Cerence Inc (CRNC) 2020 Q3 法說會逐字稿

The Cerence Third Quarter Fiscal Year 2020 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 the date hereof. In addition, the company may refer to certain non-GAAP measures 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 us today are Sanjay Dhawan, Cerence CEO; Mark Gallenberger, Cerence CFO; and Rich Yerganian, Cerence VP of Investor Relations. As a reminder, the only authorized spokespeople for the company are Sanjay, Mark and Rich. I am here for the opening remarks and as a showcase for the new Cerence neural text-to-speech innovations, which have been called breathtaking by one of our most important customers.

Before handing the call over, I'd like to announce several upcoming investor events. All of them have been converted to virtual events, so the exact timing of our participation is subject to change. Please visit the Events page in the Investors section of the Cerence website for the most up-to-date information on our participation. The conferences include: the Raymond James Industrials Conference, the Jefferies Software Conference 2020, the RBC Capital Markets Global Industrials Conference and the Evercore Future of Mobility Forum.

Now onto the call. Sanjay.

Welcome to everyone on the call. And thank you for joining us to discuss Q3 results. Despite of challenging conditions, Cerence continues to execute across the board. Before getting into the results, though, I want to acknowledge what you just heard, a demonstration of one of our newest products, Cerence Reader, a neural text-to-speech application, capable of reading articles based on linguistic styles associated with different types of content.

Cerence Reader takes advantage of the latest capabilities in AI and processing hardware to bring amazing levels of human-like speech to the car. It features long-form reading capabilities, including the automatic prediction of the appropriate reading style and emotional tone based on content, context and category of news. Jan Dusik, Head of Development Speech Output at Audi commented that "Cerence Reader is quite breathtaking and will empower the next generation of our cars to interact with our customers on a whole new level." Cerence Reader is just the latest example of Cerence engineers using AI to push the boundaries of what is capable in the car.

As for pushing the boundaries of what's possible, we're doing that for many of our customers, including Audi's MMI infotainment system and Ford SYNC 4 communication and entertainment system, but nowhere is this more demonstrated than in the 2021 S-Class Mercedes. In the call with the media promoting MBUX, Mercedes' cutting-edge infotainment system, Nils Schanz, Head of User Interaction, Voice Control at Daimler commented, "I think voice AI is the future in technology and automotive." At Cerence, we would agree. On the same call, Nils offered some interesting statistics. He said, 80% of Mercedes users say voice is the most important control element in the car. 83% of the consumers believe voice commands make it easier to search for information. 89% say voice commands make searches faster. We're very proud of the role we have played in creating the MBUX experience.

Continuing our string of new product introductions is Cerence Pay. Using advanced voice biometrics, Cerence Pay allows the driver to make purchases from the car using his or her voice to authenticate payment. Whether it be to authorize payment for gasoline at the pump, parking your car or ordering food or drink on-the-go, Cerence Pay provides a secure contactless payment system. As the world continues to adjust to the realities of COVID-19, contactless technologies such as Cerence Pay, which are based on voice interaction, will become the preferred interface.

While COVID-19 has impacted the global economy, it has had no impact on our ability to continue to develop innovative AI-based products and bringing them to market. I'm very proud of the Cerence team that even as approximately 75% continue to work primarily from home, that through their dedicated efforts, the company's business showed resilience and continued strong execution. We have stated that our combined revenues should allow us to deliver results 10% to 15% better than the auto SaaR.

Estimates are that global light vehicle sales were down as much as 45% in calendar Q2 compared to the same period a year ago. In our case, sales declined less than 4%. Through our first 3 quarters -- though our first 3 quarter sales are up 8% compared to fiscal year '19 for the same period, the secular trend driving our business continues to play out as the penetration of voice assistant technology and connected services extend to more and more car makes and models. This has been an important driver of our growth and we expect this trend to continue.

In the long term, COVID-19 may actually have a positive impact on car sales once we get beyond the near-term economic headwinds, as car ownership may increase as people decide to move from living in the city to suburbs or decide to purchase vehicles in lieu of public transportation. We commented on our last earnings call that while approximately half our business is tied directly to the quarterly production of new cars, the other half is not directly tied to current auto production. Our connected services, which is SaaS revenue stream, was key in supporting sales for the quarter because the vast majority of connected services revenues are from cars that have already shipped. There was minimal impact on sales in the quarter.

