Q1 2020 Earnings Call

There will be a question answer session.

Good question during this session you'll need to press star one on your telephone.

Please be advised that today's conference is being recorded if you acquire any further assistance. Please press star Zero I would now like to have the conference over to your speaker today Treaty Crimean Senior Vice President Investor Relations. Thank you. Please go ahead.

Good afternoon, everyone before we begin I would like to remind everyone that our discussion includes predictions estimates expectations and other forward looking statements. These statements are subject to risks and uncertainties that could cause material differences in our actual results.

Please refer to our recent FCC filings for a discussion of these risks.

All references to income statement results, our non-GAAP unless otherwise stated.

As noted in our press release, we issued prepared remarks in advance of this call which are available on our IR website that material is intended to supplement our comments on this call today.

And as a reminder, this called being recorded with US today from nuance, our Chief Executive Officer, Mark Benjamin.

And Chief Financial Officer, Dan Tempesta, as well as our Chief revenue Officer, Rob data, who will be available for the Q and a session.

In terms of format Mark will cover the quarter's highlights then Dan will provide financial insights as well as updated comments on our outlook for 2020.

Following now well open the call the king and with that let's turn the call over to Mark.

Thank you Tracy good afternoon, everyone and thanks for joining us first I'd like to say I know many of you attended our Investor day in December I want to thank you for taking the time to join us for that event.

I Hope you found it helpful and gained a better understanding of the new nuance, including our strong market position significant growth opportunities and strategic direction for the foreseeable future.

Now turning our attention to our Q1 performance as you saw on our materials today, we got off to a great start this fiscal year, we had an excellent quarter delivering once again on what we said we would do.

To point out a few highlights we beat the high end of both our revenue and EPS guidance range and deliberate margins in line with our expectations.

We made continued progress in our pivot to the crowd, but strong dragon medical cloud performance and notable strains from our new cloud solutions power scribe won and C. D E one, giving us confidence in our full year a our forecast.

We had a record quarter in our enterprise business.

We made good progress with international expansion marching Dragon medical cloud in three new countries.

On H.T.I. early adopter clients are already reporting significant improvements in physician satisfaction patient throughput and time required for completion of their clinical documentation.

And finally inline with our continued focus on capital allocation, we paid down 300 million in high yield bonds and repurchased 5.7 million shares.

Subsequent to quarter end, we repurchased 1.1 million shares and today announced the redemption of 47 million of our 2.75% convertible debentures to be paid in March representing a further step to strengthen our capital structure, while maintaining a strong cash balance.

Taking a bit deeper into our health care Division, we saw strong performance, including ongoing strength in our Dragon medical cloud, which delivered 51% year over year revenue growth.

We also continue to execute on our international market expansion watching our Dragon medical cloud based platform in France, Belgium, and the Netherlands.

This is on the heels of our Q4 launch in Australia, plus additional expansion expected later in the year you countries such as Germany.

To help capture the exciting pipeline that's building overseas and just the past few months, we've increased our international direct sales force by 20%.

This is in line with the sales force expansion that we touched upon during our Q4 call and at Investor Day.

Overall, I'm very pleased with the significant interest in our solutions and the excellent customer feedback we are receiving on the value and ROI. It provides.

Advancing state of the yard innovation is in ways that improves health care delivery and reduces clinician burn out continues to be Paramount.

During the quarter, we brought a record number of new health care products to market, including cloud based CA PD solutions that will be additive to air already this year.

These include clinical guidance emergency Department guidance, pediatric guidance and solutions for ambulatory surgical centers and cardiovascular CA PD.

We also show cast the latest version of our cloud based power scribe, one platform and AI marketplace at the annual Radiology Society of North America Conference in December.

We conducted 500 demonstrations in the feedback was extremely positive.

According to one of our new customers with power ascribe one their reports are better there radiologist are happier, there's less repetitive in error prone data entry and their content is more consistent.

These themes resonated throughout the show and we are pleased with the interest and respond to receive from potential and current customers.

We're also excited about advancing the development of a CR high and our strategic partnership with Microsoft.

We expect that together, we will transform the physician patient experience by accelerating the delivery of our Sci solution.

We are on track for a formal launch in fiscal Q2 as previously communicated and are already supporting by specialties with early adopters of the solution.

