Thank you, Christie. Welcome to Cerence's Second Quarter Fiscal Year 2022 Conference Call. Before we begin, I would like to remind you that this call may involve certain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release preceding today's call. Cerence makes no representations to update those statements after today. 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. Joining me on today's call are Stefan Ortmanns, CEO of Cerence; and Tom Beaudoin, CFO of Cerence. As a reminder, the only authorized spokespeople for the company are Stefan, Tom, and myself. 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 virtual 19th Annual Craig-Hallum Institutional Investor Conference on June 1, the Baird 2022 Global Consumer Technology and Services Conference on June 6 in New York, and the 6th Annual Needham Virtual Automotive Tech Conference on June 7. Now on to the call. Stefan?

Thank you, Rich. Welcome, everyone, and thank you for joining us to discuss our second quarter earnings. As you saw in our release this morning, we delivered solid results for the quarter against a backdrop of continuing disruptions in auto production. We either met or were at the high end of the range for most key financial metrics in the quarter. In addition to the quarterly metrics, we delivered very strong bookings in the first half of the year, up 53% from the same period in the prior year. We see a strong pipeline of potential bookings for the second half of the year, including several competitive takeaway opportunities. I'm especially pleased with our performance. Since every day, we see news about the market conditions playing a major role in our industry: semiconductor shortages, factory and city shutdowns due to COVID-19 and the impact from the conflict in Ukraine all continue to contribute to challenges in auto production. We are carefully managing the business through these headwinds, and despite the challenges, we remain confident in our full-year guidance. Before we dig into our performance and outlook, I want to welcome our new executive officers. First, I'm pleased to welcome Jennifer Salinas to Cerence as our new General Counsel. We are fortunate to have Jennifer on the Cerence team. She is an experienced and progressive public company legal leader, who most recently served as General Counsel of the Infrastructure Solutions Group and Global Head of Litigation at Lenovo. In just six weeks, Jennifer has proven to be a tremendous addition to the team. Second, I'm excited to welcome Tom Beaudoin as our new CFO with the departure of Mark Marc Montagner. I've known Tom for years, and I'm confident that he will be instrumental to our operations and in helping us execute. Tom has a proven track record of driving change and significant experience leading finance in the software and automotive industries. Many of you recall Tom from his time at Nuance, where he was CFO and then led its business transformation office. He knows our business extremely well, first, in his role leading the successful Cerence spin from Nuance and then for the last 2.5 years as a very active director on our Board. It's my pleasure to welcome Tom to an operational role and have him join us today. You will hear from him in a moment. But before I turn it over, I will share a few highlights and observations. At the beginning of the call, I mentioned our strong first half bookings performance. At $448 million, our first half bookings were up 53% compared to the same period last year. For additional perspective on this achievement, bookings for our entire fiscal year 2021 were at $590 million. Our continued success in accounts and markets is due to our strong competitive position in the automotive industry and our ability to reach beyond traditional automotive markets. Regarding our competitive position, 80% of our first half bookings were with existing customers, including a significant expansion with an American OEM for its current and next-gen platforms. It also includes a significant contract, the largest in our history, with a large European OEM that called us to help with their expansion program underway in Greater China. Aside from traditional automotive, we have also seen acceleration in newer areas. Of note, we secured several important wins with EV car companies, signing five new contracts, including four in China, the world's hottest EV market. These Chinese EV makers turn to Cerence to create a unique AI experience as they expand out of China into other regions. We are the only supplier with the portfolio and language coverage to support the aggressive plans and deliver the experience they want in their vehicles. Another prime example of our expansion is our growing success in trucking. A major European heavy truck supplier recently signed on for our Cerence Assistant offering. This new contract represents the fourth customer in this space. Our Cerence Drive product continues to attract new two-wheeler customers. This offering combines our core AI innovation with new capabilities such as a group ride function, transforming the two-wheeler experience as ridership grows worldwide. We added four new customers, including some of the top two-wheeler manufacturers. And finally, as we mentioned on our last conference call, we won a new fitness customer, which falls under our new mobility market opportunities. Collectively, these wins and bookings are a strong sign for the business with new connected services now comprising more than 40% of our backlog. As a reminder, at the end of fiscal year 2021, we reported a backlog of approximately $2.1 billion. After such a solid first half of the fiscal year, I'm pleased that the pipeline for the second half remains robust. With our strength in the second quarter and attractive pipeline, we are now focused on the second half and several key priorities. First, we are deeply focused on accelerating design wins and new bookings momentum across the markets we serve by leveraging our strong pipeline. These are the single biggest contributors to our future, and we plan to capitalize on every opportunity. Second, we remain intensely committed to delighting our customers by continuing to deliver high-quality products and implementations on schedule and on budget. We are intently focused on bringing several key customer programs to successful launches, which will position us for future success. As part of this, we expect a significant increase in professional services revenue for the second half of the year, which is another leading indicator for future business potential. Third, we are prioritizing and allocating funds to innovation and areas of our business that generate the highest rates of return. Finally, we will continue advancing our strategy and operational plans in a manner that best positions the company to achieve long-term sustainable growth. With that, I will now turn the call over to Tom to review the financial results of the quarter. Tom, please?

