyper-personalized applications for automakers. As the foundation for the in-car experience of the future, we of course, continue to advance and enrich our core offerings. With audio AI and multi-seat intelligence, or our ability to detect driver emotions, we showcase our leading role in the automotive industry and beyond. We are very proud that Mercedes-Benz showcased their next generation virtual avatar here at CES. This virtual avatar is fully powered by Serens with many new innovations like emotion detection and our embedded neural text-to-speech capabilities.
Solution was developed in record time from idea to product and only three months.
We will continue to upgrade the Volkswagen fleet with more innovation to come out of our portfolio Accordingly.
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Another huge milestone for US was the announcement of two major partnerships, we will work with Microsoft to bring as our open AI services and their co pilot capabilities into our product portfolio.
Also we have announced a partnership with Nvidia to develop the first automotive freight LLM and we will soon launch a new cars with the ability to build hyper personalized application for automakers.
As the foundation for the in car experience of the future. We of course continue to advance and enrich our core offerings.
With audio AI and multi seat intelligence.
Our ability to detect driver emotion, we showcased our marketing lead to growth in the automotive industry and beyond.
Very proud that Mercy defense showcased their next generation virtual top here at CES.
This virtual avatar, it's fully powered by <unk> with many new innovations like emotion detection and our embedded neural text to speech capabilities.
This enables mercy together with us to build a very conversational highly personalized and emotional avatar for their future cars.
Stefan Ortmans: This enables Mercedes-Benz, together with us, to build a very conversational, highly personalized, and emotional avatar for their future cars. Stay tuned for more AI-powered solutions from Serens. As you all may know, CES has become the most important trade show for the latest in transportation and mobility. We were very pleased when Volkswagen approached us about kicking the show off with a joint press conference announcing our partnership to enhance Volkswagen's in-car experience with CEREN's AI capability. The press conference hosted over 300 journalists and was a fantastic way to kick off the week.
<unk> four more AI powered solution from Sara.
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Third AI for our world in motion.
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As you all May know C assets become the most important trade show for the latest in transportation and mobility.
We were very pleased when folks approach us about kicking the show off as a joint press conference announcing our partnership to enhance floods funds in car experience with AI capabilities.
A press conference hosted over 300 journalists and was a fantastic way to kick off the week.
Stefan Ortmans: Together, we have created an amazing user experience by enhancing Volkswagen's in-car assistant called IDA with Cerence Chat Pro, bringing the best of both worlds together. The execution from concept to product was done in less than three months. We showcased the IDA assistant at CES in the Volkswagen IDA 7 and GOLF.
Together, we have created an amazing user experience by enhancing focused funds incur assistant card either.
Sarah Chet, bringing the best of both worlds together the execution from concept to product was done in less than three months.
We showcase the Ida assistant at CES, and the <unk>, 7% and golf.
Stefan Ortmans: And we expect the rollout of the upgraded assistant across Volkswagen and Skoda models starting mid-calendar year 24. And an already full schedule of customer demos became even more crowded as word spread about our product data. This included several representatives from multiple OEMs that had worked with a big consumer tech company. After the demos, everyone of these OEMs asked to re-engage in discussions with us about their next generation solutions. These discussions are ongoing and we believe they provide realistic opportunities for additional win-backs. It wasn't just OEMs that were impressed with our demonstrations at CES. We had over 400 mentions in the press, including 15 mentions as one of the best products of the show.
And we expect the rollout of the upgraded assistant across fund Skagen and Skoda model, starting mid calendar year 'twenty four.
And already a full schedule of customer demos became even more crowded as word spreads.
About our product demos.
This included several representatives from multiple Oems that had worked with a big heart consumer Tech company. After the day most everyone of these Oems us to re engaged in discussions with us about their next generation solutions. These discussions are ongoing and we believe provides realistic opex.
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It wasn't just Oems that were impressed with our demonstration at CES, we had over 400 as references in the press, including 15 mentioned as one of the best product of the show. Additionally, several influential journalists and bloggers produced videos showing a new <unk>.
Stefan Ortmans: Additionally, several influential journalists and bloggers produced videos showing the new CERENCE-powered capabilities in action in the ID.7 while providing very positive commentary. CES was a great opportunity for Cerence to showcase our AI product strategy and reinforce our belief that we are on the right track and that we remain in a leadership position for applying the promise of AI to the transportation industry. As we look to Q2 and beyond, we have a number of priorities we are keenly focused on. First and foremost, we must capitalize on the positive momentum generated by CES. Our objective is to secure new business with existing customers and aggressively target the potential win-back opportunity.
Our capabilities in action and B I D seven while providing very positive commentary.
<unk> was a great opportunity for surgeons to showcase our AI product strategy and reinforced our belief that we're on the right track and that we remain in a leadership position for applying the promise of AI to the transportation industry.
As we look to Q2 and beyond we have a number of priorities. We are keenly focused on.
First and foremost is to capitalize on the positive momentum generated from CES.
Our objective is to secure new business with existing customers and aggressively target the potential win back opportunities.
Stefan Ortmans: We need to continue to hit our delivery targets for both existing and new projects, especially ones that are cloud-based and provide us with the opportunity to generate revenue in a shorter period of time. However, OEMs control the final timeline of their start-up production or software updates. And finally, execute on Cerence's next-gen computing platform, facilitating a truly immersive in-cabin experience. Now, I will turn it over to Tom to share our financial results.