I'm confident that those of you were experienced the PCI demonstration at Investor Day, now better understand that transformative impact we are driving with this technology.

We would also like to extend an invitation for those of you that are interested to join us at our booth at HIMSS in Orlando during March.

Sure you will see all of our featured products as well as the latest version of AC.

In addition to creating leading edge innovations are focused on providing a superior customer experience is also being recognized we continue to see improvements in our net promoter scores relative to Dragon Medical C. D E.

The HR services, and our quality and transcription platforms.

As further evidence of our customers heighten preference for our solutions in October we were ranked number one overall buy back Black book Research for end to end coding clinical documentation improvement transcription and speech technology for the seventh consecutive year.

Turning to enterprise, we delivered strong results with record revenue of 139 million, representing 7% year over year gross.

We continue to see steady growth driven by increasing demand for superior customer engagement solutions across both digital and voice channels.

Today consumers want to engage anywhere and anytime from a wide set of channels driving the need for our intelligent engagement solutions.

Customer wins in the quarter included Ivy, our voice solutions and services for travelers insurance and Con Edison and intelligent engagement digital and security solutions for Deutsche Telekom among others.

In addition to growth in the quarter, our enterprise solutions secured several industry awards, including the highest score in Opus Research 2019 enterprise intelligent assistance evaluation as well as being named a leader by over them and its recent decision matrix unintelligent virtual agents.

Other progress in the quarter includes execution against our three pillars strategy that I outlined during Investor day.

I'd like to briefly address each of them.

The first pillar I discussed was our go to market focus.

We're beginning to see the benefits of our centralized marketing and sales organization and the creation of a new commercial operations team that has helped to align compensation models with our cloud based solutions.

We regularly review our sales performance rollout new sales enablement training and have implemented new incentives to reward our top performers.

These programs are having a positive effect than our sales force and bookings I'm thrilled with the work our team is doing I want to thank them for an excellent start to the year.

The second pillar relates to accelerating innovation, which is key we continue to make investments that will expand our portfolio and drive addressable market growth.

We're coming off a year were CTO, Joe Peach grow and as R&D team completed a high performance engineering transformation and delivered a modern core technology platform.

His team is optimized excited and focused on delivering measurable results and this was evident in Q1, where we had a record number of new product launches.

The third pillar surrounds allocating resources to unlock growth and that spirit, we're shifting our R&D teams to the highest growth opportunities and have allocated 80% of our R&D budget to drive innovation and product advancements.

We're focusing our sales and marketing dollars on growth plays to ensure we have the most impact to go after the white space.

In health care. This means investing in our international and U.S. ambulatory and community Hospital sales force.

In enterprise, we're going deeper in our industry verticals and investing in high growth products like security and biometrics and tooling and analytics.

Well technology is only as good as that people behind it we continue to make investments that support our employees and make nuance even better place to work.

In addition to rolling out career development programs, including internal Hackathons to foster greater innovation, we have made significant enhancements to our global benefits and policies.

This has resulted in recent accolades such as being named.

One of built in Boston Best places to work and being named one of Montreal's top employers.

I'm proud of our strong culture that is driven by purpose and focused on delivering business led solutions for our customers.

These in term will power innovation drive growth in our company and incremental value for our shareholders.

Before turning the line to Dan I'd like to say that while I'm very pleased with our start to the year, it's still early and we're not taking our foot off the gas.

We will continue to execute against our focused strategy and advance our state of the art conversational AI and ambient technologies. We will also continue to make meaningful investments and programs and resources that support our talented employees because they are our competitive edge and all these accomplishments our bill.

Most of them.

On behalf of our board of directors.

Also like to quickly thank our shareholders for their support at our recent annual shareholder meeting, we've listened and incorporated your feedback into significant changes to our governance in compensation policies. We are committed to ongoing communication to ensure our policies and practices reflect your input and then.

Pants long term value creation.

With that let me turn the line over to Dan.

Thanks, Mark and good afternoon, everyone.

Since we entered 2020, a simpler company my comments will be meaningfully shorter than recent quarters.

They should leave US plenty of time for Q1 day also I would like to note that the historical financial statements that we are presenting today for comparison purposes have been recast to account for the automotive results within discontinued operations.

