CRNC - NASDAQ

Good day, and thank you for standing by. Welcome to the Cerence First Quarter 2024 Earnings Conference Call. [Operator instructions] I would now like to turn the call over to your speaker, Rich Yerganian, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Michelle. Welcome to Cerence's first quarter of full fiscal year 2024 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, strategy, goals, targets, and plans, should be considered to be forward-looking statements. Cerence 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 8-K with the press release preceding today's call, and our Form 10-K filed on November 29, 2023. 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 Ortmanns, CEO of Cerence, and Tom Beaudoin, CFO of Cerence. 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 Baird 2024 Vehicle Technology and Mobility Conference on February 29, and the Raymond James 45th Annual Institutional Investors Conference, and the Morgan Stanley Technology Conference the week of March 4th. Now onto the call. Stefan?

Thank you, Rich. Welcome, everyone, and thank you for joining us to discuss Cerence’s first quarter results. Over the next few minutes, I will update you on the highlights from our first quarter, and provide an update on our AI product strategy and the exciting interest we receive from OEMs, partners and press at CES. But first, a review of our Q1 highlights. As we have briefed you on previous calls, the R&D and product teams at Cerence have been working at full speed, integrating the latest developments in Generative AI and large language models into our automotive and adjacent transportation-focused solutions. We believe our enhanced products and future roadmap represent an industry-leading inflection point for the in-cabin experience for drivers and passengers. Not only are existing customers showing interest in deploying our new solutions as quickly as possible, but we have also seen interest in deploying our new innovations from OEMs that had previously chosen alternative solutions. Discussions with these OEMs and customers gained momentum during Q1 and post CES, resulting in a greater pipeline of business opportunities as we progress through the fiscal year. Notably, we made steady progress during the quarter in aligning our product strategy with key partners. We announced major engagements with NVIDIA and Microsoft leading up to CES. The hardware and tool chains available to us through these partnerships are important contributors to fulfilling our vision of creating the ultimate AI-based immersive in-cabin experience. In December, we introduced the Cerence Automotive Large Language Model called CaLLM. CaLLM is an automotive-specific large language model leveraging NVIDIA’s computing and hardware capabilities for the training of generic and OEM-specific models. Cerence is working with NVIDIA to solve several key challenges, including shortening time to deployment by moving at true AI innovation speed, the collaboration with Microsoft, focusing on the evolving in-cabin user experience and the future of connected mobility. We are combining our deep expertise and comprehensive AI powered in-car assistant portfolio with the innovative technology and intelligence of Microsoft Azure OpenAI services. As a first step, the focus is on delivering a curated automotive grade in-cabin experience that leverages ChatGPT and Azure OpenAI services. This enables OEMs to swiftly implement next-generation experiences into new car programs, as well as retroactively upgrade cars on the road. This extends customer value through access to more frequent feature updates, hence creating new revenue opportunities for OEMs. Customer highlights during the quarter included several key developments. A major North American OEM extended an existing program with Cerence, as the competitor solution they had previously chosen has experienced significant delays. A Japanese OEM that had chosen a competitor solution prior to our spin from Nuance, returned to Cerence for some of our key enabling technologies. This is an important first step with the OEM, and we believe it opens the door for expanded opportunities moving forward. We have previously mentioned our success in China with OEMs who have chosen our AI technology and broad leverage language portfolio for expansion of their global footprint. There are five major platform programs went live with lead Chinese OEMs in Q1. This trend continued, with several more carmakers selecting Cerence to support their overseas program, and is expected to drive new opportunities in the Chinese domestic market. We also had a key AIoT design win with a North American company for wearables, as we continue to leverage our scalable AI technology stack beyond transportation. And finally, for the sixth quarter in a row, we have delivered our quarterly results as guided. Our penetration in global auto production remained at 54%, and we had several new platform programs achieved start of production that we expect to ramp as we progress through the fiscal year. We had several one-time adjustments in the quarter, including the previously mentioned revenue acceleration of the Toyota legacy contract, which Tom will explain in further detail. Even taking these adjustments into account, we would have delivered another strong quarter of financial performance. Much noise and hype has been made about the possibilities that Generative AI and large language models will unlock across the industry. Cerence is one of the few companies to swiftly and intelligently incorporate these innovative and advanced technologies into our products, adding significant value to our OEMs and their end users. As previously discussed, we have enhanced our product portfolio with Generative AI and large language models. Our advanced solutions address several key challenges regarding accuracy, speed, and cost, while at the same time allowing OEMs to control and customize the solution to their unique brand and digital cockpit experience. You can see from the chart on this slide, the number of programs in