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8-K - FORM 8-K - Nuance Communications, Inc. | b82044e8vk.htm |
EX-99.1 - EX-99.1 - Nuance Communications, Inc. | b82044exv99w1.htm |
Exhibit 99.2
NUANCE COMMUNICATIONS, INC.
THIRD QUARTER FISCAL 2010
EARNINGS ANNOUNCEMENT
PREPARED CONFERENCE CALL REMARKS
THIRD QUARTER FISCAL 2010
EARNINGS ANNOUNCEMENT
PREPARED CONFERENCE CALL REMARKS
Nuance is providing a copy of prepared remarks in combination with its press release. This process
and these remarks are offered to provide shareholders and analysts with additional time and detail
for analyzing our results in advance of our quarterly conference call. As previously scheduled,
the conference call will begin today, August 9, 2010 at 5:00 pm EDT and will include only brief
comments followed by questions and answers. These prepared remarks will not be read on the call.
To access the live broadcast, please visit the Investor Relations section of Nuances Website at
www.nuance.com. The call can also be heard by dialing (800) 230-1074 or (612) 234-9959 at least
five minutes prior to the call and referencing conference code 165644. 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 165644.
Opening Remarks
In our press release this afternoon, we reported non-GAAP revenue in Q3 10 of $293.4 million, up
16.8% from $251.3 million a year ago. Total GAAP revenue in Q3 10 was $273.2 million, up 13.4%
from $241.0 million in Q3 09. We recognized non-GAAP net income in Q3 10 of $91.3 million,
representing $0.30 per diluted share, compared to non-GAAP net income of $73.3 million, or $0.26
per diluted share, in the same period last year. We recognized a GAAP net loss in Q3 10 of ($1.5)
million, or ($0.01) per diluted share, compared to Q3 09 GAAP net loss of ($2.8) million, or
($0.01) per diluted share, as adjusted for the retrospective application of FASB ASC 470-20, which
Nuance adopted on October 1, 2009. Third quarter non-GAAP operating margin was 32.9%, up from
32.6% a year ago. Third quarter operating cash flow was $64.1 million, up from $53.7 million in
the same quarter a year ago. Nuance ended Q3 10 with a cash balance of $492.1 million.
Compared to Q3 09, Nuances Q3 10 non-GAAP revenue benefited from (1) growth in healthcare product
licenses and healthcare on-demand revenue, (2) growth in product and licensing revenue from our
imaging business, due to contributions from eCopy, and (3) growth in mobile royalty and services
revenue.
Nuance continued to improve operating leverage in the quarter. As discussed in recent quarters, in
FY 10 we have increased investments targeted at enhancing growth, while remaining mindful of
operating efficiencies.
Discussion of non-GAAP Revenue
In Q3 10, North America contributed 72% of non-GAAP revenue and international
contributed 28%. On-demand revenues continued to grow year-over-year, driven by growth in
healthcare on-demand and mobile services revenue. Within our enterprise and healthcare solutions, the trend toward
customer preference for our subscription and transactional pricing models continues. (Please see
the section below, Discussion of Non-GAAP Financial Measures, for more details on non-GAAP
revenue.)
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Table: Non-GAAP Revenue by Market
Q1 | Q2 | Q3 | Q4 | FY | Q1 | Q2 | Q3 | |||||||||||||||||||||||||
2009 | 2009 | 2009 | 2009 | 2009 | 2010 | 2010 | 2010 | |||||||||||||||||||||||||
Mobile-Enterprise |
$ | 113.4 | $ | 119.5 | $ | 125.5 | $ | 137.2 | $ | 495.7 | $ | 127.6 | $ | 138.9 | $ | 131.7 | ||||||||||||||||
Yr/Yr Organic Growth* |
(10 | )% | 2 | % | 2 | % | (1 | )% | (2 | )% | 12 | % | 10 | % | (1 | )% | ||||||||||||||||
Healthcare-Dictation |
$ | 114.0 | $ | 105.2 | $ | 108.1 | $ | 113.8 | $ | 441.0 | $ | 121.2 | $ | 120.0 | $ | 125.9 | ||||||||||||||||
Yr/Yr Organic Growth* |
17 | % | 5 | % | 6 | % | (4 | )% | 6 | % | 7 | % | 13 | % | 14 | % | ||||||||||||||||
Imaging |
$ | 17.0 | $ | 14.1 | $ | 17.7 | $ | 24.8 | $ | 73.6 | $ | 35.8 | $ | 33.9 | $ | 35.8 | ||||||||||||||||
Yr/Yr Organic Growth* |
5 | % | (16 | )% | 0 | % | 16 | % | 1 | % | 7 | % | 11 | % | 6 | % | ||||||||||||||||
Total revenue |
$ | 244.4 | $ | 238.8 | $ | 251.3 | $ | 275.7 | $ | 1,010.3 | $ | 284.6 | $ | 292.8 | $ | 293.4 | ||||||||||||||||
Yr/Yr Organic Growth* |
2 | % | 1 | % | 3 | % | 0 | % | 1 | % | 10 | % | 11 | % | 6 | % |
* | Organic growth is calculated by comparing Nuances reported non-GAAP revenue to revenue in the same period in the prior year. For purposes of this calculation, revenue in the same period in the prior year is adjusted to include revenue from companies subsequently acquired by Nuance, as if we had owned the acquired business in the prior period. |
Table: Non-GAAP Revenue by Type
Q1 | Q2 | Q3 | Q4 | FY | Q1 | Q2 | Q3 | |||||||||||||||||||||||||
2009 | 2009 | 2009 | 2009 | 2009 | 2010 | 2010 | 2010 | |||||||||||||||||||||||||
Product and Licensing |
$ | 110.4 | $ | 94.2 | $ | 95.6 | $ | 124.2 | $ | 424.4 | $ | 130.2 | $ | 128.0 | $ | 121.8 | ||||||||||||||||
% of Revenue |
45 | % | 39 | % | 38 | % | 45 | % | 42 | % | 46 | % | 44 | % | 42 | % | ||||||||||||||||
Professional Services
and Hosting |
$ | 91.4 | $ | 104.2 | $ | 112.5 | $ | 108.2 | $ | 416.3 | $ | 104.5 | $ | 118.6 | $ | 124.2 | ||||||||||||||||
% of Revenue |
38 | % | 44 | % | 45 | % | 39 | % | 41 | % | 37 | % | 40 | % | 42 | % | ||||||||||||||||
Maintenance and Support |
$ | 42.6 | $ | 40.4 | $ | 43.2 | $ | 43.4 | $ | 169.6 | $ | 49.9 | $ | 46.2 | $ | 47.4 | ||||||||||||||||
% of Revenue |
17 | % | 17 | % | 17 | % | 16 | % | 17 | % | 17 | % | 16 | % | 16 | % | ||||||||||||||||
Total revenue |
$ | 244.4 | $ | 238.8 | $ | 251.3 | $ | 275.7 | $ | 1,010.3 | $ | 284.6 | $ | 292.8 | $ | 293.4 | ||||||||||||||||
Since FY 08, Nuance has pursued and secured significant new on-demand contracts within our
healthcare, mobile and enterprise businesses. As noted above, we continue to see a growing
preference among healthcare and enterprise customers for subscription and transactional pricing
models. Within our mobile market, where additional growth is targeted towards carrier-based
services, new bookings also demonstrated a growing emphasis upon transactional models. Typically,
associated professional services revenue is recognized over the life of the on-demand customer
relationship rather than being recognized as the services are performed, which has contributed to
an increase in deferred revenue this fiscal year as professional services are being performed to
implement solutions under enterprise on-demand contracts signed in fiscal 2009. As more of our
large customers and partners transition to these models, a greater proportion of bookings will
contribute revenue over extended periods.
