Q3 2020 Nuance Communications Inc Earnings Call

Good day and welcome to the Nuance Communications third quarter, two 2020 Onee call all participants will be in listen only mode did you need assistance. Please signal conference specialist personally starkey followed by the era.

After today's presentation, there will be an opportunity to ask questions to ask your question. You May Press Star then one and your touched on fan.

Your question. Please press Star then to lead this event is being recorded no now, let's turn the conference ever to Microcor head of Investor Relations. Please go ahead, Sir good afternoon, and welcome to our Q3 2020 call I.

I hope everyone is healthy and remaining save during these times.

Joining me today to discuss our Q3 results our CEO, Mark Benjamin CFO, Dan Tempesta, and executive Vice President and General manager of Health care Diana No.

Additionally, during the Q and a portion of the call we will be joined by Chief revenue Officer, Rob Delta.

Before we begin I would like to remind everyone that our discussion includes predictions estimates expectations and other forward looking statements.

Statements are subject to risks and uncertainty that could cause material differences in our actual results.

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

References the income statement results, our non-GAAP unless otherwise stated.

As noted in our press release, we have 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 with that I'll turn the call over to Mark.

Thanks, Mike and welcome to nuance Worksite your hobby onboard.

Good afternoon, everyone and thank you for joining us before we begin I'd like to take this opportunity to share that my thoughts and those are the entire nuance community continue to be with those who have been affected by covert 19.

We'd also like to extend our deepest gratitude for all of those who are working tirelessly on the front lines, especially all the doctors nurses and clinical staff were helping to care for those in need.

As an executive team, we continue to prioritize the health and safety of our employees customers and communities and therefore have maintained our work from home guidance, but the majority of our global workforce.

Overall, we continue to be very pleased with the effectiveness in productivity of our employees in this virtual environments.

And turning to our Q3 performance I'd like to mentioned a few highlights before providing deeper contacts on our results.

Despite kobin 19 challenges, we exceeded the high end of our guidance expectations for revenue and D. P. S.

We delivered strong growth in Dragon medical one and our new our cloud based solutions in health care, which contributed to our continued health care a our growth.

Our enterprise business continues to see solid adoption of our intelligent engagement solutions as companies accelerate their digital transformation strategies amidst the pandemic.

Inline with our capital allocation principles, we fully repaid the 230 million that was borrowed under our revolver in March 2020.

We hired Diana no as SVP and general manager of our health care business why we'll introduce later in the call and finally, we.

We published our inaugural U.S.G. report, highlighting our commitment to upholding high ethical standards, creating value and making a positive and lasting difference for our employees communities and those we serve.

Digging into our performance a little deeper I know many of you were interested to hear about the effect covert 19 has had on our business. So I'd like to provide you with a brief update as you saw in our prepared remarks. This quarter. We continued to advance our strategic initiatives I missed the pandemic that began to unfold over the past few months.

Expected, our health care business felt the effects of a widespread disruption in preventative care services and the deferral of elective procedures is health system shifted resources to address the critical care of covert 19 patients.

This disruption was partially mitigated as elective procedures rebounded at a faster rate than we previously expected.

Our legacy health care license sales, so a year over year declined due to project deferrals, though we did not see as severe and impact as we originally anticipated.

And why we did see delays in certain deployment projects such as non strategic E. HR implementations, we have been partnering with hospitals, they learned to adapt and we have been supporting them as they manage these initiatives remotely.

Our enterprise business, we have experienced some kobin impacts, but at the largely benefited from increasing trends toward digitalization and add transformation.

Overall, I could not be proud of our team for all their hard work and agility and quickly adapting to the new environment in which we're living.

The success of our organization through these challenging times is a true testament to the resiliency of both our employees and our business.

We continue to believe that the headwinds associated with the pandemic, our short term in nature and that our company is well positioned to capitalize on longer term trends that we are seeing.

Example, we're beginning to observe hospitals strategically investing in tele health and virtual care models, and we believe many of our products fit well within this strategy, which can act as a tailwind for our volumes, even while face to face patient care volumes are down.

Similarly in our enterprise business, we are seeing an increased interest in our intelligent engagement platform as companies look to accelerate their digital transformation strategies as well as in our security and biometric solutions as fraud rates continue to rise in conjunction with the pandemic.

Dan will provide further details on the financial implications of coated on our business later in the call. However, I do want to be clear that while our strategic solutions continue to show resiliency in the face of that pandemic to date, we do recognize that some of our global customers, particularly in health care facing continued pressures.

Directly related to the unpredictable nature of Coca 19.

We will continue to support them as they care for our communities and will stand by them during these challenging times.

Taking a closer look at our health care business I'm first and foremost excited to welcome Diana no to the team as our new Executive Vice President and General manager of our health care business Diana brings more than 15 years of experience, leading global health care operations. Most recently, serving as Chief Executive officer of the Wolters Kluwer helped him.

Vision, where she oversaw all operations for the 1.3 billion dollar global provider of health care information software solutions and services.

Prior to that she served as president for the digital medical solutions Division of care stream out where she oversaw global operations for the $1 billion provider of health care equipment software and services with global development sites.

I'm confident that her experience leading global teams, who are delivering integrated solutions for healthcare's, most pressing problems will be invaluable and propelling our health care business forward and feel she has already made a positive impact in our first months here in the ROE.

I am delighted to have Diana on the call with us today and without further Ado I'd like to hand, the call over to her to share a few thoughts with all of you Diana.

Thank you Mark I'm truly excited to be part of the team and to be joining at such a transformative time in the company's history.

Throughout my conversations in my first few months here and it's clear that everyone shares of fears passion for helping to solve some of the health care industry's most complex challenges and to enhance the trust between positions clinical staff and their patients.

