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Nuance Announces Second Quarter Fiscal 2013 Results



  Nuance Announces Second Quarter Fiscal 2013 Results

       Board of Directors Authorizes $500 Million Stock Repurchase Plan

Business Wire

BURLINGTON, Mass. -- April 30, 2013

Nuance Communications, Inc. (NASDAQ: NUAN) today announced financial results
for its second quarter fiscal 2013, ended March 31, 2013.

Nuance reported GAAP revenue of $451.0 million in the second quarter fiscal
2013, a 15.6% increase over GAAP revenue of $390.3 million in the second
quarter of fiscal 2012. Nuance reported non-GAAP revenue of $484.0 million,
which includes $33.0 million in revenue lost to accounting treatment in
conjunction with acquisitions. Second quarter fiscal 2013 non-GAAP revenue
grew 15.9% over non-GAAP revenue of $417.7 million in the second quarter of
fiscal 2012.

In the second quarter of fiscal 2013, Nuance reported GAAP net loss of ($25.8)
million, or ($0.08) per share, compared with GAAP net income of $0.9 million,
or $0.00 per diluted share, in the second quarter of fiscal 2012. In the
second quarter of fiscal 2013, Nuance reported non-GAAP net income of $110.4
million, or $0.34 per diluted share, compared to non-GAAP net income of $138.8
million, or $0.43 per diluted share, in the second quarter of fiscal 2012.
Nuance’s second quarter fiscal 2013 non-GAAP operating margin was 29.1%, down
from 36.8% in the second quarter of fiscal 2012. Nuance reported cash flow
from operations of $93.1 million in the second quarter of fiscal 2013, down
from $100.5 million in the second quarter of fiscal 2012. Nuance ended the
second quarter of fiscal 2013 with a balance of cash and cash equivalents of
$1,005.3 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.

“We are disappointed with our results for the second quarter, which were
driven by a combination of execution issues and external factors. We have
taken immediate corrective actions to improve the performance of our business
and revised our operating plan accordingly,” said Paul Ricci, Nuance Chairman
and CEO. “Despite short-term setbacks, we continued to make advancements in
the quarter, earning design wins and new bookings in new strategic product
areas including our automotive business and Nina solutions for customer care.
Our share buyback program announced today underscores our confidence in the
business and our focus on shareholder value as we expect growth to accelerate
in fiscal 2014.”

Highlights from the quarter include:

  * Healthcare – For Nuance’s healthcare solutions, second quarter fiscal 2013
    non-GAAP revenue was $229.3 million, up 53.0% from the second quarter of
    fiscal 2012. We secured new business with key healthcare customers
    including Adventist Health System, Alberta Health Services, Alexian
    Brothers Medical Center, Memphis Baptist Memorial Hospital, Meridian
    Health, Morristown Medical Center, Orlando Health, Pomona Valley Medical
    Center, Sacred Heart Hospital, St. Joseph Health, St. Luke’s Hospital,
    University of New Mexico and WellSpan Health.
  * Mobile & Consumer – For  Nuance’s mobile and consumer solutions, second
    quarter fiscal 2013 non-GAAP revenue was $116.2 million, up 1.0% from the
    second quarter of fiscal 2012. We secured new business or design wins with
    key mobile customers including Apple, Asus, Blackberry, DoCoMo, Ford,
    Fujitsu, GM, Honda, Kyocera, LG, Samsung and TPV.
  * Enterprise – For Nuance’s enterprise solutions, second quarter fiscal 2013
    non-GAAP revenue was $74.5 million, down 18.5% from the second quarter of
    fiscal 2012. We secured new business with key enterprise customers
    including Caremark, Eastern Bank, E*Trade, Geico, HM Revenue & Customs,
    KTIM, MetroPCS, QBE, USAA, US Bank, US Social Security Administration and
    Wells Fargo.
  * Imaging – For Nuance’s document imaging solutions, second quarter fiscal
    2013 non-GAAP revenue was $64.0 million, up 4.4% from the second quarter
    of fiscal 2012. We secured new business with key imaging customers
    including Ericsson, Hong Kong Jockey Club, IBM, P&G, Ricoh, Sharp,
    Southwick Council, StoraEnso and UPM.

Nuance Authorizes $500 Million Stock Repurchase Plan

Under the plan, Nuance intends to repurchase up to $500 million of its
outstanding shares of common stock.

