Q2 2024 Cerence Inc Earnings Call
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Operator: O'Neill, Mark Delaney, Thomas Beaudoin, Richard Yerganian, Colin Langan, Nathaniel Bolton, Nicholas Doyle, Nils Schanz, Vineet Chhangani, Stefan Ortmanns, Jeffrey Rhee, Nils Schanz, Nathaniel Bolton, Colin Langan, Nicholas Doyle, Nathaniel Bolton, Nathaniel Bolton, Nathaniel Bolton, Nathaniel Bolton, Nathaniel Bolton, Nathaniel Bolton, Nathaniel Bolton, Nathaniel Bolton, Nathaniel Bolton, Nathaniel Bolton, Nathaniel Bolton, Nathaniel Bolton, Nathaniel Bolton, Please wait, the conference will begin shortly.
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This dataset and deep relationships with our customers will continue to be true differentiators for cerus.
Stefan Ortmanns: data sets and deep relationships with our customers will continue to be true differentiators for CERENCE. As we progress through the second half of the fiscal year, we have prioritized several objectives in order to strengthen our position in our core automotive business. First, balance our cost structure in accordance with our current levels of business while still ensuring we can successfully deliver on our Gen AI roadmap and customer commitment. Second, release several Gen-AI solutions into production with high end user satisfaction. And third, convert the deals currently in the pipeline, including some win-back opportunities.
As we progressed through the second half of the fiscal year, we have prioritized several objectives into order to strengthen our position in our core automotive business.
Trust, but our cost structure in accordance with our current level of business, while still ensuring we can successfully deliver on our idle and customer commitments.
Second released several Gen AI solutions into production with high end user satisfaction and third.
Convert the deals currently in the pipeline, including something back opportunities.
Stefan Ortmanns: Before I turn the call over to Dan Tempesta, our new CFO, I would like to take a moment to introduce him. Dan joined us in mid-March and was previously CFO of Nuance. As such, he is very familiar and experienced with the auto business and our solutions. With Dan's track record of leadership and experience in the space, we are happy to have Dan on board at this important moment in Cerence's journey. I would also like to take the opportunity to thank Tom Beaudoin for his contributions and partnership during his tenure as Cerence's CFO and look forward to his continuing support as a Cerence board member. With that, I would like to hand the call over to Dan to review our Q2 results in detail and share more about our guidance for Q3 and the full fiscal year. Dan?
Before I turn the call over to Dan Tempesta, our new CFO.
Dan Tempesta: I'd like to take a moment to introduce it Ben joined US in mid March and was previously CFO of new ones as such he is very familiar and.
Dan Tempesta: Experienced with the auto business and our solutions.
Dan Tempesta: Ben strict growth brick <unk> track record of leadership and experience in this space. We are happy to have been on board at this important moment and services journey.
Speaker Change: Also like to take the opportunity to thank Tom Borden for his contributions and partnership during his tenure as CFO and look forward to his continuing support at a certain spot member.
Dan Tempesta: I would like to hand, the call over to Dan to review I want to have to resize in detail and share more about our guidance for Q3 and the full fiscal year.
Dan Tempesta: Thank you Stefan before I begin let me just say to our shareholders that while this is clearly a challenging quarter to come on board.
Dan Tempesta: Stefan, before I begin, let me just say to our shareholders that while this is clearly a challenging quarter to come on board, I am optimistic about the roadmap and new products that Stefan discussed. Also, I look forward to meeting with many of you during the several investor conferences and NDRs we have in the coming weeks.
Dan Tempesta: Optimistic about the road map and new products that Stefan discussed.
Dan Tempesta: Also I look forward to meeting with many of you during the several investor conferences in India as we have in the coming weeks.
Dan Tempesta: Turning to our results, our Q2 revenue of $67.8 million was above the high end of the guidance, mainly due to an unplanned fixed license of approximately $5 million. This license was directly related to a settlement of an obligation created by a large customer's over-reporting of royalties discussed and reported on last quarter's conference call. In addition, our connected services revenue line also benefited from an unplanned OEM under-reporting true-up of approximately $2.6 million.
Dan Tempesta: Turning to our results our Q2 revenue of $67 8 million was above the high end of the guidance, mainly due to an unplanned fixed license of approximately $5 million.
Dan Tempesta: This license was directly related to a settlement of an obligation created by a large customers over reporting royalties discussed and reported on last quarter's conference call. In addition, our connected services revenue line also benefited from an unplanned OEM underreporting true up of approximately $2 6 million.
