Nuance Announces Second Fiscal Quarter 2009 Results

Strong Performance from On-Demand Solutions in Enterprise and Healthcare Drive
Revenue; Cost Controls and Increased Services Margins Improve Profitability
BURLINGTON, Mass.--(Business Wire)--
Nuance Communications, Inc. (NASDAQ: NUAN) today announced financial results for
the second fiscal quarter ended March 31, 2009.

Nuance reported GAAP revenues of $229.1 million in the quarter ended March 31,
2009, a 13 percent increase over GAAP revenues of $203.3 million in the quarter
ended March 31, 2008. The Company reported non-GAAP revenue of approximately
$238.8 million, which includes $9.6 million in revenue lost to accounting
treatment in conjunction with the Company`s business and technology
acquisitions. Using the non-GAAP measure, revenue grew approximately 9 percent
over the same quarter last year.

Nuance recognized GAAP net income of $7.1 million, or $0.03 per diluted share,
in the quarter ended March 31, 2009, compared with a GAAP net loss of $26.8
million, or $(0.13) per share, in the quarter ended March 31, 2008. Nuance
reported non-GAAP net income of $63.4 million, or $0.24 per diluted share, for
the period ended March 31, 2009, compared to non-GAAP net income of $41.7
million, or $0.18 per diluted share, in the quarter ended March 31, 2008.

The non-GAAP net income amount excludes non-cash income taxes and interest,
amortization of intangible assets, non-cash share-based payments,
acquisition-related transition and integration costs, and restructuring and
other charges (credits). Non-GAAP net income includes revenue and cost of
revenue related to acquisitions that would otherwise be recognized but for the
accounting treatment related to the acquisitions. See "GAAP to non-GAAP
Reconciliation" below for further information on the Company`s non-GAAP
measures.

"Despite the challenging environment for capital and consumer spending, Nuance
made significant progress in operating margins and the growth of recurring
revenue streams," said Paul Ricci, chairman and CEO of Nuance. "Strong expense
controls, which we expect to continue for the remainder of the fiscal year,
enabled us to exceed profit expectations. At the same time, Nuance has responded
to the hastening interest within our healthcare, enterprise and mobile services
markets for on-demand solutions with significant investments that position us
for additional growth next year. In Q2, we won several long-term contracts in
our enterprise and healthcare businesses, and had several design wins in our
mobile business, that will begin contributing revenue in future quarters."

Consistent with the Company`s strategy and recent trends, highlights from the
quarter include:

* Healthcare-Dictation - Non-GAAP revenues for Nuance`s healthcare and dictation
solutions were $105.2 million, up 32 percent, as reported, from the same quarter
last year. Nuance`s healthcare unit enjoyed year-over-year revenue growth fueled
by its hosted, on-demand solutions. On-premise solutions, which require capital
budgets, were sluggish, as a growing number of healthcare institutions moved
toward on-demand services. Important contracts from the second quarter include
Fletcher Allen, HCA Far West, Ottawa Healthcare and the University of Kentucky.
Revenues from Dragon NaturallySpeaking in non-healthcare markets were weak due
to a challenging environment for Windows-based software, especially in consumer
markets.
* Mobile-Enterprise - Non-GAAP revenues for Nuance`s enterprise and mobile
solutions were $119.5 million, up slightly, as reported, from the same quarter
last year. Nuance experienced continued strength in enterprise on-demand,
professional services and maintenance contracts, especially in North America,
and benefited from increased revenues associated with new mobile care solutions.
Nuance`s mobile business showed modest growth. Although there was a decline in
the number of devices shipped, this decline was offset by Nuance`s penetration
on a higher percentage of OEM models, especially on handsets. In addition,
Nuance speech solutions gained mainstream visibility through popular consumer
devices from Amazon, Apple, Samsung and TomTom.
* Imaging - Revenues for Nuance`s PDF and document imaging solutions were $14.1
million, down 37 percent, as reported, from the same quarter last year. The
year-over-year decline reflects the continued weakness in Windows-based software
sales, as well as reduced sales through its channels as Nuance prepares for new
product release launches later this fiscal year.
* Operational Achievements - Nuance increased its focus on expense controls and
accelerating synergies from recent acquisitions to significantly improve
non-GAAP margins. Non-GAAP operating margins rose to 31.3 percent, compared to
24.0 percent in the second quarter 2008. Nuance achieved non-GAAP gross margins
of 68.2 percent in the second quarter 2009, compared to 66.8 percent in the same
period last year. Cash flows from operations were $49.8 million in the second
quarter 2009. On a year-to-date basis, cash flows from operations were $130.6,
up $48.6 million from the same period in 2008. The Company`s cash balance as of
March 31, 2009, was $421.0 million.

