Nuance Announces Second Quarter 2016 Results

Delivers Strong Net New Bookings and Non-GAAP EPS, and Record Cash Flow from Operations

BURLINGTON, Mass.--()--Nuance Communications, Inc. (NASDAQ: NUAN) today announced financial results for its second quarter fiscal 2016, ended March 31, 2016.

In the second quarter of fiscal 2016, Nuance reported GAAP revenue of $478.7 million, compared to $475.1 million a year ago. Nuance reported non-GAAP revenue of $487.4 million, which includes $8.7 million of revenue lost to accounting treatment in conjunction with acquisitions, and compared to $488.1 million in the second quarter of fiscal 2015. In the second quarter of 2016, total non-GAAP recurring revenue was $345.8 million and represented 71% of total non-GAAP revenue, compared to $315.6 million and 65% a year ago. In the second quarter of fiscal 2016, Nuance reported net new bookings of $313.7 million, up 3% from $304.7 million a year ago.

In the second quarter of fiscal 2016, Nuance recognized GAAP net loss of $(7.0) million, or $(0.02) per share, compared to GAAP net loss of $(14.1) million, or $(0.04) per share, in the second quarter of fiscal 2015. Nuance reported non-GAAP net income of $115.0 million, or $0.38 per diluted share, up from non-GAAP net income of $98.9 million, or $0.30 per diluted share, in the second quarter of fiscal 2015. Nuance’s second quarter fiscal 2016 non-GAAP operating margin was 28.4%, up from 25.9% in the second quarter of fiscal 2015. Nuance reported record cash flow from operations of $159.9 million in the second quarter of fiscal 2016, up 33% from $119.9 million in the second quarter of fiscal 2015.

“In the second quarter, Nuance delivered strong bookings, non-GAAP EPS, and cash flow from operations,” said Dan Tempesta, Nuance’s CFO. “Overall, we are pleased with the company’s performance through the first half of fiscal 2016. Our first half results are further evidence of continued improvement across all major financial metrics as we evolve toward recurring revenue models, execute our transformation program, and position the company for increased revenue growth.”

Please refer to the “Discussion of Non-GAAP Financial Measures” and to the “GAAP to Non-GAAP Reconciliations,” included elsewhere in this release, for more information regarding the company’s use of non-GAAP measures.

Conference Call and Prepared Remarks
Nuance is providing a copy of prepared remarks in combination with its press release. These remarks are offered to provide shareholders and analysts with additional time and detail for analyzing results in advance of the company’s quarterly conference call. The remarks will be available at http://www.nuance.com/earnings-results/ in conjunction with the press release.

Nuance will host an investor conference call today that will begin at 5:00 p.m. ET and will include only brief comments followed by questions and answers. To access the live broadcast, please visit the Investor Relations section of Nuance’s website at www.nuance.com. The call can also be heard by dialing 800-230-1059 or 612-234-9960 at least five minutes prior to the call and referencing code 392170. A replay will be available within 24 hours of the announcement by dialing 800-475-6701 or 320-365-3844 and using the access code 392170.

Nuance is providing a copy of prepared remarks in combination with its press release. These remarks are offered to provide shareholders and analysts with additional time and detail for analyzing results in advance of the company’s quarterly conference call. The remarks will be available at http://www.nuance.com/earnings-results/ in conjunction with the press release.

About Nuance Communications, Inc.
Nuance Communications, Inc. (NASDAQ: NUAN) is a leading provider of voice and language solutions for businesses and consumers around the world. Its technologies, applications and services make the user experience more compelling by transforming the way people interact with devices and systems. Every day, millions of users and thousands of businesses experience Nuance’s proven applications. For more information, please visit www.nuance.com.

Trademark reference: Nuance 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.

Definitions of Bookings and Net New Bookings
Bookings represent the estimated gross revenue value of transactions at the time of contract execution, except for maintenance and support offerings. For fixed price contracts, the bookings value represents the gross total contract value. For contracts where revenue is based on transaction volume, the bookings value represents the contract price multiplied by the estimated future transaction volume during the contract term, whether or not such transaction volumes are guaranteed under a minimum commitment clause. Actual results could be different than our initial estimates. The maintenance and support bookings value represents the amounts billed in the period the customer is invoiced. Because of the inherent estimates required to determine bookings and the fact that the actual resultant revenue may differ from our initial bookings estimates, we consider bookings one indicator of potential future revenue and not as an arithmetic measure of backlog.