Unless otherwise stated our commentary will address our results from continuing operations, only which is comprised of health care enterprise and our other business segment.

As Mark discussed our Q1 results were strong across the board.

In health care, we had a very good start to the year for Dragon medical cloud in emerging a are particularly with growing demand for our new cloud based power scribe, one and C. D E one products.

You'll recall are a our guidance for full year is $375 million to $400 million, which consists of approximately $60 million to $70 million from the emerging category.

This represents a 30% increase on total ARR when compared to last year.

Given this good start we feel confident in the 2020 guidance, we provided last quarter.

Turning to revenue we saw strength in both our health care and enterprise divisions in health care, while organic revenue declined 1% year over year importantly, the mix shift towards subscription offerings continued slightly ahead of plans.

Dragon Medical cloud sorry, excellent performance and in addition to the significant year over year growth Mark discussed earlier, we also saw sequential quarterly revenue growth of $6 million.

As expected this growth was offset by a corresponding decline dragon medical on premise maintenance revenue.

During Q1 Dragon Medical license revenue came back to normal levels. After an oversized Q4 2019, which included a large onetime government deal as we discussed left last quarter.

Radiology and other which includes several product offerings in the early stage of cloud migration delivered 3% growth. Despite these model shifts.

And lastly declines of both our non strategic H.I.M. transcription and each our implementation services were in line with our plans.

In enterprise as Mark discussed, we posted a record revenue quarter with better than expected license revenue in both voice I VR and intelligent engagement in particular, we achieved very strong year over year growth in security and biometrics and turned in another strong quarter for our digital offerings.

This is consistent with our expectations that intelligent engagement comprised of both digital and security solutions will be the primary driver of the enterprise growth projections in 2020.

While we are pleased with these results Q1 included larger license revenue deals that were originally planned for later in the year.

We therefore view the revenue overachievement as timing related as opposed to any fundamental change in our business trajectory.

Moving down the income statement operating margin was 26.5% benefiting from the strength in gross margin while at the same time operating expenses were up compared to last year.

This was also in line with our plans as we ramp our critical research initiatives and expand our sales coverage and the number of areas that Mark detailed earlier, we're very pleased with our execution in the first quarter of driving our most important growth focused initiatives.

Below the operating margin line, our net interest expense declined nearly $12 million year over year as we paid off a total of $600 million in high yield debt over the past 12 months.

And our other income benefited by approximately $3 million of transition services provided to both severance and kofax.

Our EPS came in above the high end of our guidance range due to the favorable operating results in a smaller share count as we repurchased 5.7 million shares of our common stock at during the quarter for total consideration of $92 million.

We ended the quarter with $510 million of in cash and marketable securities and generated cash flow from operations of $54 million.

Cash flow was down approximately $30 million due to the clearing of liabilities, resulting from the automotive spin and other related restructuring activities. This is consistent with what we discussed during our Q4 earnings call.

Turning now to our fiscal 2020 guidance with the strong start to the year, we are reaffirming our revenue guidance and increasing our EPS estimate range by two cents to 82 cents to 90 cents.

We are reducing our non-GAAP effective tax rate to a range of 24% to 25% three flecked our latest view on domestic and foreign profit mix, while also lowering our full year cash tax by $2 million to $5 million due to a favorable tax rate change.

We're also decreasing our share count to account for the recent buyback activity.

And lastly, we are updating our year end cash and marketable securities guidance to a range of $664 million to $704 million to account for share repurchases through January 31st and the expected $47 million debt Paydown.

All other financial and air our guidance remains unchanged.

As a reminder, these details can be found in our prepared remarks document available on our investor website.

Turning to Q2 guidance, we projected non-GAAP revenue in a range of $353 million to $367 million and non-GAAP EPS in a range of 15 cents to 19 cents.

Lastly, before opening the call to questions I would like to let you know that we will be attending the SVB Leerink Health care Conference on February 26 in the Oppenheimer Health Care Conference on March 17th both conferences are in New York City, and we hope to see you there with that let me turn it back to the operator to take.

Take your questions.

As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press the pound or Husky, please standby compiled acuity roster.

Your first question comes from socket.

With Barclays. Your line is open.

