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Nuance Communications: Looking Beyond the Short-Term Pain

August 08, 2014 | About:
jaggom

jaggom

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Nuance (NUAN) came up with weak results recently. Though the company saw a slight rise in the quarterly revenue, yet it suffered weakness in earnings. However, Nuance's services in the healthcare segment proved to be a growth driver for it, as a result of which the company managed to offset the losses and to post a slight increase in its top line. This increase resulted from higher sales of its voice-assisted documentation software to healthcare companies. Despite these crunches Nuance has some tailwinds which can benefit the company in the long run.

A brief look at the results

Nuance posted a 1.24% rise in its quarterly revenue on. However, the company’s net loss grew to $39.2 million from a loss of $25.8 million a year earlier. The company saw this increase in the net loss as result of $14.3 million in revenue lost due to accounting treatment in conjunction with acquisitions. The EPS came in at $0.28 per share, topping analysts’ estimate. Analysts on the other hand were modeling $0.23 per share.

Nuance offers voice recognition services to various vendors. Despite good services, things are not going in favor of the company. It is incurring losses. However, a slight increase in revenue is an encouragement for Nuance.

Trying to improve performance

It is focusing on various aspects to be profitable. It is improving its business operations for future growth and profitability. Nuance is focusing on making balanced investments in key products in the market. Since the company is incurring losses which are hurting its profit margins, Nuance is focusing on cutting costs in order be more cost effective which will improve its margins.

Nuance operates in different segments such as automotive and healthcare segments. The company has benefited from many deals in the past in the automotive segment. With the rollout of one large connected service deal in the automotive market, it is expecting this momentum to continue.

Moving on, Nuance is expecting a revenue transition in the near future, but the company is confident of its commitment to improve earnings during this shift as well. Nuance’s main focus will be on expenses. It will be planning to move more closely to cost effectiveness.

Benefiting in healthcare

Though the company posted upsetting numbers this quarter, it has strong prospects. Nuance has bright chances of improving its top line from the healthcare segment. Nuance’s performance in the healthcare segment is remarkable. The company saw growth in the revenue due to higher sales of its software in healthcare.

Nuance's health-care segment is witnessing good demand because of solutions such as Dragon Medical. As a result of this new addition, it has improved the capability of the solution with online workflow for routing reports to support staff members or back-end service providers helping in correcting transcripts and getting the data from the reports recorded correctly in electronic health records and insurance claims. With this traction, Nuance is expecting bright opportunities from radiology imaging and Clintegrity solutions.

Automotive growth

Moving on to the automotive segment, having acquired Tweddle Connect for $80 million last year, Nuance is well positioned to enhance its connected car solution delivering a better and smarter connected car experience. In addition, Nuance's Dragon Drive application is seeing good traction in the market and is gaining popularity.

This application is being used by some top automakers such as Audi, BMW, Chrysler, Ford, General Motors, Hyundai, Toyota, etc. Besides this, Nuance can also benefit from the emerging mobile market. Apple uses Nuance's technology, so with an increase in sales of the iPhone, Nuance is in a solid position to benefit from the mobile market. Apple is planning to upgrade its product portfolio this year by bringing out a couple of large-screen iPhones.

Conclusion

Nuance has a strong outlook. It can benefit from numerous options. The company might have suffered losses, but besides that, Nuance looks well positioned to deliver fantastic results in the future. However, the ratios tell a different story. The forward P/E of 12.52 indicates slower growth. But, as the mobile market is moving and as its products are gaining traction in the healthcare and automotive segments, Nuance can be a good performer in the future.


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