When I joined nuance I was already familiar with the company's decades long track record of the innovating AI powered speech driven solutions for health care providers.

But more than that I was familiar with how these innovations prioritize the doctor patient relationship that is central to good care and even more essential to a positive patient experience.

In fact is then an outsider looking in I was always impressed with nuances customer brand loyalty and now I see it from the inside and it's even more impressive.

Hi, I'm thrilled to be able to continue to tackle these issues alongside so many talented employees here and I look forward to advancing our strategic vision of the future of health care.

Thank you Diana we're very excited to have you with us from a Q3 performance standpoint, we continue to execute against our strategic health care plans of pivoting to the cloud deepening our international presence and expanding down market.

As I mentioned at the beginning of the call. We saw strong growth in our Dragon medical one solution up 34% compared to last year.

We continue to expand our cloud based offerings internationally with the launch of demo in Norway as well as closing our first dragging cloud deals in Germany and Finland.

And our strategic focus of expanding our go to market capabilities into community hospitals in ambulatory environments is seeing positive traction as well with new wins during the quarter such as Ahlborn community Hospital.

Just as a refresher or our international ambulatory and community health care initiatives were two of several important growth drivers for our future and you should see these as delivering in the early innings.

And our diagnostics business, we continue to see solid demand for our cloud based at high powered solutions with new wins from no Vonn Methodist Health care systems of San Antonio and Lee Health.

These deals are the result of our ability to deliver tangible results that are helping radiologist recover from the temporary suspension of non urgent care through increased productivity.

Affording them the ability to work remotely.

Additionally, our clients benefit from our AD on solutions, such as follow up manager, which sits on top of our power ascribe one platform and help save lives, while providing a strong return on investment for health care systems by tracking failed follow ups on incidental findings.

The health of our de IMO offering combined with these cloud base radiology solutions and others such as C. D E. One dry persisting strain and our health care our metric.

We are still in the early cod transition with many of these offerings. We believe the traction we have seen to date validates our commitment to creating a highly recurring subscription based revenue model.

With these great results, we are now raising our full year air our guidance to 24% to 28% growth up from 13% to 21% that we forecasted just 90 days ago.

This new air our guidance range actually puts us nearly all the way back to our full year pre coded guidance. So needless to say, we're quite pleased with our Salesforce is results.

We're also excited about the progress we've made through the quarter with our dragon ambient experience solution or Dax.

Physician burn out and exhaustion. Our primary concerns were hospitals have only intensified and these challenging times.

Docs eliminates time consuming documentation and administrative tasks through the latest advancements in AI that support clinical documentation writes itself.

The impact of this offering continues to shine through for users with high physician satisfaction scores and a 20% increase seen in patient throughput due to the significant reductions of clinical documentation time from a physician's day.

Since docs also allows doctors to leverage the technology for in person or virtual and telehealth visits. We're also able to maintain exam volumes, even when face to face encounters are down.

Additionally, with our easily implemented solution physicians can leverage our mobile app on their smartphone or other device and use that to capture a patient encounters and clinical notes securely and automatically as part of their patient exams, regardless of type.

Although still in the very early stages the value proposition of Dax is being commercially recognized and we have signed several exciting new customers, including well span health.

Boston Children's Hospital Children's hospital of Atlanta, and Lehigh Valley Health Network.

We continue to progress on the expansion of Ducs rolling out offerings for new specialties, this quarter, including Nephrology and neurology just as a reminder, these sales bookings are not yet included in our guidance.

Finally, as you saw last week, we announced that Cerner has selected our virtual assistant platform to reduce the cognitive burden on care teams and improve the patient experience.

Building upon the existing integration between our Dragon medical platform and Cerner millennium, our customers can now utilize our state of the art virtual assistant technology to navigate and retrieve information from the HR just using their voice.

This allows clinicians to spend more time with their patients and less time on their computers. This was a competitive win for us and a testament to several factors, including our deep existing relationship with Cerner.

Our superior conversational, AI and speech and natural language understanding technology.

Our high Trust certification to ensure sensitive patient data remains secure.

And our ability to support deep integration within Cerners platform.

But on the news from the press release last week, we heard directly from many cerner nuance customers on just how excited they are with this step forward in our partnership.

I'd like to turn now to our enterprise business, where we saw revenues declined 5% year over year as we expected due largely to timing of licensing and professional service projects that progressed ahead of plan in the first half of the year.

Despite some temporary moratoriums on spend in other project deferrals during the quarter, we remain highly confident in the resiliency of the segment and overall demand for our state of the Arts solutions.

Consumers increasingly seeking digital channels for customer service and online purchases, we experienced strong demand for our intelligent engagement products.

Landing, our first sound Latin America during the quarter with Banco macro one of the largest domestically on banks in Argentina.

As always this quarter, we continue to put our customer needs at the forefront with contact centers facing a surgeon call volumes, our voice the agent messaging eliminates hold times by allowing customers to leave a detailed message and as automatically transcribed understood and routed to agents, resulting.

<unk> increased customer satisfaction and reduce call volumes in contact centers.

We also added new support for organizations to integrate Google business messages directly with their customer service platforms, which creates a fully integrated seamless experience for agents and consumers alike.

Additionally, as organizations continue to experience a notable spike and fraudulent activity with the pandemic, we saw a persistent demand in the quarter for gatekeeper, our cloud based security and biometric solution.

We take pride in providing our customers with tangible cost savings and added protection such as what we're doing with National Australia Bank, who is utilizing our gatekeeper offering to authenticate more than 120000 customers within seconds using voice Prince.

I am also extremely proud of our team for further enhancing the solution with the innovation of our Hey, I biometrics age detection technology, which enables seniors to receive prioritized customer service and added fraud protection.

Customers such as Telefonica are already seeing the benefits of this added layer of security.

