Cerence (CRNC) Driving Sharply Lower Today With Investors Spooked By Weak Guidance
2:39 pm Monday, November 22nd, 2021
Cerence (NASDAQ:CRNC) is driving sharply lower today after reporting disappointing earnings this morning. We think Cerence offers a great technology for new cars, but the ongoing chip shortage should make the next few quarters difficult.
Cerence’s AI-based technology is popular with drivers. It allows users to speak voice commands in their cars, sort of like an integration of Siri with a car’s controls. The technology can provide recommended routes to destinations, suggest nearby gas stations when a tank’s fuel is getting low, notify drivers about necessary vehicle maintenance, and offer parking assist features attuned to a driver’s preferences based on weather or price, and more.
The numbers for Q4 (Sep) were actually quite good. The company reported a hefty beat for EPS despite some margin compression. Revenue grew 7.9% yr/yr to $98.1 mln, but the upside was more modest. We take any upside as a win given the production problems that are troubling most automakers these days.
Cerence also boasted about strong bookings at $590 mln in FY21. These bookings included several key wins, such as VinFast (Vietnam’s first domestic car company and a leader in EVs), and multiple competitive takeaways. CRNC also expanded into a new market, signing a deal with a top elevator manufacturer to deliver voice AI technology to elevators.
While all of that was welcome, Cerence spooked investors with disappointing guidance. It expects Q1 (Dec) revs of just $91-96 mln and FY22 revs of $400-425 mln, both of which are well below analyst expectations. Not surprisingly, the company’s outlook is impacted by the production challenges that its customers are facing due to semiconductor shortages.
Margin compression represented another trouble spot. Typically, one of the best parts of Cerence’s story is its robust margins. That’s what makes CRNC attractive relative to other auto suppliers. In SepQ, non-GAAP operating margin was 37.2%; while still good, the metric was down significantly from 42.1% a year ago. Automakers’ production problems are leading to inefficiencies at Cerence.
