Q3 2019 Earnings Call
Ladies and gentlemen, this is the operator todays conference is scheduled to begin momentarily until that time your lines will again be placed on musical. Thank you for your patience.
Good afternoon. My name is Mike and I will be your conference operator today at this time I would like to welcome everyone to the nuance Q3 2019 results conference call.
All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session.
If you would like to ask a question. During this time press Star then the number one on your telephone keypad.
If youd like to withdraw your question press the pound key.
I will now turn the call over to Tracy creamy SVP of Investor Relations for Nuance you may begin your conference.
Good evening, everyone. Thank you for joining us on our third quarter fiscal year 2019 conference call with me on the call today is Chief Executive Officer, Mark Benjamin.
And Chief Financial Officer, Dan Tempesta as a reminder, this call is being recorded.
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 can cause material differences in our results.
Please refer to our recent SEC filings for a discussion of these results.
All references to income statement results are non-GAAP , unless otherwise stated.
As noted in our press release, we also issued prepared remarks in advance of this call, which can be found on our IR website at nuanced dot com.
These remarks are intended to supplement our comments on this call today.
And with that I would now like to turn the call over to Mark Mark. Please go ahead.
Thank you Tracy and good afternoon, and thank you everyone for joining us.
I'm very pleased with our Q3 performance as once again, we delivered on our strategic and financial objectives.
We delivered solid revenue performance across each of our strategic business segments and achieved strong operating margin.
Transitioning our solutions to the cloud continues to be a top priority and our margins once again benefited from a favorable revenue mix shift.
Margins were also aided by our ongoing operating expense reduction programs, which are giving us room to invest more aggressively in our key priorities.
We continue to execute on the strategic plan that we rolled out last November as a reminder, that plan includes a focus on revenue growth.
Significant self funded investments in key product initiatives.
And a simpler more scalable operating model with a responsible capital allocation strategy.
These are busy times, a nuance so I'm incredibly proud of the hard work intense focus and great results that are more than 8000 associates delivered in the most recent quarter.
Turning now to some of the specific highlights in the quarter.
First health care revenue increased 2% year over year or 5%, excluding the expected declines in our non strategic him and DHR implementation services businesses.
Our higher margin recurring Dragon medical cloud revenue grew for the 16th consecutive quarter as we win new business and continue our cloud transition.
Second enterprise revenue grew 8% year over year led once again by strong performance from our omni channel cloud offerings.
Third automotive delivered another great quarter with 8% revenue growth.
Working 13 consecutive quarters of organic growth. The Q3 strength was due to growth in our connected car solutions, new design wins and deployments in more models across our customer base.
We made excellent progress towards the spin off of this business, which I'll discuss in more detail.
Fourth we sold our non core Srs business.
This enabled us to exit the business and nine months versus a 12 to 24 months. We initially expected while providing a better result for nuance and our customers.
And finally in line with our continued focus on capital allocation, we repurchased 1.7 million shares during the quarter.
This brings our total share repurchase through the first nine months of the year to 7.7 million shares or approximately 3% of shares outstanding.
With those highlights let me provide some additional color on some of our accomplishments in the quarter.
In healthcare the trends continue to move in the right direction and we feel good about the strength weve shown in booking new annual recurring revenues or a R.
We see meaningful additional opportunity to expand our dragon medical cloud footprint into the Midmarket acute and ambulatory facilities and are building a direct sales force and targeted go to market efforts to capture this opportunity.
We expect these investments which were already contemplated in our investment framework for the year to yield incremental air our growth.
Our international markets continue to scale with strong Q3 performance in Germany and France.
Notably we see early interest from some of our new clients to start our cloud based solutions, rather than taking a more tempered approach by starting off with our on premise solutions.
This international growth opportunity has the potential to become a meaningful contributor to our AMR during fiscal year 2020 and beyond.
We had several key international wins in the quarter, such as Imperial College Hospital in London.
DHR, you Nancy in France, and Skein regional in Sweden.
In radiology, we're beginning a transition to the cloud with our new AI driven power scribe one solution.
We had important validations at the June annual meeting for the society of imaging and informatics for medicine.
In addition, the University of California, Summa Health, and Massachusetts General Hospital made presentations confirming the importance of our integrated AI radiology solutions into their work flow and the positive outcomes they've achieved with our solutions.
We're also beginning to migrate our installed base of clinical documentation improvement customers to the cloud with our CD one offering.
This is gaining significant momentum as clients look to deploy advanced HDI technologies into their revenue cycle work flow.
