New Pricing Models Hurting Near-Term Revenue, As Nuance Reports Q2 Loss
Nuance cited new business/design wins in with mobile customers including Apple, Asus, BlackBerry, DoCoMo, Ford, Fujitsu, GM, Honda, Kyocera, LG, Samsung and TPV The announcement came in an earnings release Tuesday. But the voice technology provider reported a loss of $25.8 million for fiscal Q2 ended March 31. Revenue was up 15.6 percent to $451 million for the period versus Q2 of fiscal 2012, the company said, while cash flow from operations fell to $93.1 million in Q2 2013 from $100.5 million in Q2 fiscal 2012.
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In prepared remarks, management said its fiscal Q2 revenue shortfall was due to “poor sales execution, a continued shift in revenue models toward on-demand and ratable revenue streams” related to new products and “weaker than expected” contributions from acquisitions. Nuance reported OEM design wins in its embedded business that includes cars, handsets and other consumer electronics. Next-generation cloud-based solutions led to “strong growth” in on-demand revenue, largely on volume from Samsung devices, Nuance said. In fiscal Q2, Nuance more than doubled its cloud transactions over Q2 2012 to 1.5 billion.
The Nuance Mobile & Consumer solutions group had delays in revenue due to “consolidation in the smartphone market,” an increased focus on “pricing discipline” and delayed royalty reports, it said. Dragon Drive delivered 20 percent year over year growth in fiscal Q2, as the market “continues to adopt connected car solutions,” Nuance said. Nuance provided the HTC car app on the HTC One smartphone, collaboration for voice-driven navigation systems in China and voice interaction on Panasonic Viera Smart TVs, the company said. Other new products include the Nuance Voice Ads format for interactive ads and location-aware and “proactive assistant” features for Dragon Mobile Assistant, it said.
Relationships with smartphone, car, semiconductor and consumer electronics makers are becoming “more comprehensive,” requiring “broader and more extensive” cloud-based solutions that need to be expanded and updated on an ongoing basis, it said. Design wins across a broader set of consumer electronics, particularly notebook PCs, TVs and tablets, continue to expand Nuance’s addressable market, as they involve a combination of licensing, cloud-based services, and engineering and research services that span several years, the company said. The Dragon desktop product line is being included in a new generation of hybrid embedded-network systems, which creates a new channel for Dragon, the company said.
Customers have shown a preference for royalty and on-demand pricing models, and Nuance is adapting to that change, “despite its negative effect on near-term license revenue,” it said. As a result, mobile and consumer revenue in fiscal 2013 will include a significantly bigger proportion of on-demand and services revenue, it said. Those revenue streams grew in fiscal Q2 “as devices shipped under our Samsung and other smartphone contracts contributed to on-demand revenue,” it said. For fiscal Q3, Nuance forecasts revenue between $458.5 million-$473.5 million with a net loss per share of 10 cents to 6 cents. For the year, Nuance expects a net loss per share of 30 cents to 18 cents. Nuance also announced a plan to buy back $500 million of its outstanding shares of common stock. Nuance shares closed 18.3 percent lower Tuesday at $19.04.