Dan Tempesta: Excluding these unplanned items, revenue would have landed within the lower end of our Q2 guidance range. Our adjusted EBITDA for the quarter was approximately break-even, and it benefited from higher than expected revenue in the quarter. Our Q2 profitability was negatively impacted by approximately $6 million related to the write-off of a long-term, unbilled contract asset associated with one of our non-automotive customers that declared bankruptcy during the quarter. Our cash flow from operations was $1 million, and our balance sheet had total cash and marketable securities of approximately $115 million. As Stefan mentioned a few minutes ago, our gap results were also negatively affected by a $252 million goodwill impairment. This is a non-cash impairment charge that only affects our gap results.
Dan Tempesta: Excluding these unplanned items revenue would have landed within the lower end of our Q2 guidance range.
Dan Tempesta: Our adjusted EBITDA for the quarter was approximately breakeven and benefited from higher than expected revenue in the quarter.
Dan Tempesta: Our Q2 profitability was negatively impacted by approximately $6 million related to the write off of a long term unbilled contract asset associated with one of our non automotive customers that declared bankruptcy during the quarter.
Dan Tempesta: Our cash flow from operations was $1 million and our balance sheet had total cash and marketable securities of approximately $115 million.
Dan Tempesta: As Stefan mentioned, a few minutes ago. Our GAAP results were also negatively affected by a $252 million goodwill impairment. This is a noncash impairment charge that only affects our GAAP results.
Dan Tempesta: Turning to our detailed revenue breakdown.
Dan Tempesta: Turning to our detailed revenue breakdown, variable license revenue was $25.1 million, down 4% from the same quarter last year and up 21% sequentially quarter over quarter. Fixed license revenue came in at $10.4 million for the quarter.
Dan Tempesta: The variable license revenue was $25 1 million down 4% from the same quarter last year and up 21% sequentially quarter over quarter.
Dan Tempesta: Fixed license revenue came in at $10 4 million for the quarter.
Dan Tempesta: 5 million dollars higher than originally expected due to the unplanned fixed license previously mentioned. Looking forward, we expect $20 million of fixed licenses in the third quarter. This will bring our fiscal 24 fixed license total to approximately $30 million, including the unplanned $5 million settlement, which is above our initial expectations of $20 million. Connected services revenue, excluding the legacy contract, was $13.6 million, as discussed earlier.
Dan Tempesta: $5 million higher than originally expected due to the unplanned fixed license previously mentioned.
Dan Tempesta: Looking forward, we expect $20 million of fixed licenses in the third quarter.
Dan Tempesta: This will bring our fiscal 'twenty for fixed license total to approximately $30 million, including the unplanned $5 million settlement.
Dan Tempesta: Which is above our initial expectations of $20 million.
Dan Tempesta: Connected services revenue, excluding the legacy contract was $13 6 million as discussed earlier.
Dan Tempesta: And, as discussed earlier, benefited from the $2.6 million true-up from underreporting by a customer resulting in 30% growth for the same quarter last year and up 33% from the prior quarter. Excluding the TrueUp, connected services revenue is approximately $11 million, up 8% compared to the prior quarter. Excluding the impacts of legacy and the true up, we expect only a modest ramp-up in connected services revenue in the second half of 2024 compared to the first.
Dan Tempesta: And as discussed earlier benefited from the $2 $6 million true up from under reporting by our customer, resulting in 30% growth for the same quarter last year and up 33% from the prior quarter.
Dan Tempesta: Excluding the true up connected services revenue was approximately $11 million up 8% compared to the prior quarter.
Dan Tempesta: Excluding the impacts of legacy and the true up we expect only a modest ramp in connected services in the second half of 2024 compared to the first half.
Dan Tempesta: Our professional services revenue was flat year over year and down 10% quarter over quarter. As a reminder, while professional services is an enabler of both license and connected services revenue.
Dan Tempesta: Our professional services revenue is flat year over year and down 10% quarter over quarter. As a reminder, while professional services is an enabler of both licensed and connected services revenue, we expect professional services revenue to remain generally flat.
Dan Tempesta: We expect professional services revenue to remain generally flat.
Dan Tempesta: Going a bit deeper into our variable license revenue we have adjusted this schedule.
