Cerence (CRNC) Reports Q1 Fiscal 2021 Results
Cerence (CRNC) reported this morning that Q1 revenue was up 22.6% to $95 million (beating by $7.1 million) while adjusted EPS of $0.59 was up 103% (beating by $0.08). There are a lot of initiatives at Cerence and management had a lot to say, but I’ll just mention a few things that jumped out at me.
First, the company nailed a design win with Stellantis (cars produced on their “next-gen platform”), one of the top three auto OEMS (came about through merger of FCA and PSA). This is a big deal because Cerence had previously lost the customer when it was part of Nuance (NUAN), and the win includes new solutions which will start contributing to revenue in 2021, even though the cars to be produced through the deal won’t begin production until 2023.
Second, Cerence has been talking about expanding into the elevator market and has held meetings with some of the biggest elevator manufacturers in the world. Its product can be retrofit into existing and new elevators. I’m not nearly as interested in high-tech elevators as I am high-tech cars, but it doesn’t take a lot of imagination to see how much room there is to upgrade the user-facing technology in elevators. More on this to come throughout the year. I think it’s neat that the company is moving into the smart building market.
Third, there has been talk about competition in the auto market coming from products like Google Voice and Alexa. I would never say a company is immune to competition, but it bears repeating that Cerence is technology agnostic. Management recognizes that consumers use tech from Amazon, Apple, Samsung, Google, Microsoft, etc., and their standard approach is that Cerence products are designed to work with all. One of the key metrics for investors to watch for signs of trouble on this front is growth in billings per car. We want it to keep going up, which would signal the company is passing through price increases and/or increasing content per car. In the last quarter trailing 12-month billings per care was up 20%. In other words, I’m not concerned at the moment.
Looking forward, management said Q2 fiscal 2021 revenue should be up 6% to 10%, factoring in negative impacts from a global semiconductor supply shortage (expected to be resolved around mid-year). For the full year revenue is seen up 12% to 15% ($370 million to $380 million) as management bumped up the low end by $5 million. Adjusted EPS is seen in a range of $1.91 to $2.10, up 17% to 30%.
This growth profile of double-digit revenue growth with faster EPS growth (up to 2x faster) is undeniably attractive, especially when the EPS numbers are significant. The stock has been volatile today, likely a result of investors digesting the results and weighing the pros/cons with the fact that the stock has more than doubled since October. It’s encouraging that the stock has held above support near 111 and come back some during the day. For now, it’s still a buy. If it dips below 111 we’ll move to hold. BUY