Higher Revenue for Nuance’s Third Quarter, Despite Malware Incident

On August 8th, Nuance Communications reported financial results for its third quarter that ended on June 30, 2017, reporting revenue of $486.2 million, compared to $477.9 million for third-quarter 2016. Nuance reported a net loss of $27.8 million for the third quarter, or $0.10 per share, compared to a net loss of $11.8 million, or $0.04 per share, for third-quarter 2016.

The firm says it saw “strong net new bookings, recurring revenue, cash flow from operations (CFFO), and overall solid third-quarter performance.”

In particular, Nuance stated it saw continued strength in enterprise omni-channel offerings, Dragon Medical cloud, voice biometrics solutions, and the company’s automotive business. It says this performance was notable in light of its previously reported June 27, 2017 global malware incident that led to a disruption of Nuance’s worldwide operations, including its sales and order-fulfillment operations, most significantly in its healthcare transcription and imaging businesses.

Third-quarter non-GAAP (Generally Accepted Accounting Principles) revenue was $495.6 million, which includes revenue lost due to acquisitions, compared to $484.9 million for third-quarter 2016.

 The company estimates that, had the malware incident not occurred, third-quarter GAAP revenues would have been $501.6 million.

“Despite the malware incident, Nuance delivered its fourth consecutive quarter of year-over-year improvement in net new bookings, recurring revenue, cash flow from operations, and hosting and cloud revenues,” commented Nuance Chief Financial Officer Dan Tempesta. “We expect demand for our vertical and consumer solutions to gain additional traction as our customers seek to leverage AI (artificial intelligence) to enhance user experiences, automate business processes, and drive improvements to their bottom line.”

Other results are as follows:

  • Net new bookings in the quarter were $448.7 million, up 24 percent compared to third-quarter 2016.
  • Organic non-GAAP revenue growth was 2 percent on a year-over-year basis.
  • GAAP revenue of $501.6 million and non-GAAP revenue of $511.0 million.
  • Recurring revenue at 73 percent of total GAAP and non-GAAP revenue, an increase of 200 basis points from third-quarter 2016.
  • GAAP operating margin of 6.3 percent and non-GAAP operating margin of 28.9 percent.
  • GAAP diluted earnings per share (EPS) of $(0.04) and non-GAAP diluted EPS of $0.30
  • Cash Flow from Operations (CFFO) for third-quarter 2017 was $132.0 million, with CFFO representing 151 percent of non-GAAP net income.

Nuance notes that the third-quarter was its second consecutive quarter of organic non-GAAP revenue growth, reflecting strength in enterprise omni-channel, automotive, and Dragon Medical cloud.  It also stated that it met its GAAP and non-GAAP revenue guidance ranges, and both metrics were up 5 percent on a year-over- year basis as Q3 17 marked the first quarter where Dragon Medical cloud growth outpaced HIM transcription declines.

Update on Malware Incident

As Nuance had previously reported, on June 27, 2017, Nuance was the victim of the sophisticated NotPetya malware incident that affected thousands of companies globally. The malware affected certain Nuance systems, including systems used by its healthcare customers, primarily for transcription services, as well as systems used by Nuance’s Imaging division to receive and process orders.

Nuance says it’s “made progress” in its restoration efforts for customer-facing systems. In healthcare, Nuance says it’s “systematically brought hospitals back online and, as of today, has restored functionality for substantially all of its clients for its flagship eScription LH transcription platform.” Within its Imaging business, licensing and activation systems for customers and partners were restored in July.

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