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spk09: Good morning and welcome to the Nuance Communications first quarter earnings call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would like to turn the conference over to Mike McGuire. Head of Investor Relations, please go ahead.
spk10: Good afternoon and welcome to our Q1 2021 call. I hope everyone is remaining healthy and safe during these times. Joining me today to discuss our Q1 results are CEO Mark Benjamin and CFO Dan Tempesta. Additionally, during the Q&A portion of the call, we will be joined by Chief Revenue Officer Rob Dada. 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 uncertainty that could cause material differences in our actual results. Please refer to our recent SEC filings for a discussion of these risks. All references to income statement results are non-GAAP, and all references to year-over-year financial comparisons are on a continuing operations basis unless otherwise stated. As noted in our press release, we have issued prepared remarks in advance of this call, which include a full reconciliation of continuing operations to total operations and 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.
spk02: Thanks, Mike, and thank you all for joining us this afternoon. I hope that everyone is staying safe and my thoughts remain with those whose lives have been affected by COVID-19. I'd also like to speak on behalf of our entire Nuance community in expressing my deepest gratitude to all those who are working on the front lines to keep our global community safe. As I've stated before, 2021 in many ways marks a new era for Nuance with a clear path towards growth and execution against our strategic and financial initiatives. And we got off to a great start in Q1 with strength on both the top line and bottom line as revenue and EPS exceeded the high end of our guidance ranges, that $346 million and $0.20 respectively. I'd also like to congratulate our sales force on their strong execution in this ever-important start to our fiscal year. In healthcare, the dedication of our sales force to our cloud-first approach resulted in a robust ARR performance starting the fiscal year on strong foot. This execution led to a solid performance across all core cloud platforms, growing healthcare cloud revenue 28% year-over-year. In particular, we generated strong year-over-year growth in Dragon Medical and DAX cloud revenue as we move our installed base to the cloud and pursue underpenetrated markets for DMO and execute on the early stages of our land and expand strategy for DAX. Additionally, today we announced the acquisition of Seikara, an impressive startup that will help to further enhance the long-term product roadmap for our DAC solution. And finally, we launched our omni-channel patient engagement virtual assistant platform, powering healthcare's digital front door, which leverages an established area of expertise in our enterprise business to address a critical healthcare trend. In enterprise, we delivered a record revenue quarter as we continue to execute on our AI-first approach. Underlying this strength was particularly healthy performance and intelligent engagement with one of our strongest quarters ever for our security and biometric solutions. And lastly, I'm honored to announce that last month, Nuancers ranked the number one best place to work for in 2021 by Built in Boston. As most of you know by now, creating a culture where our employees are supported and able to do their best work is incredibly important to the executive team and me. I'd be remiss if I didn't take this opportunity to congratulate our talented employees who are the bedrock behind our incredible culture at Nuance. It's their shared passion that keeps us on the cutting edge, delivering superior outcomes for those we serve, as evidenced by our strong financial performance and Q1 results which I'd like to highlight now in greater detail. Looking at our healthcare business, Q1 marked yet another strong quarter for our clinician platform, with Dragon Medical and VaxCloud revenue growth of 22% compared to Q1 of last year. We continue to expand our Dragon Medical One footprint through a combination of transitioning our installed base to the cloud and increasing our market share in under-penetrated markets, such as ambulatory and international. On the international front, this quarter, we completed a key clinical safety compliance milestone for DMO in the UK, marking an important step in the expansion of our presence in that market. Overall, we saw strength in the quarter in the UK, Germany, and France with key wins at Manchester University Foundation Trust and the joint management of Bendy Public Hospitals. Building on this momentum, we also launched Dragon Medical One in two new international countries, Ireland and Spain. Importantly, we are leveraging this growing base of DMO users to seamlessly layer in additional solutions, including our computer-assisted physician documentation, or CAPD, to organizations such as McLeod Health in South Carolina, who adopted our surgical CAPD solution to improve costs and ensure accurate reimbursement. Beyond these financial outcomes, organizations leverage CAPD's great functionality for a range of additional benefits, such as Kettering Health in Ohio, who selected CAPD to improve both patient safety and overall outcomes in emergency room care. Moving beyond our core