Hey, Mark Hey, Dan Hi, guys doing.

Hey, socket how are you.

Good good thanks for taking my questions here.

Maybe just to start with you a lot of talked about international particularly in healthcare.

And you talked about the expansion into three other countries.

Uh huh.

In the quarter can you just talk about where you are in terms of ramping the sales teams international you've touched on that but above you could fill that I'll just a little bit more and then related lead can you just talk about how customers internationally are responding to dragon medical one.

Terms of underlying demand.

Sure. So Rob this is Rob Dot is here with us as well so Soc I'll, let him respond first and then maybe I'll just follow up after Rob goes yes. So.

I'll get its Rob data I'm.

Just wanted to say thanks for the question I always like when sales gets a big to hit that lead off your own.

And so first question the.

Where we are in terms of planning and the rollout we were very well positioned here early on as you know.

We just launched cloud in a couple of additional countries.

So it's still fairly early but the the teams are ramped up so we have the sales capacity ready to go in those areas and that's where we've chosen to invest in additional sales capacity. We also have partners in the region that will start to bring on up to speed as well and so we feel like we're really well positioned from a personnel standpoint.

And then reception in the market has been initially very good.

It's probably like a lot of things that get launched you have some really aggressive early adopters that are interested to learn more and more quickly you have this big Middle group. That's it plays plays a little wait and see to see who goes first.

And then you kind of how that long tail. So but early on we feel like it's been very well received although it is extremely early I mean, France is 36 weeks open.

And so you know again, we're optimistic and we feel really good about where we are.

Got it that's helpful.

Maybe for my follow up for you Dan maybe just shifting gears outside of health care can you just talk a little bit about that other revenue line I think it was about 9 million and change in revenue this quarter, obviously getting to be a much smaller part of that business, but still a slight drag on gross so how do you sort of think about the timing on the other revenue line.

Bottoming.

Sure Hi, socket. Thanks for the question, yes, it was $9 million this quarter.

You know we've guided this year a mid mid guide of 30 million last year was over 60, so it's a pretty sizable decrease year over year in 2000, and it is impacting the growth.

You know going forward, it's that 30 million level, it'll be a little bit less next year, but but the drag will be a much more reduced.

And you really left as you enter next year with the with the sort of pure play voicemail detects business.

So slight slight decline from that 30, but nowhere near the size that we saw this year, yes, yes, socgen only I'd add is you you've obviously follow the story quite well. So the these were all very intentional moves we made when we look back to end of 18 to 19 around wind down.

And those types of actions so as Dan mentioned this is the tough compare year in that category.

Really mean I do the same math, you're doing on the growth rate.

It is in the other carried a category nonstrategic, but it does.

The compare get to significantly easer easier in 21.

Got it very helpful guys. Thanks very much.

Alright. Thanks.

Your next question comes from Sanjit Singh with Morgan Stanley. Your line is open.

Thank you for taking the questions and.

Okay.

This quarter.

Yes, yes.

Maybe just to do just check.

I think I see what is your sense of timing.

What.

As we look at.

Tim transition what impact did not have.

So with that.

Okay.

The resin coating business.

Hello.

Think about.

I see.

I see London.

The next month.

Yes. It sounded thanks for the question a little hard to hear you, but I think you're asking a nice CD 10 versus 11.

What it could mean, obviously that business and I I think as we know that you know it's a multiyear look at at this point.

Relative to two adoption of a new coding.

You know obviously the complexity tends to strengthen our solution in our value proposition within within the health care business.

But.

Nothing immediately in the near term or even mid term have we factored in to really change the complexity of our business, but certainly the complexity of of our health care systems, you know tends to do well for our customers that are using our solutions.

Got it that makes sense I think just a follow up question on the Dragon Medical cloud performance. This quarter I'm an acceleration here for your growth was really great to see Mckesson has reflects really strong.

Bookings quarter, but in terms of.

What was sort of the factors that drove that acceleration or was it just continued penetration of the days or are you start to see some additional uptake of packet optical cloud and international or maybe even some share goods.

But from your competitors just work I understand.

Did you ever acceleration.

This quarter.

Hey standard it's Dan Thanks, a question.

