Nuance to Acquire Equitrac
Expands Nuance’s Document Imaging Portfolio with Secure Print Solutions
for Enterprises, Healthcare Organizations and Mobile Office Workers
BURLINGTON, Mass., May 10, 2011 — Nuance Communications, Inc. (NASDAQ: NUAN) today announced an agreement under which Nuance will acquire Equitrac Corporation, a leading provider of intelligent print management and cost recovery software. Equitrac solutions have been adopted by more than 25,000 organizations worldwide to implement secure and managed printing for enterprise, global and mobile workforces.
The acquisition expands Nuance’s document imaging portfolio, adding Equitrac’s market-leading print management products to Nuance eCopy ShareScan® scanning and workflow solutions, and to Nuance OmniPage, PaperPort and PDF Converter Professional desktop applications. The addition of Equitrac also strengthens Nuance’s global channel partnerships with multifunction printer (MFP) vendors, including Canon, Xerox, Konica Minolta, Ricoh and HP – each of whom currently sell both Equitrac print management and Nuance eCopy scanning solutions through their dealers or as part of their Managed Print Services (MPS) portfolios.
“Equitrac expands our ability to provide our customers and MFP partners with solutions that deliver even higher levels of cost savings and office productivity,” said Robert Weideman, senior vice president and general manager of the Nuance Document Imaging Division. “Equitrac delivers proven value in healthcare, financial, legal and educational organizations, and provides secure print capabilities to desktop and mobile global office workers. This complements Nuance’s strengths in mobile and office productivity, and aligns well to Nuance’s key verticals, especially healthcare.”
Equitrac increases the productivity and document security of office workers with the Follow-You® printing solution. Users print documents from their desktop as usual, then use card-swipe or log-in identification at a networked MFP to view and select their documents for on-demand printing. No matter where they go in their organization – an MFP around the corner from their office or at office locations across the globe – the user’s personalized on-demand document selections are instantly available from the MFP touch-screen. In a hospital setting for example, care providers can securely access and print standardized forms or specific patient reports from any MFP or printer on the network – a nurse’s station, physician’s office or emergency room.
“There’s a long history of customers selecting Equitrac as their MFP print management solution and Nuance eCopy as their MFP scanning solution. From day one, the combination of Nuance and Equitrac delivers the best of scanning and best of print management to our customers and partners worldwide,” said Michael Rich, president and CEO, Equitrac Corporation. “Even better, Nuance’s leadership in speech recognition, healthcare solutions and intelligent touch-screen interfaces provide a fertile ground for innovations that promise to deliver breakthrough increases in cost savings and office productivity.”
The combination of Nuance and Equitrac results in:
Products that Increase Cost Savings and Office Productivity – Nuance eCopy and Equitrac solutions are both integrated with the touch-screens of MFP devices, and are leading solutions for automating and optimizing document processes within organizations of every size. Customers need and want both secure print and scanning solutions; an estimated 25 percent of Nuance eCopy installations already have print management software – many of them from Equitrac. In addition to providing an integrated offering, Nuance will continue to offer eCopy and Equitrac as standalone products that support both print and scan partners, such as NTware, NSi, Omtool, GlobalScan and SafeCom.
Strengthening of Global OEM Partnerships – Nuance has strong revenue-based channel relationships with Brother, Canon, HP, Kodak, Konica Minolta, Ricoh, Visioneer, Xerox and more. Equitrac has strategic ties with HP, Konica Minolta, Ricoh, and Xerox – and expanding relationships with Canon, Fuji-Xerox, Lexmark, Samsung and more. The combination of Nuance and Equitrac will provide the OEM community with the largest and most experienced team dedicated to providing MFP partner sales, professional services, support and customer service worldwide.
Unmatched Application Connectivity – Nuance and Equitrac are leaders in connecting MFPs to back-end enterprise applications. Nuance eCopy connects to over 200 applications, including content management, database and financial software. Equitrac connects to over 50 cost recovery, auditing and financial systems, expanding Nuance’s capabilities to include support for important enterprise applications such as SAP and others.
Expanded Solutions for Key Verticals – Equitrac has significant penetration in healthcare, finance, legal, government and educational vertical markets, providing a strong complement to Nuance’s strong position in finance, legal, education, government and especially healthcare, where Nuance solutions are used in over 4,000 hospitals and by over 100,000 care providers.
Innovation in Managed Print Services
As the office equipment industry continues the migration to a services-led delivery model for printing and document processing, Equitrac and Nuance document imaging solutions are important components of ensuring OEM success in the MPS market. The integration of Equitrac with Nuance eCopy will provide innovative, integrated, cross-platform MFP-based document solutions to deliver on the promise cost reductions that will drive the adoption of MPS solutions across enterprises.
