SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):August 9, 2010
NUANCE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
|(State or other jurisdiction of
1 Wayside Road
Burlington, Massachusetts 01803
(Address of Principal Executive Offices)
Registrants telephone number, including area code: (781) 565-5000
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2. below):
||Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
||Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
||Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
||Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
TABLE OF CONTENTS
ITEM 2.02 Results of Operation and Financial Condition
On August 9, 2010, Nuance Communications, Inc. announced its financial results for its third
quarter ended June 30, 2010. The information in this Form 8-K and the Exhibit attached hereto is
being furnished and shall not be deemed to be filed for the purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the Exchange Act) or otherwise subject to the
liabilities of that section, nor shall it be deemed incorporated by reference into any filing under
the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general
incorporation language in such filing.
The press release, supplemental financial information and the reconciliations contained therein,
which have been attached as Exhibits 99.1 and 99.2 and are incorporated herein, disclose certain
financial measures that may be considered non-GAAP financial measures.
Management utilizes a number of different financial measures, both GAAP and non-GAAP, in analyzing
and assessing the overall performance of the business, for making operating decisions and for
forecasting and planning for future periods. Our annual financial plan is prepared both on a GAAP
and non-GAAP basis, and the non-GAAP annual financial plan is approved by our board of directors.
Continuous budgeting and forecasting for revenue and expenses are conducted on a consistent
non-GAAP basis (in addition to GAAP) and actual results on a non-GAAP basis are assessed against
the annual financial plan. The board of directors and management utilize these non-GAAP measures
and results (in addition to the GAAP results) to determine our allocation of resources. In addition
and as a consequence of the importance of these measures in managing the business, we use non-GAAP
measures and results in the evaluation process to establish managements compensation. For example,
our annual bonus program payments are based upon the achievement of consolidated non-GAAP revenue
and consolidated non-GAAP earnings per share financial targets. We consider the use of non-GAAP
revenue helpful in understanding the performance of our business, as it excludes the purchase
accounting impact on acquired deferred revenue and other acquisition-related adjustments to
revenue. We also consider the use of non-GAAP earnings per share helpful in assessing the organic
performance of the continuing operations of our business. By organic performance we mean
performance as if we had owned an acquired asset in the same period a year ago. By continuing
operations we mean the ongoing results of the business excluding certain unplanned costs. While our
management uses these non-GAAP financial measures as a tool to enhance their understanding of
certain aspects of our financial performance, our management does not consider these measures to be
a substitute for, or superior to, the information provided by GAAP revenue and earnings per share.
Consistent with this approach, we believe that disclosing non-GAAP revenue and non-GAAP earnings
per share to the readers of our financial statements provides such readers with useful supplemental
data that, while not a substitute for GAAP revenue and earnings per share, allows for greater
transparency in the review of our financial and operational performance. In assessing the overall
health of the business during the three and nine months ended June 30, 2010 and 2009, and, in
particular, in evaluating our revenue and earnings per share, our management has either included or
excluded items in six general categories, each of which are described below.
Acquisition-Related Revenue and Cost of Revenue.
The Company provides supplementary non-GAAP financial measures of revenue, which include revenue
related to acquisitions, primarily from eCopy and SpinVox for the three and nine months ended June
30, 2010, that would otherwise have been recognized but for the purchase accounting treatment of
these transactions. Non-GAAP revenue also includes revenue that the Company would have otherwise
recognized had the Company not acquired intellectual property and other assets from the same
customer during the same quarter. Because GAAP accounting requires the elimination of this revenue,
GAAP results alone do not fully capture all of the Companys economic activities. These non-GAAP
adjustments are intended to reflect the full amount of such revenue. The Company includes non-GAAP
revenue and cost of revenue to allow for more complete comparisons to the financial results of
historical operations, forward-looking guidance and the financial results of peer companies. The
Company believes these adjustments are useful to management and investors as a measure of the
ongoing performance of the business because, although we cannot be certain that customers will
renew their contracts, the Company historically has experienced high renewal rates on maintenance
and support agreements and other customer contracts. Additionally, although acquisition-related
revenue adjustments are non-recurring with respect to past acquisitions, the Company generally will
incur these adjustments in connection with any future acquisitions.
Acquisition-Related Costs, Net.
In recent years, the Company has completed a number of acquisitions, which result in operating
expenses which would not otherwise have been incurred. The Company provides supplementary non-GAAP
financial measures, which exclude certain transition, integration and other acquisition-related
expense items resulting from acquisitions, to allow more accurate comparisons of the financial
results to historical operations, forward-looking guidance and the financial results of less
acquisitive peer companies. The Company considers these types of costs and adjustments, to a great
extent, to be unpredictable and dependent on a significant number of factors that are outside of
the control of the Company. Furthermore, the Company does not consider these acquisition-related
costs and adjustments to be related to the organic continuing operations of the acquired businesses
and are generally not relevant to assessing or estimating the long-term performance of the acquired
assets. In addition, the size, complexity and/or volume of past acquisitions, which often drives
the magnitude of acquisition-related costs, may not be indicative of the size, complexity and/or
volume of future acquisitions. By excluding acquisition-related costs and adjustments from our
non-GAAP measures, management is better able to evaluate the Companys ability to utilize its
existing assets and estimate the long-term value that acquired assets will generate for the
Company. The Company believes that providing a supplemental non-GAAP measure which excludes these
items allows management and investors to consider the ongoing operations of the business both with,
and without, such expenses.