Second we.
We need to continue to hit our delivery targets for both existing and new projects, especially ones that are cloud based and provide us the opportunity to generate revenue in a shorter period of time, However, Oems controlled the final timeline of their startup production or software updates.
And finally execute on services Nextgen computing platform, facilitating a truly immersive in cabin experience.
Now I will turn it over to Tony to share our financial results Tom.
Thomas L. Beaudoin: Thank you, Stefan. Let me first discuss our Q1 FY24 results, followed by our guidance for Q2 FY24. Our Q1 results included several one-time events. One was the acceleration of the revenue associated with the legacy contract that we had previously communicated. We came in above our revenue target primarily due to the net effect of two additional one-time events. Another was with a customer whose contract was serendipitous, provided additional services to the Toyota Legacy Solution, and this customer notified us of the decommissioning of their service in Q1, resulting in acceleration of the deferred revenue associated with their service in Q1 in the amount of approximately $9.9 million. Additionally, a separate customer notified us in Q1 that they had determined they had been over-reporting royalties for a period of time. This resulted in a negative one-time true-up.
Thank you Stephane, let me first discuss our Q1 FY 'twenty through our results.
Allowed by our guidance for Q2, FY 'twenty four.
Our Q1 results included several one time events.
One was the acceleration of the revenue associated with the legacy contract that we had previously communicated.
We came in above our revenue target primarily due to the net effect of two additional one time events.
Another was with a customer who has contracted with parents provide additional services to the Toyota legacy solution.
This customer has notified us of the decommissioning of their service in Q1, resulting in acceleration of the deferred revenue.
With this service in Q1, and the amount of approximately $9 9 million.
Additionally, a separate customer notified us in Q1.
Determine they had been over reporting royalties for a period of time.
This resulted in a negative one time true up.
Thomas L. Beaudoin: We owe $4.8 million in royalties due to our licensed revenue. As we have reported in the past, and as recently as Q4 of last fiscal year, we do get notifications from customers when they realize they have either been under or over-reporting royalties to us. While the updates we usually get are positive true-ups, in this particular case, the customer determined they had been over-reporting royalties.
$4 8 million to our license revenue.
As we have reported in the past and as recently as Q4 of last fiscal year, we do get notifications from customers when they realize they have either been under or over reporting royalties to us.
Wildly updates, we usually yet.
Positive true up in this particular case the customer procurement they had been over reporting royalties and therefore, we took a reserve as part of our Q1 results.
Thomas L. Beaudoin: And therefore, we took a reserve as part of our Q1 results. Q1 revenue came in at $138.3 million, approximately $6 million above the high end of our guidance, primarily due to the factors mentioned above. However, adjusting for the items I noted earlier, our Q1 revenue still would have delivered a solid financial performance. Revenue for Q1 included no prepaid contracts as communicated during our Q4 conference call.
Q1 revenue came in at $138 $3 million approximately $6 million above the high end of our guidance.
Primarily due to the factors mentioned above.
Adjusting for the items I noted earlier, our Q1 revenue still would have delivered a solid financial performance.
Revenue for Q1 included no prepay contracts as communicated during our Q4 conference call.
Thomas L. Beaudoin: The results in the quarter were driven by our core transportation, as revenue came in above the high end of our guide, combined with our focus on operations. We exceeded most financial targets; Gap gross margin was 81 percent. Gap net income was $23.9 million, and Gap Income Per Share was $0.53.
The results in the quarter were driven by our core transportation business.
As revenue came in above the high end of our guidance range combined with our focus on operational excellence, we exceeded most financial metrics.
GAAP gross margin was 81%.
GAAP net income was $23 9 million.
And GAAP income per share was <unk> 53.
Thomas L. Beaudoin: Non-GAAP Gross Margin was 81.5%. Non-GAAP operating margin was 49.4 percent. Adjusted EBITDA was $70.4 million, or 50.9% of gross margin, and non-GAAP income per share was $1.20. During the quarter, we had negative cash flow of about $2.8 million.
non-GAAP gross margin was 81, 5% non-GAAP operating margin was 49, 4%.
Adjusted EBITDA was $70 4 million or 59% margin.
non-GAAP income per share was $1 12.
During the quarter, we had negative cash flow of about $2 8 million.
Thomas L. Beaudoin: This was mainly due to the timing of customer payments we expect to receive in Q2. We expect positive cash flow for the full fiscal year. Our balance sheet remains strong, with total cash and marketable securities of approximately $116 million.
This was mainly due to the timing of customer payments, we expect to receive in Q2.
We expect positive cash flow for the full fiscal year.
Our balance sheet remains strong with total cash and marketable securities of approximately $116 million.
Thomas L. Beaudoin: This chart is our breakdown of revenue for the quarter. Core Revenue Drivers remains falling. Q1 license revenue includes the one-time negative true-up mentioned a few minutes ago. This was a negative impact of approximately $4.8 million. Also, when comparing quarter over quarter, our performance in Q4 included a positive true-up of about $3 million. As expected, we did not execute any fixed prepaid contracts in Q1.