pre-development, meaning a prerequisite for a design win and ultimately for start of production. Since CES, the pipeline of opportunities has grown even larger. Second, concurrent with our integration of large language models into existing products, we are developing a new platform that is expected to fully take advantage of the promise Generative AI and large language models can provide. This is based on our fine-tuned growing automotive data set encompassing billions of tokens of data collected over the 20 plus years we have been serving the industry. At CES, we selectively demonstrated this product to key OEMs, and I think I can say that uniformly, OEMs and tech partners were very impressed. For competitive and confidential reasons, we are keeping the details of this product close to the vest, but will share more details with you in the coming months. Overall, I'm very excited about the progress and accomplishments. Now, for those of you that were not able to visit our booth at CES, we thought we would share a short video clip that gives you a sense for the energy, team spirit, and momentum we built during our week in Las Vegas. Let's run the video. (Video playing) Our goal at Cerence is to create better AI experiences for the end users. It's all about a safer, more personalized and more convenient journey. Here at CES, we have showcased our advancements in Generative AI and how we make our products way more powerful with the help of large language models. Our flagship product, Cerence Assistant, a full stack AI experience, which we have deployed already to more than 15 customers, is now powered by Generative AI and can handle very complex questions and the endless number of multi-intents. Another highlight was our launch of Cerence Chat Pro. Cerence Chat Pro is a cloud-based new service where we bring the capabilities of large language models like ChatGPT to drivers globally. We have launched Chat Pro with Volkswagen, and in the first half of 2024, VW drivers in Europe and North America will be able to enjoy a better voice AI experience in their cars. This solution was developed in record time, from idea to product in only three months, and we will continue to upgrade the Volkswagen fleet with more innovation to come out of our portfolio. According to ChatGPT. Another huge milestone for us was the announcement of two major partnerships. We will work with Microsoft to bring Azure OpenAI services and their copilot capabilities into our product portfolio. Also, we have announced a partnership with NVIDIA to develop the first automotive-grade LLM, and we will soon launch this in new cars with the ability to build hyper personalized applications for automakers. As the foundation for the in-car experience of the future, we of course continue to advance and enrich our core offerings. With audio AI and multi-seat intelligence, or our ability to detect driver emotions, we showcase our market-leading growth in the automotive industry and beyond. We are very proud that Mercedes-Benz showcased their next-generation virtual avatar here at CES. This virtual avatar is fully powered by Cerence, with many new innovations like emotion detection and our embedded neural text-to-speech capabilities. This enables Mercedes, together with us, build a very conversational, highly personalized, and emotional avatar for their future cars. Stay tuned for more AI solutions from Cerence. AI for a world in motion. (End of video) As you all may know, CES has become the most important trade show for the latest in transportation and mobility. We were very pleased when Volkswagen approached us about kicking the show off with a joint press conference announcing our partnership to enhance Volkswagen's in-car experience with Cerence AI capabilities. The press conference hosted over 300 journalists and was a fantastic way to kick off the week. Together, we have created an amazing user experience by enhancing Volkswagen's in-car assistant called IDA with Cerence Chat Pro, bringing the best of both worlds together. The execution from concept to product was done in less than three months. We showcased the IDA assistant at CES in the ID.7 and Golf, and we expect the rollout of the upgraded assistant across Volkswagen and Skoda models starting mid calendar year 24. An already full schedule of customer demos became even more crowded as word spread about our product demos. This included several representatives from multiple OEMs that had worked with a big house consumer tech company. After the demos, every one of these OEMs asked to reengage in discussions with us about the next-generation solutions. These discussions are ongoing, and we believe provide realistic opportunities for additional win-backs. It wasn't just OEMs that were impressed with our demonstrations at CES. We had over 400 references in the press, including 15 mentions as one of the best products of the show. Additionally, several influential journalists and bloggers produced videos showing the new Cerence power capabilities in action in the ID.7, while providing very positive commentary. CES was a great opportunity for Cerence to showcase our AI product strategy and reinforce our belief that we're on the right track and that we remain in a leadership position for applying the promise of AI to the transportation industry. As we look to Q2 and beyond, we have a number of priorities we are keenly focused on. First and foremost is to capitalize on the positive momentum generated from CES. Our objective is to secure new business with existing customers and aggressively target the potential win-back opportunities. Second, we need to continue to hit our delivery targets for both existing and new projects, especially ones that are cloud-based and provide us the opportunity to generate revenue in a shorter period of time. However, OEMs control the final timeline of their start of production for software updates. And finally, execute on Cerence’s next-gen computing platform, facilitating a truly immersive in-cabin experience. Now, I will turn it over to Tom to share our financial results. Tom?

