Company to Announce Fiscal Third Quarter Results on August 6, 2015
Nuance Communications, Inc. (NASDAQ: NUAN) today announced preliminary
revenue, EPS and cash flow from operations results for its fiscal third
quarter 2015, ended June 30, 2015.
Based on preliminary financial data, Nuance expects Q3 15 non-GAAP
revenues between $485 million and $489 million; GAAP revenues between
$474 million and $478 million; non-GAAP EPS between $0.31 and $0.32 per
diluted share; GAAP EPS between ($0.14) and ($0.13) per share; and cash
flow from operations of approximately $120 million. The preliminary
expectations are subject to revision until the Company reports final Q3
15 results on August 6, 2015. (See today’s separate advisory for
details.)
On May 7, 2015, Nuance provided initial guidance for Q3 15 of non-GAAP
revenues between $468 and $482 million; GAAP revenues between $457 and
$471 million; non-GAAP EPS between $0.25 and $0.29; and GAAP EPS between
($0.15) and ($0.11).
Dan Tempesta Appointed Nuance Chief Financial Officer
Nuance today also announced that it has appointed Daniel D. Tempesta as
its Chief Financial Officer and an Executive Vice President. Tom
Beaudoin, who has served as Nuance’s CFO since July 2008, will depart at
the end of the month to pursue an opportunity at a smaller, privately
held company.
Mr. Tempesta brings more than 20 years of experience to the role,
including extensive financial and operational experience with publicly
held companies and accounting firms. He joined Nuance in March 2008 and
most recently has served as Nuance’s Chief Accounting Officer, Corporate
Controller and Senior Vice President of Finance. During his tenure at
Nuance, he has led the company’s efforts to build strong financial
processes and other support operations, and has assembled a world-class
financial organization. For the past several years, he has led most of
Nuance’s finance and accounting operations, as well as tax, treasury,
order management and internal control activities.
“Dan is extremely well qualified to serve as Nuance’s next CFO,” said
Paul Ricci, Nuance Chairman and CEO. “He has delivered an impressive set
of achievements at Nuance and, with his deep understanding of our
company and its operations, will be central to our strategic and
financial business performance.”
Mr. Ricci added, “Tom has been instrumental in providing financial
leadership during many years of the company’s growth. Working together,
Tom and Dan have built financial systems, strong processes and a level
of professionalism that will serve Nuance well for many years to come.
We wish Tom the best in his new endeavor.”
Previously, Mr. Tempesta held several senior finance roles, including
Chief Accounting Officer and Corporate Controller, at Teradyne Inc.
Prior to that he spent the first eleven years of his career in the audit
practice of PricewaterhouseCoopers LLP. He received an accounting degree
from the Isenberg School of Management at the University of
Massachusetts, Amherst. Dan resides with his family in a suburb of
Boston.
“I am pleased to see Dan take this role,” said Robert Frankenberg, a
Nuance Director and Chair of the Audit Committee. “I have worked closely
with Dan for many years, and I am extremely confident that Dan will
continue to effectively lead the finance organization and to drive
operational excellence, set clear expectations and ensure profitable
growth and strong shareholder returns.”
About Nuance Communications
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.
Safe Harbor and Forward-Looking Statements
Statements in this document regarding future performance and our
management’s future expectations, beliefs, goals, plans or prospects,
including statements about our preliminary third quarter fiscal 2015
results, 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
our existing and future products; economic conditions in the United
States and internationally; our ability to control and successfully
manage our expenses and cash position; the effects of competition,
including pricing pressure; possible defects in our products and
technologies; our ability to successfully integrate operations and
employees of acquired businesses; the conversion rate of bookings into
revenue; the ability to realize anticipated synergies from acquired
businesses; and the other factors described in our annual report on Form
10-K for the fiscal year ended September 30, 2014 and our quarterly
reports filed with the Securities and Exchange Commission. We disclaim
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
We utilize 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
nine months ended June 30, 2015 and 2014, 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.