This chart is our breakdown of revenue for the quarter.
Core revenue drivers remain solid.
Q1 license revenue included a one time negative true up mentioned a few minutes ago.
This was a negative impact of approximately $4 $8 million.
Also when comparing quarter over quarter. Our performance in Q4 included a positive true up of about $3 million.
As expected, we did not execute any fix prepay contracts in Q1.
Thomas L. Beaudoin: Our penetration of global auto production remained at 54% on a trailing 12-month basis, as we continue to maintain a strong position in the market. Connected services revenue was up slightly from the prior quarter due to accelerated non-cash revenue. Associated with the legacy contract and an additional approximately 9.9 million attributed to the other contract discussed earlier, Excluding this acceleration of deferred revenue, new connected revenue would have been up 5% quarter over quarter and 13% year over year. We expect a ramp in new connected services in FY24, as several key programs that have been delayed by customers go into production. We continue to see a solid pipeline of opportunities for connected services, even as some expiring programs of old technology restrain near-term growth.
Our penetration of global auto production remained at 54% on a trailing 12 month basis.
As we continue to maintain a strong position in the market.
Connected services revenue was up slightly from the prior quarter due to accelerated noncash revenue associated with the legacy contract and an additional approximately $9 9 million associated with the other contract discussed earlier.
Excluding this acceleration of deferred revenue new connected revenue would have been up 5% quarter over quarter and 13% year over year.
We expect a ramp in new connected services in FY 'twenty four as several key programs that have been delayed by customers go into production.
We continue to see a solid pipeline of opportunities for <unk>.
Connected services, even as some expiring programs of all technology restrained and near term growth.
Thomas L. Beaudoin: Regarding the contract with the second customer who had a portion of their contract with us related to the legacy solution, the revenue associated with that contract has historically been reported as new connected revenue. The customer who reported their over-reporting of royalties, license revenue, and the other customer that required acceleration of deferred revenue related to the decommissioning of connected services associated with the Toyota solution will negatively impact our go-forward revenue by approximately $800,000 of license revenue and approximately $400,000 of new connected services revenue. Perkwater, respect.
Regarding the contract with a second customer who had a portion of their contract with us related to the legacy solutions. The revenue associated with that contract has been historically reported as part of new connected revenue line.
The customer who reported there over reporting of royalties license revenue.
And the other customer that required acceleration of deferred revenue related to the decommissioning of connected services associated with the Toyota solution.
We will negatively impact our Gulf Floyd revenue by approximately $800000 of license revenue and approximately 400000 of new connected services revenue per quarter, respectively.
Thomas L. Beaudoin: As we have previously stated, professional services revenue will vary quarterly based on the progress or completion of customer projects. We do not project professional services as a revenue growth driver for the company but instead view it as an enabler for future license and connected services revenue. Additionally, our newer products and solutions include improved implementation and integration features, which lowers the utilization of professional services. Moving on to our license business, Overall, the license business remained fundamentally strong.
As we have previously stated professional services will vary quarterly based on the progress or completion of customer projects. We.
We do not project professional services as a revenue growth driver for the company and instead view it as an enabler for future license and connected services revenue.
Additionally, our newer products and solutions include improved implementation and integration features which allow us the utilization of <unk>.
<unk> services.
Moving on to our licensed business overall, the license business remains fundamentally strong.
Thomas L. Beaudoin: Pro forma royalties in the quarter were impacted by the negative true-up due to over-reported royalties and, to a lesser extent, additional program delays or slower-than-expected volume ramps from several customers. As a reminder, pro forma royalties represent the value of variable licenses shipped during the quarter and those consumed as part of a fixed contract. Adjusting for one-time items, including the $3 million true-up in Q4 and a one-time volume discount, pro forma license royalties were relatively flat quarter over quarter.
Pro forma royalties in the quarter were impacted by the negative true up due to over reported royalties and to a lesser extent additional program delays or slower than expected volume ramps from several customers.
As a reminder, pro forma royalties represent the value of variable licenses.
During the quarter and those consumed as part of a fixed contract.
Adjusting for one time items, including a $3 million true up in Q4.
And a one time volume discount pro forma license royalties were relatively flat quarter over quarter.
Thomas L. Beaudoin: As planned, we did not execute any fixed contracts in Q1, but we do expect a contribution in Q2 of approximately $5 million towards our fiscal year target of approximately $20 million. We believe that our KPIs... continue to indicate strength in the business. As stated earlier, our penetration of global auto production for the trailing 12 months stayed steady at 54%, with 12.4 million cars with Cerence technology shipped in the quarter. This means that over half of global auto production includes some level of embedded Cerence technology. Cars produced that include our connected services in addition to our embedded solutions increased 36 months trailing 12 months over the prior trailing 12, reflecting the trend of cars being increasingly connected and our ability to successfully provide our customers with innovative cloud-based solutions. Total adjusted billings increased 4%.
As we planned we did not execute any fixed contracts in Q1.
But do expect a contribution in Q2 of approximately $5 million towards our fiscal year target of approximately $20 million.
We believe that our kpis.
To indicate strengthen the business.
As stated earlier, our penetration of global auto production or the <unk>.
Railing 12 months stayed steady at 54% with $12 4 million cars with <unk> technology shift in the quarter.
