Nuance profit forecast hit by shift to subscriptions

Reuters

Nov 25 (Reuters) - Software maker Nuance Communications Inc forecast fiscal 2014 profit below expectations as itsshift to a subscription-based business model hits margins andthe company struggles to hold on to its pricing in the handsetsbusiness.

Shares of the company, whose software powers the Sirifeature on Apple Inc's iPhones, fell more than 6percent after the bell on Monday.

A subscription-based model brings in less money upfront aspayment is spread over the entire period of use unliketraditional packaged software but typically ensures morepredictable recurring revenue.

"We are embracing this transition despite its effect on nearterm revenues because our customers are demanding it and becausewe value the recurring nature, predictability and longevity ofthese revenue streams," Chief Executive Paul Ricci said on aconference call with analysts.

Nuance forecast adjusted profit of $1.05 to $1.15 per shareand adjusted revenue of $2.03 billion to $2.09 billion for theyear ending September 2014.

Analysts on average were expecting earnings of $1.41 pershare on revenue of $2.08 billion, according to Thomson ReutersI/B/E/S.

Bookings, which the company defines as the contract value oftransactions closed and recorded in the period, are expected tobe between $2.15 billion and $2.25 billion for fiscal 2014.

Ricci said Nuance had deferred certain deals with phonemakers as it had been trying to hold on to its higher pricing,which was reflected in the outlook.

"We won't see meaningful organic growth in the mobile phonesegment of the overall mobile business this year."

The company's mobile and consumer business had accounted for29 percent of total revenue for the year ended September 2012.

FOURTH-QUARTER RESULTS

Nuance said in August said it would take a hit on itsmargins in the short term as it shifts to subscription revenuemodel.

Nuance's adjusted operating margin fell to 25.3 percent inthe fourth quarter from 37.2 percent a year earlier.

The company reported a net loss of $32.3 million, or 10cents per share, in the fourth quarter. It had posted a profitof $117.6 million, or 36 cents per share, a year earlier.

Excluding items, the company earned 30 cents per share andrevenue of $490.4 million.

Analysts on average had expected earnings of 29 cents pershare on revenue of $489.6 million.

Nuance shares have dropped 13 percent since October 8, whenit agreed to activist investor Carl Icahn's board nomineesincluding his son Brett Icahn. The stock closed at $15.99 on theNasdaq on Monday.

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