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Nuance Announces Third Quarter Fiscal 2011 Results

BURLINGTON, Mass., Aug 09, 2011 (BUSINESS WIRE) --

Nuance Communications, Inc. (NASDAQ: NUAN) today announced financial results for its third quarter of fiscal 2011, ended June 30, 2011.

Nuance reported GAAP revenue of $328.9 million in the third quarter of fiscal 2011, a 20.4% increase over GAAP revenue of $273.2 million in the third quarter of fiscal 2010. Nuance reported non-GAAP revenue of $345.1 million, which includes $16.2 million in revenue lost to accounting treatment in conjunction with acquisitions. Third quarter fiscal 2011 non-GAAP revenue grew 17.6% over non-GAAP revenue of $293.4 million in the same quarter last year.

In the third quarter of fiscal 2011, Nuance recognized GAAP net income of $41.6 million, or $0.13 per diluted share, compared to GAAP net loss of ($1.5) million, or ($0.01) per share, in the third quarter of fiscal 2010. Nuance's Q3 11 net income per share included a one-time benefit of $0.11 per share from non-cash taxes related to an acquisition completed during Q3 11. In the third quarter of fiscal 2011, Nuance reported non-GAAP net income of $111.2 million, or $0.35 per diluted share, compared to non-GAAP net income of $91.3 million, or $0.30 per diluted share, in the third quarter of fiscal 2010. Nuance's non-GAAP operating margin was 35.4% for the third quarter of fiscal 2011, compared to 32.9%, in the third quarter of fiscal 2010.

Nuance reported cash flow from operations of $100.1 million in the third quarter of fiscal 2011, compared to $64.1 million in the third quarter of fiscal 2010. Nuance ended the third quarter of fiscal 2011 with a balance of cash and marketable securities of $483.6 million.

Please refer to the "Discussion of Non-GAAP Financial Measures" and to the "GAAP to Non-GAAP Reconciliations," included elsewhere in this release, for more information regarding the company's use of non-GAAP measures.

"In the third quarter, Nuance delivered double-digit year-over-year organic revenue growth, highlighted by our mobile & consumer, healthcare and imaging businesses. In addition, strong bookings in our healthcare and mobile businesses position us for continued growth," said Paul Ricci, chairman and CEO of Nuance. "We continued our investments targeted at accelerating growth in fiscal 2012, enabled by increased revenue, operating margins and operating cash flow."

Highlights from the quarter include:

  • Healthcare - For Nuance's healthcare solutions, third quarter non-GAAP revenue was $139.3 million, up 21.9%, as reported, from the same quarter last year. During the third quarter, new bookings included large eScription, Dragon Medical and radiology contracts. Key healthcare customers included 3M, Carolinas, Catholic Health Partners, CHS, Dolbey, Health Region West, Medquist, Premier, Sutter Health, University of Pittsburgh Medical Center, WinScribe and Yale.
  • Mobile & Consumer - ForNuance's mobile & consumer solutions, third quarter non-GAAP revenue was $93.1 million, up 28.9%, as reported, from the same quarter last year. Key mobile customers, new bookings or design wins in the quarter included Amazon, BMW, Coupons.com, eBay, Ford, GM, Harman Becker, HTC, Huawei, Hyundai, Landrover, Lenovo, Mobis, Motorola, Pantech, SK Telecom, T-Mobile, Telstra, Time Warner Cable, Vodafone and Volvo.
  • Enterprise - For Nuance's enterprise solutions, third quarter non-GAAP revenue was $69.9 million, down 1.7%, as reported, from the same quarter last year. Key enterprise customers in the quarter included Axa, Barclaycard, Cigna Healthcare, Citigroup, Farmer's Insurance, HP, IBM, Kaiser Permanente, Lenovo, Michigan BCBS, PayPal, Suntrust Bank, USAA and US Airways.
  • Imaging - For Nuance's document imaging solutions, third quarter non-GAAP revenue was $42.8 million, up 19.6%, as reported, from the same quarter last year. Key third quarter imaging customers included Canon, HP, Konica Minolta, Kroger, Marathon Oil, Ricoh and Xerox.

