Dueling Fools: Nuance Bull Rebuttal

In his opening argument, my fellow duelist Jason Ramage points out that Nuance Communications (Nasdaq: NUAN) has failed to attain profitability in recent years. Although a company operating in the red is certainly not a positive trend, we must take a look at the big picture.

For instance, in the company's current quarter, Nuance reported a net loss of $0.02 per share. Fortunately, much of this loss is only a loss on paper. The company was required under GAAP purchase accounting guidelines to record a number of amortization charges pertaining to previous acquisitions, as well as a non-cash stock-based compensation. In the current quarter, Nuance actually reported non-GAAP income of $0.18 per share. This amount marked a 28.5% improvement over its non-GAAP income of $0.14 per share in its year-ago quarter.

Gross margins and operating income have both remained positive for Nuance. As mentioned in my opening argument, the company's gross margins have remained consistent with the company checking in at 66% for Q4, which is about the same as the third quarter. Nuance also posted impressive growth in its operating income over this same period, as this metric surged from about $6.8 million in the company's prior-year Q4 to about $9.2 million in the company's most recent quarter.

Jason also mentions future competition from companies such as NMS Communications (Nasdaq: NMSS) and Voxware (Nasdaq: VOXW). I don't really see either of these penny stocks with market caps less than $100 million as much of a match for Nuance. Nuance has already established itself in the marketplace and that is why it is continuing to expand its business with prominent companies such as AT&T (NYSE: T), Bank of America (NYSE: BAC), Disney (NYSE: DIS), and WellPoint (NYSE: WLP).

Only time will tell how smoothly the company is able to integrate new acquisitions into its business, but it is this very same growth characteristic that gives the company's stock appeal and future upside potential. This stock's recent pullback provides Fools with a prime buying opportunity that should not be overlooked.