Nuance Announces First Quarter Fiscal 2010 Results
Nuance Communications, Inc. (NUAN) today announced financial
results for its first quarter of fiscal 2010, ended December 31, 2009.
Nuance reported GAAP revenue of $263.0 million in the first quarter of
fiscal 2010, a 21.3% increase over GAAP revenue of $216.8 million in the
first quarter of fiscal 2009. The Company reported non-GAAP revenue of
approximately $284.6 million, which includes $21.6 million in revenue
lost to accounting treatment in conjunction with the Company’s
acquisitions. First quarter fiscal 2010 non-GAAP revenue grew
approximately 16.4% over non-GAAP revenue of $244.4 million in the same
quarter last year.
In the first quarter of fiscal 2010, Nuance recognized a GAAP net loss
of ($4.3) million, or ($0.02) per diluted share, compared with a GAAP
net loss of ($26.3) million, or ($0.11) per diluted share, in the first
quarter of fiscal 2009. In the first quarter of fiscal 2010, Nuance
reported non-GAAP net income of $84.3 million, or $0.29 per diluted
share, compared to non-GAAP net income of $61.0 million, or $0.24 per
diluted share, in the first quarter of fiscal 2009. Nuance benefited
from accelerated revenue growth as well as focus on expense controls and
synergies from recent acquisitions to significantly improve operating
margin, despite increased investments in the business. For the first
quarter of fiscal 2010, non-GAAP operating margin rose to 32.6%,
compared to 28.8% in the first quarter of fiscal 2009. Nuance reported
cash flow from operations of $65.1 million in the first quarter of
fiscal 2010, compared to $80.8 million in first quarter of fiscal 2009.
Please refer to the "Discussion of Non-GAAP Financial Measures" and to
the "GAAP to Non-GAAP Reconciliations," included elsewhere in this
release, for more information regarding the company’s use of non-GAAP
measures.
"Nuance achieved increased revenue growth in the quarter, enabled by
stronger performance across all of its business lines. In the quarter,
operating margins improved year over year, even as we increased
investments in R&D, advertising and sales personnel" said Paul Ricci,
chairman and CEO of Nuance. "Our first quarter performance, on-going
investments in sales, channels and products, and our leadership position
in key markets position Nuance for sustained growth for the balance of
fiscal 2010."
Highlights from the quarter include:
--
Healthcare-Dictation -- For Nuance’s healthcare and dictation
solutions, first quarter non-GAAP revenue was $121.2 million, up 6.3%,
as reported, from the same quarter last year. During the first
quarter, new bookings included large eScription, Dragon Medical and
radiology contracts. Key customers included Alta Pacs, Blue Ridge
Medical Center, Carondelet Health Systems, DeKalb Medical, Hospital
Sisters Health System, Memorial Medical Center, Montefiore, Ohio State
University, Oklahoma State University, Tenet, Trinity Health,
University of Texas MD Anderson Cancer Center, and Valley Baptist
Health System.
--
Mobile-Enterprise -- For Nuance’s enterprise and mobile
solutions, first quarter non-GAAP revenue was $127.6 million, up
12.5%, as reported, from the same quarter last year. Key customers,
new bookings or design wins in the quarter included Amazon, AT&T, BMW,
CIBC, Citi, Comcast, Commonwealth of Massachusetts, Daimler, Datacom,
Dell, Den Norske Bank, Duke Energy, Etisalat, Harley-Davidson, Harman
Becker, Huawei, Hyundai, Kaiser, LG Electronics, Lloyds TSB, Mahindra
& Mahindra, Medion, Metrobank, MetroPCS, Motorola, Nokia, PayPal,
Prudential, Samsung, Scotia Bank, Sharp, Sony Ericsson, SunTrust, TCF
Bank, T-Mobile, TomTom, Toyota, UnitedHealthcare Group, Verizon, and
WellPoint.
--
Imaging -- For Nuance’s PDF and document imaging solutions,
first quarter non-GAAP revenue was $35.8 million, up 111%, as
reported, from the same quarter last year, primarily due to
contributions from eCopy. Nuance achieved key first quarter design
wins with Caixa, Canon, Corel, IKON, and Visioneer.