In Q3 10, product and licensing revenue grew significantly compared to Q3 09, due primarily to
increased healthcare product licenses, mobile royalties, and contributions from eCopy. In Q3 10,
professional services and hosting revenue grew compared to both Q3 09 and Q2 10, due to increased
on-demand revenue from healthcare solutions, as well as new contributions from hosted mobile
services.
Mobile-Enterprise Solutions.
Within our mobile business, voicemail-to-text and other connected
services contributed to hosting and professional services revenue in the quarter. In addition,
Nuance continued to secure significant design wins and penetration onto new products in handset,
automobile and other markets, expanding the number of models that include Nuance technology.
During Q3 10, mobile royalties grew compared to Q3 09, reflecting increased unit shipments,
increased market penetration and pre-payments associated with new contracts. For Q3 10, Nuance
reported its highest level of mobile
professional services revenue, generated in securing new design wins, and entered Q4 with a solid
pipeline of professional services design projects. During Q3 10, Nuance introduced Dragon
Dictation for
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the iPad
and Dragon E-mail for the BlackBerry. In addition to increasing visibility,
the success of Nuances Dragon mobile apps has generated interest from carriers and mobile providers to deliver
applications for other mobile platforms, languages and vertical markets. Recently, that interest
has resulted in deployments and product announcements, such as the T-Mobile myTouch 3G Slide
smartphone, which launched during Q3 10 as the first commercial shipment of Nuances NVC 2.0
product. This Android-based smartphone features Nuance-powered voice activation and dictation for
more than 50 mobile applications such as voice dialing, e-mail, text messages, calendar and web
search, as well as text-to-speech readback of incoming messages. T-Mobile advertising has featured
the products speech capabilities, and Nuance transaction rates have been growing, with high user
adoption and stickiness for features such as SMS dictation, voice dialing, and voice-powered
business and Web search. Market momentum for the connected car has continued, driven by the launch
of Fords myFordTouch system. In predictive text, Nuance signed its first T9Trace contracts with
three handset manufacturers. Nuance also secured several OEM contracts for predictive text with
multiple technologies, reflecting early success of our Multimodal User Interface (MMUI) strategy,
which offers solutions to support multiple modes of user input (speech, typing, trace and writing)
based on common core technology. In addition, Nuance signed its first contract with an OEM to ship
XT9 technology in netbook computers. In the voicemail-to-text market, revenue grew compared to Q2
10, and Nuance signed contract amendments with two key customers from the SpinVox acquisition.
Nuance began two pilot projects for enterprise voicemail-to-text services based on our Jott
service. Key customers and design wins in Q3 10 included Bosch, CHMC, Denso, Elektrobit, Harman
Becker, HBAS, HTC, M & Soft, Magneti Marelli, Melco, Modelabs, Nokia, Pantech, Parrot, Reliance,
T-Mobile, Times of India, Toshiba, Vietnam Telecom, Vistcom Europe, Vodafone, and ZTE.
Within our enterprise business, customer preference for on-demand solutions continues, which has
the effect of delaying revenue from new bookings into future periods. Q3 10 bookings resulted in
record backlog hours in enterprise professional services, which stood at approximately 312,000
hours at the end of Q3 10, as compared with approximately 215,000 hours at the end of Q3 09. This
represented the largest sequential increase in professional services hours backlog in two years,
and Nuance is expanding its professional services staff to address increased backlog and demand.
The estimated future value of unimplemented contracts for the Nuance On Demand solution at the end
of Q3 10 was $47.1 million, as compared with $45.0 million
at the end of Q2 10. The difference resulted from the signing of
three new contracts with an airline and two financial service firms
totaling $28.3 million, minus 26.1 million for one existing
contract with a financial services firm, the implementation of which
was completed during Q3. Please note that the implemented contract
spans a five-year term, so that very little revenue from that
contract was recognized in Q3. Nuances professional services team
continues to progress toward implementation of solutions under large contracts for the Nuance On
Demand solution signed during FY 09, which will lead to future professional services and hosting
revenue. Channel revenues continued to
be disappointing due to structural changes in our channel partners. In addition, during Q3 10, hosting revenues
reflected erosion in volume from a legacy Nuance On Demand customer. Key enterprise customers in
Q3 10 included Air France, Atip, Axis Telecom, BT, CitiGroup, Global Bilgi, HBAS, Morgan Stanley,
Orange, Prosodie, PSE&G, T-Mobile, TLM Com, US Air, USAA, and UPS.
Healthcare-Dictation Solutions. Within our healthcare business, both on-demand solutions and
product licenses contributed to revenue growth. During Q3 10, the annualized line run-rate in
Nuances healthcare on-demand business was approximately 3.242 billion lines per year, up 14% from
2.833 billion lines per year during Q3 09. Nuance reported its largest sequential increase in
annualized run-rate since Q1 09, driven by implementations of large on-demand subscription
contracts signed earlier in the fiscal year. During Q3 10, Dragon Medical and diagnostics products
contributed to product license growth, and Nuance signed several new healthcare on-demand
contracts. Key customers in Q3 10 included Advocate Illinois Masonic, Appalachian Healthcare,
Citrus Valley, Eastern Ohio Health Alliance, Indiana Clinics, Lifespan Healthcare, Mt. Kisco
Medical Group, Ochsner Clinical Foundation, Plexus, Providence Alaska,
Republic of Ireland Health Service Executive, Universal Health Services, and University of Utah.
