Q2 2025 Cerence Inc Earnings Call
Hello everyone and welcome to Cerence's second quarter, 2025 conference call. I'm Kate Heckman, VP of Corporate Communications and Investor Relations.
These statements are subject to risks and uncertainties, which may cause actual results to differ materially from such statements and expectations.
Described in our SEC filings, including the form 8-K with the press release preceding today's call. Our most recent Form 10-Q, and our Form 10-K filed on November 25th 2024.
Additionally, 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.
The release is available in the IR section of our website.
Speaker Change: Joining me on today's call are Brian Casey, our CEO Anthony Rodriguez CFO. Please note that slides with further contacts are available in the investors section of our website.
Speaker Change: Before handing the call over to Brian I would like to mention that we will be presenting at the TD, calling technology media and Telecom conference on May 29, and the Evercore ISI global automotive OEM dealer and supplier conference on June 10th webcast details will be provided soon now onto the call Brian.
Brian Casey: Thank you Kate good luck.
Brian Casey: Everyone and welcome to the Q2 2025 seven earnings call.
Speaker Change: I'm really excited to speak with you today.
Speaker Change: Well Tony will walk you through the details we're very pleased with our strong results the team delivered this quarter.
Speaker Change: Beating the high end of our guidance with a revenue of $78 million and adjusted EBITDA of $29 $5 million.
Speaker Change: Importantly, we generated strong free cash flow of $13 $1 million.
Speaker Change: Our fourth consecutive quarter of positive free cash flow.
Speaker Change: As a result, we are raising our full year guidance for adjusted EBITDA and free cash flow.
Tony: Tony will provide further details on this.
Tony: I'm proud of our team and what it has accomplished.
Tony: <unk> ongoing macro challenges and uncertainties facing the automotive industry.
Tony: Focused on the future and believe that we remain well positioned to support our customers.
Tony: Sure. It's continues to be differentiated by our unique combination technology innovation.
Tony: A diverse and expansive customer base.
Tony: And our deep automotive expertise.
Tony: Our experienced management team a deep bench of talent acutely focused on delivering to our customers.
Tony: Recruiting against our roadmap.
Tony: As we anticipated and stated in our last earnings call.
Tony: We did not see a meaningful impact from tariffs on this quarter's results.
Tony: For Q3, we believe the impact will remain limited.
Tony: However, we are seeing some pressure from our customers on pricing and some changes in their program timelines as they work to understand the true impact of tariffs will have on their businesses.
Tony: We're working cooperatively with our customers to find ways to optimize our partnership to best support them. During this time.
Tony: While also maintaining favorable conditions for <unk>.
Tony: Based on what we can see today.
Tony: And our currently available information for fiscal year 2025.
Tony: We continue to assume minimal impact from tariffs.
Tony: However, it is important to note that the situation remains fluid.
Tony: May evolve over the remainder of the year.
Tony: We continue to recognize the importance of differentiation and.
Tony: And diversification.
Tony: As I've mentioned, we've had some great wins outside of automotive.
Tony: We're building on that foundation to ramp up an anonymous automotive efforts.
Tony: For example, we're working to expand our partnerships with our network of distributors in.
Tony: You may have seen our announcement with code factory earlier this week.
Tony: Together, we're introducing voice topic, a new solution that will bring serious conversational AI to self service kiosks in a variety of settings.
Tony: And we believe that this solution will be particularly relevant for things like placing orders and getting information on restaurants and hospitality.
Tony: Retail self checkout health care transportation.
Tony: Banking and entertainment settings, enabling users to interact with kiosks using only their voice.
Tony: We're continuing to identify new verticals, where we think we have a solid value proposition and Kenya.
Tony: And we believe we will see the impact of this work on our revenue and profitability in fiscal year 2026 and beyond.
Tony: Another area in which we are strategically investing in IP protection.
Tony: We intend to aggressively protect the time and effort was put into developing our innovative technology.
Tony: And as you May know, we have ongoing lawsuits against Samsung.
Tony: Patent infringement.
Tony: This week.
Tony: We filed an action against Microsoft and nuance for copyright infringement and breach of contract.
Tony: As many of you know these types of actions could take a long time to resolve that have risks.
Tony: Including lots of these options.
Tony: But as a company deeply rooted in innovation, we feel its critical at this time.
Tony: Take the steps to vigorously defend our IP.
Tony: Of course, we also continue to make progress on three key deliverables planned for 2025.
Tony: Are laid out in last quarter's call.
Tony: First.
Tony: We continue our work ourselves.
Tony: Our hybrid <unk> AI assistant platform.
Tony: We reached several important milestones for <unk> within the quarter.
Tony: Including the products market launch, which coincided with an appearance at Nvidia GTC in partnership with our customers Jr, and Reno.
Tony: And we continue to evolve and enhance the XY with further edge and multimodal capabilities.
Tony: Our teams worked hard this quarter to showcase <unk> in both English.
Tony: When measured at the recent auto Shanghai 2025.
Tony: This included new multimodal features within our call edge embedded small language model <unk>.
Tony: Developed in partnership with Nvidia and Mediatek.