Thank you, Stefan. As Stefan mentioned, I know the business and the company extremely well, from the role I played in separating the business from Nuance, and most recently, serving on the Cerence Board since the spin. I know firsthand the exciting opportunities ahead for the company and look forward to working with Stefan and the team to maximize the future growth potential of Cerence. I'll now review our performance for the quarter and then I'll provide guidance for our third quarter and review our full-year guidance. Revenue came in at $86.3 million, slightly above the high end of our guidance due to a stronger-than-expected contribution from professional services. Our profitability metrics performed well as most of the key profitability metrics came in at the midpoint of guidance. Non-GAAP gross margin was 74.7%. Non-GAAP operating margin was 25.2%. Adjusted EBITDA was $24 million or a 27.9% margin, and non-GAAP earnings per share were $0.33. During the quarter, we generated approximately $2 million of cash flow from operations, and our balance sheet remains strong with total cash and marketable securities of approximately $146 million. Now let's review a detailed breakdown of our revenue. We have added some additional insight into the breakout of our fixed licenses, separating the prepaid fixed contracts from the minimum commitment contracts. Revenue recognition for each is the same; the full value of the contract is taken at the time of signing and delivery. The difference between the two types of contracts is mainly the timing of cash collection. For prepaid contracts, the cash is typically paid upfront, and for our minimum commitment contract, the cash per license is paid at the time of auto production. Our variable license revenue was down 46% from the same quarter last year due to the combined effects of lower auto production and consumption of fixed license contracts. Connected Services revenue was down 8% from last year, driven primarily by the drop-off of revenue from our legacy contract, which was expected and previously communicated as well as lower auto production. Our new Connected Services revenue was down because of expiring contracts for older technology and therefore, did not qualify for renewal. For the full fiscal year, these expiring contracts create about a $5 million headwind to Connected Services growth. We don't expect the headwind to negatively affect growth next fiscal year. Finally, our professional services revenue was up 25% year-over-year and 6% quarter-over-quarter. Growth in professional services is a key indicator of future license and connected services revenue as the pro services team are the individuals directly interfacing with customers to customize and implement Cerence technology in our customers' next-generation platforms. Moving into our guidance for Q3, our third quarter guidance detailed on this slide takes into consideration the cause and uncertainties of the semiconductor device shortages, factory shutdowns, and the effects of the conflict in Ukraine that are affecting auto production. However, as we have seen in the past, the impact from these events on our business can shift quickly. Collectively, our Q3 guidance represents continuing positive trends in the business over Q2. We are affirming guidance for the full fiscal year. So in summary, we had another quarter of good financial performance. While we remain cautious in the near term due to the factors impacting the auto industry, our long-term prospects remain upbeat. Our focus is on innovation and growth while at the same time driving a profitable business model that will benefit the company and our shareholders well into the future. This concludes our prepared remarks, and now we will open the call for questions. Thank you.