Conference Call and Prepared Remarks
Nuance is providing a copy of prepared remarks in combination with its
press release. These remarks are offered to provide shareholders and
analysts with additional time and detail for analyzing results in
advance of the Company’s quarterly conference call. The remarks will be
available at www.nuance.com/earningsresults
in conjunction with the press release.
As previously scheduled, the conference call will begin today, February
8, 2010 at 5:00 pm ET and will include only brief comments followed by
questions and answers. The prepared remarks will not be read on the
call. To access the live broadcast, please visit the Investor Relations
section of Nuance’s Website at www.nuance.com.
The call can also be heard by dialing (800) 230-1074 or (612) 288-0329
at least five minutes prior to the call and referencing conference code
144863. A replay will be available within 24 hours of the announcement
by dialing (800) 475-6701 or (320) 365-3844 and using the access code
144863.
About Nuance Communications, Inc
Nuance Communications, Inc. (NUAN) is a leading provider of
speech and imaging solutions for businesses and consumers around the
world. Its technologies, applications and services make the user
experience more compelling by transforming the way people interact with
information and how they create, share and use documents. Every day,
millions of users and thousands of businesses experience Nuance’s proven
applications. For more information, please visit www.nuance.com.
Trademark reference: Nuance, the Nuance logo, Dragon Medical and
eScription are registered trademarks or trademarks of Nuance
Communications, Inc. or its affiliates in the United States and/or other
countries. All other trademarks referenced herein are the property of
their respective owners.
Safe Harbor and Forward-Looking Statements
Statements in this document regarding the economic environment, our
plans for fiscal 2010 and Nuance managements’ future expectations,
beliefs, goals, plans or prospects constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995. Any statements that are not statements of historical fact
(including statements containing the words "believes," "plans,"
"anticipates," "expects," or "estimates" or similar expressions) should
also be considered to be forward-looking statements. There are a number
of important factors that could cause actual results or events to differ
materially from those indicated by such forward-looking statements,
including: fluctuations in demand for Nuance’s existing and future
products; economic conditions in the United States and abroad; Nuance’s
ability to control and successfully manage its expenses and cash
position; the effects of competition, including pricing pressure;
possible defects in Nuance’s products and technologies; the ability of
Nuance to successfully integrate operations and employees of acquired
businesses; the ability to realize anticipated synergies from acquired
businesses; and the other factors described in Nuance’s annual report on
Form 10-K for the fiscal year ended September 30, 2009 and Nuance’s
quarterly reports on Form 10-Q filed with the Securities and Exchange
Commission. Nuance disclaims any obligation to update any
forward-looking statements as a result of developments occurring after
the date of this document.
The information included in this press release should not be viewed as a
substitute for full GAAP financial statements.
Discussion of Non-GAAP Financial Measures
Management utilizes a number of different financial measures, both GAAP
and non-GAAP, in analyzing and assessing the overall performance of the
business, for making operating decisions and for forecasting and
planning for future periods. Our annual financial plan is prepared both
on a GAAP and non-GAAP basis, and the non-GAAP annual financial plan is
approved by our board of directors. Continuous budgeting and forecasting
for revenue and expenses are conducted on a consistent non-GAAP basis
(in addition to GAAP) and actual results on a non-GAAP basis are
assessed against the annual financial plan. The board of directors and
management utilize these non-GAAP measures and results (in addition to
the GAAP results) to determine our allocation of resources. In addition
and as a consequence of the importance of these measures in managing the
business, we use non-GAAP measures and results in the evaluation process
to establish management’s compensation. For example, our annual bonus
program payments are based upon the achievement of consolidated non-GAAP
revenue and consolidated non-GAAP earnings per share financial targets.
We consider the use of non-GAAP revenue helpful in understanding the
performance of our business, as it excludes the purchase accounting
impact on acquired deferred revenue and other acquisition-related
adjustments to revenue. We also consider the use of non-GAAP earnings
per share helpful in assessing the organic performance of the continuing
operations of our business. By organic performance we mean performance
as if we had owned an acquired asset in the same period a year ago. By
continuing operations we mean the ongoing results of the business
excluding certain unplanned costs. While our management uses these
non-GAAP financial measures as a tool to enhance their understanding of
certain aspects of our financial performance, our management does not
consider these measures to be a substitute for, or superior to, the
information provided by GAAP revenue and earnings per share. Consistent
with this approach, we believe that disclosing non-GAAP revenue and
non-GAAP earnings per share to the readers of our financial statements
provides such readers with useful supplemental data that, while not a
substitute for GAAP revenue and earnings per share, allows for greater
transparency in the review of our financial and operational performance.
