Nuance Communications (NUAN) Tops Q2 EPS by 4c, Updates Guidance

Nuance Communications (NASDAQ: NUAN) reported Q2 EPS of $0.21, $0.04 better than the analyst estimate of $0.17. Revenue for the quarter came in at $369.3 million versus the consensus estimate of $352.99 million.

Guidance:

Lowering our revenue guidance to an updated range of $1,405 million to $1,485 million, a reduction of $70 million at the mid-point and an expansion of the range from $40 million to $80 million. This new revenue guidance range accommodates the COVID-19 related revenue impacts and takes into account the uncertainty about the duration of the crisis, magnitude of impact across our markets and pace of recovery as the pandemic subsides. Despite the underlying macro uncertainty, our long-term growth potential remains unchanged and we reiterate our mid-term 2023 outlook expectations.

• Maintaining our non-GAAP gross margin as almost half of the COVID-19 related revenue impacts are in our non-strategic, low margin HIM transcription and EHR implementation services businesses. • Lowering our non-GAAP operating margin by 50 basis points to accommodate the lower revenue expectations. While we are committed to continuing to invest in our strategic priorities in the second-half of 2020, we are reducing discretionary and non-essential spend, greatly reducing hiring across the company, deferring annual compensation increases for employees worldwide, and vastly reducing our T&E budgets.

• Lowering our GAAP and non-GAAP EPS to reflect the COVID-19 revenue impacts.

• Withdrawing our Cash Flow from Operations, Free Cash Flow and Ending Cash Balance due to uncertainty related to payment timing. We expect both Healthcare and Enterprise DSOs to increase in the near term with some payment term volatility as our customers deal with the direct impacts of the virus on their liquidity. The full extent of this impact is difficult to predict, but we believe this will be more a timing issue than a collectability issue. We have high confidence in receiving payment and, regardless of the short-term cash flow impacts, remain confident that we are well positioned to withstand extreme liquidity circumstances if required.

Lowering our Healthcare ARR growth from the prior range of 26% to 34% down to 13% to 21%.

• Temporarily withdrawing the Healthcare detailed guidance, except for the Dragon Medical Cloud breakout (which we will continue to provide and are raising modestly). While we are confident that the full extent of the impacts are factored into our consolidated and segment revenue guidance ranges, we expect some volatility on how COVID-19 will impact each line of business and revenue type

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