We did as we talked about it at year end, we did have good bookings quarters in Q3 in Q4, and so you do see some of that conversion coming through here overall, we're pleased with how a drag and cloud is performing we talked a little bit about the air our guidance and we remain comfortable.

There are so yeah, a lot of its the conversions coming through.

Understood Congrats guys.

I'd say thanks.

Your next question comes from Dan Ives with Wedbush Securities. Your line is open.

Yes. Thanks.

Great quarter. So in terms of like look the analyst you guys are obviously weeded out, but I guess I'm just more interested in terms of from markets. It's Rob.

In terms of larger deals, especially on the health care side, especially within a lot of these hospitals I mean would there a lot of deals hype, one maybe will no longer term out now you're starting to see that accelerate and maybe even deal.

Cycles are sort of shortening relative to the new product portfolio regulatory interest everything your securities.

Yeah, Hey, Dan It's Mark I'll, let Rob follow me on this I mean I as you know Weve historically played very well in the upper end of of the health care space of the provider space, serving you know a large percentage of the acute.

IDN. So you know we continue to do I think exceptionally well relative to two nuance and winning in the markets.

I don't think we've seen any changes I say in the market dynamic as far as.

Decisions speed and timing.

I mean, certainly you know every quarter, we have a number of deals that are large medium and small and and kind of a mixture I mean, certainly as we move.

Internationally, we could see.

And we expect to see it pipeline expansion also in the mid market the ambulatory community space.

We would probably see faster speed of decision.

Within knows within that segment, but obviously with less less size attached to them. So I'll, let rob comment.

Mark City, let me follow but she took up most of the answer right.

So I think you know as Mark said, we have as we expanded out into that mid market space. Those have shorter sales cycle. So we are seeing a.

Faster turnaround on those you know if anything you know what you might start to see is a little bit of because of what we're doing what they see I'm thinking about they just to the road map to 80 I. Yeah. We have agreed in now to some of the competitors accounts that were potentially difficult pull now a lot.

More interested because that's part of their rotate so we we see that but overall, it's pretty much as mark described.

Yes, and leave it to that point to follow.

Hi, Microsoft more strategic.

Our the conversations changing.

When you have no customers come in headquarters conversation now changing relative to where it was 369 months.

Yeah. I mean is there is absolutely there's no doubt that that change the conversation to change the gain frankly, I'm not only with customers coming into to see US one were onsite with customers and where we have the opportunity to to leverage our partnership in there.

In their global Technology Center, So there's no doubt that that changed the game and you know we've been we've been seeing a lot of positive reception to the announcement, but in fact, 100% of positive reception to the announcement haven't haven't bumped into someone that looked at it differently.

And so we and we're just in the very early stages of that we're working very well together.

We have access to the top levels at Microsoft.

Literally for the C suite I worked directly with their head of sales.

We have full engagement on their team and just a lot of excitement on both sides of the ball. So I'm still very early obviously, but it's a very positive aspect of what we're looking at as we go into into the year.

Dan This is mark so I mean, yeah, that's certainly a I'm very much the case and you know in my mind near two years here at nuance.

The amount of excitement not just within health care around is a CIO, but you know, we've we've made or a number of product initiatives and launches.

Also on our enterprise business, so that the conversations have.

Remarkably change and expanded with with our markets our customers.

So it's a you know these hallways today are very busy.

With customer meetings with prospect meetings across both business lines.

So it is a and I mentioned this in my opening remarks. This was kind of a record quarter product launches really across all of nuance.

And do it yourself tools and platforms.

Cloud based voice biometrics, certainly a CIO and the Microsoft reach.

It's all its really a very exciting time for sales.

Yes, just what Paul withstand deal with all the free time now that everything [laughter]. Thanks.

I mean, I I was hoping you knew the answer Dan I guess I cant figure it out myself, but I often wonder.

Okay.

Again, if you would like to ask a question press Star one on your telephone. Your next question comes from Jeff Van Rhee with Craig Hallum. Your line is open.

Great. Thanks indefinitely enjoying the simpler quarters from my side as well on a couple of questions for me.

Dragon maybe start there I just wonder Mark if you talk to I mean, obviously, putting a very good numbers you. Let you reiterated the guide I think ticking a pretty conservative approach to it but the numbers are good.

