Cerence Inc.

Good day and thank you for standing by. Welcome to the CERN's quarter three 2023 earnings call. At this time, all participants are in the listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Rich Yerginian, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Brittany, and welcome to CERN's third quarter fiscal year 2023 conference call. Before we begin, I would like to remind you that this call may involve certain forward-looking statements. Any statements that are not statements of historical fact, including statements related to our expectations, estimates, assumptions, goals, targets, and plans should be considered to be forward-looking statements. CERNS makes no representations to update those statements after today. These statements are subject to risks and uncertainties, which may cause actual results to differ materially from such statements. as described in our SEC filings, including the Form 8K with the press release preceding today's call, our Form 10Q filed on August 8, 2023, and our Form 10K filed on November 29, 2022. 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 CERNS, Tom Bowden, CFO of CERNS, and Iqbal Arshad, our Chief Technology Officer. 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 mention that we will be presenting at the Goldman Sachs Communicopia Tech Investor Conference in San Francisco on September 6th and the Raymond James Virtual Lean, Mean, and Green Vehicle Investor Conference on September 18th. Now on to the call. Stefan?

Thank you, Rich. Welcome, everyone, and thank you for joining us to discuss our third quarter results. There were several important developments in the quarter I would like to highlight. First, we delivered solid results with revenue of approximately $62 million, coming in at the high end of our guidance. In addition, our strong focus on operational excellence contributed to our profitability matrix performing better than expected, except for gap net income, which included a charge associated with our convertible debt financing. Operationally, we delivered on everything we committed to investors on our last call. I'm extremely pleased with the progress the company has made in the last 12 months creating an organizational structure committed to three key principles. First, continue to lead innovation in AI for the transportation space. Second, delight our customers with on-time and quality products. Third, win strategic accounts that support our long-term growth. At the core of our commitment to innovation are the enhancements we are making to several CERNs products using large language modes and generative AI. Iqbal will detail these important product updates in his remarks. At a high level, our deep expertise in AI for automotive and strong OEM relationships put us in a unique and favorable position to partner with our customers to deliver game-changing application of these technologies. bringing us one step closer to our future product vision, the immersive companion. As a result, CERNS remains well positioned to capitalize on the transformative trends within AI, incorporating new inputs into our versatile mobility AI platform as we continuously strive to enhance customer experience and expand product functionality. Our core auto business continues to perform well. with our global auto penetration rising to 54%. That means that 54% of total new global live vehicle production includes some level of technology from CERNs. This is the third consecutive quarter of increasing penetration, and this figure is now the highest we have seen in nearly two years. This elevated level of penetration continues to be a straightforward endorsement of CERN's superior technology. Tom will comment on the product mix associated with this market expansion in a few minutes. While there are some cross currents creating a level of uncertainty about the macroeconomic environment, we remain quite confident in our visibility and our ability to deliver a strong Q4 and full fiscal year. While semiconductor shortages for the outer industry are becoming less of an issue, the uncertain effect of rising interest rates and the slowing global economy remain a modest concern on auto demand and production. We are monitoring this closely and have considered this for our Q4 and full year guidance. Also in the quarter, we successfully restructured our debt through the insurance of new convertible notes. We use the proceeds to pay off the term loan that was at a high variable interest rate and to buy back half of the existing notes at half the coupon rate. The net effect is cash interest savings of approximately $8 million a year, while moving a sizable portion of our debt from 2025 maturity to 2028, where we're pleased with the results of the transaction. Overall, we continue to make solid progress across key areas. As we advance toward destination next, our vision for the future for all aspects of our business, product innovation, target markets, and the financial model and performance. We believe in our ability to achieve our long-term objective of double-digit revenue growth with strong EBITDA margins. And of course, one of the keys to achieving our long-term objective is winning new business with customers. Securing new business and next generation platform wins is key to our future success. As many of you know, once designed in, you are the supplier of the technology for the program's life. This means a new contract can generate revenue for many years. I'm happy to say that in Q3, we had several strategic wins, and I'm expecting additional ones in Q4. In our core auto business, we had two strategic wins. The first was for a major Japanese OEM, where we displaced a competitor to provide connected services. The second was for our emergency vehicle detection technology for a major Korean car company. We also continue to make progress in the two-wheeler and truck markets. We were excited when iconic motorcycle brand chose our technology over several other competitors, including niche players and consumer tech. While revenue contribution from the two-wheeler segment is expected to be small this year, four two-wheeler solutions started production in Q3 and should support revenue growth in this segment in FY24 and beyond. Our sales team is laser focused on finishing the fiscal year strong, and I'm confident we will win key strategic pipeline opportunities to drive our business forward. We continue to be extremely pleased with our continued success in building up on our strong core and capitalizing on adjacent market opportunities. On our Q4 earnings call, Tom will provide you with an update on bookings and their expected contribution to backlog and revenue growth. While it may be repetitive for some of you, I want to again highlight our operational priorities as they are vitally important to our near and long-term success. This means meeting or exceeding our customers' expectation for our technology, maintaining a strong competitive advantage, continuing to focus on operational excellence, and locking down the new business opportunities in front of us, including several win-back opportunities. We believe very strongly in meeting our commitments to our customers, employees, and you, our investors. We are on a strong track to deliver fiscal year results better than we anticipated at the beginning of the fiscal year. With that, I'm excited to have Iqbal Arshad, our Chief Technology Officer on the call with us today. Since joining the company three plus months ago, Iqbal has had an immediate impact. And we were excited about how he and Nils Schantz, our chief product officer, are teaming up to execute the future vision and direction of our technology. Iqbal will brief you on how we are leveraging the latest in generative AI and large language models to enhance our product offerings. I'm looking forward to how these advancements can help us deliver a truly immersive companion experience to our customers. And I look forward to the role CERNs can play and continuing to unite a wide array of technology in the car while maintaining a uniquely branded experience for our customers and delighting our end users. Iqbal.