We have released new analytic capabilities to our cloud offering and increased our focus on specialty solutions like nuance surgical CPD, which saw strong uptake in the quarter.
I'm excited about the early traction that our cloud based power scribe, one and CD one products are showing.
As we look ahead these to cloud based solutions will start to become meaningful contributors to health care as cloud based subscription ARR.
These products have been exceptionally well received in the market and both have powerful on premise to cloud transitions ahead with beneficial revenue and profit up lifts that will contribute meaningfully to our business model just as we've seen with our demo transition.
We're also gaining momentum with our ambient clinical intelligence technology, which we refer to as Sci for short.
The of the exam room of the future.
And unveiled in February at Hims, Sci has the potential to be a real game changer for nuance and for the industry.
During the quarter, we sign Nebraska medical and emerge ortho as strategic partners with initial commercial Rollouts expected later this year.
We have several more health care organizations that we are looking to partner with in the short term and are pleased with the progress we're making here.
Sci has the ability to dramatically change the way doctors document the patient visit by capturing the relevant elements of the encounter.
Early feedback has shown that this has the potential to revolutionize clinical documentation, while dramatically reducing physician burnout caused by excessive administrative burdens.
Switching gears to our enterprise segment, we once again had a strong quarter led by better than expected transactional volumes and services within our Omnichannel cloud offering.
This was driven by expansion at a number of existing customers and new logos going live.
This is especially true within digital engagement, which includes messaging virtual and live chat capabilities.
Several key wins across the portfolio include the bank of Montreal Charter Communications, FCS and Maksim mobility, Spain.
Honing our solutions and developing state of the art technologies is a critical priority and we continue to make notable investments and progress.
Particularly in our voice biometrics segment.
Here, we unveiled nuance lightening engine, which combines voice biometrics and then value.
Send takeda individuals with in seconds of speaking.
To deliver personalized responses.
New solutions like this paved the way for our next customer when setting new bars for innovation and I'm pleased that we're leading the way.
To that end Santander bank joined the growing list of leading enterprises successfully leveraging our biometric solutions.
In addition, we announced a strategic partnership with Mila are world renowned Quebec based AI Research Institute and opened a new lab in Montreal.
This exciting partnership will bring us closer to the academic AI research community and enable us to further advance our machine learning applications, especially for language and image processing.
The lab will serve as an extension of our own Montreal office, which is one of our key global research sites and that was recently named one of Canada's top employers for young people as well as Montreal's top employers.
We have an incredible research team, which has been at the forefront of conversational AI innovation for the past 20 years.
Partnerships like this strengthen our ability to attract top talent and stand the bleeding edge of AI techniques and applications.
The industry analysts are also taking note of our progress.
During the quarter, we received significant recognition by both Forrester research and Opus research.
Bars to recognize nuance as a leader in the new wave conversational AI for customer service, noting that our conversational AI deployments markedly improved customer experience.
And opus named US the undisputed market leader in their intelligent authentication and voice biometric Intel have you report.
These are incredible distinctions and I congratulate our nuance team for these accolades from these third party influencers.
Moving to auto as I mentioned earlier, we made significant progress towards the spin off of the business and for it to thrive as an independent company.
We remain on track for an October Onest spin.
Earlier this week, we announced the company's new name severance.
During the quarter, we announced that foundry to Juan will become the CEO severance upon the spin.
Sanjay brings 30 years of technology and automotive experience, most recently as CTO and division President of Harman.
He has extensive relationships across the sector and we look forward to his leadership.
We recently hired Mark Gallenberger as the CFO for the New company.
Mark brings significant public company CFO experience. Most recently, serving 19 years at Exterran Corporation, formerly LTX credence as its CFO COO and treasurer.
And just today, we announced the future board of directors for severance. This board will be led by industry veteran and former Vodafone CEO I ruined sarin as the chairman.
It is an incredibly talented and diverse board with a wealth of experience from leading companies such as Motorola Aetna, Qualcomm PTC USAA Athenahealth and many others.
If you Havent already I encourage you to review the release, we issued this morning.
I'm confident that this board along with Sanjay Mark and the rest of the talented leadership team will lead severance to success in this new and exciting next chapter.
Coming off another strong quarter momentum favors our auto business today.
Let me share a few highlights.
33, new vehicle models from 13 brands moved into deployment, including portion tight Con Mercedes Benz Golly, EMG Motor, India and extension of our work with Sai C or psych.
We secured new design wins in Europe , the Americas, Korea, and China, with Oems, including BMW, Porsche PSC, Geely, and Toyota as well as Guandjo and saying young.