In assessing the overall health of the business during the three months
ended December 31, 2009 and 2008, and, in particular, in evaluating our
revenue and earnings per share, our management has either included or
excluded items in six general categories, each of which are described
below.
Acquisition-Related Revenue and Cost of Revenue.
The Company provides supplementary non-GAAP financial measures of
revenue, which include revenue related to acquisitions, primarily from
eCopy and Zi for the three months ended December 31, 2009, that would
otherwise have been recognized but for the purchase accounting treatment
of these transactions. Non-GAAP revenue also includes revenue that the
Company would have otherwise recognized had the Company not acquired
intellectual property and other assets from the same customer during the
same quarter. Because GAAP accounting requires the elimination of this
revenue, GAAP results alone do not fully capture all of the Company’s
economic activities. These non-GAAP adjustments are intended to reflect
the full amount of such revenue. The Company includes non-GAAP revenue
and cost of revenue to allow for more complete comparisons to the
financial results of historical operations, forward-looking guidance and
the financial results of peer companies. The Company believes these
adjustments are useful to management and investors as a measure of the
ongoing performance of the business because, although we cannot be
certain that customers will renew their contracts, the Company
historically has experienced high renewal rates on maintenance and
support agreements and other customer contracts. Additionally, although
acquisition-related revenue adjustments are non-recurring with respect
to past acquisitions, the Company generally will incur these adjustments
in connection with any future acquisitions.
Acquisition-Related Costs, Net.
In recent years, the Company has completed a number of acquisitions,
which result in operating expenses which would not otherwise have been
incurred. The Company provides supplementary non-GAAP financial
measures, which exclude certain transition, integration and other
acquisition-related expense items resulting from acquisitions, to allow
more accurate comparisons of the financial results to historical
operations, forward-looking guidance and the financial results of less
acquisitive peer companies. The Company considers these types of costs
and adjustments, to a great extent, to be unpredictable and dependent on
a significant number of factors that are outside of the control of the
Company. Furthermore, the Company does not consider these
acquisition-related costs and adjustments to be related to the organic
continuing operations of the acquired businesses and are generally not
relevant to assessing or estimating the long-term performance of the
acquired assets. In addition, the size complexity and/or volume of past
acquisitions, which often drives the magnitude of acquisition-related
costs, may not be indicative of the size, complexity and/or volume of
future acquisitions. By excluding acquisition-related costs and
adjustments from our non-GAAP measures, management is better able to
evaluate the Company’s ability to utilize its existing assets and
estimate the long-term value that acquired assets will generate for the
Company. The Company believes that providing a supplemental non-GAAP
measure which excludes these items allows management and investors to
consider the ongoing operations of the business both with, and without,
such expenses.
These acquisition-related costs are included in the following
categories: (i) transition and integration costs; (ii) professional
service fees; and (iii) acquisition-related adjustments. Although these
expenses are not recurring with respect to past acquisitions, the
Company generally will incur these expenses in connection with any
future acquisitions. These categories are further discussed as follows:
(i) Transition and integration costs. Transition and integration
costs include retention payments, transitional employee costs, earn-out
payments treated as compensation expense, as well as the costs of
integration-related services provided by third parties.
(ii) Professional service fees. Professional service fees include
direct costs of the acquisition, as well as post-acquisition legal and
other professional service fees associated with disputes and regulatory
matters related to acquired entities.
(iii) Acquisition-related adjustments. Acquisition-related
adjustments include adjustments to acquisition-related items that are
required to be marked to fair value each reporting period, such as
contingent consideration, and other items related to acquisitions for
which the measurement period has ended, such as gains or losses on
settlements of pre-acquisition contingencies.
Amortization of Acquired Intangible Assets.