Conference Call and Prepared Remarks

Nuance is providing a copy of prepared remarks in combination with its press
release. This process and these remarks are offered to provide shareholders and
analysts with additional time and detail for analyzing results in advance of the
Company`s quarterly conference call. The remarks will be available at
www.nuance.com/earningsresults in conjunction with the press release.

As previously scheduled, the conference call will begin today, May 11, 2009 at
5:00 pm ET and will include only brief comments followed by questions and
answers. The prepared remarks will not be read on the call. To access the live
broadcast, please visit the Investor Relations section of Nuance`s Website at
www.nuance.com. The call can also be heard by dialing (800) 230-1059 or (612)
234-9959 at least five minutes prior to the call and referencing conference code
998061. A replay will be available within 24 hours of the announcement by
dialing (800) 475-6701 or (320) 365-3844 and using the access code 998061.

About Nuance Communications, Inc

Nuance Communications, Inc. (NASDAQ: NUAN) is a leading provider of speech and
imaging solutions for businesses and consumers around the world. Its
technologies, applications and services make the user experience more compelling
by transforming the way people interact with information and how they create,
share and use documents. Every day, millions of users and thousands of
businesses experience Nuance`s proven applications. For more information, please
visit www.nuance.com.

Trademark reference: Nuance, the Nuance logo, Dictaphone, iChart and OmniPage
are registered trademarks or trademarks of Nuance Communications, Inc. or its
affiliates in the United States and/or other countries. All other trademarks
referenced herein are the property of their respective owners.

Safe Harbor and Forward-Looking Statements

Statements in this document regarding the future demand for, performance of, and
opportunities for growth in Nuance`s product offerings and solutions in
healthcare and dictation, mobile-enterprise and imaging, anticipated expense
reduction activities, Nuance`s revenue and earnings projections for the third
quarter of fiscal 2009, Nuance`s financial performance during the remainder of
fiscal 2009, and Nuance managements` future expectations, beliefs, goals, plans
or prospects constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Any statements that are not
statements of historical fact (including statements containing the words
"believes," "plans," "anticipates," "expects," or "estimates" or similar
expressions) should also be considered to be forward-looking statements. There
are a number of important factors that could cause actual results or events to
differ materially from those indicated by such forward-looking statements,
including: fluctuations in demand for Nuance`s existing and future products;
economic conditions in the United States and abroad; Nuance`s ability to control
and successfully manage its expenses and cash position; the effects of
competition, including pricing pressure; possible defects in Nuance`s products
and technologies; the ability of Nuance to successfully integrate operations and
employees of acquired businesses; the ability to realize anticipated synergies
from acquired businesses; and the other factors described in Nuance`s annual
report on Form 10-K for the fiscal year ended September 30, 2008 and Nuance`s
quarterly reports on Form 10-Q filed with the Securities and Exchange
Commission. Nuance disclaims any obligation to update any forward-looking
statements as a result of developments occurring after the date of this
document.

The information included in this press release should not be viewed as a
substitute for full GAAP financial statements

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. 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 asset 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 months ended
March 31, 2009 and 2008, and, in particular, in evaluating our revenue and
earnings per share, our management has either included or excluded items in
three 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 Phillips Speech
Recognition Systems and Tegic, that would otherwise have been recognized but for
the purchase accounting treatment of these transactions. 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 quarter. Because GAAP accounting requires the elimination of
these revenues, GAAP results alone do not fully capture all of the Company`s
economic activities. These non-GAAP adjustments are intended to reflect the full
amount of such revenues. 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
the Company historically has experienced high renewal rates on maintenance and
support agreements and other customer contracts, although we cannot be certain
that customers will renew these 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 Expenses.

