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Nuance Announces Third Quarter 2018 Results

Delivers Strong Performance Across Several Key Financial Metrics

Announces $500 Million Share Repurchase Program, $150 Million Debt Repayment

Portfolio and Business Review Proceeding as Planned

BURLINGTON, Mass., Aug. 08, 2018 (GLOBE NEWSWIRE) -- Nuance Communications, Inc. (NASDAQ: NUAN) today announced financial results for its third quarter fiscal year 2018, the three months ended June 30, 2018.

As part of its efforts to return capital to shareholders and strengthen its balance sheet, Nuance also announced today that its Board of Directors has authorized an incremental share repurchase program of up to $500 million, as well as a $150 million debt repayment.

“We delivered solid Q3 18 results, including non-GAAP revenue above the high end of our guidance, non-GAAP diluted EPS slightly above the midpoint of our guidance, and 7% net new bookings growth,” said Mark Benjamin, Nuance’s chief executive officer. “In addition, we made significant changes to our Board of Directors and governance and acted on our commitment to rebalance our capital allocation strategy, repurchasing 8.1 million shares, or approximately 3% of our total shares outstanding.”

“We also made meaningful progress with our portfolio and business reviews in the quarter,” continued Benjamin. "We are acting with urgency and driving toward a simplified and more efficient business, capable of sustainable, long-term revenue and earnings growth with resources keenly focused on opportunities that leverage Nuance’s core strengths in key vertical markets. As we committed last quarter, we will discuss Nuance’s next phase of growth and the evolution of our business in more detail when we report our fiscal fourth quarter and full year 2018 results.” 

Third Quarter Performance Summary

On a GAAP basis:

  • GAAP revenue of $502.9 million, up 3% compared to $486.2 million a year ago
  • GAAP recurring revenue of 73% of total GAAP revenue, consistent with the year-ago period
  • GAAP net loss of $(14.0) million, or $(0.05) per share, compared to a loss of $(27.8) million, or $(0.10) per share, in the third quarter of fiscal year 2017
  • GAAP operating margin of 5.7%, compared to 2.9% in the third quarter of fiscal year 2017 
  • Cash flow from operations of $99.7 million in the third quarter of fiscal year 2018, compared to $132.0 million in the third quarter of fiscal year 2017

On a non-GAAP basis:

  • Non‑GAAP revenue of $506.0 million as reported, up 2% compared to $495.6 million in the third quarter of fiscal year 2017
  • Organic revenue grew 1% in the quarter to $506.0 million from $502.8 million in the prior year period
  • Non-GAAP recurring revenue of 73% of­ total non-GAAP revenue, consistent with the year-ago period
  • Non-GAAP net income of $79.6 million, or $0.27 per diluted share, compared to non-GAAP net income of $79.2 million, or $0.27 per diluted share, in the third quarter of fiscal year 2017
  • Non‑GAAP operating margin of 24.7%, compared to 27.0% in the third quarter of fiscal year 2017
  • Cash flow from operations of $99.7 million, or 125% of non-GAAP net income
  • Net new bookings growth of 7%, to $471.1 million, up from $438.5 million a year ago

Returning Capital to Shareholders and Strengthening the Balance Sheet

During Q3 18, under the Company’s current Board-authorized stock repurchase program, Nuance repurchased 8.1 million shares of its common stock, representing approximately 3% of its total shares outstanding as of March 31, 2018, at an average price of $13.81 per share and a total purchase price of $112.0 million.

As of August 7, 2018, the Company had repurchased an additional 1.1 million shares, bringing the total number of shares repurchased since the beginning of Q3 18 to 9.2 million, at an aggregate purchase price of $127.5 million.  

Subsequently, given confidence in the Company’s ability to generate long-term value and its commitment to return capital to shareholders, Nuance today announced that its Board of Directors authorized an incremental share repurchase program of up to $500 million, supplementing the current authorization. Including the new authorization, Nuance had $565.9 million available for future share repurchases as of August 7, 2018.  

In addition, the Company announced today that its Board of Directors authorized the repayment of $150 million of the Company’s 2020 5.375% high-yield bonds, which will be callable at par after August 15, 2018. The Company expects this repayment to take place in mid-September and to reduce annual cash interest expense by approximately $8.1 million. Total debt maturity value will be $2.44 billion after the repayment, down from $2.59 billion as of June 30, 2018.

Business Outlook

Nuance reiterated its expectations for 5% to 7% net new bookings growth and guided to approximately 3% organic revenue growth for fiscal year 2018, consistent with the midpoint of its prior guidance of 2% to 4% organic revenue growth.