The Company excludes the amortization of acquired intangible assets from
non-GAAP expense and income measures. These amounts are inconsistent in
amount and frequency and are significantly impacted by the timing and
size of acquisitions. Providing a supplemental measure which excludes
these charges allows management and investors to evaluate results
"as-if" the acquired intangible assets had been developed internally
rather than acquired and, therefore, provides a supplemental measure of
performance in which the Company’s acquired intellectual property is
treated in a comparable manner to its internally developed intellectual
property. Although the Company excludes amortization of acquired
intangible assets from its non-GAAP expenses, the Company believes that
it is important for investors to understand that such intangible assets
contribute to revenue generation. Amortization of intangible assets that
relate to past acquisitions will recur in future periods until such
intangible assets have been fully amortized. Future acquisitions may
result in the amortization of additional intangible assets.
Costs Associated with IP Collaboration Agreement.
In order to gain access to a third party’s extensive speech recognition
technology and research organization, Nuance has entered into a
five-year agreement to accelerate development of new speech
technologies. All intellectual property derived from the collaboration
will be jointly owned by the two parties, but Nuance will have sole
rights to commercialize this intellectual property during the term of
the agreement. For non-GAAP purposes, Nuance considers this long-term
contract and the resulting acquisition of intellectual property from
this third-party over the next five years to be an investing activity,
outside of its normal, organic, continuing operating activities, and is
therefore presenting this supplemental information to show the results
excluding this expense. Nuance does not exclude from its non-GAAP
results the corresponding revenue, if any, generated from the
collaboration efforts. Although the Company’s bonus program and other
performance-based incentives for executives are based on the non-GAAP
results that exclude these costs, certain engineering senior management
are responsible for execution and results of the collaboration agreement
and have incentives based on those results.
Non-Cash Expenses.
The Company provides non-GAAP information relative to the following
non-cash expenses: (i) stock-based compensation; (ii) certain accrued
interest; and (iii) certain accrued income taxes. These items are
further discussed as follows:
(i) Stock-based compensation. Because of varying available
valuation methodologies, subjective assumptions and the variety of award
types, the Company believes that the exclusion of stock-based
compensation allows for more accurate comparisons of operating results
to peer companies, as well as to times in the Company’s history when
stock-based compensation was more or less significant as a portion of
overall compensation than in the current period. The Company evaluates
performance both with and without these measures because compensation
expense related to stock-based compensation is typically non-cash and
the options and restricted awards granted are influenced by the
Company’s stock price and other factors such as volatility that are
beyond the Company’s control. The expense related to stock-based awards
is generally not controllable in the short-term and can vary
significantly based on the timing, size and nature of awards granted. As
such, the Company does not include such charges in operating plans.
Stock-based compensation will continue in future periods.
(ii and iii) Certain accrued interest and income taxes. The
Company also excludes certain accrued interest and certain accrued
income taxes because the Company believes that excluding these non-cash
expenses provides senior management, as well as other users of the
financial statements, with a valuable perspective on the cash-based
performance and health of the business, including the current near-term
projected liquidity. These non-cash expenses will continue in future
periods.
Other Expenses.
The Company excludes certain other expenses that are the result of
unplanned events to measure operating performance and current and future
liquidity both with and without these expenses; and therefore, by
providing this information, the Company believes management and the
users of the financial statements are better able to understand the
financial results of what the Company considers to be its organic,
continuing operations. Included in these expenses are items such as
non-acquisition-related restructuring, asset impairments and other
charges (credits), net. These events are unplanned and arose outside of
the ordinary course of continuing operations. These items also include
adjustments from changes in fair value of share-based instruments
relating to the issuance of our common stock with security price
guarantees payable in cash.
The Company believes that providing the non-GAAP information to
investors, in addition to the GAAP presentation, allows investors to
view the financial results in the way management views the operating
results. The Company further believes that providing this information
allows investors to not only better understand the Company’s financial
performance, but more importantly, to evaluate the efficacy of the
methodology and information used by management to evaluate and measure
such performance.
