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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
October 18, 2011
NUANCE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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000-27038
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94-3156479 |
(State or other jurisdiction of
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(Commission
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(IRS Employer |
incorporation)
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File Number)
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Identification No.) |
1 Wayside Road
Burlington, Massachusetts 01803
(Address of Principal Executive Offices)
(Zip Code)
Registrants telephone number, including area code: (781) 565-5000
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
TABLE OF CONTENTS
Item 2.02 Results of Operation and Financial Condition
On October 18, 2011, Nuance announced its preliminary financial results for its fourth fiscal
quarter ended September 30, 2011. The press release is attached as Exhibit 99.1 to this Current
Report on Form 8-K and is incorporated by reference herein.
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 managements 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 twelve months
ended September 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, Equitrac and SVOX for the three and twelve months
ended September 30, 2011, that would otherwise have been recognized but for the purchase accounting
treatment of this transaction. 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 Companys 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 Companys 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 Companys 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 partys 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
of the 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 agreements. 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 Companys 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 Companys 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 Companys stock price and other factors such as volatility that
are beyond the Companys 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 Companys financial performance, but more
importantly, to evaluate the efficacy of the methodology and information used by management to
evaluate and measure such performance.
Item 8.01 Other Events.
On October 18, 2011, Nuance Communications, Inc. (Nuance) issued a press release with respect to
its intention to offer unsecured senior convertible debentures due 2031. A copy of this press
release is attached as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated by
reference herein.
On October 18, 2011, Nuance updated its disclosure regarding its revenue by division. The revised
disclosure is attached as Exhibit 99.3 to this Current Report on Form 8-K and is incorporated by
reference herein.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
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99.1
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Press Release dated October 18, 2011 by Nuance Communications, Inc. announcing
preliminary financial results for fourth fiscal quarter ended September 30, 2011.* |
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99.2
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Press Release dated October 18, 2011 by Nuance Communications, Inc. announcing
its intention to offer unsecured senior convertible debentures due 2031. |
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99.3
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Revenue by Division. |
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This exhibit is furnished as part of this Current Report on
Form 8-K and not filed for purposes of Section 18 of the Securities Exchange
Act of 1934, or otherwise subject to the liabilities of that section and may
only be incorporated by reference in another filing under the Securities
Exchange Act of 1934 or the Securities Act of 1933 if, and to the extent, such
subsequent filing specifically references this exhibit. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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NUANCE COMMUNICATIONS, INC.
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Date: October 18, 2011 |
By: |
/s/ Thomas L. Beaudoin
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Name: |
Thomas L. Beaudoin |
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Title: |
Executive Vice President of Finance
and Chief Financial Officer |
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EXHIBIT INDEX
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Exhibit No. |
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Description |
99.1
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Press Release dated October 18, 2011 by Nuance Communications,
Inc. announcing preliminary financial results for fourth
fiscal quarter ended September 30, 2011. |
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99.2
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Press Release dated October 18, 2011 by Nuance Communications,
Inc. announcing its intention to offer unsecured senior
convertible debentures due 2031. |
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99.3
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Revenue by Division. |