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
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. These items are included
in the following categories: (i) acquisition-related transition and integration
costs; (ii) amortization of intangible assets; (iii) in-process research and
development; and (iv) costs associated with the investigation of the financial
results of acquired entities. These categories are further discussed as follows:

(i) Acquisition-related transition and integration costs. The Company excludes
transition and integration costs such as retention and earnout bonuses for
employees from acquisitions. The Company does not consider these expenses to be
related to the organic continuing operation of its business, and believes it is
useful to management and investors to understand the effects of these items on
total operating expenses. Although acquisition-related transition and
integration costs are not recurring with respect to past acquisitions, the
Company generally will incur these expenses in connection with any future
acquisitions.

(ii) Amortization of intangible assets. The Company excludes the amortization of
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
Company`s acquired intellectual property is treated in a comparable manner to
its internally developed intellectual property. The Company believes that it is
important for investors to understand that the use of intangible assets
contributed to revenue earned during the periods presented and will contribute
to future periods as well. 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.

(iii) In-Process research and development. The Company excludes expenses
associated with acquired in-process research and development from non-GAAP
expense and income measures. These amounts are inconsistent in amount and
frequency and are significantly impacted by the timing, size and nature of
acquisitions. Providing a supplemental measure which excludes these charges
allows management and investors to evaluate results "as-if" the acquired
research and development had been conducted internally rather than acquired.
Although expenses associated with acquired in-process research and development
are generally not recurring with respect to past acquisitions, the Company may
incur these expenses in connection with any future acquisitions.

(iv) Costs associated with the investigation of the financial results of
acquired entities. The Company excludes expenses incurred as a result of the
investigation and, if necessary, restatement of the financial results of
acquired entities. The Company also incurs post-closing legal and other
professional services fees for non-recurring compliance and regulatory matters
associated with acquisitions. The Company does not consider these expenses to be
related to the organic continuing operations of the acquired businesses, and
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. Although these expenses are not
recurring with respect to past acquisitions, the Company may incur these
expenses in connection with any future acquisitions.

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 share-based payments allows for more
accurate comparisons of operating results to peer companies, as well as to times
in the Company`s history when share based payments were 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 granted are influenced by factors such as volatility and risk-free
interest rates that are beyond the Company`s 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 other,
unplanned events to measure operating performance as well as current and future
liquidity both with and without these expenses. Included in these expenses are
items such as non-acquisition-related restructuring and other charges (credits),
net. These events are unplanned and arose outside of the ordinary course of
continuing operations. The Company assesses operating performance with these
amounts included, but also excluding these amounts; the amounts relate to costs
which are unplanned, 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 organic
continuing operations.

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 Company`s financial performance but more importantly, to evaluate
the efficacy of the methodology and information used by management to evaluate
and measure such performance.

Financial Tables Follow

Nuance Communications, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
Unaudited

Three months ended Six months ended
March 31 March 31
2009 2008 2009 2008

Revenue:
Product and licensing $ 87,025 $ 94,254 $ 172,600 $ 192,190
Professional services, subscription and hosting 103,004 72,203 193,196 134,623
Maintenance and support 39,116 36,845 80,183 71,513
Total revenue 229,145 203,302 445,979 398,326

Cost of revenue:
Product and licensing 9,051 10,686 17,808 22,271
Professional services, subscription and hosting 62,781 56,443 121,263 101,267
Maintenance and support 7,137 8,908 14,180 16,353
Amortization of intangible assets 9,409 7,759 17,427 12,746
Total cost of revenue 88,378 83,796 170,678 152,637

Gross profit 140,767 119,506 275,301 245,689

Operating expenses:
Research and development 27,766 30,908 58,779 58,753
Sales and marketing 50,369 56,766 111,615 112,773
General and administrative 27,902 28,074 58,159 53,309
Amortization of intangible assets 19,034 14,155 36,382 25,654
Restructuring and other charges, net 250 3,326 2,348 5,478
Total operating expenses 125,321 133,229 267,283 255,967

