NUAN - Earnings call transcript Q4 2017 | Nuance Communications, Inc.

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Operator

Ladies and gentlemen, thank you for standing by. And welcome to Nuance’s Fourth Quarter and Full Year Fiscal 2017 Conference Call.

As a reminder, this conference is being recorded. With us today from Nuance are Chairman and CEO, Paul Ricci; CFO, Dan Tempesta; and Head of Investor Relations, Christine Marchuska. At this time, I would like to turn the call over to Ms. Marchuska. ahead. go Please

Christine Marchuska

Thank you.

set that everyone and estimates, of otherwise on statements release, non-GAAP Please other to them references a comments and statement remind discussion call unless afternoon repeat are income are refer I here. not differences And, to to we of this in of risks formal in as our this material these serve we of SEC place our forward-looking uncertainties the a to predictions, our remarks available over begin, actual Paul. are remarks press filings our prepared expectations, I includes call, stated. we subject in noted Those intended recent are will advance Before our to cause will for turn results. and discussion could results statements. extended in All issued which These risks. website. now

Paul Ricci

and afternoon, you, Thank good Christine, everyone.

few like want to FYXX Before and completed with I Nuance thoughts FYXX. taking noting for your on our highlight provide XXXX. expectations would questions, its how preliminary to begin results, key our regarding fiscal I I outline pleased am that FYXX by points

we incident, for at several against XX% well the key delivered performed victim in range Notwithstanding QX. on of end know, high the bookings have were operationally, significant of we net year ‘XX. strategically the cyberattack June, you We completed a financially. new malware our we incident our and which fiscal had As Absent of a in metrics. the impact performance an excellent guidance

compared as recovered outperformed malware history in net best this from its growth the continued as expectations, met and bookings QX target the and guidance incident across our QX, segment recurring we provided have our our QX delivered favorable businesses. our momentum notably, post-incident in and XX% challenges we We to business impact had outcomes saw quarter we Healthcare our we Additionally, malware. in impacts as revenue revenue despite EPS FYXX the it of for faced new

grew performance evolving our business evidence Our generating our in noting an Worth about that fiscal solutions year million we our year by and ‘XX. increase important further $XXX markets. is our in of metric strategic ‘XX Throughout XX% year each demand or that vertical segments. fiscal provides pipeline our total accelerated to AI during product initiatives is analytics-based key of predictive conversational focus on the

our in business leading behavioral and delivered customer to to car by connected our facial analytics, and voice for make and AI analytics, new just In capabilities, omni-channel the Mobile, automakers, the shift For Medical, for engagement world’s powered in an example, and for workflow cloud our added automotive outstanding accelerated open management rapid XXXX deployments again a biometrics automotive launched marketplace capabilities portfolio. within Enterprise, we assistant to with video, continued and critical virtual result diagnostics, optimization in first in the radiology. expansion we AI offering algorithms And Nuance. reality new our Healthcare, and Dragon excellent introduced and making we growth product initiative the continued enhanced yesterday, to

to trends expect market our as AI-based favorable we on benefit and We from fiscal new momentum, new on capitalize build solutions the year. enter our

growth earnings for our revenue in saw and organic you X% of reiterated between As material, expectation growth we XXXX our X%.

our growing whereby streams our XXXX, revenue a growing our streams, of bookings volume projection, of our now outpacing the revenue our on point in pipeline, We based turning and our revenue compounding recurring of effect performance have are importantly, declining confidence the streams.