In addition, the Company expects fiscal year 2018 GAAP EPS in a range of $(0.44) to $(0.39) and non-GAAP diluted EPS in a range of $1.11 to $1.15 per share, an increase of $0.01 at the mid-point from its prior guidance range of $1.09 to $1.15 per share, and inclusive of an estimated $0.01 benefit as a result of share repurchases to date.

For a complete discussion on Nuance’s third quarter results and business outlook, please see the Company’s Prepared Remarks document available at http://www.nuance.com/earnings-results/

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.

Conference Call and Prepared Remarks

Nuance provides prepared remarks in combination with its press release. These 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 http://www.nuance.com/earnings-results/ in conjunction with this press release.

Nuance will host an investor conference call today that will begin at 5:00 p.m. ET and will include brief comments followed by questions and answers. To access the live broadcast, please visit the Investor Relations section of Nuance’s website at http://investors.nuance.com. The call can also be heard by dialing 866-393-4306 or 734-385-2616 at least five minutes prior to the call start time and referencing conference code 2776239. A replay will be available within 24 hours of the announcement via the webcast link at http://investors.nuance.com or by dialing 855-859-2056 or 404-537-3406 and using the access code 2776239.

About Nuance Communications, Inc.

Nuance Communications, Inc. (NASDAQ: NUAN) is the pioneer and leader in conversational AI innovations that bring intelligence to everyday work and life. The Company delivers solutions that understand, analyze and respond to human language to increase productivity and amplify human intelligence.  With decades of domain and artificial intelligence expertise, Nuance works with thousands of organizations – in global industries that include healthcare, telecommunications, automotive, financial services, and retail – to create stronger relationships and better experiences for their customers and workforce. For more information, please visit www.nuance.com.

Trademark reference: Nuance and the Nuance logo are registered trademarks or trademarks of Nuance Communications, Inc. or its affiliates in the United States and/or other countries. All other trademarks referenced herein are the property of their respective owners.

Safe Harbor and Forward-Looking Statements

Statements in this document regarding future performance and our management’s future expectations, beliefs, goals, plans or prospects constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical fact (including statements containing the words “believes,” “plans,” “anticipates,” “expects,” or “estimates” or similar expressions) should also be considered to be forward-looking statements. There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including but not limited to: fluctuations in demand for our existing and future products; fluctuations in the mix of products and services sold in specific periods; further unanticipated costs resulting from the FY17 malware incident including potential costs associated with litigation or governmental investigations that may result from the incident; our ability to control and successfully manage our expenses and cash position; our ability to develop and execute in a timely manner our productivity and cost initiatives; the effects of competition, including pricing pressure, and changing business models in the markets and industries we serve; changes to economic conditions in the United States and internationally; uncertainties associated with the transition of our chief executive officer, and the addition of a number of new directors; the imposition of tariffs or other trade measures particularly between the United States and China; potential future impairment charges related to our newly reorganized business reporting units; fluctuating currency rates; possible quality issues  in our products and technologies; our ability to successfully integrate operations and employees of acquired businesses; the conversion rate of bookings into revenue; the ability to realize anticipated synergies from acquired businesses; and the other factors described in our Form 10-Q for the period ended March 31, 2018. We disclaim any obligation to update any forward-looking statements as a result of developments occurring after the date of this document.

Definitions of Bookings and Net New Bookings

Bookings. Bookings represent the estimated gross revenue value of transactions at the time of contract execution, except for maintenance and support offerings. For fixed price contracts, the bookings value represents the gross total contract value.  For contracts where revenue is based on transaction volume, the bookings value represents the contract price multiplied by the estimated future transaction volume during the contract term, whether or not such transaction volumes are guaranteed under a minimum commitment clause. Actual results could be different than our initial estimates. The maintenance and support bookings value represents the amounts billed in the period the customer is invoiced. Because of the inherent estimates required to determine bookings and the fact that the actual resultant revenue may differ from our initial bookings estimates, we consider bookings one indicator of potential future revenue and not as an arithmetic measure of backlog.

Net new bookings. Net new bookings represents the estimated revenue value at the time of contract execution from new contractual arrangements or the estimated revenue value incremental to the portion of the transaction value attributable to renewals under pre-existing arrangements. Constant currency for net new bookings is calculated using current period net new bookings denominated in currencies other than United States dollars, converted into United States dollars using the average exchange rate for those currencies from the prior year period rather than the actual exchange rate in effect during the current period.

Discussion of non-GAAP Financial Measures

We believe that providing the non-GAAP information to investors, in addition to the GAAP presentation, allows investors to view the financial results in the way management views the operating results. We further believe that providing this information allows investors to not only better understand our financial performance, but more importantly, to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance. The non-GAAP information included in this press release should not be considered superior to, or a substitute for, financial statements prepared in accordance with GAAP.

