PR Newswire | Nov 18, 2020 04:02PM EST

11/18 15:02 CST

Nuance Announces Fourth Quarter and Fiscal Year 2020 Results- Delivered Revenue and EPS at high end of guidance range- Continued strength in Dragon Medical One and emerging cloud-based Healthcare offerings- Announced divestiture of medical transcription and EHR Go-Live services- Provided FY'21 guidance and updating mid-term outlook BURLINGTON, Mass., Nov. 18, 2020

BURLINGTON, Mass., Nov. 18, 2020 /PRNewswire/ -- Nuance Communications, Inc. (NASDAQ: NUAN) today announced financial results for its fourth quarter and fiscal year ended September 30, 2020:

* GAAP revenue of $352.9 million and GAAP earnings per diluted share of $(0.08). * Non-GAAP revenue of $352.9 million and non-GAAP earnings per diluted share of $0.18.

"We are very pleased with the strong end to our fiscal year, as we delivered revenue and EPS at the high end of our guidance range," said Mark Benjamin, Chief Executive Officer at Nuance. "We continued to execute on our strategic initiatives, accelerating our cloud transition in Healthcare and focusing on our AI-first approach in Enterprise. In Healthcare, we drove solid growth in our cloud offerings, ending the year at $386 million in cloud-based ARR, up 29% for the full year. In particular, we benefited from strong performance in Dragon Medical Cloud, which grew 38% compared to 2019, as well as growth in our PowerScribe One and CDE One offerings, as we continue to transition our customer base to the cloud. Enterprise revenue increased 4% compared to 2019, marking our fifth consecutive year of organic growth. This growth was driven by strength in our Intelligent Engagement offerings."

Mr. Benjamin concluded, "In a separate release today, as part of our ongoing effort to align our portfolio with key strategic growth areas, we announced the planned sale of our medical transcription and electronic health record (EHR) Go-Live services to Assured Healthcare Partners and Aeries Technology Group. With this sale, we will reach an important milestone in our journey towards a more focused strategy of advancing our Conversational AI, natural language understanding and ambient clinical intelligence solutions. This crucial step in our portfolio rationalization efforts places Nuance in a strong position to achieve levels of organic growth not seen in many years, and I look forward to continuing on this path in the quarters to come."

Q4 2020 Performance SummaryQ4 2020 results for continuing operations include:

* Revenue of $352.9 million, compared to $387.6 million in the same period last year. * Non-GAAP revenue of $352.9 million, compared to $387.8 million in the same period last year. * GAAP operating income of $12.9 million, compared to $30.8 million in the same period last year. * Non-GAAP operating income of $76.3 million, compared to $94.1 million in the same period last year. * GAAP operating margin of 3.7%, compared to 7.9% in the same period last year. * Non-GAAP operating margin of 21.6%, compared to 24.3% in the same period last year. * GAAP net loss of $22.8 million, compared to a net income of $3.0 million in the same period last year. * Non-GAAP net income of $54.2 million, compared to $65.9 million in the same period last year. * GAAP EPS of $(0.08), compared to $0.01 in the same period last year. * Non-GAAP EPS of $0.18, compared to $0.23 in the same period last year. * Operating cash flows from continuing operations was $80.9 million, compared to $79.3 million in the same period last year.

Capital AllocationWe remain committed to our balanced capital allocation approach. While we did not engage in any share buyback or debt retirement activity during the fourth quarter, during the fiscal year we repurchased $169 million of common stock and retired $470 million of debt principal value, all of which took place in the first half of the year. We remain confident in the strength of our balance sheet and our solid liquidity position, ending the quarter with a cash and marketable securities balance of $372 million, slightly above our target minimum cash balance range.

For a complete discussion of Nuance's results and business outlook, including our updated guidance, please see the Company's Prepared Remarks document available at http://www.nuance.com/earnings-results/. We will also be providing an update to our mid-term outlook on our earnings call today (details below).