We provide supplementary non-GAAP financial measures of revenue, which
include revenue related to acquisitions, primarily from Notable
Solutions, Quantim and Equitrac for the three and nine months ended June
30, 2015, that would otherwise have been recognized but for the purchase
accounting treatment of these transactions. Non-GAAP revenue also
includes revenue that we would have otherwise recognized had we 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 our economic activities. These
non-GAAP adjustments are intended to reflect the full amount of such
revenue. We include 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. We believe 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, we have historically 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, we generally will incur
these adjustments in connection with any future acquisitions.
Acquisition-related costs, net.
In recent years, we have completed a number of acquisitions, which
result in operating expenses which would not otherwise have been
incurred. We provide 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. We consider 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 our control. Furthermore, we do 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 our ability to utilize our existing assets and estimate
the long-term value that acquired assets will generate for us. We
believe 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, we
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.
We exclude 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 our acquired intellectual property is treated in a comparable
manner to our internally developed intellectual property. Although we
exclude amortization of acquired intangible assets from our non-GAAP
expenses, we believe 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, we
have 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, we 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, we consider 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 our normal, organic, continuing operating activities, and are
therefore presenting this supplemental information to show the results
excluding these expenses. We do not exclude from our non-GAAP results
the corresponding revenue, if any, generated from these collaboration
efforts. Although our 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. Costs associated with the research and
development portion of the agreements have been excluded from research
and development expense while costs for the extension of the marketing
exclusivity period are excluded from sales and marketing expense.
Non-cash expenses.
We provide 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, we
believe that the exclusion of stock-based compensation allows for more
accurate comparisons of operating results to peer companies, as well as
to times in our history when stock-based compensation was more or less
significant as a portion of overall compensation than in the current
period. We evaluate 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 Company’s stock price and other factors such as
volatility that are beyond our 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, we do not include such charges in operating plans.
Stock-based compensation will continue in future periods.
(ii) and (iii) Certain accrued interest and income taxes. We also
exclude certain accrued interest and certain accrued income taxes
because we believe 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.
We exclude 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, we believe management and the users of the financial
statements are better able to understand the financial results of what
we consider to be our 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
include losses from the extinguishment of our convertible debt and
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. Other items such as consulting and
professional services fees related to assessing strategic alternatives,
executing on our recently announced cost savings and process
optimization initiatives, and gains or losses on non-controlling
strategic equity interests, are also excluded.
We believe 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. We
further believe that providing this information allows investors to not
only better understand our financial performance, but more importantly,
to evaluate the efficacy of the methodology and information used by
management to evaluate and measure such performance.
Financial Table Follows
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Nuance Communications, Inc. Reconciliation of Supplemental
Financial Information GAAP and non-GAAP Revenue and Net Income
per Share Guidance (in thousands, except per share amounts) Unaudited
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Three months ended
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June 30, 2015
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Low
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High
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GAAP revenue
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$
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474,000
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$
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478,000
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Acquisition-related adjustment - revenue
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11,000
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11,000
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Non-GAAP revenue
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$
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485,000
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$
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489,000
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GAAP net loss per share
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$
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(0.14
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)
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$
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(0.13
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)
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Acquisition-related adjustment - revenue
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0.03
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0.03
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Acquisition-related adjustment - cost of revenue
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(0.00
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)
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(0.00
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)
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Acquisition-related costs, net
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0.01
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0.01
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Cost of revenue from amortization of intangible assets
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0.05
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0.05
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Amortization of intangible assets
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0.08
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0.08
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Non-cash stock-based compensation
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0.13
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0.13
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Non-cash interest expense
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0.02
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0.02
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Non-cash income taxes
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0.01
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0.01
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Costs associated with IP collaboration agreements
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0.01
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0.01
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Change in fair value of share-based instruments
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(0.00
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)
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(0.00
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)
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Restructuring and other charges, net
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0.03
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0.03
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Losses from the extinguishment of debt
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0.06
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0.06
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Other
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0.02
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0.02
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Non-GAAP net income per share
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$
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0.31
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$
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0.32
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Shares used in computing GAAP and non-GAAP net income per share:
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Weighted average common shares: basic
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313,000
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313,000
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Weighted average common shares: diluted
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316,000
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316,000
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