This means over half of global auto production include some level of embedded <unk> technology.
Cars produced that include our connected services. In addition to our embedded solutions increased 36 months trailing 12 months over the prior year.
Trailing 12 months, reflecting the trend of cars being increasingly connected and our ability to successfully provide our customers with innovative cloud based solutions.
Total adjusted Billings increased 4%.
Thomas L. Beaudoin: And we believe that this is a leading indicator of our potential future revenue, related to our growth in car shipping with our connected services. We once again saw a large increase in monthly active use. 30% year over year, which we believe indicates increasing popularity among the end users of our technology. As we discussed on last quarter's conference call, we were informed by our legacy Connected Services customer, Toyota, that they were electing to terminate the service offering effective December 31st, 2023; prior to this change, would have reported revenue associated with this contract of approximately $8.4 million per quarter through Q1 of fiscal 2026, meaning the end of calendar year 2025 You may recall there is no cash flow associated with the remaining deferred revenue associated with this contract.
We believe that this is a leading indicator of.
Potential future revenue growth.
Related to our growth in cars shipping with our connected services. We once again saw a large increase in monthly active users.
30% year over year, which we believe indicates increasing popularity among end uses of our technology.
As we discussed on last quarter's conference call, we were informed by our legacy connected services customer Toyota.
We're electing to terminate the service offering.
Fact is December 31 2023.
Prior to this change <unk> would have reported revenue associated with this contract of approximately $8 $4 million per quarter through Q1 of fiscal 2026.
In the end of calendar year 2025, as the service associated with the contract.
At the end of life.
You may recall, there is no cash flow associated with the remaining deferred revenue associated with this contract.
Thomas L. Beaudoin: The contract came via an acquisition in 2013 while Cerence was part of Nuance. The Cerence Deferred Revenue represents the amortization of the revenue associated with the contractual service period, which was scheduled to end December 31, 2025, and was accelerated by such termination by Toyota to our Q1 FY24. Therefore, our revenue for the first quarter includes approximately $73.6 million in revenue associated with this change. The decommissioning by the other customer with a contract in support of the Toyota Legacy Solution also resulted in an acceleration of approximately $9.9 million of revenue in Q1. Because the contract with this other customer was for more than just the legacy solution, this revenue has been reported as part of our new connected services revenue. As I mentioned earlier, our new connected services revenue will be lower by approximately $400,000 per quarter moving forward.
The contract came via an acquisition in 2013 loss variance was part of nuance.
<unk> deferred revenue represents the amortization of the revenue associated with the contractual service period, which was scheduled to end December 31, 2025, and was accelerated by such termination by Toyota to our Q1 FY 'twenty four.
Therefore, our revenue for the first quarter includes approximately 70 to $73 6 million in revenue associated with this change.
The decommissioning by the other customer with a contract in support of the Toyota Legacy solution also resulted in an acceleration of approximately $9 $9 million of revenue in Q1.
Because the contract with this other customer was for more than just the legacy legacy solution.
This revenue has been reported as part of our new connected services revenue.
As I mentioned earlier, our new connected services revenue will be lower by approximately 400 K per quarter moving forward.
Thomas L. Beaudoin: Now turning to revenue guidance for Q2 and the fiscal year. We are guiding our Q2 revenue to be from $60 to $64 million. We expect Q2 revenue to include approximately $5 million in fixed contracts in Q2. We are in the process of negotiating final contracts with a couple of customers, which may result in our projection for Q2 to vary as we ensure we achieve satisfactory terms. The best estimate we can provide at this time would be to spread the remainder of the approximately $20 million annual amount relatively evenly throughout the balance of the fiscal year, with the caveat that actual execution of fixed contracts can vary quarter to quarter. For the full fiscal year, we continue to expect revenue between $355 and $375 million.
Now turning to revenue guidance for Q2.
Yes.
We are guiding our Q2 revenue to be from $60 million to $64 million.
We expect Q2 revenue to include approximately $5 million and fixed contracts in Q2.
We are in the process of negotiating final contracts with a couple of customers, which may result in our projections for Q2 to vary as we ensure we achieve satisfactory terms.
The best estimate we can provide at this time would be to spread the remainder of the approximately $20 million annual amount relatively evenly throughout the balance of this fiscal year with the caveat that actual execution of fixed contracts can vary quarter to quarter.
For the full fiscal year, we continue to expect revenue to be between $355 million to $375 million.
Thomas L. Beaudoin: You can see on the slide the revenue guidance and the effect of the associated financial metrics. As you can see, there were updates to our guidance for the fiscal year regarding our GAAP operating margin, EPS, and non-GAAP net income. The adjustments to our gap operating margin and that increase are due to restructuring charges and an asset indemnification release. Nongap Net Income improved due to a favorable foreign exchange gain in Q1.
You can see on this slide the revenue guidance and the effect of the associated financial metrics.
As you can see there were updates to our guidance for the fiscal year regarding our GAAP operating margin net income.
Net income margin and EPS and non-GAAP net income.
The adjustments to our GAAP operating margin and net income due to restructuring charges and an asset indemnification release non.
non-GAAP net income improved due to a favorable foreign exchange gain in Q1.