Our professional services business is also not tied to car production and delivered another strong quarter. The changes we made to our business very early in the pandemic have resulted in continued strong financial performance. Mark will fill you in on the details of the quarterly results in a few minutes, but we were able to still deliver non-GAAP net income of $12 million or $0.31 per share and generated approximately $24 million of adjusted EBITDA. Even in this difficult environment, our business held up very well.

You may have noticed a new table in the press release providing a series of KPIs. After much internal discussion, it was decided that these KPIs would be helpful to investors in seeing the progression of our business. As you can see from the table, our technology is consistently shipped in more than half the cars produced globally. This translates into very strong market share position, especially for our edge technology. Next quarter, we'll add some KPIs on the adoption of connected services in the car.

One of the more important metrics in the table are growth in billings or cars shipped showed strong growth compared to the prior year. The impact of COVID-19 aside, as a group, these statistics create a healthy picture of long-term growth prospects for Cerence. You may recall that in our Q2 earnings release, we reported very strong bookings for the first half of the fiscal year. The pipeline of business opportunities continued in Q3, delivering the second highest quarter for bookings in the company's history. These bookings include several strategic wins for the company in each of our key geographic markets.

We also had our first bookings in 2 adjacent markets, one for 2-wheel vehicles and the other for tractors. As previously mentioned, we will provide a midyear bookings update in year-end backlog update. This momentum is due to the steady pace of new technology that we're bringing to market. It is that innovation and our ability to deliver that continues to fuel the strong support we have from our customers on a global basis and why we have such a strong market position.

In Q4, we hope to receive the first bookings for new products that enabled us to achieve our $75 million SaaS/ARR revenue target in our 2024 model. The recently announced Cerence Pay and our previously announced CarLife products are expected to be significant contributors to the $75 million revenue target. Another product we have yet to officially announce has been well received by customers, but we are not quite ready to officially launch that product yet. More news on that and others in the future.

We're also looking at opportunities for aftermarket products to make available the latest voice assistant technology for those cars already on the road without such capability. Our pipelines of new products extends well beyond the ones I'd mentioned earlier in my comments, as we look to continuously advance the user experience inside the car. We do this by taking advantage of being embedded in the car's infotainment system, allowing us access to all of the sensors, cameras and microphones throughout the car and leveraging that access to provide the driver the safest and most Apple-like user experience possible.

Innovation is what allows us to continue our market leadership position and provide the opportunity to expand into adjacent markets. In a world where voice interaction is becoming the preferred communication medium, we will explore other potential adjacent markets such as crew ships, elevators or other mobility-based products for the application of our technology.

While our medium- to long-term prospects remains strong, forecasting for the near-term remains challenging in the current business environment. As the global economy has begun to open up car sales, while down significantly have been better than expected. We're hopeful this trend continues. Although most of our customers are not providing guidance, we have enough confidence in our business to provide a Q4 outlook. Mark will provide more details in his comments.

I'd like to now turn the call over to Mark to review the financial results of the quarter. Mark?

Thank you, Sanjay. I'll first provide an update on the impact of COVID-19 on our business and then I'll review our performance for the third quarter of fiscal year 2020 and provide a recap of our successful refinancing during the quarter. Lastly, I'll review our guidance for Q4 before taking questions.

While our China R&D facilities are essentially in full operation, the rest of our locations remain mostly remote and we do not expect to return to normal workplace operations until the fall time frame, at the earliest, but more likely once a vaccine is available. Those offices that have opened have done so by following local guidelines. Although the majority of our workforce is still remote, we continue to deliver on key project milestones and our productivity has seen minimal impact as a result of these new work conditions. We realized approximately $6 million of cost savings in the quarter due to the cost reduction actions that were taken in response to the onset of COVID-19 and our expected $8 million of CapEx savings from our original plan is still on track.

Next, this table provides a breakdown of the different revenue streams that make up our business. And you can see that our overall license revenue in the quarter was down 26% from the prior year. This is directly related to the impact of COVID-19 on auto production during the quarter. As Sanjay mentioned in his comments, the license revenue is the part of our business that is most directly related to quarterly auto shipments. Our cloud connected SaaS revenue grew by 27% from the prior year and professional services grew by 25%.

As mentioned on prior calls, the growth in pro services is a leading indicator of future growth potential of our license and connected services as these projects move into start of production. At approximately $75 million, our revenue for the quarter was down less than 4%, while global auto sales declined approximately 45%, resulting in significant outperformance above auto unit sales during the period. Year-to-date revenue is up 8% compared to the same time period last year despite the impact of COVID-19. License prepay contracts were $14 million in the quarter, down from $16 million in Q2, but up from $11 million a year ago.