declining longer streams businesses opportunities. we and while investing address several a in have in shift revenue For managed growth years term several our

business in Dragon in more Medical offset lines. of as By approximately than contributor Medical its revenue expected we the XX% and rate. For end diagnostics the XXXX, as concurrently the erosion in erosion double-digit in will solutions documentation Healthcare HIM the we segment’s of our largest our of transcription example, have build growth will with Mobile, Healthcare improvement Dragon managed growth Similarly eclipse lion a automotive HIM. revenue shares the the where now comprises clinical

addition CDI we releases anticipate these revenue our business imaging In solutions. and for to our growth effects, Services Mobile our from offerings, new

above guidance adoption somewhat time the have net the be strong of between is provided expansion and will last year. offerings we the continued voice Enterprise ‘XX an for of X% solutions, in which by will worth and our product growth the of bookings Our the initial fiscal Bookings -- performance with Imaging we business this FYXX, note division’s continued FYXX new X% in is range biometrics our Along booking and favorable led expect to solution. forecast robust our you of our new which trends cloud bookings noting, our set growth slated revenue most Dragon projections, omni-channel automotive history. for Medical business in has growth net at our

We levels, expect or following accommodate that would that incident. from in our investments and additional slightly as FYXX flat security we we but they the in from posture levels, down enhanced note increase will margins infrastructure be FYXX our pre-incident

investments upon programs. increasing As successful focused on building initiatives remarks, and our multiyear you on efficiency businesses, our organizational a saw embarked in in prepared previously growth our we’ve productivity

businesses declining with the in We businesses our provide and growth our each This should organic deliver expect to our improvements. increasing fiscal will businesses with to steady booking year-over-year effect declining growth. expansion businesses, and which fiscal between pipeline, in our vertical diminishing we AI to to key year go-to-market in and efficiencies encouraged markets investments initiative along strength to improve growth particular, about our X% In further segment ‘XX, our of year thoughts ‘XX. outpace initial overall rates X% use us to relative contributing our has fund margin of trajectory, resources the these enhanced growth our and our our of

Dragon levels omni-channel solutions. basis put from we us, Enterprise expansion margin and behind we Medical as incident in bookings, net farther And We margins expect for for new remain similar performance to of growth the margin will of strong XX similar increasing efforts operating us between cloud operating our to set at gross approximately the FYXX productivity and Overall, use enabling steadily the while with gains expect expansion. points, contributions balancing automotive, growth funding path while on FYXX.

I briefly Finally, topic the CEO of wish to comment on succession.

quarters in prior its to internal made I process As committee external both progress the the the recent Board evaluate has mentioned that end of a to previously, process search The work to and candidates. committee and complete in have expects and initiated March.

from I’d success of devastating XXXX fiscal In for amidst to witness update reiterate closing, that owing the further remarkable that fiscal malware can a and borne our first as challenge to like You we I’m to both confident the expect year. our a a ‘XX organization the was year attack. milestones exited one after we stronger numerous recovery Nuance, endured.

Year pleased and in we our ‘XX fiscal deep to questions. we allow key growth relationships markets, begin take the investment vertical of And businesses us as for of years Now and the the solutions, our our our our New now recognize combination the position strength are your in ahead. potential new customer to will

Operator

Saket from comes question Kalia from first the And Instructions] Barclays Capital. [Operator

Please ahead. line Your is go open.

Saket Kalia

than you malware incident to just much Dan, questions expected my of looks taking quarter here. forward with for Thanks this next was that’s guys. start to and better the carrying maybe it and like Hi, luckily year. impact the

level malware to are of can about set, the incident talk Just you you sort dollar -- from assuming what malware just impact from FYXX? impact in

Dan Tempesta

Saket. Thanks. Yes. Hi, Sure.

would In million than impact all, revenue an would QX the incident expected. around because better say better First in expect ‘XX $XX million. the was of an XXXX. I performance to estimated impact $XX impact in to of million of originally expected we $XX we around

Saket Kalia

solutions just about driven if driving optimization my just industry-wide bookings regulatory data a is something there talk may great. continued had segment from coming That’s that for you Paul, on follow-up CDI? something constantly great. the question you Healthcare or or or of like that business. a in Maybe particularly good improvement critical It for that is are quarter. That’s strength Can is the felt more doing CDI hospitals perhaps that’s

Paul Ricci

Yes. and within to central of is by to that’s as chain, strong. in improves clinical hospitals the right benefits year of did regulatory of efficiency well. on quality There’s pressure good of particularly bookings a also fact you It the entire were course errors Those optimize trends further is enormous focus documentation in reduce the models both know so and way in and as and errors. Healthcare documentation CDI and a There business We improve in outcomes have hospitals. patient now. to on hospitals the and those that CDI pressure driven affect

Saket Kalia

quarter. very Thanks it. Got Nice for me. That’s much it guys.

