PR Newswire | Feb 8, 2021 04:02PM EST

02/08 15:02 CST

Nuance Announces First Quarter 2021 Results- Strength in both Revenue and EPS, exceeding guidance range expectations- 28% Healthcare Cloud Revenue growth with strength in Dragon Medical Cloud solutions- Record revenue quarter in Enterprise driven by Intelligent Engagement offerings- Announced acquisition of Saykara BURLINGTON, Mass., Feb. 8, 2021

BURLINGTON, Mass., Feb. 8, 2021 /PRNewswire/ -- Nuance Communications, Inc. (NASDAQ: NUAN) today announced financial results for its first quarter ended December 31, 2020:

* GAAP revenue of $345.8 million and GAAP earnings per diluted share of $0.02. * Non-GAAP revenue of $345.8 million and non-GAAP earnings per diluted share of $0.20.

"We are very pleased with the strong start to the fiscal year, as we delivered revenue and EPS above our guidance range expectations," said Mark Benjamin, Chief Executive Officer at Nuance. "We continued to advance our strategic initiatives, accelerating our cloud transition across our core platforms in Healthcare and focusing on our AI-first approach in Enterprise. In Healthcare, we saw solid performance in our cloud-based offerings, growing cloud revenue 28% year-over-year. In particular, we benefited from strong performance in Dragon Medical & DAX Cloud revenue, which grew 22% year-over-year driven by the ongoing transition of our installed base to Dragon Medical One, as well as traction in international, ambulatory and community hospital markets. Enterprise delivered another record revenue quarter, up slightly from its previous record in Q1'20, driven by particularly strong demand for our Security & Biometrics solutions."

Mr. Benjamin concluded, "In a separate release today, we announced the acquisition of Saykara, a like-minded healthcare IT company that aligns well with our technology portfolio and growth strategy. This acquisition brings together the best and brightest minds in AI, machine learning, and ambient technologies for healthcare, and we are pleased to be adding even more leading scientists and developers to our world-class R&D team."

As previously announced, in the first quarter of 2021 we announced the sale of our medical transcription and electronic healthcare record go-live businesses. The sale is on track to close during Q2 2021. Accordingly, we are now presenting our results on a continuing and discontinued operations basis, giving effect to the disposition of these businesses. All commentary is provided on a continuing operations basis. A reconciliation of continuing and discontinued operations to total operations is provided in the accompanying tables.

Q1 2021 Performance Summary

Q1 2021 results for continuing operations include:

* Revenue of $345.8 million, compared to $361.5 million in the same period last year. * Non-GAAP revenue of $345.8 million, compared to $361.6 million in the same period last year. * GAAP operating income of $31.5 million, compared to $36.0 million in the same period last year. * Non-GAAP operating income of $91.4 million, compared to $90.4 million in the same period last year. * GAAP operating margin of 9.1%, compared to 10.0% in the same period last year. * Non-GAAP operating margin of 26.4%, compared to 25.0% in the same period last year. * GAAP net income of $7.0 million, compared to a net income of $43.6 million in the same period last year. * Non-GAAP net income of $62.5 million, compared to $63.5 million in the same period last year. * GAAP EPS of $0.02, compared to $0.15 in the same period last year. * Non-GAAP EPS of $0.20, compared to $0.22 in the same period last year. * Operating cash flows from continuing operations was $54.6 million, compared to $44.7 million in the same period last year.

Capital Allocation

We remain committed to our balanced capital allocation approach. In February, we replaced our revolving credit facility, with the maturity date now extended to 2026 and the facility upsized to $300 million. We did not repurchase any shares during the first quarter, and have $261 million remaining under our share repurchase board authorization. We remain confident in the strength of our balance sheet and our liquidity position, ending the first quarter with a cash and marketable securities balance of $374 million, 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 https://investors.nuance.com/quarterly-results.

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 Remarks

Nuance 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 9035615.

Nuance will provide a copy of Prepared Remarks in combination with this 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, Inc. (NASDAQ: NUAN) is a technology pioneer with market leadership in conversational AI and ambient intelligence. A full-service partner trusted by 90 percent of U.S. hospitals and 85 percent of the Fortune 100 across the globe, we create 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 Statements

Statements 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 Measures

We 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 also 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.