Dan Tempesta: Going a bit deeper into our variable license revenue, we have adjusted this schedule. First, we've added a row to highlight the periodic adjustments that can occur with OEM reporting. While there are always small adjustments that can occur in the ordinary course, our intention is to include, within this line, individual OEM-related adjustments that are greater than $2 million in any given quarter. This will allow us to highlight items that are impacting the variable license trend. Second, we have updated the format to show, at the bottom of the page, the operational metrics that we have discussed and presented in the past.
Dan Tempesta: First we've added a row to highlight the periodic adjustments that can occur with OEM reporting.
Dan Tempesta: While there are always small adjustments that can occur in the ordinary course, our intention is to include within this line individual OEM related adjustments that are greater than $2 million in any given quarter.
Dan Tempesta: This will allow us to highlight items that are impacting the variable license trends.
Dan Tempesta: Second we have updated the format to show at the bottom of the page the operational metrics that we have discussed and presented in the past.
Dan Tempesta: As previously mentioned, variable license revenue this quarter was $25.1 million. Looking at our operational metrics, consumption of our previous fixed license contracts totaled $14.5 million this quarter, a reduction of 14% compared to the same quarter last year and in line with our expectations. As a reminder, because we have been managing down the annual value of fixed contracts, over time, this will result in a smaller consumption of royalties associated with past fixed contracts.
Dan Tempesta: As previously mentioned variable license this quarter was $25 $1 million.
Dan Tempesta: Looking at our operational metrics consumption of <unk>.
Dan Tempesta: Our previous fixed license contracts totaled $14 $5 million this quarter, a reduction of 14% compared to the same quarter last year and in line with our expectations.
Dan Tempesta: As a reminder, because we have been managing down the annual value of fixed contracts.
Dan Tempesta: Time. This will result in a smaller consumption of royalties associated with past fixed contracts as.
Dan Tempesta: As consumption levels decline, we expect that should correspondingly result in variable license growth in future periods, as royalties will accrue directly into revenue as production occurs. We continue to expect to normalize our consumption run rate by the end of fiscal year 2026, at which time any new fixed contracts should roughly align to the level of consumption during the year. Our pro forma royalties were $39.6 million and show a recent declining trend.
Dan Tempesta: As consumption levels decline, we expect that should correspondingly result in variable license growth in future periods as royalties will accrue directly into revenue as production occurs.
Dan Tempesta: We continue to expect to normalize our consumption run rate by the end of fiscal year 2026 at which time any new fixed contracts should roughly aligned to the level of consumption during the year.
Dan Tempesta: Our pro forma royalties were $39 $6 million and show our recent declining trend.
Dan Tempesta: As we review our key.
Dan Tempesta: As we review our key performance indicators this quarter, our penetration of global auto production for the trailing 12 months remained steady at 54%. We shipped 11.7 million cars with Cerence technology in the quarter. Down 6% year-over-year while IHS production for the same period declined 1%. However, cars produced that use our connected services increased 23% on a trailing 12-month basis compared to the same metric a year ago, as some programs that were previously delayed went into production. Total adjusted billings increased 9% in the second quarter compared to the previous year.
Dan Tempesta: Formats indicators this quarter, our penetration of global auto production for the trailing 12 months remained steady at 54%.
Dan Tempesta: We shipped $11 7 million cars with <unk> technology in the quarter.
Dan Tempesta: Down 6% year over year, while IHS production for the same period declined 1%.
Dan Tempesta: Cars produced that use our connected services increased 23% on a trailing 12 month basis compared to the same metric a year ago as.
Dan Tempesta: As some programs that were previously delayed went into production.
Dan Tempesta: Total adjusted Billings increased 9% in the second quarter compared to the previous year.
Dan Tempesta: Turning to our five year backlog metric, we are making in approximately $200 million reduction to our five year backlog, which brings that figure to approximately $1 billion.
Dan Tempesta: Turning to our 5-year backlog metric, we are making an approximately $200 million reduction to our 5-year backlog, which brings that figure to approximately $1 billion, incorporating the impacts just discussed. We are guiding our third-quarter revenue to be between $66 and $72 million, which includes the $20 million fixed license previously mentioned. For the full fiscal year, we expect revenue to be between $318 and $332 million. Excluding the impact of any restructuring activities that may occur as we consider cost reductions, we expect fiscal year 2024 cash flow from operations to be in the range of $5 to $15 million.
Dan Tempesta: Incorporating the impacts just discussed.
Dan Tempesta: We are guiding our third quarter revenue to be between 66 and $72 million.
Dan Tempesta: Which includes the $20 million fixed licensed previously mentioned.