Dragon Medical One platform, we continue to see positive traction with our state-of-the-art Dragon Ambient Experience Solution, or DACS. The Private Diagnostic Clinic of Duke Health, San Joaquin Hospital, Mercy Health, and Blades Eye Clinic, among others, are selecting DACs to reduce physicians' administrative workloads, increase patient throughput, and improve the patient experience by allowing the doctor to completely focus on the patient. In addition to the strong value proposition, our DACs momentum is also due in part to our robust digital marketing efforts and the resilience of our sales force in embracing virtual selling. In fact, quarter over quarter, we saw a 48% increase in virtual DAX demonstrations delivered to prospects. And while we remain laser focused on landing new clients for initial deployments, we are encouraged to see early progress with client expansion. as 40% of the deals signed in this quarter were for our existing DACS customers to expand to additional physicians. As an example, last month we announced that Rush University Medical Center expanded use of DACS to 14 clinical specialties, and we are excited to see similar traction with organizations such as WellSpan Health, Connecticut's Children's Hospital, and Cooper Health, all who are expanding their DACS usage. Finally, we continue to expand the reach of DACs to even more physicians, with the offering now available in 16 specialties, including the recent rollouts of oncology and rheumatology. Overall, we are highly encouraged by the early traction of DACs and view this positive momentum as a testament to the strong value proposition and ROI of the solution. Solving the pain point of clinical documentation, reducing burnout, and restoring the joy of practicing medicine is what motivates us here at Nuance every day. With that in mind, I'm excited to announce our acquisition of Seikara, a Seattle-based startup that shares our strong sense of purpose in combating the epidemic physician burnout through the development of mobile AI technology that automates clinical documentation for physicians. With this acquisition, we are bringing together the best and brightest minds in AI, machine learning, and ambient technology for healthcare by adding Seikara's leading scientists and developers to our world-class R&D team. This talent includes Seikara's founder, Harjinder Sandhu, who is very familiar with Nuance, having previously served here as an executive in R&D, and whom we are very excited to have rejoin our Nuance family. We are confident that Seikara's complementary technology will not only benefit our portfolio, but also enhance our multi-year product roadmap for DACs as we remain committed to solving some of healthcare's largest challenges. Moving on to our radiology business, we continue to see strong demand for our cloud-based solutions and add-on offerings. We were able to showcase some of these exciting offerings at the annual meeting of the Radiological Society of North America, which took place in an all-virtual format this year. The sales and marketing team maximized this virtual event with nuanced sponsored presentations as well as an online demonstration of our AI-powered, cloud-based radiology experience of the future, which showed how the capabilities of our diagnostics portfolio combine to transform radiology reporting for a changing world. We continue to bring disruptive innovations to the market, including our AI marketplace offering for radiologists which I recently discussed at the J.P. Morgan Healthcare Conference. With the AI marketplace, our deep existing integration into the workflow of radiologists affords us the unique ability to connect AI algorithm developers and end users within their existing workflow. The AI marketplace gives radiologists a convenient, one-stop shop to select, prove, and use AI in their workflows. And the most recent innovation that we first announced last month is our new patient engagement platform. Leveraging our extensive experience in customer engagement with the globe's largest customer service companies, like American Airlines and Rakuten, our patient engagement platform enables healthcare organizations to deliver world-class engagement experiences to their patients. With an estimated 84% of patients under 40, looking for a provider that uses advanced patient engagement technology, we are excited to help organizations address the urgent need to transform the access and delivery of care in the modern age of digital medicine, and we feel we are perfectly positioned to naturally extend our customer engagement solution into our strong base of hospital systems. The satisfaction and positive experience of our healthcare customers is a crucial driver behind our success, and that satisfaction was further validated in recent weeks. First, Nuance scored its highest net promoter score to date, coming in at 59, well above the software industry average of 30. And second, our Dragon Medical One platform was recognized by Class Research as the winner of the 2021 Best in Class Award, a direct result of the clinician praise we received in helping to deliver improved patient care. Along with this recognition, we are also pleased to have won the best in class for our quality management solutions for the sixth time in CLAS's annual software and services report. These impressive milestones are a testament to our relentless focus on customer satisfaction, and