We signed our first customer a large German OEM for our new Cyren detection solution as well.
Our China business celebrated a significant launch in select cars from Chile, chinas fastest growing automotive manufacturer.
Our technology is part of Julie Smart ecosystem.
An innovative digital cockpit that integrates infotainment connectivity and vehicle management.
With wins like this and others. We are building important momentum in China, and India, the world's fastest growing auto markets.
Also we recently celebrated a Bosch global supplier award.
At a 43000 suppliers, we were one of only 47 and the first software company to be honored with this award.
Overall, I'm proud of our team and what they've achieved particularly how they've stayed focused and on track during this period of significant transition and distraction.
Their hard work and dedication has built a strong foundation for severance.
This is the last time that we will formally and at let's talk about the automotive business since joining the company last year I have been impressed by the business. The team are dedicated customers and the huge market opportunity.
Quarter in quarter out this business has delivered exceptional results.
Evident in one of every two cars shipped globally today.
While it's bittersweet to see auto leave nuance. This is a great outcome for the company our shareholders and our associates.
On the latter this entire team that spans more than 1500 associates as my deep respect and admiration for all that they have bill.
Starting two decades ago. The team many of whom are here today at a grand vision for the future of mobility and in vehicle assistance.
The business has accomplished so much over the years and I'm certain it's best times lie ahead.
I wish segments, its employees and customers all the best during this new exciting time.
And with that I'd like to turn the line over to Dan.
Thanks, Mark and good afternoon, everyone.
As Mark highlighted we had a very good third quarter and are well positioned for a strong finish to the fiscal year as we enter our fourth quarter.
Our revenue for the third quarter exceeded the midpoint of our guidance by $4 million due to strength in our enterprise Omni channel cloud offerings. In addition, both healthcare and automotive segments. Once again performed well and were in line with our expectations within healthcare several of the trends we experienced during the first half of 2019 continued during the third quarter.
First Dragon medical cloud continued its quarterly sequential revenue growth, albeit at a slightly slower dollar increment compared to recent quarters, while our bookings pipeline for these offerings remained strong and in line with our annual expectations. The timing of those bookings is back half loaded which is not uncommon for our health care business.
This has the effect of driving later implementations and therefore later revenue recognition.
As we have discussed in the past there is a strong correlation between the pace of uptick for Dragon medical cloud and the corresponding decline of our on premise Dragon medical maintenance and H. I am revenues.
These two lines were strong during the quarter, but we expect that Oz Dragon medical cloud conversions resumed their strength.
Maintenance and H. I am revenues will continue on their pace of decline going forward.
As a result, we see this slightly delayed dragon medical cloud revenue as a matter of timing and placed greater emphasis on air our signings to evaluate the momentum of our business and the related cloud transition in this regard based on the strength of Dragon medical bookings pipeline.
We are on track to achieve the mid to high end of our full year air our guidance range of $245 million to $255 million.
Rounding out our Dragon medical discussion on premise license revenues declined in line with our expectations, but this decline was somewhat offset by the ongoing strength in our international markets, where we continue to see results from some of the new market penetration successes Mark mentioned earlier.
Our radiology and other business grew 9% on a year over year basis, but also experienced a modest sequential decline.
You will notice that this trend occurred last year as well.
And since there remains a meaningful amount of revenue in this category that is not cloud based or recognized ratably, we can experience volatility from quarter to quarter. We remain excited about the potential to unlock shareholder value in this segment as we begin our transition to our cloud based power scribe one offering.
Like Mark I'm very encouraged by the early traction we are seeing for the cloud solutions within our different healthcare business lines.
Specifically in radiology and in CDAI.
And expect that they will contribute meaningfully to cloud subscription ARR in the years to come.
Lastly in health care, we continue to experience volatility in our low margin each our implementation services, though our results were generally in line with our expectations this quarter.
Our enterprise segment delivered another strong quarter and as shown exceptional consistency during fiscal 2019 and were particularly pleased with the strength in our cloud volumes for the nine months. The division has experienced 8% year over year revenue growth.
Turning to margins for the company non-GAAP gross margin was 61.1% up 130 basis points year over year.
This was primarily due to the continued revenue shifted dragon medical cloud and the expected declines in low margin HM revenue.
non-GAAP operating margin was 27.9% up 440 basis points year over year and was better than expected.
This was due in part to the strength in gross margins and accelerated savings from our cost programs, partially offset by the ramping of our priority investments.
As we entered 2019, we knew that balancing the timing between cost savings in our new investments would be a challenge.