In addition, Nuance is executing its international expansion plans. During Q3 10, Nuance launched
a new
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version of its Dragon Medical product in the UK, Germany, France and the Netherlands. Pilot
eScription projects at the UKs NHS are in the early stages of deployment, and are contributing to
new customer interest. During Q3 10, Nuance and our partner McKesson were chosen for a project to
upgrade digital imaging and speech recognition systems throughout hospitals in the Republic of
Ireland.
In our non-medical Dragon dictation solutions, Q3 10 revenue declined slightly compared to Q3 09,
in anticipation of the Q4 10 launch of Dragon NaturallySpeaking version 11. The new version was
launched in July 2010, and focuses on increased performance in both accuracy and speed, as well as
improving its usability and adding new capabilities for use among students and teachers. Dragon is
leveraging momentum and visibility created by mobile apps for Apple and Blackberry products and
increased investments in advertising. Key customers in Q3 10 included the FBI and Texas Department
of Family and Protective Services.
Imaging Solutions. Third quarter revenue growth compared to Q3 09 was driven by contributions from
eCopy, as well as Nuances PDF and imaging solutions, and increased contribution from Nuances OEM
channel. Key customers and design wins in Q3 10 included Adelshaw Boggard, AON, Auto Cad, Barclays
Portugal, Bond Pearce, Canon, DLA Piper, DP Systems, Estes/IKON, HP, IBM, Infineon, Middletons,
Pinsent Marons, Softbank, and UNICREDIT. During Q3 10, eCopy had its best bookings quarter in 6
quarters, including a key design win at HP.
Discussion of non-GAAP Cost of Revenue and Gross Margins
In Q3 10, cost of revenue was $90.3 million, for a gross margin of 69.2%, up from 67.4% in Q3 09,
mainly due to a shift in product mix toward product and licensing, as well as a significant
increase in gross margin for professional services and hosting. Gross margin for product and
licensing declined to 88.8% in Q3 10 from 91.2% a year ago, primarily due to lower gross margins on
eCopy products. Gross margin for professional services and hosting improved to 44.3% in Q3 10 from
41.0% a year ago, primarily due to improved margins on professional services. Gross margin for
maintenance and support improved to 84.2% in Q3 10 from 83.5% a year ago.
Discussion of non-GAAP Operating Expenses and Operating Margins
In Q3 10, operating margin was 32.9%, up from 32.6% in Q3 09. Compared to Q3 09, Q3 10 research
and development expense increased 26.0%, sales and marketing expense increased 25.6%, and general
and administrative expense increased 6.7%. The increased expenses reflect Nuances FY 10 plan to
make additional investments in product, sales and marketing as well as the higher levels of
expenses resulting from acquisitions. The improved margins reflect Nuances FY 10 plan to make
those additional investments, targeted at enhancing growth, while remaining mindful of operating
efficiencies.
Discussion of Fluctuations in Foreign Exchange Rates
If Q3 10 revenues and expenses had been translated at the same foreign exchange rates used in Q2
10, revenue would have been approximately $3.2 million higher, and net income would have been
approximately $0.1 million higher.
Balance Sheet and Cash Flow Highlights
Cash and Cash Flow Activities
Nuance reported Q3 10 cash flow from operations of $64.1 million, compared to $53.7 million in Q3
09. Q3 10 cash flow from operations was negatively impacted due to our acquisition of SpinVox by
approximately $8.6 million. However, Q3 10
cash flow from operations did benefit from increased revenue and collections related to our other
operations. At the end of Q3 10, our cash balance was approximately $492.1 million. Capital
expenditures totaled $8.4 million and depreciation was $5.4 million for Q3 10.
- 4 -
DSOs
In Q3 10, days sales outstanding (DSO) were 39 days, compared to 30 days in Q3 09. We calculate
DSOs net of deferred maintenance revenue, based on organic non-GAAP revenue.
Deferred Revenue
Total deferred revenue increased from $165.0 million at the end of Q3 09 to $206.3 million at the
end of Q3 10, and long-term deferred revenue increased from $26.0 million to $67.2 million over the
same period. The increase in deferred revenue was primarily due to eCopy billings, with additional
contribution from deferred set-up fees for enterprise on-demand contracts and other professional
services, and increased maintenance and support, offset in part by recognition of deferred revenue
due to continued execution under acquired contracts from SNAPin.
Financial Analyst Day
Nuance
plans to hold a financial analyst day in Boston, MA on the morning of Thursday, December 9,
2010 and via Webcast. Additional details will follow.
Discussion of Q410 Guidance and Fiscal Year Outlook
The improved economic climate, the increased investments in sales and marketing resources, and the
strength of our offerings should deliver continued growth in the fourth quarter of fiscal 2010. We
expect the improved royalty reports from many of our partners to continue. Favorable backlog,
bookings and pipeline in the third quarter also position us well for the balance of the year.
During the fourth quarter, revenues should benefit from typical
fiscal year end seasonality launches of Dragon NaturallySpeaking 11 and
PDF Converter Enterprise 7, the growth in mobile services, continued performance of our
healthcare on-demand offering, and increased penetration of our Dragon Medical offerings. Weighing
on our fourth quarter growth will likely be the continued migration towards on-demand solutions in
our enterprise business, which results in revenue recognized over the life of the contract. In
addition, we benefited in the first half of fiscal 2010 from payments associated with new design
wins and contracts in our mobile business. While we anticipate further design and contract wins,
the timing and effect of those can not be certain.
In recent quarters, we signaled our intention to increase expenses in sales, services and R&D
related to additional hiring. We anticipate that hiring will continue in these areas in the fourth
quarter. Additionally, we expect advertising and promotions expenses to rise, especially
associated with product launch activities for Dragon NaturallySpeaking 11.
With these factors in mind, we expect full-year, FY 10 GAAP revenues in the range of $1,106 million
to $1,126 million. We now expect FY 10 non-GAAP revenues between $1,180 million and $1,200
million. Reminding investors of our seasonality comments above, as well as product launches in the
fourth quarter, we expect Q4 10 GAAP revenues between $297.5 million and $317.5 million, and we
anticipate Q4 10 non-GAAP revenues between $310 million and $330 million.
Last quarter we advised investors to expect expense growth in three primary areas: sales personnel,
advertising and demand creation, and research and development personnel. Our third quarter
results did, in fact, reflect these investments. We anticipate that they will continue in the
fourth quarter. We expect FY 10 GAAP EPS to be in the range of ($0.09) and ($0.06) and FY 10
non-GAAP EPS to be in
the range of $1.17 and $1.20. We expect Q4 10 GAAP EPS to be in the range of ($0.01) and ($0.02)
and Q4 10 non-GAAP EPS to be in the range of $0.31 and $0.34.
