Cerence Inc.

Good day, and thank you for standing by. Welcome to the CERNS Q3 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you'll need to press star 1-1 on your phone. Please be advised that today's conference is being recorded, and I would now like to hand the conference over to your speaker today, Mr. Richard Yerganian, Senior Vice President of Investor Relations. Mr. Gerganian, please go ahead.

Thank you, Chris. Welcome to CERNS' third quarter fiscal year 2022 conference call. Before we begin, I would like to remind you that this call may involve certain forward-looking statements. CERNS makes no representations to update those statements after today. These statements are subject to the risks and uncertainties as described in our SEC filings, including the Form 8K with the press release preceding today's call, our Form 10Q filed on May 10, 2022, and our Form 10K filed on November 23, 2021. In addition, the company may refer to certain non-GAAP measures, key performance indicators, and pro forma financial information during this call. Please refer to today's press release for further details of the definitions, limitations, and uses of those measures, and reconciliations of non-GAAP measures to the closest GAAP equivalent. The press release is available in the IR section of our website. Joining me on today's call are Stefan Ortmans, CEO of Serence, and Tom Bowden, CFO of Serence. As a reminder, the only authorized spokespeople for the company are Stefan, Tom, and me. Before handing the call over to Stefan, I would like to announce several upcoming investor events. The exact timing of our participation is subject to change, so please go to the events section of our IR website for the latest information. The conferences include the Raymond James 2022 Diversified Industrials Conference on August 23rd in New York, the Evercore Second Annual TMT Conference on September 7th in New York, the RBC Capital Global Industrials Conference on September 13th in Las Vegas, and the Goldman Sachs 2022 Communicopia and Technology Conference on September 14th in San Francisco. Now on to the call.

Stefan? Thank you, Rich. Welcome, everyone, and thank you for joining us to discuss our third quarter earnings. I'm pleased to report our third quarter brought areas of important progress and success across customers and product innovation. Working with our customers, we delivered 43 SOPs in the quarter. Our team secured important design wins and nominations, including a strategic win back from Big Tech. Our R&D and professional services organization launched new service cloud services with three OEMs. Additionally, we gathered with nearly 150 researchers and developers at our first CERNS Technology Conference to lay out the roadmap for our next groundbreaking offerings. Overall, our core business performed well, including a record quarter for professional services. However, despite the positive momentum, there are a handful of items that adversely affected our Q3 revenue performance, Revenue at $89 million came in slightly below the bottom of our guidance range, yet adjusted EBITDA and non-GAAP APS were in line given our continued focus on efficiencies. Working against us as the quarter progressed were slower than expected revenue from certain new products and markets, continued FX headwinds, and pressure on car production, which was down 6% from last quarter according to IHS. As with many companies and peers, we expect some of these trends to continue, which affects how we look at Q4, and importantly, our long-term planning and goals of sustainable growth. We will come back to these in a moment, but first let me share a few more details on the quarter. We believe the business is in a strong position to deliver long-term growth, even if in the short term the market is struggling with supply chain issues. The continuous strength in our core auto business is due to a number of important milestones that I briefly mentioned in my opening. We delivered 43 SOPs in the quarter. These vehicles from customers such as Toyota, Stellantis, Hyundai, Ford, and Mercedes are now hitting the road and are expected to contribute to revenue over the next several years. We continued our streak into important design wins and nominations that further secure us as a vendor of choice among OEMs worldwide. Among these wins is an important strategic account that represents one of the competitive win-backs we have targeted in recent quarters. We delivered a record quarter for professional services. We believe our success here is a leading indicator for future growth in licensed and connected services revenue. We officially launched our new CERN cloud services that significantly enhance the user experience and set new performance benchmarks for accuracy, latency, and access to more innovation. We have initially provided these new cloud services for NEO, BYD, and Geely. Each of these efforts and milestones are additional important layers to the foundation of our business. product and delivery excellence, great customer relationships, a compelling innovation roadmap, a strong pipeline of opportunities, and healthy backlog. We are confident in the business, our competitive position, and long-term prospects. As you know, however, our industry and many others around the world face a number of headwinds, from lingering ship shortages and supply chain issues to currency rifts, inflation, and recession fears. It is not clear when these economic and industry-wide challenges will subside. We continually assess the situation through multiple inputs, including discussions with our customers, IHS data, and closely monitoring production levels. With market conditions outside of our influence, we are intently focused on what we can control, with the emphasis on innovation, delivering on customer commitment, and tightly managing costs. We believe that as the industry returns to growth, the focus on these areas will serve us well over the long term. In the meantime, we must manage through these challenges and ensure we are positioned for the future. In recent months, the leadership team and I have evaluated all aspects of the business as we build our long-term plan, which we'll present and discuss with you later this year. One critical task has been to address fixed contracts. Fixed contracts have always been a part of our business and will continue to be, but as we discussed last quarter, we have been assessing the right balance of fixed contracts for the business as part of our long-term planning process. We have discussed how elevated levels of fixed contracts and the corresponding consumption rates adversely affect the credibility in our core auto business. Further, current macroeconomic concerns and uncertainties have driven customers to seek higher discounts and concessions that are typically included in these contracts. Because of these factors and listening to your feedback, Tom and I decided now is the time to take a decisive step to improve the visibility into the strength of the core business. In order to enhance predictability into our future revenue, we have decided to sign zero fixed contracts in Q4. And starting in fiscal 23, we will keep the annual contribution of fixed contracts within the historical range of approximately $40 million per year. This, of course, has an immediate impact on Q4 guidance, which Tom will walk you through in a moment. We believe this action is in the best long-term interest of the company and our shareholders for these reasons. One, this shift will provide enhanced clarity into our revenue stream. Two, it will provide predictable, consistent results that are comparable from period to period and greater visibility into our underlying business. Three, it will help mitigate recent economic pressures on the business. While there will be a transitional period as this change is implemented, we believe longer term it will enhance our earnings growth potential and provide greater visibility and clarity into our strong underlying business. We will share in greater detail the long-term benefits of this change at our analyst day on November 29 in New York City. Until then, and as we complete our fiscal year and look ahead to fiscal 2023, we are focused on three key areas. First, deliver strong fiscal year bookings. Second, deliver excellence in all our product and customer-facing programs. Third, ensure efficient performance-oriented operations and cost structures. These will play a crucial role in our long-term strategy and multi-year plan that we will share with you at our Investor Day in November. And with that, I will now turn the call over to Tom to review the financial results of the quarter and talk more about guidance.