Net new bookings represents the estimated revenue value at the time of contract execution from new contractual arrangements or the estimated revenue value incremental to the portion of value that will be renewed under pre-existing arrangements. Constant currency for net new bookings is calculated using current period net new bookings denominated in currencies other than United States dollars, converted into United States dollars using the average exchange rate for those currencies from the prior year period rather than the actual exchange rate in effect during the current period.

Definitions of Non-GAAP Organic Revenue Growth
Organic revenue growth is calculated by comparing current period non-GAAP revenue to non-GAAP revenue from the corresponding prior-year period. For purposes of this calculation, prior period non-GAAP revenue is adjusted to include revenue from companies acquired by Nuance as if we had owned the acquired businesses in all periods presented. Non-GAAP organic revenue growth on a constant currency basis is calculated using current period non-GAAP revenue for entities reporting in currencies other than United States dollars, excluding United States dollar denominated transactions recorded in those entities, converted into United States dollars using the average exchange rates from the prior year period rather than the actual exchange rates in effect during the current period.

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,” 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: fluctuations in demand for our existing and future products; changes to economic conditions in the United States and internationally; fluctuating currency rates, our ability to control and successfully manage our expenses and cash position; our ability to execute our formal transformation program to reduce costs and optimize processes; the effects of competition, including pricing pressure; possible quality issues 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, 2015 and our quarterly reports, and other 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 considered superior to, or a substitute for, financial statements prepared in accordance with GAAP.

Discussion of Non-GAAP Financial Measures
We utilize a number of different financial measures, both Generally Accepted Accounting Principles (“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 and six months ended March 31, 2016 and 2015, 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 and Quantim for the three and six months ended March 31, 2016 that we would have recognized but for the purchase accounting treatment of these 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.

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 fall into 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 and costs for extending 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 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 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 result from unplanned events 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. These events are unplanned and arise outside of the ordinary course of continuing operations. These items include losses from extinguishing our convertible debt and adjustments from changes in fair value of share-based instruments relating to issuing our common stock with security price guarantees payable in cash. Other items such as consulting and professional services fees related to assessing strategic alternatives and our transformation program, 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.

 
Nuance Communications, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
Unaudited
         
Three months ended
March 31,
Six months ended
March 31,

2016

2015

2016

2015

 
Revenues:
Product and licensing $ 158,622 $ 174,451 $ 337,672 $ 344,139
Professional services and hosting 240,196 224,504 467,331 450,674
Maintenance and support   79,915     76,104     159,845     154,265  
Total revenues   478,733     475,059     964,848     949,078  
 
Cost of revenues:
Product and licensing 20,823 23,252 44,235 47,222
Professional services and hosting 154,712 150,701 307,971 307,574
Maintenance and support 13,626 13,392 26,922 27,389
Amortization of intangible assets   16,339     15,631     31,970     30,762  
Total cost of revenues   205,500     202,976     411,098     412,947  
 
Gross profit   273,233     272,083     553,750     536,131  
 
Operating expenses:
Research and development 67,226 73,723 137,751 155,149
Sales and marketing 92,837 93,249 193,427 204,499
General and administrative 45,940 47,115 86,441 99,237
Amortization of intangible assets 26,448 25,328 53,481 52,155
Acquisition-related cost, net 1,225 6,523 3,705 11,279
Restructuring and other charges, net   6,652     (333 )   14,540     1,895  
Total operating expenses   240,328     245,605     489,345     524,214  
 
Income from operations 32,905 26,478 64,405 11,917
 
Other expense, net   (30,706 )   (29,517 )   (66,504 )   (59,637 )
 
Income (loss) before income taxes 2,199 (3,039 ) (2,099 ) (47,720 )
 
Provision for income taxes   9,245     11,059     17,012     16,873  
 
Net loss $ (7,046 ) $ (14,098 ) $ (19,111 ) $ (64,593 )
 
Net loss per share:
Basic $ (0.02 ) $ (0.04 ) $ (0.06 ) $ (0.20 )
Diluted $ (0.02 ) $ (0.04 ) $ (0.06 ) $ (0.20 )
 
Weighted average common shares outstanding:
Basic   298,021     322,879     303,050     322,331  
Diluted   298,021     322,879     303,050     322,331  
 
     

Nuance Communications, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
Unaudited

 
 
