Jeff Van Rhee: Okay. Great. Thank you.
Operator: Thank you. Our next question comes from Chris McNally with Evercore ISI. Your line is open.
Chris McNally: Thanks so much, team. I appreciate all the numbers. So, I wanted to step back and follow up a little bit to Colin’s question and if we understand pulling out the transportation adjacencies and non-transportation. We looked at the old multi-year plan and I guess the core auto number for 2026 was $458 million within the $515 million. So that would be sort of the basis for translating into your 2027 number, which is closer to $400 million. Can we do that walk? So I guess some of it is fixed going from 40 to 20. But is it fair to say that there’s also some backlog to revenue conversion even within core auto?
Stefan Ortmanns: I don’t think it’s so much the backlog conversion, although I think one of the things that we’ve done this year is, we’ve continued to strengthen our insights into kind of all of our deals and how they roll out. That’s why we provided the visibility chart on both embedded in and connected on the auto side and trying to break out the deals that are in production, the deals that will be SOP-ed but we’ve already won the business and then what contribution we need from new bookings and new deals over the next couple of years depending on what periods you’re looking at. And then as we said I think besides the prepay and the twettle (ph) again depending on which year you’re looking at, most of it is reflective of the focus strategy on the technology roadmap and the product offerings that Nils talked about.
Chris McNally: Okay, because I think the one that we wanted to — the one slide down on Slide 24, the connected services ramp, and I think, appreciate you provide this ex-Toyota. But if I look at the endpoint, 2027, it looks like $80 million, roughly down from under $50 million today. I think there was an expectation of a bigger hockey stick on the connected, versus sort of a 5%, 6% sort of CAGR. Can you walk through, connected, at one point I think there was a $130 million, $140 million guide on connected and the out years clean of Toyota. Just the trajectory of those launches is a lot of the billings that you’re receiving now for connected outside of the forecast window, meaning, coming even later than 2027?
Stefan Ortmanns: Yeah. It’s a bit of that, but it’s also, as I said, I think it’s better visibility into how these programs are ramping. Some of the OEMs have changed how they’re rolling this step out. It’s not that we’ve lost the deals, it’s just how they’re rolling some of these bigger programs out across their model lines. And we have really high confidence in this multi-year target number. I mean, we still have a lot to deliver, but I think we’re really confident about the ability to get this kind of 10% plus overall growth in the out years here as presented.
Chris McNally: Okay. Appreciate it, team.
Operator: Thank you. Our next question comes from Jeff Osborne with TD Cowen. Your line is open.
Q – Jeffrey Osborne: Hey, good morning. Tom, I was wondering if you could flesh out the EBITDA impact to Toyota. You went through a lot on the revenue line, but between the moving pieces, what’s the flow-through, in particular in fiscal ’25, the impact looks pretty substantial. Is there other variables that perhaps I’m not thinking of?
Tom Beaudoin: No. I think as I said to Jeff Van Rhee, you can pretty much assume that most of the revenue is at high 90% gross margin, and that’s why you see some of the impact from some of the previous models to today. But we still end up with pretty strong mid-70s overall gross margins on the business. There was a few million dollars of deferred cost associated with that, that will all get accelerated into Q1 along with the revenue. But that was a very, very kind of high margin business. And again, with no cash because the cash was collected previously, and of course, the expenses were more on a deferred basis. So the cash associated with those came previously too.
Jeffrey Osborne: Got it. And just two other quick ones. With the move from $40 million to $20 million on the license side, is there any risk to the OEMs accepting that or have you already had conversations with them?
Tom Beaudoin: Well, if you recall, prepaid contracts are never done with OEMs. They’re done with a small group of customers, predominantly in Japan and Korea, and they’re also done on programs that are in production, right? And so they’re really used as a cost savings initiative for those Tier 1s. And just from a business standpoint, we just think it’s the right thing for Cerence to try to continue to minimize the discounts that we have to give associated with those. And as we’ve talked about, what’s happened over the years is that more and more, the decision-making process is driven by the OEMs. They may ask us to contract through the Tier 1s. But the driver of our business these days is almost exclusively with the OEM. So we think there’s minimal risk to continuing to try to limit the amount of those that we did.
That being said, it’s kind of a weaning off process. So, as we said last year, we didn’t go to zero. This year, we’re trying to take it down by half and we’ll see how it goes in future years.
