NUAN

Nuance Communications, Inc. (NUAN)

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Nuance Communications (NUAN)

Q4 2012 Earnings Call

November 19, 2012 5:00 pm ET

Executives

Kevin Faulkner

Paul A. Ricci - Chairman and Chief Executive Officer

Thomas L. Beaudoin - Chief Financial Officer and Executive Vice President

Analysts

Shyam Patil - Raymond James & Associates, Inc., Research Division

Daniel H. Ives - FBR Capital Markets & Co., Research Division

Jennifer A. Swanson - Morgan Stanley, Research Division

Brent Thill - UBS Investment Bank, Research Division

Richard H. Davis - Canaccord Genuity, Research Division

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Shaul Eyal - Oppenheimer & Co. Inc., Research Division

Scott Zeller - Needham & Company, LLC, Research Division

Gregory Dunham - Goldman Sachs Group Inc., Research Division

John F. Bright - Avondale Partners, LLC, Research Division

Nandan Amladi - Deutsche Bank AG, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Nuance's Fiscal 2012 and Fourth Quarter Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded.

With us today are Chairman and Chief Executive Officer of Nuance, Mr. Paul Ricci; CFO, Mr. Tom Beaudoin; and Vice President of Investor Relations, Mr. Kevin Faulkner. At this time, I'd like to turn the call over to Mr. Faulkner. Please go ahead.

Kevin Faulkner

Thank you. Before we begin, I'll 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'll not repeat them here.

Now let me turn the call over to Paul Ricci.

Paul A. Ricci

Good afternoon. Before taking your questions, I would like to underscore a few key points. Nuance had an exceptional fiscal 2012. Our fiscal 2012 financial results were unprecedented, 25% revenue growth, 27% EPS growth, 29% net income growth, 32% operating cash flow growth, along with record bookings.

We're of course very pleased with these strong financial results. But equally important was a significant strategic and operational progress we made across our business. Nuance has become the industry standard for voice and natural language solutions, making our technologies broadly available to our APIs and developer tools. Our cloud-based developer programs are now serving more than 14,000 developers across our Healthcare, Mobile and Enterprise markets while also continuing to build broader application suites serving these key markets.

In our Mobile & Consumer business, we expanded our privileged position as a premier provider of voice and natural language solutions for the leading smartphone platforms worldwide. We continued our unrivaled leadership in the automotive market while delivering early success in the emerging market for connected car solutions. We entered another new market with the launch of Dragon TV and captured a majority of the leading television makers.

We increased the penetration of our Mobile Services through leading global carriers, smartphone makers and application developers. By the end of Q4, fiscal '12 we were, at an annualized rate, processing 5 billion mobile cloud transactions, shipping in 20 million voice-enabled cars and shipping voice and natural language or predictive text technologies in more than 800 million phones, all while supporting between 38 and 70 languages, depending upon the product.

We improved growth in our Enterprise business. We saw encouraging progress in our Enterprise on-demand business with renewed bookings in the second half of the year and record Professional Services. We processed more than 7.5 billion interactions in our on-demand centers.

We also unveiled Nina, a platform for delivering customized virtual systems for customer self-service. The Nina launch generated a great deal of enthusiasm from existing and new customers, and the breadth of our pipeline reflects unprecedented demand. Nuance has now achieved more than 3,000 deployments with our Enterprise Solutions, supporting 55 languages. Our rapidly growing voice biometric solutions comprise more than 70% of the total worldwide enrollment of voice biometric voiceprints.

In our Healthcare business, we saw continued strength in our Dragon Medical and radiology solutions and an expansion of our on-demand business, where we're processing nearly 5 billion lines annually.

More than 450,000 physicians now use Nuance Healthcare Solutions, and we're supporting a developer community in 22 languages. We recently began a strategic transformation, combining clinical documentation, CLU and computer-aided coding to implement a clinically oriented end-to-end solution that will revolutionize the industry's approach to healthcare documentation. We expect our Healthcare business to generate more than $1 billion in revenue in FY '13, placing us among the larger healthcare IT software and service providers.

In our Imaging business, the integration of our Equitrac and eCopy solution continues the evolution of our Imaging business towards OEM and Enterprise Solutions. More than 100,000 MFPs with Nuance embedded software shipped last year, and more than 1 billion printed pages were managed by Nuance Imaging software solutions.

We achieved this progress across our business while raising our operating margin by 190 basis points, significantly better than our guidance, and increasing our investments in R&D and sales and marketing. We intend to accelerate these investments in FY '13 because we believe they will increase our organic growth in the second half of the year and into FY '14 and because we believe they will further strengthen our market leadership.

The strength of our conviction about investing now for accelerated growth will be apparent to investors as they note the material increase in expenses this quarter, which are associated almost entirely with increased R&D investments, engineering services associated with large mobile engagements, sales headcount and advertising expenses. We simply believe that our markets are continuing to a transition whereby the paradigm of interaction with information systems will increasingly shift to virtual agents and intelligent systems, which seamlessly combine voice recognition, natural language processing, advanced dialogue capabilities and reasoning systems to better interpret and anticipate user intent. By increasing our investments now, we put ourselves in the best position to fully capitalize on this important opportunity.

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