Tony: This means we feed the S. L L with car sensor data and camera based video streams to create an experience that integrates context on both inside.
Tony: Outside the car.
Tony: No one else has done before.
Tony: For example, <unk>.
Tony: I can explain or translate roadsides.
Tony: Jennifer roadside buildings and even offer details about something interesting on a Billboard which has the potential to open up new revenue streams for Oems.
Tony: In the coming months, we plan to continue to expand <unk> features and capabilities as well as increased language availability to serve automakers globally.
We continue to see strong customer interest for ex U S.
Tony: We signed several deals with top auto makers, including J L. R.
Tony: Several more that we believe will close within the coming quarter.
Tony: Additionally, we have a robust pipeline of ongoing customer interest with a steady stream of proof of concept programs.
Tony: It is important to note that we can push out cloud the cloud aspects of <unk> over the air to existing programs that are already shipping.
Tony: As the Oems navigate the complexity and ambiguity of the current market.
Tony: We are well positioned to help them continue to deliver new features and capabilities within their existing user experiences.
Tony: Without having to invest in a full build out.
Tony: Our rebuild of their infotainment platforms.
Tony: And we continue to build the pipeline for the hybrid cloud embedded aspects of U S.
Tony: <unk> for automakers future programs.
Tony: The second key deliverable for <unk> is to continue growing our business with new and existing customers.
Tony: Seven major customer programs started production this quarter.
Tony: Including the Mercedes Benz virtual assistant within the fourth generation of <unk>.
Tony: First introduced in our new electric CLA.
Tony: So your answer is AI solutions serves as the core input and output mechanisms.
Tony: Cost 25 languages.
Tony: Enabling seamless interaction across the platforms ejected architecture.
Tony: Including Mercedes New Avatar.
Speaker Change: Additionally, emotion detection and embedded neural text to speech from Sharon's AI enabled <unk> to deliver more natural and empathetic interactions. The previously announced two Wheeler program with Kawasaki also started production as well as several China for the rest of the world programs.
Speaker Change: With great Wall Motor and Lincoln Company among others.
Speaker Change: In addition, our jet AI solutions went live with three customers Hyundai Kia and PSA.
Speaker Change: The third key deliverable for 2025 is to continue our transformation and cost management.
Speaker Change: As you can see from our strong cash performance this quarter.
Speaker Change: We're seeing the real benefits from this work is being delivered to our bottom line for our shareholders.
Speaker Change: In conclusion.
Speaker Change: We are encouraged by our second quarter results.
Speaker Change: Specialty with regards to free cash flow and solid path. We have established ahead of us.
Speaker Change: And with that I'll turn.
Tony: Turn the call over to Tony.
Tony: Thank you Brian today, our reviewing our Q2 results for fiscal 2025, and providing some guidance for our third quarter and full fiscal year.
Tony: Let's get into the Q2 operating statement.
Tony: At the top we achieved Q2 revenue of $78 million, which exceeded the high end of our guidance range of $74 million to $77 million.
Tony: As projected the revenue this quarter included $21 5 billion fixed license revenue contracts.
Tony: With Q2 behind US, we expect no material fixed license revenue to be signed during the remainder of the fiscal year.
Tony: As compared to the prior year Q2 revenue increased $10 2 million.
Tony: Primarily related to the year over year increase in fixed license revenue of $11 1 million.
Tony: This was offset by a decrease in professional services revenue.
Tony: Additionally, as compared to our expectations revenue was negatively impacted this quarter by the euro to dollar exchange rate.
Tony: The fluctuation was neutral to profitability as it had a corresponding positive impact to our operating expenses for the quarter.
Tony: In the Euro has rebounded to a forecasted rate for April.
Tony: Our gross margin for the quarter of 77% also exceeded the high end of our guidance range of 74% to 76% as our technology revenue constituted a larger percentage of the revenue mix to forecast it.
Tony: Moving down the operating statement, our non-GAAP operating expenses were $34 1 million for Q2 compared to $50 million for the same quarter last year.
Tony: This decrease of $15 9 million or 32% represent savings from the restructuring efforts conducted at the end of last year.
Tony: As compared to our forecast. We also continued to delay some planned R&D hiring until Q3.
Tony: And had lower translated operating costs in our European subsidiaries with the Euro to dollar exchange rate for the quarter.
Tony: Italy. The company received notice of acceptance of another international tax credit that allowed us to record a $2 $2 million operating cost benefit catch up.
Tony: The tax credit benefit recognized this quarter was similar to the credit reported last quarter, but for a different jurisdiction.
Tony: These credits reflect our continuing effort to maximize the R&D benefits in our offshore locations.
Tony: We do not expect similar catch up amounts going forward ongoing R&D costs will reflect in period credits we have applied for.
Tony: Our adjusted EBITDA of $29 $5 million exceeded the high end of our guide.
Tony: Guidance range of 18% to $22 million and was $29 $8 million better than the approximately $300000 EBITDA loss for Q2 of last fiscal year.
Tony: The improvement in non-GAAP operating expenses over prior year and expectations was driven by continued focus on managing operating costs and improving profitability.