Please refer to the "Discussion of Non-GAAP Financial Measures," and "GAAP to Non-GAAP Reconciliations," included elsewhere in this release, for more information regarding the Company's use of non-GAAP financial measures.

Conference Call and Prepared RemarksNuance will host a conference call today at 5:00 p.m. ET. To participate, please access the live webcast here, or by dialing 1-888-317-6003 (US and Canada) or 1-412-317-6061 (international) and referencing code 5887867.

Nuance will provide a copy of Prepared Remarks in combination with its press release. These remarks are offered to provide shareholders and analysts additional detail for analyzing the results. The remarks are available at http://investors.nuance.com/ and will not be read on the call.

About Nuance Communications, Inc.Nuance Communications (NASDAQ: NUAN) is a technology pioneer with market leadership in conversational AI and ambient intelligence. A full-service partner trusted by 90 percent of US hospitals and 85 percent of the Fortune 100 companies worldwide, Nuance creates intuitive solutions that amplify people's ability to help others.

Trademark reference: Nuance and the Nuance logo 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 StatementsStatements in this document regarding future performance and our 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," "intends" 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 but not limited to: the impact of the COVID-19 pandemic, the effects of competition, including pricing pressure, and changing business models in the markets and industries in which we operate; fluctuations in demand for our existing and future products; changes to economic, political, and regulatory conditions in the United States and internationally; our ability to attract and retain key personnel; our ability to control and successfully manage our expenses and cash position; cybersecurity and data privacy incidents or breaches, and related remediation and investigation; our ability to comply with applicable domestic and international laws and policies; fluctuating currency rates; possible quality issues in our products and technologies; our ability to realize anticipated synergies from acquired businesses, to cut stranded costs related to divested businesses, and to capture the expected value from strategic transactions; and the other factors described in our most recent Form 10-K, Form 10-Q and other filings 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.

Discussion of Non-GAAP Financial MeasuresWe believe that providing non-GAAP ("Generally Accepted Accounting Principles") 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 not only to 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. The non-GAAP information included in this press release should not be considered superior to, or a substitute for, financial statements prepared in accordance with GAAP.

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 non-GAAP 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 constant currency organic performance, we mean performance excluding the effect of current foreign currency rate fluctuations. 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 financial statements.

Consistent with this approach, we believe that disclosing non-GAAP financial measures to the readers of our financial statements provides such readers with useful supplemental data that, while not a substitute for GAAP financial statements, allows for greater transparency in the review of our financial and operational performance. In assessing the overall health of the business during the three months ended September 30, 2020 and 2019, our management has either included or excluded items in seven general categories, each of which is described below.

Acquisition-related revenue and cost of revenue.We provide supplementary non-GAAP financial measures of revenue that include revenue that we would have recognized but for the purchase accounting treatment of acquisition transactions. Non-GAAP revenue also includes revenue that we would have 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.

Restructuring and other costs, net.Restructuring and other charges, net include restructuring expenses as well as other charges that are unusual in nature, are the result of unplanned events, and arise outside the ordinary course of our business. Restructuring expenses consist of employee severance costs, charges for the closure of excess facilities and other contract termination costs. Other charges include litigation contingency reserves, costs related to the transition agreement of our former CEO, asset impairment charges, expenses associated with the malware incident that occurred in the third quarter of fiscal year 2017 (the "2017 Malware Incident") and gains or losses on the sale or disposition of certain non-strategic assets or product lines.

Acquisition-related costs, net.In recent years, we have completed a number of acquisitions, which result in operating expenses, that 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 fall into the following categories: (i) transition and integration costs; (ii) professional service fees and expenses; 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:

Transition and integration costs. Transition and integration costs include retention payments, transitional employee costs, and earn-out(i) payments treated as compensation expense, as well as the costs of integration-related activities, including services provided by third parties.

Professional service fees and expenses. Professional service fees and(ii) expenses include financial advisory, legal, accounting and other outside services incurred in connection with acquisition activities, and disputes and regulatory matters related to acquired entities.