we continue to build upon the success across all of our business lines. Turning now to our enterprise business, we achieved a record level of enterprise revenue beating our previous high from Q1 one year ago. With the world increasingly operating on digital channels, an unfortunate consequence is the increased number of opportunities for fraudsters and bad actors to try to infiltrate customer accounts. This has only been exacerbated by the pandemic, during which current Nuance Enterprise customers have seen the volume of fraud attacks increase by 200 to 400%. And with the shift to digital-only accelerating, we have seen an increased demand for our security and biometric solutions, particularly in financial services, telecommunications, and the mid-market as enterprises seek to protect customer safety and enhance customer loyalty. For example, in Q1, the Industrial Bank of Korea, or IBK, deployed our market-leading voice biometric technology to create the industry's first biometric solution for video calls. By leveraging Nuance AI, IBK is protecting more than 100,000 customers from fraud by authenticating their identities during both video and phone conversations. And we continue to expand our capabilities beyond just authentication, signing our first deal in the digital identity management space with Verizon. As part of this joint venture with other leading telecommunication companies, Verizon has developed an application named ZenKey that works to identify the creation of fake accounts by fraudsters and bots. ZenKey will utilize Nuance's voice biometric solution to identify and authenticate customers in a secure and seamless way, marking an important new use case for this offering. Beyond this success in security and biometrics, During the quarter, we saw strong traction with our broad portfolio of omnichannel enterprise solutions as we delivered our AI-first capabilities to strengthen the customer experience. A great example of this is through our involvement in the nation's health insurance open enrollment process that takes place each fall. Once again, in conjunction with one of our partners, we were a trusted vendor for the Center of Medicare and Medicaid Services, or CMS, who is responsible for ensuring that all eligible parties are enrolled with the proper health insurance for the upcoming year. Over the eight-week period leading up to and during open enrollment, our digital solutions left almost 18 million automated messages to over 5 million distinct customers, transacting about 750,000 calls each day. Our digital customer engagement portfolio continues to help brands deliver the streamlined, frictionless, and fast conversational experiences that consumers expect and appreciate. Another important example of this is our recent international win with SpiceJet, one of the largest airline providers in India, who selected Nuance to launch Pepper, the first bilingual AI-powered virtual voice assistant in the Indian airline industry. The hard work of our enterprise team has positioned us to become one of the strongest brands in the customer engagement space, and this has not been overlooked by third-party research organizations. Just last week, Nuance was named the top vendor by Opus Research in their 2021 Decision Makers Guide to Enterprise Intelligent Assistance Report for the fourth consecutive year, recognized for our unmatched omnichannel deployment, superior platform, and rich APIs. In addition, Nuance's Gatekeeper solution received InfoSecurity PGs 2020 Global Excellence Award for Service of the Year, AI and Security. These prestigious global awards recognize cybersecurity and information technology vendors with advanced groundbreaking solutions that help set the industry bar higher. And we look forward to raising this bar even further in years to come. Beyond our many successes across healthcare and enterprise this quarter, We continue to make great strides in creating a work environment where our employees are supported and rewarded for their important contributions. That's why I'm extremely proud that in addition to being ranked number one best place to work in Boston, we also rank as the top company for best perks and benefits and one of the best paying companies in Boston as well. This is on the heels of other impressive accomplishments. including being named one of the Boston Globe's Best Places to Work last month, scoring 100% on the Corporate Equality Index, and being named one of the best places to work for LGBTQ equality for the third year in a row by the Human Rights Campaign Foundation. We view these external recognitions as a tremendous honor, both vital and strategic to our ongoing success as market leaders in conversational AI technology. We are building nuance for the future. And as part of that, we are constantly looking to attract, grow, and retain the world's best and brightest minds. So making investments in our culture and employees will remain top priority for us. We are extremely proud of what we've achieved to date, but make no mistake. We will continue to strive for further excellence as we move through 2021 and beyond. So in closing, Q1 marked a great quarter of solid execution against our strategic initiatives, and I want to both congratulate and thank our employees for their hard work and unwavering commitment to our mission. And with that, I'd like to pass it off to Dan to discuss our financial performance.