Non-GAAP gross margin for the quarter was 68.7% and slightly lower than last quarter due to lower volume and product mix and specifically driven by the drop in license revenue, which carries nearly 100% margin. Non-GAAP operating margin for the company was strong at 28.4%, and adjusted EBITDA was $23.8 million or 31.8% of revenue. Our non-GAAP net income was $12.1 million or $0.31 per share and our cash flow from operations was $19.3 million, which was a significant improvement over the previous quarter. Given the difficult business environment over the last several months, our Q3 results represent a great quarter of execution and financial performance.

We successfully refinanced our debt by replacing a very expensive Term Loan B with a combination of $175 million convertible note, a $125 million Term Loan A and a $50 million revolving line of credit. The refinancing resulted in approximately 50% reduction of our cash interest expense, and this translates into over $10 million per year in cash interest savings and has a substantial accretive effect on non-GAAP net income. We ended the quarter with approximately $133 million of cash, up approximately $37 million over the previous quarter.

Approximately $23 million of the increase is attributed to the additional debt, net of fees, while the balance of approximately $13 million is attributed to our strong free cash flow generated during the quarter. While the business environment remains volatile, and with about 3 to 4 months of experience operating under these new conditions, we feel comfortable providing guidance for Q4. Therefore, our guidance for Q4 is for revenue to be up sequentially and to be in the range of $76 million to $80 million, representing a 4% sequential growth at the midpoint.

We expect non-GAAP gross margin between 68% and 70%, non-GAAP operating margin between 27% and 29%, adjusted EBITDA between $23 million and $26 million, non-GAAP EPS between $0.30 and $0.35 and CFFO of approximately $24 million, putting our full fiscal year CFFO at approximately $43 million, which is within the original range of our guidance that we provided at the beginning of the year. We're also maintaining our fiscal year 2024 midterm target model, including revenue of $600 million that we provided at our Analyst Day in February.

In summary, in spite of COVID-19's impact on our business, we delivered a great quarter. The performance reflects both the resilience and operating performance potential of the company. While the auto industry may have slowed by the onset of COVID-19, our midterm and long-term growth targets remain on track. Competitively, we remain in a strong leadership position and through continued innovation we expect to maintain, if not extend that lead.

This concludes our prepared remarks and now we will open it up to questions.

(Operator Instructions) Our first question comes from the line of Chris McNally, Evercore.

Congratulations on the great results. My first question, you made a comment on, I believe, the last 2 calls about your market share of wins at one point being 90%-plus. Just curious without -- it doesn't have to be a hard number. Are you still seeing that sort of momentum? We obviously haven't heard too many other major announcements, whether it's from Google. I think you're actually winning back some of your business from Volvo, Geely there. So just maybe something about market share and sort of your booking success.

So let me start, Chris and then I'll hand over to Mark, if he wants to add. So Chris, we remain very focused in the quarter on bookings. And as I said -- stated in my opening remarks that we are really proud to have second highest bookings quarter in the history of our company. Given this was a COVID-19 kind of affected quarter, I was keeping my fingers crossed because we were -- a lot of our customers were distracted, obviously, with production issues and so on and so forth. Still, our sales team working closely with the customers who are able to close very solid bookings. And that basically -- it comes back to, I think, in terms of our win rate remains very consistent. As we have said before, 8 to 9 deals out of 10 that we bid for, we do win. And overall, we're maintaining that win rate, which really comes back to the product and the innovation and so on. I also said in my remarks, Chris, that with no travel happening in this last quarter, our teams were extremely focused on product and innovation. And you will see some of the new product announcements where there are some very interesting and exciting ones coming, which would help us with hopefully maintaining the future win rate as well. Mark, anything you want to add to that, please?

No. I think you covered that, Sanjay. I think the business continues to do very well competitively. Whenever we do compete, those win rates that we've seen historically have not materially changed. So that's why I think our market share is pretty solid today and it should continue into the future.

Great. And then maybe just on the core business and some of the strength in the quarter. I mean, if we look at license revenue, obviously, almost 20 points above production, sort of, implies depending upon the calculation that your ASP is up nicely. And you talked about this becoming a larger portion of the business, about doubling the license per car. But should we assume that maybe some of these higher-end products, MBUX and maybe some of that you can't disclose, have already launched so that this sort of ASP trend in license is something that we can think about over the next several quarters because, obviously, you'll be shipping more and more units of those higher-end mix?