Thank you, Stefan. Let me first discuss our Q1 FY ‘24 results, followed by our guidance for Q2 FY ‘24. Our Q1 results included several one-time events. One was the acceleration of the revenue associated with the legacy contract that we had previously communicated. We came in above our revenue target primarily due to the net effect of two additional one-time events. Another was with a customer whose contract with Cerence provided additional services to the Toyota legacy solution. This customer notified us of the decommissioning of their service in Q1, resulting in acceleration of the deferred revenue associated with their service in Q1 in the amount of approximately $9.9 million. Additionally, a separate customer notified us in Q1 that they had determined they had been overreporting royalties for a period of time. This resulted in a negative one-time true-up of $4.8 million to our license revenue. As we have reported in the past, and as recently as Q4 of last fiscal year, we do get notifications from customers when they realize they have either been under or overreporting royalties to us. While the updates we usually get are positive true-up, in this particular case, the customer determined they had been overreporting royalties, and therefore we took a reserve as part of our Q1 results. Q1 revenue came in at $138.3 million, approximately $6 million above the high end of our guidance, primarily due to the facts mentioned above. Adjusting for the items I noted earlier, our Q1 revenue still would've delivered a solid financial performance. Revenue for Q1 included no prepaid contracts as communicated during our Q4 conference call. The results in the quarter were driven by our core transportation business. As revenue came in above the high end of our guidance range, combined with our focus on operational excellence, we exceeded most financial metrics. GAAP gross margin was 81%. GAAP net income was $23.9 million, and GAAP income per share was $0.53. Non-GAAP gross margin was 81.5%. Non-GAAP operating margin was 49.4%. Adjusted EBITDA was $70.4 million, or 50.9% margin, and non-GAAP income per share was $1.12. During the quarter, we had negative cash flow of about $2.8 million. This was mainly due to the timing of customer payments we expect to receive in Q2. We expect positive cash flow for the full fiscal year. Our balance sheet remains strong, with total cash and marketable securities of approximately $116 million. This chart is our breakdown of revenue for the quarter. Core revenue drivers remain solid. Q1 license revenue includes the one-time negative true-up mentioned a few minutes ago. This was a negative impact of approximately $4.8 million. Also, when comparing quarter-over-quarter, our performance in Q4 included a positive true-up of about $3 million. As expected, we did not execute any fixed prepaid contracts in Q1. Our penetration of global auto production remained at 54% on a trailing 12-month basis, as we continue to maintain a strong position in the market. Connected services revenue was up slightly from the prior quarter due to accelerated non-cash revenue associated with the legacy contract, and an additional approximately $9.9 million associated with the other contract discussed earlier. Excluding this acceleration of deferred revenue, new connected revenue would've been up 5% quarter-over-quarter and 13% year-over-year. We expect a ramp in new connected services in FY ‘24 as several key programs that have been delayed by customers go into production. We continue to see a solid pipeline of opportunities for connected services, even as some expiring programs of old technology restrain the near-term growth. Regarding the contract with a second customer who had a portion of their contract with us related to the legacy solutions, the revenue associated with that contract has been historically reported as part of new connected revenue line. The customer who reported their overreporting of royalties license revenue, and the other customer that required acceleration of deferred revenue related to the decommissioning of connected services associated with the Toyota solution, will negatively impact our go-forward revenue by approximately $800,000 of license revenue, and approximately $400,000 of new connected services revenue per quarter, respectively. As we have previously stated, professional services will vary quarterly based on the progress or completion of customer projects. We do not project professional services as a revenue growth driver for the company, but instead view it as an enabler for future license and connected services revenue. Additionally, our newer products and solutions include improved implementation and integration features, which lowers the utilization of professional services. Moving on to our license business, overall, the license business remained fundamentally strong. Pro forma royalties in the quarter were impacted by the negative