Maybe I wanted to dig into the revenue drivers for the quarter a bit, and maybe starting with the Connected Services, specifically the subscription pullback. Clearly, it's been a tough couple of years for underlying auto production, so we think about the compounding impact there. But at the same time, there's been a mix shift to premium and luxury and we've seen ongoing vehicle technology adoption. So can you talk about maybe what you're seeing in the Connected Services subscription business, the drivers of that decline year-over-year?

Maybe, first of all, let me just make sure we all understand the financials, and then I think Stefan can talk a little bit about the business parameters. So we have provided a little further breakout of Connected Services. Historically, we have separated the new Connected Services from the legacy contract that we had talked about previously. I think people understand the trends in the legacy. With respect to the new Connected Services, we've split out the two elements. One of the factors affecting that is that we have these old contracts that are Cerence pre-spin, some of them were through acquisitions at Nuance, that are creating this $5 million headwind for fiscal year 2022. As I noted, we don't expect that to continue into next year.

Okay. Thanks, Tom, and good morning, David. So let me also add a few more words to Connected Services. As you have heard, we had a fantastic first half of bookings, and we had also signed with one of the European OEMs the largest contract in our history. It is already connected. As we mentioned also, new Connected Services comprise now more than 40% of the total backlog. At the end of last year, we had 2 at $1 billion. We are well positioned for new Connected Services. We see a lot of traction also in our new products with respect to Connected Services. Overall, I think it depends heavily on the recovery of auto production, but yes, we are well positioned here, especially on connected.

Got it. That's helpful. And then you noted the ongoing consumption of the fixed license contracts. Can you give us a bit more color on the impact of that headwind in the quarter? And maybe how you're thinking about the ongoing impact here into the back half of the year?

Yes. Let me go first, and then I will also ask Tom for his view. I think it's a long-standing practice in our business, and when looking back over the last couple of years, the range for fixed licenses has been within 15% to 20% of the total revenue over the last couple of years, yes? Now we saw for the first half of the fiscal year, a tick up to 25%. Based on recent customer requests, we expect that the trend will continue for the second half of the year. In some regions and also for some of our customers, it's a common practice. They prefer these types of contracts, and we all know that some of the first-tier suppliers are under tremendous pressure. The benefit to them is cost savings, especially given their rising material costs. The benefits to us are: one, we are winning in a highly competitive environment; two, we are cementing our relationships with our customers; and three, we have huge upsell potential during the course of a specific program, which was also reflected in our strong first half bookings year.

Yes. So I have been involved with the auto and mobility business, which was a very large division within Nuance since 2008. This has been a buying pattern and a contracting pattern with, as Stefan noted, particularly some regional customers but also some customers that have been doing this practice for a very long time. Many factors contributed to that uptick that Stefan talked about from about 15% to 20% to up to 25%. All the auto manufacturers are under pressure to manage costs, particularly in this environment. They all have strong purchasing organizations. I would note that the discounts we provide on the minimum commitments are quite smaller than the discounts we provide on the prepaids. Of course, it does have a different cash flow impact, but the discounts are quite lower than on the prepaid.

Just a follow-up on the fixed contracts. I think in the past, it seemed like customers were entering fixed pay contracts because they were getting more price discounts because they wanted to drive down the cost. I want to clarify, you're expecting six contracts to maintain that higher level at 25% of sales for the second half of the fiscal year, so that would be indicative that the customers are continuing to enter these types of contracts to benefit from the price discounts. Is that a fair assessment?

Yes. That's what we're seeing in the pipeline from some of our customers that we've seen prefer this contractual way. I think our sales team has done a good job of trying to minimize the discounts there. We are in a strong capital position, so we do get that cash over time.

