Nuance Communications (NUAN) Q4 2014 Results Earnings Call Transcript

Edited Transcript of Nuance Communications (NUAN) Q4 2014 Earnings Conference Call…

Nuance Communications (NASDAQ:NUAN) hosted a conference call with investors and analysts to discuss Q4 2014 earnings results on November 24, 2014 at 5:00 p.m. ET. The following are the webcast audio and the associated transcript of the event…


Nuance Communications (NUAN) Q4 2014 Results Earnings Call – Webcast Audio



Operator: Ladies and gentlemen, thank you for standing by, and welcome to Nuance’s fourth quarter and fiscal 2014 conference call. (Operator instructions)

With us today are Chairman and Chief Executive Officer of Nuance, Mr. Paul Ricci; CFO, Mr. Tom Beaudoin; EVP of Corporate Strategy and Development, Mr. Bruce Bowden; SVP of Finance and Control, Dan Tempesta; and Vice President of Investor Relations, Mr. Kevin Faulkner.

At this time, I would like to turn the call over to Mr. Faulkner. Please go ahead, sir.

Kevin Faulkner – VP, IR

Thank you, Ryan. Before we begin, I remind everyone that matters we discuss this afternoon include predictions, estimates, expectations, and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to our recent SEC filings for a detailed list of risk factors.

As noted in our press release, we also issued a set of prepared remarks in advance of this call, which are available on our website. Those remarks are intended to serve in place of extended formal comments, and we will not repeat them here.

Now, let me turn the call over to Paul Ricci.

Paul Ricci – Chairman and CEO

Good afternoon. Before taking your questions, I’d like to highlight some key points about our results and progress.

First, a few words about each of our businesses.

In healthcare, we’re advancing our innovation in end-to-end clinical documentation solutions. Many of our healthcare customers are seeing the value of our solutions in improved financial, operational, and clinical quality results, and we see continued momentum in particular in our Dragon Medical, Diagnostics, and Clintegrity product lines.

In Mobile, our voice and virtual assistant solutions have extended beyond our traditional market of smartphones and tablets into wearable devices, TVs, and other internet connected devices. Our automotive business continues to deliver robust results while shaping the landscape for the connected car and leveraging intense interest for a safer, smarter in-car environment.

In Enterprise, we continue to align the business around the convergence of multichannel self-service, cloud services, and mobile computing. As a result, we’ve extended our position as a provider into the growing market for intelligent, multichannel solutions that combine speech, virtual assistance, and cognitive computing.

And finally, imaging this year saw a very strong bookings performance that positions it well for significantly improved revenue growth in FY15.

Concerning our financial metrics. We delivered a strong finish to fiscal 2014, achieving Q4 revenue, EPS, and bookings above our guidance ranges. Bookings were very strong throughout the year. Net new bookings growth — a metric we introduced this quarter — was led by our automotive, enterprise on demand, healthcare on demand, diagnostics, Clintegrity, and imaging solutions.

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In addition to net new bookings, we saw strength in other component indicators of our business, including growth in recurring revenue, deferred revenue, and operating cash flow. The expense control and productivity measures that we have communicated to you in previous calls helped us to achieve Q4 EPS well above our guidance range. We will sustain our commitment to profitability into FY15, maintaining our margin performance while also ensuring future growth.

Following two years of declines, our 2015 guidance reflects some organic revenue growth and stable operating margins. Our strategic progress, customer wins, and continued focus on operating efficiency across the business supported these results and provides confidence heading into 2015.

We’re now happy to take your questions.

Question-and-Answer Session

Operator: (Operator instructions) Our first question is going to come from the line of Richard Davis with Canaccord.

Richard Davis – Analyst, Canaccord Genuity

I don’t really like the phrase, but financial engineering’s not really what I’m asking about, but when you kind of think about you being a net acquirer of tons of assets, many of which have worked out well. But are there other assets that you would, at least at a high level, consider kind of restructuring? We’ve talked about the whole ScanSoft business and those kind of things, but how should investors kind of think about strategically how you’re structuring the company and/or restructuring it in a broad sense?

Paul Ricci: Well, our primary focus has been to invest and disinvest in those businesses which respectively have growth and less growth available to them. We haven’t focused so much on whether to sell our lower growth assets as we have whether to reduce investments in those assets as we try and focus our investments more narrowly on the product lines and businesses where we think more growth is available. I think as a result, we’ve been able to become more efficient, and you saw that in the fourth quarter.

Operator: Our next question comes from the line of Shyam Patil of Wedbush Securities.

Shyam Patil – Analyst, Wedbush Securities

Paul, maybe to start out with, could you maybe just elaborate on what net new bookings are? And then when you’re talking about the 6% to 8% growth in fiscal 2015, what’s that based off of, and what’s total bookings growth if we look at the $2.44 billion that we were looking at prior to this quarter? And then just generally, what are the key metrics that you think we should be focused on from the outside?

Paul Ricci: Let’s see. You asked a number of questions. With respect to new bookings, we’ve provided the additional metric of new bookings this quarter in response to a lot of investor requests and interest in having what might be a narrower metric that aligns more closely with what future revenue growth is likely to look like. And specifically, net bookings excludes renewals from existing customers.

With respect to the overall performance of bookings, we published that number in the prepared remarks. I don’t have the bookings growth in front of me for FY14.

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Kevin Faulkner: The growth level was 27%.

Paul Ricci: 27%. And regarding your question of what indicators you should be looking at, we think net bookings is an important indicator of future growth. We also think you should focus on the recurring revenue percentage that we publish as a way to understand the strength of our revenues.

Deferred revenue and deferred revenue growth is important, because it supports our explanation of the growing on-demand and cloud-based revenues in the company. And of course, cash flows are important as well, and we know that cash flows as a proportion of non-GAAP net income has gone up over the last year and will go up slightly again we’re predicting, in the year ahead.

Operator: And the next question comes from the line of Daniel Ives of FBR Capital Markets.

Unidentified Analyst

Great. Thanks guys. This is actually Jim in for Dan. Maybe if you could just talk a little bit about your ongoing transition to on-demand solutions and just where you are, what inning you might characterize being at this point. And then particularly on the healthcare side, what kind of momentum you see going into FY15 for the on-demand solutions?

Paul Ricci: I didn’t hear the second half of your question. Could you just repeat that again.

Unidentified Analyst

Yes, you could just kind of maybe give us an idea of what momentum is like on the healthcare side of the business with on-demand solutions going into 2015?

Paul Ricci: Well, first, with respect to the question about innings, we get asked that question a lot, and we’ve responded to it in previous calls. And it does of course depend on what time horizon you’re looking at. We think eventually that we’ll see a larger and larger proportion of our revenues go to a recurring form for all the reasons that I think you’re familiar with.

With that said, we’re at 64% recurring revenues and for the foreseeable future, some proportion of our revenues will remain conventional perpetual licenses, because there is a customer preference to purchase licenses that way, and there are other specific aspects of the solutions we’re providing. So I think you should expect to see recurring revenues grow as a percentage, but perhaps not grow as quickly as – increase as quickly as a percentage increase as you’ve seen over the last few years.

With respect to healthcare, I think we would encourage you to look not just at the on demand, but at the recurring revenue streams, which would embrace some of the broader trends going on in healthcare, including the migration of some of our product lines to term revenues, and the increase in revenues, particularly in our Clintegrity solutions. But I think taken as a whole, the recurring revenue portion of on-demand looks robust and should continue to grow as we look through FY15.

Operator: Our next question comes from the line of Brent Thill with UBS.

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