Yes. So I can start, and, Sanjay, you can add to it. But I think in terms of -- we're seeing some good ASP on the billings right now. You could see in the new KPIs year-to-date we've seen an increase of about 7% versus the prior year. I think as we continue to add more of the features to that software stack, we're going to be able to drive higher ASPs. Also keep in mind, when you have a connected car in conjunction with the edge license that we have, that becomes additive. And so as more and more cars become connected, our total revenue per vehicle will be growing just because you're now layering on top of your edge license revenue that connected license revenue. So that's another component that we think that trend, obviously, with more cars getting connected in the future, that trend of layering on top of our core edge ASP should help our revenue per vehicle overall.

And our next question comes from Jeff Osborne from Cowen.

Great. Great job. Wow. Just really impressive what you've gotten done here. Several, if I can sneak them in here. First, on the connected side. I'm curious on these recent wins. What the landscape looks like on those deals, particularly as it relates to what is your arbitration role in the latest wins? And how is that different from what you might have seen 12, 24 months ago? And same thing along the lines of the ecosystem of other solutions, right, your whole vision of this connected life and everybody has their platforms of choice. But just how are you seeing that play out in the most recent connected wins?

So the -- in the most recent connected win has us -- I'm just using one of the few examples. Again, in the United States has us co-exist with Alexa Auto. And I have said in the past also that I see absolutely a role for consumer tech companies to coexist in the car because what the customers want is, they want the car not to be a separate technology island, but an extension of his or her digital life. And the digital life of a consumer is more than just a single consumer tech company. It includes Apple, Google, Amazon, others, right? And so from Cerence standpoint, what we are doing is basically applying that philosophy across the board. And you will see, although we have launched our Cognitive Arbitrator that does both wake up word-based arbitration and also intent-based arbitration in the car, but we're not stopping there. You will see in this quarter some other absolutely very innovative products that I'm really excited about that will further kind of extend this philosophy of helping the consumer to bring his or her digital life in the car. That's the philosophy that we have in our products and innovations. But at least, one of the major cloud deals, coming back to your question, had us coexist with Alexa. I'm just trying to remember if there's anything else that -- yes, no, I'll just stop right there. And maybe off-line, I'll follow-up with you as I dig in a little bit more deeper with a few of my colleagues about some of the China wins and the architecture there.

Fair enough. And then with respect to, I guess, as we've been talking to a lot of people in and around your ecosystem, there's certainly an impression amongst those that work with Cerence that the company has gotten notably more agile, responsive, easier to deal with. And I'm kind of curious, I know you made some changes early on with respect to R&D. You touched on the innovations. But I guess, as I try to understand where the real surge in innovations, when that surge comes and how long it takes those changes in development to really yield results. Certainly, you've got a lot of innovation now. Is this already reflecting the changes that you've made? It seems like it might be a little early for that. And the bulk of the substantive changes you've made are not yet visible? Or how should we sort of broadly think about that?

So firstly, the whole pieces of the spend of Cerence was to kind of enable us to focus in transportation and mobility, and that was the whole thesis of kind of creating Cerence because we were, as you know, about a year ago -- a little less than a year ago a smaller division of a larger company. And now, being focused in transportation and mobility gives me and my team the freedom to kind of move fast, innovate fast and so on. Now I'm absolutely very proud of our product management teams across the world to kind of innovate and the non-MB teams to execute on those products. I would say we're only about 1/3 into kind of sharing with all of you some of the new products and innovations. We're still half to 2/3s away in terms of the new stuff that we have been working on. As you know, product cycles take roughly between 1 to 2 years, right, to kind of get it done and so on. So we're in that cycle right now of reinventing the company and focusing -- our goal -- my goal is very simple.

If you look at one of the slides that is there in this earnings package, you will basically see kind of how we have the core of the business, right, which we continue to grow in support with products and innovations and new technology. And then we're basically kind of expanding the core of the business in 4 different areas, which I list in this strategic plan slide. And you will see new apps, which have SaaS sort of revenue. Two of them we have already announced. Third one we are working on that we plan to announce in the coming months. We're looking at adjacent markets. I commented on that a little bit. We have our first win in the two-wheeler market in last quarter. We're looking at other adjacencies to automotive. We're looking at extending the consumer digital life. Cognitive Arbitrator was the first move, but we have a couple of other moves that we're working on that we will be announcing later this year. And finally, we're also looking at how do we get into cars that have been shipped before without a Tesla sort of technologies, right? So how do we take an older car and make it kind of look and feel and drive like a Tesla, right, so from a user experience standpoint. So we're looking at kind of all aspects to grow our TAM, our SAM and basically do that with products and innovations.