true-up due to overreported royalties. And to a lesser extent, additional program delays were slower-than-expected volume ramps from several customers. As a reminder, pro forma royalties represent the value of variable licenses shipped during the quarter and those consumed as part of a fixed contract. Adjusting for one-time items, including the $3 million true-up in Q4 and a one-time volume discount, pro forma license royalties were relatively flat quarter-over-quarter. As we planned, we did not execute any fixed contracts in Q1, but do expect a contribution in Q2 of approximately $5 million towards our fiscal year target of approximately $20 million. We believe that our KPIs continue to indicate strength in the business. As stated earlier, our penetration of global auto production for the trailing 12 months stayed steady at 54%, with $12.4 million cars with Cerence technology shipped in the quarter. This means over half of global auto production includes some level of embedded Cerence technology. Cars produced that include our connected services, in addition to our embedded solutions, increased 36 months trailing 12 months over the prior trailing 12 months, reflecting the trend of cars being increasingly connected and our ability to successfully provide our customers with innovative cloud-based solutions. Total adjusted billings increased 4%, and we believe that this is a leading indicator of our potential future revenue growth. Related to our growth in cars shipping with our connected services, we once again saw a large increase in monthly active users, 30% year-over-year, which we believe indicates increasing popularity among the end users of our technology. As we discussed on last quarter's conference call, we were informed by our legacy connected services customer Toyota, that they were electing to terminate the service offering effective December 31, 2023. Prior to this change, Cerence would have reported revenue associated with this contract of approximately $8.4 million per quarter through Q1 of fiscal 2026, meaning the end of calendar year 2025, as the service associated with the contract achieved end of life. You may recall there is no cash flow associated with the remaining deferred revenue associated with this contract. The contract came via an acquisition in 2013 while Cerence was part of Nuance. The Cerence deferred revenue represents the amortization of the revenue associated with the contractual service period, which was scheduled to end December 31, 2025, and was accelerated by such termination by Toyota to our Q1 FY ‘24. Therefore, our revenue for the first quarter includes approximately $73.6 million in revenue associated with this change. The decommissioning by the other customer with a contract in support of the Toyota legacy solution also resulted in an acceleration of approximately $9.9 million of revenue in Q1. Because the contract with this other customer was for more than just the legacy solution, this revenue has been reported as part of our new connected services revenue. As I mentioned earlier, our new connected services revenue will be lower by approximately $400,000 per quarter moving forward. Now, turning to revenue guidance for Q2 and the fiscal year. We are guiding our Q2 revenue to be from $60 million to $64 million. We expect Q2 revenue to include approximately $5 million in fixed contracts in Q2. We are in the process of negotiating final contracts with a couple of customers, which may result in our projection for Q2 to vary as we ensure we achieve satisfactory terms. The best estimate we can provide at this time would be to spread the remainder of the approximately $20 million annual amount relatively evenly throughout the balance of this fiscal year, with the caveat that actual execution of fixed contracts can vary quarter-to-quarter. For the full fiscal year, we continue to expect revenue to be between $355 million to $375 million. You can see on this slide the revenue guidance and the effect of the associated financial metrics. As you can see, there were updates to our guidance for the fiscal year regarding our GAAP operating margin, net income, net income margin, and EPS, and non-GAAP net income. The adjustments to our GAAP operating margin and net income are due to restructuring charges and an asset indemnification release. Non-GAAP net income improved due to a favorable foreign exchange gain in Q1. In summary, CES was a resounding success for the company, with significant interest in our new products and technology from existing and potential customers alike. The goal now is to advance these discussions into new business and ultimately revenue growth for the company, while in the near-term we remain focused on operational excellence. As a reminder, we expect to update our five-year backlog in conjunction with our Q2 earnings release. This concludes our prepared remarks, and now we'll open the call for questions.