Stock repurchases may be made through a variety of methods, which may include
open market purchases, privately negotiated transactions, block trades,
accelerated stock repurchase transactions, or any combination of such methods.
The timing and the amount of any purchases will be determined by the Company’s
management based on its evaluation of market conditions, capital allocation
alternatives, and other factors. The share repurchase plan does not require
the Company to acquire any specific number of shares and may be modified
suspended, extended or terminated by the Company at any time without prior
notice. The share repurchase plan is designed to comply with U.S. securities
laws, rules and safe harbors for purchases that do not constitute tender
offers. These restrictions can lengthen the time it may take for Nuance to
acquire its shares under this repurchase plan.

Conference Call and Prepared Remarks

Nuance is providing a copy of prepared remarks in combination with this 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 this press
release.

The conference call will begin today, April 30, 2013 at 8:00 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 (800) 288-8968 or (612) 332-0630 at
least five minutes prior to the call and referencing code 291523. 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 291523.

About Nuance Communications, Inc.

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.

Safe Harbor and Forward-Looking Statements

Statements in this document regarding Nuance’s growth expectations, Nuance’s
share repurchase program, and Nuance management’s 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
Nuance’s existing and future products; economic conditions in the United
States and abroad; Nuance’s ability to control and successfully manage its
expenses and cash position; the effects of competition, including pricing
pressure; possible defects in Nuance’s 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 Nuance’s annual report on Form
10-K for the fiscal year ended September 30, 2012 and quarterly report on Form
10-Q for the fiscal quarter ended December 31, 2012 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.

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 management’s 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 business 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 six months
ended March 31, 2013 and 2012, 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 is 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 SafeCom, Quantim
and J.A. Thomas for the three and six months ended March 31, 2013, 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. Because GAAP accounting
requires the elimination of this revenue, GAAP results alone do not fully
capture all of the Company’s 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 Company's 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,
including services provided by third parties.

(ii) Professional service fees. Professional service fees include third party
costs related to the acquisition, and 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
Company’s 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 party's extensive speech recognition
technology and natural language and semantic processing technology, Nuance has
entered into IP collaboration agreements, with terms ranging between five and
six years. Depending on the agreement, some or all intellectual property
derived from these collaborations will be jointly owned by the two parties.
For the majority of the developed intellectual property, Nuance will have sole
rights to commercialize such intellectual property for periods ranging between
two to six years, depending on the agreement. For non-GAAP purposes, Nuance
considers these long-term contracts and the resulting acquisitions of
intellectual property from this third-party over the agreements’ terms 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 these expenses. Nuance does not exclude from its
non-GAAP results the corresponding revenue, if any, generated from these
collaboration efforts. Although the Company's 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 these collaboration agreements 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 Company’s 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 non-cash
and the options and restricted awards granted are influenced by the Company’s
stock price and other factors such as volatility that are beyond the Company’s
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 arise 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, and gains or losses on
non-controlling strategic equity interests.

The Company believes that providing 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 Company’s 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

                                                                       
Nuance Communications, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
Unaudited
                                                                         
                        Three months ended              Six months ended
                        March 31,                       March 31,
                          2013            2012            2013            2012     
                                                                         
Revenues:
Product and             $ 173,886       $ 176,466       $ 371,786       $ 341,200
licensing
Professional
services and              213,264         155,535         413,569         295,117
hosting
Maintenance and           63,849          58,340          127,912         114,667  
support
Total revenues            450,999         390,341         913,267         750,984  
                                                                         
Cost of revenues:
Product and               22,943          17,691          49,252          36,455
licensing
Professional
services and              138,534         97,221          263,690         187,375
hosting
Maintenance and           13,098          10,893          27,895          21,913
support
Amortization of           16,610          14,867          32,920          29,801   
intangible assets
Total cost of             191,185         140,672         373,757         275,544  
revenues
                                                                         
Gross profit              259,814         249,669         539,510         475,440  
                                                                         
Operating expenses:
Research and              72,553          53,992          141,274         106,046
development
Sales and marketing       98,348          84,354          215,483         174,751
General and               29,990          41,149          74,774          72,464
administrative
Amortization of           26,001          21,905          51,427          45,108
intangible assets
Acquisition-related       15,448          14,986          31,181          29,597
costs, net
Restructuring and         5,062           2,536           6,729           5,400    
other charges, net
Total operating           247,402         218,922         520,868         433,366  
expenses
                                                                         
Income from               12,412          30,747          18,642          42,074
operations
                                                                         
Other expense, net        (37,586 )       (18,390 )       (74,473 )       (29,786 )
                                                                         
(Loss) income             (25,174 )       12,357          (55,831 )       12,288
before income taxes
                                                                         