So you mentioned that there was a change in the discount. Maybe you can elaborate a little bit on that because I think the challenge will be how much of a discount you are offering customers to get these contracts and whether this is more indicative of a longer-term trend. Did that impact the gross margins and pricing as you go forward?

Yes. Just to be clear, we've broken this out in the information provided. What we broke out this time, which is new, is the two types of contracts that are both under fixed contracts: the prepaids, which is cash paid more upfront; and the minimum commitments, where the cash is as the autos are produced. The prepaids have historically had a higher discount. The minimum commitments have a significantly lower discount, but it still benefits the customers. We've ticked up a little as an overall percentage of revenue. We expect that to continue in the second half. We'll be assessing that as we develop our long-range plan over the next couple of months.

I see. Okay. And then on the Connected Services portion of the business, the legacy is dropping to around $8 million. Is that kind of the range we should be kind of forecasting on a go-forward basis? Also, you mentioned that despite the $5 million headwind in overall connected, you still expect to grow in the new connected revenue. Can you just talk about what's driving that growth above and beyond that $5 million headwind?

Yes. So let me just clarify the elements of the Connected Services. The legacy contract is on an amortization schedule, so it's highly predictable and has 11 quarters left. It's a contract that goes back to 2013 and will run out. In the new subscription Connected Services, there's the $5 million headwind based on very old technology contracts. Some came through acquisitions done when auto was part of Nuance. Those technologies are not renewable. The customers may have moved on to a different Cerence technology platform, but that won't be classified as a renewal. That $5 million headwind will not exist in 2023.

Right, because all the contracts will be on the new technology.

Yes, correct. Here we see also some strong revenue growth vectors with respect to new products and program expansions. Also, original expansion, referring again to the biggest deal in our history for China with various flavors for connected services. Overall, I think our new applications and new products are now taking off, and we see good traction here, which keeps us confident that we will see also a growth in new Connected Services.

Connected Services was 20.6 – 26.7. So you mentioned that's going to ramp in the second half. Can you give us kind of a sense of the magnitude?

Well, we don’t guide specifically on the elements of the revenue.

I want to start with the guidance. So I guess you maintain the full-year guidance, but I'm wondering if you're guiding within the range to any extent. Or maybe more importantly, if I look at implied guidance for the fourth quarter at the midpoint, it does imply a fairly significant ramp. I just wanted to better understand what is going on specifically later in the year from a fundamental standpoint during that assumption.

So we had strong bookings, as we noted in the first half. We have the strong professional services, which will equate to implementations of programs, helping to drive revenue. Through those strong bookings, we'll also see higher professional services. All of those elements will allow us to achieve the guidance that we put out.

Maybe one additional comment. Thomas, absolutely right. We see a strong professional services performance for the second half of the fiscal year. Equally important, what we also mentioned in the last earnings call is that we are working on some specialty deals.

Okay. I wanted to ask a little bigger picture question for you, Stefan. The announcement of the four two-wheeler awards during the first half, can you just reset us on where that opportunity stands bigger picture for the company?

For the two-wheelers, yes. As we launched this program 1.5 years ago, we see a lot of traction here on the two-wheeler side, especially in Asia Pacific. We won also one of the top two-wheeler manufacturers. On a broader picture, the two-wheeler market is very attractive to us, around 50 million to 60 million two-wheelers a year. We are leveraging the core AI stack and adding new features at the application level, which we just described in this call. So overall, that's an important market for us, and we see a lot of potential for us in the future. It's all a hybrid solution, meaning edge and connected cloud services.

Sure. I've got a couple. First, on the prepaid. I think the original guide last quarter given was 60 for the year. Obviously, you're at 45 so far. But now you're guiding to 75 to 100. I get the explanation of the two different models. My question is what's changed since the last guide until now?

So the biggest change is actually that we are seeing a lot of inquiries from customers over the last couple of weeks, especially from the Asia region.