Potentially causing short term profit variations and as a result, we made sure to call it out each quarter.
While we are pleased with our operating margin over performance. We note that we will continue to increase these critical investments in the fourth quarter and into fiscal year 2020.
Therefore, I would caution against extrapolating any margin expansion to aggressively into the future periods without consideration for these investments of course, we expect that these investments will ultimately drive a positive return.
The net effect of these items combined with our capital allocation actions.
During the quarter and the year.
Led to very strong EPS results, we came in at 31 cents compared to 22 cents a year ago.
And once again, we landed above the high end of our guidance range of 26 to 29 cents.
In the third quarter, we repurchased 1.7 million shares of our common stock.
At an average price of $17.36 for a total consideration of approximately $30 million and since May 2018, we have repurchased approximately 6% of our shares outstanding at an average price of $14.71.
This leaves us with $436 million available under our existing authorization for share repurchases.
During Q3, we generated cash flow from operations of $94 million and ended the quarter with approximately $680 million in cash and marketable securities our ability to generate strong cash flows gives us exceptional flexibility to both reinvest in our business and return value to our shareholders.
We remained very happy with our balance sheet and our strong cash balances with a net leverage ratio of 2.5 times down from 2.7 times last quarter.
As we look ahead to the automotive spin we continue to expect that the Standalone automotive business will be levered. This will enable us to bring additional cash back to nuance upon completion of the transaction.
At the time of the spin we would expect nuance to be net leverage neutral, which will provide great flexibility related to capital allocation alternatives.
Our objective remains for both companies to have effective capital structures immediately following the spin.
Now turning to guidance.
For fiscal year 2019 revenue, we are maintaining the midpoint of $1.80 $6 billion, which accounted for the Srs sale transactions.
We're also providing a more narrow guidance range of $1.85 to 108 $7 billion.
While the midpoint revenue guidance for the company remains unchanged the composition of revenue within the health care business has been modestly updated primarily reflecting the lower dragon medical cloud revenue with corresponding increases in Dragon medical maintenance and H. I am revenues to account for the timing related variations I discussed earlier.
As I also mentioned I remain confident in our Dragon medical they are our pipeline.
And are maintaining our range of $245 million to $255 million.
We are reaffirming our fiscal year 2019 gross margin guidance at 62% and we are raising our operating margin guidance range by 25 basis points to a midpoint of 27%.
This reflects the dynamics I have discussed between accelerated cost savings in our ramping of strategic investments.
For 2019, EPS as we now enter the fourth quarter, we are narrowing our guidance range, while also raising our midpoint expectation.
Our new range will be $1.14 to $1.20 compared to a range of $1.12 to $1.20 provided in June .
Our 2019 free cash flow guidance range slightly improved as we now expect less capital expenditures than previous guidance for revised range of $305 million to $360 million.
We have also updated our cash and marketable securities projections.
In order to account for the $30 million of share repurchases, we executed during the quarter and the lower capex.
To a range of $725 million to $775 million.
In closing, we continue to put our energy into creating a simpler company. While also converting many of our products into offerings that are more cloud based and recurring.
As you heard from our comments. This work is well underway and Mark and I are very pleased with the performance we've achieved during 2019.
Operator, please open the line for questions.
At this time I'd like to remind everyone in order to ask a question press star one on your telephone keypad.
To withdraw your question press the pound key we will pause for a moment to compile document a roster.
Your first question comes from the line of Dan Ives from Wedbush Securities.
Dan I UBS your line is open.
[noise].
And your next question comes from the line of Saket Kalia from Barclays Capital. Your line is open.
Hey, guys. Thanks for taking my questions here.
Okay Saga.
Hey, Mark Hey, Mark maybe just to start with you.
You don't want to talk about some of the new cloud based solutions.
Sounds like we can we can think about you know some.
Some traction contribution here in 2020.
Some of the solutions like radiology CP DNA Cie.
Can you just dig into those a little bit more and and how you think about those potentially contributing in 2020.
Sure sure also.
For those on the call we have Rob data on the line here as well with us so.
We introduced in last quarter as global head of sales so.
He is he is wide open to take any of your hard questions, but socket regarding the cloud growth story here is something that we really spoke about when we launched the strategic.
Plan, if you will back in November really about you know on the back of a great Dragon medical cloud or DM. Most story, we have a number of.
Oh evolving cloud solutions that.
Historically, either been sold here as a license.
Or in some cases really.
Just new products to the mix so.
Oh, you know relative to radiology, Gus you mentioned that one our powers scribe base, which is a market leader.
