Nuance Communications, Inc. Net Income dropped on 90.0% while EBITDA Margin increased on 2.2 pp from 15.5% to 17.7%
11/18/2020 • About Nuance Communications, Inc. (
$NUAN) • By InTwits
Nuance Communications, Inc. reported FY2020 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Nuance Communications, Inc. is a company in decline: FY2020 revenue growth was -2.8%, 5 years revenue CAGR was -5.2%
- EBITDA Margin is quite volatile: 17.7% in FY2020, 15.5% in FY2019, 6.0% in FY2018, 14.8% in FY2017, 19.0% in FY2016
- Nuance Communications, Inc. spends a lot for Stock Based Compensation (SBC): average SBC/Revenue for FY2016-FY2020 is 5.2%. Average EBITDA Margin for the same period was 14.3%
- Nuance Communications, Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 3.1%. At the same time it's in pair with industry average of 7.6%
- CAPEX is quite volatile: $85m in FY2020, $64m in FY2019, $63m in FY2018, $31m in FY2017, $19m in FY2016
- In the last 5 years the company invested considerably less than D&A: $271m vs. $676m
- The company has potentially unprofitable business model: ROIC is 3.3%
- It operates with high leverage: Net Debt/EBITDA is 5.2x while industry average is 18.4x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Nuance Communications, Inc.'s Revenue decreased on 2.8%. Revenue decline showed acceleration in FY20Q4 - it was 8.9% YoY. Despite revenue decline the EBITDA margin expanded. EBITDA Margin increased on 2.2 pp from 15.5% to 17.7% in FY2020. During the last 5 years EBITDA Margin bottomed in FY2018 at 6.0% and was growing since that time.
Gross Margin increased slightly on 1.7 pp from 55.1% to 56.8% in FY2020. SG&A as a % of Revenue showed almost no change in FY2020. During the last 5 years SG&A as a % of Revenue topped in FY2018 at 30.1% and was declining since that time.
Net Income margin dropped on 12.6 pp from 14.1% to 1.4% in FY2020.
Investments (CAPEX, working capital and M&A)
In FY2020 the company had CAPEX/Revenue of 4.1%. The company showed small growth in CAPEX/Revenue of 0.96 pp from 3.2% in FY2017 to 4.1% in FY2020. It's average level of CAPEX/Revenue for the last three years was 3.1%.
Return on investment
The company operates at low ROIC (3.3%) and ROE (1.3%). ROIC increased slightly on 0.71 pp from 2.6% to 3.3% in FY2020. ROE decreased on 9.7 pp from 11.0% to 1.3% in FY2020. During FY2016-FY2020 ROIC bottomed in FY2018 at -2.0% and was growing since that time.
Leverage (Debt)
Debt level is 5.2x Net Debt / EBITDA and 6.4x Debt / EBITDA. Net Debt / EBITDA dropped on 0.6x from 5.8x to 5.2x in FY2020. Debt dropped on 13.6% while cash dropped on 46.3%. During the last 5 years Net Debt/EBITDA topped in FY2018 at 15.2x and was declining since that time.
Nuance Communications, Inc. has short term refinancing risk: cash is only 65.4% of short term debt.
Valuation and dividends
The company's trades at EV/EBITDA 51.5x and P/E 565.0x.
Management team
Nuance Communications, Inc.'s CEO Mark D Benjamin has spent 2 years with the company. Nuance Communications, Inc.'s CFO Daniel D Tempesta "Dan" has spent 5 years with the company.
