NUANCE COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
September 30,
2018
|
|
|
(ASC 606)
|
|
(ASC 605)
|
|
|
(Unaudited)
|
|
|
|
|
(In thousands, except per
share amounts)
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
536,377
|
|
|
$
|
315,963
|
|
|
Marketable securities
|
136,986
|
|
|
135,579
|
|
|
Accounts receivable, less allowances for doubtful accounts of $10,538 and $9,823
|
313,599
|
|
|
347,873
|
|
|
Prepaid expenses and other current assets
|
193,795
|
|
|
94,814
|
|
|
Current assets held for sale
|
—
|
|
|
34,402
|
|
|
Total current assets
|
1,180,757
|
|
|
928,631
|
|
|
Marketable securities
|
12,796
|
|
|
21,932
|
|
|
Land, building and equipment, net
|
138,466
|
|
|
153,452
|
|
|
Goodwill
|
3,242,693
|
|
|
3,247,105
|
|
|
Intangible assets, net
|
372,934
|
|
|
450,001
|
|
|
Other assets
|
241,271
|
|
|
141,761
|
|
|
Long-term assets held for sale
|
—
|
|
|
359,497
|
|
|
Total assets
|
$
|
5,188,917
|
|
|
$
|
5,302,379
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
Current liabilities:
|
|
|
Contingent and deferred acquisition payments
|
$
|
17,122
|
|
|
$
|
14,211
|
|
|
Accounts payable
|
95,272
|
|
|
80,912
|
|
|
Accrued expenses and other current liabilities
|
245,012
|
|
|
269,339
|
|
|
Deferred revenue
|
310,586
|
|
|
330,689
|
|
|
Current liabilities held for sale
|
—
|
|
|
69,013
|
|
|
Total current liabilities
|
667,992
|
|
|
764,164
|
|
|
Long-term debt
|
1,923,716
|
|
|
2,185,361
|
|
|
Deferred revenue, net of current portion
|
410,897
|
|
|
434,316
|
|
|
Deferred tax liabilities
|
45,456
|
|
|
49,931
|
|
|
Other liabilities
|
97,858
|
|
|
93,593
|
|
|
Long-term liabilities held for sale
|
—
|
|
|
57,518
|
|
|
Total liabilities
|
3,145,919
|
|
|
3,584,883
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 16)
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
Common stock, $0.001 par value per share; 560,000 shares authorized; 288,730 and 291,504 shares issued and 284,979 and 287,753 shares outstanding, respectively
|
289
|
|
|
291
|
|
|
Additional paid-in capital
|
2,578,050
|
|
|
2,597,693
|
|
|
Treasury stock, at cost (3,751 shares)
|
(16,788
|
)
|
|
(16,788
|
)
|
|
Accumulated other comprehensive loss
|
(116,812
|
)
|
|
(122,863
|
)
|
|
Accumulated deficit
|
(401,741
|
)
|
|
(740,837
|
)
|
|
Total stockholders’ equity
|
2,042,998
|
|
|
1,717,496
|
|
|
Total liabilities and stockholders’ equity
|
$
|
5,188,917
|
|
|
$
|
5,302,379
|
|
See accompanying notes.
NUANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the three months ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-In Capital
|
|
Treasury Stock
|
|
Other Comprehensive Loss
|
|
Accumulated Deficit
|
|
Total Stockholders' Equity
|
|
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
(In thousands)
|
|
Balance at March 31, 2019
|
290,038
|
|
|
$
|
290
|
|
|
$
|
2,592,708
|
|
|
3,751
|
|
|
$
|
(16,788
|
)
|
|
$
|
(120,463
|
)
|
|
$
|
(411,000
|
)
|
|
$
|
2,044,747
|
|
|
Issuance of common stock under employee stock plans
|
646
|
|
|
1
|
|
|
(1
|
)
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Cancellation of restricted stock, and repurchase of common stock at cost for employee tax withholding
|
(247
|
)
|
|
—
|
|
|
(4,292
|
)
|
|
|
|
|
|
|
|
|
|
(4,292
|
)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
19,247
|
|
|
|
|
|
|
|
|
|
|
19,247
|
|
|
Repurchase and retirement of common stock
|
(1,707
|
)
|
|
(2
|
)
|
|
(29,612
|
)
|
|
|
|
|
|
|
|
|
|
(29,614
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
9,259
|
|
|
9,259
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
3,651
|
|
|
|
|
3,651
|
|
|
Balance at June 30, 2019
|
288,730
|
|
|
$
|
289
|
|
|
$
|
2,578,050
|
|
|
3,751
|
|
|
$
|
(16,788
|
)
|
|
$
|
(116,812
|
)
|
|
$
|
(401,741
|
)
|
|
$
|
2,042,998
|
|
For the nine months ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-In Capital
|
|
Treasury Stock
|
|
Other Comprehensive Loss
|
|
Accumulated Deficit
|
|
Total Stockholders' Equity
|
|
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
(In thousands)
|
|
Balance at September 30, 2018
|
291,504
|
|
|
$
|
291
|
|
|
$
|
2,597,693
|
|
|
3,751
|
|
|
$
|
(16,788
|
)
|
|
$
|
(122,863
|
)
|
|
$
|
(740,837
|
)
|
|
$
|
1,717,496
|
|
|
Accumulated adjustment related to the adoption of ASC 606
|
|
|
|
|
|
|
|
|
|
|
|
|
233,415
|
|
|
233,415
|
|
|
Issuance of common stock under employee stock plans
|
7,225
|
|
|
8
|
|
|
8,635
|
|
|
|
|
|
|
|
|
|
|
8,643
|
|
|
Cancellation of restricted stock, and repurchase of common stock at cost for employee tax withholding
|
(2,229
|
)
|
|
(2
|
)
|
|
(35,850
|
)
|
|
|
|
|
|
|
|
|
|
(35,852
|
)
|
|
Stock-based compensation
|
|
|
|
|
|
|
128,499
|
|
|
|
|
|
|
|
|
|
|
128,499
|
|
|
Repurchase and retirement of common stock
|
(7,770
|
)
|
|
(8
|
)
|
|
(120,927
|
)
|
|
|
|
|
|
|
|
|
|
(120,935
|
)
|
|
Reclassification of currency translation differences into earnings as a result of the disposition of our Imaging business
|
|
|
|
|
|
|
|
|
|
|
5,605
|
|
|
—
|
|
|
5,605
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
105,681
|
|
|
105,681
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
446
|
|
|
|
|
446
|
|
|
Balance at June 30, 2019
|
288,730
|
|
|
$
|
289
|
|
|
$
|
2,578,050
|
|
|
3,751
|
|
|
$
|
(16,788
|
)
|
|
$
|
(116,812
|
)
|
|
$
|
(401,741
|
)
|
|
$
|
2,042,998
|
|
See accompanying notes.
NUANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the three months ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-In Capital
|
|
Treasury Stock
|
|
Other Comprehensive Loss
|
|
Accumulated Deficit
|
|
Total Stockholders' Equity
|
|
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
(In thousands)
|
|
Balance at March 31, 2018
|
298,330
|
|
|
$
|
298
|
|
|
$
|
2,697,869
|
|
|
3,751
|
|
|
$
|
(16,788
|
)
|
|
$
|
(95,963
|
)
|
|
$
|
(691,734
|
)
|
|
$
|
1,893,682
|
|
|
Issuance of common stock under employee stock plans
|
1,452
|
|
|
2
|
|
|
(3
|
)
|
|
|
|
|
|
—
|
|
|
|
|
(1
|
)
|
|
Cancellation of restricted stock, and repurchase of common stock at cost for employee tax withholding
|
(533
|
)
|
|
(1
|
)
|
|
(7,841
|
)
|
|
|
|
|
|
|
|
|
|
(7,842
|
)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
23,519
|
|
|
|
|
|
|
|
|
|
|
23,519
|
|
|
Repurchase and retirement of common stock
|
(8,107
|
)
|
|
(8
|
)
|
|
(111,971
|
)
|
|
|
|
|
|
|
|
|
|
(111,979
|
)
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,037
|
)
|
|
(14,037
|
)
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
(25,427
|
)
|
|
|
|
(25,427
|
)
|
|
Balance at June 30, 2018
|
291,142
|
|
|
$
|
291
|
|
|
$
|
2,601,573
|
|
|
3,751
|
|
|
$
|
(16,788
|
)
|
|
$
|
(121,390
|
)
|
|
$
|
(705,771
|
)
|
|
$
|
1,757,915
|
|
For the nine months ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-In Capital
|
|
Treasury Stock
|
|
Other Comprehensive Loss
|
|
Accumulated Deficit
|
|
Total Stockholders' Equity
|
|
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
(In thousands)
|
|
Balance at September 30, 2017
|
293,938
|
|
|
$
|
294
|
|
|
$
|
2,629,245
|
|
|
3,751
|
|
|
$
|
(16,788
|
)
|
|
$
|
(101,342
|
)
|
|
$
|
(580,027
|
)
|
|
$
|
1,931,382
|
|
|
Prior period adjustment related to early adoption of ASU 2016-16
|
|
|
|
|
|
|
|
|
|
|
|
|
(882
|
)
|
|
(882
|
)
|
|
Issuance of common stock under employee stock plans
|
7,995
|
|
|
8
|
|
|
9,351
|
|
|
|
|
|
|
|
|
|
|
9,359
|
|
|
Cancellation of restricted stock, and repurchase of common stock at cost for employee tax withholding
|
(2,684
|
)
|
|
(3
|
)
|
|
(42,346
|
)
|
|
|
|
|
|
|
|
|
|
(42,349
|
)
|
|
Stock-based compensation
|
|
|
|
|
|
|
117,294
|
|
|
|
|
|
|
|
|
|
|
117,294
|
|
|
Repurchase and retirement of common stock
|
(8,107
|
)
|
|
(8
|
)
|
|
(111,971
|
)
|
|
|
|
|
|
|
|
|
|
(111,979
|
)
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
(124,862
|
)
|
|
(124,862
|
)
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
(20,048
|
)
|
|
|
|
(20,048
|
)
|
|
Balance at June 30, 2018
|
291,142
|
|
|
$
|
291
|
|
|
$
|
2,601,573
|
|
|
3,751
|
|
|
$
|
(16,788
|
)
|
|
$
|
(121,390
|
)
|
|
$
|
(705,771
|
)
|
|
$
|
1,757,915
|
|
See accompanying notes.
NUANCE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
|
(ASC 606)
|
|
(ASC 605)
|
|
|
(Unaudited)
(In thousands)
|
|
Cash flows from operating activities:
|
|
|
|
|
Net income (loss) from continuing operations
|
$
|
6,209
|
|
|
$
|
(140,396
|
)
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
Depreciation and amortization
|
121,438
|
|
|
142,341
|
|
|
Stock-based compensation
|
100,143
|
|
|
101,466
|
|
|
Non-cash interest expense
|
37,011
|
|
|
37,091
|
|
|
Deferred tax benefit
|
(18,975
|
)
|
|
(90,836
|
)
|
|
Loss on extinguishment of debt
|
910
|
|
|
—
|
|
|
Impairment of goodwill
|
—
|
|
|
137,907
|
|
|
Impairment of fixed asset
|
—
|
|
|
1,780
|
|
|
Other
|
(651
|
)
|
|
894
|
|
|
Changes in operating assets and liabilities, excluding effects of acquisitions:
|
|
|
|
|
Accounts receivable
|
5,011
|
|
|
(1,426
|
)
|
|
Prepaid expenses and other assets
|
(20,116
|
)
|
|
(18,933
|
)
|
|
Accounts payable
|
15,260
|
|
|
(3,646
|
)
|
|
Accrued expenses and other liabilities
|
8,329
|
|
|
(889
|
)
|
|
Deferred revenue
|
38,270
|
|
|
92,075
|
|
|
Net cash provided by operating activities - continuing operations
|
292,839
|
|
|
257,428
|
|
|
Net cash provided by operating activities - discontinued operations
|
4,355
|
|
|
37,595
|
|
|
Net cash provided by operating activities
|
297,194
|
|
|
295,023
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Proceeds from dispositions of businesses, net of transaction fees
|
407,043
|
|
|
—
|
|
|
Capital expenditures
|
(32,243
|
)
|
|
(38,965
|
)
|
|
Payments for business and asset acquisitions, net of cash acquired
|
(3,102
|
)
|
|
(109,225
|
)
|
|
Purchases of marketable securities and other investments
|
(256,332
|
)
|
|
(158,645
|
)
|
|
Proceeds from sales and maturities of marketable securities and other investments
|
262,914
|
|
|
259,677
|
|
|
Net cash provided by (used in) investing activities
|
378,280
|
|
|
(47,158
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
Repayment and redemption of debt
|
(300,000
|
)
|
|
(331,172
|
)
|
|
Payments for repurchase of common stock
|
(120,935
|
)
|
|
(111,979
|
)
|
|
Acquisition payments with extended payment terms
|
—
|
|
|
(20,769
|
)
|
|
Proceeds from issuance of common stock from employee stock plans
|
8,643
|
|
|
9,359
|
|
|
Payments for taxes related to net share settlement of equity awards
|
(42,562
|
)
|
|
(51,852
|
)
|
|
Other financing activities
|
(1,442
|
)
|
|
(1,073
|
)
|
|
Net cash used in financing activities
|
(456,296
|
)
|
|
(507,486
|
)
|
|
Effects of exchange rate changes on cash and cash equivalents
|
1,236
|
|
|
(1,419
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
220,414
|
|
|
(261,040
|
)
|
|
Cash and cash equivalents at beginning of period
|
315,963
|
|
|
592,299
|
|
|
Cash and cash equivalents at end of period
|
$
|
536,377
|
|
|
$
|
331,259
|
|
See accompanying notes.
