Nuance (NUAN) Slides After Missing Earnings Forecasts
Shares of Nuance Communications (NUAN: Charts, News) slid 20% this week after the company, which specializes in speech-to-text recognition software, slightly missed earnings forecasts and announced weaker than expected guidance for the full year.
The Burlington, Massachusetts-based company offers its software to a variety of industries, including automated telephone services, medical services and desktop imaging services. However, the company's claim to fame is the creation of Apple's (AAPL
) Siri service, which was introduced in the iPhone 4S. Daily Chart
Nuance posted first quarter earnings of 35 cents per share on revenue of $492.4 million. Earnings missed estimates by a cent, while revenue met expectations. However, it wasn't the company's minor miss that triggered the slide that erased a fifth of its market cap. It was its bleak forward guidance for the second quarter and the rest of fiscal 2013. For the next quarter, Nuance expects to earn 35 to 40 cents per share on revenue of $500 million to $553 million. While this tops the analyst forecast for $524 million in revenue, it misses the earnings expectations of 44 cents per share. Nuance reduced its full year guidance from a range between $1.84 to $1.94 per share down to a range between $1.76 to $1.87 per share. Analysts had been expecting earnings of $1.89 per share. This would only represent 5% to 8% bottom line growth from 2012, which is lackluster at best. Although the company didn't revise its full year revenue forecast from $2.15 billion to $2.20 billion - which matches the consensus estimate of $2.2 billion - several analysts now expect a top line miss later this year. Nuance operates in four main business segments - health care, mobile & consumer products, enterprise and imaging. Its health care segment is the largest, accounting for 49.6% of its total revenue. Nuance's mobile segment accounts for 21.4%, while enterprise and imaging generate 10.4% and 13.7%, respectively. Nuance's mobile division is unlikely to grow much more, since smartphone market leaders Apple and Samsung are already its primary customers. Its dominant position could also be threatened by AT&T's (T
) Watson voice-recognition system, which is an open-sourced, crowd-sourced alternative to Nuance's closed-ended software. Speech to text software has become increasingly popular on handsets and tablets, ever since Apple introduced Siri. Over the past twelve months, Nuance's stock metrics have been all over the map, making it a difficult stock to analyze. Revenue grew 21.16%, while diluted EPS soared 364.3%. This can be attributed to a 63.65% increase in operating margins. Meanwhile, its cash reserves declined 100% and its long-term debt rose 63.65%. The company has $961.09 million in cash, but is shouldering $2.33 billion in debt, giving it a debt-to-equity ratio of 83.92. Rising debt, slower top and bottom line growth, and the questionable sustainability of its closed-ended business model have all raised red flags with investors. Shares of Nuance trade at 9.52 times forward earnings, with a 5-year PEG ratio of 0.66. The stock does not pay a dividend, and is down 26% over the past twelve months. Other News About NUAN Nuance Communications: Apple Supplier Offering Great Entry Point After Sell-Off
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Published on Feb 12, 2013
By Leo Sun