Tony: Our net income for Q2 was $21 $7 million compared to a net loss of $278 million for the same quarter last year.
Tony: In Q2 of last year, the company recorded a goodwill impairment charge of $252 million.
Tony: This was a noncash charge that only affected the GAAP results.
Tony: Excluding the impairment charge, our net income still improved from last year by approximately $48 million this quarter.
Tony: We ended the quarter with $122 $8 million of cash and marketable securities.
Tony: Up $12 $3 million compared to where we ended last quarter derived from our positive free cash flow during the quarter of $13 $1 million.
Tony: As we look at our revenue breakdown and operating metrics.
Tony: Variable license revenue of $29 $9 million was up $4 $8 million or 19% from the same quarter last year and slightly ahead of expectations.
Tony: As mentioned fixed license revenue during the quarter was $21 5 million compared to $10 4 million for Q2 last fiscal year.
Tony: Q2 connected services revenue was $12 6 million.
Speaker Change: Yeah, and $1 million or 7% from $13 $6 million for the same quarter last year.
Speaker Change: However, in Q2 of last year, the company recorded a $2 $6 million revenue true up.
Speaker Change: We believe this improvement in connected services revenue reflects a positive sign of increased demand for connected vehicles.
Speaker Change: And plan our professional services revenue was down year over year by approximately $4 8 million.
Speaker Change: But down a bit more than expected.
Speaker Change: As our solutions become more standardized they become more easily integrated.
Speaker Change: Less of our professional services to integrate.
Speaker Change: Additionally, some Oems are bringing more of this integration in house.
Speaker Change: As we review our key performance indicators this quarter.
Speaker Change: Total adjusted Billings, which are defined as our total billings adjusted to exclude professional services prepay billings and prepay consumption was $224 million.
Speaker Change: And flat to the for the trailing 12 month period, this year compared to previous year.
Speaker Change: Total billings, including professional services for Q2 was $77 $7 million.
Speaker Change: Were also comparable to Q2 of last fiscal year.
Speaker Change: As a reminder, when we look at total licenses shift pro forma royalties as an operating measure we use representing the total value of variable licenses shipped in a quarter, including the shipments from fixed licenses where revenue was previously recognized upon contract signing.
Speaker Change: We were referred to the shipments where revenue was recognized prior period as fixed license consumption.
Speaker Change: Our pro forma royalties were $39 $7 million.
Speaker Change: Which were comparable to Q2 of last fiscal year.
Speaker Change: Consumption of our previous fixed license contracts totaled $9 settlement calls this quarter lower than the same quarter last year by about 33% and in line with expectations.
Speaker Change: As discussed on previous calls, we anticipated a lower level of consumption given the lower level of fixed contracts than historical periods.
Speaker Change: Our penetration of global auto production for the trailing 12 months ending this quarter it was 51%.
Speaker Change: Approximately $11 6 million cars with sales technology was shipped in Q2.
Flat year over year, and down one 3% quarter over quarter.
Speaker Change: Q2 worldwide IHS production increased one 3% year over year and was down 10, 9% quarter over quarter.
Speaker Change: Excluding China worldwide car production was down 3% versus the same quarter last year and down 1% quarter over quarter.
Speaker Change: This is important to note as it shows that a big part of the worldwide production decline quarter over quarter relates to the Chinese market and not to the regions, where we are more predominant.
Speaker Change: To date, we have not really sold to the Chinese Oems for the China domestic market.
Speaker Change: The number of cars produced that use our connected services increased 10% on a trailing 12 month basis compared to the same metric a year ago.
Speaker Change: We believe this reflects increased demand for connected vehicles.
Speaker Change: So last quarter, we discussed the possibility of introducing a price per unit or PPE operating metric providing insight into pricing.
Speaker Change: For our business PPE represents the average technology price.
Speaker Change: Per vehicle shift.
Speaker Change: Including both embedded license fee and connected services subscription, although TPU is not immediately recognized as revenue at the time of shipment. It reflects the average per vehicle value that will ultimately ultimately be recognized.
Speaker Change: CPU is influenced by contract pricing the take rate of technology features and the adoption rate of connected services.
Speaker Change: For Q2, the trailing 12 months average PTU was $4 87.
Speaker Change: Up from $4 51 for the same period last year.
This increase was primarily driven by higher attachment rate of connected services.
Speaker Change: 9% of vehicles were connected this quarter compared to 26% a year ago.
Speaker Change: We believe this growth in connected services reflects consumer demand for interactive technologies that allow users to control vehicle function and communicate externally through a unified interface.
Speaker Change: While we expect continued adoption of connected solutions past performance does not guarantee future growth rate results are five year backlog metric, which is currently approximately $960 million, which was consistent with where it was two quarters ago.
Speaker Change: Now turning to our guidance.
Speaker Change: For Q3, we expect revenue to be in the range of $52 million to $56 million were no material fixed license revenue is expected to be signed during the quarter.
Speaker Change: Additionally, our Q2 Q3 revenue guidance absorbs approximately $1 million of headwinds in our professional services we saw in Q2.
