Nuance Communications' CEO Discusses Q4 2012 Results - Earnings Call Transcript

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Nuance Communications Inc. (NUAN)

F1Q13 Earnings Call

February 7, 2013 5:00 pm ET

Executives

Kevin Faulkner – Vice President-Investor Relations

Paul A. Ricci – Chairman and Chief Executive Officer

Analysts

Richard Davis – Canaccord Genuity

James R. Moore – FBR Capital Markets

Shyam V. Patil – Raymond James & Associates

Gray Powell – Wells Fargo

Jeff Van Rhee – Craig-Hallum

John F. Bright – Avondale Partners

Scott Zeller – Needham & Company

Presentation

Operator

Ladies and gentlemen good afternoon, thank you for standing by and welcome to Nuance's First Quarter Fiscal 2013 Conference Call. At this time all lines are in a listen-only mode. Later there will be an opportunity for your questions, and instructions will be given at that time. (Operator Instructions) As a reminder, today's call will be recorded.

With us today are the 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 sir.

Kevin Faulkner

Thank you, Tom. 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 A. Ricci

Good afternoon. Before taking your questions, I would like to underscore a few key points. In the first quarter, we delivered revenue and EPS at the midpoint of our guidance range. We delivered 29% revenue growth and 37% cash flow growth. In addition to these strong financial results we continue to make significant strategic and operational progress across our businesses.

In our mobile and consumer business, we expanded our privileged position as a premier provider of voice and natural language solutions for the leading Smartphone platform providers worldwide including the two market share leaders, Apple and Samsung.

We delivered a particularly strong quarter in the automotive market, continuing our unrivaled leadership in achieving additional design wins in the emerging market for connected car solutions. Q1 marked the initial shipments of Dragon Assistant in the PCs, laptop and hybrid markets under our Intel contract.

In our healthcare business, we saw early success in our end-to-end clinical quality, compliance and revenue cycle solutions combining clinical documentation, clinical language understanding and computer-aided coding to implement a clinically oriented end-to-end solution that will once again revolutionize the industry’s approach to healthcare documentation.

We improved growth in our enterprise business. We began several pilots for Nina, our platform for delivering customized virtual assistance for customer self service. These pilots engage us with leading companies and targeted vertical markets, airline, banking, insurance, retail and telecommunications.

There were three factors though that laid upon our first quarter results and that will affect our fiscal 2013 outlook. First, as referenced in our prepared remarks, we saw faster than expected erosion of our healthcare on-demand transcription volumes within existing customers due to the implementation of EMR systems and to the installation of Dragon medical software, both of which reduce on an average, the amount of hosted transcribed lines generated.

Second, although we had strong EMEA results in our handset and automotive business, the environment in EMEA was weaker than expected across our other businesses. We expect this weakness to continue in Q2 and throughout fiscal 2013.

Finally, we observed a slowdown in Windows based software sales, especially in our direct consumer business in conjunction with the Windows 8 replacement cycle, the emergence of tablets is an alternative to PCs and through some channel disruption.

Also as referenced in our prepared remarks we did make significant investments in R&D and sales in the first quarter and continuing into the second quarter. We expect these investments to slow as we enter the second half of the year. Furthermore we will realize significant savings from the consolidation of acquisitions as we progress through this year. These savings will improve operating margins as we move through the remainder of the year.

To close on a point that we have made in previous investor communications, we believe that our markets are transitioning to a new paradigm of virtual agents and intelligence systems, which seamlessly combine voice recognition, natural language processing, advanced dialog capabilities, and reasoning systems to better interpret and anticipate user intent. We’ve made important investments in sales, technology, and across an unprecedented level of customer engagements to best position ourselves to capitalize on this opportunity through the balance of fiscal '13 and into the next fiscal year.

And we will now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question today comes from the line of Richard Davis, representing Canaccord. Please go ahead.

Richard Davis – Canaccord Genuity

Thanks. With regard to EMEA, do you view this as – I mean I know you did say that weakness will continue, macro, I mean obviously it's sales execution in the sense that always sales execution but can you kind of allocate the level of challenge there? And then just finally on healthcare, is this a business that you feel that would continue to face these headwinds with regard to the on-demand – I know you talked about it in guidance, but is there something more kind of a systemic thing or is it more temporary for at least – by temporary I mean just a few quarters. Thanks.

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