Advancements across both our health care and enterprise solutions continue to gain as market recognition both from customer success stories as well as third party validation. In fact, we're thrilled to have been recently named a leader in the forest or new wave digital first customer service solutions as well as top health.

If care AI innovation leader and Frost and solve ends latest analyst report the Frost radar artificial intelligence for health care I'd see global Twentytwenty.

Before I turn the call over to Dan I want to take this opportunity to share a few additional corporate highlights from the quarter.

By now I think most of you know that making nuance the best place. It can be both internally from an employee experience perspective, as well as a great company to do business with continues to be a priority for the executive team the nuance Board and me.

To that end, we have taken a number of actions and supported this including the recent publication of our inaugural environmental social and governance report.

As our first formerly published progress report on these initiatives, we believe that document underscores our ongoing commitment to upholding high ethical standards, creating value and making a positive and lasting difference for our employees communities and knows we serve.

As we look to uphold these high ethical standards. We also know that the more diverse we are as a company. The stronger we are which is why we continued to value celebrate and actively support our differences of race gender orientation thought creed and perspectives.

This is something I personally feel very strongly about so I recently signed the CEO action for diversity and inclusion pledge, which is my commitment to act on and support more inclusive workplace for our employees our communities and society at large.

We will continue to devote the necessary time and resources towards this effort to create a just an equitable environment, where all of our employees feel empowered to reach their full potential.

Additionally, and as part of these efforts to create a positive in support of culture for our employees. We recently conducted our fourth annual employee opinion survey, which is designed to help us understand what it's like to work for nuance. So that we can identify current areas of strength as well as areas, where we have the opportunity to improve.

I am pleased to share that we had our strongest companywide participation rate to date and our results positively increased year over year across every single metric.

The executive team and I are very pleased with these results as they are a positive indication that we continue to make nuance of great place to work, which is important as our highly engaged employees are the driving force behind our cutting edge technology, and our ability to deliver superior customer outcomes.

The good work we have done internally is also being recognized externally and this quarter. We were named one of top 50 companies to sell for by selling power business magazine focused on sales management solutions that publishes an annual list are the best companies to sell for in the United States.

This accolade marks our six employer of choice award that we have received in July 2020, which includes being best places to work certified and receiving accolades such as.

Best places to work for LGBTQ equality Best places to work in Boston.

Best places to work for Dads, and Montreal's top employers award.

We couldn't be prouder of the great strides we have made and we will continue to work hard to build upon the success and with that I'd like to turn the call over to Dan to discuss our financial performance.

Thanks, Mark and thanks, everyone for joining us today first I want to start off by echoing what Mark said and welcome Diana to the nuance team.

We have already seen the drive and passion from Diana that will help accelerate our momentum and we are excited to watch around lock, even more value within our health care business.

I also want to reiterate March recognition of the great work being done across our company to create a supportive and empowering culture for our employees.

These focused efforts are not only creating a more collaborative environment, but are also helping to drive better faster innovation and more meaningful outcomes for our customers.

With that in mind I will now turn into our Q3 results.

As Mark mentioned, along with the discussion of our performance I will also be addressing the ongoing affects that covered is having on our businesses.

And finally, I will conclude by discussing our fiscal year 2020 updated guidance, which we have detailed in our prepared remarks document.

Overall, our Q3 results were favorable in comparison to our guidance ranges with revenues of $338 million and non-GAAP earnings per share of 18 cents, both coming in above the high end of our range, our health care business experienced an organic decline of 13% year over year.

Primarily to the impact of coded well, our strategic health care revenue, which excludes h. I am each our implementation revenue declined 5% year over year.

Our enterprise business declined 5% year over year, primarily due to the timing of our license sales.

Before diving deeper into our results. It is important to take a step back and refresh every one of them where we were.

As of our last earnings call in May at that time, we expected the impact of co bid to lead to reduced volume activity deferred license and cloud purchases and deferred professional services implementations and our health care business.

Specifically with regard to volume activity during the trough in April H., I am transcription mines, and radiology reports were down 50% to 55% from normal volume levels. However throughout our third quarter. These volumes improved and we exited the quarter at about 85% of our pre kobin volume levels.

For H. I am transcription activity in over 90% of pre covert volume levels radiology reports being generated.

We also discussed how hospitals, where reprioritizing some projects to address their immediate needs related to the virus.

We anticipated that this reprioritization by hospitals could cause near term pressure on both license and cloud bookings.

As well as impact our new air our growth.

Well this impact was felt throughout the quarter, we did experience better than expected license revenues and encouraging results and they are our which I believe is a testament to both the resiliency of our business models and the critical value that our products deliver as a result, as Mark mentioned, we're raising our air our guidance, which I will.

Discuss shortly.

On the services side, we continue to see hospitals to first some electronic health record implementation projects and we anticipate that this will lead to further pressure on a professional services revenue. It is worth noting that we haven't continue to consider each our implementation services as non strategic to our health care business.

Looking through the effects of coded we continue advance our strategic revenue priorities within our health care segment.

We had another strong performance in Dragon medical cloud revenue, which generated over $70 million in revenue. This quarter. Additionally, we experienced growing demand for our new cloud based solutions, including power scribe one C. D E. One.

As well as Dragon medical one within our international markets. While many of these products are still early in their transition to the cloud. We're excited about the progress seen so far and fill these offerings will continue to drive our topline performance moving forward.

Radiology and other revenue declined year over year due to a combination of factors.

First the coven impacts previously discussed led to lower license and professional services revenue.

Second as we often note. This revenue category is subject to fluctuations due to the timing of multiyear term licenses.

And finally, we had planned a near term impact on revenue due to the ongoing migration of our on premise installed base to our new cloud solutions.

In particular during the third quarter, we converted a number of term license CVI customers to our new C. D E. One cloud offering.