Speaker Change: With no fixed license revenue forecasted in Q3, we expect gross margins to return to between 66% 68%.
Speaker Change: Net loss to be in the range of 10 million to $13 million and adjusted EBITDA to be in the range of $1 million to $4 million.
Speaker Change: We are reiterating our revenue guidance for the full fiscal year to be in the range of $236 million to $247 million.
Speaker Change: This absorbs headwinds of approximately $4 million to $6 million related to professional services projects for the second half of the year offset by higher than expected technology revenue.
Speaker Change: While we expect revenue to be consistent with previous guidance, we expect profitability and free cash flow to be better than originally projected subject to the macro risk. We have discussed we currently expect full year adjusted EBITDA to be in the range of 28% to $34 million and expect free cash flow to be in the range of $25 million to $35 million.
Speaker Change: We're looking at our liquidity, we plan to use our cash on hand to repay the remaining $61 million of our 2025 convertible notes due in June.
Speaker Change: Following this we expect to maintain a cash balance above $70 million for the rest of the fiscal year. While this supports our day to day operations, a higher balance closer to say $100 million would give us more flexibility to invest in growth and strategic priorities. We will continue to use cash from operations to get to our optimal position and value.
Speaker Change: Other capital structure options as needed.
Speaker Change: Overall, we are very pleased with the solid results in Q2, and our continued financial performance.
Brian Casey: I will now turn it back to Brian to close our remarks.
Brian Casey: Thanks, Tony.
Speaker Change: In closing, we're happy with our Q2 results and are feeling confident in our outlook for the full year.
Speaker Change: While also recognizing that there are macro risks and uncertainties.
Speaker Change: We remain focused on execution and customer delivery business process improvement and cost reduction.
Speaker Change: And advancing <unk> <unk>, while also accelerating the diversification of our business.
Speaker Change: Based on currently available information, we continue to believe in our ability to deliver on our Q3 and fiscal year 'twenty five guidance.
Speaker Change: We look forward to continuing to share our progress with you.
Speaker Change: And we'll now open it up for questions.
Speaker Change: Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered here was to move yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Speaker Change: Again, ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone.
Speaker Change: One moment for our first question.
Speaker Change: Our first question comes from Jeff Van <unk> with Craig Hallum Capital Group. Your line is open.
Speaker Change: Hey, this is Daniel <unk> on for Geoff Thanks for taking my questions guys. Just one on the metrics maybe if you can walk through the puts and takes.
Speaker Change: Billing deceleration toward Europe percent the connected cars, so a real nice uptick acceleration from five to 10, maybe just puts and takes on the metrics.
Speaker Change: Driving those sort of which of those you see it sort of pointing to treat trajectory.
Speaker Change: Hey, Thanks for the question, Yes, when you look at it you look at our overall volumes Theyre in line with effectively in line with our expectations, maybe a tick up.
Speaker Change: To what we thought for the quarter overall in volumes.
Speaker Change: And then the connected right.
Speaker Change: What it shows again is that more and more cars are being connected.
Speaker Change: Within our overall volume that is done so so that's good to see remember that as we add.
Speaker Change: More connected cars ship.
Speaker Change: It doesn't have an immediate impact to revenue right, we get the billings in quarter as they ship.
Speaker Change: Those billings are recognized over a period of time. So so it's good to see the increased.
Speaker Change: Increased connected rates, it's going to see those billings and we know those revenues will come as we amortize that over the subscription period.
Speaker Change: And then it looks like.
Speaker Change: New connected revenue if you back out some of the one times that you were speaking to Tony.
Speaker Change: It looks like new connected is up about $1 million sequentially, which is one of the larger jumps that's taken and generally that's from S&P is going why that take time to ramp is that fair to say then that whatever is ramping there.
Speaker Change: Be fair to expect to continue to ramp into Q3, Q4 and drive some some similar sequential or is there anything one time, there just kind of walk me through the progression of new connected in the underlying business aspect.
Speaker Change: Yes, sure no problem, Yeah, yes, you're right, we're up about 8%, which is good to see and again remembering that that revenue. That's recognized this quarter as for previous billings that are now amortizing.
Speaker Change: Into revenue so as we think about.
Speaker Change: Our revenue going forward, we do believe of course that.
Speaker Change: Given the packs passed buildings that we would expect increased.
Speaker Change: Connected revenue as we go forward.
Speaker Change: Okay.
Speaker Change: Helpful.
Speaker Change: Yes, good morning.
Speaker Change: Flavor.
Speaker Change: It takes a quarter or two right because we we get paid on the connected when the car sells.
Dealer and the consumer basically connect the car.
Speaker Change: And that's when that contract starts so that how long is the lofty or shipment out in lot time things like that and then.
Speaker Change: Before we actually see that.
Speaker Change: The revenue can be a little bit of time to so I like to look at it as I kept a quarter or so.
Speaker Change: Maybe it's slightly more depending on the vehicle at all.
Speaker Change: Geography, before we see that revenue.
Speaker Change: Yeah, and then just in terms of another one for you Brian in terms of.