Income (loss) from operations 15,446 (13,723 ) 8,018 (10,278 )

Other expense, net (9,377 ) (12,299 ) (14,888 ) (26,543 )

Income (loss) before income taxes 6,069 (26,022 ) (6,870 ) (36,821 )

Provision (benefit) for income taxes (998 ) 769 10,613 5,394

Net income (loss) $ 7,067 $ (26,791 ) $ (17,483 ) $ (42,215 )

Net income (loss) per share:
Basic $ 0.03 $ (0.13 ) $ (0.07 ) $ (0.21 )
Diluted $ 0.03 $ (0.13 ) $ (0.07 ) $ (0.21 )

Weighted average common shares outstanding:
Basic 250,656 206,348 243,283 200,280
Diluted 269,187 206,348 243,283 200,280

Nuance Communications, Inc.
Supplement Financial Information - GAAP to Non-GAAP Reconciliations
(in thousands, except per share amounts)
Unaudited

Three months ended Six months ended
March 31 March 31
2009 2008 2009 2008

GAAP revenue $ 229,145 $ 203,302 $ 445,979 $ 398,326
Acquisition-related revenue adjustments: product & licensing 7,154 12,999 31,953 23,218
Acquisition-related revenue adjustments: professional services, subscription and hosting 1,210 2,262 2,450 5,797
Acquisition-related revenue adjustments: maintenance and support 1,281 1,305 2,851 1,579
Non-GAAP revenue $ 238,790 $ 219,868 $ 483,233 $ 428,920

GAAP cost of revenue $ 88,378 $ 83,796 $ 170,678 $ 152,637
Cost of revenue from amortization of intangible assets (9,409 ) (7,759 ) (17,427 ) (12,746 )
Cost of revenue adjustments: product & licensing (1,2,3) (5 ) 373 (11 ) 337
Cost of revenue adjustments: professional services, subscription and hosting (1,2,3) (2,711 ) (2,826 ) (4,368 ) (2,990 )
Cost of revenue adjustments: maintenance & support (1,2,3) (249 ) (620 ) (335 ) (1,020 )
Non-GAAP cost of revenue $ 76,004 $ 72,964 $ 148,537 $ 136,218

GAAP gross profit $ 140,767 $ 119,506 $ 275,301 $ 245,689
Gross profit adjustments 22,019 27,398 59,395 47,013
Non-GAAP gross profit $ 162,786 $ 146,904 $ 334,696 $ 292,702

GAAP income (loss) from operations $ 15,446 $ (13,723 ) $ 8,018 $ (10,278 )
Gross profit adjustments 22,019 27,398 59,395 47,013
Research and development (1, 2) 3,373 6,227 6,526 10,210
Sales and marketing (1, 2) 6,454 7,307 14,557 13,450
General and administrative (1, 2) 8,089 8,073 17,791 14,823
Amortization of intangible assets 19,034 14,155 36,382 25,654
Restructuring and other charges, net 250 3,326 2,348 5,478
Non-GAAP income from operations $ 74,665 $ 52,763 $ 145,017 $ 106,350

GAAP provision (benefit) for income taxes $ (998 ) $ 769 $ 10,613 $ 5,394
Non-cash taxes 4,356 (235 ) (1,955 ) (3,060 )
Non-GAAP provision for income taxes $ 3,358 $ 534 $ 8,658 $ 2,334

GAAP net income (loss) $ 7,067 $ (26,791 ) $ (17,483 ) $ (42,215 )
Cost of revenue from amortization of intangible assets 9,409 7,759 17,427 12,746
Amortization of intangible assets 19,034 14,155 36,382 25,654
Non-cash share-based payments (1) 18,015 23,244 35,002 38,419
Non-cash interest expense, net 1,493 1,726 2,938 3,031
Restructuring and other charges, net 250 3,326 2,348 5,478
Non-cash income taxes (4,356 ) 235 1,955 3,060
Purchase accounting adjustment - cost of revenue (3) (499 ) (1,135 ) (644 ) (2,291 )
Purchase accounting adjustment - revenue (3) 9,645 16,566 37,254 30,594
Acquisition-related transition and integration costs (2) 3,365 2,571 9,230 6,028
Non-GAAP net income $ 63,423 $ 41,656 $ 124,409 $ 80,504