Operator: In summary, CES was a resounding success for the company, with significant interest in our new products and technology from existing and potential customers alike. The goal now is to advance these discussions into new business and ultimately revenue growth for the company, while in the near term, we remain focused on operations. As a reminder, we expect to update our five-year backlog in conjunction with our Q2 earnings release. This concludes our prepared remarks, and now we will open the call to questions. As a reminder, to ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.
In summary.
CES was a resounding success for the company with significant interest in our new products and technology from existing and potential customers alike.
I'll now is to advance these discussions into new business and ultimately drive revenue growth for the company well in the near term we remain focused on operational excellence.
As a reminder, we expect to update our five year backlog in conjunction with our Q2 earnings release.
This concludes our prepared remarks, and now we will open the call for questions.
Thank you and as a reminder to ask a question at this time. Please press star one on your telephone and wait for your name to be announced.
Your question. Please press star one again, one moment, while we compile our Q&A roster.
Operator: One moment while we compile our Q&A, and our first question is going to come from the line of Jeff Van Reeve with Craig Hallam Capital Group. Your line is open. Please go ahead.
And our first question is going to come from the line of Jeff Van <unk> with Craig Hallum Capital Group. Your line is open. Please go ahead.
Jeff Van Reeve: Great, thank you for taking the questions. A couple, just maybe start with the customer that left with Toyota that was apparently in new connected and just maybe a little more color. Was that a surprise given they were correlated to Toyota? Was there a vision that somehow they were going to stay excluding Toyota? And then just again, a little more color on what exactly they were doing.
Great. Thank you for taking the questions a couple of just.
Maybe start with the customer that left with Toyota that was apparently in new connected and just maybe a little more color was that a surprise given they were correlated to Toyota was the revision that somehow they were going to stay excluding Toyota and then just again a little more color on what exactly they were doing.
Thomas L. Beaudoin: So Jeff, thank you. So they had a separate contract. So they were kind of a tier two to that overall solution. I don't think we truly expected them to also cancel that.
So Jeff. Thank you so they have a separate contract.
We're kind of.
Tier two to that overall solution.
I don't think we truly expected them to also cancel that I mean, we recently had to wait for them to understand what their relationship wise and what their activities and contractual obligations were with Toyota.
Thomas L. Beaudoin: I mean, we certainly had to wait for them to understand what their relationship was and what their activities and contractual obligations were with Toyota. So they actually notified us a little bit after we got the notification from Toyota on our legacy contract. And that's a little bit why we didn't include it in Q4, because we hadn't been informed at that time. And so was the explanation that they were leaving because they simply had to because that partner was going away or Because they were changing product direction and you were no longer a fit. What was the logic to leave if it wasn't a foregone conclusion that they had?
So they.
They actually notified us a little bit after.
We've got the notification from Toyota on our legacy contract and that's a little bit why we didn't include it in Q4.
Because we haven't been informed at that time.
Okay.
So what's the explanation that they were leaving because they simply had too because that partner was going away or because they they were changing product direction and you're no longer a fit what was the logic to leave if it wasn't a foregone conclusion that that has that pretty much the same logic.
Thomas L. Beaudoin: Pretty much the same logic with a Toyota legacy. They got informed by Toyota, you know, we don't know exactly what their contractual arrangement was with Toyota, but they were also told that Toyota was ending that service, and therefore, they came back to us and informed us that they were also cancelling the services associated with that service. And maybe, Jeff, good morning, Jeff.
On our legacy they got informed by Toyota.
We don't know exactly what their contractual arrangement was with Toyota but.
They are also told that Toyota was.
Ending that service and therefore, they came back to us and informed us that they were also.
Canceling the service associated with that.
And maybe either.
As a reminder, Jeff here good morning, Jeff.
Stefan Ortmans: The Toyota Legacy program started in 2011, right? So it's a very old, old-fashioned program compared to today's solutions, especially when looking at CES, right? And they have been informed actually in parallel and then come back to us here. Nevertheless, we have an excellent relationship with Toyota, and we are focusing on new programs, for example, Model Year 24. And upcoming programs, and they have also invited us to discuss new opportunities beyond Model Year 24. Okay, helpful.
So your OIBDA on a legacy program started in 2011 right. So it's a very old old fashion program compared to nowadays solutions, especially when looking at CES right.
They have been informed exiting Parliament then came back to US here. Nevertheless, we have an excellent relationship with Toyota and they are focusing on new programs. For example, more of a 'twenty four and upcoming programs.
Awesome us to discuss new opportunities beyond.
2012.
Okay.
Jeff Van Reeve: Then if I could just sneak two other quick ones in the script you referenced, Tom, I think in the script that there are still headwinds remaining from some other old contracts and connected, can you just put some bounds around how much of a revenue headwind that is on an annual basis? And We haven't split out the exact amount there because, you know, some of it, sometimes there's a ramp delay. So, you know, I think there are some other indicators of the positive momentum we're seeing in connected services, and I think we'll start to see that growth in the next couple of quarters in 2024. And again, a piece of it is, you know, some delayed production shocks and ramps by some of the OEMs. Yeah, okay.
And then if I could just sneak two other quick ones in the you referenced.
Tom I think in the in the script that yet headwinds remaining from some other old contracts and connected can you just put some bounds around how much of a revenue headwind that is on an annual basis.