We utilize a number of different financial measures, both Generally Accepted Accounting Principles (“GAAP”) and non-GAAP, in analyzing and assessing the overall performance of the business, for making operating decisions and for forecasting and planning for future periods. Our annual financial plan is prepared both on a GAAP and non-GAAP basis, and the non-GAAP annual financial plan is approved by our board of directors. Continuous budgeting and forecasting for revenue and expenses are conducted on a consistent non-GAAP basis (in addition to GAAP) and actual results on a non-GAAP basis are assessed against the non-GAAP annual financial plan. The board of directors and management utilize these non-GAAP measures and results (in addition to the GAAP results) to determine our allocation of resources. In addition, and as a consequence of the importance of these measures in managing the business, we use non-GAAP measures and results in the evaluation process to establish management’s compensation. For example, our annual bonus program payments are based upon the achievement of consolidated non-GAAP revenue and consolidated non-GAAP earnings per share financial targets. We consider the use of non-GAAP revenue helpful in understanding the performance of our business, as it excludes the purchase accounting impact on acquired deferred revenue and other acquisition-related adjustments to revenue. We also consider the use of non-GAAP earnings per share helpful in assessing the organic performance of the continuing operations of our business. By organic performance we mean performance as if we had owned an acquired business in the same period a year ago. By constant currency organic performance, we mean performance excluding the effect of current foreign currency rate fluctuations.  By continuing operations, we mean the ongoing results of the business excluding certain unplanned costs. While our management uses these non-GAAP financial measures as a tool to enhance their understanding of certain aspects of our financial performance, our management does not consider these measures to be a substitute for, or superior to, the information provided by GAAP financial statements. Consistent with this approach, we believe that disclosing non-GAAP financial measures to the readers of our financial statements provides such readers with useful supplemental data that, while not a substitute for GAAP financial statements, allows for greater transparency in the review of our financial and operational performance. In assessing the overall health of the business during the three and nine months ended June 30, 2018 and 2017, our management has either included or excluded items in seven general categories, each of which is described below.

Acquisition-related revenue and cost of revenue.
We provide supplementary non-GAAP financial measures of revenue that include revenue that we would have recognized but for the purchase accounting treatment of acquisition transactions. Non-GAAP revenue also includes revenue that we would have recognized had we not acquired intellectual property and other assets from the same customer. Because GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities. These non-GAAP adjustments are intended to reflect the full amount of such revenue. We include non-GAAP revenue and cost of revenue to allow for more complete comparisons to the financial results of historical operations, forward-looking guidance and the financial results of peer companies. We believe these adjustments are useful to management and investors as a measure of the ongoing performance of the business because, although we cannot be certain that customers will renew their contracts, we have historically experienced high renewal rates on maintenance and support agreements and other customer contracts. Additionally, although acquisition-related revenue adjustments are non-recurring with respect to past acquisitions, we generally will incur these adjustments in connection with any future acquisitions.

Acquisition-related costs, net.
In recent years, we have completed a number of acquisitions, which result in operating expenses, which would not otherwise have been incurred. We provide supplementary non-GAAP financial measures, which exclude certain transition, integration and other acquisition-related expense items resulting from acquisitions, to allow more accurate comparisons of the financial results to historical operations, forward looking guidance and the financial results of less acquisitive peer companies. We consider these types of costs and adjustments, to a great extent, to be unpredictable and dependent on a significant number of factors that are outside of our control. Furthermore, we do not consider these acquisition-related costs and adjustments to be related to the organic continuing operations of the acquired businesses and are generally not relevant to assessing or estimating the long-term performance of the acquired assets. In addition, the size, complexity and/or volume of past acquisitions, which often drives the magnitude of acquisition related costs, may not be indicative of the size, complexity and/or volume of future acquisitions. By excluding acquisition-related costs and adjustments from our non-GAAP measures, management is better able to evaluate our ability to utilize our existing assets and estimate the long-term value that acquired assets will generate for us. We believe that providing a supplemental non-GAAP measure, which excludes these items allows management and investors to consider the ongoing operations of the business both with, and without, such expenses.

These acquisition-related costs fall into the following categories: (i) transition and integration costs; (ii) professional service fees and expenses; and (iii) acquisition-related adjustments. Although these expenses are not recurring with respect to past acquisitions, we generally will incur these expenses in connection with any future acquisitions. These categories are further discussed as follows:

(i)  Transition and integration costs. Transition and integration costs include retention payments, transitional employee costs, and earn-out payments treated as compensation expense, as well as the costs of integration-related activities, including services provided by third-parties.

(ii)  Professional service fees and expenses. Professional service fees and expenses include financial advisory, legal, accounting and other outside services incurred in connection with acquisition activities, and disputes and regulatory matters related to acquired entities.