Conference Call and Prepared Remarks

Nuance is providing a copy of 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 the press release.

As previously scheduled, the conference call will begin today, Aug. 9, 2011 at 5:00 pm EDT and will include only brief comments followed by questions and answers. The prepared remarks will not be read on the call. To access the live broadcast, please visit the Investor Relations section of Nuance's Website at www.nuance.com. The call can also be heard by dialing (800) 398-9402 or (612) 332-0523 at least five minutes prior to the call and referencing conference code 210912. A replay will be available within 24 hours of the announcement by dialing (800) 475-6701 or (320) 365-3844 and using the access code 210912.

About Nuance Communications, Inc

Nuance Communications, Inc. (NASDAQ: NUAN) is a leading provider of voice and language solutions for businesses and consumers around the world. Its technologies, applications and services make the user experience more compelling by transforming the way people interact with devices and systems. Every day, millions of users and thousands of businesses experience Nuance's proven applications. For more information, please visit www.nuance.com.

Trademark reference: Nuance, the Nuance logo, Dragon Medical and eScription 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 sustained growth for fiscal 2011 and Nuance managements' 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: fluctuations in demand for Nuance's existing and future products; economic conditions in the United States and abroad; Nuance's ability to control and successfully manage its expenses and cash position; the effects of competition, including pricing pressure; possible defects in Nuance's products and technologies; the ability of Nuance to successfully integrate operations and employees of acquired businesses; the ability to realize anticipated synergies from acquired businesses; and the other factors described in Nuance's annual report on Form 10-K for the fiscal year ended September 30, 2010 and Nuance's quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. Nuance disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this document.

The information included in this press release should not be viewed as a substitute for full GAAP financial statements.

Discussion of Non-GAAP Financial Measures

Management utilizes a number of different financial measures, both 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 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 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 revenue and earnings per share. Consistent with this approach, we believe that disclosing non-GAAP revenue and non-GAAP earnings per share to the readers of our financial statements provides such readers with useful supplemental data that, while not a substitute for GAAP revenue and earnings per share, 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, 2011 and 2010, and, in particular, in evaluating our revenue and earnings per share, our management has either included or excluded items in six general categories, each of which are described below.

Acquisition-Related Revenue and Cost of Revenue.

The Company provides supplementary non-GAAP financial measures of revenue, which include revenue related to acquisitions, primarily from eCopy for the three and nine months ended June 30, 2011, that would otherwise have been recognized but for the purchase accounting treatment of these transactions. Non-GAAP revenue also includes revenue that the Company would have otherwise recognized had the Company not acquired intellectual property and other assets from the same customer during the same quarter. Because GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of the Company's economic activities. These non-GAAP adjustments are intended to reflect the full amount of such revenue. The Company includes 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. The Company believes 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, the Company historically has 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, the Company generally will incur these adjustments in connection with any future acquisitions.

Acquisition-Related Costs, Net.

In recent years, the Company has completed a number of acquisitions, which result in operating expenses which would not otherwise have been incurred. The Company provides 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. The Company considers 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 the control of the Company. Furthermore, the Company does 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 the Company's ability to utilize its existing assets and estimate the long-term value that acquired assets will generate for the Company. The Company believes 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 are included in the following categories: (i) transition and integration costs; (ii) professional service fees; and (iii) acquisition-related adjustments. Although these expenses are not recurring with respect to past acquisitions, the Company 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, earn-out payments treated as compensation expense, as well as the costs of integration-related services provided by third parties.

(ii) Professional service fees. Professional service fees include direct costs of the acquisition, as well as post-acquisition legal and other professional service fees associated with 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.

The Company excludes 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 the Company's acquired intellectual property is treated in a comparable manner to its internally developed intellectual property. Although the Company excludes amortization of acquired intangible assets from its non-GAAP expenses, the Company believes 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.

Costs Associated with IP Collaboration Agreement.

