Nuance Communications, Inc. (NUAN)

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Nuance Communications (NUAN)

Q1 2012 Earnings Call

February 09, 2012 5:00 pm ET


Kevin Faulkner -

Paul A. Ricci - Chairman and Chief Executive Officer

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


Nandan Amladi - Deutsche Bank AG, Research Division

Richard H. Davis - Canaccord Genuity, Research Division

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

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

Steven R. Koenig - Longbow Research LLC

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

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

Joanna Makris - Mizuho Securities USA Inc., Research Division

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

Tom Roderick - Stifel, Nicolaus & Co., Inc., Research Division

Scott P. Sutherland - Wedbush Securities Inc., Research Division

Daniel T. Cummins - ThinkEquity LLC, Research Division

Brent Thill - UBS Investment Bank, Research Division

Mike Latimore - Northland Securities Inc., Research Division



Ladies and gentlemen, thank you for standing by, and welcome to Nuance's First Quarter Fiscal 2012 Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. And with us today are Chairman and Chief Executive Officer of Nuance, Mr. Paul Ricci; Chief Financial Officer, 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

Thanks, Doug. 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 not -- 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

Thank you, Kevin. Before taking your questions, I might underscore a few points from today's documents. We were pleased this quarter with the strong fundamentals of the business, including double-digit organic revenue growth, year-over-year improved gross margins and operating margins, earnings growth and strong cash flow from operations.

In our last quarterly call and at our recent analyst meeting, we indicated that the pace of market activity suggests to us an unprecedented level of interest in our solutions. That remains our perspective as we continue in our second fiscal quarter.

Activity around our mobile and consumer business, in particular, remained intense as we see smartphone manufacturers, consumer electronics firms and automotive companies race to implement next-generation voice-enabled natural language interfaces.

In healthcare, sales for our solutions, led by record sales of our Dragon Medical products, continues to grow in double digits. Momentum in our imaging business is also quite robust and holds, we believe, the potential for out-performance this year as the combined eCopy Equitrac solution enjoys an especially strong reception from our OEM partners and their corporate customers.

Our second quarter guidance and confirmation of previous full year guidance reflects our increased optimism about the business, and we're now pleased to take your questions.

Question-and-Answer Session


[Operator Instructions] Our first question today comes from Nandan Amladi with Deutsche Bank.

Nandan Amladi - Deutsche Bank AG, Research Division

In -- going into the holiday quarter, obviously, there was a lot of investor expectation for a pretty strong result. I know in the prepared remarks you made reference to some large contracts. But can you provide a little more detail around what happened in the mobile segment this quarter?

Paul A. Ricci

Well, we had a fine quarter in our mobile and consumer segment. Growth was solidly in double digits. Dragon performance was very strong. We continue to see growth in our royalty reports in our various royalty streams in our various partners in the mobile business. I mentioned in the previous quarter that the nature of our relationships with our large OEM customers has grown more complex as we've begun implementing more comprehensive solutions that include embedded technology, network-based technology and engineering services. And that results in 2 things: First, some delay in the achievement of revenues for existing contracts as we have to complete certain revenue milestones. And secondly, prolonged negotiations for newer contracts as these simply have become larger and larger deals. My overall comments about the mobility business remain the same as in the past. It -- the demand for our solutions there is higher than it has ever been and is the strongest demand we're seeing in the company. So I'm not really concerned about what we saw in the first quarter.

Nandan Amladi - Deutsche Bank AG, Research Division

And a quick follow-up, if I might. Some of the newer contracts that you have signed as a result of the pull-through effects, are they structured in a similar fashion as the old one? Or do you still have kind of a mix of fixed-price and device-based licenses?

Paul A. Ricci

I don't want to talk about our pricing schemes. But what I said previously was that the breadth of these contracts has become greater as we're doing more for these customers. So it involves a technology that's sold on the device, technology that's sold in the cloud, and services to integrate those 2.


Our next question is from Richard Davis with Canaccord.

Richard H. Davis - Canaccord Genuity, Research Division

On the -- I'm sure you're getting much more questions on mobile, so I'll quickly pivot over to healthcare. That had a good organic quarter. It was a relatively easy compare. Is this a business that intermediate to longer term should be able to grow 15% or can it grow high teens or what's your thoughts there?

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