Provision (benefit)       674             11,467          (7,887  )       2,058    
from income taxes
                                                                         
Net (loss) income       $ (25,848 )     $ 890           $ (47,944 )     $ 10,230   
                                                                         
Net (loss) income
per share:
Basic                   $ (0.08   )     $ 0.00          $ (0.15   )     $ 0.03     
Diluted                 $ (0.08   )     $ 0.00          $ (0.15   )     $ 0.03     
                                                                         
Weighted average
common shares
outstanding:
Basic                     315,473         305,282         314,006         304,643  
Diluted                   315,473         322,642         314,006         321,792  

                                                           
Nuance Communications, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
                                                             
                                                             
                                                             
ASSETS                                   March 31, 2013     September 30, 2012
                                         Unaudited
                                                             
Current assets:
Cash and cash equivalents                $   1,005,302      $     1,129,761
Accounts receivable, net                     372,571              381,417
Prepaid expenses and other current           190,898              190,128
assets
Total current assets                         1,568,771            1,701,306
                                                             
Land, building and equipment, net            132,648              116,134
Goodwill                                     3,224,086            2,955,477
Intangible assets, net                       969,372              906,538
Other assets                                 195,863              119,585
Total assets                             $   6,090,740      $     5,799,040
                                                             
LIABILITIES AND STOCKHOLDERS' EQUITY
                                                             
Current liabilities:
Current portion of long-term debt        $   4,847          $     148,542
Redeemable convertible debentures            -                    231,552
Contingent and deferred acquisition          25,007               49,685
payments
Accounts payable and accrued                 288,691              328,374
expenses
Deferred revenue                             249,934              206,610
Total current liabilities                    568,479              964,763
                                                             
Long-term portion of debt                    2,336,750            1,735,811
Deferred revenue, net of current             138,354              108,481
portion
Other liabilities                            278,300              243,279
Total liabilities                            3,321,883            3,052,334
                                                             
Equity component of currently                -                    18,430
redeemable convertible debentures
Stockholders' equity                         2,768,857            2,728,276
                                                             
Total liabilities and stockholders'      $   6,090,740      $     5,799,040
equity

                                                                     
Nuance Communications, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Unaudited
                  Three months ended                Six months ended
                  March 31,                         March 31,
                    2013              2012            2013              2012        
                                                                                    
Cash flows
from
operating
activities:
Net (loss)        $ (25,848   )     $ 890           $ (47,944   )     $ 10,230
income
Adjustments
to reconcile
net income to
net cash
provided by
operating
activities:
Depreciation
and                 52,147            44,455          102,576           90,290      
amortization
Stock-based         29,642            38,021          74,913            70,808
compensation
Non-cash
interest            9,591             8,365           19,577            16,064
expense
Deferred tax
(benefit)           (20,151   )       1,490           (24,228   )       (11,230  )
provision
Other               823               829             (1,102    )       1,412       
Changes in
operating
assets and
liabilities,
net of
effects from
acquisitions:
Accounts            21,466            (10,367 )       30,281            (34,298  )
receivable
Prepaid
expenses and        (2,413    )       (5,223  )       (11,517   )       (4,149   )
other assets
Accounts            20,839            5,084           2,147             15,841
payable
Accrued
expenses and        260               3,889           9,501             (2,963   )
other
liabilities
Deferred            6,730             13,087          61,830            38,048    
revenue
Net cash
provided by         93,086            100,520         216,034           190,053   
operating
activities
Cash flows
from
investing
activities:
Capital             (14,484   )       (12,117 )       (29,588   )       (37,775  )
expenditures
Payments for
business and
technology          (28,067   )       (15,048 )       (474,259  )       (126,833 )
acquisitions,
net of cash
acquired
Proceeds from
sales and
maturities of
marketable          (275      )       -               181               20,759
securities
and other
investments
Change in
restricted          -                 -               -                 6,747     
cash balances
Net cash used
in investing        (42,826   )       (27,165 )       (503,666  )       (137,102 )
activities
Cash flows
from
financing
activities:
Payments of         (1,288    )       (1,661  )       (146,123  )       (3,326   )  
debt
Proceeds from
long-term
debt, net of        (219      )       (463    )       352,392           676,037
issuance
costs
Payments for
repurchases         -                 -               -                 (199,997 )
of common
stock
(Payments
for) proceeds
from
settlement of       (3,624    )       8,672           (3,801    )       9,020
share-based
derivatives,
net
Payments of
other               (308      )       (2,742  )       (1,320    )       (5,391   )
long-term
liabilities
Excess tax
benefits on         (4,974    )       7,000           -                 7,000
employee
equity awards
Proceeds from
issuance of
common stock        11,179            10,197          13,085            17,431
from employee
stock plans
Cash used to
net share
settle              (5,659    )       (3,138  )       (49,518   )       (36,139  )
employee
equity awards
Net cash
(used in)
provided by         (4,893    )       17,865          164,715           464,635   
financing
activities
Effects of
exchange rate
changes on          (1,153    )       1,934           (1,542    )       1,930     
cash and cash
equivalents
Net increase
(decrease) in       44,214            93,154          (124,459  )       519,516
cash and cash
equivalents
Cash and cash
equivalents         961,088           873,586         1,129,761         447,224   
at beginning
of period
Cash and cash
equivalents       $ 1,005,302       $ 966,740       $ 1,005,302       $ 966,740   
at end of
period