- 5 -
This ends the prepared conference call remarks.
Definitions
Certain supplemental data provided in the prepared call remarks above are based upon internal
Nuance definitions that are important for the reader to understand.
Enterprise professional services backlog hours. Nuance defines its enterprise professional
services backlog hours as the accumulated estimated professional services hours necessary to
fulfill all of its existing, executed professional services contracts within the enterprise
business, including those that are cancelable by customers, based on the original estimate
of hours sold. Nuance believes its professional services backlog hours are useful in
forecasting its internal professional services needs, as well as for projecting future
professional services revenues.
Estimated future value of unimplemented Nuance On-Demand contracts. Nuance considers
contracts for its Nuance On Demand solutions to be unimplemented for the time period from
execution of the contract with the customer until such time as implementation and set-up
services are complete and the customers have begun utilizing the on-demand platform. Once a
contract is implemented, the entire estimated value of the contract is deducted from the
total. Because contracts for our Nuance On Demand solutions are generally large, multi-year
contracts, the aggregate estimated value of these contracts can materially increase or
decrease from period to period as contracts are executed and implemented.
Annualized line run-rate in Nuances healthcare on-demand business. Nuance determines this
run-rate using sourced transcription net line counts, as defined in our customer contracts.
The annualized line run-rate is determined by the number of lines actually billed in a given
quarter, multiplied by four.
Safe Harbor and Forward-Looking Statements
Statements in this document regarding enterprise professional services backlog, the value of
unimplemented Nuance On Demand contracts, continued growth for the balance of the fiscal year, new
product launches, growth in mobile services, continued migration to on-demand solutions in our
enterprise business, additional design wins in our mobile business, future increases in expenses
associated with sales, services, and research and development, increases in advertising and
promotion expenses, revenue contributions from our acquisition of SpinVox, our financial
performance in the fourth quarter, the future demand for, performance of, and opportunities for
growth in our product offerings and solutions in healthcare, mobile, enterprise and imaging, the
general economic condition, and Nuance managements future expectations, beliefs, goals, plans or
prospects constitute forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Any statements that are not statements of historical fact (including
statements containing the words believes, plans, anticipates, expects, or estimates or
similar expressions) should also be considered to be forward-looking statements. There are a number
of important factors that could cause actual results or events to differ materially from those
indicated by such forward-looking statements, including: fluctuations in demand for Nuances
existing and future products; economic conditions in the United States and abroad; Nuances ability
to control and successfully manage its expenses and cash position; the effects of competition,
including pricing pressure; possible defects in Nuances products and technologies; the ability of
Nuance to successfully integrate operations and employees of acquired businesses; the ability to
realize anticipated synergies from acquired businesses; and the other factors described in Nuances
annual report on Form 10-K for the fiscal year ended September 30, 2009 and Nuances quarterly
reports on Form 10-Q filed with the Securities and Exchange Commission. Nuance disclaims any
obligation to
update any forward-looking statements as a result of developments occurring after the date of this
document.
- 6 -
The information included in this press release should not be viewed as a substitute for full
GAAP financial statements.
Discussion of 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.
- 7 -
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
contingencies.
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.
- 8 -
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.
Non-Cash Expenses.
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 future periods.
(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.
Other Expenses.
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
- 9 -
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 performance.
Financial Tables Follow
- 10 -
Nuance Communications, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
Unaudited
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
Unaudited
Three months ended | Nine months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue: |
||||||||||||||||
Product and licensing |
$ | 108,840 | $ | 87,387 | $ | 335,228 | $ | 259,987 | ||||||||
Professional services and hosting |
117,875 | 110,966 | 337,798 | 304,162 | ||||||||||||
Maintenance and support |
46,488 | 42,687 | 136,159 | 122,870 | ||||||||||||
Total revenue |
273,203 | 241,040 | 809,185 | 687,019 | ||||||||||||
Cost of revenue: |
||||||||||||||||
Product and licensing |
10,901 | 8,414 | 34,194 | 26,222 | ||||||||||||
Professional services and hosting |
71,353 | 68,321 | 206,349 | 189,584 | ||||||||||||
Maintenance and support |
7,631 | 7,207 | 23,335 | 21,387 | ||||||||||||
Amortization of intangible assets |
11,893 | 10,017 | 35,095 | 27,444 | ||||||||||||
Total cost of revenue |
101,778 | 93,959 | 298,973 | 264,637 | ||||||||||||
Gross profit |
171,425 | 147,081 | 510,212 | 422,382 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
38,916 | 27,742 | 113,797 | 85,622 | ||||||||||||
Sales and marketing |
67,219 | 50,233 | 196,680 | 160,850 | ||||||||||||
General and administrative |
29,887 | 24,507 | 88,643 | 75,333 | ||||||||||||
Amortization of intangible assets |
21,459 | 19,931 | 65,786 | 56,313 | ||||||||||||
Acquisition-related costs, net |
6,125 | 4,659 | 26,892 | 13,889 | ||||||||||||
Restructuring and other charges, net |
3,257 | 2,893 | 16,244 | 5,241 | ||||||||||||
Total operating expenses |
166,863 | 129,965 | 508,042 | 397,248 | ||||||||||||
Income from operations |
4,562 | 17,116 | 2,170 | 25,134 | ||||||||||||
Other expense, net |
(4,261 | ) | (13,261 | ) | (18,915 | ) | (31,704 | ) | ||||||||
Income (loss) before income taxes |
301 | 3,855 | (16,745 | ) | (6,570 | ) | ||||||||||
Provision for income taxes |
1,831 | 6,670 | 4,459 | 17,283 | ||||||||||||
Net loss |
$ | (1,530 | ) | $ | (2,815 | ) | $ | (21,204 | ) | $ | (23,853 | ) | ||||
Net loss per share: |
||||||||||||||||
Basic and diluted |
$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | (0.10 | ) | ||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic and diluted |
291,610 | 260,750 | 285,202 | 249,105 | ||||||||||||
Financial statements for the three and nine months ended June 30, 2009 have been
adjusted for the retrospective application of FASB ASC 470-20.
adjusted for the retrospective application of FASB ASC 470-20.