Dan Tempesta: For the full fiscal year, we expect revenue to be between 318 and $332 million.
Dan Tempesta: Excluding the impact of any restructuring activities that may occur as we consider cost reductions, we expect fiscal year 2024 cash flow from operations to be in the range of $5 million to $15 million.
Dan Tempesta: Before I provide our thoughts on fiscal 'twenty five.
Dan Tempesta: Before I provide our thoughts on Fiscal 25, since the legacy Toyota contract is now behind us, I think it's important to discuss the 2024 revenues excluding the impacts of those services. We believe this view provides the new run rate revenue profile for the company. If you take the midpoint of our current fiscal year 24 revenue guidance, which I just discussed on the previous page of $325 million, and exclude approximately $87 million of legacy-related revenue recognized in Q1, the adjusted revenue for the company for fiscal year 24 is approximately $238 million.
Dan Tempesta: Since the legacy Toyota contract is now behind US I think it's important to discuss the 2024 revenues excluding the impacts of those services.
Dan Tempesta: We believe this view provides the new run rate revenue.
Dan Tempesta: Profile for the company.
Dan Tempesta: If you take the midpoint of our current fiscal year 'twenty for revenue guidance I just discussed on the previous page of $325 million.
Dan Tempesta: And exclude approximately $87 million of legacy related revenue recognized in Q1 the.
Dan Tempesta: The adjusted revenue for the company for fiscal year 'twenty four is approximately $238 million.
Dan Tempesta: We consider this new estimated run rate revenue relevant for both assessing our cost model as well as planning our business activities going forward. As we exit the first half of fiscal 24, with this new adjusted view of the run rate of our expected revenues, I do want to take a minute to look forward. While I am not prepared to provide 25 or midterm guidance at this time, I can provide a framework for how to begin to think about fiscal year 25 revenue. If you assume flat OEM production and Flat Pricing Man, similar to what is incorporated in our last 24 guide. Our latest 24 guides.
Dan Tempesta: We consider this new estimated run rate revenue relevant for both assessing our cost model as well as planning our business activities going forward.
Dan Tempesta: As we exit the first half of fiscal 'twenty four with this new adjusted view of the run rate of our expected revenues I do want to take a minute to look forward.
Dan Tempesta: While I am not prepared well I am not prepared to provide 25 or mid term guidance at this time.
Dan Tempesta: Can provide a framework for how to begin to think about fiscal year 'twenty five revenue.
Dan Tempesta: If you assume flat OEM production.
Dan Tempesta: And flat pricing mix similar to what is incorporated in our last 24 guidance.
Dan Tempesta: Our latest 24 guidance.
Dan Tempesta: We would expect significantly less fixed license consumption in fiscal 25 compared to fiscal year 24 as our past commitments continue to wind down. In addition, if you assume $20 million in new fixed licenses in fiscal year 25, and very modest growth in our run rate connected services, it would be reasonable to anticipate mid-single-digit growth off of the new estimated run rate of $238 million. For some additional color on the sensitivity of this view,
Dan Tempesta: We would expect significantly less fixed license consumption in fiscal 'twenty five compared to fiscal year 'twenty four is our past commitments continue to wind down.
Dan Tempesta: In addition, if you assume $20 million in new fixed licenses in fiscal year 'twenty five.
Dan Tempesta: And very modest growth in our run rate connected services.
Dan Tempesta: It would be reasonable to anticipate mid single digit growth off of the new estimated run rate of $238 million.
Dan Tempesta: For some additional color on the sensitivity of this view.
Dan Tempesta: Those growth rate could be lower or higher depending on global auto production changes date shifts and the introduction of new platforms and pricing and mix shifts.
Dan Tempesta: Those growth rates could be lower or higher, depending on global auto production changes, date shifts in the introduction of new platforms, and pricing and mixed shifts. Again, this does not represent guidance, but is rather a framework for how to think about fiscal 25 revenue. Also, this framework is subject to change based on a number of industry and customer-related factors.
Dan Tempesta: Again, this does not represent guidance, but is rather framework for how to think about fiscal 'twenty five revenue.
Dan Tempesta: Also this framework is subject to change based on a number of industry and customer related factors.
Dan Tempesta: With regards to our business in the adjacent markets as previously mentioned by Stefan they are developing slower than anticipated. Although we do believe there is an opportunity for revenue growth in these markets in the midterm, we are not expecting a meaningful uplift in revenue contribution in fiscal 'twenty five.