Acquisition-related adjustments. Acquisition-related adjustments include adjustments to acquisition-related items that are required to be marked(iii) 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.

Non-cash expenses.We provide non-GAAP information relative to the following non-cash expenses: (i) stock-based compensation; and (ii) non-cash interest. These items are further discussed as follows:

Stock-based compensation. Because of varying valuation methodologies, subjective assumptions and the variety of award types, we believe that excluding 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(i) 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.

Non-cash interest. We exclude non-cash interest because we believe that excluding this expense provides senior management, as well as other users(ii) 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. Non-cash interest expense will continue in future periods.

Other expenses.We exclude certain other expenses that result from unplanned events outside the ordinary course of continuing operations, in order to measure operating performance and current and future liquidity both with and without these expenses. 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, and losses from extinguishing our convertible debt. Other items such as consulting and professional services fees related to assessing strategic alternatives and our transformation programs, implementation of the new revenue recognition standard (ASC 606), and expenses associated with the malware incident and remediation thereof are also excluded.

Non-GAAP Operating IncomeOur non-GAAP operating income includes acquisition-related revenue adjustments but excludes non-GAAP expenses such as stock compensation, amortization of intangible assets, restructuring and other costs, net, acquisition-related costs, net, and certain other expenses that result from unplanned events outside the ordinary course of continuing operations.

Non-GAAP income tax provision.Our non-GAAP income tax provision is determined based on our non-GAAP pre-tax income. The tax effect of each non-GAAP adjustment, if applicable, is computed based on the statutory tax rate of the jurisdiction to which the adjustment relates. Additionally, as our non-GAAP profitability is higher based on the non-GAAP adjustments, we adjust the GAAP tax provision to remove valuation allowances and related effects based on the higher level of reported non-GAAP profitability. We also exclude from our non-GAAP tax provision certain discrete tax items as they occur.

Contact Information

For InvestorsMichael Maguire Nuance Communications, Inc. Tel: 781-565-4855 Email: michael.maguire@nuance.com

For PressNancy ScottNuance Communications, Inc.Tel: 781-565-4130Email: nancy.scott@nuance.com

Financial Tables Follow

Nuance Communications, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

Unaudited

Three Months Ended Twelve Months Ended September 30, September 30,

2020 2019 2020 2019

Revenues:

Hosting andprofessional $ 234,749 $ 235,539 $ 926,044 $ 913,643services

Product and 52,626 86,394 296,127 338,693licensing

Maintenance and 65,556 65,642 256,728 268,935support

Total revenues 352,931 387,575 1,478,899 1,521,271

Cost of revenues:

Hosting andprofessional 129,362 142,160 518,145 551,419services

Product and 7,829 10,809 61,995 71,280licensing

Maintenance and 7,952 8,556 30,989 33,369support

Amortization of 8,132 6,810 27,810 27,416intangible assets

Total cost of 153,275 168,335 638,939 683,484revenues

Gross profit 199,656 219,240 839,960 837,787

Operating expenses:

Research and 56,535 52,935 226,234 192,633development

Sales and marketing 71,477 73,647 273,324 274,031

General and 41,998 43,481 156,353 172,638administrative

Amortization of 14,682 13,176 50,897 54,206intangible assets

Acquisition-related (721) 2,525 2,884 7,965costs, net

Restructuring and 2,748 2,701 17,680 29,147other charges, net

Total operating 186,719 188,465 727,372 730,620expenses

Income from 12,937 30,775 112,588 107,167operations

Other expenses, net (22,646) (27,794) (102,558) (107,260)

(Loss) income (9,709) 2,981 10,030 (93)before income taxes

Provision (benefit) 13,042 (24) (18,752) 12,105for income taxes

Net (loss) incomefrom continuing (22,751) 3,005 28,782 (12,198)operations

Net (loss) incomefrom discontinued (1,194) 105,124 (7,386) 226,008operations

Net (loss) income $ (23,945) $ 108,129 $ 21,396 $ 213,810

Net (loss) incomeper common share -basic:

Continuing $ (0.08) $ 0.01 $ 0.10 $ (0.04)operations

Discontinued - 0.37 (0.02) 0.79operations

Total net (loss)income per basic $ (0.08) $ 0.38 $ 0.08 $ 0.75common share

Net (loss) incomeper common share -diluted:

Continuing $ (0.08) $ 0.01 $ 0.10 $ (0.04)operations

Discontinued - 0.36 (0.03) 0.79operations

Total net (loss)income per diluted $ (0.08) $ 0.37 $ 0.07 $ 0.75common share

Weighted averagecommon sharesoutstanding:

Basic 282,556 285,754 282,644 286,347

Diluted 282,556 291,598 291,994 286,347

Nuance Communications, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

September 30, 2020 September 30, 2019

Unaudited

ASSETS

Current assets:

Cash and cash equivalents $ 301,233 $ 560,961

Marketable securities 71,114 186,555

Accounts receivable, net 200,576 240,673

Prepaid expenses and other current assets 163,062 175,166

Current assets of discontinued operations - 91,858

Total current assets 735,985 1,255,213

Marketable securities - 17,287

Land, building and equipment, net 143,428 121,203

Goodwill 2,133,712 2,127,896

Intangible assets, net 213,484 291,371

Right-of-use assets 110,276 -

Other assets 256,447 316,215

Long-term assets of discontinued operations - 1,236,608

Total assets $ 3,593,332 $ 5,365,793

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt $ 432,209 $ 1,142,870

Contingent and deferred acquisition payments 4,224 17,470

Accounts payable 75,122 90,826

Accrued expenses and other current liabilities 213,264 249,570

Deferred revenue 261,323 214,223

Current liabilities of discontinued operations - 130,117

Total current liabilities 986,142 1,845,076

Long-term debt 1,104,464 793,536

Deferred revenue, net of current portion 104,309 133,783

Deferred tax liability 70,116 54,216

Operating lease liabilities 107,621 -

Other liabilities 76,747 79,378

Long-term liabilities of discontinued operations - 286,654

Total liabilities 2,449,399 3,192,643

Stockholders' equity 1,143,933 2,173,150

Total liabilities and stockholders' equity $ 3,593,332 $ 5,365,793

Nuance Communications, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Unaudited

Three Months Ended Twelve Months Ended September 30, September 30,

2020 2019 2020 2019

Cash flowsfrom operatingactivities:

Net (loss)income from $ (22,751) $ 3,005 $ 28,782 $ (12,198)continuingoperations

Adjustments toreconcile net(loss) incometo net cashprovided byoperatingactivities:

Depreciation 9,782 10,300 37,772 47,417

Amortization 22,814 19,986 78,707 81,622

Stock-based 35,264 34,779 133,294 119,255compensation

Non-cashinterest 12,171 12,477 49,440 49,488expense

Deferred taxprovision 15,689 (7,311) (39,937) (12,437)(benefit)

Loss onextinguishment - - 18,656 910of debt

Other (169) 5,113 2,736 4,462

Changes inoperatingassets andliabilities,excludingeffects ofacquisitions:

Accounts 15,811 (8,952) 42,075 3,366receivable

Prepaidexpenses and (12,289) (6,303) (7,259) (21,063)other assets

Accounts 7,695 3,853 (8,173) 12,122payable

Accruedexpenses and 686 24,568 (84,076) 27,415otherliabilities

Deferred (3,852) (12,221) 15,854 4,227revenue

Net cashprovided byoperating 80,851 79,294 267,871 304,586activities -continuingoperations

Net cashprovided by(used in)operating - 24,869 (13,307) 96,771activities -discontinuedoperations

Net cashprovided by 80,851 104,163 254,564 401,357operatingactivities

Cash flowsfrom investingactivities:

