Nuance Narrows its Third Quarter Losses

Speech technology provider Nuance Communications said Monday that its 2009 third quarter losses had diminished over the same period last year.

Citing substantial gains in healthcare and dictation and more modest ones in its mobile and enterprise divisions, Nuance lost $1 million this year, up from the nearly $10 million it lost in the third quarter of last year. The company reported generally accepted account principal (GAAP) revenues worth $241.0 million over 2008’s $216.7 million. It also claims a total non-GAAP net income of $51.3 million—of which healthcare alone contributes $108.1 million (a 27 percent increase from the same time last year).

According to a number of analysts, an uptick in Nuance’s healthcare numbers had been expected. With the deepest recession in decades, many firms have found some comfort in the perennially earning healthcare space. Nuance in particular among speech vendors is poised to take a hefty slice of healthcare. Since its acquisition of Philips Speech Recognition Systems last October, Nuance has become the dominant player in medical transcription with no other major competitors—so much so in fact that the U.S. Department of Justice has an open anti-trust investigation looking into the acquisition. How much Philips has contributed to the firm’s healthcare gains, however, is not clear.

“Once we’ve assimilated and integrated a company, we don’t break out revenues from them,” says Richard Mack, vice president of corporate communications. “It’s very difficult once you’ve acquired a company because you have overlap and integrate technologies. It becomes hard to dissect what’s a Philips technology and what’s a Nuance technology.”

While Mack would not comment on the third quarter earnings, he reiterates that at the time of the Philips acquisition, Nuance expected a 30 million dollar revenue target for the full year.

It’s also unknown what impact the Justice Department investigation might have on Nuance. No charges have been made and Mack declined to comment on whether his company was concerned that its healthcare revenue, one of the major drivers of its recent bounce-back, might be hurt.

That aside, Nuance’s reported gains in mobile and enterprise may prove a promising trend for the company in the future.

“Apple has already validated the technology and if it continues to embed [automated speech recognition] in future iterations of the iPhone, it’ll be proof of its longevity and Nuance will find itself in a very strong position in the mobile handset marketplace,” writes Datamonitor associate analyst Ryan Joe in an email to Speech Technology.

“Vendors that have deals with telcos and device manufacturers to have their technology and applications pre-installed in handsets have the most financial upside,” he adds. “Their technologies and solutions automatically reach millions of consumers.”

Looking ahead to the speech technology vendor’s future more generally, Joe notes an important shift in Nuance’s tone.

“Nuance is recasting itself from a technology company to a solutions company,” he writes. “The technology is more or less a commodity now, and the value with speech applications exist in the services associated with the technology: namely integration into the backend, maintenances, and interface design.”