(iii)  Acquisition-related adjustments. Acquisition-related adjustments include adjustments to acquisition-related items that are required to be marked to fair value each reporting period, such as contingent consideration, and other items related to acquisitions for which the measurement period has ended, such as gains or losses on settlements of pre-acquisition contingencies.

Amortization of acquired intangible assets.
We exclude the amortization of acquired intangible assets from non-GAAP expense and income measures. These amounts are inconsistent in amount and frequency and are significantly impacted by the timing and size of acquisitions. Providing a supplemental measure which excludes these charges allows management and investors to evaluate results “as-if” the acquired intangible assets had been developed internally rather than acquired and, therefore, provides a supplemental measure of performance in which our acquired intellectual property is treated in a comparable manner to our internally developed intellectual property. Although we exclude amortization of acquired intangible assets from our non-GAAP expenses, we believe that it is important for investors to understand that such intangible assets contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Future acquisitions may result in the amortization of additional intangible assets.

Non-cash expenses.
We provide non-GAAP information relative to the following non-cash expenses: (i) stock-based compensation; and (ii) non-cash interest.  These items are further discussed as follows:

(i) Stock-based compensation. Because of varying valuation methodologies, subjective assumptions and the variety of award types, we believe that excluding stock-based compensation allows for more accurate comparisons of operating results to peer companies, as well as to times in our history when stock-based compensation was more or less significant as a portion of overall compensation than in the current period. We evaluate performance both with and without these measures because compensation expense related to stock-based compensation is typically non-cash and the options and restricted awards granted are influenced by the Company’s stock price and other factors such as volatility that are beyond our control. The expense related to stock-based awards is generally not controllable in the short-term and can vary significantly based on the timing, size and nature of awards granted. As such, we do not include such charges in operating plans. Stock-based compensation will continue in future periods.

(ii) Non-cash interest.  We exclude non-cash interest because we believe that excluding this expense provides senior management, as well as other users of the financial statements, with a valuable perspective on the cash-based performance and health of the business, including the current near-term projected liquidity. Non-cash interest expense will continue in future periods.

Other expenses.
We exclude certain other expenses that result from unplanned events outside the ordinary course of continuing operations, in order to measure operating performance and current and future liquidity both with and without these expenses. By providing this information, we believe management and the users of the financial statements are better able to understand the financial results of what we consider to be our organic, continuing operations. Included in these expenses are items such as restructuring charges, asset impairments and other charges (credits), net. These items include losses from extinguishing our convertible debt.  Other items such as consulting and professional services fees related to assessing strategic alternatives and our transformation program, implementation of the new revenue recognition standard (ASC 606), and expenses associated with the malware incident and remediation thereof are also excluded.

Non-GAAP income tax provision.
Effective Q2 2017, we changed our method of calculating our non-GAAP income tax provision. Under the prior method, we calculated our non-GAAP tax provision using a cash tax method to reflect the estimated amount we expected to pay or receive in taxes related to the period, which is equivalent to our GAAP current tax provision.  Under the new method, our non-GAAP income tax provision is determined based on our non-GAAP pre-tax income. The tax effect of each non-GAAP adjustment, if applicable, is computed based on the statutory tax rate of the jurisdiction to which the adjustment relates. Additionally, as our non-GAAP profitability is higher based on the non-GAAP adjustments, we adjust the GAAP tax provision to remove valuation allowances and related effects based on the higher level of reported non-GAAP profitability.  We also exclude from our non-GAAP tax provision certain discrete tax items as they occur, which in fiscal year 2018 also includes certain impacts from the Tax Cuts and Jobs Act of 2017.

Contact Information

Richard Mack
Nuance Communications, Inc.
Tel: 781-565-5000
Email:richard.mack@nuance.com

 

Suzanne DuLong
Nuance Communications, Inc.
Tel: 781-565-5077
Email:suzanne.dulong@nuance.com
 

 

Financial Tables Follow

                       
  Nuance Communications, Inc.  
  Condensed Consolidated Statements of Operations  
  (in thousands, except per share amounts)  
  Unaudited  
                       
      Three months ended   Nine months ended    
      June 30,   June 30,    
        2018       2017       2018       2017      
                       
  Revenues:                    
  Professional services and hosting   $ 254,478     $ 251,488     $ 788,079     $ 763,595      
  Product and licensing     168,682       154,228       491,776       465,238      
  Maintenance and support     79,727       80,505       238,901       244,619      
  Total revenues     502,887       486,221       1,518,756       1,473,452      
                       