Speaker Change: AI and where that's landing I assume that that's going to be showing its head in connected more so than in variable.
Speaker Change: In terms so in terms of that connected.
Speaker Change: The sequential uptick in as Youre looking through the rest of the year.
Speaker Change: Whats driving that the most right now is that unit is that.
Speaker Change: The AI functionality other functionality getting in terms of impact from the TPU just sort of what are the drivers or the key drivers.
Speaker Change: Behind connected and.
Speaker Change: What if anything can quantify either quantitatively or quantitatively in terms of the AI impact to date.
Speaker Change: Sure.
Speaker Change: Would you have to remember is that.
Speaker Change: Large language models, so, let's just call it AI.
Speaker Change: Almost everything we do and so even the.
Speaker Change: The embedded as we call it or the non connected vehicle.
Speaker Change: Is it has a large and that this is what our severance assistant large language model to calm embedded version is it's sitting on the vehicle and even for just vehicle controls you want to turn your floor heat on you want to change the colors in your car.
Speaker Change: Wanted to turn on adaptive cruise control.
Speaker Change: To adjust the temperature whatever those.
Speaker Change: Directions are you no longer need to use a key phrase.
Speaker Change: I need to say a specific.
Speaker Change: Set of words, you can just say Hey, My Theater Corp, Hey, could you craft the window.
Speaker Change: We're able to then translate that to a large language model and do the car function.
Speaker Change: That is already penetrated the vehicle it doesn't require a connectivity.
Speaker Change: The next place is where it does call outs. If you want to know Hey, Where's the nearest restaurant, whereas the what was the score the football game last night, who won the hockey game against the Oilers.
Speaker Change: And Vegas Nice last night, whatever that is that's a connected car.
Speaker Change: And so all of those things are.
Speaker Change: Our AI right they are driving consumer demand they are driving.
Speaker Change: PKU increases.
Speaker Change: And the more of those things that people want to do outside of the vehicle things like scores are temperature weather or drive connected and why we're seeing the connected increase but AI is driving usage.
Speaker Change: Voice in the vehicle across the board.
Speaker Change: Whether it's connected or not does that help.
Speaker Change: Yeah, Yeah that does help in terms of obviously when I think about the opportunity generally with Carmen embedded.
Speaker Change: Alison.
Speaker Change: Just intuitively think of that as the operator has the opportunity, but that makes sense in terms of how that component as well.
Speaker Change: So it could take a call out.
Speaker Change: And then just last question for me in terms of how you can cause a lot of people are going to be asking I'm wondering in terms of macro.
Speaker Change: Where if anywhere would we be seeing that if it was showing its head would that be in the IHS units I think just sort of total units shipped in the industry trickling down to would that be in pricing with your customers, where if anywhere it would we be seeing impacts.
Speaker Change: So youll see a little bit of it with both of those as if.
Speaker Change: And if those kick in right so.
Speaker Change: I had mentioned in the call that we're starting to see some requests from Oems that few of them.
Speaker Change: Can you talk how have discussions about price reductions.
Speaker Change: Is there cost.
Speaker Change: Structures and all are getting pressured right, we're going in rather than just saying, okay. We're going to give them an X percent price decrease.
Speaker Change: I'm trying to go in and say Hey, we think we can figure even more money we think.
Speaker Change: We can take some of our software offload we can consolidate some of your software needs and give you a better price and by the way, Yes, we'll get some increased revenue.
Speaker Change: And.
Speaker Change: But save you money over the long run.
Speaker Change: And so we're trying to take it as a win win.
Speaker Change: So that'll be that standpoint, how we try and deal with pricing.
Speaker Change: Volume wise will be.
Speaker Change: Basically say.
Speaker Change: Victims of whatever curves there around volume so volumes decrease.
Speaker Change: Dramatically, we would be just directly impacted by that remember.
Speaker Change: We shipped worldwide. So a large number of our cars are shipped outside of the U S. So even if the tariffs and impact in the U S.
Speaker Change: It may not be directly.
Speaker Change: Correlated to what we'll see if it's down X percent, we may not be down as much because we sell a lot of cars outside our sell in a lot of cars outside the U S right.
Speaker Change: So.
Speaker Change: But thats, where you would see it.
Speaker Change: And that's it for me congrats on the quarter and thanks, Brian Thanks, Tony.
Speaker Change: One of them.
Speaker Change: For our next question.
Speaker Change: Our next question comes from Nicholas <unk> with Needham Your line is open.
Speaker Change: Hey, guys. Thanks for taking my questions. The first one the keeping the fiscal 'twenty five guide.
Speaker Change: Unchanged you talked about all of that coming out of the <unk> services and more coming from the higher Tac revenue could you just be a little more specific on what that is and kind of why it's a little bit higher I know you gave kind of a lot of metrics around the connected services, but it sounds like it might not be coming from that just because of the lags, but any commentary there.
Speaker Change: Thank you.
Speaker Change: Yes, no problem yeah.