Dan Tempesta: With regard to our business in the adjacent markets, as previously mentioned by Stefan, they are developing slower than anticipated. Although we do believe there is an opportunity for revenue growth in these markets in the midterm, we are not expecting a meaningful uplift in revenue contribution in fiscal 25.
Dan Tempesta: Yes.
Speaker Change: Wrapping up my comments I'd like to leave you with a few key thoughts.
Dan Tempesta: Wrapping up my comments, I'd like to leave you with a few key thoughts. We believe that generative AI and LLM technologies are critical to our future product roadmaps, and we plan to ensure that our resources are focused on investing in these technologies and related product offerings. Additionally, we believe that our position in the industry, our longstanding relationships with our customers, and our initial success with our recently announced Gen A.I. products provide us with a solid foundation to reinvigorate growth in the future.
Dan Tempesta: We believe that generally of AI in L. O M technologies are critical to our future product Roadmaps and we plan to ensure that our resources are focused to invest in these technologies and related product offerings.
Dan Tempesta: Additionally, we believe that our position in the industry are long standing relationships with our customers and our initial success with our recently announced Gen AI products provide us with a solid foundation to reinvigorate growth in the future.
Dan Tempesta: And finally, given the current financial headwinds, we plan to take cost actions in the near term that will position us to deliver stronger profit margins and stronger cash flows. That concludes our prepared remarks, and we will now open the call to questions.
Dan Tempesta: And finally.
Dan Tempesta: Given the current financial headwinds, we plan to take cost actions in the near term that will position us to deliver stronger profit margins and stronger cash flows.
Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue, and your first question comes from the line of Jeff Van Ree with Craig Haslam. Please go ahead.
Stefan Ortmanns: Great, thanks. Thanks for taking the questions. I missed the first monologue there was, I don't know, it wasn't live. So I apologize if I'm repeating stuff here, Stefan. But if you look at the magnitude of the reduction at the midpoint on the revenue picture, and obviously a very material number, when you look at what's being taken out, how does that affect your thinking about share gains, share loss, you know, the competitive landscape? Just start to parse that a little deeper, if you would.
Stefan Ortmanns: It's a very material number when you look at what's being taken out how does that affect your thinking about share gains sure loss.
Stefan Ortmanns: Petitor landscape just start to parse out a little deeper if you would.
Stefan Ortmanns: Yeah, okay, maybe, good morning, Jeff here, and let me give you my view, and then we'll also ask Ben for his thoughts here. Yeah, so after receiving the Q1 Royalty Reports, we observed some downward trends here, and then we conducted a deep dive, account-by-account reviews, starting in February, and we finished in April. And we observed a couple of factors resulting in a reduction in forecast. So first of all, our forecast projection is based on the latest data and some of the historical trends and data we have. And then we compare this also with the input from customers and the input from IHS. We still have a high penetration of 54%. But for this fiscal year, IHS is flat.
Speaker Change: Okay maybe.
Speaker Change: Good morning, Jeff here and commitment gives you also my view.
Speaker Change: Also Austin.
Ben: For his thoughts here.
Speaker Change: Yeah. So after receiving the Q1 royalty points, we hope so some download strengths here and.
Stefan Ortmanns: Then we conducted.
Speaker Change: You too deep.
Speaker Change: Deep dive account by account reviews.
Stefan Ortmanns: Starting in February and be finished in April.
Ben: And we observed a couple of factors, resulting in a reduction for costs. So first of all our forecasts projection based on the latest data and some of the historical trends and data. We have and then we'll be competitive also because the input from customer input from Iowa.
Stefan Ortmanns: S. We still have a high percentage duration of 54%.
Stefan Ortmanns: But for this fiscal year has fled yeah. We assumed also a growth of 3% and we saw also a decline quarter over quarter of 12%.
Stefan Ortmanns: We also assumed a growth of 3%, and we saw a decline quarter over quarter of 12%. Yeah. Now, bringing this together, as you mentioned in earlier calls, we also see some impact of delays in programs. Yeah. So, and also, that means a delay in the start of production, and also a slower RAM of, [inaudible] That's the first part of my answer, and the second part, obviously... Yeah, I would like to split your market share question into two parts. Losing the market share is actually two parts. One is related to a real-time adjustment.
Stefan Ortmanns: Now bring this together as you mentioned also in all your calls right. We see also some impact of delays and programs yeah.
Stefan Ortmanns: So and also that means delay.
Stefan Ortmanns: Start a production and also a slower ram of.