Great. If I could then sneak one last one in, Mark. As it relates to the licenses, I know a while back, I think you had a propensity to move away from prepaids. We saw a bump last quarter, and it was certainly well ahead of my number this quarter as well. You were strong on all lines, but that one continues to remain stronger than I would have expected. What is it about the behavior or the buyer preference that's leading to that number being so strong? And do you expect that's kind of the way we should think about it going forward?

Yes. No, it's a good question. We had initially targeted about $40 million of prepays for the whole fiscal year but it's difficult to predict because they can be lumpy. They're typically a small number of customers. And depending on the size of those deals, that could really drive some of the lumpiness. So it is a little bit of a challenge to predict exactly when and how much those prepays are going to be. So I think for this fiscal year, instead of being at $40 million, we're probably going to be in that $50 million to $53 million range for the year. I think our bias is to continue to hold those prepays flat to down over the long term. But I think just the first year here, it's been a little bit more challenging to predict when those opportunities arise. I think the good news, though, is with some of the short-term uncertainties, locking in some of these prepays certainly does help, not only on the revenue, but also helps us on cash flow during these difficult periods. So we actually are a little bit more receptive during these uncertain times to lock in some of these licenses now versus waiting for the future.

Our next question comes from the line of Chris Merwin of Goldman Sachs.

Congrats on a great quarter. So I wanted to ask one of the KPIs that you started to disclose. It looks like billings per car was up in the year-to-date 7% year-on-year, and that's excluding the legacy contracts. I was hoping if you could maybe unpack that for us a bit in terms of what's driving that increase. Is it the connected business? And I guess, in general, how does the pricing for the new connected business compare to the legacy contracts at this point? And do you feel like you still have good line of sight into steady increases there in revenue per car from -- in the connected business?

Yes. So Chris, I can start. Sanjay, do you want to start? Or do you want me to?

Let me give a quick comment, and then I'll hand it over to you. Sorry, Mark.

Sure. That's okay.

I'm very anxious to talk to Chris. So Chris, firstly, we saw a very healthy new bookings on connected services in the last quarter. It was our highest if you compare between kind of connected and edge bookings as a ratio. Last quarter, we were extremely happy about that. Secondly, I think some of the new products that we have talked about previously, right, which is enhancing our core voice platform with multimodality, be it interactions, which are tied to the car sensors, these cars -- these products obviously add to the billing of our car growth number. And thirdly, on the connected side as well, the reason we call the legacy, the legacy is that was a very different business model done almost 6, 7 years back. But from a new kind of connected services revenue model, we had another larger bookings here in North America, and that was also basically met and exceeded our ASP, sort of, our car guidelines as well. So all in all, that -- kind of basically those 3 elements are feeding into this growth. But I'll have Mark give a little bit more color. Mark?

Yes. No, I think you covered the majority of those points, Sanjay. I was going to just mention that excluding the legacy contract, obviously, is pretty important if -- just because that was a very different model. And that's why we've excluded the legacy contract, which, by the way, is winding down anyways from a billings perspective and it's winding down as we had expected this fiscal year.

Okay. Great. And then I guess my second question would just be on free cash flow. Obviously, there's a really nice beat in the quarter on EBITDA. Free cash flow is a little bit lighter than what we had modeled. I know you also mentioned that you had a nice contribution from prepaid licenses. So do you mind talking a bit about some of the dynamics with free cash flow and how we think about the rate of EBITDA converting to free cash flow going forward as well?

Yes. So the reason why I made a comment in my prepared remarks around our CFFO, which is given where we think we're going to be at the end of the fiscal year, we're right on plan as to what we originally laid out almost a year ago, which was to be in this range of $42 million to about $50-ish million of CFFO. And so that was even before COVID, and we think that we're going to be in that $43 million of CFFO range. So no surprises. We said we would be in that range. We think we're going to be in that range. And we attributed that to the drop in the legacy contract and how that's winding down. And so that -- we've been very open about that. We've been talking about that issue for over a year now and that's playing out as we expected. So that's where the conversion from EBITDA down to CFFO, we said that, that was going to put a headwind on that conversion rate for this year and also going into fiscal year '21. Once we get into '22, things will start to normalize when deferred revenue becomes a source of cash again. And so we're almost -- I'd say we're about halfway through that period. And I'd say that we're pretty much right on plan in terms of what that conversion has been in terms of EBITDA.

