Cerence Inc. (CRNC) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the Cerence Q4 FY '19 and Fiscal Year Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to Vice President of Investor Relations, Rich Yerganian.

Thank you, Andrew, and good morning, everyone. Welcome to Cerence’s fourth quarter and fiscal 2019 conference call. Before we begin, we 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, we 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 the non-GAAP measures to the closest GAAP equivalent. Joining me on today's call are Sanjay Dhawan, Cerence’s CEO; and Mark Gallenberger, Cerence’s CFO. As a reminder, the only authorized spokespeople for the company are Sanjay, Mark and myself. Before handing the call over to Sanjay, I’d like to announce a couple of upcoming investor events. On January 14, we will be presenting at the Needham Growth Conference in New York City. And on February 18, we will be hosting an Analyst Day at the NASDAQ Market site in New York City. Now onto the call. Sanjay?

Thank you, Rich. Good morning, everyone. I want to first thank everyone for joining us today on Cerence’s first earnings call. Since October 1st, the day Cerence became a stand-alone company, I have visited and met with executives from major auto OEMs and Tier 1 throughout the world. I'm really encouraged by the support of our customers and their comments to me about how important Cerence is to their current and future plans. We're honored to play such a key role and I reiterated our commitment that Cerence will always be focused on ensuring their success. As an executive team, we're excited about Cerence’s tremendous future opportunity and this call is the first of many engagements to help all of you learn more about our progress and performance as a stand-alone software company focused on automotive market. While voice recognition and natural language understanding is at the core of our technologies, we are continuing to push the boundaries into other modalities such as gaze and gesture to provide our customers the safest, most enjoyable and interactive user interface and experience in the car. I'd like to make a few comments on the fourth quarter and fiscal year since they have a positive and direct impact on our future business. First and foremost, we had record revenue and bookings. Our non-GAAP revenue of 311 million came in above the high-end of our guidance, as did our adjusted EBITDA. Our business has strong forward momentum. We had strong year of design wins with the win rate of approximately 90%. These design wins were in all the major geographic regions and included our first local India-based OEM and the first intelligent car in Malaysia. These wins helped grow our backlog in fiscal year 2019 to approximately 1.4 billion at the end of September. These wins and growing backlog are important indicators of our future growth. The number of active projects our professional services team are working on was the highest in the company's history. These projects represent the work that our global professional services engineers are doing to customize and integrate our technology into our customers’ future car models and will continue to support Cerence’s revenue growth. While further penetration of our Edge solution or in-car licensing will continue to grow as more and more cars include this technology, our Connected Services business will continue to be the higher growth segment for Cerence. Connected Services will grow faster than our Edge product because these technologies are in the relatively early stages and the market penetration is expected to grow at a much faster rate than Edge. Year-over-year, new users for these services were up nearly 200%. This growth is fueled by the accelerating adoption of the Connected Services platform. The level of consumer adoption of using a car’s native capability to connect to the cloud is rising and will continue to grow at an accelerated pace. Cerence’s solutions are well positioned to benefit from this growth. The road ahead for Cerence is indeed exciting. The automotive industry is undergoing dramatic changes in technology that define the user interface and Cerence’s intent to be the key innovator in this area. Our recent product announcements regarding Cerence ARK for the Chinese market and Cerence Drive reflect only the beginning of exciting new innovations we are bringing to market. The OEMs realize the user interface in the car as a key differentiator between brands. Our work with Daimler on its Mercedes-Benz User Experience multimedia system, the MBUX, is another example of how Cerence is at the forefront of improving the driver experience. I joined Cerence as its CEO because of the opportunity I see for the company to play a major role as a key enabler of these efforts. While the core of Cerence’s technology is in voice recognition and natural language, as the technology continues to evolve we're working as well and continuing to enhance our user experience offerings with additional modality such as gaze and gesture recognition. Our R&D team is highly focused on innovation, bringing new capabilities to the market and ensuring that Cerence technology is at the core of creating a safer, more enjoyable driving experience. With that, I would like to now turn the call over to Mark to review the financial results of the quarter and fiscal year. Mark?