Stefan Ortmanns: Of new programs Ciara right and of course this is hitting.
Stefan Ortmanns: So the revenue forecast and also because driven by a higher P. P U.
Stefan Ortmanns: This goes actually into the line of the core business running royalties, but we see also.
Stefan Ortmanns: NASA aspect here is slower ramp and two wheelers than originally anticipated.
Stefan Ortmanns: That's the first part of my answer the second part.
Stefan Ortmanns: Obviously.
Stefan Ortmanns: Yeah, I would like to split your market share question, losing their market share and actually two parts.
Stefan Ortmanns: Yeah. And as you know, in the past, we lost some deals here. But this was already baked into our original forecast. We are completely convinced that, based on our success at CES, we also have a lot of opportunities for winning back. And we believe also that the large hyperscalers are not performing. And as I mentioned earlier, since CES, so within the last couple of months, we won six OEM programs, right? And currently, we are working on pre-development programs of about 14. That shows that we are on the right track with our new Gen-AI roadmap.
Stefan Ortmanns: It's worth it to a real time adjustment, yeah, and as you know in the past that will be lost some deals here.
Stefan Ortmanns: But this was already big into our original forecast.
Stefan Ortmanns: We are completely convinced that based on our success is C. S.
Stefan Ortmanns: We have a lot of opportunities also for winning back and we believe also that to the large hyperscalers.
Stefan Ortmanns: Performing and as I mentioned also earlier.
Stefan Ortmanns: Since C. S. So it was in the last couple of months, we won six where we end programs right and currently we are working albeit <unk> predevelopment programs of about 14 that shows actually that we are on the right track was our new <unk>.
Stefan Ortmanns: Along the lines of that <unk>.
Stefan Ortmanns: Along the lines of the second part there, if you look at the competitive winbacks, you said you've got a bunch of them kind of percolating here. Can you expand on that a little bit, you know, in terms of the last couple years, where have the competitive losses taken place and in terms of against who? And then secondly, those that you think are on the path to win back; where do you see most of your win-backs coming from?
Stefan Ortmanns: Second part there if you look at the competitive wind back she said you've got a bunch of them kind of percolating here.
Stefan Ortmanns: Can you expand on that a little bit in terms of the last coupla years, where have the competitive losses taken place.
Stefan Ortmanns: And in terms of against two and then secondly, those that you think are on past to win back where where do you see most of you wind backs coming.
Stefan Ortmanns: So, when looking back, that was actually prior to the spin in New Orleans days. So we lost, for example, GM against Google, you know, there was another loss at Volvo, and a few others, but I think now we have huge opportunities for winning back a lot of deals here. And also with our new product roadmap and also with our new AI computing platform, I think we are forwarding to a breakthrough here for conversational AI in the automotive world. And that's the feedback from more or less all OAMs across the globe.
Stefan Ortmanns: Looking back that was actually prior to the spin at one space.
Stefan Ortmanns: So we lost for example, GM against.
Stefan Ortmanns: There was another loss at Volvo.
Stefan Ortmanns: And a few others, but I think now we have huge opportunities for going back a lot of <unk>.
Stefan Ortmanns: And also with our new product and also as our new AI computing platform I think we.
Stefan Ortmanns: Forward to a breakthrough here for the conversation in the automotive world and goods the feedback from.
Stefan Ortmanns: More or less all across the globe.
Stefan Ortmanns: Yeah, I mean, obviously a lot of the.
Stefan Ortmanns: Yeah, I mean, obviously, a lot of the OEM programs, and particularly around software, have struggled mightily. So certainly, there have been some delays, although it seems your revenue is falling short of that. Is there any reduction now versus their expectations, the OEMs a year ago, 18 months ago, in terms of the quantity of your product they're taking and expecting to put into each car, the ARPU per car?
Stefan Ortmanns: Oh, yeah, and programs and particularly around software have struggled.
Stefan Ortmanns: Italy, So certainly there have been some delays although it seems to revenues falling short of that is there is there any reduction in now versus their expectations Elm's a year ago 18 months ago in terms of the quantity of your product, they're taking and expecting to put into each car in the <unk>.
Stefan Ortmanns: I mean, when looking at the current automotive trends, I see or we see actually three major trends. One is related to EVs, and we're all aware that there is a slowdown in the EV field. Secondly, it also mentioned software-defined cars. It's creating another dimension of complexity, right? And unfortunately, we're also seeing some delays in new programs where we can provide actually a higher level of quality.