Nuance Communications, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
Unaudited
Three months ended
December 31,
2009 2008
Revenue:
Product and licensing $ 113,227 $ 85,575
Professional services and hosting 103,695 90,192
Maintenance and support 46,055 41,067
Total revenue 262,977 216,834
Cost of revenue:
Product and licensing 12,591 8,757
Professional services and hosting 61,996 58,482
Maintenance and support 7,990 7,043
Amortization of intangible assets 11,018 8,018
Total cost of revenue 93,595 82,300
Gross profit 169,382 134,534
Operating expenses:
Research and development 36,950 30,550
Sales and marketing 65,562 60,474
General and administrative 27,451 25,589
Amortization of intangible assets 22,126 17,348
Acquisition-related costs, net 12,805 5,903
Restructuring and other charges, net 615 2,098
Total operating expenses 165,509 141,962
Income (loss) from operations 3,873 (7,428 )
Other expense, net (7,811 ) (7,279 )
Loss before income taxes (3,938 ) (14,707 )
Provision for income taxes 340 11,611
Net loss $ (4,278 ) $ (26,318 )
Net loss per share:
Basic and diluted $ (0.02 ) $ (0.11 )
Weighted average common shares outstanding:
Basic and diluted 279,068 236,237
Financial statements as of December 31, 2008 have been adjusted
for the retrospective
application of FASB ASC 470-20.
Nuance Communications, Inc.
Supplemental Financial Information - GAAP to Non-GAAP Reconciliations
(in thousands, except per share amounts)
Unaudited
Three months ended
December 31,
2009 2008
GAAP revenue $ 262,977 $ 216,834
Acquisition-related revenue adjustments: product and licensing 16,992 24,800
Acquisition-related revenue adjustments: professional services and 837 1,240
hosting
Acquisition-related revenue adjustments: maintenance and support 3,793 1,569
Non-GAAP revenue $ 284,599 $ 244,443
GAAP cost of revenue $ 93,595 $ 82,300
Cost of revenue from amortization of intangible assets (11,018 ) (8,018 )
Cost of revenue adjustments: product and licensing (1,2) 3,177 (6 )
Cost of revenue adjustments: professional services and hosting (1,2) (2,437 ) (1,656 )
Cost of revenue adjustments: maintenance and support (1,2) (215 ) (86 )
Non-GAAP cost of revenue $ 83,102 $ 72,534
GAAP gross profit $ 169,382 $ 134,534
Gross profit adjustments (1,2) 32,115 37,375
Non-GAAP gross profit $ 201,497 $ 171,909
GAAP income (loss) from operations $ 3,873 $ (7,428 )
Gross profit adjustments (1,2) 32,115 37,375
Research and development (1) 2,030 2,690
Sales and marketing (1) 8,519 7,331
General and administrative (1) 6,645 5,034
Amortization of intangible assets 22,126 17,348
Costs related to research and development collaborative agreement 4,000 -
Acquisition-related costs, net 12,805 5,903
Restructuring and other charges, net 615 2,098
Non-GAAP income from operations $ 92,728 $ 70,351
GAAP provision for income taxes $ 340 $ 11,611
Non-cash taxes 1,489 (6,311 )
Non-GAAP provision for income taxes $ 1,829 $ 5,300
GAAP net loss $ (4,278 ) $ (26,318 )
Acquisition-related adjustment - revenue (2) 21,622 27,609
Acquisition-related adjustment - cost of revenue (2) (3,397 ) (184 )
Acquisition-related costs, net 12,805 5,903
Cost of revenue from amortization of intangible assets 11,018 8,018
Amortization of intangible assets 22,126 17,348
Non-cash stock-based compensation (1) 20,066 16,987
Non-cash interest expense, net 3,279 3,213
Non-cash income taxes (1,489 ) 6,311
Costs from IP collaboration agreement 4,000 -
Change in fair value of share-based instruments (2,072 ) -
Restructuring and other charges, net 615 2,098
Non-GAAP net income $ 84,295 $ 60,985
Non-GAAP diluted net income per share $ 0.29 $ 0.24
Diluted weighted average common shares outstanding 294,711 255,004
Financial statements as of December 31, 2008 have been adjusted
for the retrospective
application of FASB ASC 470-20.
Nuance Communications, Inc.