Two questions I guess, one how is the total dragon seat count trended over year over year sort of trailing 12 over the 12 prior.

If you combine the the premier and the cloud So I guess I'm just curious in the total seat count growth and then if you would also along those lines just what percent of the Dragon premise based as yet left to be migrated namely are still on the premise.

Yes, Jeff. This is Dan you know, we generally don't give seat counts during the quarter. We've we've historically done that towards the end of the year. So we exited.

This past year with around a 38% of the U.S. market, we talked around 550000.

Users so.

You know we haven't we haven't provided and we won't provide on a quarterly basis, but maybe at year end will provide a little bit more information.

And of course, we are starting to in the early days make a little bit of progress internationally now with these new products rolling out and as is Rob is gearing up.

So.

No I think the other way to track to track.

Those are those types of seats is to watch the revenue grow into into watch the air our guidance, which where we're holding at this point, yes, Jeff and this is mark So I mean, everything Dan said, obviously I agree with and you know we also don't get into the breakout of customer conversions verse.

Greenfield within a specific quarter because it can move around depending on.

Size of deal.

Certainly we expect the numbers to grow certainly and continue to grow and the demo side just given the expansion.

Certainly in the mid market.

And as Dan mentioned internationally.

But you know it will continue to move up and I think we'll we'll we'll disclose more of that as Dan mentioned, but we're pleased with the start certainly.

Fair enough.

So that maybe shift gears over to the Sai I mean, he said, it's it's a in many respects a game changing product can you talk about the pilots I know you announce some initial pilots, but where are you now with respect to the number of pilots and in terms of the sort of the target customers as we're just about that launch here.

What's the exposure and what to what degree is their pipeline what is the pipeline look like I mean, certainly you did the demo at the analyst day.

And it sounds like from you what you said the sat in throughput and completion rates all the metrics seem to be coming in well ahead. So your customers. We've got to be excited about it just give a little give a little sense of the pilots and the progression from pilot phase in the pipe and ultimate revenues or.

Yeah, that's all I'll make a couple of comments and Rob will probably have some pipeline and some views on the market. Obviously you know we're on track to to go GA, where they see a guy.

This quarter.

So we would always said first calendar quarter, our second fiscal so.

You know, we're on track and our plan to do that.

Our early quote unquote early adopters, our pilot customers that have dispatch the solution across some of the early specialties.

You know obviously, we're measuring all the key metrics relative to the solution in and what we believed to be game changing technology, and I'd say that we're gaining confidence more and more each and every day and it's very positive.

So from productivity improvements from.

Physician satisfaction from patient satisfaction opt in rates.

So there's just a number of I think items that give US you know I think.

Confidence going into GA this quarter.

And certainly there's there's not a customer or prospect out there that.

Isn't showing significant interest in in the solution, maybe Rob will come to I mean, you know as Mark said the pipeline of interest is is unprecedented frankly, no. One is not interested in learning more and not so interested that they wouldn't get on a plane and come to to Burlington to see it first hand, so Andy.

In the sea level with the right level and in groups. So that's certainly a very promising start for us.

Weve the there's literally.

Barely a day or two goes by we don't have large groups of books through here.

Looking at it walking away wondering how they can make it work. So we feel very well positioned with that I'm, obviously, we learned something every day.

And as we as we get deployed in real time, we'll be able to have more info there, but it's very positive.

Yeah I appreciate one last from me then just briefly Rob back to you for a second on the sales side in terms the engagement with Microsoft.

You've outlined some of the particulars, but from your seat what is the engagement like what is the joint go to market. What is the actual go to market hand in hand look like with them. What are you doing what are they doing can you fill in any gaps there.

Yeah, well, you know again, where there's some stuff for competitive reasons, we'll we'll be able to share, but I can tell you. It's a high level of engagement there are dedicated teams.

And dedicated leads.

That are working very closely together to make this work we have access at the top level again.

But you know that.

By design that I have direct access to their head of sales he reaches out to see what's going on here.

And it's not buried in some in some mid level. It's it's very much at the highest levels and so there is great amount of attention on it.

It really days are very much we're not needing to push this.

It's a grassroots type of thing where the folks feet on the street are reaching out to learn more and so it's been very much a pull through the organization and that's an exciting thing when you think about the scale they have.