Thanks, Sanjay. I’ll first review the strong performance for the fourth quarter and fiscal year 2019 and then I will provide guidance for our fiscal year 2020 as well as for fiscal year or fiscal quarter one. Although I will be presenting both GAAP and non-GAAP revenue results for historical periods and under ASC 605 and 606, beginning in FY '20 we will only be reporting GAAP revenue under ASC 606. Additionally, there are GAAP to non-GAAP reconciliation tables in the appendix of this presentation for your reference. As you can see from the table on Page 4, our GAAP revenue for the quarter and the fiscal year were up 10%. This performance demonstrates Cerence’s ability to outpace the auto SAAR by a significant margin driven by the increasing penetration of our Edge and Connected Services technologies in the automobile. On Page 5 when comparing our revenue guidance to actual results, you can see that we exceeded the high end of the revenue range. More importantly, our non-GAAP operating margin and adjusted EBITDA exceeded expectations and was primarily due to better-than-expected operating expense management. The table on Page 6 provides a breakdown of the different revenue streams that make up our business. And you can see that our license revenue was up 1% from the prior year. However, when adjusting for our prepaid licenses, our variable license revenue increased by 10% from FY '18, which demonstrates the increasing penetration of our embedded solutions. As we have stated before, the use of prepaid contracts is something that we expect to hold flat or potentially reduce over time and this is reflected in the FY '19 results with prepays declining by $11 million from the prior year. The rate of growth of our Connected Services accelerated with the 33% increase in FY '19 compared to FY '18. This reflects the rapidly increasing availability of Connected Services in cars and the strong adoption of our offering. The other highlight to note is the significant growth of our new connected business. While the legacy contract revenue continued to grow in FY '19, the faster growth was associated with the new connected business. The 83% growth year-over-year is being driven by the expanding adoption of our Connected Services platform that continues to benefit from improving technology, a broader selection of capabilities and the tight integration with our Edge products. Revenue from our professional services rose 20% year-over-year reflecting a record number of customer projects that we are currently working on. These projects our expected to enable us to continue our strong top-line revenue growth for our license and connected offerings. Page 7 highlights our strong backlog of 1.36 billion as of the fiscal year ended September 30. Our backlog increased approximately $20 million from June 30, which demonstrates the continued strength of our business and high win rate that Cerence has achieved over the last several years. We continue to expect that approximately 50% of the backlog will convert to revenue over the next three years. Going forward, we will be reporting backlog on an annual basis in our Form 10-K filing. On Page 8, we are reaffirming the original fiscal year '20 guidance that we previously provided on September 9. The original guidance for gross margin, operating margin and adjusted EBITDA was based upon the non-GAAP revenue estimates. Going forward, we will only provide GAAP revenue guidance. And as a result we've updated the gross margin, operating margin and adjusted EBITDA estimates to reflect this change. This non-GAAP to GAAP change reduces our top-line revenue by approximately $4 million, which also flows through the rest of the P&L which is why we updated the profitability metrics. Overall, the industry conditions and our business model are performing as expected when we originally provided the FY '20 guidance in September. Moving on to Page 9, we expect a strong start to the new fiscal year with Q1 revenue up approximately 8% from the same period in the prior year. Also, we expect gross margin to be approximately 70% to 71%, operating margin to be approximately 21% to 23% and our adjusted EBITDA to be in the range of $19 million to $21 million. Page 10 provides a view of our beginning and expected ending cash balance for fiscal year '20. The company's opening balance sheet as of October 1 had a 110 million of cash and 270 million of debt, and the net debt to EBITDA leverage ratio as of October 1 was approximately 1.6 to 1. $25 million of the initial 110 million opening cash balance is from Nuance in order to prefund stand-up related capital and operating expenses that we expect to incur in fiscal year '20. You should keep in mind that our capital expenditures in FY '20 are higher than our typical run rate, primarily driven by approximately $20 million in capital expenditures related to stand-up activities. Our normalized run rate is expected to be approximately $7 million per year starting in fiscal year '21. Despite incurring these significant capital expenditures, we still expect to have positive free cash flow for the year due to our strong business model. So this concludes our prepared remarks. And now we will open it up to questions.

Thank you. [Operator Instructions]. And our first question comes from the line of Chris McNally with Evercore.

Thank you. Hi, team and congratulations on your first conference call. Look forward to many more. Just first a housekeeping question. We get this a lot. Can you confirm your debt and your cash balance for October 1 that it's 270 on the debt side and 110 on the cash side? And I think you made the comment that some of the cash is earmarked for the prefunded spin costs. But there just appears to be still some confusion because some of your old docs have a larger debt amount that would just be helpful for the first question.