                                                                       
Nuance Communications, Inc.
Supplemental Financial Information - GAAP to Non-GAAP Reconciliations
(in thousands, except per share amounts)
Unaudited
                        Three months ended              Six months ended
                        March 31                        March 31
                          2013            2012            2013            2012     
                                                                         
GAAP revenue            $ 450,999       $ 390,341       $ 913,267       $ 750,984
Acquisition-related
revenue
adjustments:              23,034          24,583          43,464          42,915
product and
licensing
Acquisition-related
revenue
adjustments:              7,830           1,026           14,893          1,978
professional
services and
hosting
Acquisition-related
revenue
adjustments:              2,167           1,771           4,823           3,893    
maintenance and
support
Non-GAAP revenue        $ 484,030       $ 417,721       $ 976,447       $ 799,770  
                                                                         
GAAP cost of            $ 191,185       $ 140,672       $ 373,757       $ 275,544
revenue
Cost of revenue
from amortization         (16,610 )       (14,867 )       (32,920 )       (29,801 )
of intangible
assets
Cost of revenue
adjustments:              2,030           2,120           4,013           4,348
product and
licensing (1,2)
Cost of revenue
adjustments:
professional              (4,095  )       (6,105  )       (6,183  )       (10,511 )
services and
hosting (1,2)
Cost of revenue
adjustments:              (430    )       (260    )       (2,533  )       (305    )
maintenance and
support (1,2)
Non-GAAP cost of        $ 172,080       $ 121,560       $ 336,134       $ 239,275  
revenue
                                                                         
GAAP gross profit       $ 259,814       $ 249,669       $ 539,510       $ 475,440
Gross profit              52,136          46,492          100,803         85,055   
adjustments
Non-GAAP gross          $ 311,950       $ 296,161       $ 640,313       $ 560,495  
profit
                                                                         
GAAP income from        $ 12,412        $ 30,747        $ 18,642        $ 42,074
operations
Gross profit              52,136          46,492          100,803         85,055
adjustments
Research and              7,849           5,970           16,709          11,853
development (1)
Sales and marketing       12,526          10,390          29,373          22,207
(1)
General and               4,180           15,286          19,053          25,830
administrative (1)
Amortization of           26,001          21,905          51,427          45,108
intangible assets
Costs associated
with IP                   5,458           5,250           10,708          10,500
collaboration
agreements
Acquisition-related       15,448          14,986          31,181          29,597
costs, net
Restructuring and         5,062           2,536           6,729           5,400    
other charges, net
Non-GAAP income         $ 141,072       $ 153,562       $ 284,625       $ 277,624  
from operations
                                                                         
GAAP provision
(benefit) from          $ 674           $ 11,467        $ (7,887  )     $ 2,058
income taxes
Non-cash taxes            5,057           (7,467  )       19,823          8,242    
Non-GAAP provision      $ 5,731         $ 4,000         $ 11,936        $ 10,300   
for income taxes
                                                                         
GAAP net (loss)         $ (25,848 )     $ 890           $ (47,944 )     $ 10,230
income
Acquisition-related
adjustment -              33,031          27,380          63,180          48,786
revenue (2)
Acquisition-related
adjustment - cost         (2,592  )       (2,130  )       (5,075  )       (4,450  )
of revenue (2)
Acquisition-related       15,448          14,986          31,181          29,597
costs, net
Cost of revenue
from amortization         16,610          14,867          32,920          29,801
of intangible
assets
Amortization of           26,001          21,905          51,427          45,108
intangible assets
Non-cash
stock-based               29,642          38,021          74,913          70,808
compensation (1)
Non-cash interest         9,591           8,365           19,577          16,064
expense, net
Non-cash income           (5,057  )       7,467           (19,823 )       (8,242  )
taxes
Costs associated
with IP                   5,458           5,250           10,708          10,500
collaboration
agreements
Change in fair
value of                  3,015           (718    )       5,525           (6,238  )
share-based
instruments
Restructuring and         5,062           2,536           6,729           5,400    
other charges, net
Non-GAAP net income     $ 110,361       $ 138,819       $ 223,318       $ 247,364  
                                                                         