Thank you. [Operator Instructions] And our first question is going to come from the line of Jeff Van Rhee with Craig-Hallum Capital Group. Your line is open. Please go ahead.

Great. Thank you for taking the questions. A couple, just maybe start with the customer that left with Toyota that was apparently in new connected, and just maybe a little more color. Was that a surprise given they were correlated to Toyota? Was there a vision that somehow they were going to stay excluding Toyota, and then just again, a little more color on what exactly they were doing?

So, Jeff, thank you. So, they had a separate contract, so they were kind of a tier two to that overall solution. I don't think we truly expected them to also cancel that. I mean, we certainly had to wait for them to understand what their relationship was and what their activities and contractual obligations were with Toyota. So, they actually notified us a little bit after we got the notification from Toyota on our legacy contract, and that's a little bit why we didn't include it in Q4 because we hadn't been informed at that time.

And so, was the explanation that they were leaving because they simply had to, because that partner was going away, or because they were changing product direction and you were no longer a fit? What was the logic to leave, if it wasn't a foregone conclusion that they had to leave?

It was pretty much the same logic with our Toyota legacy. They got informed by Toyota. We don't know exactly what their contractual arrangement was with Toyota, but they were also told that Toyota was ending that service, and therefore they came back to us and informed us that they were also canceling the service associated with that solution.

And maybe as a reminder Jeff, good morning, Jeff, the Toyota Legacy program started in 2011, right? So, it's a very old, old-fashioned program compared to nowadays solutions, especially when looking at CES, right? And they have been informed actually in parallel and then came back to us here. Nevertheless, we have an excellent relationship with Toyota and we're focusing on new programs, for example, model year 24 and upcoming programs. And they have invited also us to discuss new opportunities beyond model year 24.

Okay, helpful. Then if I could just sneak two other quick ones. In the - you referenced, Tom, I think in the script that you had headwinds remaining from some other old contracts in connected. Can you just put some bounds around how much of a revenue headwind that is on an annual basis?

We haven't split out the exact amount there because some of it is programs end and sometime there's a ramp delay. So, I think there's some other indicators on the positive momentum we're seeing in connected services. And I think we'll start to see that growth in the next couple of quarters in 2024. And again, a piece of it is some delayed production starts and ramps by some of the OEMs.

Yep. Okay. And then just maybe last, Stefan, on the - very high level question here, but I guess if you look at the overall landscape, how do you as a company best gauge the satisfaction of the end users that are using your technology versus the alternatives? And obviously you quote this 54%. So, your share in the in-car systems is steady, but folks can use Apple CarPlay, Android Auto. There are a lot of avenues that they have to consume or interact with the vehicle while they're in the vehicle. So, two questions. Just how are you gauging end user satisfaction of your solution versus the other solutions? And then any commentary about market share within actually what's getting used in the car? Because I think some of those, Apple CarPlay, Android Auto, might not be measured in that 54%. Thanks.

So, maybe Jeff, there are, in our view, in my view, actually three key pillars. First of all, we have a very diversified strong customer base with strong engagement. That was crystal clear at CES and also post CES, right? And we are getting also valuable feedback from lead OEMs across the globe. Secondly, I think also with the opportunity for market and OEM-relevant brand customization, we have some huge advantages over the big tech giants, right, because all OEMs understand now that they need to drive the immersive in-cabin experience, their digital cockpit experience, right? And they are heavily engaged also with their users, right, in sharing this information with us. But equally, or even more important is - I mean, you know, at our last Investor Day, we said, okay, we are moving ourselves from a component supplier, technology supplier, to a full solution innovation partner. And really, I can say we have achieved this important goal for the company, right? So, we are providing actually now a leading innovation computing platform, now providing really a compelling incoming experience with, yes, you can say commercialized hybrid large language model architecture, right? And that was one of the best products at CES and the demand from other OEMs is just amazing and terrific, right? And with this huge penetration rate of 54%, right, we have now huge opportunities in upselling those solutions in the short term, but also in the mid or long term, bringing in our new hybrid large language model, Generative AI solution. And therefore, we are partnering also with NVIDIA for accelerating the rollout. I mean, languages is still a key topic, right? We are a global player compared to others in the market here, right, and our promise to the market is that we have by end of this calendar year, 20 languages supported hybrid. That means embedded in cloud base. So, overall, I think we are on a very, very good track.

Okay, great. Thank you.

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Quinn Bolton with Needham & Company. Your line is open. Please go ahead.

Hey, this is Nick Doyle on for Quinn. Your adjusted total billings growth decelerated slightly from 6% last quarter to 4% this quarter. Can you expand on that data point? It sounds like it might be impacted by the additional program delays that you're talking about. And then maybe you can touch on the key reason you think you've seen these delays, how the OEMs are thinking about SOPs this year while auto production and auto sales remain relatively strong lately. Thanks.