For accounting purposes. This conversion from term license to cloud services, resulting in noncash reduction of $8 million in exchange for ratable and recurring cloud services revenue that will come in as the services have performed.

This migration is strategically important and we will continue to aggressively look for opportunities to convert current term license customers to our cloud offerings as fast as possible.

While we experienced an overall, 32% decline in radiology and other revenue due to these factors. We are pleased with the performance in the solid growth in cloud era and cloud revenue in this category.

Turning to the enterprise business revenue declined 5% year over year during the quarter, primarily due to the timing of large license revenue and related implementation projects.

As well as some temporary coven related project deferrals.

As a reminder, enterprise revenues remain subject to fluctuations from period to period related to the timing of license activity because of these dynamics and in particular the strong license revenue we saw in the first half of 2020.

We always encourage investors to assess our enterprise revenue performance on an annual basis.

With that said the license revenue declines in the quarter were partially offset by growth in our intelligent engagement offerings with particular strength from our live agent and virtual assistant businesses.

Moving onto our balance sheet as of June Thirtyth, we had a cash and marketable securities balance of $313 million.

As you will recall in March we made the decision to draw a $230 million from our revolver.

Out of an abundance of caution to preserve liquidity as the impacts of coded we're just starting to be felt.

As we exited the quarter.

We had a better understanding of how covert impacted our business in our liquidity profile.

Therefore, we made the decision to pay down the revolver at the end of our third quarter, reducing our interest expense for the remainder of the year.

With the pay down our share repurchase program is no longer suspended and moving forward, we will continuously evaluate opportunities for share repurchase and debt retirement.

And one final note on the revolver today, we also announced a 12 month extension on our revolving credit facility, which will now mature in April of 2022.

Our cash flow from operations in the quarter was $32 million.

Down year over year due to covert impacts on both revenue and billings.

Well, we previously discussed some potential risks regarding our cash flow due to the possible expansion of Dsos as hospitals request extended payment terms, our dsos for the quarter remained strong at 57 days.

Let's turn now to our updated guidance.

First we reiterate that the basic tenets of our business model laid out during Investor day still hold true when you look past the virus impacts.

More specifically, we continue to expand our market share across our strategic businesses, while migrating to the cloud and health care.

We remain committed to our most strategic investments in R&D and sales all while making responsible capital allocation decisions collectively these advancements are enhancing the business from both the financial and operational perspective, the combination of our strategy and the resiliency of our business models position us well.

For the mid and long term.

In the near term, however, cobot has and will continue to impact our results, although to a lesser extent than previously expected.

Before getting into the numbers are twentytwenty guidance framework includes the following assumptions.

For volume businesses like H. I am in parts of our radiology business. The low end of our guidance assumes a slight step back and volumes.

In the event the outbreaks in Florida, Texas, California in other states reversed the positive trends experienced to date.

This cautious approach as a result of the growing expert opinion to slow down or scaled back the reopening of certain states and regions.

The high end of our guidance assumes a continuation of the improvement trends we saw in Q3.

For our book and ship businesses.

We expect to project deferrals across both health care and enterprise to extend into the fourth quarter and we have assumed performance similar to our experience in the third quarter.

For our services business, particularly our E. H, our implementation services business, we continue to expect near term pressure on bookings and project timelines.

Finally, while we are committed to our strategic priorities and investments in 2020, we continue to operate with reduced discretionary spend hiring and travel.

Taking these assumptions and decisions into consideration, we're updating our guidance as follows.

We are raising our full year revenue guidance by $25 million at the midpoint to a range of $1.46 billion to $1.48 billion, implying a 3% organic decline year over year at the midpoint.

This update reflects the better than previously expected impact of coated.

We are narrowing the range of our full year EPS guidance from 10 cents to five cents, resulting in guidance of 78 cents to 83 cents.

And we are reinstituting full year cash flow from operations guidance with a range of $235 million to $265 million.

Turning to our segment guidance, we're raising our health care revenue guidance to a range of $901 million to $911 million up $18 million at the midpoint from our previous guidance.

We also would remind investors that we had a significant uplift to dragon medical license revenue in the fourth quarter of last year, resulting in a difficult compare to this upcoming fourth quarter. This compare will be evident on the dragon medical license and product line.

Our updated enterprise revenue guidance is $527 million to $535 million up 5 million at the midpoint from our previous guidance.

We're also raising our health care air our guidance to $370 million to $380 million.

This brings our updated mid point to the low end of our original guidance range prior to the covert adjustments.

As Mark highlighted this supports the strong results we are seeing from the salesforce related to our cloud offerings.

Additional color on our updated guidance can be found in our prepared remarks document available on our investor website.

Lastly, before opening the call to questions I would like to let you know that we will be attending the Oppenheimer technology Internet and Communications conference on August 11th and the Deutsche Bank Leveraged Finance conference in October six.

This conference is will be held virtually and we hope to see you there.

With that I would like to turn the call back over to the operator to take your questions.

And we will now begin the question and answer session if you'd like to ask your question. Please press Star then one on your Touchtone phone.

If you're using a speakerphone please pick up your handset before pressing the key.

So what's your your question. Please press Star then too.

We will pause momentarily to assemble the Ross.

[noise] and the first question today will come from that could calia with Barclays. Please go ahead.

Okay, Great Hey, guys. Thanks for taking my questions here and welcome to both Diana and Mike to the team.

Good afternoon.

Hey, Mark Hey, Dan.

Mark maybe just to start with view.

I'd love to dig into Dax, just a little bit more you know understanding its early can you just give some broad brush as about the pipeline there.

The reception has been on pricing, maybe if Rob does in the room you could comment on that.