ASSETS March 31, 2016 September 30, 2015
 
Current assets:
Cash and cash equivalents $ 250,690 $ 479,449
Marketable securities 59,345 57,237
Accounts receivable, net 365,996 373,162
Prepaid expenses and other current assets   91,542   76,777
Total current assets 767,573 986,625
 
Marketable securities 30,782 32,099
Land, building and equipment, net 189,414 186,007
Goodwill 3,394,751 3,378,334
Intangible assets, net 719,744 796,285
Other assets   154,372   148,301
Total assets $ 5,256,636 $ 5,527,651
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Short-term related party note payable $ 125,000 $ -
Current portion of long-term debt - 4,834
Contingent and deferred acquisition payments 19,428 15,651
Accounts payable and accrued expenses 248,950 281,190
Deferred revenue   378,731   324,709
Total current liabilities 772,109 626,384
 
Long-term portion of debt 2,131,572 2,118,821
Deferred revenue, net of current portion 369,768 343,452
Other liabilities   188,609   173,742
Total liabilities   3,462,058   3,262,399
 
Stockholders' equity   1,794,578   2,265,252
Total liabilities and stockholders' equity $ 5,256,636 $ 5,527,651
 
         
Nuance Communications, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Unaudited
 
Three months ended
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2016

2015

2016

2015

 
Cash flows from operating activities:
Net loss $ (7,046 ) $ (14,098 ) $ (19,111 ) $ (64,593 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 57,551 56,847 115,826 114,020
Stock-based compensation 38,163 30,917 80,511 78,271
Non-cash interest expense 12,579 7,539 21,215 14,918
Deferred tax provision 4,089 4,499 3,738 6,386
Loss on extinguishment of debt - - 4,851 -
Other (528 ) 1,609 (135 ) 1,427
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable 26,004 9,745 22,110 16,988
Prepaid expenses and other assets 3,332 1,445 (16,765 ) (13,213 )
Accounts payable 8,637 4,428 2,697 1,869
Accrued expenses and other liabilities 7,029 (13,791 ) 7,334 (50,017 )
Deferred revenue   10,112     30,806     78,792     109,575  
Net cash provided by operating activities   159,922     119,946     301,063     215,631  
Cash flows from investing activities:
Capital expenditures (11,680 ) (13,821 ) (32,235 ) (30,758 )
Payments for business and technology acquisitions, net of cash acquired (26,725 ) (23,760 ) (27,399 ) (31,891 )
Purchases of marketable securities and other investments (15,687 ) (27,883 ) (32,757 ) (91,348 )
Proceeds from sales and maturities of marketable securities and other investments   18,553     13,788     32,681     23,165  
Net cash used in investing activities   (35,539 )   (51,676 )   (59,710 )   (130,832 )
Cash flows from financing activities:
Payments of debt - (1,209 ) (511,844 ) (2,418 )
Proceeds from issuance of convertible debt, net of issuance costs (848 ) - 663,757 -
Payments for repurchase of common stock (384,758 ) (109,838 ) (574,338 ) (109,838 )
Payments for settlement of other share-based derivatives - - - (340 )
Net payments on other long-term liabilities (233 ) (831 ) (1,084 ) (1,526 )
Proceeds from issuance of common stock from employee stock plans 8,404 8,972 8,440 9,149
Cash used to net share settle employee equity awards   (4,802 )   (4,299 )   (56,973 )   (46,953 )
Net cash used in financing activities   (382,237 )   (107,205 )   (472,042 )   (151,926 )
Effects of exchange rate changes on cash and cash equivalents   1,891     (4,257 )   1,930     (5,453 )
Net decrease in cash and cash equivalents (255,963 ) (43,192 ) (228,759 ) (72,580 )
Cash and cash equivalents at beginning of period   506,653     517,842     479,449     547,230  
Cash and cash equivalents at end of period $ 250,690   $ 474,650   $ 250,690   $ 474,650  
 
         

Nuance Communications, Inc.
Supplemental Financial Information - GAAP to Non-GAAP Reconciliations
(in thousands, except per share amounts)
Unaudited

 
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2015

 

2016

 

2015

 
GAAP revenues $ 478,733 $ 475,059 $ 964,848 $ 949,078
Acquisition-related revenue adjustments: product and licensing 5,715 9,139 11,708 19,755
Acquisition-related revenue adjustments: professional services and hosting 2,835 3,350 5,363 7,146
Acquisition-related revenue adjustments: maintenance and support   130     515     364     1,114  
Non-GAAP revenues $ 487,413   $ 488,063   $ 982,283   $ 977,093  
 