We haven't split out the exact amount there because some of it.
Programs and in <unk>.
Sometimes there's a ramp delay so.
<unk>.
I think there is some other indicators on.
The positive momentum we're seeing in connected services.
And I think we'll start to see that growth.
The next couple of quarters in 2024.
And again.
A piece of it is some delayed.
Production of SaaS and ramps, but by some of the Oems.
Jeff Van Reeve: And then maybe last, Stefan, on a very high level question here, but I guess if you look at the overall landscape, how do you as a company best gauge the satisfaction of the end users that are using your technology versus the alternatives? And obviously, you quote 54%, so your share in the in-car systems is steady, but you know, folks can use Apple CarPlay, and Android Auto. There are a lot of avenues that they have to consume or interact with the vehicle while they're in the vehicle.
Okay, and then just maybe last upon.
On the very high level question here, but I guess, if you look at the overall landscape how do you as a company best gauge dissatisfaction of the end users that are using your technology versus the alternatives and obviously your quarters, 54%. So your share in the in car systems is steady but.
Folks can use Apple car play Android auto there are a lot of avenues that they have to consume or interact with the vehicle. While they are in the vehicle. So two questions just how you're gauging and user satisfaction of your solution versus the other solutions and then any commentary about.
Stefan Ortmans: So two questions, just how are you gauging end user satisfaction of your solution versus the other solutions? And then any commentary about market share within actually what's getting used in the car? Because I think some of those, you know, Apple CarPlay, and Android Auto might not be measured in that 54%. Thanks. So maybe Jeff, there are, in our view, in my view, actually three key pillars.
Market share within actually what's getting used in the car because I think some of those Apple car play and Android auto might not be measured in that 54%.
So maybe Jeff.
In our view and my view equity.
The three key pillars first of all we have a very diversified strong customer base with strong engagement that was crystal clear at CES and also post C is right and we are getting on some valuable feedback from Oems across the globe.
Stefan Ortmans: First of all, we have a very diversified, strong customer base with strong engagement. That was crystal clear at CES and also post-CES, right? And we're also getting valuable feedback from lead OEMs across the globe. Secondly, I think also with the opportunity for market and OEM-relevant brand customization, we have some huge advantages over the big tech giants, right? Because all OEMs understand now that they need to drive the immersive in-cabin experience, the digital cockpit experience, right? And they are also heavily engaged with their users, right?
Secondly.
I think also with the opportunity for market.
Relevant brand customization.
We have some huge advantages.
Over the Big Tech Giants right, because all Oems understand know that they need to drive.
Immersive in cabin experience digital cockpit experience right.
Heavily engaged.
Stefan Ortmans: And sharing this information with us. But equally or even more important is, I mean, you know, at our last Investor Day, we said, okay, we are moving ourselves from a component supplier, a technology supplier, to a full solution innovation partner. And really, I can say we have achieved this important goal for the company, right? So we're actually providing a leading innovation computing platform now. Now providing really a compelling in-cabin experience with, yeah, you can say commercialized hybrid large language model architecture. And that was one of the best products at CES, and the demand from other OEMs is just amazing and terrific, right?
User use us what I've been sharing this information with us.
But equally or even more important as you know.
At our last Investor Day, we said, Okay. We are moving our sales from a component supplier technology supplier to a point solution innovation partner.
And really I can say, we have achieved this important goal for the company right. So we are providing actually now leading innovation computing platform now, providing really a compelling income and experience.
Yes, you can see commercial lines hybrid launch language architecture, right and that was one of the best products at CES.
The demand from other Oems, it's just amazing in terrific right.
Stefan Ortmans: And with this huge penetration rate of 54%, right, we now have huge opportunities for upselling those solutions in the short term, but also in the mid or long term, bringing in our new hybrid large language model generative AI solution. And therefore, we are partnering with NVIDIA for accelerating the rollout. I mean, languages are still a key topic, right?
And with this huge penetration rate of 54% is why we have huge opportunities and upselling those solutions in the short term, but also in the mid and long term, bringing in our new hybrid notched remains one of the generative AI solution and therefore, we are partners with Nvidia for excellence.
Exploration zeroed out I mean language shows.
Key topic, Ross, you're a global player compared to others in the market here right in <unk>.
Stefan Ortmans: We are a global player compared to others in the market here, right? And our promise to the market is that by the end of this calendar year, 20 languages will be supported hybrid, that means embedded in the cloud. So overall, I think we are on a very, very good track. Okay, great.
Our promise to the market that we have by end of this calendar year 'twenty languages supported hybrid that means embedded outpace. So overall I think we're on a very very good trick.
Okay, great. Thank you.
Sure.
Thank you and one moment as we move on to our next question.
Jeff Van Reeve: Thank you. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Quinn Bolton with Needham and Company. Your line is open. Please go ahead. Hey, this is Nick Doyle. I'm on behalf of Quinn Bolton.
Yeah.
And our next question is going to come from the line of Quinn Bolton with Needham <unk> Company. Your line is open. Please go ahead.
Hi, This is Nick Doyle on for Quinn.
Your adjusted total billings growth decelerated slightly from 6% last quarter to 4%. This quarter can you expand on that data point it sounds like it might be impacted by the.