Speaker Change: Talk about the last now this quarter last quarter were seeing a little bit of headwind in the PFS, but as you've mentioned, we did not adjust guidance for the full year. We still think we'll hit that range and so if we're not hitting there where is it coming from it's the tech we are up probably a little bit more than our original plan on b connected side, but the other up.
Speaker Change: Piece is.
Speaker Change: Really from the license volume that we're seeing we saw a little bit about ticket.
Speaker Change: Compared to expectation in license volume in Q2, maybe some of that had to do with some of that but the production.
Speaker Change: Levels for getting prep work for tariffs, but we did see that so it's really coming from the license business.
Speaker Change: And don't forget.
Speaker Change: One of the key factors that we're doing very differently than a year ago and was especially evident this quarters, we're really limiting the amount of prepays or is it just.
Speaker Change: Call it in the discussion fixed.
Speaker Change: Contracts and by limiting those were also getting less of a discount in those spaces, because we are being able to be more competitive in that space and we're not giving as many discounts right. So we did $20 million ish I think it was like.
Speaker Change: 21 three.
Speaker Change: This quarter and that'll be it for this year.
Speaker Change: Prior years, the numbers were quite a bit higher and those came with even bigger discounts. So by just reducing that it increases our effective price.
Speaker Change:
Speaker Change: But it's really because we're not doing as much of this pull in.
Speaker Change: <unk> of contracts with big discounts.
Speaker Change: Thank you for that and makes sense I think we can see that a little bit on the gross margins coming through.
Speaker Change: You had a press release last month with Mediatek.
Speaker Change: Your edge solution I guess, what was the if there is what was the missing piece Mediatek is the partnerships, bringing to you with that edge solution. Thank you.
Speaker Change: Well, it's really a three way relationship it's Nvidia Mediatek and.
Speaker Change: Sarah.
Speaker Change: What we're working together, so mediatek and Nvidia are working together.
Speaker Change: Cores that are directly related to automotive that have the right pricing.
Speaker Change: And go to market within the automotive space. So they are building dose <unk>.
Speaker Change: We're helping them.
Speaker Change: Helping us by integrating our software and making sure we optimize together for a performance right is a lot of things we can do around latency around.
Speaker Change: Our overall performance.
Speaker Change: Our amount of memory required all of those kinds of things that if we work with the Soc providers, we can optimize that and that then makes it lower cost for the Oems and the tier one integrator.
Speaker Change: So it makes it simpler part of why we don't need as much professional services.
Speaker Change: That relationship is really a three way relationship Nvidia and Mediatek working on Src.
Speaker Change: And then us working with the combined group there.
Speaker Change: To really deliver the software stack.
Speaker Change: Thanks, and then if I could just ask one more on the lawsuit I guess what are you really trying to achieve going into Microsoft two are also a partner to you guys. So.
Speaker Change: Just wondering if thats trying to set a bit of a precedent here as other startups are moving into these voice assistant space and I understand that it's specific to Texas text to speech. Thank you.
Speaker Change: Yes.
Speaker Change: What are we trying to achieve I mean, we're protecting our intellectual property right.
Speaker Change: You as a shareholder or.
Speaker Change: Investing with us on the development of this technology and text to speech and wake up word it a lot of those Ips are foundational for cerus.
Speaker Change: And we continue to advance those and really drive those and so we're really we're protecting those.
Speaker Change: And so our goal is nothing more than that we don't have.
Speaker Change: Some other goal around other companies, where we can only.
Speaker Change: Manage a certain number of these because we don't have infinite funds.
Speaker Change: And where we're going.
Speaker Change: With the ones that.
Speaker Change: We feel like are the clearest to us.
Speaker Change: Now us.
Speaker Change: Clearly state our.
Speaker Change: Physician.
Speaker Change: But it's all about protecting our IP and protecting your investment.
Speaker Change: Understood. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Okay.
Speaker Change: Goodbye.
Speaker Change: Our next question comes from Mark Delaney with Goldman Sachs. Your line is open.
Mark Delaney: Yes, good afternoon, and thank you for taking my question.
Mark Delaney: Price per unit increased on a TTM basis, and you talk to us on the potential positive driver.
Mark Delaney: AI and the vehicle, but then you also spoke on the pricing headwinds that have emerged in your prepared remarks I'm wondering if you can help us better understand how the various puts and takes will lead to people you and where you think you may go over the next 12 months.
Mark Delaney: Four months ago.
Speaker Change: Hey, Marc Kate here. So we just lost the connection to Tony and Brian briefly their filing.
Mark Delaney: Dialing in.
Speaker Change: One second so let us have you repeat the question when they got back on.
Mark Delaney: Okay. Thanks.
Speaker Change: Ladies and gentlemen, please standby your call resume momentarily.
Speaker Change: Thanks, all for bearing with us for getting them back.
Speaker Change: And just one second.
Speaker Change: Again, ladies and gentlemen, please standby your call resume momentarily.
Brian Casey: Hello, Brian can you guys hear US now, yes, we can hear you now.
Brian Casey: Can you hear me.
Dan: Thank you Dan.
Brian Casey: Yes, we can hear you one moment.
Brian Casey: Hum.
Brian Casey: Hum.