Sure, Chris. This is Mark. So as of October 1, the opening balance sheet did have a 110 million of cash and we had about $25 million of that 110 that's earmarked for stand-up related costs. If you kind of break that down, that 25 million down into two major buckets, you've got about 20 million that's tied to stand-up related capital expenditures and approximately 5 million that's related to stand-up operating expenses. Those numbers may shift a little bit, but the overall number of approximately 25 million is what we estimate the stand-up related expenses will be for fiscal year '20. In terms of the debt, you're right. The original Form 10 had a higher number in there for debt, but the final debt raise was $270 million. And that's a five-year term loan that will amortize over the next five years, 3.5% per year for the first two years. And then the amortization will be 10% for the remaining three years. Hopefully, that gives you enough color.

No, that's great. And then maybe two questions more on the secular side. So I appreciate the guidance for 2020, but maybe we could talk just on a high level on your rev trajectory for the next few years and you just started discussing the backlog numbers. If I look at 2020, you’re growing high single digits, almost 10% sort of above auto production that's going to be down. You've talked about the last couple of years, that's more like 13% again even higher than that given the auto environment. Given the orders that you’re seeing now, should we think about sort of an average of that trend persisting over the next couple of years or is there even the ability to get an uptick as we get some of these big program launches and connectivity, particularly within take rates on your cloud side? Just maybe a little color of can we get launches that drive revenue growth above where you've been seeing over the last, call it, one to two years?

Yes, sure. So in terms of the revenue, you're right about the historical. Our CAGR for the last three years is approximately 13%. This year, our guide is still good relative to the auto SAAR what's happening there, which is flat to slightly down I believe. And so we continue to far outpace the auto industry SAAR. And so we do believe – even though we don't give guidance beyond the fiscal year that we're currently in, directionally we still believe we're going to continue to grow well above that auto industry SAAR. And a lot of that has to be – is driven by the fact that the vehicle is getting more and more connected in terms of native connectivity and that's where we see some substantial growth projections for our business in the future is having connectivity solutions to offer our customers. But we also see the embedded solution being a key driver for us as well. The penetration rates continue to grow nicely and that's going to be a key driver for growth for Cerence in the future as well as of course adding more features and functions to our solutions. And as we do that and roll out more of these features and functionality, that's going to enable us to increase our revenue per vehicle as well.

Great. And then just one final one on the longer-term tech and maybe HMI broadly. We're finally seeing some of the introductions of the more advanced systems; cognitive arbitration, HMI, and the consumer feedback on things like the MBUX at Daimler and VW idea are quite exciting. Could you maybe just add some color to whether some of the things you've discussed, like gaze or gesture, are you booking any revenue yet in that 90% win rate? And if not, how close are we to sort of production orders on those technologies?

So let me answer that. Hi, Chris. This is Sanjay. So we have booked revenue on some of the multi-modality-based products. Some of these products go into production as early as next year '20. So this is not just orders. We're working to basically bring this product out in the market on some new cars next year. So the answer is yes to that. You will – just to add a little bit more to what Mark said to your previous question, the focus for – the strategic focus for our company is to continue to increase the revenue per car, the content per car. So we're really focused on that. And you will see, like I said in my prepared remarks, many new product announcements from us towards the buildup, towards CES where we plan to demonstrate some of these new products which would increase our content per car. And also we're looking at changing the model over time as well where many of these products will be more kind of monetizing the life of the car. So more SAAS model, which is tied to the 10-year life of the car.

Fantastic. Thanks so much, guys.

Thank you.

Thank you. And our next question comes from the line of Brian Gesuale with Raymond James.

Hi. Good morning, guys. Wondering if you can maybe talk a little bit about the competitive nature of the market. You highlighted a 90% win rate which strikes me as not only very strong but very consistent. Can you talk about big tech and homegrown solutions and maybe just the overall ecosystem as you've seen the competition evolve over the last year?