And our next question comes from the line of David Kelley from Jefferies.

Maybe to start with the 2024 guidance commentary, and you reiterated your outlook. I was just curious to your views on what has changed since you published your targets in February. Clearly, the auto industry itself has reset. So your initiatives have to be gaining traction here. So how much of the confidence stems from improved visibility to new product initiatives and customer reception to those versus, say, visibility tied to accelerating adoption of connected cars and your core product leadership?

Yes. So I can start, and, Sanjay, you can add some color. But we still believe pretty strongly about the FY '24 target model that we put in place pre COVID. Once again, it's a longer term model, of course. And so we don't see any changes to the secular story, right? I mean, cars are getting more connected. Increasing penetration continues of the digital car. So all of those elements, whether pre COVID or post COVID, those elements have not really changed. And so that's going to be obviously a key driver for us to hit that target model 3 or 4 years from now. And so that's largely intact. And so I think that in conjunction with the fact that we continue to invest pretty heavily. We're innovating, delivering new products, which are being well received in the marketplace. All of those things combined gives us the confidence in not adjusting that target model because even though there's a short-term blip in auto production and auto sales this year, long term, the thesis in the secular story is still intact. Sanjay, I don't know if you want to add anything else?

Yes, I do. I do want to add a couple of things. It's a very important question. So basically, from a new booking standpoint, we're focused on cars and systems that will be -- that we're going to design to be shifted in CY '24, CY '25 now. So we already have a pretty strong backlog. We disclosed at the start of the year and then you can do the math based on some of the bookings commentary that Mark and I shared with you last quarter, this quarter, et cetera. So we're obviously kind of adding to our backlog, which is what's going to kind of -- gives us the confidence in the model that we presented to you. And on top of that, we are -- what I said in the February analyst meeting was that we are layering new products to the existing installed base to kind of further grow our ASP and also grow our revenues, right, both short-term and midterm. So I think these things combined basically gives the confidence in the FY '24 model that we shared with all of you.

Okay. Got it. That's really helpful color. And maybe a follow-up on that last bookings point, and you referenced bookings this quarter being the second highest in history. I would also assume there was some natural pullback in opportunities, just given the broad disruption day-to-day business. I was curious to your visibility into the go-forward bookings pipeline. Should we expect that to accelerate pretty aggressively into the fourth quarter and 2021?

So our pipeline looks strong for the current quarter and as we get into next fiscal year as well. Clearly, COVID-19 created disruption, right? No questions. Having said that, the core of transportation mobility, like I said in my prepared remarks, one may argue that people may want to buy more cars and not to use shared transportation short term, right, which will fuel kind of further activity. Time will tell. From an R&D spend standpoint, for the OEMs, we're seeing them kind of still commit to the new product architectures, new product designs, differentiation using experience as a key product innovation is something that they're willing to invest in, right? So we're not seeing any major changes to long-term view because remember, like I said, the decisions that they're making today is for cars that will ship 3, 4, 5 years out, right, basically. So those programs will continue to be funded by the OEMs.

And our next question comes from the line of Joseph Spak.

Sanjay, they say imitation is the sincerest form of flattery, and with the new MBUX S-Class experience now that other auto companies have seen that product and how the interior experience can be voice-centric, have you seen increased interest from some other competitors and automakers?

Absolutely, yes. That's the best sales tool that I got this quarter. Every sales guy in our company has their back with our contribution onto that platform and so on and so forth, and those discussions are happening because OEMs want to -- others want to learn from kind of what's possible in close partnership with us, right? So we're absolutely having that discussions.

Okay. Great. Maybe on Cerence Pay and Reader initiatives that you announced with Audi, I realize it's still early days. But specifically, I guess, with the Pay product, how does -- is there anything you could tell us about how the financial model works since there were -- it was announced with a bunch of other partners as well?