In order to gain access to a third party's extensive speech recognition technology and natural language and semantic processing technology, Nuance has entered into three IP collaboration agreements, with terms ranging between five and six years. Depending on the agreement, some or all intellectual property derived from these collaborations will be jointly owned by the two parties. For the majority of the developed intellectual property, Nuance will have sole rights to commercialize such intellectual property for periods ranging between two to six years, depending on the agreement. For non-GAAP purposes, Nuance considers these long-term contracts and the resulting acquisitions of intellectual property from this third-party over the agreements' terms to be an investing activity, outside of its normal, organic, continuing operating activities, and is therefore presenting this supplemental information to show the results excluding these expenses. Nuance does not exclude from its non-GAAP results the corresponding revenue, if any, generated from these collaboration efforts. Although the Company's bonus program and other performance-based incentives for executives are based on the non-GAAP results that exclude these costs, certain engineering senior management are responsible for execution and results of these collaboration agreements and have incentives based on those results.

Non-Cash Expenses.

The Company provides non-GAAP information relative to the following non-cash expenses: (i) stock-based compensation; (ii) certain accrued interest; and (iii) certain accrued income taxes. These items are further discussed as follows:

(i) Stock-based compensation. Because of varying available valuation methodologies, subjective assumptions and the variety of award types, the Company believes that the exclusion of stock-based compensation allows for more accurate comparisons of operating results to peer companies, as well as to times in the Company's history when stock-based compensation was more or less significant as a portion of overall compensation than in the current period. The Company evaluates 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 the Company's 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, the Company does not include such charges in operating plans. Stock-based compensation will continue in future periods.

(ii and iii) Certain accrued interest and income taxes. The Company also excludes certain accrued interest and certain accrued income taxes because the Company believes that excluding these non-cash expenses 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. These non-cash expenses will continue in future periods.

Other Expenses.

The Company excludes certain other expenses that are the result of unplanned events to measure operating performance and current and future liquidity both with and without these expenses; and therefore, by providing this information, the Company believes management and the users of the financial statements are better able to understand the financial results of what the Company considers to be its organic, continuing operations. Included in these expenses are items such as restructuring charges, asset impairments and other charges (credits), net. These events are unplanned and arose outside of the ordinary course of continuing operations. These items also include adjustments from changes in fair value of share-based instruments relating to the issuance of our common stock with security price guarantees payable in cash.

The Company believes 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. The Company further believes that providing this information allows investors to not only better understand the Company's financial performance, but more importantly, to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance.