- 11 -
Nuance Communications, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
Unaudited
Condensed Consolidated Balance Sheets
(in thousands)
Unaudited
June 30, 2010 | September 30, 2009 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 492,074 | $ | 527,038 | ||||
Restricted cash |
21,974 | | ||||||
Accounts receivable and unbilled receivables, net |
222,511 | 208,719 | ||||||
Inventories, net |
8,323 | 8,525 | ||||||
Prepaid expenses and other current assets |
52,553 | 51,545 | ||||||
Total current assets |
797,435 | 795,827 | ||||||
Land, building and equipment, net |
56,372 | 53,468 | ||||||
Goodwill |
2,041,590 | 1,891,003 | ||||||
Intangible assets, net |
667,879 | 706,805 | ||||||
Other assets |
67,628 | 52,361 | ||||||
Total assets |
$ | 3,630,904 | $ | 3,499,464 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Current portion of long-term debt and capital
leases |
$ | 8,209 | $ | 6,862 | ||||
Contingent and deferred acquisition payments |
2,093 | 91,431 | ||||||
Accounts payable and accrued expenses |
207,059 | 164,393 | ||||||
Deferred and unearned revenue |
139,096 | 144,395 | ||||||
Other short term liabilities |
9,574 | 12,144 | ||||||
Total current liabilities |
366,031 | 419,225 | ||||||
Long-term portion of debt and capital leases |
850,400 | 848,898 | ||||||
Long-term deferred revenue |
67,197 | 33,904 | ||||||
Other long term liabilities |
152,095 | 154,436 | ||||||
Total liabilities |
1,435,723 | 1,456,463 | ||||||
Stockholders equity |
2,195,181 | 2,043,001 | ||||||
Total liabilities and stockholders equity |
$ | 3,630,904 | $ | 3,499,464 | ||||
Financial statements as of September 30, 2009 have been adjusted for the retrospective
application of FASB ASC 470-20.
application of FASB ASC 470-20.
- 12 -
Nuance Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
Unaudited
Condensed Consolidated Statements of Cash Flows
(in thousands)
Unaudited
Nine months ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (21,204 | ) | $ | (23,853 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
116,738 | 97,398 | ||||||
Stock-based compensation |
72,868 | 52,584 | ||||||
Non-cash interest expense |
9,746 | 9,330 | ||||||
Non-cash restructuring expense |
6,833 | | ||||||
Gain on foreign currency forward contracts |
| (8,049 | ) | |||||
Deferred tax provision |
(2,321 | ) | 8,117 | |||||
Other |
1,671 | 1,624 | ||||||
Changes in operating assets and liabilities, net of effects from acquisitions: |
||||||||
Accounts receivable |
(13,023 | ) | 47,713 | |||||
Inventories |
280 | (2,261 | ) | |||||
Prepaid expenses and other assets |
(5,149 | ) | (5,746 | ) | ||||
Accounts payable |
(3,960 | ) | 22,744 | |||||
Accrued expenses and other liabilities |
(7,825 | ) | (9,217 | ) | ||||
Deferred revenue |
30,044 | (6,124 | ) | |||||
Net cash provided by operating activities |
184,698 | 184,260 | ||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(16,284 | ) | (15,682 | ) | ||||
Payments for acquisitions, net of cash acquired |
(155,882 | ) | (113,886 | ) | ||||
Proceeds from maturities of marketable securities |
| 56 | ||||||
Payments for equity investment |
(14,970 | ) | (159 | ) | ||||
Payments for acquired technology |
(14,850 | ) | (65,257 | ) | ||||
Increase in restricted cash |
(22,070 | ) | | |||||
Net cash used in investing activities |
(224,056 | ) | (194,928 | ) | ||||
Cash flows from financing activities: |
||||||||
Payments of debt and capital leases |
(6,376 | ) | (5,261 | ) | ||||
Purchases of treasury stock |
(575 | ) | (144 | ) | ||||
Payments of other long-term liabilities |
(7,319 | ) | (6,915 | ) | ||||
Proceeds from settlement of shared-based derivatives |
6,391 | | ||||||
Proceeds from issuance of common stock, net of issuance costs |
12,350 | 175,111 | ||||||
Proceeds from issuance of common stock from employee stock options and purchase plan |
22,832 | 10,995 | ||||||
Cash used to net share settle employee equity awards |
(17,465 | ) | (6,186 | ) | ||||
Net cash provided by financing activities |
9,838 | 167,600 | ||||||
Effects of exchange rate changes on cash and cash equivalents |
(5,444 | ) | 115 | |||||
Net increase (decrease) in cash and cash equivalents |
(34,964 | ) | 157,047 | |||||
Cash and cash equivalents at beginning of period |
527,038 | 261,540 | ||||||
Cash and cash equivalents at end of period |
$ | 492,074 | $ | 418,587 | ||||
Financial statements for the three and nine months ended June 30, 2009 have been
adjusted for the retrospective application of FASB ASC 470-20.
adjusted for the retrospective application of FASB ASC 470-20.
- 13 -
Nuance Communications, Inc.
Supplemental Consolidated Statements of Cash Flows
(in thousands)
Unaudited
Supplemental Consolidated Statements of Cash Flows
(in thousands)
Unaudited
Three Months Ended | ||||||||||||||||||||
June 30, 2010 | March 31, 2010 | December 31, 2009 | September 30, 2009 | June 30, 2009 | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | (1,530 | ) | $ | (15,396 | ) | $ | (4,278 | ) | $ | 4,466 | $ | (2,815 | ) | ||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||||||||||||||
Depreciation and amortization |
38,761 | 39,747 | 38,230 | 36,661 | 34,465 | |||||||||||||||
Stock-based compensation |
28,094 | 24,708 | 20,066 | 18,823 | 17,582 | |||||||||||||||
Non-cash interest expense |
3,222 | 3,245 | 3,279 | 3,162 | 3,015 | |||||||||||||||
Non-cash restructuring expense |
| 6,833 | | | | |||||||||||||||
Deferred tax provision |
(1,210 | ) | (800 | ) | (311 | ) | 17,601 | 6,505 | ||||||||||||
Other |
1,005 | (25 | ) | 691 | 342 | (290 | ) | |||||||||||||
Changes in operating assets and liabilities, net of effects from acquisitions: |
||||||||||||||||||||
Accounts receivable |
(4,482 | ) | (2,274 | ) | (6,267 | ) | (14,232 | ) | 13,931 | |||||||||||
Inventories |
(429 | ) | 135 | 574 | 893 | (800 | ) | |||||||||||||
Prepaid expenses and other assets |
(721 | ) | (4,329 | ) | (99 | ) | (6,913 | ) | 2,553 | |||||||||||
Accounts payable |
(1,711 | ) | 1,460 | (3,709 | ) | 3,838 | (2,755 | ) | ||||||||||||
Accrued expenses and other liabilities |
2,532 | (17,760 | ) | 7,403 | 4,210 | (6,385 | ) | |||||||||||||
Deferred revenue |
587 | 19,984 | 9,473 | 5,578 | (11,311 | ) | ||||||||||||||
Net cash provided by operating activities |
64,118 | 55,528 | 65,052 | 74,429 | 53,695 | |||||||||||||||
Net cash provided by (used in) investing activities |
(34,534 | ) | (30,075 | ) | (159,447 | ) | 10,318 | (57,570 | ) | |||||||||||
Net cash provided by (used in) financing activities |
5,897 | 10,372 | (6,431 | ) | 21,816 | (1,140 | ) | |||||||||||||
Effects of exchange rate changes on cash and cash equivalents |
(5,211 | ) | (923 | ) | 690 | 1,888 | 2,620 | |||||||||||||
Net increase (decrease) in cash and cash equivalents |
30,270 | 34,902 | (100,136 | ) | 108,451 | (2,395 | ) | |||||||||||||
Cash and cash equivalents at beginning of period |
461,804 | 426,902 | 527,038 | 418,587 | 420,982 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | 492,074 | $ | 461,804 | $ | 426,902 | $ | 527,038 | $ | 418,587 | ||||||||||
Financial statements for the three month periods during fiscal
2009 have been adjusted for the retrospective application of
FASB ASC 470-20.