spk07: Thanks, Mark, and thanks, everyone, for joining us today. I want to start by echoing Mark's comments that our thoughts continue to be with those who have been affected by this trying pandemic. and we are extremely grateful for the hard work and resilience of the frontline workers through these unprecedented times. I also want to take a moment to recognize all our employees for their dedication to building a supportive culture in our work environment, one that I'm incredibly proud to be part of. Turning now to our results, I will begin with the discussion of our Q1 21 performance, followed by an update to our fiscal year 21 guidance. Overall, we are pleased with our strong start to fiscal year 21. We generated $346 million of total revenue in Q1, coming in above our guided expectations and resulting in a 4% decline year over year. This decline was primarily due to a non-strategic healthcare coding contract with the government that did not renew, which we discussed during our last earnings call in November, creating a difficult compare versus Q1 of last year. Our profit margins had an excellent start to the year with non-GAAP gross margins at 65.2% and non-GAAP operating margins at 26.4%. In our non-GAAP earnings per share, we're 20 cents for Q1, also landing above our guidance expectations for the quarter. Shifting to our segments, our healthcare revenue declined 7% compared to Q1 a year ago. again, driven by the government coding contract they did not renew. However, as a result of a recent request by the government for an extension, we now expect to receive additional revenue from this contract in fiscal year 21, which I will touch upon when I highlight our updates to guidance. Outside of this contract, we saw strength in our healthcare business in Q1, particularly from our cloud offerings. As Mark mentioned, healthcare cloud revenue grew 28% year over year in the quarter, driven by strong performance from our Dragon Medical One and CDE One offerings. This growth was partially offset by declines in our on-premise offerings as we transition our current installed base to a stronger cloud-based recurring revenue model for the healthcare business. This cloud transition is tracking well, and we remain confident in the full year revenue and ARR guidance we have provided which I will also touch upon shortly. Our healthcare segment profit in Q1 was very strong and came in at 37.5%, up over six percentage points quarter over quarter and three percentage points compared to Q1 of last year. These higher profits are the direct result of the mix shift away from our on-premise coding business and towards high margin cloud revenues, particularly within Dragon Medical One. Moving to the enterprise business, we had another strong quarter with record revenue of $139 million, which was flat year over year due to a strong Q1 a year ago. The performance this quarter was driven primarily by strength in security and biometrics as we continue to expand our use cases and adoption for these solutions. This strength was offset by lower IVR license revenue versus a year ago due to a tough compare. Enterprise segment profit in Q1 was 29.8%, up seven percentage points quarter over quarter, but down 40 basis points compared to Q1 of last year. As a reminder, enterprise revenues and its corresponding segment margins are subject to quarterly fluctuation due to the timing of license activity. And while we are pleased with our strong execution and pipeline during the quarter, I would encourage investors to analyze our enterprise segment performance on an annual basis. Turning now to our balance sheet, we ended the quarter with a cash and marketable securities balance of $374 million above our minimum cash balance target range of $200 to $300 million. Our cash flow from continuing operations in the quarter was $55 million, up on a year-over-year basis. And finally, last week, we closed a five-year extension of our revolver, extending the maturity to 2026, while also upsizing the credit facility from $242 million to $300 million. Overall, our Q1 results position us well to achieve our financial objectives through the rest of fiscal year 21, and I remain encouraged by our momentum in executing against our strategic growth initiatives. Let's now turn to guidance. First, I would like to point out consistent with last quarter, our Q2 and fiscal year 21 guidance contemplates the current environment with respect to the impact of COVID on our end markets. Second, with regards to the planned non-renewal of the government coding contract, the corresponding government agency has recently requested an extension of that contract through a portion of fiscal year 21. Therefore, our updated guidance reflects approximately $15 million of incremental revenue from this extension, the majority of which will be recognized during Q2. Thereafter, our guidance assumes no further extension or renewal of this contract. Taking this into consideration, we are providing the following updated guidance for the year. For fiscal