  Cost of revenues:                    
  Professional services and hosting     166,280       169,439       519,859       498,501      
  Product and licensing     19,052       17,637       57,087       54,805      
  Maintenance and support     14,346       13,410       42,778       40,248      
  Amortization of intangible assets     13,760       15,727       43,896       48,487      
  Total cost of revenues     213,438       216,213       663,620       642,041      
                       
  Gross profit     289,449       270,008       855,136       831,411      
                       
  Operating expenses:                    
  Research and development     75,726       66,565       223,277       199,119      
  Sales and marketing     96,212       97,011       292,359       292,201      
  General and administrative     50,653       42,329       177,833       123,637      
  Amortization of intangible assets     24,117       29,160       69,851       84,931      
  Acquisition-related costs, net     4,916       7,646       12,837       22,051      
  Restructuring and other charges, net     9,237       13,035       32,986       39,649      
  Impairment of Goodwill     -       -       137,907       -      
  Total operating expenses     260,861       255,746       947,050       761,588      
                       
  Income (loss) from operations     28,588       14,262       (91,914 )     69,823      
                       
  Other expenses, net     (32,052 )     (39,489 )     (98,352 )     (133,292 )    
                       
  Loss before income taxes     (3,464 )     (25,227 )     (190,266 )     (63,469 )    
                       
  Provision (benefit) for income taxes     10,573       2,609       (65,404 )     22,103      
                       
  Net loss   $ (14,037 )   $ (27,836 )   $ (124,862 )   $ (85,572 )    
                       
  Net loss per share:                    
  Basic   $ (0.05 )   $ (0.10 )   $ (0.43 )   $ (0.30 )    
  Diluted   $ (0.05 )   $ (0.10 )   $ (0.43 )   $ (0.30 )    
                       
  Weighted average common shares outstanding:                    
  Basic     292,663       287,856       292,703       289,269      
  Diluted     292,663       287,856       292,703       289,269      
                       


               
  Nuance Communications, Inc.  
  Condensed Consolidated Balance Sheets  
  (in thousands)  
               
               
  ASSETS   June 30, 2018   September 30, 2017  
        Unaudited      
  Current assets:          
    Cash and cash equivalents   $ 331,259   $ 592,299  
    Marketable securities     154,085     251,981  
    Accounts receivable, net     396,766     395,392  
    Prepaid expenses and other current assets     104,157     88,269  
    Total current assets     986,267     1,327,941  
               
  Marketable securities     23,801     29,844  
  Land, building and equipment, net     172,596     176,548  
  Goodwill     3,510,454     3,590,608  
  Intangible assets, net     612,913     664,474  
  Other assets     140,060     142,508  
    Total assets   $ 5,446,091   $ 5,931,923  
               
  LIABILITIES AND STOCKHOLDERS' EQUITY          
               
  Current liabilities:          
    Current portion of long-term debt   $ -   $ 376,121  
    Contingent and deferred acquisition payments     22,259     28,860  
    Accounts payable, accrued expenses and other current liabilities   319,541     340,505  
    Deferred revenue     389,032     366,042  
    Total current liabilities     730,832     1,111,528  
               
  Long-term debt     2,323,516     2,241,283  
  Deferred revenue, net of current portion     482,834     423,929  
  Other liabilities     150,994     223,801  
    Total liabilities     3,688,176     4,000,541  
               
  Stockholders' equity     1,757,915     1,931,382  
    Total liabilities and stockholders' equity   $ 5,446,091   $ 5,931,923  
               


                     
  Nuance Communications, Inc.
  Consolidated Statements of Cash Flows
  (in thousands)
  Unaudited
      Three months ended   Nine months ended  
      June 30,   June 30,  
        2018       2017       2018       2017    
                     