Sure. So I think as we said, we saw more than 90% win rate. And the thing that is most misunderstood about us as a company is that things are considered as either/or with the big tech companies and Cerence. The reality is that what OEMs want is they want to basically have control of the experience in the car and they want to enable the customers to be able to kind of support their digital life in the car just like they use in their home or their offices and so on. If you look at the consumers’ digital life, it consists of using Apple phone and services, Google Maps and search, the products from Amazon, the productivity products from Microsoft including Calendar or Outlook, other productivity tools and so on and so forth. So consumers use all products from various different tech companies. What we are trying to basically do is enable that and also let the OEMs bring and control the consumer experience inside the car. So as we look forward as well and in most of our OEM discussions, the OEMs want a product from a company like Cerence to basically enable white-label services inside the car and then also using our cognitive arbitration, which is like a voice router inside the car, we also bring in other tech companies and their offerings, be it Google or Amazon or others inside fact the car. And I also have to say that in U.S. here in western countries, we talk about Google and Amazon and so on. But if you have to ship cars to China, the cognitive arbitration and the consumer tech companies are Baidu, Alibaba and Tencent and we have to basically kind of provide white-label services using our platform and also enable other services to extend the Chinese consumers’ digital life. If you want to sell your cars in Russia, it's about Yandex. It's not about anything else, but enabling Yandex services along with the white-label services that we provide. So I think the – I'm sorry for a long answer, but it's a very important one for me to explain properly. This is all about how to coexist with the tech companies which may be different for different parts of geographies.

That was very helpful. Thank you. Maybe just one other question, I'm not sure I caught or if you provided on the call, but the billing side of things. Did you guys provide a September billings number and maybe how we should think about that?

Yes, so we have not provided a billings number for September. One thing that I think what you want to look at is bifurcating our billings, especially with the connected business that we have because that billings bifurcation can be broken down between our legacy contract as well as our new connected business. And so that obviously is going to be a key area for us to look at going forward as to how our new connected billings and our new connected offerings will grow. So we haven't given any specific guidance for fiscal year '20. For fiscal year '19, it was about 48 million of new versus 56 of the legacy. And as we've mentioned in the past, for fiscal year '20 that legacy connected billings will decline to about 7 million. However, the more important piece is the new connected billings will grow substantially. I currently expect that to be about 50% growth year-over-year. So that's another indication of how strong the adoption rate for our new connected billings will be.

Great. That's very helpful. Thanks a lot, guys.

Thank you. And our next question comes from the line of Dan Ives with Wedbush Securities.

Hi. This is Stryker on for Dan. Can you talk about some of the feedback you guys are getting from customers, just specifically on the Connected side? And then just a quick follow up. Any update to how you're thinking about product development for 2020 and the roadmap going forward? You touched on it a little bit earlier, but any more you can give us there would be great. Thanks.

Thank you. So the feedback from the customers on Connected Services remains very positive. We're constantly adding more services on the Connected side. Recently, we completed an exercise, in fact the company from a product roadmap standpoint where as you know we covered 70 different languages on our platform. And we basically regionalized our Connected Services to make sure that for every major region, all the key kind of services are covered, be it music, search, news, other kind of key domains and so on and so forth. So this remains a continuous exercise for us from a product roadmap standpoint. And as I've said in my prepared remarks, we're also monitoring the adoption and usage of these Connected Services because that's an indicator of kind of how well we are doing in terms of providing these services to the customers through OEMS. And as I mentioned in my prepared remarks, we saw the adoption to increase by 200% year-over-year. And we continue to kind of push that further to make sure all the right services are supported. In terms of product roadmap, obviously I want to keep – I don't want to preannounce some of the new announcements that we plan to make before CES. So it's only next 30 days, but you would see number of kind of new products from us in two categories. Number one is basically increasing the revenue per car, right? So we want to add to the installed base of 300 million plus cars that we have and we want to basically increase our content per car. And the second is also basically look at monetizing the life of the car. As you know, today's revenue model for Cerence is based on a new car shipment, which is great and we're happy to kind of continue to play in that and exceed the car rates. But we also want to kind of look at new innovative products to monetize the life of the car. So those are the two key areas that we're focused on from a roadmap standpoint.

Great. Thank you.

Thank you. And our next question comes from the line of Jeff Van Rhee with Craig-Hallum.

Great. Congrats, guys. So just a couple from me. With respect to the three revenue lines, just curious. Obviously bested your range in my numbers, but I'm curious where you felt the variance came within those three revenue lines; the PS, Connected Edge or license? Just maybe some comments on each of those lines and particularly where you saw variance.

