How Difficult Will Nuance Communications' Revenue Transition Be?

When Nuance Communications (NASDAQ: NUAN  ) recently reported earnings, it acknowledged that many of its customers have begun updating their compensation agreements with the company.

Instead of being paid upfront in a lump-sum payment, customers are opting to compensate the voice-recognition technology company on an on-demand basis, meaning that they will pay only for the services they use over the life of their contracts. As a result, Nuance was forced to lower guidance for its next-quarter and current-year results, indicating that this revenue shift is putting pressure on near-term results. Going forward, Nuance expects that this shift will ultimately benefit the company on a mid-term and long-term basis.

In the following video, Fool contributor Steve Heller discusses Nuance's revenue transition and how investors can tell whether the longer-term revenue growth story will remain intact.

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  • Report this Comment On August 19, 2013, at 12:12 AM, thinklogically wrote:

    This could be one of the most naïve, poorly researched reactions to consistently deteriorating corporate performance and intentionally unclear guidance that I’ve witnessed in some time.

    Nuance has been in the on-demand business for over a decade. Everyone who pays attention, even the Nuance CEO, understands the difference between and revenue recognition basics regarding license revenue, services revenue and on-demand revenue.

    Look at the history over the last SEVERAL years. Paul Ricci has been pitching this “Revenue Transition” excuse every time they fail to sell up to plan and fail to cover up performance with another acquisition or two. They’ve come up with new metrics that they wave in front of rookies and fools showing you things like the growth in bookings backlog!

    Let me help out a bit:

    A 3-Year TCV (Total Contract Value) means almost nothing (except to the sales rep that booked it and wants paid for the paper that she got signed). The two issues that Nuance has never been able to address, and has shown no progress in developing capabilities to address, are: 1) realization of that booking, and 2) timing of that realization.

    The $9M TCV ($3M / year for 3 years) is only worth (in the Revenue line) what is ACTUALLY realized WHEN it is actually realized. So the deployment which was scheduled to be completed in 6 months, but takes 12 months (very common for Nuance) and delivers 80% of its forecasted $3M annual contract value ACTUALLY ONLY DELIVERS $1.2M of the planned $3M from the backlog, 40% realization.

    So simply ask Paul or the CFO a favor. Every time they present a Bookings Backlog chart, simply ask for the performance realization against that backlog.

    You’ll be a hero. You’ll have learned something. You’ll help your audience as you are intending to do. That is, of course, ONLY IF they answer you instead of doing (high likelihood) their version of Michael Jackson’s moonwalk.

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