Slide 1: Cerence Fiscal Q4 and Full Year Earnings
Cerence Fiscal Q4 and Full Year Earnings Stefan Ortmanns, Chief Executive Officer Tom Beaudoin, Chief Financial Officer Nils Schanz, Chief Product Officer Rich Yerganian, SVP of Investor Relations November 27, 2023 Exhibit 99.2
Slide 2: Forward-Looking Statements
Forward-Looking Statements Statements in this presentation regarding: Cerence’s future performance, results and financial condition; expected growth; multi-year plan and growth targets; strategy; opportunities; business, industry and market trends; strategy regarding fixed contracts and its impact o
Slide 3: Q4 FY23 – Business Highlights
Q4 FY23 – Business Highlights Consistent execution leads to the fifth consecutive quarter of strong performance on revenue and profitability Maintained leadership position within Auto Core at 54% penetration Three key automotive design wins in the quarter driven by cloud innovation package, extensiv
Slide 4: FY23 – Strategic Wins Drive Future Revenue
FY23 – Strategic Wins Drive Future Revenue Design Wins 14 strategic wins, incl. 9 Cerence Assistant programs 9 new logos including 2 more 2-wheeler customers 5 competitive displacements 6 wins in non-transportation Generative AI and LLM More than 15 Proof of Concept Programs shown to OEMs globally M
Slide 5: Mission – Building an Immersive Companion Experience
Mission – Building an Immersive Companion Experience Customizable UX Immersive Cabin Experience Human-Like Interaction Flexible, Branded, Customizable. Redefining the way users interact with their vehicle, bringing a new level of safety, personalization, and delight to every journey. Deep Vertical S
Slide 6: Leveraging Generative AI and LLMs in market-specific solutions
Leveraging Generative AI and LLMs in market-specific solutions Fine-tuned with automotive data set Intuitive & personalized user interaction GenAI-powered applications Technology developed for Automotive applicable to transportation and AIoT markets Automotive Grade LLM Conversational UX/UI Automoti
Slide 7: Cerence's AI Roadmap Maximizes Performance, Minimizes Cost
Cerence’s AI Roadmap Maximizes Performance, Minimizes Cost LLM + INFO RETRIEVAL LLM + ONE.X LLM + ONE.X CERENCE AUTO LLM Car Knowledge CA with NLU Plus ChatPro Next Gen AI Solutions for Existing Systems Next Gen
Slide 8: Cerence Automotive LLM
Cerence Automotive LLM Fine-tuned LLM with growing Cerence curated automotive data set for integrated in-car experiences User personalization and predictive actions with Cerence’s unique context engine and embedding model Built-in information retrieval including Car Knowledge OEM customization suppo
Slide 9: Cerence as an Essential AI Innovation Partner
Cerence as an Essential AI Innovation Partner Trusted AI software solutions with Automotive DNA Unparalleled vertical expertise in AI and LLMs Unrivaled hybrid support High accuracy and full control over UX Intelligent arbitration
Slide 10: FY24 Company Priorities
FY24 Company Priorities Fueling Growth by Creating an Immersive Cabin Experience Meet our customer commitments and deliverables with the highest quality Deliver on our industry leading innovation roadmap by both enriching the current product portfolio and introducing a new LLM-based software platfor
Slide 11: Q4 FY23 Financial Details
Q4 FY23 Financial Details Tom Beaudoin, CFO
Slide 12: Cerence Delivers Strong Q4 Results
Cerence Delivers Strong Q4 Results Q4FY23 Q4FY23 Guidance Revenue $80.8M $72M - $76M GAAP Gross Margin 71.5% 70% - 72% Non-GAAP Gross Margin(a,b) 72.9% 72% - 73% GAAP Net (Loss) Income ($11.6M) ($13M) – ($9M) AEBITDA(a,b) $16.6M $10M – $14M Non-GAAP Net Income(a,b) $3.8M $3M – $7M GAAP EPS – diluted
Slide 13: Full Fiscal Year Results Exceed Initial Expectations
Full Fiscal Year Results Exceed Initial Expectations FY23 Actual As of Q3FY23 Guidance (8/8/23) Initial FY23 Guidance (11/29/22) In millions except per share amounts Low High Low High Revenue $294 $286 $290 $270 $290 GAAP Gross Margin 67.7% 67% 68% 64% 66% Non-GAAP Gross Margin (a,b) 69.1% 69% 69% 6
Slide 14: Revenue by type, quarterly
In millions Q2FY22 Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23 Q4FY23 Total License: $46.3 $46.4 $19.0 $45.4 $30.8 $25.9 $43.1 Variable(a) $20.2 $22.3 $19.0 $26.3 $26.2 $25.8 $30.3 Total Fixed(b) $25.6 $23.3 $0 $19.1 $4.6 $0 $12.8 Prepaid (cash upfront) $5.7 $13.2 -- $18.0 $4.6 -- $12.8 Minimum Commitment (n
Slide 15: Fixed contracts, royalties and variable by quarter
In millions FY2021 Fiscal Year 2021 FY2022 FY2023 Q1 Q2 Q3 Q4 FY21 Q1 Q2 Q3 Q4 FY22 Q1 Q2 Q3 Q4 FY23 Fixed Contracts $10.1 $17.3 $18.2 $25.4 $71.0 $20.1 $25.6 $23.3 $0 $69.0 $19.1 $4.6 $0 $12.8 $36.5 Pro Forma Royalties(a) $48.6 $47.4 $42.9 $34.0 $172.9 $39.6 $39.7 $41.5 $39.1 $159.9 $41.7 $43.1 $44
Slide 16: Global Auto Penetration (TTM) remained at 54%
Global Auto Penetration (TTM) remained at 54% 11.7M units with Cerence technology, up 4% year-over-year and down 5% QoQ (IHS flat YoY and down 3% QoQ) 11.7M includes 2.7M connected units, up 16% from the same quarter a year ago and down 14% QoQ Adjusted Total Billings increased 6% YoY, (TTM/TTM) (a)
Slide 17: Toyota Legacy Contract
Toyota “Legacy” Contract Business purchased by Nuance in 2013, solution launched in 2011 Amortization schedule originally projected to go through Q1FY26 at approximately $8.4M per quarter Non-cash revenue Toyota decided to decommission the solution in our fiscal Q1FY24 resulting in the acceleration
Slide 18: Fiscal Q1 and Full Year 2024 Guidance
Fiscal Q1 and Full Year 2024 Guidance Q1 includes acceleration of Toyota “Legacy” contract revenue of $76.3M Full year fixed contract contribution lowered to approximately $20M per year starting in FY24 No fixed contracts expected in Q1 Expected Consumption of fixed contracts for FY24 is $62M, down
Slide 19: Update to Multi-Year Targets
Update to Multi-Year Targets
Slide 20: Key Assumptions Underlying Multi-Year Targets
Key Assumptions Underlying Multi-Year Targets(a) Growth in connected services expected to lead to strong growth in billings, deferred revenue and cash generation Purposely lower contribution from fixed contracts ($40M to $20M per annum) Acceleration of Toyota “Legacy” deferred revenue (non-cash reve
Slide 21: Bookings to Revenue Cycle Provides Visibility to Future Growth
Bookings to Revenue Cycle Provides Visibility to Future Growth ~ 18 months from booking to product revenue recognition for new programs Program extensions typically one to three months in advance of revenue contribution Award Booking Backlog Delivery Production Revenue OTA Upgrades FY21 Ending 5-Yea
Slide 22: Robust and Balanced Backlog Provides High Visibility
Robust and Balanced Backlog Provides High Visibility FY24E FY25T(a) FY26T(a) FY27T(a) Revenue $355M - $375M $310M - $330M $360M - $390M $400M – $430M Expected Backlog Contribution ~$300M ~$260M ~$260M ~$220 % Visibility(b) 88% - 93% 79% - 84% 67% - 72% 52% - 56% (a) Target does not equate to guidanc
Slide 23: Significant Repeatable Software Contribution to Revenue
Significant Repeatable Software Contribution to Revenue Repeatable software contribution: The percentage of repeatable revenues as compared to total GAAP revenue in the year. Repeatable revenues are defined as the sum of License and Connected Services revenues. (a) Target does not equate to guidance
Slide 24: Connected Services Ramp Expected to Yield Growth in Adjusted Deferred Revenue
Connected Services Ramp Expected to Yield Significant Growth in Adjusted Deferred Revenue (a) Adjusted Deferred Revenue: Adjusted deferred revenue is calculated by adding deferred revenue and long-term deferred revenue on the balance sheet less the component associated with the Toyota Legacy contrac
Slide 25: Multi-Year Targets Expected to Yield Long-Term Growth and Profitability
Multi-Year Targets Expected to Yield Long-Term Growth and Profitability Non-GAAP excludes acquisition-related costs, amortization of acquired intangible assets, restructuring expense, and stock-based compensation. Revenue includes an acceleration of approximately $42M of non-cash revenue associated
