Nuance Announces Third Quarter Fiscal 2012 Results

Press release:

Strength in Mobile & Consumer Segment Delivers Growth in Revenue and Operating Cash Flow

BURLINGTON, Mass., August 7, 2012 – Nuance Communications, Inc. (NASDAQ: NUAN) today announced financial results for its third quarter of fiscal 2012, ended June 30, 2012.

Nuance reported GAAP revenue of $431.7 million in the third quarter of fiscal 2012, a 31.3% increase over GAAP revenue of $328.9 million in the third quarter of fiscal 2011.  Nuance reported non-GAAP revenue of $448.2 million, which includes $16.5 million in revenue lost to accounting treatment in conjunction with acquisitions.  Third quarter fiscal 2012 non-GAAP revenue grew 29.9% over non-GAAP revenue of $345.1 million in the same quarter last year.

In the third quarter of fiscal 2012, Nuance recognized GAAP net income of $79.3 million, or $0.25 per diluted share, compared with GAAP net income of $41.6 million, or $0.13 per diluted share, in the third quarter of fiscal 2011. In the third quarter of fiscal 2012, Nuance reported non-GAAP net income of $143.7 million, or $0.45 per diluted share, compared to non-GAAP net income of $111.2 million, or $0.35 per diluted share, in the third quarter of fiscal 2011. Nuance’s third quarter fiscal 2012 non-GAAP operating margin was 36.1%, up from 35.4% in the third quarter of fiscal 2011. Nuance reported cash flow from operations of $141.5 million in the third quarter of fiscal 2012, a 41.4% increase over $100.1 million in the third quarter of fiscal 2011. Nuance ended the third quarter of fiscal 2012 with a balance of cash and cash equivalents of $539.6 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.

“Nuance delivered 30% year-over-year revenue growth and 41% year-over-year operating cash flow growth,” said Tom Beaudoin, Nuance executive vice president and CFO. “We were pleased to see a strong performance in our Mobile & Consumer business, led by mobile phones, automobiles, televisions and other consumer electronics, as well as continued momentum in our Healthcare business. Across our markets, our ability to deliver voice and natural language systems that understand user intent, create conversational outcomes, and deliver answers to complex questions is driving design wins and unprecedented customer interest.”

In the third quarter of fiscal 2012, Nuance delivered 30% non-GAAP revenue growth, 29% non-GAAP net income growth and 41% operating cash flow growth, compared to the third quarter of fiscal 2011. Revenue growth was strongest in our Mobile & Consumer, Healthcare and Imaging markets, representing 42.2%, 32.4% and 32.7%, respectively. Revenue growth was broad based across revenue types. Mobile & Consumer revenue growth was driven by increased license revenue for mobile phones, automobiles, televisions and other consumer electronics, fees for access to cloud-based mobile services and professional services to support development of custom, next generation mobile applications, all of which offset lower Dragon revenue in advance of the July 2012 launch of Dragon NaturallySpeaking 12. Healthcare revenue growth was driven by the acquisition of Transcend as well as organically increased volume in Nuance’s on-demand business. Enterprise revenue growth was driven by increased on-premise license revenue from our acquisition of Loquendo, as well as professional services. Imaging revenue growth was driven by our acquisition of Equitrac as well as growth in embedded MFP solutions.

Across Nuance’s markets, customer interest in voice applications is increasing rapidly, resulting in solid on-demand bookings in the quarter. In particular, recently released virtual assistant capabilities resulted in handset, television and automobile bookings and design wins, including several contracts with telephone, automobile, television and consumer electronics OEMs. In addition, next-generation conversational and natural-language applications are driving demand and accelerated bookings for Nuance’s Healthcare and Enterprise businesses. On-demand bookings, led by Nuance’s Healthcare and Mobile & Consumer businesses, as well as the acquisition of Transcend, enabled 43% growth in the estimated 3-year value of on-demand contracts compared to the third quarter of fiscal 2011.

Highlights from the quarter include:

• Healthcare – For Nuance’s healthcare solutions, third quarter non-GAAP revenue was $184.5 million, up 32.4%, as reported, from the same quarter last year. During the third quarter, new bookings included large eScription, Dragon Medical and radiology contracts. Key healthcare customers included Adventist West, Alberta Health System, Allscripts, Baycare, Cerner, HCA Richmond, Maine Medical, Sharp Healthcare, Trinity Hospital, UMC, University Physicians and Healthcare and Vanguard Health System.
• Mobile & Consumer – For Nuance’s mobile and consumer solutions, third quarter non-GAAP revenue was $132.4 million, up 42.2%, as reported, from the same quarter last year. Key mobile customers, new bookings or design wins in the quarter included Chrysler, Diebold, DirecTV, German Ministry of Justice, HTC, Huawei, Kyocera, LG, Mazda, Motorola, Nintendo, Nissan, Nokia, Renault, Samsung, Sharp, SOMC, Sprint, Telstra, TISA, Toyota, TPV, Volkswagen and ZTE.
• Enterprise – For Nuance’s enterprise solutions, third quarter non-GAAP revenue was $74.5 million, up 6.6%, as reported, from the same quarter last year. Key enterprise customers in the quarter included Banco Santander, Barclays, BT, Bynet, Comcast, Delta Airlines, Israel Prisons, Medical Mutual, New York City 311, OnStar, ScotiaBank, Telecomm Italia and Union Bank.
• Imaging – For Nuance’s document imaging solutions, third quarter non-GAAP revenue was $56.8 million, up 32.7%, as reported, from the same quarter last year. Nuance achieved key third quarter bookings and design wins with Brother, Canon, CSPL, HP, Ricoh and Xerox.

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 http://www.nuance.com/earnings-results/ in conjunction with the press release.

As previously scheduled, the conference call will begin today, August 7, 2012 at 8:30 am EDT 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 (877) 209-9922 or (612) 332-0802 at least five minutes prior to the call and referencing code 254531. 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 254531.

Nuance Communications, Inc. (NASDAQ: NUAN) is a leading provider of voice and language 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 devices and systems. 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.