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1
. Organization and Presentation
The condensed consolidated financial statements include the accounts of Nuance Communications, Inc. ("Nuance", "we", "our", or the "Company") and our wholly-owned subsidiaries. We prepared the unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (the "U.S." or the "United States") and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). The condensed consolidated financial statements reflect all normal and recurring adjustments that, in our opinion, are necessary to present fairly our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period.
Although we believe the disclosures included herein are adequate to ensure that the condensed consolidated financial statements are fairly presented, certain information and footnote disclosures to the financial statements have been condensed or omitted in accordance with the rules and regulations of the SEC. Accordingly, the condensed consolidated financial statements and the footnotes included herein should be read in conjunction with the audited financial statements and the footnotes included in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2018
. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire fiscal year or any future period.
2
. Summary of Significant Accounting Policies
Recently Adopted Accounting Standards
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers: Topic 606" ("ASC 606"), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. We adopted ASC 606 on October 1, 2018 using the modified retrospective approach, with a cumulative adjustment to retained earnings as opposed to retrospectively adjusting prior periods.
Results for reporting periods beginning after October 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies under "Revenue Recognition: Topic 605" ("ASC 605"). For contracts that were modified before the effective date, the Company aggregated the effect of all contract modifications prior to identifying performance obligations and allocating transaction price in accordance with the practical expedient ASC 606-10-65-1-(f)-4.
Upon adoption of ASC 606 on October 1, 2018, we recorded a decrease to Accumulated deficit of approximately
$233 million
as a result of the transition. The impact of the adoption primarily relates to the cumulative effect of (1) approximately
$70 million
decrease in Deferred revenue from the upfront recognition of term licenses and the general requirement to allocate the transaction price on a relative stand-alone selling price, (2) approximately
$180 million
increase in contract assets, (3) approximately
$30 million
decrease in Accounts receivable, (4) approximately
$30 million
increase in Deferred costs, and (5) approximately
$20 million
increase in Deferred tax liabilities related to the above items.
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables summarize the impact of adopting ASC 606 on the Company’s condensed consolidated statement of operations for the three and
nine months ended
June 30, 2019
and the condensed consolidated balance sheet as of
June 30, 2019
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2019
|
|
|
As reported, ASC 606
|
|
Effect of Implementation
|
|
As adjusted, ASC 605
|
|
Revenues:
|
|
|
|
|
|
|
Hosting and professional services
|
$
|
260,902
|
|
|
$
|
7,943
|
|
|
$
|
268,845
|
|
|
Product and licensing
|
121,809
|
|
|
5,579
|
|
|
127,388
|
|
|
Maintenance and support
|
66,486
|
|
|
(4,387
|
)
|
|
62,099
|
|
|
Total revenues
|
$
|
449,197
|
|
|
$
|
9,135
|
|
|
$
|
458,332
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
Hosting and professional services
|
$
|
154,397
|
|
|
$
|
6,555
|
|
|
$
|
160,952
|
|
|
Product and licensing
|
19,207
|
|
|
(1,496
|
)
|
|
17,711
|
|
|
Maintenance and support
|
8,192
|
|
|
215
|
|
|
8,407
|
|
|
Amortization of intangible assets
|
8,895
|
|
|
—
|
|
|
8,895
|
|
|
Total cost of revenues
|
$
|
190,691
|
|
|
$
|
5,274
|
|
|
$
|
195,965
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
$
|
72,229
|
|
|
$
|
1,603
|
|
|
$
|
73,832
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
$
|
7,786
|
|
|
$
|
(650
|
)
|
|
$
|
7,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended June 30, 2019
|
|
|
As reported, ASC 606
|
|
Effect of Implementation
|
|
As adjusted, ASC 605
|
|
Revenues:
|
|
|
|
|
|
|
Hosting and professional services
|
$
|
771,601
|
|
|
$
|
29,179
|
|
|
$
|
800,780
|
|
|
Product and licensing
|
377,349
|
|
|
9,502
|
|
|
386,851
|
|
|
Maintenance and support
|
203,484
|
|
|
(20,146
|
)
|
|
183,338
|
|
|
Total revenues
|
$
|
1,352,434
|
|
|
$
|
18,535
|
|
|
$
|
1,370,969
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
Hosting and professional services
|
$
|
471,204
|
|
|
$
|
3,302
|
|
|
$
|
474,506
|
|
|
Product and licensing
|
61,897
|
|
|
(12,941
|
)
|
|
48,956
|
|
|
Maintenance and support
|
24,919
|
|
|
262
|
|
|
25,181
|
|
|
Amortization of intangible assets
|
27,700
|
|
|
—
|
|
|
27,700
|
|
|
Total cost of revenues
|
$
|
585,720
|
|
|
$
|
(9,377
|
)
|
|
$
|
576,343
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
$
|
223,343
|
|
|
$
|
1,023
|
|
|
$
|
224,366
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
$
|
7,814
|
|
|
$
|
10,029
|
|
|
$
|
17,843
|
|
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2019
|
|
|
As reported, ASC 606
|
|
Effect of Implementation
|
|
As adjusted, ASC 605
|
|
Assets:
|
|
|
|
|
|
|
Accounts receivable
|
$
|
313,599
|
|
|
$
|
26,611
|
|
|
$
|
340,210
|
|
|
Prepaid expenses and other current assets
|
$
|
193,795
|
|
|
$
|
(65,621
|
)
|
|
$
|
128,174
|
|
|
Other assets
|
$
|
241,271
|
|
|
$
|
(121,462
|
)
|
|
$
|
119,809
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Deferred revenue, current
|
$
|
310,586
|
|
|
$
|
36,191
|
|
|
$
|
346,777
|
|
|
Deferred revenue, noncurrent
|
$
|
410,897
|
|
|
$
|
19,882
|
|
|
$
|
430,779
|
|
|
Deferred tax liabilities
|
$
|
45,456
|
|
|
$
|
(10,026
|
)
|
|
$
|
35,430
|
|
|
Other long-term liabilities
|
$
|
97,858
|
|
|
$
|
(11,252
|
)
|
|
$
|
86,606
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
Accumulated deficit
|
$
|
(401,741
|
)
|
|
$
|
(195,117
|
)
|
|
$
|
(596,858
|
)
|
Statements of Cash Flows
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), which is effective for fiscal years beginning after December 15, 2017 and the interim periods therein. We adopted this guidance on October 1, 2018 and applied it retrospectively. The adoption did not have a material impact on our condensed consolidated statements of cash flows.
Financial Instruments
In January 2016, the FASB issued ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"). ASU 2016-01 amends the guidance on the classification and measurement of financial instruments. We adopted ASU 2016-01 as of January 1, 2018 using the modified retrospective method. The adoption did not have a material impact on our condensed consolidated financial statements.
Issued Accounting Standards Not Yet Adopted
Leases
In February 2016, the FASB issued ASU No. 2016-02, "Leases" ("ASC 842"). ASC 842 requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. ASC 842 is effective for us in the first quarter of fiscal year 2020, and early application is permitted. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases Topic 842 Targeted Improvements, which provides an additional (and optional) transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. We intend to adopt the guidance as of October 1, 2019 under the modified retrospective approach and elect the package of practical expedients under the transition guidance.
We are currently evaluating the impact of ASC 842 and expect to recognize
$110 million
to
$145 million
of operating lease right-of-use assets and
$130 million
to
$175 million
operating lease obligations. We do not expect the adoption of the guidance to have a material impact on our consolidated statements of operations or consolidated statements of cash flows.
Other Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" ("ASU 2018-15"), which is effective for fiscal year beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The guidance requires that implementation costs related to a hosting arrangement that is a service contract be capitalized and amortized over the term of the hosting arrangement, starting when the module or component of the
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
hosting arrangement is ready for its intended use. The guidance will be applied retrospectively to each period presented. We do not expect the implementation to have a material impact on our condensed consolidated financial statements.
In January 2018, the FASB issued ASU No. 2018-02, "Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("AOCI"), which is effective for fiscal years beginning after December 15, 2018 and interim periods therein, with early adoption permitted. The guidance gives entities the option to reclassify to retained earnings the tax effects resulting from the Tax Cuts and Jobs Act ("TCJA") related to items in AOCI. The new guidance may be applied retrospectively to each period in which the effect of TCJA is recognized in the period of adoption. We do not expect the implementation to have a material impact on our condensed consolidated financial statements.
3
. Revenue Recognition
We derive revenue from the following sources: (1) hosting services, (2) software licenses, including royalties, (3) maintenance and support ("M&S"), (4) professional services, and (5) sale of hardware. Revenue is reported net of applicable sales and use tax, value-added tax and other transaction taxes imposed on the related transaction including mandatory government charges that are passed through to our customers. We account for a contract when both parties have approved and committed to the contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
The majority of our arrangements with customers typically contain multiple products and services. We account for individual products and services separately if they are distinct--that is, if a product or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer.
We recognize revenue after applying the following five steps:
|
|
|
|
•
|
identification of the contract, or contracts, with a customer;
|
|
|
|
|
•
|
identification of the performance obligations in the contract, including whether they are distinct within the context of the contract;
|
|
|
|
|
•
|
determination of the transaction price, including the constraint on variable consideration;
|
|
|
|
|
•
|
allocation of the transaction price to the performance obligations in the contract; and
|
|
|
|
|
•
|
recognition of revenue when, or as, performance obligations are satisfied.
|
We allocate the transaction price of the arrangement based on the relative estimated standalone selling price ("SSP") of each distinct performance obligation. In determining SSP, we maximize observable inputs and consider a number of data points, including:
|
|
|
|
•
|
the pricing of standalone sales (in the instances where available);
|
|
|
|
|
•
|
the pricing established by management when setting prices for deliverables that are intended to be sold on a standalone basis;
|
|
|
|
|
•
|
contractually stated prices for deliverables that are intended to be sold on a standalone basis; and
|
|
|
|
|
•
|
other pricing factors, such as the geographical region in which the products are sold and expected discounts based on the customer size and type.
|
We only include estimated amounts of variable consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. We reduce transaction prices for estimated returns and other allowances that represent variable consideration under ASC 606, which we estimate based on historical return experience and other relevant factors, and record a corresponding refund liability as a component of accrued expenses and other current liabilities. Other forms of contingent revenue or variable consideration are infrequent.
Revenue is recognized when control of these products and services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
We assess the timing of the transfer of products or services to the customer as compared to the timing of payments to determine whether a significant financing component exists. In accordance with the practical expedient in ASC 606-10-32-18, we do not assess the existence of a significant financing component when the difference between payment and transfer of deliverables is a year or less. If the difference in timing arises for reasons other than the provision of finance to either the customer or us, no financing component is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our services, not to receive or provide financing from or to customers. We do not consider set-up fees nor other upfront fees paid by our customers to represent a financing component.
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Certain products are sold through distributors or resellers. Certain distributors and resellers have been granted right of return and selling incentives which are accounted for as variable consideration when estimating the amount of revenue to be recognized. Returns and credits are estimated at the contract inception and updated at the end of each reporting period as additional information becomes available. In accordance with the practical expedient in ASC 606-10-10-4, we apply a portfolio approach to estimate the variable consideration associated with this group of customers.
Reimbursements for out-of-pocket costs generally include, but are not limited to, costs related to transportation, lodging and meals. Revenue from reimbursed out-of-pocket costs is accounted for as variable consideration.
Shipping and handling activities are not considered a contract performance obligation. We record shipping and handling costs billed to customers as revenue with offsetting costs recorded as cost of revenue.
Performance Obligations
Hosting
Hosting services, which allow our customers to use the hosted software over the contract period without taking possession of the software, are provided on a usage basis as consumed or on a fixed fee subscription basis. Our hosting contract terms generally range from
one
to
five
years.