Yes, Quinn, I'll take the first part and then maybe Stefan can talk about the second piece. I mean, again, we saw growth in billings. I think we'll see accelerated growth in billings over the next few quarters. I think it's just a little bit of a timing and seasonality in that billings number.

And looking at delayed SOPs, Quinn, here, also here have also some positive messages. Just been informed that one of the program which has a delay for more than two years, will go live in calendar week 12 of this year. That's great, because here we see higher PPU and it's a mass volume OEM, right? And there was also another big OEM who had also some delays of nine months, and they will also go live within the next two months, which is really great for us. And then as said, we have this diversified customer platform. You have also heard about BYD. They're becoming more important for the European market. And as you know, we are their preferred partner here when it comes to the in-cockpit experience leveraging conversational AI. So, we are on a good track, but we have still some dependencies on the OEMs. And as you also said earlier, right, the OEMs defines start of production, and they will also let us know when they're doing this kind of software updates over the air.

Okay, thank you. And then what part of your technology stack drove the AIoT win? I guess why wasn't this piece limited by the FOU? And can you talk about the size or timing of the win. You had - I think you had about a $5 million win with a big tech company in the fiscal one quarter, 1Q ’22. It's bigger than that?

So, over the last couple of months, we have made great progress also in the non-transportation space. We have in Q1 four product launches, yes, one in Korea that's for home, one in China, and two in North America with well known companies, industrials here, right? And we had also another big design win in North America for wearables. We are still under the MOU, so we are selling technologies which are applicable, for example, audio AI-embedded solutions and text to speech.

Yes, so just a little bit on that. I mean, we've said all along that there were certain elements that we were able to advance prior to the expiration of the FOU. Those were clearly defined in the contract with Nuance, now Microsoft, and that's what we - in the short term, that's what we've been pursuing. And then as of October, there will be no restrictions.

And our focus, Quinn, is on industrial IoT variables, also health, well-being, and we are also in discussion with big companies, especially North America and smart home and office.

Yes, some of those will have to wait until October, but we're getting ready.

Thank you.

Thank you. [Operator instructions]. And our next question comes from the line of Mark Delaney with Goldman Sachs. Your line is open. Please go ahead.

Yes. Good morning, everyone. This is Will O'Brien on from Mark Delaney, and thank you for taking my question. Can you give us some additional color on OEM feedback to Chat Pro, which you featured at CES, and how broad-based is the OEM interest, and any color you can give on the PPU opportunity?

So, good morning again. Yes, it was really amazing feedback from all OEMs from North America and big OEMs, European OEMs, OEMs in Korea, Japan, and China. I think that's clearly a game-changer with Chat Pro, but we are also going beyond Chat Pro. Maybe not sure whether you have seen also our Cerence Assistant with NLU plus here, right? So, we clearly have changed the dynamic in the market here. Feedback was amazing. Some of the OEMs told me actually, hey, when can we have it in our car? We have various discussions also with our sales force and OEMs. I think they want to have it ASAP, as soon as possible here. Really, there are huge opportunities, and it goes far beyond Chat Pro. When looking at the PPU, I mean, I cannot share everything here, as you can imagine here, but also here we hope that can also drive our future revenue. And as you also mentioned earlier, right, we are going to address also cars on the road. And what we can share is, I mean, you saw also the press announcements from both VW and Skoda. They're trying to bring it in also on cars on their own, which will also drive revenue on our side.

Thank you for that. And then if I can sneak in one more question. So, with the added company focus on Gen AI, what does that mean for the company's OpEx for the business? And any additional color you can give there on kind of the gross margin opportunity for some of these new Gen AI opportunities or applications you all are working on.

You know we are very sensitive to costs here, right? So, there are actually no incremental OpEx required. You have heard also about our partnership with NVIDIA. This is also part of our story here. A very important partner now to us. Yes. And we expect gross margin, as mentioned by Tom here, right? So, overall, we are very sensitive to costs here, right? And with our partnership engagements, right, we are on a very, very good track. It is also worth to mention here that we are using a hybrid solution, meaning embedded and cloud. And we are doing also quite a lot on the embedded side - edge side, not just for privacy reason, but also for cost efficiencies.

Thank you.

Thank you. And I would now like to turn the conference back over to Rich Yerganian for any closing remarks.

Well, thank you to everyone for joining us on the call this morning. We look forward to seeing you at some of the upcoming conferences or at other times. Have a good day. Thank you.