Okay. Can you talk to connected systems and the particular usage of connected? You mentioned the legacy connected has some headwinds and aren't going to renew. You’ve got some more modern connected systems out there, and I'm sure you're watching the usage very closely. What observations have you got about absolute levels of usage and trends in usage?

When comparing the usage in a car, we're doing this with our analytics tools and also with some of the OEMs. You can compare the usage in a car, for example, with an Amazon Echo solution. We see a tremendous growth in monthly active users. Overall, it's picking up, although we saw a short decline in China because some cities were shut down due to COVID. But overall, it's trending in the right direction.

Okay. And then just backing up a little bit to a very high level. In terms of the revolving door on the leadership front, we’ve seen two CEOs and three CFOs in five months. What are the learnings here? Is the due diligence process broken? How do you avoid that kind of turnover in the future?

I think we are working closely with the Board here. I think the process, in my view, is not broken. When referring to the CFO, let me explain it in a different way. Mark Gallenberger's retirement in March was planned, and he is now serving in a consulting role until November of this calendar year. We had a short-term interim financial consultant during the CFO search, and then after an extensive search, we identified Marc Montagner, but unfortunately, it wasn't a good fit. I'm really excited and feel strongly that Tom is a natural fit for the CFO position. He brings in all the experience. I've worked with Tom for more than 14 years now. He is well connected and knows the automotive mobility space well. He's quite familiar with software. In his role when he was running at Nuance, the Chief Transformation Office, he was responsible for the spin of Cerence from Nuance and he put everything together, including G&A and the policies.

Okay. Yes. I'm certainly familiar with Tom. I've known him for a long time. No disagreements there. I just think when you get this many turns, the explanation starts to fade in relevance and seems to point to process issues. I'll leave it there. One other brief question in terms of the bookings. You mentioned pretty strong connected bookings. I'm curious what you've learned on implementations where you're coexisting, the cognitive arbitration argument. What are you seeing in win rates and connected? What are you seeing in win rates when you coexist? What is that leading to in pricing, particularly when you're coexisting?

I think we are uniquely positioned here for three reasons. One, most OEMs want their own branded experience. Two, most OEMs want to own the data for potential data monetization afterward. We provide an OEM-friendly platform with global multi-assistant capabilities. That's a big advantage of our solutions. We have all the tools from simple wake words to very interesting new technologies like just talk, and we are supporting the OEMs. The OEMs own the business flow and business logic.

First, I was hoping to understand the revenue trajectory in terms of revenue per vehicle. Increase in revenue per vehicle is part of the company's long-term opportunity. You had a couple of big programs you booked that you spoke about. Can you give us a sense about what kind of revenue per vehicle you're expecting when you look at a couple of these big new programs you've won and how those compare to what revenue per vehicle was with those customers on the prior contracts?

We see also an uptick in our price per unit because we are adding more and more new applications to it. Think about karaoke, think about browsing, think about our new Cerence Assistant dce, which is a unique solution also not just for four-wheelers, two-wheelers but also for trucks. The more we can add on, the higher the unit price. On the connected side, we are adding new applications too, but it takes time. We discussed in the last earnings call that the bookings to ship conversion is a long-term game. We are well positioned, and overall, I'm very confident in our future.

That's helpful directional color. My second question is on consumption of these upfront license deals that are being struck. The company had talked about consumption of fixed licenses sold in prior years was going to be in the mid-$70 million range this year. Can you talk about what you expect consumption to be at this point? Has there been a change to that? More broadly, when you think about the fixed licenses you've sold ahead of auto production in prior years and your updated expectation for these licenses you're going to sell this year before production. When does that get consumed?

No, we don't guide on the consumption levels. But as we said, this is a long-standing practice, so there's been a flow to it. We continue to make the assessment and the trade-offs on these particular deals.

Thank you, Christie, and thank you for everyone for joining us on our call this morning. We hope to see you or have a meeting with you at one of the upcoming conferences. Thank you, and have a good day.

And this concludes today's conference call. Thank you for participating. You may now disconnect.