  Cash flows from operating activities:                  
  Net loss   $ (14,037 )   $ (27,836 )   $ (124,862 )   $ (85,572 )  
  Adjustments to reconcile net loss to net cash provided by operating activities:                  
  Depreciation and amortization     54,112       58,311       161,167       174,955    
  Stock-based compensation     35,202       42,331       106,937       121,809    
  Non-cash interest expense     11,896       16,141       37,091       42,912    
  Deferred tax (benefit) provision     (787 )     1,119       (91,118 )     6,762    
  Loss on extinguishment of debt     -       -       -       18,565    
  Impairment of goodwill     -       -       137,907       -    
  Impairment of fixed asset     -       5,407       1,780       16,351    
  Other     315       1,917       894       4,259    
  Changes in operating assets and liabilities, excluding effects of acquisitions:                  
  Accounts receivable     14,422       29,563       2,007       28,132    
  Prepaid expenses and other assets     3,364       (2,236 )     (18,695 )     (14,531 )  
  Accounts payable     (238 )     13,209       (4,011 )     12,209    
  Accrued expenses and other liabilities     (3,559 )     6,539       1,671       (4,040 )  
  Deferred revenue     (1,032 )     (12,436 )     84,255       60,552    
  Net cash provided by operating activities     99,658       132,029       295,023       382,363    
  Cash flows from investing activities:                  
  Capital expenditures     (13,639 )     (15,246 )     (38,965 )     (34,033 )  
  Payments for business and asset acquisitions, net of cash acquired     (96,457 )     (37,230 )     (109,225 )     (110,220 )  
  Purchases of marketable securities and other investments     (65,651 )     (38,211 )     (158,645 )     (192,062 )  
  Proceeds from sales and maturities of marketable securities and other investments   64,404       36,786       259,677       106,444    
  Net cash used in investing activities     (111,343 )     (53,901 )     (47,158 )     (229,871 )  
  Cash flows from financing activities:                  
  Repayment and redemption of debt     -       -       (331,172 )     (634,055 )  
  Proceeds from issuance of long-term debt, net of issuance costs     -       (878 )     -       838,081    
  Payments for repurchase of common stock     (111,979 )     -       (111,979 )     (99,077 )  
  Acquisition payments with extended payment terms     (3,842 )     -       (20,769 )     -    
  Proceeds from issuance of common stock from employee stock plans     1       84       9,361       8,682    
  Payments for taxes related to net share settlement of equity awards     (7,846 )     (9,170 )     (51,852 )     (52,523 )  
  Other financing activities     (428 )     (218 )     (1,075 )     (424 )  
  Net cash (used in) provided by financing activities     (124,094 )     (10,182 )     (507,486 )     60,684    
  Effects of exchange rate changes on cash and cash equivalents     (1,604 )     8       (1,419 )     (1,202 )  
  Net (decrease) increase in cash and cash equivalents     (137,383 )     67,954       (261,040 )     211,974    
  Cash and cash equivalents at beginning of period     468,642       625,640       592,299       481,620    
  Cash and cash equivalents at end of period   $ 331,259     $ 693,594     $ 331,259     $ 693,594    
                     


                     
  Nuance Communications, Inc.  
  Supplemental Financial Information - GAAP to Non-GAAP Reconciliations  
  (in thousands)  
  Unaudited  
      Three months ended   Nine months ended  
      June 30,   June 30,  
        2018       2017       2018       2017    
                     
  GAAP revenues   $ 502,887     $ 486,221     $ 1,518,756     $ 1,473,452    
  Acquisition-related revenue adjustments: professional services and hosting   1,378       3,258       3,674       8,508    
  Acquisition-related revenue adjustments: product and licensing     1,734       5,941       10,515       19,970    
  Acquisition-related revenue adjustments: maintenance and support     31       204       224       810    
  Non-GAAP revenues   $ 506,030     $ 495,624     $ 1,533,169     $ 1,502,740    
                     
  GAAP cost of revenues   $ 213,438     $ 216,213     $ 663,620     $ 642,041    
  Cost of revenues from amortization of intangible assets     (13,760 )     (15,727 )     (43,896 )     (48,487 )  
  Cost of revenues adjustments: professional services and hosting (1)     (6,861 )     (8,385 )     (20,590 )     (24,875 )  
  Cost of revenues adjustments: product and licensing (1)     (114 )     (104 )     (492 )     (298 )  
  Cost of revenues adjustments: maintenance and support (1)     (952 )     (1,130 )     (3,041 )     (3,117 )  
  Non-GAAP cost of revenues   $ 191,751     $ 190,867     $ 595,601     $ 565,264    
                     
  GAAP gross profit   $ 289,449     $ 270,008     $ 855,136     $ 831,411    
  Gross profit adjustments     24,830       34,749       82,432       106,065    
  Non-GAAP gross profit   $ 314,279     $ 304,757     $ 937,568     $ 937,476    
                     
  GAAP income (loss) from operations   $ 28,588     $ 14,262     $ (91,914 )   $ 69,823    
  Gross profit adjustments     24,830       34,749       82,432       106,065    
  Research and development (1)     8,224       9,610       26,316       26,498    
  Sales and marketing (1)     9,491       11,981       28,533       34,968    
  General and administrative (1)     9,560       11,121       27,965       32,053    
  Acquisition-related costs, net     4,916       7,646       12,837       22,051    
  Amortization of intangible assets     24,117       29,160       69,851       84,931    
  Restructuring and other charges, net     9,237       13,035       32,986       39,649    
  Impairment of goodwill     -       -       137,907       -    
  Other     6,249       2,269       49,426       7,980    
  Non-GAAP income from operations   $ 125,212     $ 133,833     $ 376,339     $ 424,018    
                     