As each day of providing services is substantially the same and the customer simultaneously receives and consumes the benefits as access is provided, we have determined that our hosting services arrangements are a single performance obligation comprised of a series of distinct services. These services include variable consideration, which is typically a function of usage. We recognize revenue as each distinct service period is performed (i.e., recognized as incurred).
Subscription basis revenue represents a single promise to stand-ready to provide access to our hosting services. Revenue is recognized over time on a ratable basis over the hosting contract term, which generally ranges from
one
to
five
years.
Software Licenses
On-premise software licenses sold with non-distinct professional services to customize and/or integrate the underlying software are accounted for as a combined performance obligation. Revenue from the combined performance obligation is recognized over time based upon the progress towards completion of the project, which is measured based on the labor hours already incurred to date as compared to the total estimated labor hours.
Revenue from distinct on-premise software licenses, which do not require professional services to customize and/or integrate the software license, is recognized at the point in time when the software is made available to the customer and control is transferred.
Revenue from software license sold on a royalty basis, where the license of intellectual property is the predominant item to which the royalty relates, is recognized in the period the usage occurs in accordance with the practical expedient in ASC 606-10-55-65(A).
Maintenance and Support
Our M&S contracts generally include telephone support and the right to receive unspecified upgrades and updates on a when-and-if available basis. M&S revenue is recognized over time on a ratable basis over the contract period because we transfer control evenly by providing a stand-ready service.
Professional Services
Revenue from distinct professional services, including training, is recognized over time based upon the progress towards completion of the project, which is measured based on the labor hours already incurred to date as compared to the total estimated labor hours.
Hardware
Hardware revenue is recognized at the point in time when control is transferred to the customer, which is typically upon delivery.
Significant Judgments
Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Our license contracts often include professional services to customize and/or integrate the licenses into the customer’s environment. Judgment is required to determine whether the license is considered distinct and accounted for separately, or not distinct and accounted for together with professional services.
Judgments are required to determine the SSP for each distinct performance obligation. When SSP is directly observable, we estimate SSP based upon the historical transaction prices, adjusted for geographic considerations, customer classes, and customer relationship profiles. In instances where SSP is not directly observable, we determine SSP using information that may include market conditions
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and other observable inputs. We may have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining SSP. Determining SSP for performance obligations which we never sell separately also requires significant judgment. In estimating the SSP, we consider the likely price that would have resulted from established pricing practices had the deliverable been offered separately and the prices a customer would likely be willing to pay.
From time to time, we may enter into arrangements with third party suppliers to resell products or services. In such cases, we evaluate whether we are the principal (i.e. report revenues on a gross basis) or agent (i.e. report revenues on a net basis). In doing so, we first evaluate whether we control the good or service before it is transferred to the customer. If we control the good or service before it is transferred to the customer, we are the principal; if not, we are the agent. Generally, we control a promised good or service before transferring that good or service to the customer and act as the principal to the transaction. Determining whether we control the good or service before it is transferred to the customer may require judgment.
Disaggregated Revenue
We disaggregate revenue from contracts with customers by reportable segment and products and services as this presentation depicts the timing, risks and uncertainty of our revenue streams, which is also in line with how we manage our businesses, assess performance, and determine management compensation. Our disaggregated revenue from continuing operations is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2019
|
|
|
Hosting and professional services
|
|
Product and licensing
|
|
Maintenance and support
|
|
Total
|
|
Healthcare
|
$
|
142,502
|
|
|
$
|
48,302
|
|
|
$
|
37,062
|
|
|
$
|
227,866
|
|
|
Enterprise
|
80,346
|
|
|
28,232
|
|
|
29,204
|
|
|
137,782
|
|
|
Automotive
|
28,042
|
|
|
43,625
|
|
|
93
|
|
|
71,760
|
|
|
Other
|
10,012
|
|
|
1,650
|
|
|
127
|
|
|
11,789
|
|
|
Total revenues
|
$
|
260,902
|
|
|
$
|
121,809
|
|
|
$
|
66,486
|
|
|
$
|
449,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended June 30, 2019
|
|
|
Hosting and professional services
|
|
Product and licensing
|
|
Maintenance and support
|
|
Total
|
|
Healthcare
|
$
|
401,884
|
|
|
$
|
183,039
|
|
|
$
|
119,212
|
|
|
$
|
704,135
|
|
|
Enterprise
|
235,562
|
|
|
63,285
|
|
|
83,829
|
|
|
382,676
|
|
|
Automotive
|
93,497
|
|
|
125,050
|
|
|
191
|
|
|
218,738
|
|
|
Other
|
40,658
|
|
|
5,975
|
|
|
252
|
|
|
46,885
|
|
|
Total revenues
|
$
|
771,601
|
|
|
$
|
377,349
|
|
|
$
|
203,484
|
|
|
$
|
1,352,434
|
|
Hardware revenue comprised of approximately
$6.4 million
of total product and license revenue for the
three months ended
June 30, 2019
and
$21.5 million
for the
nine months ended
June 30, 2019
.
Contract Acquisition Costs
In conjunction with the adoption of ASC 606, we are required to capitalize certain contract acquisition costs. The capitalized costs primarily relate to paid commissions and other direct, incremental costs to acquire customer contracts. In accordance with the practical expedient in ASC 606-10-10-4, we apply a portfolio approach to estimate contract acquisition costs for groups of customer contracts. We elect to apply the practical expedient in ASC 340-40-25-4 and will expense contract acquisition costs as incurred where the expected period of benefit is one year or less. Sales commissions paid on renewal maintenance and support are not commensurate with sales commissions paid on the initial maintenance and support contract. Contract acquisition costs are deferred and amortized on a straight-line basis over the period of benefit, which we have estimated to be between
one
and
five
years. The period of benefit was determined based on an average customer contract term, expected contract renewals, changes in technology and our ability to retain customers including canceled contracts. Contract acquisition costs are classified as current or noncurrent assets based on when the expense will be recognized. The current and noncurrent portions of contract acquisition costs are included in Prepaid expenses and other current assets, and Other assets, respectively. As of
June 30, 2019
, we had
$18.6 million
of current contract acquisition costs and
$28.7 million
of noncurrent contract acquisition costs. Commission expense is primarily included
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
in Sales and marketing expense on the condensed consolidated statements of operations. We had amortization expense of
$4.3 million
related to contract acquisition costs for the
three months ended
June 30, 2019
and
$11.5 million
for the
nine months ended
June 30, 2019
. There was no impairment related to commission costs capitalized.
Capitalized Contract Costs
We capitalize incremental costs incurred to fulfill our contracts that (i) relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy our performance obligation under the contract, and (iii) are expected to be recovered through revenue generated under the contract. Our capitalized costs consist primarily of setup costs, such as costs to standup, customize and develop applications for each customer, which are incurred to satisfy our stand-ready obligation to provide access to our connected offerings. These contract costs are expensed to cost of revenue as we satisfy our stand-ready obligation over the contract term which we estimate to be between
one
and
five
years. The contract term was determined based on an average customer contract term, expected contract renewals, changes in technology, and our ability to retain customers including canceled contracts. We classify capitalized contract costs as current or noncurrent based on the timing of when we expect to recognize the expense. The current and noncurrent portions of capitalized contract fulfillment costs are included in Prepaid expenses and other current assets, and Other assets, respectively. At
June 30, 2019
, we had
$7.0 million
of short-term contract costs included with Prepaid expenses and other current assets and
$95.2 million
of long-term costs included within Other assets.
Trade Accounts Receivable and Contract Balances
We classify our right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). We present such receivables in Accounts receivable, net in our condensed consolidated balance sheets at their net estimated realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that may not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and other applicable factors.
Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.
Contract assets include unbilled amounts from long-term contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not solely subject to the passage of time. The current and noncurrent portions of contract assets are included in Prepaid expenses and other current assets, and Other assets. As of
June 30, 2019
, we had
$68.2 million
of current contract assets and
$102.9 million
of noncurrent contract assets. The table below shows significant changes in contract assets of continuing operations (dollars in thousands):
|
|
|
|
|
|
|
|
|
Contract assets
|
|
Balance as of October 1, 2018
|
$
|
168,595
|
|
|
Revenues recognized but not billed
|
249,707
|
|
|
Amounts reclassified to accounts receivable
|
(247,156
|
)
|
|
Balance at June 30, 2019
|
$
|
171,146
|
|
Our contract liabilities, or Deferred revenue, consist of advance payments and billings in excess of revenues recognized. We classify Deferred revenue as current or noncurrent based on when we expect to recognize the revenues. At
June 30, 2019
, we had
$721.5 million
of Deferred revenue. The table below shows significant changes in Deferred revenue of continuing operations (dollars in thousands):
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
Balance as of October 1, 2018
|
$
|
693,272
|
|
|
Amounts bill but not recognized
|
712,594
|
|
|
Revenue recognized
|
(684,383
|
)
|
|
Balance at June 30, 2019
|
$
|
721,483
|
|
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Remaining Performance Obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at
June 30, 2019
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within One Year
|
|
Two to Five Years
|
|
Greater than Five Years
|
|
Total
|
|
Total revenue
|
$
|
754,280
|
|
|
$
|
1,066,562
|
|
|
$
|
185,857
|
|
|
$
|
2,006,699
|
|
The table above includes fixed backlogs and does not include variable backlog derived from continent usage-based activities, such as royalties and usage-based hosting revenue.
4
. Disposition of Businesses
Sale of Imaging
On November 7, 2018, our Board of Directors approved the divestiture of our Imaging business. On November 11, 2018, we entered into a sale agreement (the “Agreement") with Project Leopard AcquireCo Limited, a private limited company incorporated under the laws of England and Wales (and an affiliate of Kofax, Inc.) (the “Buyer"), relating to the sale of our Imaging business for a total cash consideration of approximately
$400.0 million
, subject to certain customary post-closing adjustments as set forth in the Agreement. Pursuant to the Agreement, we sold and transferred, and Buyer purchased and acquired, (i) the shares of certain subsidiaries through which we operate a portion of our Imaging business and (ii) certain assets used in or related to the business; and the Buyer assumed certain liabilities related to such assets or the business, subject to certain exclusions and indemnities as set forth in the Agreement.
On
February 1, 2019
, we completed the sale of our Imaging business and received approximately
$404.0 million
in cash, after estimated transaction expenses, and subject to post-closing finalization of the adjustments set forth in the Agreement. As a result, we recorded a gain of approximately
$102.4 million
, which is included within Net income from discontinued operations. There are a number of working capital and other adjustments under the Agreement and related ancillary agreements. We do not believe that post-closing working capital adjustments under the Agreement, if any, will have a material impact on our results of operations.
For all periods presented, Imaging's results of operations have been included within discontinued operations and its assets and liabilities within held for sale in our condensed consolidated financial statements.
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the results of the discontinued operations (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(ASC 606)
|
|
(ASC 605)
|
|
(ASC 606)
|
|
(ASC 605)
|
|
Major line items constituting net income of Imaging:
|
|
|
|
|
|
|
|
|
Revenue
(a)
|
$
|
—
|
|
|
$
|
53,438
|
|
|
$
|
67,430
|
|
|
$
|
155,890
|
|
|
Cost of revenue
|
—
|
|
|
12,107
|
|
|
16,946
|
|
|
37,031
|
|
|
Research and development
|
—
|
|
|
6,299
|
|
|
7,557
|
|
|
21,066
|
|
|
Sales and marketing
(a)
|
—
|
|
|
18,392
|
|
|
28,433
|
|
|
59,122
|
|
|
General and administrative
|
—
|
|
|
987
|
|
|
1,997
|
|
|
3,211
|
|
|
Amortization of intangible assets
|
—
|
|
|
4,261
|
|
|
5,219
|
|
|
12,757
|
|
|
Acquisition-related costs, net
|
—
|
|
|
—
|
|
|
(386
|
)
|
|
—
|
|
|
Restructuring and other charges, net
|
—
|
|
|
3,895
|
|
|
13,251
|
|
|
5,194
|
|
|
Other
|
—
|
|
|
(200
|
)
|
|
—
|
|
|
(38
|
)
|
|
Income (loss) from discontinued operations before income taxes
(a)
|
—
|
|
|
7,697
|
|
|
(5,587
|
)
|
|
17,547
|
|
|
Provision (benefit) for income taxes
|
—
|
|
|
1,014
|
|
|
(2,688
|
)
|
|
2,013
|
|
|
Gain on disposition
|
—
|
|
|
—
|
|
|
102,371
|
|
|
—
|
|
|
Net income from discontinued operations
|
$
|
—
|
|
|
$
|
6,683
|
|
|
$
|
99,472
|
|
|
$
|
15,534
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
Depreciation
|
—
|
|
|
167
|
|
|
391
|
|
|
917
|
|
|
Amortization
|
—
|
|
|
5,849
|
|
|
6,569
|
|
|
17,909
|
|
|
Stock compensation
|
—
|
|
|
1,703
|
|
|
7,103
|
|
|
5,471
|
|
Capital expenditures for all periods presented were de minimis.