Operator

Stanley. Morgan Sanjit Thank next question from you. comes Singh from The

ahead open. is one go open. Please line Your Please now go moment, -- ahead. it’s

Sanjit Singh

quick are slight little down investments relative the range or incremental XX.X% I sort question margins are a margin on bit I XX% think where originally drove now to going insight give taking for and was in you basis margins? that down, XX like in Thank and you questions. so update, on those points. Can downtick it’s us the an of Dan what just QX the think

Dan Tempesta

Sure.

right. are You

XX.X% are points auto security XXXX can a year about for say drivers as points Those the -- We for trajectory we’re XXX that you the in that of XX% in environment particularly from main impacted two as basis investment updating the I XXX are basis number landing the think guiding to are as other point margins. adjustment. R&D, operating it the environment about malware and well areas would in Enterprise. to are by the on and of

Sanjit Singh

initial of the it. ‘XX commentary fiscal also your contribution fiscal I for automotive on Got And ‘XX. sort year out and year do appreciate of breaking sort

is about the going of major be obviously, think components of of So durable we one automotive that. one -- growth, these to

thinking of continue are wins, the of to those and the are of we you forward? the Thanks. durability sort those you XXXX in that about confidence going you proposition XXXX about that within to automotive to as be secure sort to or guys gives roads terms see able in what OEMs, you what making think of going stickiness So on wins secure business, value your the wins, some some working Alexa design

Paul Ricci

and past they’re initiatives lives the are that the to drivers to own business has that doesn’t the strong their success in the to been from have ‘XX so period. them and seek digital and in overall that it close accommodate seems in be wins wins building continue their alignment brand. rate automotive experiences already platforms, trying it of so business We’ve seems that in helping I investments been a to bring experience your message consistent are the in having the should the they time cars, from automotive generally the automotive with having present other and going It manufacturers But of that car will to the solution abandon car that they parameters well in our a with the we doing by the is design -- inside their contracts own the signs mean digital manufacturers winning question, from that more believe that note wins of late, evoke success that that we that our are one consistent said get but driven model manufactures. where with are XXXX automotive be seems designs. shipment with and the the complete design with and design to we cars, advance to we that the into

Sanjit Singh

helpful. Very Paul. Thank Got it. you,

Operator

Thank you. Jeff comes Rhee The Van Craig-Hallum. question from next from

is go ahead. line open. Your Please

Jeff Van Rhee

actual ability to solutions narrow bit focus be you impactful Paul, the lot think a drive that to and deploying are a cases you’re months? in few here, little line, that respect of learning, the steps of sort AI the I of product would what that take revenue AI most terms central XX just I sets. within a lot to mean Great. use machine our its with to next a it XX you. of a Thank going -- are is things know you. further, of But the and months,

Paul Ricci

extension we we number some management, are to cases course, includes machine that evolution the the speech of importantly about, But last virtual service, use assistant focal for course, learning and we’ve continue been and have the the been conversational of for in radiology the the well. there I the deep customer in we been dialogue automotive of frontier to point language a that which a more the in learning want case. central has the to -- as years, that processing, focused using learning at to itself, expansion the so technology talked has on such noting customer that as improving other move interactions application capabilities AI CDI, to -- been speech equally be of our technology start by years of we’ve technology natural use of several that cases and as of in machine the that solutions of Enterprise of will

my vertical and complete of is, focused solutions solving sets markets and recent suggested and data. quarter markets those analytics the are our comments in So data have advantage and quarters increasingly are for taking that on that the specializing are this rich we more in solutions around providing