In the radiology field, we have launched that product. We did this year at our SNA and powers Cry, one is essentially already in the hands of the sales force.
Where we're seeing exceptional demand. So was once believed that a solution like that would sit on premise, obviously, there's great appetite to increase functionality.
Improved version control essentially allowing clients to always be on the current version.
And to have lower hosting costs and improve security by moving over to our cloud hosted solution. So that's one very good example, not contributing today are it's something that we'll probably.
When we turn the fiscal year start to include and will obviously cover this in November so we see great excitement in the market for that.
Cdti clinical documentation improvement also a similar story.
Sitting down below the Dragon medical family today, not included and they are.
As CD one.
Comes to the market again.
While we don't have a lot of market penetration such as in the power scribe base. This really becomes a greenfield opportunity to help grow the business with a cloud solution. So those are just a couple of examples CA PD, India may which you've heard us talk about our solutions in the Dragon family today.
Just beginning to gain some momentum and contributing to air are.
We announced this quarter.
Socket, you know the expansion of our CA PD to cover the surgical segment.
Clinician, if you will and we're seeing great traction with that.
Very early so.
Again.
Everything that we're focused on here is around growth around recurring models and around cloud based.
Architecture and hosting environments. So.
We're excited certainly these will all contribute in 20 to air our growth.
But we're just obviously here in the fourth quarter, just trying to finish the year in a positive way.
Got it that's helpful.
Dan maybe maybe for you.
Obviously, a lot of moving parts this year with with a couple divestitures.
I guess on the on the revised cash flow guide like increased cash flow Ratably, you've given here for fiscal 19.
I guess, how much how much would you sort of a tribute to the auto business.
And how much would you call out in terms of being restructuring related legal advisory fees any sort of any sort of one time significant cash outlays here in 19 as whole sort of auto contribution, which we which we wouldn't expect to repeat in future years, how much how would you size that.
Yes, Saket great question both of them. So we havent yet disclosed the details of the auto cash flows and we will do that of course in short order as we start to talk more about the business and get the spin ready.
But but I would say I'm a good framework to consider would be the profit model for the auto business. So we've got 35 or 37% segment margins that we discussed.
If you then.
Put a gene a load on top of that of 6% to 7% you're sort of in the operating margin range of around 30%.
And that's a good proxy for a sort of the income that that generates plus some some deferred revenue benefits that we talk about every single year that the that the auto business enjoys that puts you in a in a rough ballpark for cash flows for the auto business.
As as it related to the restructuring we sure have had a lot of change. This year. So when you think about the restructuring and cost initiatives that we've had during the year. The auto stand up the auto separation the imaging separation and a lot of that is still occurring.
You know I think you should probably think of that slightly over $100 million or so of cash flow impacts.
But I guess the last thing I'd say about that is as you look forward 2020 is still a big year for us of change we talked about this once image once once auto is behind US a effective October 1st.
We then have to get onto the difficult work of.
Some of this stranded costs.
And of course, the the T. assays are winding down for imaging and so so there's still some some cost work that happens.
The first half of 2020.
Got it very helpful guys. Thanks very much.
All right. Thanks.
Your next question comes from the line of Sangita Singh from Morgan Stanley .
Hi, Thanks for taking the questions and congrats for the team on a on a strong execution quarter ahead of the automotive spin really nice to see on the particularly the operating much improvements that were very impressive.
Mark maybe if I were to talk about the Dragon medical cloud business and maybe baby to sell shape that are traded at Dan. If we think about the composition of that a our guidance to 45 to 55, how much of that era or is represents the physician base. So the 550000.
Roughly physicians that are all the dragon medical platform.
Today, how much of that is on Dragon medical cloud what percentage they are does that represent.
This is Dan Thanks, Angie the what we've talked about is.
We're probably two thirds of the way through our transition, but but a good way to think about it is.
At the beginning of the year, we said 30% of the of the ER doctors in the US you know that 925000, Dr. count that we always provide.
We're using or subscribers to dragon medical cloud and at the end of the year will be in the 38% to 40%. So that gives you the rough math, if where we land at the end of the year against that 515.
Yes, Angie this is mark as well so you know the way demo growth takes place you know there's a number of ways that that line grows in the air are there is essentially dragon medical cloud.
The majority of that number the large majority of that number. So obviously sales driver there are with new units so new customers.
So when we sell existing customers using a license and on M. and S. and then ultimately we will.
Upgrade our legacy transcription or him customers. So yeah, there's really three ways to grow that de ammo line, which obviously contributes there are and then as we layer on our other solutions around T M. A.