These acquisition-related costs are included in the following categories: (i) transition and
integration costs; (ii) professional service fees; and (iii) acquisition-related adjustments.
Although these expenses are not recurring with respect to past acquisitions, the Company generally
will incur these expenses in connection with any future acquisitions. These categories are further
discussed as follows:
(i) Transition and integration costs. Transition and integration costs include retention
payments, transitional employee costs, earn-out payments treated as compensation expense, as
well as the costs of integration-related services provided by third parties.
(ii) Professional service fees. Professional service fees include direct costs of the
acquisition, as well as post-acquisition legal and other professional service fees
associated with disputes and regulatory matters related to acquired entities.
(iii) Acquisition-related adjustments. Acquisition-related adjustments include adjustments
to acquisition-related items that are required to be marked to fair value each reporting
period, such as contingent consideration, and other items related to acquisitions for which
the measurement period has ended, such as gains or losses on settlements of pre-acquisition
Amortization of Acquired Intangible Assets.
The Company excludes the amortization of acquired intangible assets from non-GAAP expense and
income measures. These amounts are inconsistent in amount and frequency and are significantly
impacted by the timing and size of acquisitions. Providing a supplemental measure which excludes
these charges allows management and investors to evaluate results as-if the acquired intangible
assets had been developed internally rather than acquired and, therefore, provides a supplemental
measure of performance in which the Companys acquired intellectual property is treated in a
comparable manner to its internally developed intellectual property. Although the Company excludes
amortization of acquired intangible assets from its non-GAAP expenses, the Company believes that it
is important for investors to understand that such intangible assets contribute to revenue
generation. Amortization of intangible assets that relate to past acquisitions will recur in future
periods until such intangible assets have been fully amortized. Future acquisitions may result in
the amortization of additional intangible assets.
Costs Associated with IP Collaboration Agreement.
In order to gain access to a third partys extensive speech recognition technology and research
organization, Nuance has entered into a six-and-a-half-year agreement to accelerate development of
new speech technologies. All intellectual property derived from the collaboration will be jointly
owned by the two parties, but Nuance will have sole rights to commercialize this intellectual
property during the term of the agreement. For non-GAAP purposes, Nuance considers this long-term
contract and the resulting acquisition of intellectual property from this third-party
over the agreements term to be an investing activity, outside of its normal, organic, continuing
operating activities, and is therefore presenting this supplemental information to show the results
excluding this expense. Nuance does not exclude from its non-GAAP results the corresponding
revenue, if any, generated from the collaboration efforts. Although the Companys bonus program and
other performance-based incentives for executives are based on the non-GAAP results that exclude
these costs, certain engineering senior management are responsible for execution and results of the
collaboration agreement and have incentives based on those results.
The Company provides non-GAAP information relative to the following non-cash expenses: (i)
stock-based compensation; (ii) certain accrued interest; and (iii) certain accrued income taxes.
These items are further discussed as follows:
(i) Stock-based compensation. Because of varying available valuation methodologies,
subjective assumptions and the variety of award types, the Company believes that the
exclusion of stock-based compensation allows for more accurate comparisons of operating
results to peer companies, as well as to times in the Companys history when stock-based
compensation was more or less significant as a portion of overall compensation than in the
current period. The Company evaluates performance both with and without these measures
because compensation expense related to stock-based compensation is typically non-cash and
the options and restricted awards granted are influenced by the Companys stock price and
other factors such as volatility that are beyond the Companys control. The expense related
to stock-based awards is generally not controllable in the short-term and can vary
significantly based on the timing, size and nature of awards granted. As such, the Company
does not include such charges in operating plans. Stock-based compensation will continue in
(ii) and (iii) Certain accrued interest and income taxes. The Company also excludes certain
accrued interest and certain accrued income taxes because the Company believes that
excluding these non-cash expenses provides senior management, as well as other users of the
financial statements, with a valuable perspective on the cash-based performance and health
of the business, including the current near-term projected liquidity. These non-cash
expenses will continue in future periods.
The Company excludes certain other expenses that are the result of unplanned events to measure
operating performance and current and future liquidity both with and without these expenses; and
therefore, by providing this information, the Company believes management and the users of the
financial statements are better able to understand the financial results of what the Company
considers to be its organic, continuing operations. Included in these expenses are items such as
restructuring charges, asset impairments and other charges (credits), net. These events are
unplanned and arose outside of the ordinary course of continuing operations. These items also
include adjustments from changes in fair value of share-based instruments relating to the issuance
of our common stock with security price guarantees payable in cash.
The Company believes that providing the non-GAAP information to investors, in addition to the GAAP
presentation, allows investors to view the financial results in the way management views the
operating results. The Company further believes that providing this information allows investors to
not only better understand the Companys financial performance, but more importantly, to evaluate
the efficacy of the methodology and information used by management to evaluate and measure such
ITEM 9.01 Financial Statements and Exhibits
||Press Release dated August 9, 2010 by Nuance Communications, Inc.
||Supplemental Financial Information
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
||NUANCE COMMUNICATIONS, INC.
|Date: August 9, 2010
||/s/ Thomas L. Beaudoin
||Thomas L. Beaudoin
||Chief Financial Officer
||Press Release dated August 9, 2010 by Nuance Communications, Inc.
||Supplemental Financial Information