Nuance Announces Fourth Quarter and Fiscal Year 2018 Results
Exceeded Non-GAAP Revenue, EPS, Cash Flow and Margin ExpectationsAnnounced Strategic Actions after Comprehensive Portfolio Reviews Implemented Significant Changes to Corporate Governance Executed Share Repurchases and Debt Paydown
BURLINGTON, Mass., Nov. 19, 2018 (GLOBE NEWSWIRE) -- Nuance Communications, Inc. ( NUAN) today announced financial results for its fiscal 2018 and fourth quarter ended September 30, 2018.
“The success of our fourth quarter can be measured equally by our strong financial performance as well as the tremendous progress we’ve made toward simplifying our structure, rationalizing our portfolio, enhancing our governance, and improving our internal culture,” said Mark Benjamin, chief executive officer at Nuance. “We met or exceeded our Q4 expectations within each of our core metrics, and are pleased with what we accomplished over these last six months to enhance shareholder value. We made significant changes to our Board, bringing fresh perspectives, skills, and diversity of thought to the Company, and appointed an independent chairman to best represent shareholder interests. We also continued to pivot our capital allocation toward debt paydown and share buybacks to further enhance shareholder value. Perhaps most importantly, we conducted our strategic portfolio reviews and made definitive business decisions that will accelerate our future growth.”
Mr. Benjamin continued, “As we define this new era for Nuance, we are sharply focused on building a global, conversational AI business that is capable of sustainable, long-term revenue and earnings growth. We are transitioning to cloud-based, intelligence-driven solutions, and allocating resources to ensure maximum success in our high-growth core markets. Executing on these defined strategic priorities will enable Nuance to maintain its leadership as a truly intelligent engagement company, and we look forward to sharing our continued progress.”
Fourth Quarter Performance Summary
On a GAAP basis:
Revenue of $532.9 million, up 14% compared to $465.9 million a year agoRecurring revenue of 71% of total GAAP revenue, consistent with the year-ago periodNet loss of $(35.1) million, or $(0.12) per share, compared to a loss of $(65.4) million, or $(0.23) per share, in the fourth quarter last yearOperating margin of 0.9%, compared to (3.8)% in the prior year periodIncurred a goodwill and other asset intangible impairment of $33.0 million related to the decision during the quarter to wind down our Subscription Revenue Services (SRS) and Devices businessesCash flow from operations of $149.4 million, compared to $(3.5) million in the fourth quarter of fiscal year 2017On a non-GAAP basis:
Revenue of $536.2 million as reported, up 13% compared to $474.7 million in the fourth quarter last yearOrganic revenue grew 12% in the quarter to $536.2 million, from $479.6 million in the prior year periodRecurring revenue of 71% of total non-GAAP revenue, consistent with the year-ago periodNet income of $112.5 million, or $0.38 per diluted share, compared to $60.2 million, or $0.20 per diluted share, in the fourth quarter of fiscal year 2017Operating margin of 30.5%, compared to 20.7% in the prior year periodCash flow from operations of $149.4 million, or 133% of non-GAAP net incomeNet new bookings growth of 10%, to $468.5 million, up from $424.4 million a year agoFiscal Year Performance Summary
On a GAAP basis:
Revenue of $2,051.7 million, up 6% compared to $1,939.4 million last yearRecurring revenue of 71% of total GAAP revenue, compared to 73% in fiscal year 2017Net loss of $(159.9) million, or $(0.55) per share, compared to a loss of $(151.0) million, or $(0.52) per share, in fiscal year 2017Operating margin of (4.2)%, compared to 2.7% last year Incurred a goodwill and other intangible asset impairment of $170.9 million related to SRS business disruption in Q2 18 as well as the Q4 18 decision to wind down our SRS and Devices businessesCash flow from operations of $444.4 million, compared to $378.9 million in fiscal year 2017Total deferred revenue ending balance of $873.0 million, up 11% compared to $790.0 million at fiscal year-end 2017Total cash, cash equivalents and marketable securities ending balance of $473.5 million versus $874.1 million as of September 30, 2017.On a non-GAAP basis:
Revenue of $2,069.4 million as reported, up 5% compared to $1,977.4 million last yearOrganic revenue grew 4% compared to (3)% in the prior year periodRecurring revenue of 72% of total non-GAAP revenue, compared to 73% in fiscal year 2017Net income of $351.9 million, or $1.19 per diluted share, compared to net income of $309.0 million, or $1.05 per diluted share, in fiscal year 2017Operating margin of 26.1%, compared to 26.4% last yearCash flow from operations of $444.4 million, or 126.3% of non-GAAP net incomeNet new bookings growth of 5%, to $1,734.6 million, up from $1,653.6 million a year agoPortfolio Review, Business Review and Transformation Program
Healthcare and Enterprise Focus – After conducting the strategic business review, Nuance created a comprehensive plan to simplify its operations and enhance its focus on growth markets, including the Healthcare, Enterprise and Automotive segments. Therefore, the Company will maintain its Healthcare and Enterprise business segments, where Nuance brings deep business-to-business relationships, differentiated technology and contextual expertise.