See a P.D.C.P.D. surgical that continues to.
Sit in that same category dry bay are.
Understood and then if I could if I could ask a question on the enterprise business, it's been a really consistent performer over the last.
Over the last year, frankly, and I was wondering if you can give us a sense of.
The omni channel cloud offerings, I'm curious sort of competing up against in that space and what sort of driving.
Yes, the the nice win rates that you're seeing that's helping you sustain.
What's been really solid enterprise growth over the last several quarters.
Yeah, I mean, we agree and you know our business has you know I think the as largely been a voice based business think of AI VR and over the last two or three years and credit to the management team here you know moving us related that digital space. As you know we also did an acquisition about two two and a half years ago.
To really accelerate our digital footprint and when we talk digital we're talking around virtual age and.
So Chad just to cover a couple of the aspects and.
Now, we're seeing really good traction with this cloud solution in our digital space, where we have customers, you know volumes and transactions growing and new customers coming online. So.
I think you know and we're seeing great volume growth.
A wide competitive set of name competitors that we see a lot of which you know, perhaps you read about and.
You know don't necessarily play at the upper end of the market, but certainly we'll see occasionally we'll see a live person and some other types in that category.
Great. That's very helpful. Thank you.
Your next question comes from the line of Jeff Van Rhee from Craig Hallum Capital.
Hi, guys. This is really on for Jeff.
Couple couple questions for me, so I think starting with a sort of a two part of question EMS line and email cloud line no hands I think this quarter that sort of decline so to say that it was down 9% year over year and I know you.
The guidance was 16% decline is that moving forward now going to be in that I know, you've said, 10% to 15% for does that still hold and then on the DM, though cloud line. If we you know if we think about maybe a two three year growth rate for that line ex the migrations what does that line growing organically ex any of the migrations.
Yeah, So I'll I'll cover off and then Dan can certainly follow up you know I think when you look at the clinic clinical capture category that we have a in the prepared remarks.
We talked about it a in our opening remarks, you know.
Essentially him had a couple of conversions really two large conversions in the quarter that didn't convert on schedule to D.M.O. and that that obviously reduce the negative growth rate and you saw you know a little bit of goodness in the headline which we we don't mind degrading down at the benefit of the M.O. So think of you know you know one and a half type a million dollars of Inc. increased revenues in the him category at the expense of roughly similar number in the demo growth online demo, we'll still grow in the Fiftys 50 assert show percent mid 50% category for the year. So again like you know a little bit of timing, but you see the relationship which.
You know is what we've essentially been talking about growing the demo business. You know I think from a runway standpoint, you know we still have you know I think a very good runway ahead as far as converting you know both our D.M. and knee, which is on the license maintenance lines as well as our him customer base.
Quite honestly for several years to come.
So by no means do we think this is a a late inning type of conversion model and you heard Dan just a minute ago talk about you know really you know gaining to that 30, 840% market share for demo.
As we've said before also a roughly half our growth comes from you know if you will organic and the other half really comes from the conversions.
So you know we continue to see that kind of ratio Holden.
And we feel very good about the business.
Going forward don't forget we have also these other aspects of our cloud solutions, not just see a P.D. and into multiple specialties.
Certainly we're moving demo down into the mid market. That's one of our stated investments back from November that we're making good progress towards building a demo internationally. It's.
Largely a U.S. or North America centric solution today.
Just planting the seeds gaining traction internationally for demo.
And that would that would obviously be all organic growth and it would drive the growth rate, but we would expect an accelerated growth rate organically. So that's that's essentially how we're looking at the business for the next several years.
Not to mention a c. I, which is.
Certainly in the out years, but will drive.
Cloud growth in the clinical capture category.
Great that's great color and that's next one I just wanted to follow up on was the easy I know you called out Nebraska medical and emerge work, though earlier in the call and LIBOR just say there they're in beta trial period, right now, but expected to have full commercial launches.
Towards the end of this year and just mapping that I think previously you guys had said the early specialties were to be released in early twenties. So if you could just give maybe an update on on the timeline. There when you see those early specimens coming to market and then longer term how you see those rolling out moving forward.
Yeah, I mean, I think the timeline hasn't changed at all since we really started to disclose that are more publicly in the specialties that will go.
You know beyond early beta you know, but into the field that select sites is still on track same five specialties, you know quite honestly, we don't have a demand issue around our AC I solution. That's that's obviously a a great problem. If you all a great thing for us to have it's really you know right now we're very focused on the technology or the solution the capability and making sure that we bring our partners along for the early stages.