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,
2011 2010 2011 2010
Revenues:
Product and licensing $ 152,745 $ 108,840 $ 428,181 $ 335,228
Professional services and hosting 125,347 117,875 377,078 337,798
Maintenance and support 50,817 46,488 146,441 136,159
Total revenues 328,909 273,203 951,700 809,185
Cost of revenues:
Product and licensing 15,820 10,901 47,950 34,194
Professional services and hosting 83,301 71,353 248,003 206,349
Maintenance and support 8,836 7,631 26,645 23,335
Amortization of intangible assets 13,087 11,893 40,541 35,095
Total cost of revenues 121,044 101,778 363,139 298,973
Gross profit 207,865 171,425 588,561 510,212
Operating expenses:
Research and development 42,245 38,916 129,898 113,797
Sales and marketing 73,336 67,219 225,817 196,680
General and administrative 35,901 29,887 104,271 88,643
Amortization of intangible assets 20,972 21,459 65,221 65,786
Acquisition-related costs, net 8,595 6,125 13,910 26,892
Restructuring and other charges, net 864 3,257 5,343 16,244
Total operating expenses 181,913 166,863 544,460 508,042
Income from operations 25,952 4,562 44,101 2,170
Other expense, net (7,721 ) (4,261 ) (15,736 ) (18,915 )
Income (loss) before income taxes 18,231 301 28,365 (16,745 )
(Benefit) provision for income taxes (23,390 ) 1,831 (14,982 ) 4,459
Net income (loss) $ 41,621 $ (1,530 ) $ 43,347 $ (21,204 )
Net income (loss) per share:
Basic $ 0.14 $ (0.01 ) $ 0.14 $ (0.07 )
Diluted $ 0.13 $ (0.01 ) $ 0.14 $ (0.07 )
Weighted average common shares outstanding:
Basic 303,100 291,610 300,846 285,202
Diluted 317,802 291,610 314,791 285,202
Nuance Communications, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
Unaudited
ASSETS June 30, 2011 September 30, 2010
Current assets:
Cash and cash equivalents $ 446,981 $ 516,630
Restricted cash 7,212 24,503
Marketable securities 36,617 5,044
Accounts receivable, net 247,972 217,587
Acquired unbilled accounts receivable 914 7,412
Prepaid expenses and other current assets 79,339 70,466
Total current assets 819,035 841,642
Land, building and equipment, net 79,623 62,083
Marketable securities - 28,322
Goodwill 2,318,555 2,077,943
Intangible assets, net 757,599 685,865
Other assets 75,375 73,844
Total assets $ 4,050,187 $ 3,769,699
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital leases $ 6,909 $ 7,764
Contingent and deferred acquisition payments 34,712 2,131
Accounts payable and accrued expenses 239,867 230,237
Deferred and unearned revenue 183,455 142,340
Total current liabilities 464,943 382,472
Long-term portion of debt and capital leases 852,444 851,014
Long-term deferred revenue 81,502 76,598
Other long term liabilities 188,514 162,419
Total liabilities 1,587,403 1,472,503
Stockholders' equity 2,462,784 2,297,196
Total liabilities and stockholders' equity $ 4,050,187 $ 3,769,699
Nuance Communications, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Unaudited
Three months ended Nine months ended
June 30, June 30,
2011 2010 2011 2010
Cash flows from operating activities:
Net income (loss) $ 41,621 $ (1,530 ) $ 43,347 $ (21,204 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 40,996 38,761 125,719 116,738
Stock-based compensation 33,788 28,094 109,505 72,868
Non-cash interest expense 3,155 3,222 9,524 9,746
Non-cash restructuring and other expense - - - 6,833
Deferred tax provision (36,291 ) (1,210 ) (35,727 ) (2,321 )
Other 3,559 1,005 4,259 1,671
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable (1,160 ) (4,482 ) (3,679 ) (13,023 )
Prepaid expenses and other assets (5,899 ) (1,150 ) (17,095 ) (4,869 )
Accounts payable (8,553 ) (1,711 ) (9,999 ) (3,960 )
Accrued expenses and other liabilities 21,085 2,532 (9,950 ) (7,825 )
Deferred revenue 7,758 587 43,603 30,044
Net cash provided by operating activities 100,059 64,118 259,507 184,698
Cash flows from investing activities:
Capital expenditures (7,703 ) (8,434 ) (24,267 ) (16,284 )
Payments for acquisitions, net of cash acquired (302,491 ) 3,470 (319,299 ) (155,882 )
Payments for acquired technology - (7,500 ) (715 ) (14,850 )
Payments for equity investments - - - (14,970 )
Purchases of marketable securities - - (10,776 ) -
Proceeds from sales of marketable securities - - 6,650 -
Change in restricted cash balance - (22,070 ) 17,184 (22,070 )