Non-GAAP diluted
net income per          $ 0.34          $ 0.43          $ 0.69          $ 0.77     
share
                                                                         
Diluted weighted
average common            324,119         322,642         323,829         321,792  
shares outstanding

                                                                    
Nuance Communications, Inc.
Supplemental Financial Information - GAAP to Non-GAAP Reconciliations,
continued
(in thousands)
Unaudited
                                                                      
                        Three months ended            Six months ended
                        March 31,                     March 31,
                          2013           2012           2013           2012    
                                                                      
(1) Non-Cash
Stock-Based
Compensation
Cost of product and     $ 168          $ 10           $ 353          $ 102
licensing
Cost of
professional              4,489          6,105          6,892          10,511
services and
hosting
Cost of maintenance       430            260            2,533          305
and support
Research and              7,849          5,970          16,709         11,853
development
Sales and marketing       12,526         10,390         29,373         22,207
General and               4,180          15,286         19,053         25,830  
administrative
Total                   $ 29,642       $ 38,021       $ 74,913       $ 70,808  
                                                                      
(2)
Acquisition-Related
Revenue and Cost of
Revenue
Revenue                 $ 33,031       $ 27,380       $ 63,180       $ 48,786
Cost of product and       (2,198 )       (2,130 )       (4,366 )       (4,450 )
licensing
Cost of
professional              (394   )       -              (709   )       -       
services and
hosting
Total                   $ 30,439       $ 25,250       $ 58,105       $ 44,336  

                                                                                
Nuance Communications, Inc.
Supplemental Financial Information – GAAP to Non-GAAP Reconciliations, continued
(in millions)
Unaudited
                                                                                  
                                                                                  
Healthcare     Q1         Q2         Q3         Q4         FY         Q1         Q2
               2012       2012       2012       2012       2012       2013       2013
GAAP           $145.1     $149.7     $184.5     $189.3     $668.6     $204.7     $219.1
Revenue
Adjustment     $0.2       $0.2       $0.0       $0.4       $0.8       $12.7      $10.2
Non-GAAP       $145.3     $149.9     $184.5     $189.7     $669.4     $217.4     $229.3
Revenue
                                                                                  
Mobile &       Q1         Q2         Q3         Q4         FY         Q1         Q2
Consumer       2012       2012       2012       2012       2012       2013       2013
GAAP           $103.4     $110.3     $126.0     $143.2     $483.0     $128.8     $113.0
Revenue
Adjustment     $5.1       $4.8       $6.4       $9.0       $25.3      $2.9       $3.2
Non-GAAP       $108.5     $115.1     $132.4     $152.2     $508.3     $131.7     $116.2
Revenue
                                                                                  
Enterprise     Q1         Q2         Q3         Q4         FY         Q1         Q2
               2012       2012       2012       2012       2012       2013       2013
GAAP           $72.2      $79.6      $74.1      $89.1      $315.0     $83.7      $72.9
Revenue
Adjustment     $3.6       $11.8      $0.4       $1.2       $17.0      $0.0       $1.6
Non-GAAP       $75.8      $91.4      $74.5      $90.3      $332.0     $83.7      $74.5
Revenue
                                                                                  
Imaging        Q1         Q2         Q3         Q4         FY         Q1         Q2
               2012       2012       2012       2012       2012       2013       2013
GAAP           $39.9      $50.7      $47.1      $47.2      $184.9     $45.1      $46.0
Revenue
Adjustment     $12.5      $10.6      $9.7       $10.7      $43.5      $14.5      $18.0
Non-GAAP       $52.4      $61.3      $56.8      $57.9      $228.4     $59.6      $64.0
Revenue
                                                                                  
                                                                                  
                                                                                  
Schedules may not add due to rounding.

Contact:

For Investors
Nuance Communications, Inc.
Kevin Faulkner, 408-992-6100
kevin.faulkner@nuance.com
or
For Press and Investors
Nuance Communications, Inc.
Richard Mack, 781-565-5000
richard.mack@nuance.com
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