(a)
As more fully described in Note 2, as a result of the adoption of ASC 606 using the modified retrospective approach, Revenue for the six months ended March 31, 2019 reflected an increase of
$2.4 million
due to the upfront recognition of term licenses and the re-allocation of contract consideration to performance obligations based upon standalone selling prices; Sales and marketing expense for the six months ended March 31, 2019 reflected a decrease of
$1.4 million
due to the capitalization and amortization of commission expense; and the provision for income taxes for the three months ended March 31, 2019 reflected an increase in tax benefit of
$1.6 million
related to the tax effect of the ASC 606 adjustments.
The following table summarizes the assets and liabilities included within discontinued operations (dollars in thousands):
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
|
(ASC 605)
|
|
Major classes of Imaging assets:
|
|
|
Accounts receivable, net
|
$
|
30,959
|
|
|
Prepaid expenses and other current assets
|
3,443
|
|
|
Land, building and equipment, net
|
2,442
|
|
|
Goodwill
|
257,352
|
|
|
Intangible assets, net
|
99,507
|
|
|
Other assets
|
196
|
|
|
Total assets classified as held for sale
|
$
|
393,899
|
|
|
|
|
|
Major classes of Imaging liabilities:
|
|
|
Accounts payable
|
$
|
3,604
|
|
|
Accrued expenses and other current liabilities
|
12,304
|
|
|
Deferred revenue
|
107,965
|
|
|
Other liabilities
|
2,658
|
|
|
Total liabilities classified as held for sale
|
$
|
126,531
|
|
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Spin-off of Automotive
On November 19, 2018, we announced our intent to spin off our Automotive business into an independent publicly traded company through a pro rata distribution to our common stock holders. Completion of the proposed spin-off is subject to certain conditions, including final approval by our Board of Directors. We intend to complete the separation of the business by the beginning of fiscal year 2020.
Other Dispositions
In connection with our efforts to wind down a portion of our SRS business, which provides value-added services to mobile operators in India and Brazil ("Mobile Operator Services"), in May 2019, we completed the sale of our Mobile Operator Services business in Brazil, and in July 2019, we completed the sale of our Mobile Operator Services business in India. The sale prices and any gain or loss was immaterial.
5. Business Acquisitions
We continue to expand our solutions and integrate our technologies in new offerings through acquisitions. A summary of our acquisition activities is as follows:
Fiscal Year 2018
For the
nine months ended
June 30, 2018
, we completed several acquisitions in our Healthcare and Automotive segment for total cash consideration of
$113.1 million
and contingent payments with a fair value of
$2.0 million
and effective settlement of the preexisting relationship with the acquiree of $12.9 million. As a result, we recognized goodwill of
$65.1 million
and other intangible assets of
$60.8 million
, with a weighted average life of
6.0 years
. Such acquisitions were not significant individually or in aggregate to our condensed consolidated financial statements for the periods presented.
Acquisition-Related Costs, net
Acquisition-related costs include costs related to business and asset acquisitions. These costs consist of (i) transition and integration costs, including retention payments, transitional employee costs and earn-out payments, and other costs related to integration activities; (ii) professional service fees, including financial advisory, legal, accounting, and other outside services incurred in connection with acquisition activities, and disputes and regulatory matters related to acquired entities; and (iii) fair value adjustments to acquisition-related contingencies.
A summary of acquisition-related costs, net is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Transition and integration costs
|
$
|
1,531
|
|
|
$
|
5,370
|
|
|
$
|
6,623
|
|
|
$
|
12,799
|
|
|
Professional service fees
|
950
|
|
|
1,254
|
|
|
1,406
|
|
|
2,705
|
|
|
Acquisition-related adjustments
|
(1,327
|
)
|
|
(1,708
|
)
|
|
(1,806
|
)
|
|
(2,667
|
)
|
|
Total
|
$
|
1,154
|
|
|
$
|
4,916
|
|
|
$
|
6,223
|
|
|
$
|
12,837
|
|
6
. Goodwill and Intangible Assets
The changes in the carrying amount of Goodwill by reportable segment for the
nine months ended
June 30, 2019
are as follows (dollars in thousands):
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
Enterprise
|
|
Automotive
|
|
Other
|
|
Total
|
|
Balance as of September 30, 2018
|
$
|
1,430,325
|
|
|
$
|
683,347
|
|
|
$
|
1,119,947
|
|
|
$
|
13,486
|
|
|
$
|
3,247,105
|
|
|
Purchase accounting adjustments
|
113
|
|
|
—
|
|
|
(172
|
)
|
|
—
|
|
|
(59
|
)
|
|
Effect of foreign currency translation
|
(1,354
|
)
|
|
(1,240
|
)
|
|
(1,532
|
)
|
|
(227
|
)
|
|
(4,353
|
)
|
|
Balance at June 30, 2019
|
$
|
1,429,084
|
|
|
$
|
682,107
|
|
|
$
|
1,118,243
|
|
|
$
|
13,259
|
|
|
$
|
3,242,693
|
|
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Intangible Assets
The changes in the carrying amount of Intangible assets for the
nine months ended
June 30, 2019
are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
Intangible
Assets
|
|
Balance as of September 30, 2018
|
$
|
450,001
|
|
|
Acquisitions
|
1,488
|
|
|
Amortization
|
(78,126
|
)
|
|
Effect of foreign currency translation
|
(429
|
)
|
|
Balance at June 30, 2019
|
$
|
372,934
|
|
Fiscal Year 2018 Interim Impairment Analysis
Effective the second quarter of fiscal year 2018, our Automotive business, which was previously included within our Mobile segment, became a standalone operating segment. As a result of the reorganization, the original Mobile reporting unit was separated into three discrete lines of business comprised of Automotive, Dragon TV, and Devices. Dragon TV was merged within our Enterprise segment, and Devices was included within Other segment. We assigned
$1,080.5 million
,
$12.0 million
, and
$36.0 million
of Goodwill to Automotive, Dragon TV and Devices, respectively, based on their relative fair values as of
March 31, 2018
, and assessed the assigned Goodwill for impairment by comparing each component’s fair value to its carrying amount. As a result, we recorded a Goodwill impairment charge of
$35.1 million
related to Devices for the second quarter of fiscal 2018.
Also during the second quarter of fiscal year 2018, our Subscriber Revenue Services ("SRS") reporting unit, originally included within our Mobile operating segment, recorded significantly lower revenue and profitability due to recent market disruptions in certain markets that we serve. We concluded that these financial results coupled with the rapid market shifts being experienced in the industry were factors that represented impairment indicators, triggering a review of Goodwill and indefinite-lived intangible assets for impairment during the second quarter of fiscal year 2018. Based on the result of the impairment assessment, the carrying value of SRS exceeded its fair value by
$94.3 million
. In addition, we recorded an
$8.5 million
deferred tax benefit related to SRS’s Goodwill, which is amortized over time for tax purposes, and therefore increased the impairment charge by the same amount. As a result, we recorded a Goodwill impairment charge of
$102.8 million
related to SRS for the second quarter of fiscal year 2018. After the impairment charge, Goodwill assigned to SRS was
$17.8 million
as of March 31, 2018. The assessment did not result in any impairment charge of Other intangible assets.
Wind-down of Devices and Mobile Operator Services and Annual Goodwill Impairment Analysis
During the fourth quarter of fiscal year 2018, in connection with our strategic business review announced in our earnings release issued on May 9, 2018, we restructured our SRS business by separating the voicemail transcription services business ("Voice-to-Text"), which will continue to operate as part of the Other Segment, and commenced a wind-down of our SRS Mobile Operator Services in India and Brazil, and our Devices businesses. The SRS business provides value-added services to mobile operators in India and Brazil ("Mobile Operator Services"). As a result, we revised our multi-year operating plans of Mobile Operator Services and Devices businesses, as part of our fiscal year 2019 budgeting process, to reflect a significant decline in revenue and operating income. The wind-down decision has resulted in significantly lower estimated future cash flows over a considerably shorter time horizon, which triggered a review of Goodwill and long-lived asset groups for impairment.
As a result of the impairment review, we recorded an additional
$15.0 million
impairment charge for Devices for the fourth quarter of fiscal year 2018, including
$7.6 million
related to acquired trade names and customer relationships,
$0.8 million
related to acquired technology assets,
$6.2 million
related to fixed assets, and
$0.4 million
related to its remaining goodwill; we also recorded
$25.1 million
impairment charge for our Mobile Operator Services business for the fourth quarter of fiscal year 2018, including
$12.9 million
related to acquired trade names and customer relationships,
$7.9 million
related to acquired technology assets,
$0.9 million
related to fixed assets, and
$3.4 million
related to Goodwill.
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7
. Financial Instruments and Hedging Activities
Derivatives Not Designated as Hedges
Forward Currency Contracts
We utilize foreign currency forward contracts to mitigate the risks associated with changes in foreign currency exchange rates. Generally, we enter into such contracts for less than
90
days and have no cash requirements until maturity. At
June 30, 2019
and
September 30, 2018
, we had outstanding contracts with a total notional value of
$153.3 million
and
$117.1 million
, respectively.
We did not designate any forward contracts as hedging instruments for the
nine months ended
June 30, 2019
or
2018
. Therefore, changes in fair value of foreign currency forward contracts were recognized within
Other income (expense), net
in our condensed consolidated statements of operations. The cash flows related to the settlement of forward contracts not designated as hedging instruments are included in cash flows from investing activities within our condensed consolidated statement of cash flows.
A summary of the derivative instruments is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedges
|
|
Balance Sheet Classification
|
|
Fair Value
|
|
|
June 30,
2019
|
|
September 30,
2018
|
|
Foreign currency forward contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
100
|
|
|
$
|
143
|
|
|
Foreign currency forward contracts
|
|
Accrued expenses and other current liabilities
|
|
(109
|
)
|
|
(1,192
|
)
|
A summary of income (loss) related to the derivative instruments for the three and
nine months ended
June 30, 2019
and
2018
is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement Classification
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
Derivatives Not Designated as Hedges
|
|
Income (Loss) Recognized
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Foreign currency forward contracts
|
|
Other income (expense), net
|
|
$
|
(799
|
)
|
|
$
|
(1,597
|
)
|
|
$
|
(359
|
)
|
|
$
|
(2,381
|
)
|
8
. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Valuation techniques must maximize the use of observable inputs and minimize the use of unobservable inputs. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The determination of the applicable level within the hierarchy of a particular financial asset or liability depends on the lowest level of inputs that are significant to the fair value measurement as of the measurement date as follows:
|
|
|
|
•
|
Level 1:
Quoted prices for identical assets or liabilities in active markets.
|
|
|
|
|
•
|
Level 2:
Observable inputs other than those described as Level 1.
|
|
|
|
|
•
|
Level 3:
Unobservable inputs that are supportable by little or no market activities and are based on significant assumptions and estimates.
|
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Assets and liabilities measured at fair value on a recurring basis at
June 30, 2019
and
September 30, 2018
consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
Money market funds
(a)
|
$
|
386,071
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
386,071
|
|
|
Time deposits
(b)
|
—
|
|
|
91,147
|
|
|
—
|
|
|
91,147
|
|
|
Commercial paper, $39,113 at cost
(b)
|
—
|
|
|
39,409
|
|
|
—
|
|
|
39,409
|
|
|
Corporate notes and bonds, $42,292 at cost
(b)
|
—
|
|
|
42,358
|
|
|
—
|
|
|
42,358
|
|
|
Foreign currency exchange contracts
(b)
|
—
|
|
|
100
|
|
|
—
|
|
|
100
|
|
|
Total assets at fair value
|
$
|
386,071
|
|
|
$
|
173,014
|
|
|
$
|
—
|
|
|
$
|
559,085
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
(b)
|
$
|
—
|
|
|
$
|
(109
|
)
|
|
$
|
—
|
|
|
$
|
(109
|
)
|
|
Contingent acquisition payments
(c)
|
—
|
|
|
—
|
|
|
(889
|
)
|
|
(889
|
)
|
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
(109
|
)
|
|
$
|
(889
|
)
|
|
$
|
(998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
Money market funds
(a)
|
$
|
200,004
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
200,004
|
|
|
Time deposits
(b)
|
—
|
|
|
88,158
|
|
|
—
|
|
|
88,158
|
|
|
Commercial paper, $27,194 at cost
(b)
|
—
|
|
|
27,363
|
|
|
—
|
|
|
27,363
|
|
|
Corporate notes and bonds, $57,563 at cost
(b)
|
—
|
|
|
57,417
|
|
|
—
|
|
|
57,417
|
|
|
Foreign currency exchange contracts
(b)
|
—
|
|
|
143
|
|
|
—
|
|
|
143
|
|
|
Total assets at fair value
|
$
|
200,004
|
|
|
$
|
173,081
|
|
|
$
|
—
|
|
|
$
|
373,085
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
(b)
|
$
|
—
|
|
|
$
|
(1,192
|
)
|
|
$
|
—
|
|
|
$
|
(1,192
|
)
|
|
Contingent acquisition payments
(c)
|
—
|
|
|
—
|
|
|
(4,000
|
)
|
|
(4,000
|
)
|
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
(1,192
|
)
|
|
$
|
(4,000
|
)
|
|
$
|
(5,192
|
)
|
|
|
|
|
(a)
|
Money market funds are included within cash and cash equivalents in the consolidated balance sheets and are valued at quoted market prices in active markets.