Financial and operational results
FY ended 09/30/2020
Nuance Communications, Inc. ($NUAN) key annual financial indicators| mln. $ | 2016 | 2017 | 2018 | 2019 | 2020 | 2020/2019 |
|---|
P&L
|
|---|
| Revenue | 1,949 | 1,939 | 2,052 | 1,521 | 1,479 | -2.8% |
| Gross Profit | 1,119 | 1,086 | 1,178 | 838 | 840 | 0.3% |
| SG&A | 559 | 565 | 618 | 447 | 430 | -3.8% |
| EBITDA | 370 | 286 | 123 | 236 | 262 | 10.7% |
| EBIT | 139 | 52 | -87 | | | |
| Interest expence | 133 | 157 | 137 | | | |
| Tax | 14 | 32 | -57 | | | |
| Net Income | -12 | -151 | -160 | 214 | 21 | -90.0% |
| Stock Based Compensation | 164 | 154 | 151 | | | |
Balance Sheet
|
|---|
| Cash | 482 | 592 | 316 | 561 | 301 | -46.3% |
| Accounts Receivable | 380 | 395 | 348 | | | |
| Accounts Payable | 95 | 95 | 81 | | | |
| Short Term Debt | 0 | 376 | 0 | 1,143 | 460 | -59.7% |
| Long Term Debt | 2,433 | 2,241 | 2,185 | 794 | 1,212 | 52.7% |
Cash flow
|
|---|
| Capex | 55 | 62 | 49 | 44 | 61 | 38.7% |
| Acquisitions | 173 | 114 | 110 | | | |
Ratios
|
|---|
| Revenue growth | 0.9% | -0.5% | 5.8% | -25.9% | -2.8% | |
| EBITDA growth | 29.6% | -22.6% | -56.9% | 91.5% | 10.7% | |
|
|---|
| Gross Margin | 57.4% | 56.0% | 57.4% | 55.1% | 56.8% | 1.7% |
| EBITDA Margin | 19.0% | 14.8% | 6.0% | 15.5% | 17.7% | 2.2% |
| EBIT Margin | 7.1% | 2.7% | -4.2% | | |
| SG&A, % of revenue | 28.7% | 29.1% | 30.1% | 29.4% | 29.1% | -0.3% |
| SBC, % of revenue | 8.4% | 8.0% | 7.3% | | |
| Net Income Margin | -0.6% | -7.8% | -7.8% | 14.1% | 1.4% | -12.6% |
| CAPEX, % of revenue | 2.8% | 3.2% | 2.4% | 2.9% | 4.1% | 1.2% |
|
|---|
| ROIC | 3.1% | 1.1% | -2.0% | 2.6% | 3.3% | 0.7% |
| ROE | -0.6% | -7.8% | -8.8% | 11.0% | 1.3% | -9.7% |
| Net Debt/EBITDA | 5.3x | 7.1x | 15.2x | 5.8x | 5.2x | -0.6x |
| Interest coverage ratio (ICR) | 1.0x | 0.3x | | | |
| Interest expence / Average debt | 5.5% | 6.2% | 5.7% | | | |
People
|
|---|
| Insider ownership | 1.0% | 1.0% | 1.0% | | | |
| Employees | 13,200 | 11,600 | 10,400 | | | |
| Revenue/Employee, th. $ | 148 | 167 | 197 | | | |
Nuance Communications, Inc. ($NUAN) key quoterly financial indicators
| mln. $ | FY20Q1 | FY20Q2 | FY20Q3 | FY20Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 418 | 369 | 338 | 353 | | -0.3% | -9.8% | -10.3% | -8.9% |
| EBITDA | 90 | 61 | 58 | 54 | | 9.8% | 31.3% | 5.7% | -11.8% |
| Net Income | 49 | -14 | 17 | -24 | | 155.0% | -117.5% | 80.0% | -122.1% |
Balance Sheet
|
|---|
| Cash | 301 | 398 | 241 | 301 | | 2.8% | -16.2% | -55.2% | -46.3% |
| Short Term Debt | 38 | 258 | 26 | 460 | | - | - | - | -59.7% |
| Long Term Debt | 1,749 | 1,621 | 1,630 | 1,212 | | -20.4% | -15.2% | -15.3% | 52.7% |
Ratios
|
|---|
| Gross Margin | 55.9% | 57.5% | 57.4% | 56.6% | | -0.2% | 1.8% | 2.9% | 0.0% |
| EBITDA Margin | 21.4% | 16.4% | 17.0% | 15.3% | | 2.0% | 5.1% | 2.6% | -0.5% |
| Net Income Margin | 11.6% | -3.7% | 4.9% | -6.8% | | 7.1% | -22.5% | 2.5% | -34.7% |
Peers in Application Software
Below we provide Nuance Communications, Inc. benchmarking against other companies in Application Software industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| VirnetX Holding Corp ($VHC) | - | -0.2% | -95.9% | 34.9% | 355,942.4% |
| AudioEye, Inc. ($AEYE) | - | 175.5% | 106.6% | 90.2% | 90.2% |