2009 have been adjusted for the retrospective application of
FASB ASC 470-20.
- 14 -
Nuance Communications, Inc.
Supplemental Financial Information GAAP to Non-GAAP Reconciliations
(in thousands, except per share amounts)
Unaudited
Supplemental Financial Information GAAP to Non-GAAP Reconciliations
(in thousands, except per share amounts)
Unaudited
Three months ended | Nine months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
GAAP revenue |
$ | 273,203 | $ | 241,040 | $ | 809,185 | $ | 687,019 | ||||||||
Acquisition-related revenue adjustments: product and licensing |
12,922 | 8,264 | 44,726 | 40,217 | ||||||||||||
Acquisition-related revenue adjustments: professional services and
hosting |
6,359 | 1,506 | 9,632 | 3,956 | ||||||||||||
Acquisition-related revenue adjustments: maintenance and support |
900 | 519 | 7,269 | 3,370 | ||||||||||||
Non-GAAP revenue |
$ | 293,384 | $ | 251,329 | $ | 870,812 | $ | 734,562 | ||||||||
GAAP cost of revenue |
$ | 101,778 | $ | 93,959 | $ | 298,973 | $ | 264,637 | ||||||||
Cost of revenue from amortization of intangible assets |
(11,893 | ) | (10,017 | ) | (35,095 | ) | (27,444 | ) | ||||||||
Cost of revenue adjustments: product and licensing (1,2) |
2,794 | (2 | ) | 8,920 | (13 | ) | ||||||||||
Cost of revenue adjustments: professional services and hosting (1,2) |
(2,181 | ) | (1,953 | ) | (7,086 | ) | (6,321 | ) | ||||||||
Cost of revenue adjustments: maintenance and support (1,2) |
(165 | ) | (93 | ) | (582 | ) | (425 | ) | ||||||||
Non-GAAP cost of revenue |
$ | 90,333 | $ | 81,894 | $ | 265,130 | $ | 230,434 | ||||||||
GAAP gross profit |
$ | 171,425 | $ | 147,081 | $ | 510,212 | $ | 422,382 | ||||||||
Gross profit adjustments (1,2) |
31,626 | 22,354 | 95,470 | 81,746 | ||||||||||||
Non-GAAP gross profit |
$ | 203,051 | $ | 169,435 | $ | 605,682 | $ | 504,128 | ||||||||
GAAP income from operations |
$ | 4,562 | $ | 17,116 | $ | 2,170 | $ | 25,134 | ||||||||
Gross profit adjustments (1,2) |
31,626 | 22,354 | 95,470 | 81,746 | ||||||||||||
Research and development (1) |
2,282 | 2,013 | 6,731 | 7,640 | ||||||||||||
Sales and marketing (1) |
12,516 | 6,687 | 29,813 | 20,246 | ||||||||||||
General and administrative (1) |
10,512 | 6,346 | 27,544 | 16,804 | ||||||||||||
Amortization of intangible assets |
21,459 | 19,931 | 65,786 | 56,313 | ||||||||||||
Costs related to research and development collaborative agreement |
4,208 | | 12,208 | | ||||||||||||
Acquisition-related costs, net |
6,125 | 4,659 | 26,892 | 13,889 | ||||||||||||
Restructuring and other charges, net |
3,257 | 2,893 | 16,244 | 5,241 | ||||||||||||
Non-GAAP income from operations |
$ | 96,547 | $ | 81,999 | $ | 282,858 | $ | 227,013 | ||||||||
GAAP provision for income taxes |
$ | 1,831 | $ | 6,670 | $ | 4,459 | $ | 17,283 | ||||||||
Non-cash taxes |
3,471 | (4,170 | ) | 6,772 | (6,125 | ) | ||||||||||
Non-GAAP provision for income taxes |
$ | 5,302 | $ | 2,500 | $ | 11,231 | $ | 11,158 | ||||||||
GAAP net loss |
$ | (1,530 | ) | $ | (2,815 | ) | $ | (21,204 | ) | $ | (23,853 | ) | ||||
Acquisition-related adjustment revenue (2) |
20,181 | 10,289 | 61,627 | 47,543 | ||||||||||||
Acquisition-related adjustment cost of revenue (2) |
(3,232 | ) | (488 | ) | (10,032 | ) | (1,135 | ) | ||||||||
Acquisition-related costs, net |
6,125 | 4,659 | 26,892 | 13,889 | ||||||||||||
Cost of revenue from amortization of intangible assets |
11,893 | 10,017 | 35,095 | 27,444 | ||||||||||||
Amortization of intangible assets |
21,459 | 19,931 | 65,786 | 56,313 | ||||||||||||
Non-cash stock-based compensation (1) |
28,094 | 17,582 | 72,868 | 52,584 | ||||||||||||
Non-cash interest expense, net |
3,222 | 3,231 | 9,746 | 9,724 | ||||||||||||
Non-cash income taxes |
(3,471 | ) | 4,170 | (6,772 | ) | 6,125 | ||||||||||
Costs from IP collaboration agreement |
4,208 | | 12,208 | | ||||||||||||
Change in fair value of share-based instruments |
1,044 | 3,782 | (3,663 | ) | 3,782 | |||||||||||
Restructuring and other charges, net |
3,257 | 2,893 | 16,244 | 5,241 | ||||||||||||
Non-GAAP net income |
$ | 91,250 | $ | 73,251 | $ | 258,795 | $ | 197,657 | ||||||||
Non-GAAP diluted net income per share |
$ | 0.30 | $ | 0.26 | $ | 0.86 | $ | 0.74 | ||||||||
Diluted weighted average common shares outstanding |
305,427 | 281,151 | 300,511 | 268,699 | ||||||||||||
Financial statements for the three and nine months ended June 30, 2009 have been adjusted for the
retrospective application of FASB ASC 470-20.
retrospective application of FASB ASC 470-20.