Yes, I think for fiscal year '19 it's hard to say how much variance we really had relative to the original plan for Q4 specifically – Q4 in particular. So for Q4 specifically, I would say that there was a slight benefit to the overall revenue line I think primarily tied to the license piece. As you know, the Connected piece tends to amortize so there's really not a whole lot of variation that you would get with the Connected piece, but then you do have some variation with licensing revenue. And then you also have some variation with the professional services because a lot of that revenue is recognized based upon hitting certain milestones. So I think specifically for Q4, a little bit of the upside was driven by the licensed piece.

Yes. And specifically on the PS, it looks like the Q4 growth rate versus the first nine months growth rate, some acceleration. Maybe just take a second and talk about what that means to you as a potential leading indicator and how we should read that as potentially representative of the deals you're working on and how they flow from there into backlog and revenues?

Sure. Go ahead, Sanjay.

So the PS is basically the projects that we're working on to take new SOPs, new startup production of cars which will basically give us revenue in 2020, 2021, 2022, right, onwards. So there are projects basically over the next – which will go into SOP over the next three years and basically it can contribute to revenue starting next year but all the way for five to seven years ahead of us. The acceleration that we see here and frankly speaking this was a big focus area because we need the headcount and so on and so forth to basically support it. And right now, there's a lot of focus here to kind of make sure that we do this well because – and there is acceleration happening on the PS side which will obviously contribute towards revenue, like I said, in the coming one to six, seven years basically.

Okay. And then back to the development side for a second. Obviously, independence from Nuance really allows you to dial in and focus. Just can you talk about development and structurally what's changing in terms of how that organization is aligned? Obviously, one of the benefits here is potentially accelerated flow of very targeted product. You control all the knobs and dials, if you will, in development but just talk about what's been done and what is to be done yet within development to really get the full power out of that organization?

Yes. That's a very important question. So thank you for that. We're a tech company and product and part of roadmap is what's core to us and innovation around our products is what's the key focus? In my first 60 days with the team, I have spent a lot of time with our product management team and our R&D team as well and customers to basically kind of refine our roadmap. Firstly, we looked at kind of consolidating a lot of our development projects into what is core to our business. We had a number of kind of fragmented initiatives in R&D and that happens, right, with a company our size and with the number of OEM engagements, you kind of tend to get a bit fragmented. So one of the key thing was to kind of bring all of these various different projects under one ASR, one MLU, one cloud and so on and so forth to kind of improve the richness and the roadmap of our core technology. We then went through and kind of prioritized the top 10 new products that we would be working on. And these were basically – these products fall into the two categories that I mentioned earlier. One is basically increasing the revenue per car and the second one has kind of been to monetize the life of the car. And we assigned resources to these kind of 10 different programs internally. And you will start seeing kind of product announcements around these in the coming weeks and months as we make progress and as we get closer to kind of beta [ph] or shipping some of these products for our customers. The core focus for us is we have a fairly decent R&D spend which I don't plan to change drastically. If anything, we're kind of trying to make sure that the R&D productivity improves for the same or better spend rather than kind of changing the spend in any given way. And with that, we plan to kind of bring out some of these products, new capabilities.

That’s helpful. Thanks a lot. I appreciate it.

Thank you. [Operator Instructions]. Our next question comes from the line of Kevin Kumar with Goldman Sachs.

Hi. Thanks for taking my question. Maybe one on your 2020 guidance. I guess, how are you thinking about your level of growth investments and maybe kind of pace of hiring across R&D and sales and marketing as you increasingly shift focus towards cloud connected services?

Yes, so in terms of our growth for R&D, on a dollar basis you may see that grow year-over-year but on a percent of revenue basis we think that it’s going to be plateauing in fiscal year '20. And as Sanjay had alluded to earlier, we do plan to look at opportunities to deliver some of our R&D as well as some of our services in a more efficient manner. So we are looking at methods of delivery, locations of specific engineers and opening up locations in lower-cost regions. So that's sort of at a high level what we're looking at for fiscal year '20 as it relates to R&D and that I believe is going to enable us to continue to fuel the growth of the top line without seeing any sort of margin erosion as it relates to our gross margins or operating margins.