GAAP cost of revenues $ 205,500 $ 202,976 $ 411,098 $ 412,947
Cost of revenues from amortization of intangible assets (16,339 ) (15,631 ) (31,970 ) (30,762 )
Cost of revenues adjustments: product and licensing (1,2) (122 ) 505 (244 ) 824
Cost of revenues adjustments: professional services and hosting (1,2) (7,548 ) (4,414 ) (15,139 ) (11,722 )
Cost of revenues adjustments: maintenance and support (1,2)   (923 )   (631 )   (1,991 )   (1,574 )
Non-GAAP cost of revenues $ 180,568   $ 182,805   $ 361,754   $ 369,713  
 
GAAP gross profit $ 273,233 $ 272,083 $ 553,750 $ 536,131
Gross profit adjustments   33,612     33,175     66,779     71,249  
Non-GAAP gross profit $ 306,845   $ 305,258   $ 620,529   $ 607,380  
 
GAAP income from operations $ 32,905 $ 26,478 $ 64,405 $ 11,917
Gross profit adjustments 33,612 33,175 66,779 71,249
Research and development (1) 7,967 6,668 17,900 17,177
Sales and marketing (1) 10,460 7,882 23,297 20,416
General and administrative (1) 10,934 10,911 21,565 26,569
Amortization of intangible assets 26,448 25,328 53,481 52,155
Costs associated with IP collaboration agreements 2,000 2,938 4,000 5,876
Acquisition-related costs, net 1,225 6,523 3,705 11,279
Restructuring and other charges, net 6,652 (333 ) 14,540 1,895
Other   6,025     7,003     9,875     15,835  
Non-GAAP income from operations $ 138,228   $ 126,573   $ 279,547   $ 234,368  
 
GAAP provision for income taxes $ 9,245 $ 11,059 $ 17,012 $ 16,873
Non-cash taxes   (4,065 )   (5,332 )   (5,677 )   (7,491 )
Non-GAAP provision for income taxes $ 5,180   $ 5,727   $ 11,335   $ 9,382  
 
GAAP net loss $ (7,046 ) $ (14,098 ) $ (19,111 ) $ (64,593 )
Acquisition-related adjustment - revenues (2) 8,680 13,004 17,435 28,015
Acquisition-related adjustment - cost of revenues (2) (209 ) (916 ) (375 ) (1,637 )
Acquisition-related costs, net 1,225 6,523 3,705 11,279
Cost of revenue from amortization of intangible assets 16,339 15,631 31,970 30,762
Amortization of intangible assets 26,448 25,328 53,481 52,155
Restructuring and other charges, net 6,652 (333 ) 14,540 1,895
Non-cash stock-based compensation (1) 38,163 30,917 80,511 78,271
Non-cash interest expense 12,579 7,539 21,215 14,918
Non-cash income taxes 4,065 5,332 5,677 7,491
Costs associated with IP collaboration agreements 2,000 2,938 4,000 5,876
Change in fair value of share-based instruments (61 ) (23 ) (61 ) 538
Loss on extinguishment of debt - - 4,851 -
Other   6,176     7,105     10,186     15,938  
Non-GAAP net income $ 115,011   $ 98,947   $ 228,024   $ 180,908  
 
Non-GAAP diluted net income per share $ 0.38   $ 0.30   $ 0.74   $ 0.55  
 
Diluted weighted average common shares outstanding   301,253     324,869     307,889     326,582  
 
         
Nuance Communications, Inc.
Supplemental Financial Information - GAAP to Non-GAAP Reconciliations, continued
(in thousands)
Unaudited
 
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2016

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(1) Non-cash stock-based compensation
Cost of product and licensing $ 122 $ 96 $ 244 $ 183
Cost of professional services and hosting 7,757 4,729 15,514 12,352
Cost of maintenance and support 923 631 1,991 1,574
Research and development 7,967 6,668 17,900 17,177
Sales and marketing 10,460 7,882 23,297 20,416
General and administrative   10,934     10,911     21,565     26,569  
Total $ 38,163   $ 30,917   $ 80,511   $ 78,271  
 
(2) Acquisition-related revenue and cost of revenue
Revenues $ 8,680 $ 13,004 $ 17,435 $ 28,015
Cost of product and licensing - (601 ) - (1,007 )
Cost of professional services and hosting   (209 )   (315 )   (375 )   (630 )
Total $ 8,471   $ 12,088   $ 17,060   $ 26,378  
 