And as well as how how you're going to go to market there or how are you going to market there versus maybe how you go to market with the rest of the Dragon business, sorry, there's a lot there, but does that make sense.

Yeah totally I appreciate the question good good to hear.

So for started we're super excited about the new logos that we mentioned on todays call.

And that's just a handful of them and.

Just a reminder, Soc and as you know because you mentioned, it's early days, we only didn't go into GA with the product in the first calendar quarter really sometime in late February really as Colby made its way into the to this shores of the U.S.. So obviously not the best timing to do to make a product law.

On page, but despite all of that.

I'd say taxes is really performing remarkably well.

Let me start with the technology I got to you're going to market as well I mean, the solution itself is the technologies critically important and.

All metrics internally from our teams R&D teams.

The solutions really I exceeding even our most aggressive internal expectations as far as performance. So.

So we're super pleased with with the solution and its capabilities relative to two to the high end ml models plus also we're seeing from the early adopters socket the.

The patient.

Alex and exams that are flowing through have come back which are really important for for the data modeling and really continues to make the solution.

And quite differentiated and quite effective so.

We are doing very well there.

And also you know and I'm Robbins here, so I'll comment we've been incredibly surprise in a positive way.

Really with all of these distractions, taking place in our health care market the provider level.

Facing covidien and other aspects.

We're still seeing a tremendous amount of of interest Oh with tax were conducting you know.

Great volumes, a number of tax presentations product demonstrations that are alive.

And as you saw this corner biggest you follow is closely that's really our first quarter mentioning really new new wins within back so and that again, just a handful of them. So you know I'd say the go to market is really proving to be quite exciting from the market.

As far as you know what we're doing as far as the these early signings you know, we're taking a very I.

I think measured approach to starting these institutions will say 10, 20 or 30 docs.

Costs, a handful of specialties. Some of these early specialties that we've talked about really getting them in front of the solution getting their providers using the solution and really seeing how high the ROI can be and the ROI being measured in many different way sockets. So from you know from productivity.

And patient throughput to physician satisfaction patient satisfaction.

The accuracy of the clinical documentation and note that comes back from the solution.

So there's just really many many a measurement points that drive the ROI and and we're seeing incredibly strong results.

With some of these early pilots with these customers. So Rob maybe you want to add some color on go yes, thanks, Mark Mark covered as a form of salesmen covered most of the most of the answer there, but I will say.

The obvious challenges around.

Our current environment, we didn't really pleased with reception.

And even.

Pricing, which were delivering to the customers prospects. We have about pipeline. That's also given us an ability we always had a chance without product suite to be able to pick up the phone and get a response at any health institution, but this is really helped us solidify elevations discussions in the C suite and we got great.

Assumption there.

It's a very meaningful opportunity for them to transform how they work with their patients for their physicians and so.

All of that as held true if anything is and firmed up in the current environments and were very we're very pleased euro yeah talk at the one thing I'd add is that.

These these early pilots within these new customers all of them have very big ambitions with the solutions. So us planting 10, 2030 dogs, maybe even 50 docs to star with in the early days.

The early results from the early feedback really from the first physician using the solution to the Thirtyth or 40. It is.

This thing is really delivering so and none of these customers.

Our looking just to give this a 20 or 30, it's a much bigger proposition to them overtime.

Absolutely not one customer as indicated that it first sign up until last like this is literally a journey and taking the first steps with us.

Got it now that that's that's great detail I really appreciate it maybe if I could sneak in a follow up for you here, Dan I'm slightly different part of the business, but I guess the question is how are you thinking about the trajectory of the him transcription business, perhaps after cobot and I understand that thinking about life post cobot is tough just in general but.

But I guess.

Do you think that on a normalized basis, we can get back to sort of that that that typical year over year decline that we were saying before or do you think that co bid perhaps.

Impacts that trajectory again for him transcription, specifically long term.

Yeah. So good. Thank you a good question and of course it is important in the model.

Course in this fiscal year 2020, we're going to end the year at a number of less than what we entered the year. We thought we would be at so you know our original guidance is probably going to be somewhere in the neighborhood of $10 million to $15 million less as we exit. The then what we originally started with so normally I would say a 15% decline.

Fine and build that into the model next year on year after et cetera.

Because we're ending.

At a lower number I would probably say.

Maybe for 2021, you should think of it as a 10% to 15% decline, but thereafter, it gets back to that 15% level. So we're really not seeing any permanent changes or differences in that and that trajectory in that business. So I think it does get back to a normal trajectory decline thereafter.

Got it very helpful guys I'll get back in queue. Thank you.

Hi, Todd Thanks.

And the next question will come from such a thing with Morgan Stanley. Please go ahead.

Thank you for taking my question Congrats on the team on the health care are raised almost not too but the original guidance was extremely impressed.

Environment I actually wanted to follow up on das as well, so anyway market Peter can sort of.

Sort of frame out the opportunity for in person docs.

Versus telehealth, and what do you see a big opportunity and what's going to what do you see it sort of gave me the earliest market traction.

Yeah, So so sanjit I'll start and and Diana's here and she may have some input and of course rovs here.

Certainly.

Telemedicine, and Tele health and virtual.

Exams have become.

No I think quite popular and you know docs is really designed to serve both the in in rotation exam or a virtual exam.

You know really with the same solution and you know we're we're actually very excited about first we've made docs.

You know app, driven so really any of these platforms.

Providers may use can integrate quite efficiently with tax. So so really this the physician doing the in room exam versus the the virtual exam.

I can assure you if they're using it for one they're going to want to use for both so it does become a very much quickly a way of life. That's hard to go back to the old way if you have doing something.

How did the other thing I would say or regarding tele medicine or tell how than general is.

The value proposition of docs, coupled with the productivity models that make tele medicine.

You know.

Capable meaning.