Under the terms of the agreement, consideration for the transaction is $157 million in cash. The transaction is expected to close late in the fourth quarter of Nuance’s fiscal year 2011, ending September 30, 2011. Nuance expects the acquisition in fiscal 2012 to add between $58 million and $60 million in non-GAAP revenue; $27 million and $29 million in GAAP revenue after adjusting revenue lost to purchase accounting; non-GAAP earnings between $0.04 and $0.05; and a GAAP loss between $(0.05) and $(0.06). See “Discussion of non-GAAP Financial Measures” below for further information.
About Equitrac Corporation
Equitrac Corporation is the global leader of intelligent print management and cost recovery software solutions for the corporate, legal, education, healthcare and financial services markets. Equitrac’s solutions are mission critical to all enterprises that are looking to more effectively manage their printing environments, reduce printing costs, increase security and lessen their environmental impact. The company is backed by an unmatched R&D program and is a preferred technology partner with all leading providers of multifunction devices. Equitrac is has been in business for 30 years and has more than 25,000 customers in 70 countries. Equitrac’s solutions are deployed in Global 500 companies, AMLAW 200 legal firms, and leading colleges, universities and school districts. For more information, visit www.Equitrac.com.
Nuance Communications, Inc.
Nuance Communications, Inc. (NASDAQ: NUAN) is a leading provider of speech and imaging solutions for businesses and consumers around the world. Its technologies, applications and services make the user experience more compelling by transforming the way people interact with information and how they create, share and use documents. Every day, millions of users and thousands of businesses experience Nuance’s proven applications. For more information, please visit www.Nuance.com.
Nuance and the Nuance logo are registered trademarks or trademarks of Nuance Communications, Inc. or its affiliates in the United States and/or other countries. All other company names or product names referenced herein may be the property of their respective owners.
Statements in this press release regarding Nuance’s managed document services technology, anticipated growth in the MPS market, and any other statements about Nuance managements’ future expectations, beliefs, goals, plans or prospects constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical fact (including statements containing the words "believes," "plans," "anticipates," "expects," estimates and similar expressions) should also be considered to be forward looking statements. There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward looking statements, including the factors described in Nuance's Annual Report on Form 10 K for the fiscal year ended September 30, 2010 and other filings with the U.S. Securities and Exchange Commission. Nuance disclaims any intention or obligation to update any forward looking statements as a result of developments occurring after the date of this press release.
Discussion of Non-GAAP Financial Measures
Management utilizes a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of the business, for making operating decisions and for forecasting and planning for future periods. Our annual financial plan is prepared both on a GAAP and non-GAAP basis, and the non-GAAP annual financial plan is approved by our board of directors. Continuous budgeting and forecasting for revenue and expenses are conducted on a consistent non-GAAP basis (in addition to GAAP) and actual results on a non-GAAP basis are assessed against the annual financial plan. The board of directors and management utilize these non-GAAP measures and results (in addition to the GAAP results) to determine our allocation of resources. In addition and as a consequence of the importance of these measures in managing the business, we use non-GAAP measures and results in the evaluation process to establish management’s compensation. For example, our annual bonus program payments are based upon the achievement of consolidated non-GAAP revenue and consolidated non-GAAP earnings per share financial targets. We consider the use of non-GAAP revenue helpful in understanding the performance of our business, as it excludes the purchase accounting impact on acquired deferred revenue and other acquisition-related adjustments to revenue. We also consider the use of non-GAAP earnings per share helpful in assessing the organic performance of the continuing operations of our business. By organic performance we mean performance as if we had owned an acquired business in the same period a year ago. By continuing operations we mean the ongoing results of the business excluding certain unplanned costs. While our management uses these non-GAAP financial measures as a tool to enhance their understanding of certain aspects of our financial performance, our management does not consider these measures to be a substitute for, or superior to, the information provided by GAAP revenue and earnings per share. Consistent with this approach, we believe that disclosing non-GAAP revenue and non-GAAP earnings per share to the readers of our financial statements provides such readers with useful supplemental data that, while not a substitute for GAAP revenue and earnings per share, allows for greater transparency in the review of our financial and operational performance. In assessing the impact of the acquisition of Equitrac, our management has either included or excluded items in four general categories, each of which are described below.
Acquisition-Related Revenue and Cost of Revenue.