Capital (15,747) (11,942) (61,297) (44,185)expenditures

Proceeds fromdisposition ofa business, 150 - 150 407,043net oftransactionfees

Purchases ofmarketablesecurities and (22,029) (92,793) (180,005) (349,125)otherinvestments

Proceeds fromsales andmaturities ofmarketable 23,150 40,257 313,734 303,171securities andotherinvestments

Payments forbusiness andasset (1,000) (17,771) (1,000) (20,873)acquisitions,net ofcash acquired

Other (227) - 1,147 -

Net cash (usedin) provided (15,703) (82,249) 72,729 296,031by investingactivities

Cash flowsfrom financingactivities:

Repurchase andredemption of - - (513,642) (300,000)debt

Netdistributionfrom Cerence - - 139,090 -upon thespin-off

Payments forrepurchase of - (6,003) (169,217) (126,938)common stock

Proceeds fromissuance ofcommon stock 7,636 7,954 14,840 16,597fromemployee stockplans

Proceeds fromthe revolving - - 230,000 -creditfacility

Repayment ofthe revolving - - (230,000) -creditfacility

Payments fortaxes relatedto net share (14,088) (6,866) (54,056) (49,428)settlement ofequity awards

Proceeds fromsale ofnoncontrolling - 9,863 - 9,863interests in asubsidiary

Otherfinancing (381) (689) (3,222) (2,131)activities

Net cash (usedin) provided (6,833) 4,259 (586,207) (452,037)by financingactivities

Effects ofexchange ratechanges on 2,363 (1,589) (814) (353)cash and cashequivalents

Net increase(decrease) in 60,678 24,584 (259,728) 244,998cash and cashequivalents

Cash and cashequivalents at 240,555 536,377 560,961 315,963beginning ofperiod

Cash and cashequivalents at $ 301,233 $ 560,961 $ 301,233 $ 560,961end of period

Nuance Communications, Inc.

Supplemental Financial Information

GAAP to Non-GAAP Reconciliations

(in thousands)

Unaudited

Three Months Ended Twelve Months Ended September 30, September 30,

2020 2019 2020 2019

GAAP revenues $ 352,931 $ 387,575 $ 1,478,899 $ 1,521,271

Acquisition-relatedrevenueadjustments: - 134 301 531hosting andprofessionalservices

Acquisition-relatedrevenueadjustments: - 2 - 660product andlicensing

Acquisition-relatedrevenueadjustments: - 83 - 345maintenanceand support

Non-GAAP revenues $ 352,931 $ 387,794 $ 1,479,200 $ 1,522,807

GAAP cost of $ 153,275 $ 168,335 $ 638,939 $ 683,484revenues

Cost of revenuesfrom amortization (8,132) (6,810) (27,810) (27,416)of intangibleassets

Cost of revenuesadjustments:hosting and (6,637) (8,001) (24,887) (26,647)professionalservices (1)

Cost of revenuesadjustments:product and (127) (262) (510) (855)licensing(1)

Cost of revenuesadjustments: (457) (584) (1,663) (1,314)maintenance andsupport (1)

Cost of revenues - 96 (1) (378)adjustments: other

Non-GAAP cost of $ 137,922 $ 152,774 $ 584,068 $ 626,874revenues

GAAP gross profit $ 199,656 $ 219,240 $ 839,960 $ 837,787

Gross profit 15,353 15,780 55,172 58,146adjustments

Non-GAAP gross $ 215,009 $ 235,020 $ 895,132 $ 895,933profit

GAAP income from $ 12,937 $ 30,775 $ 112,588 $ 107,167operations

Gross profit 15,353 15,780 55,172 58,146adjustments

Research and 8,796 6,940 34,902 22,508development (1)

Sales and marketing 9,018 8,751 32,040 30,394(1)

General and 10,229 10,241 39,292 37,537administrative (1)