                     
Nuance Communications, Inc.
Supplemental Financial Information – GAAP to Non-GAAP Reconciliations, continued
(in millions)
Unaudited
 
 

Perpetual Product and Licensing Revenue

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GAAP Revenue $ 584.1 $ 578.1 $ 496.6 $ 117.0 $ 121.3 $ 108.1 $ 115.9 $ 462.1 $ 115.2 $ 88.0
Adjustment   73.9   45.7   21.7   2.2   4.6     3.6     2.4   13.0   2.0   2.2
Non-GAAP Revenue $ 658.0 $ 623.8 $ 518.3 $ 119.2 $ 125.9   $ 111.7   $ 118.3 $ 475.2 $ 117.2 $ 90.2
 

Recurring Product and Licensing Revenue

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Q2
2016
GAAP Revenue $ 156.6 $ 175.6 $ 214.4 $ 52.7 $ 53.2 $ 54.7 $ 73.5 $ 234.1 $ 63.9 $ 70.6
Adjustment   -   24.4   15.6   8.4   4.6     3.5     3.6   20.1   4.0   3.5
Non-GAAP Revenue $ 156.6 $ 200.0 $ 230.0 $ 61.1 $ 57.8   $ 58.2   $ 76.9 $ 254.0 $ 67.9 $ 74.1
 

Professional Services Revenue

FY
2012
FY
2013
FY
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
FY
2015
Q1
2016
Q2
2016
GAAP Revenue $ 183.1 $ 208.1 $ 220.7 $ 54.8 $ 51.2 $ 51.2 $ 52.9 $ 210.0 $ 49.7 $ 55.6
Adjustment   0.7   17.9   7.5   0.4   0.4     0.4     0.3   1.5   0.3   0.4
Non-GAAP Revenue $ 183.8 $ 226.0 $ 228.2 $ 55.2 $ 51.6   $ 51.6   $ 53.2 $ 211.5 $ 50.0 $ 55.9
 

Hosting Revenue

FY
2012
FY
2013
FY
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
FY
2015
Q1
2016
Q2
2016
GAAP Revenue $ 490.9 $ 624.3 $ 690.2 $ 171.4 $ 173.3 $ 183.1 $ 181.7 $ 709.5 $ 177.4 $ 184.6
Adjustment   5.3   9.3   15.6   3.4   2.9     2.8     2.4   11.5   2.3   2.5
Non-GAAP Revenue $ 496.2 $ 633.6 $ 705.8 $ 174.8 $ 176.2   $ 185.9   $ 184.2 $ 721.2 $ 179.7 $ 187.1
 

Maintenance and Support Revenue

FY
2012
FY
2013
FY
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
FY
2015
Q1
2016
Q2
2016
GAAP Revenue $ 236.8 $ 269.2 $ 301.6 $ 78.2 $ 76.1 $ 80.9 $ 80.2 $ 315.4 $ 79.9 $ 79.9
Adjustment   6.7   5.1   3.2   0.6   0.5     0.4     0.3   1.8   0.2   0.1
Non-GAAP Revenue $ 243.5 $ 274.3 $ 304.8 $ 78.8 $ 76.6   $ 81.3   $ 80.6 $ 317.1 $ 80.2 $ 80.0
 

Total Recurring Revenues

FY
2012
FY
2013
FY
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
FY
2015
Q1
2016
Q2
2016
GAAP Revenues $ 896.7 $ 1,087.4 $ 1,228.4 $ 308.9 $ 307.5 $ 323.6 $ 340.5 $ 1,280.5 $ 326.1 $ 339.6
Adjustment   12.2   40.2   34.9   12.7   8.1     6.8     6.5   34.1   6.4   6.2
Non-GAAP Revenues $ 908.8 $ 1,127.6 $ 1,263.3 $ 321.7 $ 315.6   $ 330.4   $ 347.0 $ 1,314.7 $ 332.5 $ 345.8
 
Schedules may not add due to rounding.
 

Contacts

Nuance Communications, Inc.
For Investors
Richard Mack, 781-565-5000
richard.mack@nuance.com
or
For Press
Rebecca Paquette, 781-565-5000
rebecca.paquette@nuance.com

Release Summary

Nuance Announces Second Quarter 2016 Results

Contacts

Nuance Communications, Inc.
For Investors
Richard Mack, 781-565-5000
richard.mack@nuance.com
or
For Press
Rebecca Paquette, 781-565-5000
rebecca.paquette@nuance.com