Automotive applications are essential to Nuance's growth. Image source: Nuance Communications.
Voice-recognition specialist Nuance Communications (NUAN +0.00%) has had a tough time keeping up with the pace of innovation in the technology sector. Despite having made arrangements with partners to broaden its product appeal, Nuance stock rests at prices below where it traded in 2007. Coming into Tuesday's fiscal first-quarter financial report, Nuance investors hoped that the company would find some earnings and revenue growth, and the company actually did better than many had expected. Let's look more closely at the latest from Nuance Communications and what it means for its performance in 2016.
Nuance sounds the bells for growth
Nuance's fiscal first-quarter results kept up a streak of good performance from the company. Adjusted revenue of $494.9 million was up 1.2% from the year-ago quarter, coming in stronger than the breakeven numbers that most investors expected from Nuance. The company's GAAP loss shrank by three-quarters from 2015's fiscal first quarter, and after accounting for various extraordinary items, adjusted earnings of $0.36 per share were up 44% year over year and beat the consensus forecast by $0.04 per share.
The health of Nuance's major segments was quite varied. The healthcare segment suffered a 1% drop in organic growth, as weak performance from its traditional transcription business offset gains in Dragon Medical and various diagnostics solutions. The mobile division saw flat organic growth, but overall sales climbed 10% on the strength of on-demand revenue for automotive and mobile-operator services. The Enterprise unit's revenue fell 2% on an organic basis, and only the Imagine segment posted year-over-year gains, with 3% rise coming from large enterprise deals from customers including Lockheed Martin (LMT +0.97%).
Segment profits were strong across the board. Gains of 4% for healthcare looked small compared to the near-tripling in the mobile segment, and a 4% rise in enterprise-division profit was small compared to the roughly 35% jump from imaging.
Recurring revenue kept climbing as a percentage of Nuance's overall sales, adding 1 percentage point to reach the 67% mark. Nuance expects the trend toward higher recurring business will continue, especially with automotive, Dragon Medical, and mobile operator services leading the way.
CFO Dan Tempesta saw Nuance's latest results as just part of an ongoing process. "We continued to make substantial progress and achieve meaningful results from our formal transformation program," Tempesta said, and he sees "the entire organization [as] committed to ongoing performance enhancements that will lead us to improve growth, margins, and shareholder value."
Can Nuance keep climbing?
Nuance thinks that favorable trends will continue into the fiscal second quarter and throughout the current year. It still pegged net new bookings growth at 2% to 5%, and believes that Dragon Medical, mobile operator services, Enterprise, and Clintegrity will be the primary source of bookings gains. The company kept its full-year guidance on adjusted revenue in a range of $1.98 billion to $2.03 billion, but it now expects adjusted earnings of $1.41 to $1.51 per share, up $0.06 from its previous guidance.
Fiscal second-quarter guidance was also reasonably consistent with expectations. The company believes it will bring in $483 million to $497 million in sales, producing adjusted earnings of $0.33 to $0.36 per share. All of those numbers are in line with consensus forecasts, and if Nuance can continue to bring in new business like it did with Lockheed Martin during the previous quarter, then it could easily contribute to even faster growth.
Nuance investors were happy with the news, sending the stock up 7% in after-hours trading following the announcement. The stock has a long way to go to recover its higher levels, but Nuance is finally starting to suggest that it could come out of its long slump and produce some long-awaited share-price gains for patient investors.