Acquisition-related (721) 2,525 2,884 7,965costs, net

Amortization of 14,682 13,176 50,897 54,206intangible assets

Restructuring and 2,748 2,701 17,680 29,147other charges, net

Other 3,291 3,243 3,939 15,883

Non-GAAP income $ 76,333 $ 94,132 $ 349,394 $ 362,953from operations

GAAP (loss) income $ (9,709) $ 2,981 $ 10,030 $ (93)before income taxes

Gross profit 15,353 15,780 55,172 58,146adjustments

Research and 8,796 6,940 34,902 22,508development (1)

Sales and marketing 9,018 8,751 32,040 30,394(1)

General and 10,229 10,241 39,292 37,537administrative (1)

Acquisition-related (721) 2,525 2,884 7,965costs, net

Amortization of 14,682 13,176 50,897 54,206intangible assets

Restructuring and 2,748 2,701 17,680 29,147other charges, net

Non-cash interest 12,171 12,477 49,440 49,488expense

Loss onextinguishment of - - 18,656 910debt

Other 3,186 7,860 1,949 19,156

Non-GAAP income $ 65,753 $ 83,432 $ 312,942 $ 309,364before income taxes

Nuance Communications, Inc.

Supplemental Financial Information

GAAP to Non-GAAP Reconciliations, continued

(in thousands, except per share amounts)

Unaudited

Three Months Ended Twelve Months Ended September 30, September 30,

2020 2019 2020 2019

GAAP provision(benefit) for $ 13,042 $ (24) $ (18,752) $ 12,105income taxes

Income tax effectof non-GAAP 13,262 190,352 58,752 263,334adjustments

Removal ofvaluation allowance (9,865) (193,925) 26,851 (220,532)and other items

Removal of discrete (4,844) 21,091 2,718 22,002items

Non-GAAP provision $ 11,595 $ 17,494 $ 69,569 $ 76,909for income taxes

GAAP net (loss)income from $ (22,751) $ 3,005 $ 28,782 $ (12,198)continuingoperations

Acquisition-relatedadjustment - - 219 301 1,536revenues (2)

Acquisition-related (721) 2,525 2,884 7,965costs, net

Cost of revenuefrom amortization 8,132 6,810 27,810 27,416of intangibleassets

Amortization of 14,682 13,176 50,897 54,206intangible assets

Restructuring and 2,748 2,701 17,680 29,147other charges, net

Stock-based 35,264 34,779 133,294 119,255compensation (1)

Non-cash interest 12,171 12,477 49,440 49,488expense

Loss onextinguishment of - - 18,656 910debt

Adjustment to 1,447 (17,518) (88,321) (64,804)income tax expense

Other 3,186 7,764 1,950 19,534

Non-GAAP net income $ 54,158 $ 65,938 $ 243,373 $ 232,455

Non-GAAP dilutednet income per $ 0.18 $ 0.23 $ 0.83 $ 0.80share

Diluted weightedaverage common 303,689 291,598 291,994 290,125sharesoutstanding

Nuance Communications, Inc.

Supplemental Financial Information - GAAP to Non-GAAP Reconciliations,continued

(in thousands)

Unaudited

Three Months Ended Twelve Months Ended September 30, September 30,

2020 2019 2020 2019

(1) Stock-basedcompensation

Cost of hosting andprofessional $ 6,637 $ 8,001 $ 24,887 $ 26,647services

Cost of product and 127 262 510 855licensing

Cost of maintenance 457 584 1,663 1,314and support

Research and 8,796 6,940 34,902 22,508development

Sales and marketing 9,018 8,751 32,040 30,394

General and 10,229 10,241 39,292 37,537administrative

Total $ 35,264 $ 34,779 $ 133,294 $ 119,255

(2)Acquisition-relatedrevenue

Acquisition-related $ - $ 219 $ 301 $ 1,536revenue adjustments

Total $ - $ 219 $ 301 $ 1,536

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SOURCE Nuance Communications, Inc.