Jeff Van Rhee

of that other I things are now few talk areas further, the Transformation new role, the rationalization and those are you take business return. gears, you just talks of few Can be with you to about why Tom And guess, there, and on focused? about, the going just core Business Okay. kind focusing particular shifting of Beaudoin’s a EVP portfolio steps he why

Paul Ricci

is this growth investments to build an a our produce considerable to designed today with you’ve of we’ve had as ago some really the and initiative initiatives that. and free we initiative was success upon Well, forecast to improve to and in seen success and attempt margins undertook couple in that years that had

use are in mentioned, in further We seeking from we existing funds that further that redouble to agenda just to regard the well that in more can to AI I our conversational as investments expenditures efforts as market investments telecommunications drive as that our well of Enterprise automotive done course. spans the where and Mobile in the vertical market so in initiatives the the markets and business, our services Enterprise and business both healthcare such financial free markets, we’ve

for that expansion has a do optimization growth realignment and is greater growth drive there on, want synergies business certain areas So investments think automotive to to believe we of has cost-cutting, those take which to will want that we in margin to the and areas, such for want advantage example just we but fund we pursue further to create company we and the two to of because as lot not accentuation bring that to within to durability such there. go our opportunity

Jeff Van Rhee

likely go through it as roughly that then any of me, be looks deployed just And to free just cash then guess I cash you last in million-ish if Okay. shifts there’s flow, thoughts for how like $XXX are free terms pointing ‘XX? is to in you fiscal

Dan Tempesta

still allocation previous for and the the the between think M&A. prices, around I in manner stock plan repurchase is plan the attractive capital balanced repurchasing debt cash then some

Jeff Van Rhee

questions. right. for Got my All it. Thanks taking Great.

Dan Tempesta

Thanks, Jeff.

Operator

the of Thank you. question from The next comes Nandan Amladi. line

I Your go open. line is, ahead. Bank. am your Please line is And sorry, Deutsche

Nandan Amladi

Good afternoon. Hi. question. my taking for Thanks

really million a around also on be building was fair a it more previous focused little your say on to bit program OpEx the Paul, bit the growth question would you’re So, transformation, -- now previous $XXX little that opportunities? more and cost the focusing

Paul Ricci

-- primarily we migrated the of gradually we’ve business of years. opportunities. through initiative about cost to the growth expansions talk bookings -- and over is expanding about and into funded year previously. margins we was that it couple it, accelerate a year we when began the some to a as the some pointed to for outlined -- channeling to that the in potential we growth it, our try focused, want good Well, this while the that When into next question. last instance steadily started it’s that and our We growth that started of case defending we steadily It and we

Nandan Amladi

imagine developers it’s the yesterday your but Historically, announced it fields most you the you on was in that of specialized applications broader Healthcare open these built marketplace what announcement there how have front, that’s AI the Healthcare, a yourselves, initiative. I to many like up? are yesterday, on would clearly, these impetus Then was

Paul Ricci

of has broad marketplace learning Healthcare. is and sharing people exclusively its reach Nuance it there enable of The resources the today within and Well, case its validations that on based radiologists using who in the available radiology this on the get in market can has this the in algorithms image yesterday, sets, a resources platform particular and advent learning and solutions create for machine in and and it set of pointed NVIDIA PowerShare, out where from initiative innovate establish democratized to their algorithms. for that focused many are we is we reporting sets, an PowerScribe deep in platform pointed learning ability data those yesterday diagnostics announced as new radiology technologies to algorithms, and platform lot those and and a we Healthcare and is focused algorithms available deep in as infrastructure data want out get can provide on for visibility they those

So groups we that radiology going to industry based think there’s insights based be of on of on a have develop work the those algorithms within lot and data. their that to individuals radiologists

Nandan Amladi

you. Thank

Operator

the of Stifel. The next question from comes Tom from Roderick line

Your line go ahead. open. is Please

Tom Roderick

here Hi, can for take impacted and revenue Paul, a just you actually stream guys little outage few the the you to malware minutes about think a about question. the how Thanks way of more the it’s bit how mechanics talk it. the impacting guys.