|
|
|
|
|
(b)
|
Time deposits, commercial paper, corporate notes and bonds, and foreign currency exchange contracts are recorded at fair market values, which are determined based on the most recent observable inputs for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable. Time deposits are generally for terms of one year or less. Commercial paper and Corporate notes and bonds generally mature within three years and had a weighted average maturity of
0.50 years
as of
June 30, 2019
and
0.61 years
as of
September 30, 2018
.
|
|
|
|
|
(c)
|
The fair values of our contingent consideration arrangements were determined using either the option pricing model with Monte Carlo simulation or the probability-weighted discounted cash flow method.
|
The estimated fair value of our long-term debt was approximately
$2,112.7 million
(face value
$2,137.0 million
) as of
June 30, 2019
and
$2,423.6 million
(face value
$2,437.0 million
) as of
September 30, 2018
based on Level 2 measurements. The fair value of each borrowing was estimated using the average of the bid and ask trading quotes at each respective reporting date. There was no balance outstanding under our revolving credit agreement as of
June 30, 2019
or
September 30, 2018
.
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Additionally, contingent acquisition payments are recorded at fair values upon the acquisition, and remeasured in subsequent reporting periods with the changes in fair values recorded within acquisition-related costs, net. Such payments are contingent upon the achievement of specified performance targets and are valued using the option pricing model with Monte Carlo simulation or the probability-weighted discounted cash flow model.
The following table provides a summary of changes in the aggregate fair value of the contingent acquisition payments for all periods presented (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Balance at beginning of period
|
$
|
1,450
|
|
|
$
|
11,752
|
|
|
$
|
4,000
|
|
|
$
|
8,648
|
|
|
Earn-out liabilities established at time of acquisition
|
—
|
|
|
1,500
|
|
|
—
|
|
|
2,000
|
|
|
Payments and foreign currency translation
|
—
|
|
|
(4,557
|
)
|
|
(2,550
|
)
|
|
(4,652
|
)
|
|
Adjustments to fair value included in acquisition-related costs, net
|
(561
|
)
|
|
(660
|
)
|
|
(561
|
)
|
|
2,039
|
|
|
Balance at end of period
|
$
|
889
|
|
|
$
|
8,035
|
|
|
$
|
889
|
|
|
$
|
8,035
|
|
Contingent acquisition payments are to be made in periods through
fiscal year 2021
. As of
June 30, 2019
, the maximum amount payable based on the agreements was
$1.7 million
if the specified performance targets are achieved.
9
. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
September 30,
2018
|
|
Compensation
|
$
|
116,289
|
|
|
$
|
174,984
|
|
|
Cost of revenue related liabilities
|
52,621
|
|
|
30,432
|
|
|
Consulting and professional fees
|
27,355
|
|
|
21,220
|
|
|
Accrued interest payable
|
12,681
|
|
|
21,326
|
|
|
Sales and other taxes payable
|
6,459
|
|
|
5,983
|
|
|
Facility-related liabilities
|
3,281
|
|
|
4,621
|
|
|
Sales and marketing incentives
|
2,508
|
|
|
1,889
|
|
|
Other
|
23,818
|
|
|
8,884
|
|
|
Total
|
$
|
245,012
|
|
|
$
|
269,339
|
|
10
. Restructuring and Other Charges, net
Restructuring and other charges, net include restructuring expenses together with other charges that are unusual in nature, are the result of unplanned events, or arise outside of the ordinary course of our business. The following table sets forth accrual activities relating to restructuring reserves for the
nine months ended
June 30, 2019
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
Facilities
|
|
Total
|
|
Balance at September 30, 2018
|
$
|
9,690
|
|
|
$
|
6,503
|
|
|
$
|
16,193
|
|
|
Restructuring charges, net
|
19,104
|
|
|
2,553
|
|
|
21,657
|
|
|
Non-cash adjustment
|
(307
|
)
|
|
(285
|
)
|
|
(592
|
)
|
|
Cash payments
|
(23,429
|
)
|
|
(6,280
|
)
|
|
(29,709
|
)
|
|
Balance at June 30, 2019
|
$
|
5,058
|
|
|
$
|
2,491
|
|
|
$
|
7,549
|
|
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
While Restructuring and other charges, net are excluded from our calculation of segment profit, the table below presents the Restructuring and other charges, net associated with each segment (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
|
Personnel
|
|
Facilities
|
|
Total Restructuring
|
|
Other Charges
|
|
Total
|
|
Personnel
|
|
Facilities
|
|
Total Restructuring
|
|
Other Charges
|
|
Total
|
|
Healthcare
|
$
|
222
|
|
|
$
|
1
|
|
|
$
|
223
|
|
|
$
|
—
|
|
|
$
|
223
|
|
|
$
|
377
|
|
|
$
|
—
|
|
|
$
|
377
|
|
|
$
|
—
|
|
|
$
|
377
|
|
|
Enterprise
|
(165
|
)
|
|
—
|
|
|
(165
|
)
|
|
—
|
|
|
(165
|
)
|
|
3,412
|
|
|
(197
|
)
|
|
3,215
|
|
|
—
|
|
|
3,215
|
|
|
Automotive
|
(639
|
)
|
|
32
|
|
|
(607
|
)
|
|
14,778
|
|
|
14,171
|
|
|
1,233
|
|
|
—
|
|
|
1,233
|
|
|
—
|
|
|
1,233
|
|
|
Other
|
529
|
|
|
15
|
|
|
544
|
|
|
239
|
|
|
783
|
|
|
154
|
|
|
54
|
|
|
208
|
|
|
—
|
|
|
208
|
|
|
Corporate
|
730
|
|
|
354
|
|
|
1,084
|
|
|
22
|
|
|
1,106
|
|
|
1,148
|
|
|
893
|
|
|
2,041
|
|
|
(1,732
|
)
|
|
309
|
|
|
Total
|
$
|
677
|
|
|
$
|
402
|
|
|
$
|
1,079
|
|
|
$
|
15,039
|
|
|
$
|
16,118
|
|
|
$
|
6,324
|
|
|
$
|
750
|
|
|
$
|
7,074
|
|
|
$
|
(1,732
|
)
|
|
$
|
5,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
|
Personnel
|
|
Facilities
|
|
Total Restructuring
|
|
Other Charges
|
|
Total
|
|
Personnel
|
|
Facilities
|
|
Total Restructuring
|
|
Other Charges
|
|
Total
|
|
Healthcare
|
$
|
4,672
|
|
|
$
|
142
|
|
|
$
|
4,814
|
|
|
$
|
—
|
|
|
$
|
4,814
|
|
|
$
|
3,678
|
|
|
$
|
25
|
|
|
$
|
3,703
|
|
|
$
|
—
|
|
|
$
|
3,703
|
|
|
Enterprise
|
5,086
|
|
|
13
|
|
|
5,099
|
|
|
—
|
|
|
5,099
|
|
|
3,939
|
|
|
2,170
|
|
|
6,109
|
|
|
—
|
|
|
6,109
|
|
|
Automotive
|
5,224
|
|
|
1,707
|
|
|
6,931
|
|
|
27,291
|
|
|
34,222
|
|
|
2,233
|
|
|
—
|
|
|
2,233
|
|
|
—
|
|
|
2,233
|
|
|
Other
|
1,443
|
|
|
15
|
|
|
1,458
|
|
|
3,306
|
|
|
4,764
|
|
|
1,498
|
|
|
624
|
|
|
2,122
|
|
|
—
|
|
|
2,122
|
|
|
Corporate
|
2,679
|
|
|
676
|
|
|
3,355
|
|
|
8,414
|
|
|
11,769
|
|
|
2,339
|
|
|
951
|
|
|
3,290
|
|
|
10,335
|
|
|
13,625
|
|
|
Total
|
$
|
19,104
|
|
|
$
|
2,553
|
|
|
$
|
21,657
|
|
|
$
|
39,011
|
|
|
$
|
60,668
|
|
|
$
|
13,687
|
|
|
$
|
3,770
|
|
|
$
|
17,457
|
|
|
$
|
10,335
|
|
|
$
|
27,792
|
|
Fiscal
Year
2019
For the
nine months ended
June 30, 2019
, we recorded restructuring charges of
$21.7 million
, which included
$19.1 million
related to the termination of approximately
391
employees and
$2.6 million
related to certain excess facilities. Of these amounts,
$1.1 million
was recorded for the
three months ended
June 30, 2019
, which included
$0.7 million
related to employee termination and
$0.4 million
related to certain excess facilities. These actions were part of our strategic initiatives focused on investment rationalization, process optimization and cost reduction. We expect the remaining outstanding severance of
$5.1 million
to be substantially paid during fiscal year
2019
, and the remaining balance of
$2.5 million
related to excess facilities to be paid through fiscal year
2027
, in accordance with the terms of the applicable leases.
Additionally, for the
nine months ended
June 30, 2019
, we recorded
$8.7 million
of professional services fees related to our corporate transformational efforts,
$27.7 million
costs related to the separation of our Imaging business and separation and stand-up of our Automotive business, and
$3.3 million
accelerated depreciation related to our Mobile Operator Services, offset in part by a
$0.7 million
cash receipt from insurance claims related to the malware incident that occurred in the third quarter of fiscal year 2017 (the "2017 Malware Incident"). For the
three months ended
June 30, 2019
, we recorded
$15.2 million
costs related to the separation of our Imaging business and separation and stand-up of our Automotive business,
$0.2 million
accelerated depreciation related to our Mobile Operator Services, offset in part by
$0.4 million
income from insurance claims related to the 2017 Malware Incident.
Fiscal
Year
2018
For the
nine months ended
June 30, 2018
, we recorded restructuring charges of
$17.5 million
, which included
$13.7 million
related to the termination of approximately
280
employees and
$3.8 million
related to certain excess facilities. Of these amount,
$7.1 million
was recorded for the
three months ended
June 30, 2018
, which included
$6.3 million
related to employee termination and
$0.8 million
related to certain excess facilities. These actions were part of our strategic initiatives focused on investment rationalization, process optimization and cost reduction.
Additionally, for the
nine months ended
June 30, 2018
, we recorded
$5.6 million
expense related to the transition agreement with our former CEO and a
$7.2 million
expense related to our remediation and restoration efforts related to the 2017 Malware Incident, offset in part by a
$2.5 million
income from insurance claims related to the 2017 Malware Incident. For the
three months ended
June 30, 2018
, we recorded a
$2.8 million
income from insurance claims related to the 2017 Malware Incident, offset in part by a
$1.1 million
expense related to the CEO transition.