Operator: Your adjusted total billings growth decelerated slightly from 6% last quarter to 4% this quarter. Can you expand on that data point? It sounds like it might be impacted by the additional program delays that you're talking about.
Additional program delays that you were talking about.
Nick Doyle: And then maybe you can touch on, you know, the key reason you're thinking you've seen these delays, how the OEMs are thinking about SOPs this year, you know, auto production and auto sales remain relatively strong. By the way, thanks. Yeah, Glenn, I'll take the first part and then maybe Stefan can talk about it.
And then maybe you can touch on the key reason.
<unk> seen these delays.
Oems are thinking about S&P this year, while auto production and auto sales remain relatively strong.
Lately. Thanks.
Yes, Glen I'll take the first part and then maybe Stephane can talk about.
The second piece.
I mean again, we saw it.
Growth in billings I think we will see accelerated growth in billings over the next few quarters.
Thomas L. Beaudoin: The second piece, I mean, again, we saw growth in Billings. I think we'll see accelerated growth in Billings over the next few quarters. I think it's just, you know, a little bit of timing and seasonality in that Billings number.
I think it's just.
A little bit of a timing and seasonality.
In that billings number.
And looking at the mid S&P twin.
Thomas L. Beaudoin: And looking at delayed SOPs, Twin here, also here, has also received some positive messages. We've just been informed that one of the programs, which had been delayed for more than two years, will go live in calendar week 12 of this year. That's great, because here we see higher PPU, and it's a mass volume OEM, right? And there was also another big OEM who had some delays of nine months, and they will also go live within the next two months, which is really great for us. And then, as I said, we have this diversified customer platform. You may have also heard about BYD.
<unk> also here are also some positive messages.
Just been informed that one of the program, which has been live for more than two years will go live in calendar week.
12 of this year, that's great because here, we see higher.
<unk> and <unk>.
Mass volume.
Right and there was also another big OEM.
Who had also some delays of nine months and they will also go live within the next two months, we just really great for us.
And then as said we have this diversified.
<unk> platform you have also heard about BYD.
Stefan Ortmans: They're becoming more important for the European market now, and as you know, we are their preferred partner here when it comes to the in-cockpit experience, leveraging conversational AI. So we are on a good track, but as you also said earlier, right, the OEM defines the start of production, and they will also let us know when they are doing this kind of software updates over the air. Okay, thank you. And then what part of your technology stack drove the AIOT win? I guess why wasn't this piece limited by the FOU? And can you talk about the size or timing of the win? You had, I think you had about a $5 million win with a big tech company and fiscal one quarter 1Q22. Is it bigger than that?
Becoming a more important for the European market in essence, we are their.
Their preferred partner.
Comes to.
The cockpit experience leveraging conversational AI.
So we're on a good track, but we have still some dependencies on the Oems and as you also said earlier right.
Defined startup production.
They will also let us know when theyre doing this kind of software updates over the air.
Okay. Thank you and then what.
Part of your technology stack drove the.
<unk>.
I guess why wasn't this piece limited by the <unk> and can you talk about the size or timing of the win you had.
You had about a $5 million win with Big Tech company in fiscal one quarter or <unk> 22 is it bigger than that.
Nick Doyle: So over the last couple of months, we have made great progress also in the non-transportation space. We have had four product launches in Q1. One in Korea, that's for home, one in China, and two in North America with well-known companies, industrials here, right, and we had another big design win in North America for wearables. We are still under the FOU, so we are selling technologies that are applicable. For example, audio AI, embedded solutions, and text-to-speech.
So over the last couple of months, we have made great progress also in the non transportation space.
What we have you have in Q1 for product launches now one in Korea.
Home.
And in China.
Two in North America was well known companies industrial sphere, right and we had also another big design win in North America for Wearables.
Yes.
The Mou so we are selling.
<unk> technologies, which.
For example, our AI.
Embedded solutions and text to speech.
Stefan Ortmans: Yeah, so just a little bit on that. I mean, we've said all along that there were certain elements that we were able to advance prior to the expiration of the FOU. Those were clearly defined in the contract with Nuance, now Microsoft, and that's what we, in the short term, that's what we've been pursuing. And then, as of October, there will be no restrictions. And our focus, Quinn, is on industrial IoT, variables, also health, and well-being, and we are also in discussions with big companies, especially in North America, about smart homes and offices. Yeah, some of those will have to wait until October.
Yes, so just a little bit on that I mean, we've said all along that there were certain elements.
Elements that we were able to.
To advance prior to the expiration of the <unk>, those who are clearly defined and.
The contract with nuance now Microsoft and that's what we in the short term that's what we've been pursuing and then as of October there will be no restrictions.
And our focus is on industrial Iot.
Variable.
So health and wellbeing.
We are also in discussion with big companies, especially North America.
And smart home and office.
Yes, some of those will have to wait until October.
Stefan Ortmans: But we're getting ready. Thank you. Thank you. And again, ladies and gentlemen, if you wish to ask a question at this time, please press star 11 on your telephone.
But we're getting ready.
Thank you.
Thank you and again, ladies and gentlemen, if you wish to ask a question at this time. Please press star one on your telephone one moment for our next question.