The Tele medicine appointment is for the non acute non emerging you know interaction between a phase physician and patient. So anything that is administrative such as the heavy burden of clinical documentation that backs.

Alleviates.

It's actually you could argue is even much higher value proposition for that type of model. So we happened to believe that why why it could accelerate and it could expand the use of Dax.

We think it's just as a heavy value proposition relative to either model for for in some ways. The same reason, but for some enhanced reasons. So Dan I'm not sure. If you have but anything that yeah. Mark I was just reinforcing on my observation I have talked with some customers. So far in first of all they'd say tele health. This.

Here to stay and they are wanting to talk about what the platforms are and so to your point my experience has always been they want to use the same platform, whether it's in an office or or a tele health. So we will be well position for that and so I think thats. One good thing for US were also a platform that is.

Always very I started agnostic to the interface that we have and so we always build our solutions to work with all of the various types of you know solutions that may be considered in terms of the video application out there, but it's really the backend embedded nature of our solution into the HR that I think.

It is what differentiates us in terms of being selected by the physician provider.

That's super helpful and sort of us as a follow up when we were talking to some of these early thats customers. We definitely got that feedback on sort of inc. increased patient throughput frankly, much larger than 20%, but you guys you're mentioning in some of these specialties and that that debt that we talked to in terms.

So just how that's going to evolve.

Yeah, there's some.

This is that still have some human intervention in that.

What do you think light in terms of just the audit basic math is there any way to think about the timeline for when that if it gets more automated kicking between the summary, the transcription of the conversation or the summary of the conversation and the turned around to the Doctor.

Hi, how are you thinking about that.

Yeah, sorry, alright questions and yet so for starters, just understanding that the doctor or the physician.

Themselves they they actually get.

Hey, I'm highly accurate clinical.

No.

Dax and and whether there was a an element that's automated or there's an element that also runs through a call your review check which they all do.

The accuracy. The note is is really what the physician receives on day one of using docs. So like so that's that's I think important to know so it's not as if they're getting a lower quality note as the automation rates wrap.

It really is a high quality note.

And I think you know as you've done some very good market checks the accuracy of the notice.

And we heard from many of them, that's actually better than their own note. So that's that's I think it's important to have as a baseline, but certainly as the specialties Raul the automation like the learning models start to improve the automation rates and then like much like we saw went dragon medical one.

Is that over time.

And certainly the technological advances around neural nets other things have helped us really close the gap.

In many ways and we have.

You know incredible amounts of data to help model this and now we're collecting incredibly.

Richer conversational gain oh with our tax solution, so overtime, hence the specialty rollout like as an example on or so or E and T or some of our earlier specialties.

The notes or you know automation rates are much higher I was kind of what I was into remaining at the beginning like the technology is really showing you know even our own internal measurements with great promise and overtime that will happen, but to be clear there will always be a quality review process.

We're talking about People's lives and ultimately no matter, what the physician or the provider has to sign off on the clinical no, but very encouraging from it technological capability and kind of as we wrap up the automation rates.

And then again it'll go by specialty.

Thank you for the arc and I'll step back.

Yes.

Alright, thank you.

And the next question will come from Stephanie Davis with SVB. Please go ahead.

Hey, guys congrats on the quarter.

So we definitely faster than expected recovery across the hospital stay it just hasn't beneficial effects can be hospital facing help I keybanc.

The beyond your health care are is there anything to call out about pick up in traction there as a follow up to that what sort of timeline conversations have to translate into won't that hospitals are considering by again.

Yes, Hi, this is Rob.

Yes, good question Hi, so.

So it definitely the right observation I mean, where were able to hubs actually I feel like because of the nature of our solutions. We were able to have discussions even in that kind of the darker hours of covance. Because you know just for critical to their success and so I think you know it's definitely been good for us in terms of having more of those.

Conversations and some of the other solutions that we add that maybe were for extended but I think we overall, it's definitely as you saw in the numbers reflected.

Been positive for us these dax conversations.

Our are happening with greater frequency. So we don't have any tampering of or or dampening of that.

That pipeline I think you know, we're seeing more and more of an ROI.

From what we deliver helping them as and think about how they got to climb out of this because revenue is going to be very important to them. So.

Overall, I think we will as we've said all along we were very well positioned for this and if anything.

The nature of this crisis has really put us in a very good position going forward, yes that means that mark So maybe I'll just add little so again, a number of our initiatives you're aware of.

You know our conversions to the cloud and radiology our international expansion.

Those are also I think those you know T to use your like things we've seen a a faster recovery. If you will relative to go to market relative to sales activity relative to pipeline and actual deals hence the air our raise I guess all those contribute to the improvement in there are.

And you know as an example of Europe's been.

They have to covert effect sooner than us and they they therefore they were they either learn to contain it management or live with it you choose and so we're seeing some strain fair. We're seeing that also with radiology. So you know I think as Rob mentioned the importance of.

ROI the pressure now on the on the economics within the system the provider systems, which were never great to begin with and certainly now the most challenged they've ever been.

You know the solutions have to have meaningful ROI Fortunately, none of it requires capital none of our solutions require.

You know any capex or any cost subprime and there are higher I ROI. So as I talked Rob you know shoes and they the fish you know just jump in the back of the boat right.

Okay.

Rob that he doesn't those deals mark.

Question on Cerner and your collaboration there.

What sort of share economics. It should we think about for that and does this mean that rob can be able to leverage the tower assets. Our net sales force or is it something that can only be able at the hospital.

Ryan.

Right. Okay. So I answer that I think and into two parts of you don't mind.

Oh.

So.

Starting with the baseline of the Cerner nuance relationship we've enjoyed really a multi decade relationship with which Cerner and you know our our go to market and our product integrations really you could say essentially at the code level.

Demo and and Cerner have been.