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. Debt
As of
June 30, 2019
and
September 30, 2018
, we had the following borrowing obligations (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
September 30,
2018
|
|
5.625% Senior Notes due 2026, net of deferred issuance costs of $4.6 million and $5.1 million, respectively. Effective interest rate 5.625%.
|
$
|
495,364
|
|
|
$
|
494,915
|
|
|
5.375% Senior Notes due 2020, net of deferred issuance costs of $1.2 million. Effective interest rate 5.375%.
|
—
|
|
|
298,759
|
|
|
6.000% Senior Notes due 2024, net of deferred issuance costs of $1.6 million and $1.8 million, respectively. Effective interest rate 6.000%.
|
298,452
|
|
|
298,220
|
|
|
1.000% Convertible Debentures due 2035, net of unamortized discount of $98.1 million and $116.9 million, respectively, and deferred issuance costs of $4.6 million and $5.6 million, respectively. Effective interest rate 5.622%.
|
573,840
|
|
|
553,973
|
|
|
2.750% Convertible Debentures due 2031. Effective interest rate 7.432%.
|
46,568
|
|
|
46,568
|
|
|
1.250% Convertible Debentures due 2025, net of unamortized discount of $74.4 million and $82.4 million, respectively, and deferred issuance costs of $3.3 million and $3.7 million, respectively. Effective interest rate 5.578%.
|
272,350
|
|
|
263,863
|
|
|
1.500% Convertible Debentures due 2035, net of unamortized discount of $25.3 million and $32.8 million, respectively, and deferred issuance costs of $0.9 million and $1.1 million, respectively. Effective interest rate 5.394%.
|
237,736
|
|
|
229,906
|
|
|
Deferred issuance costs related to our Revolving Credit Facility
|
(594
|
)
|
|
(843
|
)
|
|
Total debt
|
1,923,716
|
|
|
2,185,361
|
|
|
Less: current portion
|
—
|
|
|
—
|
|
|
Total long-term debt
|
$
|
1,923,716
|
|
|
$
|
2,185,361
|
|
The following table summarizes the maturities of our borrowing obligations as of
June 30, 2019
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Convertible Debentures
(1)
|
|
Senior Notes
|
|
Total
|
|
2019
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2021
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2022
|
|
310,463
|
|
|
—
|
|
|
310,463
|
|
|
2023
|
|
676,488
|
|
|
—
|
|
|
676,488
|
|
|
Thereafter
|
|
350,000
|
|
|
800,000
|
|
|
1,150,000
|
|
|
Total before unamortized discount
|
|
1,336,951
|
|
|
800,000
|
|
|
2,136,951
|
|
|
Less: unamortized discount and issuance costs
|
|
(206,457
|
)
|
|
(6,778
|
)
|
|
(213,235
|
)
|
|
Total long-term debt
|
|
$
|
1,130,494
|
|
|
$
|
793,222
|
|
|
$
|
1,923,716
|
|
|
|
|
|
(1)
|
Pursuant to the terms of each convertible instrument, holders have the right to redeem the debt on specific dates prior to maturity. The repayment schedule above assumes that payment is due on the next redemption date after
June 30, 2019
.
|
5.625% Senior Notes due 2026
In
December 2016
, we issued
$500.0 million
aggregate principal amount of
5.625%
Senior Notes due on
December 15, 2026
(the "2026 Senior Notes") in a private placement. The proceeds from the 2026 Senior Notes were approximately
$495.0 million
, net of issuance costs, and we used the proceeds to repurchase a portion of our 2020 Senior Notes. The 2026 Senior Notes bear interest at
5.625%
per year, payable in cash semi-annually in arrears, beginning on June 15, 2017.
The 2026 Senior Notes are unsecured senior obligations and are guaranteed on an unsecured senior basis by certain of our domestic subsidiaries ("Subsidiary Guarantors"). The 2026 Senior Notes and the guarantees rank equally in right of payment with all of our and the Subsidiary Guarantors’ existing and future unsecured senior debt and rank senior in right of payment to all of our and the Subsidiary Guarantors’ future unsecured subordinated debt. The 2026 Senior Notes and guarantees effectively rank junior to all
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
our secured debt and that of the Subsidiary Guarantors to the extent of the value of the collateral securing such debt and to all liabilities, including trade payables, of our subsidiaries that have not guaranteed the 2026 Senior Notes.
At any time before
December 15, 2021
, we may redeem all or a portion of the 2026 Senior Notes at a redemption price equal to
100%
of the aggregate principal amount of the 2026 Senior Notes to be redeemed, plus a "make-whole" premium and accrued and unpaid interest to, but excluding, the redemption date. At any time on or after
December 15, 2021
, we may redeem all or a portion of the 2026 Senior Notes at certain redemption prices expressed as percentages of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date.
5.375% Senior Notes due 2020
In August 2012, we issued
$700.0 million
aggregate principal amount of
5.375%
Senior Notes due on August 15, 2020 in a private placement. In October 2012, we issued an additional
$350.0 million
aggregate principal amount of our 5.375% Senior Notes (collectively the "2020 Senior Notes"). The 2020 Senior Notes bear interest at 5.375% per year, payable in cash semi-annually in arrears. The 2020 Senior Notes are our unsecured senior obligations and are guaranteed on an unsecured senior basis by certain of our domestic subsidiaries, ("the Subsidiary Guarantors"). The 2020 Senior Notes and guarantees rank equally in right of payment with all of our and the Subsidiary Guarantors' existing and future unsecured senior debt and rank senior in right of payment to all of our and the Subsidiary Guarantors' future unsecured subordinated debt. The 2020 Senior Notes and guarantees effectively rank junior to all secured debt of our and the Subsidiary Guarantors to the extent of the value of the collateral securing such debt and to all liabilities, including trade payables, of our subsidiaries that have not guaranteed the 2020 Senior Notes.
In January 2017, we repurchased
$600.0 million
in aggregate principal amount of our 2020 Senior Notes using cash and cash equivalents and the net proceeds from our 2026 Senior Notes issued in December 2016. In January 2017, we recorded an extinguishment loss of
$18.6 million
. In accordance with the authoritative guidance for debt instruments, a loss on extinguishment is equal to the difference between the reacquisition price and the net carrying amount of the extinguished debt, including any unamortized debt discount or issuance costs. Following this activity,
$450.0 million
in aggregate principal amount of our 2020 Senior Notes remained outstanding.
In
September 2018
, we repurchased
$150.0 million
in aggregate principal amount of our 2020 Senior Notes at par. As a result, we wrote off the related unamortized deferred issuance costs related to the repayment and recorded an extinguishment loss of
$0.3 million
in fiscal year 2018. Following this activity,
$300.0 million
in aggregate principal amount of our 2020 Senior Notes remained outstanding.
In March 2019, we repurchased the remaining
$300.0 million
in aggregate principal amount of our 2020 Senior Notes at par using the proceeds from the sale of our Imaging business. As a result, we wrote off the remaining unamortized deferred issuance costs related to the repayment and recorded an extinguishment loss of
$0.9 million
for the three months ended March 31, 2019. Following this activity, we have fully repaid our 2020 Senior Notes and no amount remained outstanding.
6.000% Senior Notes due 2024
In
June 2016
, we issued
$300.0 million
aggregate principal amount of
6.0%
Senior Notes due on
July 1, 2024
(the "2024 Senior Notes") in a private placement. The proceeds from the 2024 Senior Notes were approximately
$297.5 million
, net of issuance costs. The 2024 Senior Notes bear interest at
6.0%
per year, payable in cash semi-annually in arrears.
The 2024 Senior Notes are unsecured senior obligations and are guaranteed on an unsecured senior basis by our Subsidiary Guarantors. The 2024 Senior Notes and the guarantees rank equally in right of payment with all of our and the Subsidiary Guarantors’ existing and future unsecured senior debt, and rank senior in right of payment to all of our and the Subsidiary Guarantors’ future unsecured subordinated debt. The 2024 Senior Notes and guarantees effectively rank junior to all our secured debt and that of the Subsidiary Guarantors to the extent of the value of the collateral securing such debt and to all liabilities, including trade payables, of our subsidiaries that have not guaranteed the 2024 Senior Notes.
At any time before July 1, 2019, we may redeem all or a portion of the 2024 Senior Notes at a redemption price equal to
100%
of the aggregate principal amount of the 2024 Senior Notes to be redeemed, plus a "make-whole" premium and accrued and unpaid interest to, but excluding, the redemption date. At any time on or after July 1, 2019, we may redeem all or a portion of the 2024 Senior Notes at certain redemption prices expressed as percentages of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date.
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
1.0%
Convertible Debentures due 2035
In December 2015, we issued
$676.5 million
in aggregate principal amount of
1.0%
Senior Convertible Debentures due in 2035 (the "1.0% 2035 Debentures") in a private placement. The
1.0%
2035 Debentures bear interest at
1.0%
per year, payable in cash semi-annually in arrears. The
1.0%
2035 Debentures mature on
December 15, 2035
, subject to the right of the holders to require us to redeem the
1.0%
2035 Debentures on
December 15, 2022, 2027, or 2032
. The
1.0%
2035 Debentures are general senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured, unsubordinated indebtedness and senior in right of payment to any indebtedness that is contractually subordinated to the
1.0%
2035 Debentures. The
1.0%
2035 Debentures will be effectively subordinated to indebtedness and other liabilities of our subsidiaries. The initial conversion price is approximately
$27.22
per share. At issuance, we allocated
$495.4 million
to long-term debt, and
$181.1 million
has been recorded as additional paid-in capital, which is being amortized to interest expense using the effective interest rate method through
December 2022
. If we distribute to all holders of our common stock a per share dividend exceeding 10% of the closing sale price of our common stock on the trading day preceding the declaration date for such distribution (e.g. a spin-off), the holders will have the right to convert all or any portion of their debentures at the conversion ratio of
36.7360
shares per $1,000 principal amount, multiplied by the then current stock price. As of
June 30, 2019
, none of the conversion criteria were met for the
1.0%
2035 Debentures. If the conversion criteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.
2.75%
Convertible Debentures due 2031
In
October 2011
, we issued
$690.0 million
in aggregate principal amount of
2.75%
Senior Convertible Debentures due in 2031 (the "
2.75%
2031 Debentures") in a private placement. The
2.75%
2031 Debentures bear interest at
2.75%
per year, payable in cash semi-annually in arrears. The
2.75%
2031 Debentures mature on
November 1, 2031
, subject to the right of the holders to require us to redeem the
2.75%
2031 Debentures on
November 1, 2021, and 2026
. The
2.75%
2031 Debentures are general senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured, unsubordinated indebtedness and senior in right of payment to any indebtedness that is contractually subordinated to the
2.75%
2031 Debentures. The
2.75%
2031 Debentures will be effectively subordinated to indebtedness and other liabilities of our subsidiaries. The initial conversion price is approximately
$32.30
per share. At issuance, we allocated
$533.6 million
to Long-term debt, and
$156.4 million
has been recorded as Additional paid-in capital, which is being amortized to Interest expense using the effective interest rate method through
November 2017
.
In June 2015, we entered into separate privately negotiated agreements with certain holders of our 2031 Debentures to exchange, in a private placement,
$256.2 million
in aggregate principal amount of our 2031 Debentures for approximately
$263.9 million
in aggregate principal amount of our 1.5% 2035 Debentures. In December 2015, we entered into separate privately negotiated agreements with certain holders of our 2031 Debentures to repurchase
$38.3 million
in aggregate principal with proceeds received from the issuance of our
1.0%
2035 Debentures. In March 2017, we entered into separate privately negotiated agreements with certain holders of our 2031 Debentures to repurchase
$17.8 million
in aggregate principal with proceeds received from the issuance of our 1.25% Senior Convertible Debentures issued in March 2017.
In November 2017, holders of approximately
$331.2 million
in aggregate principal amount of the outstanding 2031 Debentures exercised their right to require us to repurchase such debentures. Following the repurchase,
$46.6 million
in aggregate principal amount of the 2.75% 2031 Debentures remains outstanding. On or after November 6, 2017, we have the right to call for redemption of some or all of the remaining outstanding 2031 Debentures.
If we distribute to all holders of our common stock a per share dividend exceeding 10% of the closing sale price of our common stock on the trading day preceding the declaration date for such distribution (e.g. a spin-off), the holders will have the right to convert all or any portion of their debentures at the conversion ratio of
30.9610
shares per $1,000 principal amount, multiplied by the then current stock price. As of
June 30, 2019
, none of the conversion criteria were met for the 2.75% 2031 Debentures. If the conversion criteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.
1.25%
Convertible Debentures due 2025
In March 2017, we issued
$350.0 million
in aggregate principal amount of
1.25%
Senior Convertible Debentures due in 2025 (the "1.25% 2025 Debentures") in a private placement. The 1.25% 2025 Debentures mature on April 1, 2025. The 1.25% 2025 Debentures are general senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured, unsubordinated indebtedness and senior in right of payment to any indebtedness that is contractually subordinated to the 1.25% 2025 Debentures. The 1.25% 2025 Debentures will be effectively subordinated to indebtedness and other liabilities of our subsidiaries. The initial conversion price is approximately
$22.22
per share. At issuance, we allocated
$252.1 million
to Long-
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
term debt, and
$97.9 million
has been recorded as Additional paid-in capital, which is being amortized to Interest expense using the effective interest rate method through April 1, 2025. If we distribute to all holders of our common stock a per share dividend exceeding 10% of the closing sale price of our common stock on the trading day preceding the declaration date for such distribution (e.g. a spin-off), the holders will have the right to convert all or any portion of their debentures at the conversion ratio of
45.0106
shares per $1,000 principal amount, multiplied by the then current stock price. As of
June 30, 2019
, none of the conversion criteria were met for the 1.25% 2025 Debentures. If the conversion criteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.