- 15 -
Nuance Communications, Inc.
Supplemental Financial Information GAAP to Non-GAAP Reconciliations, continued
(in thousands)
Unaudited
Supplemental Financial Information GAAP to Non-GAAP Reconciliations, continued
(in thousands)
Unaudited
Three months ended | Nine months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(1) Non-Cash Stock-Based Compensation |
||||||||||||||||
Cost of product and licensing |
$ | 7 | $ | 2 | $ | 25 | $ | 8 | ||||||||
Cost of professional services and hosting |
2,612 | 2,402 | 8,173 | 7,329 | ||||||||||||
Cost of maintenance and support |
165 | 132 | 582 | 557 | ||||||||||||
Research and development |
2,282 | 2,013 | 6,731 | 7,640 | ||||||||||||
Sales and marketing |
12,516 | 6,687 | 29,813 | 20,246 | ||||||||||||
General and administrative |
10,512 | 6,346 | 27,544 | 16,804 | ||||||||||||
Total |
$ | 28,094 | $ | 17,582 | $ | 72,868 | $ | 52,584 | ||||||||
(2) Acquisition-Related Revenue and Cost of Revenue |
||||||||||||||||
Revenue |
$ | 20,181 | $ | 10,289 | $ | 61,627 | $ | 47,543 | ||||||||
Cost of product and licensing |
(2,801 | ) | | (8,945 | ) | 5 | ||||||||||
Cost of professional services and hosting |
(431 | ) | (449 | ) | (1,087 | ) | (1,008 | ) | ||||||||
Cost of maintenance and support |
| (39 | ) | | (132 | ) | ||||||||||
Total |
$ | 16,949 | $ | 9,801 | $ | 51,595 | $ | 46,408 | ||||||||
- 16 -
Nuance Communications, Inc.
Supplemental Financial Information GAAP to Non-GAAP Reconciliations, continued
(in millions)
Unaudited
Supplemental Financial Information GAAP to Non-GAAP Reconciliations, continued
(in millions)
Unaudited
Q1 | Q2 | Q3 | Q4 | FY | Q1 | Q2 | Q3 | |||||||||||||||||||||||||
Total Revenue | 2009 | 2009 | 2009 | 2009 | 2009 | 2010 | 2010 | 2010 | ||||||||||||||||||||||||
GAAP Revenue |
$ | 216.8 | $ | 229.1 | $ | 241.0 | $ | 263.3 | $ | 950.4 | $ | 263.0 | $ | 273.0 | $ | 273.2 | ||||||||||||||||
Adjustment |
$ | 27.6 | $ | 9.7 | $ | 10.3 | $ | 12.4 | $ | 59.9 | $ | 21.6 | $ | 19.8 | $ | 20.2 | ||||||||||||||||
Non-GAAP Revenue |
$ | 244.4 | $ | 238.8 | $ | 251.3 | $ | 275.7 | $ | 1,010.3 | $ | 284.6 | $ | 292.8 | $ | 293.4 | ||||||||||||||||
Q1 | Q2 | Q3 | Q4 | FY | Q1 | Q2 | Q3 | |||||||||||||||||||||||||
Mobile-Enterprise Revenue | 2009 | 2009 | 2009 | 2009 | 2009 | 2010 | 2010 | 2010 | ||||||||||||||||||||||||
GAAP Revenue |
$ | 99.8 | $ | 114.5 | $ | 118.0 | $ | 129.9 | $ | 462.3 | $ | 125.0 | $ | 136.0 | $ | 125.7 | ||||||||||||||||
Adjustment |
$ | 13.6 | $ | 5.0 | $ | 7.5 | $ | 7.3 | $ | 33.4 | $ | 2.6 | $ | 2.9 | $ | 6.0 | ||||||||||||||||
Non-GAAP Revenue |
$ | 113.4 | $ | 119.5 | $ | 125.5 | $ | 137.2 | $ | 495.7 | $ | 127.6 | $ | 138.9 | $ | 131.7 | ||||||||||||||||
Healthcare-Dictation Revenue | Q1 | Q2 | Q3 | Q4 | FY | Q1 | Q2 | Q3 | ||||||||||||||||||||||||
2009 | 2009 | 2009 | 2009 | 2009 | 2010 | 2010 | 2010 | |||||||||||||||||||||||||
GAAP Revenue |
$ | 100.0 | $ | 100.6 | $ | 105.6 | $ | 112.3 | $ | 418.4 | $ | 120.0 | $ | 118.5 | $ | 125.1 | ||||||||||||||||
Adjustment |
$ | 14.0 | $ | 4.6 | $ | 2.5 | $ | 1.5 | $ | 22.6 | $ | 1.2 | $ | 1.5 | $ | 0.8 | ||||||||||||||||
Non-GAAP Revenue |
$ | 114.0 | $ | 105.2 | $ | 108.1 | $ | 113.8 | $ | 441.0 | $ | 121.2 | $ | 120.0 | $ | 125.9 | ||||||||||||||||
Q1 | Q2 | Q3 | Q4 | FY | Q1 | Q2 | Q3 | |||||||||||||||||||||||||
Imaging Revenue | 2009 | 2009 | 2009 | 2009 | 2009 | 2010 | 2010 | 2010 | ||||||||||||||||||||||||
GAAP Revenue |
$ | 17.0 | $ | 14.1 | $ | 17.4 | $ | 21.1 | $ | 69.7 | $ | 18.0 | $ | 18.5 | $ | 22.4 | ||||||||||||||||
Adjustment |
$ | 0.0 | $ | 0.0 | $ | 0.3 | $ | 3.7 | $ | 3.9 | $ | 17.8 | $ | 15.4 | $ | 13.4 | ||||||||||||||||
Non-GAAP Revenue |
$ | 17.0 | $ | 14.1 | $ | 17.7 | $ | 24.8 | $ | 73.6 | $ | 35.8 | $ | 33.9 | $ | 35.8 | ||||||||||||||||
Product and Licensing Revenue | Q1 | Q2 | Q3 | Q4 | FY | Q1 | Q2 | Q3 | ||||||||||||||||||||||||
2009 | 2009 | 2009 | 2009 | 2009 | 2010 | 2010 | 2010 | |||||||||||||||||||||||||
GAAP Revenue |
$ | 85.6 | $ | 87.0 | $ | 87.3 | $ | 113.4 | $ | 373.4 | $ | 113.2 | $ | 113.2 | $ | 108.8 | ||||||||||||||||
Adjustment |
$ | 24.8 | $ | 7.2 | $ | 8.3 | $ | 10.8 | $ | 51.0 | $ | 17.0 | $ | 14.8 | $ | 13.0 | ||||||||||||||||
Non-GAAP Revenue |
$ | 110.4 | $ | 94.2 | $ | 95.6 | $ | 124.2 | $ | 424.4 | $ | 130.2 | $ | 128.0 | $ | 121.8 | ||||||||||||||||