The Company included revenue related to its acquisition of Equitrac that would otherwise have been recognized but for the purchase accounting treatment of these transactions. Because GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of the Company’s economic activities. These non-GAAP adjustments are intended to reflect the full amount of such revenue. The Company includes non-GAAP revenue and cost of revenue to allow for more complete comparisons to the financial results of historical operations, forward-looking guidance and the financial results of peer companies. The Company believes these adjustments are useful to management and investors as a measure of the ongoing performance of the business because, although we cannot be certain that customers will renew their contracts, the Company historically has experienced high renewal rates on maintenance and support agreements and other customer contracts. Additionally, although acquisition-related revenue adjustments are non-recurring with respect to past acquisitions, the Company generally will incur these adjustments in connection with any future acquisitions.
Acquisition-Related Costs, Net.
The acquisition of Equitrac, as with other acquisitions, will result in operating expenses which would not otherwise have been incurred. The Company provides supplementary non-GAAP financial measures, which exclude certain transition, integration and other acquisition-related expense items resulting from acquisitions, to allow more accurate comparisons of the financial results to historical operations, forward-looking guidance and the financial results of less acquisitive peer companies. The Company considers these types of costs and adjustments, to a great extent, to be unpredictable and dependent on a significant number of factors that are outside of the control of the Company. Furthermore, the Company does not consider these acquisition-related costs and adjustments to be related to the organic continuing operations of the acquired businesses and are generally not relevant to assessing or estimating the long-term performance of the acquired assets. In addition, the size, complexity and/or volume of past acquisitions, which often drives the magnitude of acquisition-related costs, may not be indicative of the size, complexity and/or volume of future acquisitions. By excluding acquisition-related costs and adjustments from our non-GAAP measures, management is better able to evaluate the Company's ability to utilize its existing assets and estimate the long-term value that acquired assets will generate for the Company. The Company believes that providing a supplemental non-GAAP measure which excludes these items allows management and investors to consider the ongoing operations of the business both with, and without, such expenses.
These acquisition-related costs are included in the following categories: (i) transition and integration costs; (ii) professional service fees; and (iii) acquisition-related adjustments. Although these expenses are not recurring with respect to past acquisitions, the Company generally will incur these expenses in connection with any future acquisitions. These categories are further discussed as follows:
(i) Transition and integration costs. Transition and integration costs include retention payments, transitional employee costs, earn-out payments treated as compensation expense, as well as the costs of integration-related services provided by third parties.
(ii) Professional service fees. Professional service fees include direct costs of the acquisition, as well as post-acquisition legal and other professional service fees associated with disputes and regulatory matters related to acquired entities.
(iii) Acquisition-related adjustments. Acquisition-related adjustments include adjustments to acquisition-related items that are required to be marked to fair value each reporting period, such as contingent consideration, and other items related to acquisitions for which the measurement period has ended, such as gains or losses on settlements of pre-acquisition contingencies.
Amortization of Acquired Intangible Assets.
The Company excludes the amortization of acquired intangible assets from non-GAAP expense and income measures. These amounts are inconsistent in amount and frequency and are significantly impacted by the timing and size of acquisitions. Providing a supplemental measure which excludes these charges allows management and investors to evaluate results “as-if” the acquired intangible assets had been developed internally rather than acquired and, therefore, provides a supplemental measure of performance in which the Company’s acquired intellectual property is treated in a comparable manner to its internally developed intellectual property. Although the Company excludes amortization of acquired intangible assets from its non-GAAP expenses, the Company believes that it is important for investors to understand that such intangible assets contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Future acquisitions may result in the amortization of additional intangible assets.
The Company provides non-GAAP information relative to the following non-cash expenses: (i) stock-based compensation; and (ii) certain accrued income taxes. These items are further discussed as follows:
(i) Stock-based compensation. Because of varying available valuation methodologies, subjective assumptions and the variety of award types, the Company believes that the exclusion of stock-based compensation allows for more accurate comparisons of operating results to peer companies, as well as to times in the Company’s history when stock-based compensation was more or less significant as a portion of overall compensation than in the current period. The Company evaluates performance both with and without these measures because compensation expense related to stock-based compensation is typically non-cash and the options and restricted awards granted are influenced by the Company’s stock price and other factors such as volatility that are beyond the Company’s control. The expense related to stock-based awards is generally not controllable in the short-term and can vary significantly based on the timing, size and nature of awards granted. As such, the Company does not include such charges in operating plans. Stock-based compensation will continue in future periods.
(ii) Certain accrued income taxes. The Company also excludes certain accrued income taxes because the Company believes that excluding this non-cash expense provides senior management, as well as other users of the financial statements, with a valuable perspective on the cash-based performance and health of the business, including the current near-term projected liquidity. This non-cash expense will continue in future periods.
The Company believes that providing the non-GAAP information to investors, in addition to the GAAP presentation, allows investors to view the financial results in the way management views the operating results. The Company further believes that providing this information allows investors to not only better understand the Company’s financial performance, but more importantly, to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance.
Financial Table Follows