Stefan Ortmanns: I mean, when looking at the current automotive trends icy obesity actually three major trends monitor related <unk> and we all agree that there is a slowdown in the <unk>.
Stefan Ortmanns: Secondly is also mentioned the software defined cos, it's creating another dimension of complexity and Unfortunately, we are seeing also some delays and new programs, where we can provide actually a higher.
Stefan Ortmanns: P P U for us he arrived that's missing.
Stefan Ortmanns: The third one is the emergence of Chinese.
Stefan Ortmanns: And business really appreciate it bye modest all carmakers across the globe, even in China in Europe, and North America.
Jeffrey David Osborne: Okay, I'll leave it there. Thank you.
Speaker Change: Mhm Okay.
Speaker Change: Okay I'll answer thank you.
Speaker Change: Your next question comes from the line.
Operator: Your next question comes from the line of Nick Doyle, Whitney Tam. Please go ahead.
Nicolas Emilio Doyle: You can go ahead.
Nicolas Emilio Doyle: Hey, guys. Thanks for answering my question.
Nicolas Emilio Doyle: Hey guys, thanks for taking my questions. The first one on fixed contract consumption, I understand you're talking about, you know, lower consumption over time and the drivers around that, but near term, should we expect that same 15 million level, 14, 15 million level through fiscal year 24? And can you give a little more detail on fiscal 25 consumption being maybe, you know, less than half of the rate that we're seeing in 24, a good place to be modeling wise? Thanks.
Nicolas Emilio Doyle: The first one on a fixed contract an assumption I understand you're talking about lower consumption over time and the drivers around that but near term should we expect that same 15 million.
Nicolas Emilio Doyle: Level 14, 59 level through the fiscal year 2004, and can you give a little more detail on this fiscal twenty-five consumption is may be.
Nicolas Emilio Doyle: Less than half of the rate that we're seeing in 24, good place to be modeling line. Thanks.
Dan Tempesta: It's Nick. Hi Nick. How are you? This is Dan.
Nicolas Emilio Doyle: Nick Hi, Nick how are you this is Dan.
Dan Tempesta: Thanks for the question I do think in general.
Dan Tempesta: The remainder of the year is in.
Dan Tempesta: The past trends are good indicators of sort of the remainder of the year.
Dan Tempesta: Thanks for the question. I do think, in general, the remainder of the year is a good indicator of sorts for the remainder of the year. That's the first part of your question, but remember what I said about 26. By the end of 26... We should be starting to get close to parity with the fixed licenses that we did in those years. And our goal, of course, has always been to get to 20 million.
Dan Tempesta: That's the first part of your question, but remember what I said about 26 by the end of 2006.
Dan Tempesta: We are we.
Dan Tempesta: We should be starting to get close to parity.
Dan Tempesta: Of the fixed licenses that we do in those years and our goal of course has always been to get to $20 million. So that's our intention next year.
Dan Tempesta: So that's our intention next year. And if we change that intention, we'll let you know. But just take that as our expectations at this time. So if we get to a 20 million level, or approximately. And you know, we're at that run rate, and you could expect that to come down over the next two years. So that should give you some indicators of how that's going to come down, you know, next year and the year after to get to that landing point.
Dan Tempesta: And if we changed that intention will let you know, but just take that as our expectations at this time.
Dan Tempesta: So if we get to a 20 million level of approximately.
Dan Tempesta: We're at that run right you can you could expect that to come down over the next two years. So that should give you some indicators of how that is.
Dan Tempesta: Come down next year and the year after to get to that landing point.
Speaker Change: Yeah that that's helpful and the base that we're running on a contract basis around.
Dan Tempesta: Yeah, that's helpful. And the base that we're running on the fixed contract base is around 60 million today.
Dan Tempesta: Around 60 million today.
Speaker Change: Yes, approximately it was a little higher last year that number can fluctuate up and down, but that's a reasonable reasonable estimation.
Dan Tempesta: Yes, approximately. It was a little higher last year. That number can fluctuate up and down, but that's a reasonable, you know, reasonable estimation.
Dan Tempesta: Thank you and then my second question on the the AFP. The average billings per car I think we saw a nice increase off the bottom this quarter, but I mean, given all the moving pieces.
Nicolas Emilio Doyle: And then my second question on the ASP, the average billings per car. I think we saw a nice increase off the bottom this quarter, but I mean, given all the moving pieces. In your guidance, it seems like ASGs may be flat, possibly down, I mean, fourth quarter could be up. I mean... Just a little more detail on how the ASPs are trending through the year would be helpful, and I could because it seems like what we kind of came out with on 24 is a good way to model to go forward.