You asked sales and marketing as well. We think our sales and marketing is well funded. Don't plan any major changes in 2020. We're well resourced in terms of our quota-carrying sales guys. I reviewed it personally with our head of sales in our SOP, well resourced there as well. Small tweaks here and there, nothing major. Our biggest headcount addition that we're making right now is on professional services. As I said earlier, we're seeing a huge demand for getting some of these SOPs done for our customers in the coming one to two years. And to support, the PS team is where most of the headcount growth is.

Great. Thanks for the color.

Thank you. And our next question comes from the line of Scott Sullivan with Raymond James.

Hi. Thanks for taking my call. Wondering if – and I apologize if you've gone over this, I jumped on a little late. Wonder if you could speak to the TAM and competitors in China.

So the – I don't have the actual breakdown of the TAM from a China standpoint. I think you're basically saying is the question around TAM China specifically?

Correct.

Let me start with the competitive landscape and then we can – also Mark can see if he can pull out some TAM information there. On the competitive side, there is one company that we compete with in China. It's a publicly listed company called iFlytek. Having said that, we have won against them almost fairly globally in the Chinese market. There was one major design that we had the first generation. We lost the second generation to them, but we have one that same OEM back in the third generation. So our product performance and so on and so forth basically kind of exceeds theirs. And as a result we have pretty much all the major design wins in China if you look at the big OEMs like [indiscernible] or Geely or others who are working with us. In terms of TAM, the Chinese new car market is sitting at somewhat into 26 million, 27 million cars a year. The adoption rate for voice as compared to kind of the western cars is slightly lower right now, but it's growing very rapidly. And also there is a demand for low-cost products where there is no head unit, but all the capabilities of a connected car is delivered through voice. And that's the reason we launched this new product called Cerence ARK, right, which is initially available only for Chinese market. And the whole rationale behind that product basically is that you can do a full-blown head unit functions and capabilities with a very kind of fast deployment using all with voice and you don't need a complicated kind of head unit, software development and so on and so forth for that. So net-net, there is – the TAM is growing for us in China and we expect China contribution as overall revenue to grow in our 2020 plan. Having said that, Mark, I don't know if you have the exact TAM numbers handy? If not, we can take an action to send it to Scott separately.

Yes. So, Sanjay, we don't have a specific breakdown of the TAM for the China market. However, consistent with what you've mentioned before, it is a very key strategic region for us given the fact that there are so many cars that are either sold or manufactured into China. It's representing about 25% plus of the worldwide automobile sales. And so as a result of that, we do have a significant presence in China. We have well over 200 engineers that we have invested in to address that market. And so we do believe that that's going to be key region for us and for the industry in the future. And that's why we've made some substantial investments.

That's really helpful. I appreciate it. Can you speak to any IP protection issues?

Go ahead, Sanjay.

Mark, after you.

Yes, I was going to say that that IP is always a valid concern. We do have specific agreements in place and contracts in place. But at the end of the day, we need to make sure that we protect the source code and the technology which is not going to be resident in China. So that's the key for us to make sure that we protect ourselves from that point of view. And Sanjay, I don't know if you wanted to add more to that.

Well, I think we have operated in China for very long time, so it's six, seven years now, right, and we have not had any IP violations as a company. We have strict protection mechanisms in place where employees are expected to work within the premises, those who have access into the core technology and all of our employees understand how important it is to protect our IP, not just the Chinese employees, the worldwide employees of Cerence. So no major concerns. We continued to do key innovations in North America, in Europe and in China.

That's very helpful as well. Thanks. One last question, if I may. Could you speak to 5G adoption globally and if that's relevant and speeds relative to orders, speeds of adoption?

So 5G is important to us, although we're not totally dependent on 5G because voice as you know doesn't use very high bandwidth. Video does, but voice doesn't. Latency is important, right, obviously. So 5G definitely helps with latency reduction and so on. But in general, faster than our bandwidth is always good for Connected Services, right? So as we said in our prepared remarks that we see the Connected Services being a key growth driver, I think the more and faster connectivity we have, the better it is obviously to deliver those services to in fact the car. We see 2020 and beyond kind of as the key kind of adoption for 5G, China leading that as you know, right? And we continue to participate on that 5G adoption.

Fantastic. Congratulations.

Thank you.

Thank you. That is all the time we have today for questions. I will now turn the call back over to Rich Yerganian for closing remarks.

Thank you, Andrew, and thank you to everyone for joining us on the call today. We will look forward to seeing you in upcoming investor events. Thank you very much and have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect.