Release Date: November 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cerence Inc (CRNC, Financial) exceeded its Q4 revenue guidance with $54.8 million, surpassing the high end of the expected range.
- The company achieved a strong momentum in generative AI solutions with 10 customer wins and 6 program launches in fiscal year 2024.
- Cerence Inc (CRNC) signed its first customer deal for the first generation of its new AI platform, indicating progress in product development.
- The company anticipates a return to profitability in fiscal year 2025, with revenue guidance of $236 million to $247 million.
- Cerence Inc (CRNC) has a strong market position with partnerships with leading automakers like Volkswagen, Renault, and BMW.
Negative Points
- Cerence Inc (CRNC) reported an adjusted EBITDA loss of $41.9 million for Q4, highlighting ongoing financial challenges.
- The company's Q4 revenue declined by 32% year-over-year, indicating potential volatility in its financial performance.
- Cerence Inc (CRNC) faces revenue headwinds from restructuring actions, particularly in its professional services business.
- The company has $87.5 million of convertible notes due in June 2025, creating potential financial pressure.
- Cerence Inc (CRNC) experienced a decline in its penetration of global auto production, dropping to 52% due to weaker production volumes among top customers.
Q & A Highlights
Q: Can you provide insights on the margins and pricing uplift related to AI deals?
A: Brian Krzanich, CEO: We are seeing a price uplift with AI models, and the costs of development and operations are relatively equal to our current models, leading to improved margins. The demand for AI products is strong, and customers value the natural language capabilities. Tony Rodriguez, Interim CFO: The margins are improving, and we expect to see the benefits in the latter half of '25 and into '26 as connected service margins increase.
Q: What is your competitive position in the connected services market, and how do you plan to grow this segment?
A: Tony Rodriguez, Interim CFO: We grew the connected business by 12% year-over-year, and we anticipate it will continue to be a growth area. Brian Krzanich, CEO: Our strength lies in our ability to customize and create experiences tailored to OEM needs, unlike competitors who offer one-size-fits-all solutions. Our deep understanding of the automotive space and ability to handle complex instructions give us a competitive edge.
Q: Why has the company struggled to grow over the past five years, and what changes are you implementing?
A: Brian Krzanich, CEO: The focus was previously on driving bookings rather than differentiating products. With the introduction of large language models, we are improving both the end-user experience and our product development process, reducing costs and increasing speed to market. We are already seeing price increases and reduced development costs, which are promising for future growth.
Q: What are your priorities for fiscal year 2025?
A: Brian Krzanich, CEO: Our priorities include executing cost reductions, completing generative AI work, and exploring opportunities beyond automotive. We aim to return to profitability by streamlining operations and focusing on our next-generation AI products. Additionally, we are exploring new markets for voice activation technologies.
Q: How do you plan to manage the transition between different generations of AI products?
A: Brian Krzanich, CEO: Our AI products are backward compatible, allowing us to upgrade customers seamlessly. We guide customers through the selection process based on their needs and can upgrade their systems over time. This flexibility ensures we can continue to sell and support all product generations without disruption.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