Supplemental Financial Information - GAAP to Non-GAAP
Reconciliations, continued
(in thousands)
Unaudited
Three months ended
December 31,
2009 2008
(1) Non-Cash Stock-Based
Compensation
Cost of product and licensing $ 9 $ 2
Cost of professional services and hosting 2,648 1,780
Cost of maintenance and support 215 150
Research and development 2,030 2,690
Sales and marketing 8,519 7,331
General and administrative 6,645 5,034
Total $ 20,066 $ 16,987
(2) Acquisition-Related Revenue and
Cost of Revenue
Revenue $ 21,622 $ 27,609
Cost of product and licensing (3,186 ) 4
Cost of professional services and hosting (211 ) (124 )
Cost of maintenance and support - (64 )
Total $ 18,225 $ 27,425
Nuance Communications, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
Unaudited
ASSETS December 31, 2009 September 30, 2009
Current assets:
Cash and cash equivalents $ 426,902 $ 527,038
Accounts receivable and unbilled receivables, net 225,418 208,719
Inventories, net 7,946 8,525
Prepaid expenses and other current assets 58,122 51,545
Total current assets 718,388 795,827
Land, building and equipment, net 53,094 53,468
Goodwill 2,019,685 1,891,003
Intangible assets, net 723,730 706,805
Other assets 69,457 52,361
Total assets $ 3,584,354 $ 3,499,464
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and capital leases $ 7,985 $ 6,862
Contingent and deferred acquisition payments 10,838 91,431
Accounts payable and accrued expenses 247,570 164,393
Deferred and unearned revenue 142,654 144,395
Other short term liabilities 10,375 12,144
Total current liabilities 419,422 419,225
Long-term portion of debt and capital leases 849,291 848,898
Long-term deferred revenue 45,872 33,904
Other long term liabilities 148,119 154,436
Total liabilities 1,462,704 1,456,463
Stockholders’ equity 2,121,650 2,043,001
Total liabilities and stockholders’ equity $ 3,584,354 $ 3,499,464
Financial statements as of September 30, 2009 have been adjusted
for the retrospective
application of FASB ASC 470-20.
Nuance Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
Unaudited
Three months ended
December 31,
2009 2008
Cash flows from operating activities:
Net Loss $ (4,278 ) $ (26,318 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 38,230 29,936
Non-cash interest expense 3,279 3,159
Stock-based compensation 20,066 16,987
Gain on foreign currency forward contracts - (8,049 )
Deferred tax provision (311 ) 6,420
Other 691 1,602
Changes in operating assets and liabilities, net of effects from
acquisitions:
Accounts receivable (6,267 ) 22,735
Inventories 574 (766 )
Prepaid expenses and other assets (99 ) (4,698 )
Accounts payable (3,709 ) 21,883
Accrued expenses and other liabilities 7,403 10,878
Deferred revenue 9,473 6,993
Net cash provided by operating activities 65,052 80,762
Cash flows from investing activities:
Capital expenditures (2,756 ) (8,608 )
Payments for acquisitions, net of cash acquired (141,721 ) (37,353 )
Proceeds from maturities of marketable securities - 56
Payments for equity investment (14,970 ) (159 )
Payments for capitalized patent costs and licensing agreements - (50,000 )
Net cash used in investing activities (159,447 ) (96,064 )
Cash flows from financing activities:
Payments of debt and capital leases (1,740 ) (1,766 )
Purchases of treasury stock (387 ) (66 )
Payments of other long-term liabilities (2,256 ) (2,369 )
Proceeds from issuance of common stock from employee stock options 5,181 737
and purchase plan
Cash used to net share settle employee equity awards (7,229 ) (2,652 )
Net cash used in investing activities (6,431 ) (6,116 )
Effects of exchange rate changes on cash and cash equivalents 690 (763 )
Net decrease in cash and cash equivalents (100,136 ) (22,181 )
Cash and cash equivalents at beginning of period 527,038 261,540
Cash and cash equivalents at end of period $ 426,902 $ 239,359
Financial statements as of December 31, 2008 have been adjusted
for the retrospective
application of FASB ASC 470-20.
SOURCE: Nuance Communications
For Investors
Nuance Communications, Inc.
Kevin Faulkner, 408-992-6100
kevin.faulkner@nuance.com
or
For Press and Investors
Nuance Communications, Inc.
Richard Mack, 781-565-5000
richard.mack@nuance.com