Automotive Segment Spin-Off – The Automotive segment delivers critical enabling technology for transforming the passenger experience. Therefore, becoming a pure-play next generation automotive software company represents an important step in this segment’s growth. Accordingly, in conjunction with today’s earnings announcement, Nuance announced its intention to spin off the Automotive segment into a new, independent, publicly-traded company. Additional information about the proposed transaction is available in the separate press release issued today.
Imaging Business Sale – As announced on November 12, 2018, Nuance is selling its Imaging business to Kofax for a purchase price of $400 million, in a transaction that is expected to close by the end of Q2 19.
Subscription Revenue Services (SRS) and Devices Wind-Down – During the fourth quarter, Nuance decided to wind down the Subscription Revenue Services (SRS) business because it is non-core to Nuance’s AI strengths. The Company is also commencing the wind-down of the consumer-focused Devices business.
Operational Transformation Program – In tandem with the Company’s strategic portfolio review, Nuance is optimizing its organizational structure. This process has identified $50 million in cost savings that will be implemented in fiscal year 2019, primarily during the first and second quarter.
Capital Allocation
In Q3 18, the Company implemented a capital allocation strategy for the fiscal year focused on opportunistic share repurchase and debt repayment. Accordingly, during fiscal year 2018, Nuance repurchased a total of 9.7 million shares of common stock, representing 3.3% of total shares outstanding as of September 30, 2017, at an average price of $14.03 per share, and a total purchase price of $136.1 million.
In addition, in Q4 18, the Company repaid $150 million of its 2020 5.375% high-yield bonds at par, reducing annual cash interest expense by approximately $8.1 million. As a result, total debt maturity value is approximately $2.44 billion as of September 30, 2018, down from $2.59 billion as of June 30, 2018, and the Company’s net debt leverage ratio is 3.3.
Governance Improvements and Management Additions
Nuance refreshed its Board in September, naming four new independent directors and a new non-executive Board Chair, bringing new talent, with a wealth of relevant expertise and relevant skills. Of the nine Board members, seven have joined since December 2017 and eight are independent directors, including Lloyd Carney, who was named the new chairman. Separately, on November 9, 2018, Nuance announced that its Board had changed its Bylaws to enable holders of at least 20% of Nuance common stock outstanding to request that the Company call a special meeting of stockholders.
Business Outlook
For a complete discussion on Nuance’s fourth quarter and fiscal year 2018 results and 2019 business outlook, please see the Company’s Prepared Remarks document available at globenewswire.com.
Please refer to the “Discussion of Non-GAAP Financial Measures,” and “GAAP to Non-GAAP Reconciliations,” included elsewhere in this release, for more information regarding the company’s use of non-GAAP financial measures.
Conference Call and Prepared Remarks
Nuance provides prepared remarks in combination with its press release. This quarter, the company is also providing a PowerPoint presentation to accompany the conference call discussion to provide insights into the business update. The prepared 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 globenewswire.com in conjunction with this press release but will not be read on the conference call.
Nuance will host an investor conference call today that will begin at 5:00 p.m. ET and will include management comments followed by questions and answers. To access the live broadcast, and to view the PowerPoint presentation that will accompany this call, please visit the Investor Relations section of Nuance’s website at globenewswire.com. The call can also be heard by dialing (877) 273-6124 or (647) 689-5393 at least five minutes prior to the call and referencing conference code 2572316. A replay will be available shortly following the conclusion of the call by dialing (800) 585-8367 or (416) 621-4642 and using the access code 2572316. The presentation will be available on the Nuance Investor Relations site after the call is completed. |