  GAAP loss before income taxes   $ (3,464 )   $ (25,227 )   $ (190,266 )   $ (63,469 )  
  Gross profit adjustments     24,830       34,749       82,432       106,065    
  Research and development (1)     8,224       9,610       26,316       26,498    
  Sales and marketing (1)     9,491       11,981       28,533       34,968    
  General and administrative (1)     9,560       11,121       27,965       32,053    
  Acquisition-related costs, net     4,916       7,646       12,837       22,051    
  Amortization of intangible assets     24,117       29,160       69,851       84,931    
  Restructuring and other charges, net     9,237       13,035       32,986       39,649    
  Non-cash interest expense     11,896       16,141       37,091       42,912    
  Loss on extinguishment of debt     -       -       -       18,565    
  Impairment of goodwill     -       -       137,907       -    
  Other (4)     6,249       2,269       49,426       7,980    
  Non-GAAP income before income taxes   $ 105,056     $ 110,485     $ 315,078     $ 352,203    
                     
                     
  (4)Includes approximately $3.9 million and $43 million in professional services costs associated with considering strategic alternatives for certain businesses and establishing our Automotive business as an independent reporting segment, for the three and nine months ended June 30, 2018, respectively.  
                     

 

                       
  Nuance Communications, Inc.  
  Supplemental Financial Information - GAAP to Non-GAAP Reconciliations, continued  
  (in thousands, except per share amounts)  
  Unaudited  
                       
                       
      Three months ended   Nine months ended    
      June 30,   June 30,    
        2018       2017       2018       2017      
                       
                       
  GAAP provision (benefit) for income taxes   $ 10,573     $ 2,609     $ (65,404 )   $ 22,103      
  Income tax effect of Non-GAAP adjustments     28,002       45,759       97,232       139,048      
  Removal of valuation allowance and other items     (13,158 )     (17,455 )     (47,241 )     (56,457 )    
  Removal of discrete items(3)     -       412       91,069       (1,320 )    
  Non-GAAP provision for income taxes   $ 25,417     $ 31,325     $ 75,656     $ 103,374      
                       
  GAAP net loss   $ (14,037 )   $ (27,836 )   $ (124,862 )   $ (85,572 )    
  Acquisition-related adjustment - revenues (2)     3,143       9,403       14,413       29,288      
  Acquisition-related costs, net     4,916       7,646       12,837       22,051      
  Cost of revenue from amortization of intangible assets     13,760       15,727       43,896       48,487      
  Amortization of intangible assets     24,117       29,160       69,851       84,931      
  Restructuring and other charges, net     9,237       13,035       32,986       39,649      
  Loss on extinguishment of debt     -       -       -       18,565      
  Impairment of goodwill     -       -       137,907       -      
  Stock-based compensation (1)     35,202       42,331       106,937       121,809      
  Non-cash interest expense     11,896       16,141       37,091       42,912      
  Adjustment to income tax expense     (14,844 )     (28,716 )     (141,060 )     (81,271 )    
  Other (4)     6,249       2,270       49,426       7,979      
  Non-GAAP net income    $ 79,639     $ 79,161     $ 239,422     $ 248,828      
                       
  Non-GAAP diluted net income per share   $ 0.27     $ 0.27     $ 0.80     $ 0.85      
                       
  Diluted weighted average common shares outstanding   294,909       290,592       298,983       292,107      
                       
                       
  (3) As a result of the Tax Cuts and Jobs Act ("TCJA"), we remeasured certain deferred tax assets and liabilities at the lower rates and recorded approximately $87.0 million of tax benefits for the nine months ended June 30, 2018, which also reflected a benefit of $0.5 million for the three months ended June 30, 2018 as we revised our estimates of the timing and amounts of the temporary differences. Additionally, we recorded a $2.0 million provision for the deemed repatriation of foreign cash and earnings for the nine months ended June 30, 2018.

Also for the nine months ended June 30, 2018, we recorded a tax benefit of $8.5 million related to the impairment of deductible goodwill in Brazil.
   
       
  (4)Includes approximately $3.9 million and $43 million in professional services costs associated with considering strategic alternatives for certain businesses and establishing our Automotive business as an independent reporting segment, for the three and nine months ended June 30, 2018, respectively.    
                       