In 20, you'll see a those five specialties and behind the scenes. If you will will be again targeting another 15 to 20 specialties that.
Will slowly start to ramp you know these are you know I'd say at the extreme the most advanced A.I.M.L. type models that nuance is really producing its history. So.
These are solutions that learn as they go they get smarter a with the more throughput and that's essentially how these specialties.
Begin to ramp over the next two to three years I'm going forward.
Great got it thanks guys.
Your next question comes from the line of Tom Roderick from Stifel.
Well, it's actually Parker in for Tom. Thanks for taking my question. So you called out some strength in international markets with Dragon Medical licensing and I just wanted to.
[laughter] drill down on it on the whole roadmap there for the cloud transition can you talk about some of the technological challenges that have prevented customers from going directly to cloud in the past and why now is the right time for customers and in areas like Germany and France.
To really be thinking about going to the cloud offerings. Thanks.
Yeah, Hey, Parker. So I you know I think quite honestly, it's a market that you know did not have a pronounced focus for for the company Oh, we were largely a reseller or var type model speech kits were more you know of the solution and certainly none of it was cloud based and I think when we did this portfolio review that you and Tom would certainly remember back I guess a year ago. You know this is one of the opportunities with our research and with the analysis that we had done to say yeah. The markets. There are ready for cloud and hosting solutions and certainly we're we're wrapping our salesforce, where you know working on all of our hosted solutions.
Obviously, we're dealing.
Within a and E.U. framework around data privacy, and certainly very I think sensitive data when it comes to health care. So obviously respecting all requirements is key we think it's a differentiator for us as far as what we're willing to invest to make sure that's.
Where it should be so again I think what you're hearing from US is our Dragon license business is doing very well, we see very good good market acceptance. We're also now seeing.
Customers or prospects wanting the demo solution in the cloud solution faster than quite honestly, where even ready to to give them, but we're we're working very hard. So I don't know Rob if you have anything to add to that no. I think that's a well said I think you know moving forward, especially in Europe . As this becomes a something that you know all the the potential obstacles that Mark mentioned are all issues or or obstacles that we can overcome none of them are deal breakers, and we actually are well positioned right now to be able to have a strong solutions in all the key markets.
That weve identified prior to going into the year. So we feel like we're very very much on track for our for our growth plans in Europe .
That's great feedback and I guess as big an opportunity to ask you Rob what the sales coverage looks like and international markets like Europe , and and whether or not you need to invest further going forward to really address this opportunity.
Yeah, Thanks for taking the easy one up for me.
[laughter], we definitely or investing and that's part of it was part of our plan going into the year and we're positioned well to to further invest in sales head count as the solutions come online so we're able to sell into them.
Part of it is a you know culturally in the past we sold in a different model. So we are identifying a you know in addition, the upscale and the folks we have identifying the right talent to bring on board that sells in the new model and so yeah very much aligned to our opportunities there and excited to have the companys backing on that investment.
Thank you.
Your next question comes from the line of Dan Ives from Wedbush Securities.
Yes, thanks, [noise], so great quarter. So obviously it for rather Mark <unk> question in terms of.
In the sales force and just overall from a customer perspective, maybe talk about.
Well you seem to low hanging fruit in terms of what you're seeing so far in the field burst as need be over the next six nine months, where you think there could be some major shorter opportunity in terms of your penetrating the installed base. Thanks.
Bill I'll. Thanks for the question I'll take a run at that you know I'd say that.
There's there's always a competitors out there so there's not there's no there's no easy pickings, but there are markets that are underserved and I think mark and Dan mentioned them earlier.
In a in the mid market space, we have an opportunity to go in and really expand in that area that previously really didnt have much attention from many of the big players and certainly were I think that's well positioned as we've ever been in that space not only in intent, but in action because we have a team staffed up and we're ready to go in that space. So that's an exciting new development for us.
You heard me talk a little bit earlier about where we have opportunities internationally to go play and as Mark mentioned the strength of our offering.
As a differentiator because of its fully compliant it's locally locally available and we're we're in a short position. There. So I think those are a couple of good key areas, but there are other areas, where you know historically you know we might have been not as introspective as we've been I think the team prior to me coming onboard and then obviously now that I'm here, we've really had a.
Good hard look internally at where we could.
Expand our opportunities and now we have as we look out are really some strength in a in domestic markets to look at territory territorial coverage of our teens and again the companies has been willing to invest in expanding the sales force in those spaces and so I think you know we have just great opportunity in our existing markets to expand just with additional cover so.
