Nuance Announces Third Quarter Fiscal 2014 Results

BURLINGTON, Mass., – August 11, 2014 – Nuance Communications, Inc. today announced financial results for the third quarter of fiscal 2014, ended June 30, 2014. In the third quarter of fiscal 2014, Nuance reported GAAP revenue of $475.5 million, compared to $469.8 million in the third quarter of fiscal 2013. 

Nuance reported non GAAP revenue of $486.8 million, which includes $11.3 million in revenue lost to accounting treatment in conjunction with acquisitions, compared to $490.8 million in the third quarter of fiscal 2013. In the third quarter of fiscal 2014, Nuance reported bookings of $547.0 million, up 16.7% from $468.8 million in the third quarter of fiscal 2013. Year-to-date, Nuance reported bookings of $1,822.4 million, up 28.4% from $1,418.8 million through the first three quarters of fiscal 2013.

In the third quarter of fiscal 2014, Nuance recognized GAAP net loss of $(54.2) million, or $(0.17) per share, compared with GAAP net loss of $(35.0) million, or $(0.11) per share, in the third quarter of fiscal 2013. In the third quarter of fiscal 2014, Nuance reported non-GAAP net income of $87.6 million, or $0.27 per diluted share, compared to non-GAAP net income of $109.5 million, or $0.34 per diluted share, in the third quarter of fiscal 2013. Nuance’s third quarter fiscal 2014 non GAAP operating margin was 23.5%, down from 28.1% in the third quarter of fiscal 2013. Nuance reported cash flow from operations of $97.0 million in the third quarter of fiscal 2014, up 13.5% compared to $85.5 million in the third quarter of fiscal 2013. Nuance ended the third quarter of fiscal 2014 with total deferred revenue of $523.4 million, up 32.0% compared to $396.5 million a year ago. Nuance ended the third quarter of fiscal 2014 with a balance of cash, cash equivalents and marketable securities of $888.5 million.

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.

Third Quarter and Year-to-Date Highlights

In the third quarter of fiscal 2014, Nuance delivered year-over-year bookings growth of 17% and deferred revenue growth of 32%. Through the first three quarters of the fiscal year, total bookings have grown 28%, exceeding guidance, and the growth rate for on-demand bookings was materially higher. Bookings strength in the quarter was led by healthcare on-demand, Dragon Medical, automotive, Enterprise OnDemand and MFP printing solutions.

In the third fiscal quarter of fiscal 2014, GAAP and non-GAAP revenue were each slightly below the Company’s guidance range. Revenue was strong for Nuance’s Dragon Medical, Diagnostics, automotive and Enterprise OnDemand solutions, but this strength was outweighed by faster than expected transition in the revenue model, lower than expected contribution from acquisitions and underperformance in the Imaging business unit.

Performance in the third quarter of fiscal 2014, includes:

• Total recurring revenue grew 12% year-over-year and represented 65% of total revenue.
• On-demand revenue exceeded product and licensing revenue for the first time.
• On demand revenue grew 12% year-over-year and 11% year to date compared to the first three quarters of fiscal 2013.
• Year to date on-demand revenue represented 36% of total revenue, compared to 32% through the first three quarters of fiscal 2013.
• Maintenance and support revenue grew 11% year-over-year in Q3 14 and 11% year to date compared to the first three quarters of fiscal 2013.
• Year to date maintenance and support revenue represented 15% of total revenue, compared to 14% through the first three quarters of fiscal 2013.
• Product and licensing revenue declined 15% year-over-year in Q3 14 and 12% year to date compared to the first three quarters of fiscal 2013.
• Year to date product and licensing revenue represented 37% of total revenue, compared to 42% of revenue through the first three quarters of fiscal 2013.
• Nuance delivered EPS at the midpoint of its guidance range despite the underperformance in revenue and as a result of cost reductions and expense control.

Operating cash flow as a percentage of non-GAAP net income was 111% in Q3 14 and was 104% through the first three quarters of FY 14. Our operating cash flow continued to benefit from the positive cash flow characteristics of our increasing recurring revenue models.

“Our third quarter results balanced strong bookings, deferred revenue, cash flow and EPS with revenue that was just below our guidance range. These results reflect continued progress in key markets, a continuing shift to recurring revenue streams and additional focus on expense control. Our bookings and deferred revenue growth are evidence that we are on the right trajectory for a return to growth,” said Tom Beaudoin, Nuance CFO.

Highlights from the quarter include:

Healthcare – For Nuance’s healthcare solutions, third quarter fiscal 2014 non-GAAP revenue was $240.1 million. Key healthcare customers included Adventist Hospital, Barnabas Health, Community Hospital East, Dolbey Systems, Eastern, Erie County Medical Center, Froedert Health, Howard University Hospital, Integris, Memorial, Peace Health, Springfield Clinic, University of North Carolina, and University of Washington.

Mobile & Consumer – For Nuance’s mobile and consumer solutions, third quarter fiscal 2014 non-GAAP revenue was $109.2 million. Key mobile customers included AT&T, BlackBerry, Delphi, Desay, Ford, GM, Honda, Hyundai, Kyocera, Motorola, Renault, Samsung, Sasktel, Subaru, Suzuki, Teltech, Toyota, Visteon, West, Yangfeng and YouMail.

Enterprise – For Nuance’s enterprise solutions, third quarter fiscal 2014 non-GAAP revenue was $85.1 million. Key enterprise customers included Amtrak, AT&T, Bank of America, Barclays, BNY Mellon, CSAA, Deutsche Telekom, DHS, DTE Energy, ICICI Bank, OnStar, Optus, PSCU, PHH, Swedbank and Telecom Italia.

Imaging – For Nuance’s document imaging solutions, third quarter fiscal 2014 non-GAAP revenue was $52.4 million. Key imaging customers included BP, Central Asia Bank, Dorsey, Fuji Xerox, HP, Lexmark, Marsh McLennan and Staples.