           
  Nuance Communications, Inc.  
  Supplemental Financial Information - GAAP to Non-GAAP Reconciliations, continued  
  (in thousands)  
  Unaudited  
                   
    Three months ended   Nine months ended  
    June 30,   June 30,  
      2018       2017       2018       2017    
                           
  (1) Stock-based compensation                        
  Cost of professional services and hosting $ 6,861     $ 8,385     $ 20,590     $ 24,875    
  Cost of product and licensing   114       104       492       298    
  Cost of maintenance and support   952       1,130       3,041       3,117    
  Research and development   8,224       9,610       26,316       26,498    
  Sales and marketing   9,491       11,981       28,533       34,968    
  General and administrative   9,560       11,121       27,965       32,053    
  Total $ 35,202     $ 42,331     $ 106,937     $ 121,809    
                   
  (2) Acquisition-related revenue and cost of revenue                
  Revenues $ 3,143     $ 9,403     $ 14,413     $ 29,288    
  Total $ 3,143     $ 9,403     $ 14,413     $ 29,288    
                   


                                     
  Nuance Communications, Inc.
  Supplemental Financial Information – GAAP to Non-GAAP Reconciliations, continued
  (in millions)
  Unaudited
                                     
                                     
  Hosting Revenues   Q1   Q2   Q3   Q4   FY   Q1   Q2   Q3  
    2017   2017   2017   2017   2017   2018   2018   2018  
  GAAP Revenues   $ 193.3   $ 202.2   $ 189.4   $ 149.0   $ 733.8   $ 185.1   $ 194.4   $ 190.2  
  Adjustment     2.3     2.7     3.1     2.0     10.1     1.2     1.0     1.4  
  Non-GAAP Revenues   $ 195.6   $ 204.8   $ 192.5   $ 150.9   $ 743.9   $ 186.3   $ 195.4   $ 191.7  
                                     
  Maintenance and Support Revenues   Q1   Q2   Q3   Q4   FY   Q1   Q2   Q3  
    2017   2017   2017   2017   2017   2018   2018   2018  
  GAAP Revenues   $ 82.5   $ 81.6   $ 80.5   $ 82.5   $ 327.1   $ 80.8   $ 78.4   $ 79.7  
  Adjustment     0.2     0.4     0.2     0.2     1.0     0.1     0.1     0.1  
  Non-GAAP Revenues   $ 82.7   $ 82.0   $ 80.7   $ 82.7   $ 328.1   $ 80.9   $ 78.5   $ 79.8  
                                     
  Perpetual Product and Licensing Revenues   Q1   Q2   Q3   Q4   FY   Q1   Q2   Q3  
    2017   2017   2017   2017   2017   2018   2018   2018  
  GAAP Revenues   $ 78.7   $ 76.5   $ 73.5   $ 77.3   $ 306.0   $ 76.6   $ 73.0   $ 76.9  
  Adjustment     0.7     0.5     0.9     0.4     2.4     0.4     0.3     0.4  
  Non-GAAP Revenues   $ 79.3   $ 77.0   $ 74.4   $ 77.7   $ 308.4   $ 76.9   $ 73.3   $ 77.2  
                                     
  Recurring Product and Licensing Revenues   Q1   Q2   Q3   Q4   FY   Q1   Q2   Q3  
    2017   2017   2017   2017   2017   2018   2018   2018  
  GAAP Revenues   $ 73.1   $ 82.8   $ 80.8   $ 92.8   $ 329.4   $ 85.2   $ 88.3   $ 91.8  
  Adjustment     5.1     7.8     5.0     6.1     24.1     5.4     2.7     1.4  
  Non-GAAP Revenues   $ 78.2   $ 90.6   $ 85.8   $ 98.9   $ 353.5   $ 90.7   $ 90.9   $ 93.2  
                                     
  Professional Services Revenues   Q1   Q2   Q3   Q4   FY   Q1   Q2   Q3  
    2017   2017   2017   2017   2017   2018   2018   2018  
  GAAP Revenues   $ 60.1   $ 56.5   $ 62.1   $ 64.3   $ 243.1   $ 73.9   $ 80.2   $ 64.2  
  Adjustment     0.2     0.1     0.1     0.1     0.5     0.1     -     -  
  Non-GAAP Revenues   $ 60.3   $ 56.7   $ 62.2   $ 64.4   $ 243.6   $ 74.0   $ 80.2   $ 64.2  
                                     
  Total Recurring Revenues   Q1   Q2   Q3   Q4   FY   Q1   Q2   Q3  
    2017   2017   2017   2017   2017   2018   2018   2018  
  GAAP Revenues   $ 353.0   $ 370.2   $ 354.5   $ 328.6   $ 1,406.4   $ 355.3   $ 364.7   $ 365.9  
  Adjustment     7.5     11.4     8.7     8.2     35.9     6.9     3.9     2.8  
  Non-GAAP Revenues   $ 360.5   $ 381.7   $ 363.2   $ 336.8   $ 1,442.3   $ 362.2   $ 368.6   $ 368.7  
                                     
  Schedules may not add due to rounding.
                                     

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Source: Nuance Communications, Inc.

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