| Cloudera, Inc. ($CLDR) | - | 57.2% | 42.6% | 28.9% | 65.5% |
| Integrated Ventures Inc ($INTV) | - | - | - | -8.9% | 62.7% |
| Smartsheet Inc. ($SMAR) | - | 64.3% | 66.1% | 59.7% | 52.4% |
| |
|---|
| Median (92 companies) | 12.0% | 15.7% | 15.2% | 19.5% | 14.7% |
|---|
| Nuance Communications, Inc. ($NUAN) | - | -0.5% | 5.8% | -25.9% | -2.8% |
Top companies by Gross margin, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Aware, Inc. ($AWRE) | 90.3% | 94.6% | 92.3% | 89.7% | 92.8% |
| Alteryx, Inc. ($AYX) | 81.3% | 83.4% | 91.0% | 90.6% | 91.1% |
| Autodesk, Inc. ($ADSK) | 85.2% | 83.2% | 85.2% | 88.9% | 90.1% |
| Smith Micro Software, Inc. ($SMSI) | 73.2% | 77.9% | 83.5% | 90.9% | 89.9% |
| Cadence Design Systems, Inc. ($CDNS) | 85.9% | 87.8% | 87.9% | 88.6% | 88.6% |
| |
|---|
| Median (89 companies) | 64.2% | 64.6% | 66.0% | 68.4% | 70.6% |
|---|
| Nuance Communications, Inc. ($NUAN) | 57.4% | 56.0% | 57.4% | 55.1% | 56.8% |
Top companies by EBITDA margin, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| VirnetX Holding Corp ($VHC) | -1,837.2% | -1,118.0% | -40,379.4% | -23,127.1% | 52.2% |
| j2 Global, Inc. ($JCOM) | 41.7% | 36.5% | 35.7% | 38.6% | 40.5% |
| Intelligent Systems Corporation ($INS) | -5.4% | -12.8% | 33.6% | 43.6% | 40.4% |
| Adobe Inc. ($ADBE) | 31.2% | 34.2% | 35.3% | 35.8% | 39.7% |
| SS&C Technologies Holdings, Inc. ($SSNC) | 34.9% | 37.9% | 27.7% | 38.2% | 38.3% |
| |
|---|
| Median (89 companies) | -5.3% | -4.2% | -3.3% | 2.7% | 6.8% |
|---|
| Nuance Communications, Inc. ($NUAN) | 19.0% | 14.8% | 6.0% | 15.5% | 17.7% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| MicroStrategy Incorporated ($MSTR) | 0.5% | 0.8% | 1.4% | 2.1% | 234.8% |
| Integrated Ventures Inc ($INTV) | - | - | 199.9% | 15.2% | 27.2% |
| Intelligent Systems Corporation ($INS) | 3.8% | 9.7% | 4.3% | 4.9% | 19.2% |
| LivePerson, Inc. ($LPSN) | 5.5% | 7.9% | 8.8% | 16.3% | 11.4% |
| PROS Holdings, Inc. ($PRO) | 4.7% | 0.8% | 0.7% | 2.1% | 11.3% |
| |
|---|
| Median (87 companies) | 3.0% | 2.3% | 2.4% | 3.0% | 2.5% |
|---|
| Nuance Communications, Inc. ($NUAN) | 2.8% | 3.2% | 2.4% | 2.9% | 4.1% |
Top companies by ROIC, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| VirnetX Holding Corp ($VHC) | -210.9% | -256.8% | -416.3% | -247.2% | 137.3% |
| Manhattan Associates, Inc. ($MANH) | 99.3% | 102.5% | 80.9% | 71.7% | 53.4% |
| Citrix Systems, Inc. ($CTXS) | 16.1% | 16.7% | 25.2% | 29.8% | 33.5% |
| Sonic Foundry, Inc. ($SOFO) | -18.1% | -50.6% | -786.4% | - | 31.3% |
| Paycom Software, Inc. ($PAYC) | 75.4% | 51.1% | 47.5% | 47.5% | 28.7% |
| |
|---|
| Median (92 companies) | -9.8% | -11.8% | -10.6% | -4.5% | -2.2% |
|---|
| Nuance Communications, Inc. ($NUAN) | 3.1% | 1.1% | -2.0% | 2.6% | 3.3% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Dropbox, Inc. ($DBX) | - | -3.8x | - | 2.4x | 1,341.0x |
| Avaya Holdings Corp. ($AVYA) | - | - | 7.4x | - | 77.9x |
| Alteryx, Inc. ($AYX) | - | - | 2.5x | 6.1x | 32.2x |
| Five9, Inc. ($FIVN) | -6.7x | -8.6x | 7.3x | 5.3x | 17.6x |
| Synchronoss Technologies, Inc. ($SNCR) | - | - | - | - | 11.6x |
| |
|---|
| Median (53 companies) | -0.9x | -0.9x | -0.7x | 0.4x | 0.0x |
|---|
| Nuance Communications, Inc. ($NUAN) | 5.3x | 7.1x | 15.2x | 5.8x | 5.2x |