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 December 31, 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, 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 our 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 Income

Our 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 MaguireNuance 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 December 31,

2020 2019

Revenues:

Hosting and professional $ $ services 195,832 173,921

Product and licensing 86,037 125,015

Maintenance and support 63,884 62,573

Total revenues 345,753 361,509

Cost of revenues:

Hosting and professional 105,615 101,330services

Product and licensing 14,415 33,944

Maintenance and support 7,486 7,863

Amortization of intangible 4,262 6,569assets

Total cost of revenues 131,778 149,706

Gross profit 213,975 211,803

Operating expenses:

Research and development 56,457 54,605

Sales and marketing 65,405 65,776

General and administrative 41,145 38,334

Amortization of intangible 10,531 9,189assets

Acquisition-related costs, net 325 1,220

Restructuring and other charges, 8,566 6,683net

Total operating expenses 182,429 175,807

Income from operations 31,546 35,996

Other expenses, net (22,289) (33,669)

Income before income taxes 9,257 2,327

Provision (benefit) for income 2,303 (41,297)taxes

Net income from continuing 6,954 43,624operations

Net income from discontinued 7,941 5,061operations

Net income $ $ 14,895 48,685

Net income per common share -basic:

Continuing operations $ $ 0.02 0.15

Discontinued operations 0.03 0.02

Total net income per basic $ $ common share 0.05 0.17

Net income per common share -diluted:

Continuing operations $ $ 0.02 0.15

Discontinued operations 0.03 0.02

Total net income per diluted $ $ common share 0.05 0.17

Weighted average common sharesoutstanding:

Basic 283,818 284,130

Diluted 314,210 289,453

Nuance Communications, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

Unaudited

December 31, 2020 September 30, 2020

ASSETS

Current assets:

Cash and cash equivalents $ 299,446 $ 301,233

Marketable securities 74,862 71,114

Accounts receivable, net 216,447 175,583

Prepaid expenses and other current 157,482 152,563assets

Current assets of discontinued 35,965 35,492operations

Total current assets 784,202 735,985

Land, building and equipment, net 138,639 137,299

Goodwill 2,131,095 2,120,495

Intangible assets, net 153,424 167,270

Right-of-use assets 101,172 104,839

Other assets 262,464 248,414

Long-term assets of discontinued 76,689 79,030operations

Total assets $ 3,647,685 $ 3,593,332

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt $ 1,053,011 $ 432,209

Contingent and deferred acquisition 4,524 4,224payments

Accounts payable 81,461 71,833

Accrued expenses and other current 157,779 199,254liabilities

Deferred revenue 273,145 249,484

Current liabilities of discontinued 26,160 29,138operations

Total current liabilities 1,596,080 986,142

Long-term debt 495,977 1,104,464

Deferred revenue, net of current 101,632 98,696portion

Deferred tax liability 64,094 70,116

Operating lease liabilities 100,339 103,996

Other liabilities 65,085 64,597

Long-term liabilities of 18,099 21,388discontinued operations

Total liabilities 2,441,306 2,449,399

Mezzanine Equity 53,343 -

Stockholders' equity 1,153,036 1,143,933

Total liabilities and stockholders' $ 3,647,685 $ 3,593,332equity

Nuance Communications, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Unaudited

Three Months Ended December 31,

2020 2019

Cash flows fromoperating activities:

Net income from $ 6,954 $ 43,624continuing operations

Adjustments toreconcile net incometo net cash providedby operatingactivities:

Depreciation 7,993 7,793

Amortization 14,793 15,758

Stock-based 34,906 30,402compensation

Non-cash interest 12,324 12,744expense

Deferred tax benefit (5,435) (42,900)

Loss onextinguishment of - 15,000debt

Other 3,028 41

Changes in operatingassets andliabilities,excluding effects ofacquisitions:

Accounts receivable (40,023) (21,164)

Prepaid expenses and (5,892) 27,414other assets

Accounts payable 11,636 (1,703)

Accrued expenses and (9,480) (70,017)other liabilities

Deferred revenue 23,814 27,686

Net cash provided byoperating activities 54,618 44,678- continuingoperations

Net cash provided byoperating activities 6,570 8,875- discontinuedoperations

Net cash provided by 61,188 53,553operating activities

Cash flows frominvesting activities:

Capital expenditures (17,400) (14,204)

Proceeds fromdisposition of a - -business, net oftransaction fees

Purchases ofmarketable securities (41,366) (86,699)and other investments

Proceeds from salesand maturities of 37,582 82,588marketable securitiesand other investments

Payments for businessand asset (250) -acquisitions, net ofcash acquired

Other (545) 1,272

Net cash used in (21,979) (17,043)investing activities

Cash flows fromfinancing activities:

Repurchase and - (313,500)redemption of debt

Net distribution fromCerence upon the - 139,090spin-off

Payments forrepurchase of common - (92,444)stock

Payments for taxesrelated to net share (43,729) (29,958)settlement of equityawards

Other financing (6) (725)activities

Net cash used in (43,735) (297,537)financing activities

Effects of exchangerate changes on cash 2,739 1,524and cash equivalents

Net decrease in cash (1,787) (259,503)and cash equivalents

Cash and cashequivalents at 301,233 560,961beginning of period

Cash and cashequivalents at end of $ 299,446 $ 301,458period

Nuance Communications, Inc.