systems services the and But any come transactional share that relates through how time ways was some talk the revenue impacted as period customers, that’s churn there to you we are perhaps have you and couldn’t this? customer different certain the where thinking get Can that. streams think of about it Thanks. impact certainly loss? So of you just or of been offer so of all reputational kind volumes out I to the risk other moving

Paul Ricci

and QX due outage loss to in to quarters of through am for confirmation I million, two looking QX to customer credits… we those think, Dan I revenue itself, expectation due the Well, Yes. reported, of $XX an about

Dan Tempesta

that -- guiding final number the originally number $XX million. was we what was final the to, were And but

Paul Ricci

Yeah.

was competitive So we and forecasted million the earlier both $XX that closer expected Dan said outage $XX -- $XX due and was now to to that Dragon in million, reported migration early think, just offerings. we below Medical we to was $XX million, and final the And million. number to had ‘XX volume to what I to $XX have loss but -- look to about and some that, was the effect credits customer million we

Tom Roderick

Okay.

helpful. That’s Okay.

impacts the that play way Dan, it see following as the and So, up gross margins we out. that on should

have gross year. I expectation some gross look for drop that about think, of, to OpEx in in? you margins how I points of we seem or guys for aware margins EPS about the XXX in that gross laid we as year the through an it You for take suggest basis at expand, can either would and to kind OpEx out a the through of there is go margins progression the If QX be layering QX, are have us you those thinking guide and

Dan Tempesta

Yeah.

I I gross think first we XX%, be around to the the which is year are is thing projecting margins would consistent. for say

XX%, in a last hosted trend continues. but down, gross maintain are we are -- the those and but licensing that that had towards we those able Services, leverage from are away margins think margins a that pulling improving to we and seeing Professional hosting offerings because When that so malware margin there, regaining Of to you back the course, effects XX%. shift about of we year we to think still get

we has the back through the As a historically far levels margin, and quarter operating progress this to that in but particular general, will the QX higher is as get year. in operating year. they will through as margins lower in ramp

Tom Roderick

Thank you. Okay.

Operator

from of question next Canaccord. with the Hynes The you. line Thank comes David

open. is go line Please ahead. Your

David Hynes

the the color was gap helps guys. malware flow impact, more can Dan, little revenue than that -- expecting? and Thanks, between incident, give one impact Maybe more you reconcile difference the any cash us on the wider I Hey. follow-up a I was the

Dan Tempesta

Yeah.

had been caused credit and the you certainly customers have that that to, the significant quarter, collected. work Two, to the credits level in alluded of defer in Paul credits was when think our with as July happened otherwise -- I flows, collections. one But that payments majority and customers those early of quarter. until some credits production cash our we process due that lost to we in we the we to through gave think and was course, resolved. cash would happened those of shortfalls saw the in saw June, August, Number about

the So, on of impact had three I those combination significant our think, a collections.

one-time restore, addition, costs In as in those and there significant to the were expenses a quarter of in fair well. as costs quarter we noted, quarter the we last incur, we paid and had remediate amount to

combination up of make -- those those the the predominance So the shortfall. items all of

David Hynes

cash So terms we in comes of the different should fiscal ‘XX? way in linearity expect any

Dan Tempesta

answer in shortfall So a QX, little and carryover we are we yes, is, the to in X of in the QX, in have percentage more going that to call expected QX, aligned we a remarks. yes, but would averages X with bit have be the then provided

David Hynes

Okay.

Dan Tempesta

some QX to pay we have in happened in that QX. expenses But still

David Hynes

sharing Yeah. that maybe I kind recall has Got it then, you you pipeline your it. incremental don’t I mean, the been where -- past. helpful. opportunity That’s segments, the does growth frame of that do most feel And created? help Can across you metric where like the XX% in Paul, growth,

Paul Ricci

biometrics, Medical, our major included was it, contributors and that voice can the CDI strong. without very Dragon generally I a notably automotive, Well, Enterprise say quantifying pipeline our cloud,

David Hynes

Yeah.