1.50%
Convertible Debentures due 2035
In June 2015, we issued
$263.9 million
in aggregate principal amount of
1.50%
Senior Convertible Debentures due in 2035 (the "1.5% 2035 Debentures") in exchange for
$256.2 million
in aggregate principal amount of our 2031 Debentures. The 1.5% 2035 Debentures were issued at
97.09%
of the principal amount, which resulted in a discount of
$7.7 million
. The 1.5% 2035 Debentures bear interest at
1.50%
per year, payable in cash semi-annually in arrears. The 1.5% 2035 Debentures mature on November 1, 2035, subject to the right of the holders to require us to redeem the 1.5% 2035 Debentures on November 1, 2021, 2026, or 2031. The 1.5% 2035 Debentures are general senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured, unsubordinated indebtedness and senior in right of payment to any indebtedness that is contractually subordinated to the 1.5% 2035 Debentures. The 1.5% 2035 Debentures will be effectively subordinated to indebtedness and other liabilities of our subsidiaries. The initial conversion price is approximately
$23.26
per share. At issuance, we allocated
$208.6 million
to Long-term debt, and
$55.3 million
has been recorded as Additional paid-in capital, which is being amortized to Interest expense using the effective interest rate method through November 2021. If we distribute to all holders of our common stock a per share dividend exceeding 10% of the closing sale price of our common stock on the trading day preceding the declaration date for such distribution (e.g. a spin-off), the holders will have the right to convert all or any portion of their debentures at the conversion ratio of
42.9978
shares per $1,000 principal amount, multiplied by the then current stock price. As of
June 30, 2019
, none of the conversion criteria were met for the 1.5% 2035 Debentures. If the conversion criteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.
Revolving Credit Facility
Our revolving credit agreement (the “Revolving Credit Facility"), which expires on April 15, 2021, provides for aggregate borrowing commitments of
$242.5 million
, including the revolving facility loans, the swingline loans and issuance of letters of credit. As of
June 30, 2019
, after taking into account the outstanding letters of credit of
$5.8 million
, we had
$236.7 million
available for borrowing under the Revolving Credit Facility. The borrowing outstanding under the Revolving Credit Facility bears interest at either (i) LIBOR plus an applicable margin of
1.50%
or
1.75%
, or (ii) the alternative base rate plus an applicable margin of
0.50%
or
0.75%
. The Revolving Credit Facility is secured by substantially all our assets. The Revolving Credit Facility contains customary affirmative and negative covenants and conditions to borrowing, as well as customary events of default. As of
June 30, 2019
, we are in compliance with all the debt covenants.
12
. Stockholders' Equity
Share Repurchases
On
April 29, 2013
, our Board of Directors approved a share repurchase program for up to
$500.0 million
, which was increased by
$500.0 million
on April 29, 2015. On
August 1, 2018
, our Board of Directors approved an additional
$500.0 million
under our share repurchase program. Under the terms of the share repurchase program, we have the ability to repurchase shares through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated stock repurchase transactions, or any combination of such methods. The share repurchase program does not require us to acquire any specific number of shares and may be modified, suspended, extended or terminated by us at any time without prior notice. The timing and the amount of any purchases will be determined by management based on an evaluation of market conditions, capital allocation alternatives, and other factors.
We repurchased
1.7 million
shares of our common stock for
$29.6 million
for the three months ended
June 30, 2019
and
7.8 million
shares of our common stock for
$120.9 million
for the
nine months ended
June 30, 2019
. For the three and
nine months ended
June 30, 2018
, we repurchased
8.1 million
shares of our common stock for
$112.0 million
under the program. Since the commencement of the program, we have repurchased an aggregate of
63.9 million
shares for
$1,063.6 million
. The amount paid in excess of par value is recognized in Additional paid in capital. Shares were retired upon repurchase. As of
June 30, 2019
, approximately
$436.4 million
remained available for future repurchases under the program.
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13
. Net Income (Loss) Per Share
The following table sets forth the computation for basic and diluted net income (loss) per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
$
|
9,259
|
|
|
$
|
(20,720
|
)
|
|
$
|
6,209
|
|
|
$
|
(140,396
|
)
|
|
Net income from discontinued operations
|
—
|
|
|
6,683
|
|
|
99,472
|
|
|
15,534
|
|
|
Net income (loss)
|
$
|
9,259
|
|
|
$
|
(14,037
|
)
|
|
$
|
105,681
|
|
|
$
|
(124,862
|
)
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding — basic
|
285,942
|
|
|
292,663
|
|
|
285,064
|
|
|
292,703
|
|
|
Dilutive effect of employee stock compensation plans
|
2,706
|
|
|
—
|
|
|
3,089
|
|
|
—
|
|
|
Weighted average common shares outstanding — diluted
|
288,648
|
|
|
292,663
|
|
|
288,153
|
|
|
292,703
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share - basic:
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.03
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.48
|
)
|
|
Discontinued operations
|
—
|
|
|
0.02
|
|
|
0.35
|
|
|
0.05
|
|
|
Total net income (loss) per basic common share
|
$
|
0.03
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.37
|
|
|
$
|
(0.43
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share - diluted:
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.03
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.48
|
)
|
|
Discontinued operations
|
—
|
|
|
0.02
|
|
|
0.35
|
|
|
0.05
|
|
|
Total net income (loss) per diluted common share
|
$
|
0.03
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.37
|
|
|
$
|
(0.43
|
)
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive equity instruments excluded from the calculation
|
527
|
|
|
4,408
|
|
|
673
|
|
|
3,838
|
|
|
Contingently issuable awards excluded from the calculation
(a)
|
2,555
|
|
|
1,975
|
|
|
2,542
|
|
|
1,801
|
|
(a)
Certain contingently issuable awards were excluded from the determination of dilutive net income per share as the conditions were not met at the end of the reporting period.
14
. Stock-Based Compensation
On January 17, 2019, our shareholders approved amendments to the Company’s amended and restated 2000 Stock Plan (the "Amended and Restated 2000 Stock Plan"). The Amended and Restated 2000 Stock Plan (i) increases the number of shares issuable from
82,250,000
to
83,500,000
shares; (ii) permits the Company’s Board of Directors (the "Board") to make proportional adjustments to outstanding awards affected by a change in the Company’s capital structure, and in addition to or in lieu of such adjustments, to permit the Board to pay dividends, dividend equivalents, or similar rights in conjunction to any such changes in the Company’s capital structure; and (iii) contains certain updates to reflect changes in law relating to Section 162(m).
As of
June 30, 2019
, we had
8.5 million
shares available for future grants under the Amended and Restated 2000 Stock Plan. We recognize stock-based compensation expenses over the requisite service periods. Our share-based awards are classified within equity. The amounts included in the condensed consolidated statements of operations related to stock-based compensation are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Cost of hosting and professional services
|
$
|
7,280
|
|
|
$
|
6,790
|
|
|
$
|
20,093
|
|
|
$
|
20,474
|
|
|
Cost of product and licensing
|
197
|
|
|
114
|
|
|
593
|
|
|
492
|
|
|
Cost of maintenance and support
|
583
|
|
|
551
|
|
|
730
|
|
|
1,770
|
|
|
Research and development
|
10,262
|
|
|
8,034
|
|
|
26,912
|
|
|
24,798
|
|
|
Sales and marketing
|
7,593
|
|
|
8,461
|
|
|
24,488
|
|
|
25,997
|
|
|
General and administrative
|
10,017
|
|
|
9,549
|
|
|
27,327
|
|
|
27,935
|
|
|
Total
|
$
|
35,932
|
|
|
$
|
33,499
|
|
|
$
|
100,143
|
|
|
$
|
101,466
|
|
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock Options
The table below summarizes activities related to stock options for the
nine months ended
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
(a)
|
|
Outstanding at September 30, 2018
|
19,144
|
|
|
$
|
17.31
|
|
|
|
|
|
|
Exercised
|
(1,500
|
)
|
|
$
|
12.79
|
|
|
|
|
|
|
Expired
|
(4,528
|
)
|
|
$
|
17.89
|
|
|
|
|
|
|
Outstanding at June 30, 2019
|
13,116
|
|
|
$
|
17.63
|
|
|
2.7 years
|
|
$
|
0.02
|
million
|
|
Exercisable at June 30, 2019
|
13,116
|
|
|
$
|
17.63
|
|
|
2.7 years
|
|
$
|
0.02
|
million
|
|
Exercisable at June 30, 2018
|
20,504
|
|
|
$
|
17.16
|
|
|
2.5 years
|
|
$
|
0.10
|
million
|
|
|
|
|
(a)
|
The aggregate intrinsic value in this table represents any excess of the closing market price of our common stock as of
June 30, 2019
(
$15.97
) over the exercise price of the underlying options.
|
The aggregate intrinsic values of stock options exercised during the
nine months ended
June 30, 2019
and
2018
were de minimis.
Restricted Units
Restricted units are not included in issued and outstanding common stock until the units are vested and underlying shares are released. The purchase price for vested restricted units is
$0.001
per share. The table below summarizes activities relating to restricted units for the
nine months ended
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Underlying Restricted Units — Contingent Awards
|
|
Number of Shares Underlying Restricted Units — Time-Based Awards
|
|
Outstanding at September 30, 2018
|
3,039,568
|
|
|
6,872,087
|
|
|
Granted
|
1,342,836
|
|
|
6,214,882
|
|
|
Earned/released
|
(1,386,735
|
)
|
|
(5,220,312
|
)
|
|
Modification
(a)
|
(296,759
|
)
|
|
296,759
|
|
|
Forfeited
|
(688,835
|
)
|
|
(1,159,444
|
)
|
|
Outstanding at June 30, 2019
|
2,010,075
|
|
|
7,003,972
|
|
|
Weighted average remaining recognition period of outstanding restricted units
|
1.6 years
|
|
|
1.6 years
|
|
|
Unrecognized stock-based compensation expense of outstanding restricted units
|
$27.0 million
|
|
$62.2 million
|
|
Aggregate intrinsic value of outstanding restricted units
(b)
|
$32.1 million
|
|
$111.9 million
|
|
|
|
|
(a)
|
296,759 shares of contingently issuable awards were modified to time-based awards with only service conditions in December 2018.
|
|
|
|
|
(b)
|
The aggregate intrinsic value in this table represents any excess of the closing market price of our common stock as of
June 30, 2019
(
$15.97
) over the purchase price of the underlying restricted units.
|
A summary of the weighted-average grant-date fair value of restricted units granted, and the aggregate intrinsic value of restricted units vested during the periods noted is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
2019
|
|
2018
|
|
Weighted-average grant-date fair value per share
|
$
|
17.30
|
|
|
$
|
15.76
|
|
|
Total intrinsic value of shares vested (in millions)
|
$
|
106.1
|
|
|
$
|
115.3
|
|
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15
. Income Taxes
The components of income (loss) from continuing operations before income taxes are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Domestic
|
$
|
(4,912
|
)
|
|
$
|
(42,438
|
)
|
|
$
|
(20,475
|
)
|
|
$
|
(162,305
|
)
|
|
Foreign
|
21,957
|
|
|
31,277
|
|
|
34,498
|
|
|
(45,508
|
)
|
|
Income (loss) before income taxes
|
$
|
17,045
|
|
|
$
|
(11,161
|
)
|
|
$
|
14,023
|
|
|
$
|
(207,813
|
)
|
The components of
provision (benefit) for income taxes
are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Domestic
|
$
|
(3,086
|
)
|
|
$
|
(339
|
)
|
|
$
|
(8,805
|
)
|
|
$
|
(76,130
|
)
|
|
Foreign
|
10,872
|
|
|
9,898
|
|
|
16,619
|
|
|
8,713
|
|
|
Provision (benefit) for income taxes
|
$
|
7,786
|
|
|
$
|
9,559
|
|
|
$
|
7,814
|
|
|
$
|
(67,417
|
)
|
|
Effective tax rate
|
45.7
|
%
|
|
(85.6
|
)%
|
|
55.7
|
%
|
|
32.4
|
%
|
The effective tax rates were estimated based upon estimated income for the year, the composition of the income in different countries, changes relating to valuation allowances for certain countries if and as necessary, and adjustments, if any, for the potential tax consequences, benefits or resolutions of audits or other tax contingencies. Our aggregate statutory income tax rate in foreign jurisdictions is lower than our statutory income tax rate in the United States; the majority of our income before provision for income taxes from foreign operations has been earned by subsidiaries in Ireland. Our effective tax rate may be adversely affected by earnings being lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated in countries where we have higher statutory tax rates.