Nicolas Emilio Doyle: And your guidance it seems like as caves maybe.
Nicolas Emilio Doyle: <unk> half lay down I mean fourth quarter could be up I mean.
Nicolas Emilio Doyle: Just a little more detail on on how the asp's are trending through the year and I could.
Nicolas Emilio Doyle: Because it seems like you know what we kind of come out with on 24 is a good way to model that go forward.
Dan Tempesta: You know, I'll comment quickly, and then I'll let Stefan. I mean, given the sort of reset, I think it's fair to say we should not be thinking about significant growth in ASPs just yet. So that's the first item we are, we continue to be impacted by. One of the ways that ASPs get better is when we don't have the start delay, you know, start production delays, because oftentimes we're going from old program lower ASP to new program higher ASP. And so we don't, those new productions impact that, but for the time being, it's consistent, it's relatively flat for this fiscal year. It's relatively flat for this fiscal year, right? So, overall...
Speaker Change: I'll I'll I'll comment quickly and then he'll let Stefan I mean, given the the soda reset I think it's fair to say.
Dan Tempesta: We should we should not be thinking about significant growth in asp's just yet.
Dan Tempesta: So that's the first item we are we continued to be impacted the.
Dan Tempesta: One of the ways that Asp's get better is when we don't have the started delay started production delays because often times are going from old program lower ASB to new program higher ESP and so we don't.
Dan Tempesta: Those startup productions impact that but for the time being it's consistent it's relatively flat for this fiscal year, it's relatively fit for this fiscal year right.
Stefan Ortmanns: We've left for this fiscal year, right? So overall, with the new products, we will see, or I believe we will see a higher ASP because we are creating a complete solution for the new in-cabin experience with the spectro conversation I and going beyond. So, as we also said, we will see the first launch in four weeks from now. That's good. Secondly, also, I mean, in the era of AI, alternative AI, there's also a new speed to give you some ideas here.
Stefan Ortmanns: So overall with the new products.
Stefan Ortmanns: We will see what I believe you will see a higher ESP, because we are creating a complete solution.
Stefan Ortmanns: For the new and Kevin experience with respect to Conversationally and going on so beyond.
Stefan Ortmanns: So as we also said so we will see the first launch.
Stefan Ortmanns: Four weeks from now.
Stefan Ortmanns: That's good.
Stefan Ortmanns: Secondly, also.
Stefan Ortmanns: Era of AI Alternatively I.
Stefan Ortmanns: Also in Yospe to give you also some ids's here.
Stefan Ortmanns: We can easily integrate our new CERN assistant based on large language models in generative AI within one to two weeks on an automotive platform, fully tested Q8 in the car, but then it's all about the customization, the branding, and so on and so forth. So overall, that's the past we are going here. And as he mentioned also, in his,
Stefan Ortmanns: We can easily integrate our news soon as assistant based on much language models and Jonathan.
Stefan Ortmanns: Within one to two weeks on an automotive platforming 40 test that eight in the car, but then it's all about the customization the branding and so on and so forth. So overall vessel, possibly are going here and then mentioned also in his.
Stefan Ortmanns:
Stefan Ortmanns: The script here.
Stefan Ortmanns: We're going for a transitioning for cost cutting approach here.
Stefan Ortmanns: But nevertheless, Ah for us the most important thing is also drive innovation in the feet optimal.
Stefan Ortmanns: And much language and the new platform, we call it the new AI computing platform goes far beyond automotive.
Speaker Change: Thank you.
Speaker Change: Yeah, I know Christian.
Richard Yerganian: There are no questions. I will now turn the conference back over to Richard Yerganian, Vice President of Investor Relations, for closing remarks. Thank you very much. And we will be at several conferences in the future and look forward to speaking with you. Thank you. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Richard Yerganian: <unk> checking out.
Richard Yerganian: Again.
Richard Yerganian: It does.
Richard Yerganian: Thank you very much.
Speaker Change: We will be.
Speaker Change: Mmk several conferences upcoming and look forward to speaking with you. Thank you.
Richard Yerganian: Ladies and gentlemen.
Richard Yerganian: Oh, Thank you I'll take Amy.
Richard Yerganian: Okay.
Richard Yerganian: That's true.
Richard Yerganian: Please rate the conference will begin shortly.
Operator: Thank you. Thank you. Thank you.
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