Speech recognition technology vendor Nuance (NASDAQ:NUAN) released not so impressive results for the third quarter. The stock was impressive on the stock market in the past. But even good revenue growth, a solid financial position and reasonable debt levels couldn’t help it and as a result, the company posted disappointing results.
The company is going through bad times and is searching for opportunities to gain market share. Management also thinks that this will continue in the future as well, which led Nuance to post a weak guidance for the next quarter. However, the growing demand for its subscriptions might prove to be a positive. Let us have a closer look at the underlying business.
Results and more
Nuance’s results were not good. The company posted revenue of $486.8 million, which is lower than $490.8 million as compared to third quarter of last fiscal year. However, Nuance also lost $11.3 million in revenue due to missed accounting treatment in conjunction with acquisitions which again lowered its top line. On the earnings front, Nuance reported net loss of $0.17 per share which is much wider that $0.11 per share as compared to a year earlier.
- Warning! GuruFocus has detected 3 Warning Signs with NUAN. Click here to check it out.
- NUAN 15-Year Financial Data
- The intrinsic value of NUAN
- Peter Lynch Chart of NUAN
Nuance is worried about its present financial position. Nuance is working aggressively on transitional initiatives to transform into a subscription-based model. The company is seeing good response in the subscription, and the statistics show that the booking rose by 17% to $547 million which is a good sign for the company.
Strategies for the future
Nuance is planning to focus much on healthcare and mobile segment as it is seeing much steam in these two segments in the future which will surely add impressive revenue to Nuance’s camp. In the healthcare segment Nuance is seeing some opportunities building for it. With the need of more automated medical gadgets Nuance finds a golden opportunity for its speech recognition platform.
Some of the key customers for Nuance are Adventist Hospital, Barnabas Health, Community Hospital East, Dolby Systems, Eastern, Erie County Medical Center, Froedert Health, Howard University Hospital, Integris etc. Also, as the mobile segment is gaining steam with the LTE rollout, many mobile vendors are bringing in the latest mobile gadgets, and Nuance sees good demand for its speech recognition platform. Some of its key customers are AT&T and BlackBerry. Also, with the growing automotive segment and with some cream customers such as Ford, GM, Honda, Hyundai, Nuance is all set to see good financial growth in future.
Despite these positive points, there is another side of the coin as well. Nuance is a key provider of speech recognition software to Siri in Apple’s iPhone, but now Apple is making attempts to make its own voice recognition software which might take away Nuance’s share. In addition, according to Canaccord, the mechanics of Nuance still remains a mystery, and nothing clear cut can be expected.
Nuance is facing challenges to raise its revenue in the near term, but it remains committed to delivering good value to its shareholders' wealth in the long term. Another exciting fact that can help Nuance to achieve this objective in the long term is that Nuance has just announced that it is calling for redemption of its remaining $250 million aggregate principal amount of its 2.75% senior convertible debentures which is due by 2027.
This will benefit the debenture holders as they will receive cash equal to $1,000 per $1,000 principal amount of the debentures on redemption. Again this can be a strong point within Nuance which can attract investors to the stock, helping the company to gain market share in future.
Looking at the fundamentals, with a forward P/E of 14.66, Nuance shows good signs of earnings growth in the future. Also, in the next five years, it is expected to grow with a CAGR of 9.67%. Besides these facts, Nuance's profit margins are also expanding at a good pace. So, Nuance can be a good long term holding.