Okay.

then be across announced as was more thinking mean, growth And the then, litigation forward, an still where about it? to last, is M*Modal on claims the businesses. broadly, recently, expecting to So maybe maybe of the how enforcement you more Nuance or can there? area you spread going strategy this the And aggressive patent that we are speak kind I

Paul Ricci

that light. for in that about enforce to intellectual any our it a that this respect been and has about our say see questions talked interest talk of generally in with our We’ve you the that There to M*Modal. and specific will broader lot is detail litigation property. should about I I previously. don’t investor want intent

David Hynes

it Thanks, guys. on. pass will I Okay.

Operator

line Raymond Tavis next McCourt The of the comes James. from with question

open. go is Please ahead. line Your

Tavis McCourt

them. Hey. have taking of a got questions. my Thanks for few I

is the First all business and guess, prepared on down XX% been a of talk cloud there. the but has the I in pretty what I about Enterprise to kind transition think, kind growth you growth are rate segment is that where year, that margins think good a should run in remarks so, to or as do margins down is margin of to you bottoms long continue -- trend phase out think there we it’s that or expect as growing? you to

Paul Ricci

that a in Well, delivering cloud comparison benchmarks to digital in has have it’s still margins a -- gross attractive fund the afternoon. the market. which this that been to there the margins additional are should are business declined been the about secondly, talking realm transition lower where That reasons. have the probably it’s increased of be. it margin, It’s revenues, in -- -- margin do some we’ve One it modest two but and investments for which that decline possible to growth

Tavis McCourt

bidding complex around a growth, got businesses of segments. on it Services and back -- you’ve reasonably is pipeline XX% The a commentary the you Cool. demand reasonably appears and lot Professional are across of high then lot where Okay. contracts latent

business any sign these how to of and increases? applications the getting as right do of deals is So, demand some on managers for I less guess, incent you your AI price sensitive these economics customers have there level

Paul Ricci

have we question, first the and around to respect the with margins. focus inside of discipline Professional company incentives on plenty Services Well,

that freedom market, good. been lot respect are us I there in really the has business is the where in is and breadth the allow there that of about trend performance given market but generally are generalize which perfect to experience other and segments that. of quite less difficult as which pricing good in the and pricing are to we the With is aren’t which areas the which depends think We than it the to have better areas, some for a on some areas it’s and question, remediate there the not more there of we there

Tavis McCourt

revenue XXXX. Fair for your update on given nature you’re Any that Dan, likely of XXX the impact implementing housekeeping enough. kind I And one the Dan, of in of think, rec business? broad a

Dan Tempesta

to be continues be same. impacted answer The term to licenses. significantly. the We stream revenue going be think quite are the is most to impacted going certainly be going to I that’s the

So -- across area. that be offerings There accelerate, so number the we but that’s that you licenses largest. will rest be the will of largest that familiar if -- portfolio, different term areas of XXX will that you will have with have smaller a the the and are will

Tavis McCourt

Fair enough. that just rounding of for the is pretty its year And this transition or end guidance about of read revenue to for this similar we recurring about should next that year, into nearing XX% a error? kind

Paul Ricci

that’s Well, to are the there so significant this HIM number offset. things somewhat contributing revenues a course, is year. of flat the One, segment, recurring in that being of loss

in revenues. the the attractive us, but it’s The recurring in Services growth business And Biometrics second is very is and the to related second your the in our Voice On-Premise final growth not question. business, Professional which is course, of earlier to

Tavis McCourt

Thanks lot. a Okay.

Operator

no There Please questions queue are this time. continue. further at in

Paul Ricci

look Take forward us for next quarter. again you joining you thank to we we this speaking Well, to Okay. care. quarter and

Operator

We gentlemen, for you today that participation thank Ladies for and using AT&T conclude conference. our Teleconference. does your and

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Nuance Communications (NUAN) 28 Nov 172017 Q4 Earnings call transcript