Professional Services and Hosting Revenue | Q1 | Q2 | Q3 | Q4 | FY | Q1 | Q2 | Q3 | ||||||||||||||||||||||||
2009 | 2009 | 2009 | 2009 | 2009 | 2010 | 2010 | 2010 | |||||||||||||||||||||||||
GAAP Revenue |
$ | 90.2 | $ | 103.0 | $ | 111.0 | $ | 107.2 | $ | 411.4 | $ | 103.7 | $ | 116.2 | $ | 117.9 | ||||||||||||||||
Adjustment |
$ | 1.2 | $ | 1.2 | $ | 1.5 | $ | 1.0 | $ | 4.9 | $ | 0.8 | $ | 2.4 | $ | 6.3 | ||||||||||||||||
Non-GAAP Revenue |
$ | 91.4 | $ | 104.2 | $ | 112.5 | $ | 108.2 | $ | 416.3 | $ | 104.5 | $ | 118.6 | $ | 124.2 | ||||||||||||||||
Maintenance and Support Revenue | Q1 | Q2 | Q3 | Q4 | FY | Q1 | Q2 | Q3 | ||||||||||||||||||||||||
2009 | 2009 | 2009 | 2009 | 2009 | 2010 | 2010 | 2010 | |||||||||||||||||||||||||
GAAP Revenue |
$ | 41.1 | $ | 39.1 | $ | 42.7 | $ | 42.8 | $ | 165.6 | $ | 46.1 | $ | 43.6 | $ | 46.5 | ||||||||||||||||
Adjustment |
$ | 1.5 | $ | 1.3 | $ | 0.5 | $ | 0.6 | $ | 4.0 | $ | 3.8 | $ | 2.6 | $ | 0.9 | ||||||||||||||||
Non-GAAP Revenue |
$ | 42.6 | $ | 40.4 | $ | 43.2 | $ | 43.4 | $ | 169.6 | $ | 49.9 | $ | 46.2 | $ | 47.4 | ||||||||||||||||
###
- 17 -
Nuance Communications, Inc.
Reconciliation of Supplemental Financial Information
GAAP and non-GAAP Revenue and Net Income (Loss) per Share Guidance
(in thousands, except per share amounts)
Unaudited
Reconciliation of Supplemental Financial Information
GAAP and non-GAAP Revenue and Net Income (Loss) per Share Guidance
(in thousands, except per share amounts)
Unaudited
Three months ended | ||||||||
September 30, 2010 | ||||||||
Low | High | |||||||
GAAP revenue |
$ | 297,500 | $ | 317,500 | ||||
Acquisition-related adjustment revenue |
12,500 | 12,500 | ||||||
Non-GAAP revenue |
$ | 310,000 | $ | 330,000 | ||||
GAAP net income (loss), per share |
$ | (0.01 | ) | $ | 0.02 | |||
Acquisition-related adjustment revenue |
0.04 | 0.04 | ||||||
Acquistion-related adjustment cost of revenue |
(0.01 | ) | (0.01 | ) | ||||
Acquisition-related costs, net |
0.02 | 0.02 | ||||||
Cost of revenue from amortization of intangible assets |
0.04 | 0.04 | ||||||
Amortization of intangible assets |
0.07 | 0.07 | ||||||
Non-cash stock-based compensation |
0.10 | 0.10 | ||||||
Non-cash interest expense |
0.01 | 0.01 | ||||||
Non-cash income taxes |
0.04 | 0.04 | ||||||
Costs from IP collaboration agreement |
0.01 | 0.01 | ||||||
Non-GAAP net income (loss), per share |
$ | 0.31 | $ | 0.34 | ||||
Shares used in computing GAAP and non-GAAP net income
(loss) per share: |
||||||||
Weighted average common shares: basic |
295,000 | 295,000 | ||||||
Weighted average common shares: diluted |
309,000 | 309,000 | ||||||
Nuance Communications, Inc.
Reconciliation of Supplemental Financial Information
GAAP and non-GAAP Revenue and Net Income (Loss) per Share Guidance
(in thousands, except per share amounts)
Unaudited
Reconciliation of Supplemental Financial Information
GAAP and non-GAAP Revenue and Net Income (Loss) per Share Guidance
(in thousands, except per share amounts)
Unaudited
Twelve months ended | ||||||||
September 30, 2010 | ||||||||
Low | High | |||||||
GAAP revenue |
$ | 1,106,000 | $ | 1,126,000 | ||||
Acquisition-related adjustment revenue |
74,000 | 74,000 | ||||||
Non-GAAP revenue |
$ | 1,180,000 | $ | 1,200,000 | ||||
GAAP net income (loss), per share |
$ | (0.09 | ) | $ | (0.06 | ) | ||
Acquisition-related adjustment revenue |
0.24 | 0.24 | ||||||
Acquistion-related adjustment cost of revenue |
(0.04 | ) | (0.04 | ) | ||||
Acquisition-related costs, net |
0.12 | 0.12 | ||||||
Cost of revenue from amortization of intangible assets |
0.16 | 0.16 | ||||||
Amortization of intangible assets |
0.29 | 0.29 | ||||||
Non-cash stock-based compensation |
0.34 | 0.34 | ||||||
Non-cash interest expense |
0.04 | 0.04 | ||||||
Non-cash income taxes |
0.02 | 0.02 | ||||||
Costs from IP collaboration agreement |
0.05 | 0.05 | ||||||
Change in fair value of share-based instruments |
(0.01 | ) | (0.01 | ) | ||||
Restructuring and other charges, net |
0.05 | 0.05 | ||||||
Non-GAAP net income (loss), per share |
$ | 1.17 | $ | 1.20 | ||||
Shares used in computing GAAP and non-GAAP net
income (loss) per share: |
||||||||
Weighted average common shares: basic |
288,000 | 288,000 | ||||||
Weighted average common shares: diluted |
303,000 | 303,000 | ||||||