Brian Casey: So they can hear me okay.
Brian Casey:
Brian Casey: Mhm.
Brian Casey: Yeah.
Brian Casey: Mhm.
Brian Casey: And ladies and gentlemen, please standby.
Brian Casey: Kate can you hear us now.
Kate Hickman: Yes, we have you.
Speaker Change: Thank you Sabrina.
Kate Hickman: Right.
Kate Hickman: Yeah.
Speaker Change: One moment, ladies and gentlemen, please standby your call resume momentarily.
Kate Hickman: Yeah.
Speaker Change: Can you hear me okay.
Speaker Change: Yes.
Speaker Change: We can hear you.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: And can you hear US now Tony are you back on it looks like you're back on line, we can bang, okay or back and I'm Martin Martin could you go ahead or about that guys.
Mark Delaney: Nick will get difficulty on this side no problem Mark could you go girl, which continue with your question.
Speaker Change: Ah yes.
Speaker Change: Thank you.
Mark Delaney: It's mark Delaney with that went with it.
Mark Delaney: And then.
Mark Delaney: A question on pricing just to Pee Dee you agree on a TTM to TTM basis, and you have to have a positive driver are tied to AI in the vehicle, but you also mentioned some pricing headwinds have been buried in your prepared remarks, hopefully you can help us understand the size of some of these puts and takes and overall, where do you think P diesel do over the next 12 months.
Mark Delaney: Hey, well, let me give a little background on that on PBS. So so yes, there are puts and takes within there so.
Mark Delaney: And I think we're not going to give guidance on a go forward basis as we as we really work that this metric we will get I think better attitude of our last call. We said Hey, we know that it's important to you guys into us and and so we've developed this this this metric so the puts and calls would be would be this so.
Mark Delaney: Even if there is a pricing.
Mark Delaney: Pricing pressure in the future.
Mark Delaney:
Brian Casey: What Brian is saying is hey, if you have more let's say, even a take rate on the technology stack or something we could give that at a discount but overall that was still may drive a higher PPA, but you know it could be plus or minus based on those two aspects of that bit of pricing pressure, but maybe an uptick in in in the take rate or the amount of technology.
Brian Casey: And then the other driver to US is the overall volumes and then the the amount of connected cars within that within that because again you know on average over a period of time, if we have more connected cars that price per that individual car will go up. So there we believe that there are pluses and minuses.
Brian Casey: In this and I at this point I'm not willing.
Brian Casey: Willing to give any guidance going forward, but again, it's a positive trend over the last trailing 12 months 12 months.
Brian Casey: And remember we're reporting here on average number right. So.
Brian Casey: No.
This number is going to incorporate.
Brian Casey: Various overtime and it's where we're trying to learn ourselves how to use this to them.
Brian Casey: Look at our operations and look at our overall business. So we're.
Brian Casey: We're trying to share this as quickly as we can with you guys and youre going to have to give us a little bit of time to really start doing things like projections.
Brian Casey: Forecasts and understanding it much beyond this but we wanted to share it with you because we've been talking about it with promising.
Brian Casey:
Brian Casey: Understood and thank you for the disclosure.
Brian Casey: But he didn't have.
Brian Casey: That's helpful.
Brian Casey: I also wanted to ask around situation with Microsoft can you help us better understand what led to the Washington.
Brian Casey: And so to an earlier question, Brian around trying to protect your IP, but if it had one of those or are you seeing Microsoft start to do more with us.
Brian Casey: N G E vehicles.
Brian Casey: Yeah. So you know it's an active lawsuit I'm just not allowed to talk about much detail beyond this.
Brian Casey: Other than it's really about.
Brian Casey: Protecting our I T and you know.
Brian Casey: Like we said in our earnings call. We have won and have had one with Samsung for some period of time, that's going through the court process, who you know these things take some time to go through this process.
Brian Casey: So that that's going through there are some events that occurred this year and into next year for that case. The Microsoft One has just started but it's it's really about you know use of IP and Ah and Sharon it's getting paid for it.
Brian Casey: And we're just protecting that and that's what the streets about them, but I can't go into much other detail beyond that just because its active lawsuit.
Brian Casey: Okay understood.
Brian Casey: Separate from the.
Speaker Change: The Court case, you did have a announced that you're working with them to bring Jack.
Brian Casey: Vehicles or are you still able to work on.
Speaker Change: On a business basis.
Speaker Change: But you know the companies have.
Speaker Change: Disputes about contracts and legal issues, all the time and yet.
Speaker Change: You know, they're able to still work together. So we absolutely are continuing to work with Microsoft.
Speaker Change: You know the.
Speaker Change: The lawsuit is one separate issue.
Speaker Change: You know you you're always having issues along with progress when youre working with other companies and so you know we've had meetings, even though over the last day or so with Microsoft on some of the tactical items and so the technical teams are are still heads down on bringing innovation and capabilities.
Speaker Change: I mean, the two companies.
Speaker Change: And lawsuit is a separate issue that is really.
Speaker Change: Not affected that side of it the work together.
Speaker Change: Okay. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from his time as sharply with TD Cowen Your line is open.