To help in terms of our go to market and not just in the healthcare space, it's across all of our business.

That would would be relevant to them in the cloud so.

You know again early on but very promising in at every level and certainly interest on the street, when we go out and talk to customers and prospects.

It's definitely something meaningful to them to know that this is a real partnership that's.

That's something that they look at as a validation of the work that we're doing together.

Got it sounds good. Thanks, so much in just a great execution your guys. Thanks again.

Thanks, Jeff.

Your next question comes from Shell oil with Oppenheimer. Your line is open.

Thank you for taking my question jazz congrats to strong start of 2020.

First question could be for Mark dental Rob.

Mark you mentioned about investing for growth.

In the prepared remarks.

Yeah.

Healthcare side is investing into inventory.

Surprise for security.

Talk a little bit more about security.

I would like to investing and would this be done organically.

Okay sure. So this is mark I'll start off and certainly Robert Dan I mean, certainly.

We are investing in a number of places across our two key businesses a relative to solutions.

I think your question was around in our enterprise business around our voice biometrics solution and that's really a there has been a market leading product of ours really you know well before I joined the company so for some time.

We're and again that solutions largely known as my voice is my password.

As one example of that we've made investments in that solution to continue do I think be market, leading we've also taken that solution to the cloud, which we refer to as gatekeeper Oh, we think that offers a a different deployment method that's appealing to some buyers in the market we continue to sell.

Oh, So that's just one example.

We're we're making investments in the business and again, if you remember last year all throughout the year, we took cost out early in the year and ramped our investments and you're seeing.

That today, you're seeing it in the R&D investments, you're seeing that in the sales investments.

And really all of our go to market. So it's and it's not just within enterprise, but certainly all of nuance.

Okay, Yes, the only thing I'll add is the only thing I'll add there is as you know the cloud native investment was a big push but.

We've had voice biometrics and security biometrics some time in there. It is really been increased investment in the go to market strategy and that's really there was a lot of that and to note 2019 and that continues into 2020.

Okay. Thanks, and then the second question before Rob on the sales force mentioned about 20% expansion.

Well I.

I can't give us a little bit more color on the compensation structure in place sounds like you're Celsius verified up and motivated.

<unk> remarks.

Yes, So you know kind of two points in there on the 20% or international expansion. We're on track there were well positioned so we feel good about that.

Obviously, following where we made significant investments for cloud deployments. So good position there in terms of the comp plans.

No. It really it's a great lever to be able to pull as a leader sales leader in the comprehensive ever get folks to concentrate on the things that.

Matter, most for our customers and <unk> and our organization and so.

We had great support from the company to be able to reengineer. Some of these and focused among the things that we need.

And we had great reception from the team as you as you mentioned and so you know it's never a kind of an event. It's always a work in progress and we're going to continue to monitor and make sure when the right place, but right now we have great focus and emphasis on cloud and recurring revenue.

It's been received well we've shifted a lot of our business to HCV models.

We've done really quite a bit in a short period of time so.

The only way we can do that as the teams allow us to do and they've been open to it and so it's not just.

Pointed our recognition in the direction of.

Our cloud of the right kinds of revenue and the right products for our customers. So we feel like we're in a really we're off to a good start let's put it that way, but were never not monitoring where we are.

Thanks for taking my question tense and.

And.

Oh I think it's good for that.

But this year.

All right thanks very much.

Your next question comes from Tom Roderick with Stifel. Your line is open.

Hi, good afternoon, thanks for taking my questions. So.

Maybe I can start with a just a follow up on the on the CIA question and I know, it's a bit early but we saw great demo at the analyst day, and I think a lot of us kind of came away for that wondering what the plan is from here, how you sort of monetize that and and how it plays out so you've got a few pilot customers under your belt.

Wondering if you could talk a little bit more or less about what the business model looks like as you move into those customers and I guess the specific questions. I'd have is in thinking about how you know how hospitals can start to adopt this how do you think about what the multiplier effect is on the on the number of lines processor transcribe for documentation seem.

Only there's a bigger opportunity to get into more rooms, more doctors are kind of an expansion on that front and then from the business model itself. How do we think about you know is there a hardware upfront fee for the listening device that goes into the rooms, what are the opt in or opportunities for both patients and doctors can you just talk a little bit more about some of the.