Net cash used in investing activities (310,194 ) (34,534 ) (331,223 ) (224,056 )
Cash flows from financing activities:
Payments of debt and capital leases (1,773 ) (2,312 ) (5,864 ) (6,376 )
Payments of other long-term liabilities (2,520 ) (2,501 ) (7,794 ) (7,319 )
Proceeds on settlement of share-based derivatives, net 10,042 2,607 9,414 6,391
Excess tax benefits on employee equity awards 4,200 - 8,220 -
Proceeds from issuance of common stock, net of issuance costs - 12,350 - 12,350
Proceeds from issuance of common stock from employee stock plans 7,101 4,009 21,712 22,832
Cash used to net share settle employee equity awards (3,601 ) (8,256 ) (30,027 ) (18,040 )
Net cash provided by (used in) financing activities 13,449 5,897 (4,339 ) 9,838
Effects of exchange rate changes on cash and cash equivalents 1,955 (5,211 ) 6,406 (5,444 )
Net (decrease) increase in cash and cash equivalents (194,731 ) 30,270 (69,649 ) (34,964 )
Cash and cash equivalents at beginning of period 641,712 461,804 516,630 527,038
Cash and cash equivalents at end of period $ 446,981 $ 492,074 $ 446,981 $ 492,074
Nuance Communications, Inc.
Supplemental Financial Information - GAAP to Non-GAAP Reconciliations
(in thousands, except per share amounts)
Unaudited
Three months ended Nine months ended
June 30 , June 30 ,
2011 2010 2011 2010
GAAP revenue $ 328,909 $ 273,203 $ 951,700 $ 809,185
Acquisition-related revenue adjustments: product and licensing 9,562 12,922 31,821 44,726
Acquisition-related revenue adjustments: professional services and hosting 5,197 6,359 7,585 9,632
Acquisition-related revenue adjustments: maintenance and support 1,463 900 3,297 7,269
Non-GAAP revenue $ 345,131 $ 293,384 $ 994,403 $ 870,812
GAAP cost of revenue $ 121,044 $ 101,778 $ 363,139 $ 298,973
Cost of revenue from amortization of intangible assets (13,087 ) (11,893 ) (40,541 ) (35,095 )
Cost of revenue adjustments: product and licensing (1,2) 2,038 2,794 6,807 8,920
Cost of revenue adjustments: professional services and hosting (1,2) (5,197 ) (2,181 ) (19,564 ) (7,086 )
Cost of revenue adjustments: maintenance and support (1,2) (518 ) (165 ) (1,545 ) (582 )
Non-GAAP cost of revenue $ 104,280 $ 90,333 $ 308,296 $ 265,130
GAAP gross profit $ 207,865 $ 171,425 $ 588,561 $ 510,212
Gross profit adjustments 32,986 31,626 97,546 95,470
Non-GAAP gross profit $ 240,851 $ 203,051 $ 686,107 $ 605,682
GAAP income from operations $ 25,952 $ 4,562 $ 44,101 $ 2,170
Gross profit adjustments 32,986 31,626 97,546 95,470
Research and development (1) 5,280 2,282 18,188 6,731
Sales and marketing (1) 10,341 12,516 32,748 29,813
General and administrative (1) 11,883 10,512 36,481 27,544
Amortization of intangible assets 20,972 21,459 65,221 65,786
Costs associated with IP collaboration agreements 5,250 4,208 14,500 12,208
Acquisition-related costs, net 8,595 6,125 13,910 26,892
Restructuring and other charges, net 864 3,257 5,343 16,244
Non-GAAP income from operations $ 122,123 $ 96,547 $ 328,038 $ 282,858
GAAP (benefit) provision for income taxes $ (23,390 ) $ 1,831 $ (14,982 ) $ 4,459
Non-cash taxes 29,390 3,471 28,781 6,772
Non-GAAP provision for income taxes $ 6,000 $ 5,302 $ 13,799 $ 11,231
GAAP net income (loss) $ 41,621 $ (1,530 ) $ 43,347 $ (21,204 )
Acquisition-related adjustment - revenue (2) 16,222 20,181 42,703 61,627
Acquisition-related adjustment - cost of revenue (2) (2,607 ) (3,232 ) (7,786 ) (10,032 )
Acquisition-related costs, net 8,595 6,125 13,910 26,892
Cost of revenue from amortization of intangible assets 13,087 11,893 40,541 35,095
Amortization of intangible assets 20,972 21,459 65,221 65,786
Non-cash stock-based compensation (1) 33,788 28,094 109,505 72,868
Non-cash interest expense, net 3,155 3,222 9,524 9,746
Non-cash income taxes (29,390 ) (3,471 ) (28,781 ) (6,772 )
Costs associated with IP collaboration agreements 5,250 4,208 14,500 12,208
Change in fair value of share-based instruments (395 ) 1,044 (10,844 ) (3,663 )
Restructuring and other charges, net 864 3,257 5,343 16,244
Non-GAAP net income $ 111,162 $ 91,250 $ 297,183 $ 258,795
Non-GAAP diluted net income per share $ 0.35 $ 0.30 $ 0.94 $ 0.86
Diluted weighted average common shares outstanding 317,802 305,427 314,791 300,511
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 ,
2011 2010 2011 2010