Supplemental Financial Information

GAAP to Non-GAAP Reconciliations

(in thousands)

Unaudited

Three Months Ended December 31,

2020 2019

GAAP revenues $ 345,753 $ 361,509

Acquisition-relatedrevenue adjustments:hosting and - 89professionalservices

Non-GAAP revenues $ 345,753 $ 361,598

GAAP cost of $ 131,778 $ 149,706revenues

Cost of revenuesfrom amortization of (4,262) (6,569)intangible assets

Cost of revenuesadjustments: hosting (6,563) (4,977)and professionalservices (1)

Cost of revenuesadjustments: product (75) (129)and licensing (1)

Cost of revenuesadjustments: (426) (393)maintenance andsupport (1)

Cost of revenues - (66)adjustments: other

Non-GAAP cost of $ 120,452 $ 137,572revenues

GAAP gross profit $ 213,975 $ 211,803

Gross profit 11,326 12,223adjustments

Non-GAAP gross $ 225,301 $ 224,026profit

GAAP income from $ 31,546 $ 35,996operations

Gross profit 11,326 12,223adjustments

Research and 8,440 8,440development (1)

Sales and marketing 8,943 7,025(1)

General and 10,459 9,438administrative (1)

Acquisition-related 325 1,220costs, net

Amortization of 10,531 9,189intangible assets

Restructuring and 8,566 6,683other charges, net

Other 1,305 191

Non-GAAP income from $ 91,441 $ 90,405operations

GAAP income before $ 9,257 $ 2,327income taxes

Gross profit 11,326 12,223adjustments

Research and 8,440 8,440development (1)

Sales and marketing 8,943 7,025(1)

General and 10,459 9,438administrative (1)

Acquisition-related 325 1,220costs, net

Amortization of 10,531 9,189intangible assets

Restructuring and 8,566 6,683other charges, net

Non-cash interest 12,324 12,744expense

Loss onextinguishment of - 15,000debt

Other 1,077 (305)

Non-GAAP income $ 81,248 $ 83,984before income taxes

Nuance Communications, Inc.

Supplemental Financial Information

GAAP to Non-GAAP Reconciliations, continued

(in thousands, except per share amounts)

Unaudited

Three Months Ended December 31,

2020 2019

GAAP provision (benefit) for income $ $ taxes 2,303 (41,297)

Income tax effect of non-GAAP 12,421 20,285adjustments

Removal of valuation allowance and 3,409 41,503other items

Removal of discrete items 620 -

Non-GAAP provision for income taxes $ $ 18,753 20,491

GAAP net income from continuing $ $ operations 6,954 43,624

Acquisition-related adjustment - - 89revenues (2)

Acquisition-related costs, net 325 1,220

Cost of revenue from amortization of 4,262 6,569intangible assets

Amortization of intangible assets 10,531 9,189

Restructuring and other charges, net 8,566 6,683

Stock-based compensation (1) 34,906 30,402

Non-cash interest expense 12,324 12,744

Loss on extinguishment of debt - 15,000

Adjustment to income tax expense (16,450) (61,788)

Other 1,077 (239)

Non-GAAP net income $ $ 62,495 63,493

Non-GAAP diluted net income per $ $ share 0.20 0.22

Diluted weighted average common 314,210 289,453shares outstanding

Nuance Communications, Inc.

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

(in thousands)

Unaudited

Three Months Ended December 31,

2020 2019

(1) Stock-based compensation

Cost of hosting and $ $ professional services 6,563 4,977

Cost of product and licensing 75 129

Cost of maintenance and 426 393support

Research and development 8,440 8,440

Sales and marketing 8,943 7,025

General and administrative 10,459 9,438

Total $ $ 34,906 30,402

(2) Acquisition-relatedrevenue

Acquisition-related revenue $ $ adjustments - 89

Total $ $ - 89

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SOURCE Nuance Communications, Inc.