The nuances involved in that no pun intended thank you.

Yeah, Hey, Tom It's Mark So I'll do my best and and by the way we'll be at hymns in March as I mentioned, you know really even within the next generation of of Sci and the demo experience. So, we'll we'll show and even more interactive solution seal you'll get needs.

And better feel for how the technologies emerging.

But certainly you know we are designing the exam room in the future with the solution.

With both the physician and the patient experience in mind.

You know relative to satisfaction relative to productivity relative to certainly coding.

And quality measures, so theres a number of of aspects to the solution. It's not trying to solve one thing alone.

You know the early adopters have really we we will roll this solution out by specialty.

You know understanding that the solution is an MLP solution. So.

It gets smarter as you put more through it and it was we're intentionally starting with a number of specialties that.

Provide.

Hi revenue transactions.

Okay catalogs of medical oncology and and complexity that I think you know will build the solution well for the follow on specialties.

Well, well, we mentioned we'd be out the door with five at a G.A. this quarter.

I will follow on with probably one to two a month throughout the course of the year on top of that.

You know as far as you know the the financial modeling and how we turn that in how do we monetize which I think was part of your question.

You know, we don't really compare to the transcription lines per se.

At least we haven't it's an interesting you know.

Mathematical equation, but probably not the way to think about it I think you have to look at this as a as a multiple of what dragon.

Has historically been peg that in the market, obviously, it's a very different solution doing a lot more.

So think of it I think of Sci and its mature form which it it's only a handful, especially these today think of that as a subscription.

You know with a potential to have some variable cost base on exam volumes.

And they could all really differ by specialty because the hospitals are very different.

Not just by specialty but by you know many different factors of volumes and revenues per patient and what have you. So I think that's how you should be thinking about the hardware.

Itself you know our goal with hardware has really been to keep the cost of that.

Technology on the wall to you know a minimum meaning not something that's going to be a sticker shock type of solution, we're well on our way to accomplishing that so I would think of the hardware as something that we bundle into the subscription in the service.

[noise] outstanding really really helpful. Thank you Mark quick quick follow on I know Weve understandably spent a lot of timing it Suzy as I'm talking about healthcare pivoting to enterprise just a little bit going back your analyst day, you kind of talked about 50% penetration of intelligent engagement solutions and your top on 50, but only 25%.

Engagement and or a penetration on the broader 1400 plus customers you have there on the enterprise side can you just talk a little bit more about the go to market and how your Oh, you're working with the salesforce to push deeper a intelligent engagement solutions into the enterprise and what that's doing for prices are HCV in that marketplace. Thank you.

Yeah, Hi. This is a this is rob so I'm a couple of things first off there's we've done a number of things internally as well as externally.

Internally weve had to really kind of give them the right tools and equipment to go out and make these make T cell. So we posted a series of.

Internal learning sessions, where we really were able to wrap the teams up they've been very well received different way that we deployed in the past.

We've been you know kind of elbow to elbow with each with each other doing kind of real time.

Role playing of these so we can get out in front of the reps in front of the prospects in a real way as opposed to just call on an air cover from a solution engineer and the reps are more and more able to go speak the language right in front of the customer and so that's been a really good first step for us given certain the marketing air cover that we have customers.

Shows in flight as we speak Thatll be able we'll be able to get out again in front of the in front of customers and prospects are really show them more of what we can do more future looking where future proofing some of their solutions as we call it and so.

That's another thing that we've been doing in terms of pricing.

When you look at a full stack solution like we're able to offer its very difficult for a competitor to compete across that whole suite. We definitely have niche players that try to play in there, but as these as our customers look to do more consolidation of.

Your suppliers in their partners, we it's supposed to now down the field and puts us in really good position to be able to deliver what they want.

In a way that they want it and so we feel like.

This type of dynamic is playing well for us.

Outstanding that's very helpful. Thank you Rob.

Thank you about.

Hi, Tom Thanks.

There are no further questions at this time I'll now turn the call back over to Mark Benjamin for closing remark.

Okay. So I just want to thank everyone for joining us Tonight, and and we'll see you will see you in 90 days, thanks very much.

This concludes today's conference call you may now disconnect.

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