GAAP weighted average common shares outstanding - diluted 269,187 206,348 243,283 200,280
Adjustment for shares that are dilutive on a non-GAAP basis - 23,370 18,601 24,347
Non-GAAP weighted average common shares outstanding - diluted 269,187 229,718 261,884 224,627

GAAP net income (loss) per share - diluted $ 0.03 $ (0.13 ) $ (0.07 ) $ (0.21 )
Adjustment for net income per share on a non-GAAP basis 0.21 0.31 0.55 0.57
Non-GAAP net income per share - diluted $ 0.24 $ 0.18 $ 0.48 $ 0.36

Nuance Communications, Inc.
Supplement Financial Information - GAAP to Non-GAAP Reconciliations, continued
(in thousands)
Unaudited

Three months ended Six months ended
March 31 March 31
2009 2008 2009 2008
(1) Non-cash share-based payments
Cost of product and licensing $ 4 $ 10 $ 6 $ 14
Cost of professional services, subscription and hosting 3,147 3,416 4,927 5,021
Cost of maintenance and support 275 580 425 906
Research and development 2,937 5,520 5,627 9,104
Sales and marketing 6,228 6,523 13,559 11,563
General and administrative 5,424 7,195 10,458 11,811
Total $ 18,015 $ 23,244 $ 35,002 $ 38,419

(2) Acquisition-related transition and integration costs
Cost of product and licensing $ 1 $ (2 ) $ 1 $ -
Cost of professional services, subscription and hosting 27 164 (11 ) (91 )
Cost of maintenance and support 10 40 10 114
Research and development 436 707 899 1,106
Sales and marketing 226 784 998 1,887
General and administrative 2,665 878 7,333 3,012
Total $ 3,365 $ 2,571 $ 9,230 $ 6,028

(3) Acquisition-related adjustments
Revenue $ 9,645 $ 16,566 $ 37,254 $ 30,594
Cost of product and licensing - (381 ) 4 (351 )
Cost of professional services, subscription and hosting (463 ) (754 ) (548 ) (1,940 )
Cost of maintenance and support (36 ) - (100 ) -
Total $ 9,146 $ 15,431 $ 36,610 $ 28,303

Nuance Communications, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
Unaudited

ASSETS March 31, 2009 September 30, 2008

Current assets:
Cash and cash $ 420,982 $ 261,540
equivalents
Marketable securities - 56
Accounts receivable and 182,179 217,999
unbilled receivables,
net
Inventories, net 8,503 7,152
Prepaid expenses and 34,953 28,536
other current assets
Total current assets 646,617 515,283

Land, building and equipment, net 51,898 46,485
Goodwill 1,794,861 1,655,773
Intangible assets, net 647,874 585,023
Other assets 40,206 43,635
Total assets $ 3,181,456 $ 2,846,199

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long $ 6,902 $ 7,006
-term debt and capital
leases
Contingent and deferred 58,511 113,074
acquisition payments
Accounts payable and 149,205 133,616
accrued expenses
Deferred and unearned 147,600 118,902
revenue
Other short term 10,031 9,166
liabilities
Total current 372,249 381,764
liabilities

Long-term portion of debt and capital leases 891,271 894,184
Long-term deferred revenue 20,985 18,134
Other long term liabilities 122,939 127,209
Total liabilities 1,407,444 1,421,291

Stockholders' equity 1,774,012 1,424,908

Total liabilities and stockholders' equity $ 3,181,456 $ 2,846,199

For Investors and Press
Nuance Communications, Inc.
Richard Mack, 781-565-5000
richard.mack@nuance.com
or
For Press
Nuance Communications, Inc.
Holly Dewar, 781-565-5000
holly.dewar@nuance.com

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