I think something that both both companies are quite proud of and the results are obvious and go to market approach has been really.

You know a mutual go to market approach, we co. So they resell. Some we you know we play point on others. So it it's really been a very I think successful relationship with Cerner.

And that will continue and you know and our announcement. So that's the first part that I'd respond with the recent announcement, which is super exciting for US is cerner was looking to expand their solution set on top of their each are where the virtual assistant.

And.

And they really they were looking for the most competitive solution in the market they want it.

In their view, what they could build their platform around and their their virtual assistant skills around.

And and ultimately any V.A. sit on top of a cerner and sit on top of or integrate with Dragon medical one so oh, we like anyone else wanted to when the business we love the relationship we have.

I think nearly 80% if not exactly 80% overlap of cerner customers using nuance solutions.

[music].

And and we were excited to get the calling to get there the win and now allow them along with our capability with the VA to go to their customers that are.

So whether there are de ammo customers are not again, we have high market share with them.

And now have a nuance you know created VA for Cerner to go to their customer base with so Oh. It was it was a when it was we were thrilled with.

Okay Super helpful. Thank you guys.

Hi, Thank you.

Your next question will come from Jeff Van Rhee with Craig Hallum. Please go ahead.

Great. Thanks for taking my questions I'll try to sneak a couple in here, maybe just a dan on the on the starting with radiology I know you've talked about the migration paths and I believe the migration naslund turned to cloud was one to one and a half times revenue uplift and apologies that kind of jumped into.

Stream here, but it sounded like you were calling out some headwind from that migration in it and as I remember the math it was a one to one and a half uplift have you changed your outlook there.

No not at all that's what if your check if you're if you're making a migration in the middle of a term license. So that lets say you have a five year term license and under the revenue rules you take all the revenue upfront. If you change in say year three you have to have and then.

Just meant to some of that remaining payments still left on the I'm on the on the term license. So you took his dropdown.

You're going to enjoy so it's like a noncash adjustment you're going to enjoy all of that in that one to one and a half times uplift in cloud services. Once we turn it on so this is a really a this is this is validating exactly what we talked about in Investor day, we're going to do more of it.

Got it.

Got it fair enough and then the I guess I'm back to Dax for just a quick second.

Sounds like great progress I mean, obviously, if it gets a game changing product for that for the industry. You know if you take your dragging users prime in cloud call. It five to 600000.

No you're rolling out DAC specialties fairly quickly here, what you know when you look out 12 44 months what percent of that's maybe use 600000 dragon users what percent of those will have an available DAC solution that's relevant to them.

Oh, I mean, I think if we Jeff I mean, and you know a you know the product quite well so I realize you're you're pretty fluid at this point you know I think the specialties will ultimately drive the Sam if you will like the addressable market that we should have Rob actually go pitched acts to.

And and when and what we're seeing with essentially every one of the monies we mentioned today and others.

Is that these are multiphase discipline multi special.

Hospital systems, and you know and there are ultimately going to start with a few specialties and expand so you know we released as we said in previous quarters, we're expanding the special sees every quarter in a one to two to three per quarter team always likes when I use a number like that because it.

On the R&D teams.

But I think ultimately you know the addressable market for US is you know to cover all the ambulatory specialties.

Which would largely cover.

The numbers, you're using the five 600000.

You know physicians that that use some drag and solution.

Today.

Yep.

Got it helpful. Maybe just one last on shifting gears, one touch for a second on enterprise.

Obviously, you've got kind of the bifurcated businesses voice and digital channels are just curious.

As the year has progressed helped the pipes in those respective segments of enterprise progressed, the both digital channels contrasted with voice channels and specifically as to how you've seen the pipe progress Didier.

Yeah, I'll I'll comment it maybe Dan or Rob will comment on anything, but I think as we've laid out as we laid on Investor day, our growth is really coming from the intelligence engagement category, which includes digital and our voice bio or security bio business and in the quarter.

So we actually had very good strength in.

Virtual agents my vision or allow the solutions as well as others within the intelligent engagement platform.

So you know so we're seeing it exactly play out as we expected including.

The numbers and including you know hard compare this quarter versus last year's Q3. So you know we're very pleased we move there the full year range up in the enterprise business, you know essentially to to the higher end of even the original side of things and I think yeah, Rob will cover pipe.

Brian and Dan I'll add any color as well yeah, I mean, thanks, Mark and then thanks a question the.

The pipe continues to progress I think we have a.

An opportunity across the whole spectrum really.

As I as we mentioned even on the health care side, It's also true for enterprise.

Solutions, we offer now.

Which were always relevant or even more so in the current environment. So we feel like we are very good position.

Across the spectrum to be able to address these needs for customers.

Yeah, I think the Jeff the only thing I'd add is if you think about our model in what we laid out at Investor day.

We're tracking really well we said this year, we would probably be 55% and the voice I've yahr space that 45% of that business would be the intelligent engagement and planning up really nicely.

And the bookings pipeline that we see come in is definitely trending towards that intelligent engagement categories. So that helps us grow to that 55%.

In that in that three year timeframe that we talked about so feeling good about it.

Got it very helpful. Great job guys realness execution here.

Thanks, Jeff.

And our next question will come from Daniel Ives with Wedbush. Please go ahead.

Yes. Thanks.

So.

Rob Mark just in terms of hiring your especially sales on the health curious that could you talk about that.

In terms activity just given the pipeline is that something that just continuing to step up given the opportunities.

Yeah. Thanks, Dan.

So the obviously early on you know we were super cautious.

If you kind of on the front side of this but as we see opportunities. We've always had support throughout it because we saw the growth and it's really only possible with the investment that we've had and and not only.

The systems, but the people and so yeah. We're hiring were so of course being selective we think this great talent available.