Our effective income tax rate was
45.7%
for the three months ended
June 30, 2019
, compared to
(85.6)%
for the three months ended
June 30, 2018
. The effective tax rates for the three months ended
June 30, 2019
and
June 30, 2018
differed from the U.S. federal statutory rates of
21.0%
and
24.53%
, respectively, primarily due to the valuation allowance related to losses in the United States.
Our effective income tax rate was
55.7%
for the nine months ended
June 30, 2019
, compared to
32.4%
for the nine months ended
June 30, 2018
. The effective tax rates for the nine months ended
June 30, 2019
and
June 30, 2018
differed from the U.S. federal statutory rates of
21.0%
and
24.53%
, respectively, primarily due to the valuation allowance related to losses in the United States. Additionally, for the nine months ended
June 30, 2018
, we recognized approximately
$87.0 million
of deferred tax benefit from the remeasurement of deferred tax assets and liabilities offset by approximately
$2.0 million
estimated tax provision for deemed repatriated foreign earnings as a result of the Tax Cuts and Jobs Act ("TCJA") enacted in December 2017.
In July 2019, we completed an intra-entity transfer from Bermuda to Europe of certain intangible property ("IP") rights associated with certain technology portfolios. This transfer is expected to result in a deferred income tax benefit for local tax purposes. We are still evaluating the analysis, which is expected to be completed in the fourth quarter of fiscal year 2019.
16
. Commitments and Contingencies
Litigation and Other Claims
Similar to many companies in the software industry, we are involved in a variety of claims, demands, suits, investigations and proceedings that arise from time to time relating to matters incidental to the ordinary course of our business, including at times actions with respect to contracts, intellectual property, employment, benefits and securities matters. At each balance sheet date we evaluate contingent liabilities associated with these matters in accordance with ASC 450 "Contingencies." If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgments are required for the determination of probability and the range of the outcomes, and estimates are based only on the best information available at the time. Due to the inherent uncertainties involved in claims and legal proceedings and in estimating losses that may arise, actual outcomes may differ from our estimates. Contingencies deemed not probable or for which losses were not estimable in one period may become probable, or losses may become estimable in later
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
periods, which may have a material impact on our results of operations and financial position. As of
June 30, 2019
, accrued losses were not material to our condensed consolidated financial statements, and we do not expect any pending matter to have a material impact on our condensed consolidated financial statements.
Guarantees and Other
We include indemnification provisions in the contracts we enter into with customers and business partners. Generally, these provisions require us to defend claims arising out of our products’ infringement of third-party intellectual property rights, breach of contractual obligations and/or unlawful or otherwise culpable conduct. The indemnity obligations generally cover damages, costs and attorneys’ fees arising out of such claims. In most, but not all cases, our total liability under such provisions is limited to either the value of the contract or a specified, agreed upon amount. In some cases, our total liability under such provisions is unlimited. In many, but not all cases, the term of the indemnity provision is perpetual. While the maximum potential amount of future payments we could be required to make under all the indemnification provisions is unlimited, we believe the estimated fair value of these provisions is minimal due to the low frequency with which these provisions have been triggered.
We indemnify our directors and officers to the fullest extent permitted by Delaware law, which provides among other things, indemnification to directors and officers for expenses, judgments, fines, penalties and settlement amounts incurred by such persons in their capacity as a director or officer of the company, regardless of whether the individual is serving in any such capacity at the time the liability or expense is incurred. Additionally, in connection with certain acquisitions, we agreed to indemnify the former officers and members of the boards of directors of those companies, on similar terms as described above, for a period of
six
years from the acquisition date. In certain cases, we purchase director and officer insurance policies related to these obligations, which fully cover the
six
-year period. To the extent that we do not purchase a director and officer insurance policy for the full period of any contractual indemnification, and such directors and officers do not have coverage under separate insurance policies, we would be required to pay for costs incurred, if any, as described above.
17
. Related Party Transaction
In January 2018, we entered into a software and license agreement (the "License Agreement") with Magnet Systems, Inc. ("Magnet"). A member of the Magnet board of directors also served on our Board of Directors at the time of the transaction. Pursuant to the License Agreement, Magnet granted Nuance a perpetual software license to certain technology for a one-time payment of
$5.0 million
in cash, with
$3.5 million
paid immediately upon the effective date of the License Agreement and
$1.5 million
payable upon the earlier of (i) the 120-day period following the effective date of the License Agreement or (ii) signature of a statement of work for the engineering services described below. The amount for license was fully paid in fiscal year 2018.
Additionally, we entered into a service agreement (the "Service Agreement") with Magnet, pursuant to which, Magnet would provide engineering services to assist in integrating the licensed technology into certain of our Enterprise solutions. The fees under the Service Agreement total
$2.0 million
, payable in six equal monthly installments upon the signature of the statement of work, which was finalized within 90 days following the effective date of the License Agreement. We incurred
$2.0 million
service costs by the time the integration service was completed on March 31, 2019.
18
. Segment and Geographic Information
Our Chief Operating Decision Maker ("CODM") regularly reviews segment revenues and segment profits for performance evaluation and resources allocation. Segment revenues include certain acquisition-related adjustments for revenues that would otherwise have been recognized without the acquisition. Segment profits reflect controllable costs directly related to each segment and the allocation of certain corporate expenses such as, corporate sales and marketing expenses and research and development project costs that benefit multiple segments. Certain items such as stock-based compensation, amortization of intangible assets, acquisition-related costs, net, restructuring and other charges, net,
other expenses, net
and certain unallocated corporate expenses are excluded from segment profits, which allow for more meaningful comparisons to the financial results of the historical operations for performance evaluation and resources allocation by our CODM.
|
|
|
|
•
|
The Healthcare segment is primarily engaged in providing clinical speech and clinical language understanding solutions that improve the clinical documentation process, from capturing the complete patient record to improving clinical documentation and quality measures for reimbursement.
|
|
|
|
|
•
|
The Enterprise segment is primarily engaged in using speech, natural language understanding, and artificial intelligence to provide automated customer solutions and services for voice, mobile, web and messaging channels.
|
|
|
|
|
•
|
The Automotive segment is primarily engaged in providing automotive manufacturers and their suppliers branded and personalized virtual assistants and connected car services built on our voice recognition and natural language understanding
|
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
technologies. As more fully disclosed in Note
4
, on November 19, 2018, we announced our intent to spin off our Automotive business into an independent publicly-traded company through a pro rata distribution to our common stock holders. Completion of the proposed spin-off is subject to certain conditions, including final approval by our Board of Directors. We expect to complete the spin-off by the beginning of fiscal year 2020.
|
|
|
|
•
|
The
Other
segment includes our SRS business and our Devices business. Our SRS business provides value-added services to mobile operators in India and Brazil ("Mobile Operator Services") and voicemail transcription services to mobile operators in the rest of the world ("Voicemail-to-Text"). Our Devices business provides speech recognition solutions and predictive text technologies to handset devices. Our Devices revenue has been declining due to the ongoing consolidation of our handset manufacturer customer base and continued erosion of our penetration of the remaining market. During the fourth quarter of fiscal 2018, in connection with our comprehensive portfolio and business review efforts, we commenced a wind-down of our Devices and Mobile Operator Services businesses. In May 2019, we completed the sale of our Mobile Operator Services business in Brazil, and July 2019, we completed the sale of our Mobile Operator Services business in India. The sale prices and any gain or loss was immaterial.
|
As more fully described in Note 4, effective the first quarter of fiscal year 2019, the results of our Imaging segment, previously a reportable segment, have been included within discontinued operations due to the completion of the sale of Imaging on February 1, 2019. As a result, effective the first quarter of fiscal year 2019, we changed our corporate overhead allocation methodology to re-allocate the stranded costs related to our Imaging business to the remaining operating segments included within continuing operations. Our segment presentation for the three and
nine months ended
June 30, 2018
has been restated to reflect the re-allocation of stranded costs. For the
three months ended
June 30, 2019
and 2018,
$1.9 million
and
$2.1 million
of stranded costs have been included within total segment profits and re-allocated to Healthcare, Enterprise, Automotive, and Other; for the
nine months ended
June 30, 2019
and 2018,
$3.7 million
and
$5.9 million
of stranded costs have been included within total segment profits and re-allocated to Healthcare, Enterprise, Automotive, and Other.
We do not track our assets by segment. Consequently, it is not practical to show assets or depreciation by segment. The following table presents segment results along with a reconciliation of segment profit to
Income (loss) before income taxes
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Segment revenues
:
|
(ASC 606)
|
|
(ASC 605)
|
|
(ASC 606)
|
|
(ASC 605)
|
|
Healthcare
|
$
|
228,384
|
|
|
$
|
236,194
|
|
|
$
|
704,911
|
|
|
$
|
742,969
|
|
|
Enterprise
|
137,888
|
|
|
119,596
|
|
|
383,217
|
|
|
352,862
|
|
|
Automotive
|
72,982
|
|
|
73,754
|
|
|
222,406
|
|
|
204,202
|
|
|
Other
|
11,790
|
|
|
22,241
|
|
|
46,885
|
|
|
74,328
|
|
|
Total segment revenues
|
451,044
|
|
|
451,785
|
|
|
1,357,419
|
|
|
1,374,361
|
|
|
Less: acquisition-related revenues adjustments
|
(1,847
|
)
|
|
(2,336
|
)
|
|
(4,985
|
)
|
|
(11,495
|
)
|
|
Total revenues
|
449,197
|
|
|
449,449
|
|
|
1,352,434
|
|
|
1,362,866
|
|
|
Segment profit:
|
|
|
|
|
|
|
|
|
Healthcare
|
79,978
|
|
|
76,504
|
|
|
247,036
|
|
|
238,966
|
|
|
Enterprise
|
40,820
|
|
|
32,513
|
|
|
109,015
|
|
|
95,078
|
|
|
Automotive
|
30,662
|
|
|
27,963
|
|
|
76,627
|
|
|
79,708
|
|
|
Other
|
4,378
|
|
|
2,967
|
|
|
15,819
|
|
|
12,298
|
|
|
Total segment profit
|
155,838
|
|
|
139,947
|
|
|
448,497
|
|
|
426,050
|
|
|
Corporate expenses and other, net
|
(36,904
|
)
|
|
(41,135
|
)
|
|
(104,963
|
)
|
|
(148,214
|
)
|
|
Acquisition-related revenues
|
(1,849
|
)
|
|
(2,336
|
)
|
|
(4,985
|
)
|
|
(11,495
|
)
|
|
Stock-based compensation
|
(35,932
|
)
|
|
(33,499
|
)
|
|
(100,143
|
)
|
|
(101,466
|
)
|
|
Amortization of intangible assets
|
(25,391
|
)
|
|
(32,028
|
)
|
|
(78,126
|
)
|
|
(95,838
|
)
|
|
Acquisition-related costs, net
|
(1,154
|
)
|
|
(4,916
|
)
|
|
(6,223
|
)
|
|
(12,837
|
)
|
|
Restructuring and other charges, net
|
(16,118
|
)
|
|
(5,342
|
)
|
|
(60,668
|
)
|
|
(27,792
|
)
|
|
Impairment of goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
(137,907
|
)
|
|
Other expenses, net
|
(21,445
|
)
|
|
(31,852
|
)
|
|
(79,366
|
)
|
|
(98,314
|
)
|
|
Income (loss) before income taxes
|
$
|
17,045
|
|
|
$
|
(11,161
|
)
|
|
$
|
14,023
|
|
|
$
|
(207,813
|
)
|
NUANCE COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
No country outside of the United States provided greater than 10% of our total revenues. Revenues, classified by the major geographic areas in which our customers are located, were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(ASC 606)
|
|
(ASC 605)
|
|
(ASC 606)
|
|
(ASC 605)
|
|
United States
|
$
|
337,411
|
|
|
$
|
333,809
|
|
|
$
|
1,019,945
|
|
|
$
|
1,014,295
|
|
|
International
|
111,786
|
|
|
115,640
|
|
|
332,489
|
|
|
348,571
|
|
|
Total revenues
|
$
|
449,197
|
|
|
$
|
449,449
|
|
|
$
|
1,352,434
|
|
|
$
|
1,362,866
|
|
19
. Supplemental Cash Flow Information
Cash paid for Interest and Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Dollars in thousands)
|
|
Interest paid
|
$
|
22,657
|
|
|
$
|
22,536
|
|
|
$
|
63,411
|
|
|
$
|
71,244
|
|
|
Income taxes paid
|
$
|
7,058
|
|
|
$
|
2,530
|
|
|
$
|
14,272
|
|
|
$
|
9,895
|
|
Non-Cash Investing and Financing Activities:
From time to time, we issue shares of our common stock in connection with our business and asset acquisitions, including shares issued as payment for acquisitions, shares initially held in escrow, and shares issued as payment for contingent consideration, as more fully described in Note
5
.