Speaker Change: Oh, great. Thank you good afternoon, everyone and congrats on the quarter.
Speaker Change: A question on.
Speaker Change: Customer interest in some of your latest offerings and I ask because as the automakers struggled with tariffs and all the disruptions to their new vehicle production.
Speaker Change: In the last few years.
Speaker Change: Looking at shifting more towards earning revenue from their installed base to various surfaces and I'm wondering if maybe the tariffs could actually increase interest in your go forward offerings, and whether you're already having or seeing some of that anything your latest conversations.
Speaker Change: That's my first question.
Speaker Change: We I don't know if you can tie to tariffs right I I guess I'm too much of a technologist and believe that it's the technology itself I mean, we talked about multimodal and we demonstrated this live in actual production.
Speaker Change: At the Shanghai Auto show I mean, it's really cool win win you can pass by street sign or a advertisement and ask your car Hey, you know what did that sign just say and was there a phone number to call.
Speaker Change: He was not to turn off for you know exit 'twenty, three and and you know or did I Miss it and the system uses cameras and it can tell you exactly what's going on right.
Speaker Change: So we are seeing uptake we have some really cool proofs of concept and development work going on with our Oems that is slated to come out I'll say like late this year early next year. This starts to use this both in carbon and outside of carrying capability. This multimodal things like Hey, I know.
Speaker Change: Understanding you're blinking a lot you're tired.
Speaker Change: Would you like me to find a coffee place to stop or would you like to rest.
Speaker Change: Those kinds of all of those kinds of.
Speaker Change: Our capabilities are really kicking in.
Speaker Change: Consumers like it.
Speaker Change: Oems like it we're able to do a lot of this over the air because it's on the connected version.
Speaker Change: You know its easy for us to connect it into the to the.
Speaker Change: Cloud based.
Speaker Change: Fly.
Speaker Change: With new hardware, we're able to do it embedded on the vehicle. So those will be the cars that are really delivering in 'twenty six.
Speaker Change: So I don't know if tariffs are really driving this.
Speaker Change: I do think though.
Speaker Change: Companies are you know if they're going to have to increase prices, they're going to have to find an effective way to provide more.
Speaker Change: Capability for that price to you people aren't just going to accept pricing.
Speaker Change: And then price increases and so I do think there's an opportunity for that I don't see it right now we're not.
Speaker Change: Reflecting any of that but I think it's it's.
Speaker Change: It's something I'm, hoping we'll you know we'll see as we move forward. It does right now you know everyone. You know the prices change on a weekly basis.
Speaker Change: The tariffs change on a weekly basis and whats in and whats out and people are just trying to absorb whats there and figure out how they work together. The good thing is the industry is working well together everybody's communicating everybody's talking everybody is trying to help each other out through this process.
Speaker Change: That's great to hear thank you and just a follow up I was hoping maybe you could spend a bit more than some of the non automotive opportunities you alluded to before.
Speaker Change: Hum.
Speaker Change: Maybe you saw some of that some of the opportunities for the companies and kind of how long.
Speaker Change: Could take to see some kind of meaningful revenue emerging from these verticals. Thank you.
Speaker Change: Sure.
Speaker Change: We're looking for verticals, where we can take the software expertise and capabilities and innovation that we already have and apply that over to applications.
Speaker Change: We think consumer demand will be there. So you know one of the ones. You saw are the ones. We talked about here was with coat factory and the voice topping.
Speaker Change: So this is you know.
Speaker Change: Taking what we can do in a car already around the large language models, both embedded and connected and applying that to kiosks, so and using a partner like coat factory to go to market. So I don't want to build a sales force that has.
Speaker Change: The ability to go to 5000 malls in airports in the World I I want to use a partner to go do that so we're trying to do this very cost effectively which means we may grow a little slower than we possibly could if we did it you know guns are blazing.
Speaker Change: But it.
Speaker Change: I think as a smart way to do it so imagine you're in a mall in rather than trying to find where the Lulu lemon is or the whenever a restaurant you want to find is you just walk up and say Hey can you point me to the Lulu lemon or to the Tommy.
Speaker Change: Tommy Bahama restaurant or whatever or you're in the airport and you just you see a kiosk with a map and you go where C 12.
Speaker Change: And it just shows you on the map and shows you walking path.
Speaker Change: Those are the kinds of applications real world applications that we think.
Speaker Change: And users will appreciate and well will deliver capability and what's nice is if if the louder. The mall changes the show stores change, we're able that we'd be able to do that over the air rather.
Speaker Change: Rather than having to come in and update the software directly and so we can do those kinds of things as well and then continue to increase the capabilities. So that's really where we're starting we're looking at some other verticals, but they're very nascent right now just making sure understanding does our technology apply.
Speaker Change: Do we think there's real demand for it and things like that.
Speaker Change: Terrific that's all there.
Speaker Change: Helpful. Thank you.
Speaker Change: And I'm not showing any further questions at this time and as such this does conclude today's presentation. We thank you for your participation you may now disconnect and have a wonderful day.
Speaker Change: Yeah.
Speaker Change: [music].