Operator: One moment for our next question. And our next question comes from the line of Mark Delaney with Goldman Sachs. Your line is open. Please go ahead. Good morning, everyone. This is Will Bryan on behalf of Mark Delaney.
And our next question comes from the line of Mark Delaney with Goldman Sachs. Your line is open. Please go ahead.
Yes. Good morning, everyone. This is Brian on for Mark Delaney and thank you for taking my question.
Operator: And thank you for taking my question. Can you give us some additional color on OEM feedback on chat pro, which you feature SES, and how broad the base is the OEM interest and any color you can give on the PPU opportunity? So, good morning again. Yeah, it was really amazing feedback from all OEMs from North America, big OEMs, European OEMs, and OEMs in Korea, Japan, and China.
Can you give us some additional color on OEM feedback to Chad Crow.
Feature Ics and how broad based is the OEM interest in any color you can give on the PPE opportunity.
Mhm.
So good morning, again, yes, it was really amazing feedback.
All Oems from North American Oems.
Oems European Oems.
Oems in Korea, Japan and China.
Stefan Ortmans: I think that's clearly a game changer with JetPro, but we are also going beyond JetPro. I'm maybe not sure whether you have seen our new CERNS assistant with NRU Plus. You're right.
I think that's clearly a game changer with jet pro but we're also going beyond <unk>.
Not sure whether you have seen also our new Stearns assistant was energy plus Youre right. So we clearly have changed.
Stefan Ortmans: So we clearly have changed the dynamic in the market here. The feedback was amazing. Some of the OEMs told me, actually, hey, when can we have it in our cars?
The dynamic in the market feedback.
Feedback was amazing.
Some of the Oems actually hey, when can we have it in our call.
Stefan Ortmans: We also have various discussions with our sales force and OEMs. I think they want to have it ASAP, as soon as possible here. Really, there are huge opportunities, and it goes far beyond JetPro. When looking at the PPU, I mean, I cannot share everything here, as you can imagine here. But also here, we hope it can also drive our future revenue. And as you also mentioned earlier, we are also going to address cars on the road. And what we can share is, I mean, you also saw the press announcements from both VW and Skoda. They're trying to bring it in on cars on their own, which will also drive revenue on our side. Thank you for that. And then if I can sneak in one more question,
We have various discussions also with our sales force and Oems.
I think they want to have an ace up as soon as possible here.
Really there are huge opportunities and it goes far beyond <unk>.
When looking at the PPO.
I mean, I cannot share everything here as to kind of imagine here.
But also here, we hope that can also drive our future revenue.
And.
As you also mentioned earlier right.
We are going to address also.
Cars on the road and what we can share is I mean, you saw also.
Press announcements from both.
VW and quota.
They are trying to bring it in also on costs on their own which will also drive revenue on our side.
Thank you for that and then if I can sneak in one more question. So with the added company focus on gin AI, what does that mean for the Capex opex with the business and any additional color you can give there on kind of the gross margin opportunity for some of these new G&A opportunities their applications, while they're working on.
Will Bryan: So with the added company focus on Gen AI, what does that mean for the company's OPEX for the business, and any additional color you can give on kind of the gross margin opportunity for some of these new Gen A opportunities or applications you all are working on? If you know, we are very sensitive to cost here, right? So there is actually no incremental OPEX required.
As you know we are very sensitive to costs here right. So there are actually no incremental opex required.
Yeah.
Stefan Ortmans: You have also heard about our partnership with NVIDIA. This is also part of our story here, a very important partner now to us. Yeah, and we expect a gross margin, as mentioned by Tom here, right? So overall, we are very sensitive to costs here, right?
Effort also about our partnership with Nvidia business also part of our story here, a very important partner to us.
Yes.
We expect gross margin as mentioned by Tom here right. So overall.
<unk>.
Very sensitive to cost right.
Stefan Ortmans: And with our partnership engagements, right, we're on a very, very good track. It is also worth to mention here that we're using a hybrid solution, meaning embedded and cloud, and we are doing quite a lot on the embedded side, the edge side, not just for privacy reasons, but also for cost efficiency. Thank you. Thank you. And I would now like to turn the conference back over to Richard Yergany for any closing remarks. Well, thank you to everyone for joining us on the call this morning, and we look forward to seeing you at some of the upcoming conferences or at other times. Have a good day! Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Thomas Beaudoin, Luke Junk, Mark Delaney, Richard Mack, Thomas Beaudoin, Cerence Thomas Beaudoin, Luke Junk, Mark Delaney, Richard Mack, Thomas Beaudoin, Cerence Thomas Beaudoin, Luke Junk, Mark Delaney, Richard Mack, Thomas Beaudoin, Mark Delaney, Richard Mack, Thomas Beaudoin, Mark Delaney, Richard Mack, Thomas Beaudoin, Mark Delaney
With our partnership engagements right, so going from a very very good track.
It is also worthy to mention here that we are using a hybrid solution meaning.
Embedded and cloud and we are doing also quite a lot on the embedded side edge. So it's not just for privacy reasons, but also for cost efficiencies.
Thank you.
Thank you and I would now like to turn the conference back over to rich <unk> for any closing remarks.
Thank you to everyone for joining us on the call. This morning, and we look forward to seeing you at some of the upcoming conferences or at other times.
Have a good day. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
Okay.
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