Yes. So firstly, we're not trying to be a payment gateway. There are plenty of payment gateways out there we partner. So we're not the clearinghouse for the payment, right? We partner for that. What we are trying to do basically is to make their contactless payment much more simpler and easier for an OEM to bring in the car. So that you can drive up to pump number 15 and say, "Hey, Mercedes, pay $50 on 15" and you're done, right? So we're bringing voice biometrics and other integrations with partners to basically enable such an experience, right? The business model, a little early for me to comment because we're having those discussions with various different OEMs right now, but it's very much based on revenue share.

Okay. Mark, maybe just finally and thanks for the comments on the 2024 model. But given that there's such a high recurring nature of the revenue and even on the portion that's volume dependent, that's generally sourced years ahead. So can you let us know how much of that $600 million would you say is secured right now?

Yes. I haven't done all the math to that I could really share with you in terms of a specific number. Clearly, our backlog is quite large. We only disclose backlog once a year. But you can probably do a roll forward of our bookings year-to-date, at least the 6 months year-to-date and see that it's fairly substantial. And about that backlog, about 50% of it is probably going to turn into revenue over the next 3 years. And then the other 50% is beyond that. So I can give you sort of that anecdotal view of the world. But to give you a specific number, I don't unfortunately have that. But yes, we do have great visibility. I mean, the bottom line is we do have very good visibility. These contracts are multiyear. They extend for many years into the future because our customers don't just make a decision based upon one model year. They base it off of a multiple year platform decision. So that -- once you're locked in, that's the luxury of being in this business, right? You are afforded that kind of visibility. So that's really what sort of color I can provide you at this point.

And our next question comes from Jeff Osborne with Cowen and Company.

Most of them have been asked, but I just wanted to get, Mark, a better handle on how to think about OpEx over the next few quarters. You had some austerity measures as COVID started and then things picked up pretty sharply on sales and marketing and G&A here this quarter. How should we think about the next few quarters there?

Yes. So we did -- at the start of the pandemic, we decided to act quickly and adapt quickly to this environment. It's always better to go deeper than what you feel like you need to just so that you're ahead of the curve. And so I think we were satisfied with that decision. Now that we're -- it feels like we're kind of past the worst period now. We are looking to add back some of those expenses. But we're going to be somewhat conservative because there's no vaccine, and we're not out of the woods entirely from a global economy perspective. And so in Q4, we will be adding back some of those expenses, especially as it relates to professional services so that we can make sure that we deliver projects on time or even ahead of time.

Once we get into the next fiscal year, we are doing that planning process right now. And then we'll be providing some guidance in 3 months from now on the next earnings call as to how do we want to start adding back some of those headcounts that we basically put on hold for the last 3 to 4 months. I do expect a return to some growth of our headcount in fiscal year '21 but it's going to start first with contractors because that's where you can turn those on quickly and turn them off quickly. And we want to be probably a little bit more conservative as it relates to adding permanent headcount. But certainly, I think going into '21, if things continue to move in this direction, we will be adding back those expenses.

Got it. That's very helpful. And then I think you mentioned originally that the intent for this year was to spend about $35 million in CapEx, and then I think you pulled $8 million out of that or deferred that. So should we think about sort of $27 million for the year and then that $8 million flowing through next year, which I think the intent originally was to spend about $7 million a year in CapEx. So is next year going to be closer to $15 million?

Yes. So I think your math is right on fiscal year '20. We originally thought $35 million. We took $8 million out of it. So it's about $27 million for this fiscal year. Going into next year, I want to take the entire $8 million and just push it into next year. I think we're going to be able to see some savings as it relates to that $8 million and not have to just push it all into next fiscal year. So next year, we've talked about a $6 million to $7 million run rate CapEx. It might be a little bit higher next year because of that $8 million push, but it won't be the entire $8 million. Maybe roughly speaking maybe about half.

Okay. That's helpful. And then last question is just a clarification. Did you say in the prepared remarks that you would have -- you either have announced 2 SaaS contracts, car play or car pay and care? Or you will be announcing those next quarter? I was a bit confused as to the timing. You've certainly had the press releases about them, but it was unclear. Do you actually have the booking in hands for those? The $75 million in 2024.

Yes, we've announced the products and we expect, like I said, even in the previous statement that we hope to have the bookings this quarter. We're engaged with several customers and some of them are late-stage discussions right now.

(Operator Instructions) And I'm not showing any further questions at this time. I'd now like to turn the call back to you speakers for any further remarks.

Okay. Thank you for joining us on the call this morning. We look forward to engaging with you at upcoming conferences or in one-on-one calls. Thank you. Have a good day.

Thank you.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may disconnect.