Fortunately or unfortunately for where they're coming from the Fortunately for us. So we are we're stepping up our and its.

Across the businesses and it's a it's not just the domestic thing we have opportunities, especially as we grow a internationally.

And just grow our group out there. So it's been you know we've been moving forward.

As planned.

And then trip for both you and then I've seen becoming too.

In terms of just like when you sort of thing Mike just larger deal in terms of just the size of deals and the pipeline that are larger more hospitals standardization deals across the board.

Especially in the next Gen cloud platform is that something.

Where you're starting to see a discernible.

Trend in terms of just the scale and scope of deals.

Well I mean, the scale in terms of the size of the deals where we were fortunate.

It sounds like Oh go no go like where they have to big Bang everything all at once and write a big check like we have the opportunity to really flex with the conditions and.

Something to offer pretty much every system, we talk show in every customer even on you know on enterprise. So you don't need to go all Ed I think Thats really has served us well because we've been able to have meaningful discussions begin implementation sign deals.

I think this this the number of deals if anything is increasing so we have opportunities as we expand it into the mid market as we expand overseas.

As we take on these great partners like Microsoft we have opportunity to get in a number of places that we weren't before so I'd say the scope scale in terms of volume.

It's definitely increase then that's what we're really excited.

Great marked as Rob we're three suits on June calls too. Thanks.

Hi, Rob is like stole the show here and yes is fashion today I think it's the first time he's been on a suit.

And a couple months, so he's pretty happy so it's pretty good.

Okay.

And our next question will come from show you all ill with Oppenheimer. Please go ahead.

Thank you.

Good afternoon, guys. Let me also at call My welcome to the both Mike and Diana.

I actually want to thoughts with a topic.

Public cloud providers within the helped arena.

Clearly great partnership with Microsoft.

Google and Amazon as we all know nothing put.

Nuance without a doubt is a trusted partner for the past couple of decades now.

But wonder if there's any change going on and maybe like how how's Diana thinking about this this uptick.

Well you know in two months under my belt. The I'd just tell you I probably rely more on the 15 years of experience I've had in health care and I think why you know it's always a check to make a nuance is and what you'll find is the keys to success on health care is.

And you have to have their relationships with the providers, we have a very large installed base, it's very satisfied.

I think the other thing actually have a proven track record of working within the work flow what the position wants which is the HR. They demanded and so you have to have these deep relationships with the.

Each our vendors like what we did that's not to be undervalued and I think the other thing as we just have a tremendous amount of expertise in terms of the feel that we play in the massive amounts of data that we have and the ability that we've continued to leverage that for enhancements in our conversational AI I think those yard.

No competitive codes that we'll continue to rely on to be successful against any type of competitor. Yeah. This is marshalls I mean, I think she she answered it.

Perfectly it's almost as if she's been here for at least three months [laughter] I would say yeah. The one thing that I would you know even repeat is and the fact that we're we're vertical software company. That's highly specialized within domains and health care is probably one of them.

Most challenged.

As far as this deep domain expertise, meaning it's probably the hardest thing healthcare data is.

Highly protected and you know our experience from years and years and the data that we have in the trust that we'd go with our customers that allows us degree.

Market, leading solutions that make their operations better.

Is really a differentiator and it's it's not.

Just a small differentiation in their relationships are critical to biggest trust matters, but I would say.

Being domain expertise as we are is really I think the big differences.

That's right now it's fair enough congrats.

On a good quarter and execute well done.

Thank you. Thank you so.

And our next question will come from Big from kind of a Butler with Guggenheim. Please go ahead.

Yeah. Thank you for taking the question I wanted to ask about some of the newer initiatives within healthcare, particularly with international ambulatory and community hospitals and if you can just give us some more color on feedback from those channels, specifically and how you're thinking about the pace of adoption there not be helpful. Thanks.

Yes. So this is rob thanks for the question I'll start with it obviously, we're really excited no we set out to specifically delivering growth in those areas and no. Early on you have a lot of and there's a lot of promising to do all the resurgence.

When you go strike out and you have to see what you get and so far we've been really pleased obviously, we always operated internationally on Prem and now in that just really still relatively new but yeah. We've been able to go have a cloud base or clouds stood up and some of the key markets that we wanted to get to we fired.

Our teams out there and now we already have a key win in every one of those markets. So I.

I will say very early days and certainly won't get better as we go but pleased and the international space on the Midmarket community Hospital space that was related to area for us we're totally opportunistic there prior.

Again, we set out with a very specific plan.

We haven't teams stood up there and the early results have been really really very pleasing and we're happy not only in a very difficult environment, but we can see other side of this and we know we're going to be able to bring value to our customers there.

Our our stories very well received so it's all very promising here and those in those areas.

Okay, Great and maybe just a quick follow up on Dax It sounds like you're seeing some encouraging traction here in the early stages, but do anything to talk about how we should be thinking about the timeline contribution from tax and your financial results in particular, we should be thinking about this as a driver in fiscal 2001 or are there beyond that any color there would be helpful. Thank you.

[noise] Havent gotten Stan you know we have been really consistent on this that at this point, we are or not coming on the financial impacts. Although we're really trying to give color in this quarter and next quarter, but what we're seeing we will in November when we roll out.

For 2021, we're definitely going to talk more about the revenue impacts the air our impacts those are excluded at this point as well as maybe some some broader economics on the model, but at this point.

We still we're still gearing up to go to market, we're still going to experience and we'll continue to give that level of color, but we'll do financials later.

Great. Thank you.

Thanks.

And this will conclude our question and answer session I like to turn the conference back over to Mark Benjamin for any closing remarks.

All right I just wanted to thank everyone for joining us today and wish you and your families a safe safety. During these these interesting times and thank you.

And the conference has now concluded. Thank you for attending today in media has been locked.