Those are just a few <unk> to to name.
[noise].
Your next <unk>.
Go ahead Dan.
Yeah, I mean I was just <unk> just as a follow up I was going to ask.
In terms of health care.
And just a lot of those deals are you starting to see.
Larger deals more on was hospital wide deals is there a change in the pipeline when you're starting to see especially on the cloud side those types of deals even from the transaction central sizes.
Rob you want to I think you know I I don't know I think we have a good mix frankly I mean.
Historically, we <unk>, we definitely did deal and the larger end of the of the market because we have them you know the scale and the ability to deploy quickly in that space, but.
I think we're starting to see now in health care, but in all of our business the opportunity to go into the mid market and our end you not only the opportunity, but the ability a wheel products and now we have folks in that space to be able to deploy so I think we we benefit from a a wider range than ever.
Yeah, Dan This is mark yeah, So I I think Rob said it.
Spot on I mean, I think you know since he's joined and it won't surprise you. He I think done a very nice job looking at you know sales coverage models, where revenues and bookings have been historically coming from the concentration of those and in addition to the strategic investments that we started before his arrival.
I think Rob recognizes that you know why where we have been historically very acute you know at the high end of the market focused with our health care sales force a in addition to having the midmarket opportunities, which you know is all new all organic hiring up sales people and teams.
By the way we have the product in demo ready so it's not as if it's a a road map issue and I think Rob's also recognizing the opportunity for territory coverage and productivity even in the acute space. So I think and that's just in the North American model. We I mean, I think the crux of your question was have we seen a change in any buying patterns at the up into the market, which I think the answer is no I'm certainly the ambulatory or outpatient model is being embraced by the large you know networks are I'd ends as well. So I think all of this really is in our favor.
Two really great you know create some good momentum from the Salesforce standpoint and of course rovs putting all.
The right kind of incentives and recognition programs in place that.
You know our hundreds of salespeople tend to really appreciate and get motivated by so.
We are in our fourth quarter as you know Dan so.
We have a lot of excitement and a lot of energy in the system to finish strong on the sales side.
Great. Thanks.
Your next question comes from the line of Shaul Eyal from Oppenheimer.
Hi, congrats on the quarter and revised guidance. This is actually yeah, so shallow or just have one or two quick follow up question, a one penny of taking back off that Dan's earlier question you got to know our geographic expansion mix seems like France, and Germany has performed very well during the quarter. We will I was wondering if you could give us more color on the I guess revenues split between like the geography, whether it be on the Oh, APAC as well as the U.S.
Yes. So again, thanks for the question I'll I'll take this one we were we're avoiding talking about any specific one country and revenue and certainly a any A.R.R. by country. You know our foot print is still very or you know I think a early stage you know I think we're seeing strength in France, Germany, we're seeing strength in the Nordics you know Weve had business.
You know throughout you know you know aspects like the UK and Australia, where we're seeing you know I think good traction as well.
But you know, we really don't get into the level of detail you know other than just kind of the quarterly messaging of really where we had.
You know kind of exceptional performance in any specific country or region.
Okay Fair enough and my follow up question Genesis about capital allocation objectives understood that a buyback to multiple though that is the business has been generally generating healthy free cash flows, let's wondering besides buybacks and I know that auto spinoff as schedule.
Later this fall in October 1st.
I guess well staffed on a what are the I guess capital allocation policies like well well would you was like that's it.
Hey.
Yeah, I mean that you know there you know we've been very focused on this topic you know for the last year near a year and a half and you know balancing.
You know share repurchases that we view as opportunistic and at good values of course.
And show the confidence that we have in the company also at the same time, you know delevering, our balance sheet, a bit which has been another important priority for us which we've done.
And I'm proud of the team for kind of the the performance and the outcome here today, where we could.
Talk to you about two and a half net leverage rate, which is you know a far cry from where we were just even a year ago.
So those will continue to be I think front and center in our capital allocation priority list and certainly as we see.
The opportunities to advance our strategy or accelerate a growth within the company. You know we will consider M&A opportunities certainly as really the kind of that third leg of how we prioritize the use of capital.
And as we have been as we'll continue to do so it's not necessarily any hard pivot, but it's certainly one that.
You know I think the you know the our balance sheet will enable us to to consider as a as a part of our strategy.
Thank you for taking my question gentlemen, and congrats on the quarter.
Thanks Ian.
I will now turn the call back over to Mark Benjamin for closing remarks.
Okay, well. Thank you very much everyone for joining us and we appreciate the questions. Thank you.
This concludes today's conference call you may now disconnect.