Cerence Financial Results Beat Analyst Revenue Estimates and Show More Bookings in Two Quarters Than the Entire 2019 Fiscal Year
- Cerence beat high-end analyst estimates of about $73 million to post over $86 million in revenue for the quarter
- The company also posted record new contract bookings that will become revenue in future quarters, including two deals valued at $125 million and $140 million respectively
- Due to coronavirus-instigated economic contraction Cerence is not offering guidance on its forward-looking financial outlook other than to say it expects to do 10% to 15% better financially than the automotive industry as a whole (which means the company CFO expects the company’s revenue forecast to decline 10% to 15% less than the contraction realized by other automotive industry suppliers)
Cerence (CRNC), a provider of voice solutions for the automotive industry, announced its Q2 FY2020 financial results and the numbers were a positive upside surprise. “We had a fantastic second quarter,” said Sanjay Dhawan, CEO of Cerence in an earnings call earlier today. “We set a record in the first half for total bookings, signed the two largest contracts in the company’s history, announced several other important strategic wins, and delivered financial results that exceeded most of our guidance metrics.”
The company reported first-half fiscal year 2020 bookings of $533 million which exceeded the entirety of bookings for FY2019. Reported revenue for the first half of Cerence’s fiscal year was $164 million compared to $143 million in the same period a year earlier. Revenue for the second quarter was $86.5 million compared to $70.3 million in the same period last year.
Multiple Large Deals Highlight the Quarter
Dhawan took time out to cite new contract bookings with FCA along with two wins in China with Geely and Bean Tech. He said that two of these represented the largest contracts in company history, “one for license and one for cloud-connected services.” The license deal appears to be with FCA given that Dhawan said the largest “booking in the company’s history [was] with a … European OEM for a contract value at $125 million for our edge solutions.”
The cloud deal was with the same European OEM for $140 million according to the earnings call transcript. This could be another European OEM but the comments came just a few minutes after the CEO mentioned FCA along with two Chinese automotive players so the conclusion seems likely that it represents the previously announced Uconnect deal. Regardless, it is clearly a big win for Cerence both financially and from a reputation standpoint as its competitive environment has ratcheted up over the past year.
“These deals reinforce the secular tailwind for our business, which is driven by the increased penetration of voice assistants and cloud-connected services technology in more types of cars each year. We have previously presented an expectation that 85% of the cars produced globally will have voice assistants, edge capability, and that 50% will have connected capability in 2023, up from 59% and 12%, respectively, in 2018,” Dhawan concluded. If there was any question about why Amazon and Google are going after this market so aggressively, the data cited here should help to clear up any misconceptions.
Coronavirus Concerns Lead to Lower Guidance for Future Quarters
Cerence CFO Mark Gallenberger also said that the automotive industry is expected to be down about 22% according to IHS but that Cerence expects outperform the industry by 10% to 15% due to favorable trends around voice assistant and cloud technology adoption by automakers. That would translate into a 7% to 12% contraction from previous guidance. However, due to economic uncertainty and automakers withdrawing their own 2020 guidance, Cerence is also not offering guidance for the time being.
Asked in an email interview about trends the company is seeing in the automotive industry, Richard Mack, Cerence chief marketing and communications officer commented, “There’s real interest in tighter linkage between the hardware head units and voice software to create an almost iOS-like experience. This is supported of course by [Voicebot’s] survey results that show growing interest and adoption for voice assistants. Cerence fits squarely at the intersection of the two.”
Other trends Mack said are emerging include, “Conversational dialogs rather than commands, and eliminating the need for wake up words. Contextually aware assistants with easy access to real-time content services such as parking, charging, [and] multiple modalities including now voice, gestures, gaze, etc.”