Nuance Reports Second-Quarter 2018 Results

Nuance Communications yesterday reported results for the second quarter of its fiscal year, with revenue of $514.2 million, up 3 percent versus second-quarter 2017, and a net loss of $164.1 million, or $0.56 per share, compared to a loss of $33.8 million, or $0.12 per share, for second-quarter 2017.

Dan Tempesta, Nuance’s chief financial officer, commented: “We are pleased with the progress in our business and first-half results, especially the early returns from our investments and focus on our growth businesses. This strategy is producing measurable results, driving organic revenue growth for the second sequential quarter and producing non-GAAP (Generally Accepted Accounting Principles) revenue and EPS (earnings per share) in line with our guidance for the quarter.”

During the quarter, Nuance says it made progress in key vertical industries and growth businesses, including:

  • Next-generation automotive interface and user experience offerings showcased with Daimler and Toyota;
  • Significant, continued growth in the Dragon Medical cloud platform;
  • Introduction of new core engine capabilities that include artificial intelligence (AI), voice recognition, and text-to-speech capabilities for human-like dialog for enterprise customers;
  • Enhancements to its voice biometrics offerings leveraging deep neural networks; and,
  • New design wins for Nuance’s AI and virtual assistant offerings with key customers, including AT&T, BMW, Cisco, Ford, Geely, and Wells Fargo.

Nuance CEO Mark Benjamin commented: “In just a few weeks, my conviction about the potential of this company has been affirmed. There is real momentum in the core business, making it an exciting opportunity to step in at this pivotal moment. A top priority is to work with the team to take a comprehensive look at Nuance’s entire portfolio, so we can quickly make smart choices on how to accelerate our momentum in growth businesses, deliver innovations for customers, and generate value for our shareholders.”

Other second-quarter highlights  Include:

On a GAAP basis:

  • GAAP revenue of $514.2 million, up 3 percent compared to $499.6 million a year ago, with 71 percent of total GAAP revenue as recurring revenue, compared to 74 percent a year ago.
  • Nuance recognized a goodwill impairment of $137.9 million in the quarter related to two businesses, Subscriber Revenue Services (SRS) and Devices, which affected GAAP results.
  • GAAP operating margin of negative 25.1 percent, compared to 6.3 percent for second-quarter 2017.
  • Cash flow from operations of $109.3 million, compared to $125.4 million for second-quarter 2017.

On a Non-GAAP basis:

  • Non GAAP revenue of $518.3 million, up 1 percent, compared to $511.1 million for second-quarter 2017.
  • Organic revenue growth of 1 percent compared to second-quarter 2017, led by 8 percent growth in Healthcare and 12 percent growth in Automotive.
  • Net new bookings of $376.6 million, down 8 percent from $410.4 million a year ago.
  • Non-GAAP recurring revenue of 71 percent of total non-GAAP revenue, compared to 75 percent a year ago.
  • Non-GAAP net income of $79.1 million, or $0.27 per diluted share, compared to non-GAAP net income of $92.8 million, or $0.32 per diluted share, in the second quarter of fiscal year 2017.
  • Non GAAP operating margin of 24.4 percent, down from 30.6 percent versus second-quarter 2017.
  • Cash flow from operations as a percentage of non-GAAP net income was 138 percent of non-GAAP net income.

Company Discusses Changes in Business and Outlook

Beginning this quarter, Nuance is reporting results in five segments: Healthcare, Enterprise, Automotive, Imaging, and Other. The Other segment includes Nuance’s Subscriber Revenue Services (SRS) and Devices businesses. Nuance’s Enterprise segment now includes Dragon TV solutions. The changes to Nuance’s reporting segments are part of the company’s ongoing actions to simplify its business, more efficiently address its best market opportunities, and improve transparency for shareholders.

In the second quarter, as noted, Nuance recorded goodwill impairments of $137.9 million associated with its SRS and Devices businesses. An impairment of $102.8 million for the SRS business is the result of reduced demand for the company’s services among mobile carriers, primarily in India and Brazil, “due to dramatic shifts in their business models.” An impairment of $35.1 million for the Devices business is the result of an impairment evaluation, conducted in conjunction with the reorganization of Nuance’s reporting segments, that found the carrying value of this business exceeded its estimated fair value.

Due primarily to the significant changes in Nuance’s SRS business and outlook, Nuance revised its fiscal year 2018 growth estimates to 2 to 4 percent organic growth, down from 3 to 5 percent organic growth. Despite these changes, Nuance is reiterating its expectation for 5 to 7 percent growth in net new bookings for its complete fiscal year.

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