(1) Non-Cash Stock-Based Compensation

Cost of product and licensing $ 2 $ 7 $ 29 $ 25
Cost of professional services and hosting 5,764 2,612 20,514 8,173
Cost of maintenance and support 518 165 1,545 582
Research and development 5,280 2,282 18,188 6,731
Sales and marketing 10,341 12,516 32,748 29,813
General and administrative 11,883 10,512 36,481 27,544
Total $ 33,788 $ 28,094 $ 109,505 $ 72,868

(2) Acquisition-Related Revenue and Cost of Revenue

Revenue $ 16,222 $ 20,181 $ 42,703 $ 61,627
Cost of product and licensing (2,040 ) $ (2,801 ) (6,836 ) (8,945 )
Cost of professional services and hosting (567 ) (431 ) (950 ) (1,087 )
Cost of maintenance and support - - - -
Total $ 13,615 $ 16,949 $ 34,917 $ 51,595
Nuance Communications, Inc.
Supplemental Financial Information - GAAP to Non-GAAP Reconciliations, continued
(in millions)
Unaudited

Healthcare

Q1 Q2 Q3 Q4 FY Q1 Q2 Q3
2010 2010 2010 2010 2010 2011 2011 2011
GAAP Revenue $ 105.5 $ 105.8 $ 113.5 $ 119.8 $ 444.6 $ 117.4 $ 120.7 $ 135.4
Adjustment $ 1.3 $ 1.1 $ 0.8 $ 1.5 $ 4.7 $ 0.4 $ 0.3 $ 3.9
Non-GAAP Revenue $ 106.8 $ 106.9 $ 114.3 $ 121.3 $ 449.3 $ 117.8 $ 121.0 $ 139.3

Mobile & Consumer

Q1 Q2 Q3 Q4 FY Q1 Q2 Q3
2010 2010 2010 2010 2010 2011 2011 2011
GAAP Revenue $ 64.1 $ 77.8 $ 66.3 $ 89.2 $ 297.3 $ 86.1 $ 93.1 $ 91.6
Adjustment $ 2.3 $ 2.9 $ 5.9 $ 1.0 $ 12.1 $ 1.6 $ 0.6 $ 1.5
Non-GAAP Revenue $ 66.4 $ 80.7 $ 72.2 $ 90.2 $ 309.4 $ 87.7 $ 93.7 $ 93.1

Enterprise

Q1 Q2 Q3 Q4 FY Q1 Q2 Q3
2010 2010 2010 2010 2010 2011 2011 2011
GAAP Revenue $ 75.4 $ 70.9 $ 71.0 $ 76.6 $ 293.9 $ 71.1 $ 72.3 $ 68.5
Adjustment $ 0.3 $ 0.4 $ 0.1 $ 1.4 $ 2.2 $ 1.4 $ 1.7 $ 1.4
Non-GAAP Revenue $ 75.7 $ 71.3 $ 71.1 $ 78.0 $ 296.1 $ 72.5 $ 74.0 $ 69.9

Imaging Revenue

Q1 Q2 Q3 Q4 FY Q1 Q2 Q3
2010 2010 2010 2010 2010 2011 2011 2011
GAAP Revenue $ 18.0 $ 18.5 $ 22.4 $ 24.2 $ 83.1 $ 29.2 $ 32.8 $ 33.4
Adjustment $ 17.7 $ 15.4 $ 13.4 $ 11.2 $ 57.7 $ 10.0 $ 10.4 $ 9.4
Non-GAAP Revenue $ 35.7 $ 33.9 $ 35.8 $ 35.4 $ 140.8 $ 39.3 $ 43.2 $ 42.8
Schedules may not add due to rounding.

SOURCE: Nuance Communications, Inc.

For Investors
Nuance Communications, Inc.
Kevin Faulkner, 408-992-6100
kevin.faulkner@nuance.com
or
For Press and Investors
Nuance Communications, Inc.
Richard Mack, 781-565-5000
richard.mack@nuance.com
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