Slide 26: FY24 Focus
Deliver advanced Gen AI/LLM software platform to customers Maintain path to double-digit revenue growth and strong Adjusted EBITDA margins Meet or exceed FY24 guidance Report 5-year backlog semi-annually Continue to monitor our cost structure and allocate investments to key product initiatives FY24
Slide 27: Q&A
Q&A
Slide 28: Appendix
Appendix @cerence
Slide 29: License Business Revenue Recognition
License Business Revenue Recognition Type of Contract Description GAAP Revenue Recognition Cash Receipt Variable License applied at production Quarter car is produced. Based on volume Quarter following GAAP revenue recognition Fixed (Pre-Pay) Bulk inventory purchase ($ based) Full value of contract
Slide 30: Connected and Professional Services Revenue Recognition
Connected and Professional Services Revenue Recognition Connected Services Typical Period GAAP Revenue Recognition Cash Receipt Subscription Term 1 – 5 years Amortized evenly over subscription period Billed/collected full amount at start of subscription period (value added to deferred revenue) Usage
Slide 31: KPI Measures – Definitions
KPI Measures – Definitions Key performance indicators We believe that providing key performance indicators (“KPIs”), allows investors to gain insight into the way management views the performance of the business. We further believe that providing KPIs allows investors to better understand informatio
Slide 32: Non-GAAP Financial Measures – Definitions
Non-GAAP Financial Measures – Definitions Discussion of Non-GAAP Financial Measures We believe that providing the non-GAAP information in addition to the GAAP presentation, allows investors to view the financial results in the way management views the operating results. We further believe that provi
Slide 33: Non-GAAP Financial Measures – Definitions: Adjusted EBITDA
Non-GAAP Financial Measures – Definitions Adjusted EBITDA Adjusted EBITDA is defined as net income attributable to Cerence Inc. before net income (loss) attributable to income tax (benefit) expense, other income (expense) items, net, depreciation and amortization expense, and excluding acquisition-r
Slide 34: Non-GAAP Financial Measures – Definitions: Non-cash expenses
Non-GAAP Financial Measures – Definitions Non-cash expenses. We provide non-GAAP information relative to the following non-cash expenses: (i) stock-based compensation; and (ii) non-cash interest. These items are further discussed as follow: (i)Stock-based compensation. Because of varying valuation m
Slide 35: Q4 FY23 Reconciliations of GAAP to Non-GAAP Results
Q4 FY23 Reconciliations of GAAP to Non-GAAP Results Free cash flow is net cash provided by operating activities determined in accordance with GAAP less capital expenditures. Free cash flow is not a measure of cash available for discretionary expenditures. (unaudited - in thousands) (unaudited - in t
Slide 36: Reconciliations of GAAP Financial Measures to non-GAAP Financial Measures
Reconciliations of GAAP Financial Measures to non-GAAP Financial Measures (unaudited - in thousands) Q4FY23 Q3FY23 Q2FY23 Q1FY23 GAAP revenues $80,764 $61,660 $68,393 $83,658 Less: Professional services revenue 18,491 17,240 18,667 19,847 Non-GAAP Repeatable revenues $62,273 $44,420 $49,726 $63,811
Slide 37: Reconciliations of GAAP to non-GAAP Guidance
Q4 FY23 and Full Year FY23 Reconciliations of GAAP to non-GAAP Guidance (unaudited - in thousands) Q1 2024 FY2024 Low High Low High GAAP revenue $128,000 $132,000 $355,000 $375,000 GAAP gross profit $103,000 $107,000 $265,000 $285,000 Stock-based compensation 700 700 3,100 3,100 Amortization of inta
Slide 38: Reconciliations of GAAP to Non-GAAP Guidance (net income)
Q4 FY23 and FY23 Reconciliations of GAAP to Non-GAAP Guidance (unaudited - in thousands) Q1 2024 FY2024 Low High Low High GAAP net income $18,900 $22,900 $20,200 $35,200 Stock-based compensation 8,800 8,800 38,900 38,900 Amortization of intangible assets 700 700 2,300 2,300 Restructuring and other c