Nuance Posts Q3 2015 Revenue Growth Fueled by Continued Success in Healthcare

robert palmerby Robert Palmer | 8/13/15

On August 6, Nuance announced its Q3 2015 earnings. Bolstered by continued strong performance in its Healthcare segment, the software company reported GAAP revenue of $477.9 million, up from $475.5 million in the year-ago quarter.  On a non-GAAP basis, Nuance reported revenue of $488.7 million, compared with 486.8 million in Q3 2014. Like most everyone these days, Nuance cited currency fluctuations as having a particularly negative impact on revenues. Indeed, the company noted that, if Q3 2014 currency rates were applied to its Q3 2015 revenue, Q3 2015 revenue would have been approximately $17 million higher.

Nuance reported a net loss of $39.4 million, compared with a net loss of $54.2 million in the year-ago period. On a non-GAAP basis, however, Nuance exceeded expectations with net income of $101.1 million in Q3 2015, up from $87.6 million in the year-ago quarter. The Healthcare segment continues to account for the lion’s share of Nuance total revenue. The firm reported Q3 revenue of $236.8 million from the Healthcare segment, down from $240.1 million in Q3 2015.

“Nuance delivered revenue and EPS that exceeded our non-GAAP guidance ranges, and net new bookings that have us on track to our full fiscal year guidance,” said Dan Tempesta, Nuance CFO. “Last quarter, we announced a formal transformation program with a goal of delivering $125 million in annualized expense reductions by the end of fiscal 2016. Actions taken to date under that program are expected to deliver $50 million in annualized expense reductions and contributed to improved third quarter EPS, operating margin and operating cash flow.”

Net new bookings in Q3 15 were $484.4 million, up 47 percent compared to $330.4 million in the year-ago quarter. Nuance attributed growth in new bookings to several unusually large contracts in its automotive business as well as robust bookings performance in the Healthcare segment.

For more on Nuance’s latest earnings announcement, see press release here.

Our Take

Nuance has demonstrated improved earnings results for the past few quarters and the market is taking notice. The firm’s stock price rose to a 52-week high as of August 7 before leveling off. The Healthcare business now accounts for almost half of total revenue and continues to be Nuance’s most critical business segment. Nuance offers a broad range of solutions and services for the Healthcare industry, including on-demand transcription services, Clintegrity, Dragon Medical, and diagnostics solutions. Nuance says that customer transactions in the Healthcare segment often include multiple offerings.

While Nuance’s Mobile and Consumer business segment continues to perform well, it is not seeing the kind of growth some analysts had projected. Widely known for its Dragon speech recognition software, Nuance has been on the leading edge of voice recognition technology and its solutions are used in numerous markets, including smart phones and automobiles. Nuance’s Imaging segment also continues to show good growth, although from a revenue perspective it is a much smaller piece of the firm’s overall business.

Nuance has also worked to transition to a recurring revenue model. On a non-GAAP basis, recurring revenue increased from approximately 52 percent of total non-GAAP revenue in fiscal year 2012 to 68 percent of total revenue in Q3 2015. Nuance believes that the transition to recurring revenue models will challenge near-term growth for total revenue, but will ultimately improve the predictability and overall growth of its revenue streams. Investors are likely to embrace an increased level of predictability given Nuance’s historic strategy of growth-by-acquisition.

Nuance is also taking significant steps to streamline operations in an effort to further drive earnings growth. During Q3 2015, the firm began a formal transformation program designed to improve revenue growth and reduce costs by $125 million on an annualized basis by the end of fiscal 2016.

Robert Palmer is chief analyst and a managing partner for BPO Media, which publishes The Imaging Channel and Workflow magazines. As a market analyst and industry consultant, Palmer has more than 25 years experience in the imaging industry covering technology and business sectors for prominent market research firms such as Lyra Research and InfoTrends. Palmer is a popular speaker and he presents regularly at industry conferences and trade events in the U.S., Europe, and Japan. He is also active in a variety of imaging industry forums and currently serves on the board of directors for the Managed Print Services Association (MPSA).