year 21, we now expect total revenue in the range of 1.342 to $1.382 billion, up $15 million compared to our previous guidance range, implying organic growth of 5% to 8% year-over-year. Our full-year EPS guidance remains unchanged at 71 to 77 cents, despite the higher revenue expectations, due to accelerated R&D and sales investments, and an increase in our diluted share count to 318 million shares. I would remind investors our diluted share count is impacted by our stock price, which is currently trading above the conversion price of our outstanding convertible notes. Additionally, we are reiterating our full-year cash flow from operations and free cash flow guidance ranges of $270 to $310 million and $215 to $250 million, respectively. Turning to our segment guidance, Taking into consideration the government coding contract extension, we now expect healthcare revenue for fiscal year 21 in the range of $782 to $802 million, implying 9% to 11% growth year over year. All other full-year guidance ranges for healthcare and enterprise remain the same. Additional color on our Q2 and updated full-year guidance can be found in our prepared remarks document available on our investor website. Before opening the call to questions, I would like to let you know that we will be attending the SVB Larrink Global Healthcare Conference on February 25th and 26th in the Morgan Stanley Technology, Media, and Telecommunications Conference on March 1st. Both conferences 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.
spk09: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Sanjit Singh with Morgan Stanley. Please go ahead.
spk04: Hi. Thank you for taking the questions. A nice start to this new fiscal year. I have two questions. I want to start first from a macro perspective. You mentioned on DAX, you saw 40% of the deals in the quarter were expansion deals, which was nice to see. But broadly, when we think about the country going through vaccinations and sort of the workload that puts on hospitals. Has that sort of impacted deal activity or people getting out of pilots in the quarter? Any sort of view on how vaccinations and how that's going to play out over the next couple months could impact deals getting done?
spk02: Yeah, sure. Hey, Sanjay, it's Mark. Thanks for the question. I'll start. I'll hand it maybe over to Rob to give additional color. But we agree we're off to a great start, so we're really thrilled. Um, you know, we, we obviously, um, watch the hospital systems quite closely and, you know, throughout COVID we've had kind of these peaks and valleys, you know, based on case counts and, you know, the vaccinations have certainly, I think, added to a quote unquote distraction, you know, at, at the systems, but obviously it's a one month, we all welcome over, over everything. So, um, You know, I think we've seen, you know, just the kind of continuation of the COVID effect, if you will. And we haven't seen anything, I think, turn against us or for us, you know, in any significant way, rather than just a more consistent, you know, COVID impact. And I'll let Rob comment on anything else.
spk08: Yeah, so I think Mark said it well. I think you know overall there's definitely. I mean, you know it's a welcome distraction if it is one, but each system is dealing with it a little differently. There's not a straight blueprint that you know there's a we could just point to and say hey, we're going to expect this. You know across the whole space. So you know, thankfully it actually hasn't been a distraction to us and you know we've been. We've been working through it system by system and and again, If it is a distraction, we're happy to have it for the potential outcome.
spk02: Yeah, Sandra, one other thing that may also give you a near data point is that, you know, we watch, you know, volumes, you know, across certain parts of our healthcare business, and the volumes that we're able to measure have essentially stayed flat. They're not yet at pre-COVID levels, if you will, but you remember over the last couple quarters we've talked about it returning to roughly 90% of the pre-COVID levels, and we're seeing the same result through the past 90 days. So if that gives you any sense for how the systems are handling.
spk04: That's great color, Mark, and really good to hear. And then maybe we talk a little bit about the Seikara acquisition. Seikara definitely came up in our own work around DAX. around AI in terms of the clinical documentation workflow more generally. Is the right way, Mark, to look at Saqqara as sort of an acquihire, or is it bringing some new capabilities to DAX, to Nuance more broadly? And if I could add just one more to that, if you could address, is what does this acquisition say about the form factor that's likely to dominate over the next five to ten years? Is it going to be more of the embedded hardware software appliance, or is it going to be more of the mobile form factor? Does this acquisition speak to those trends in any meaningful way?
spk02: Yeah, sure. So that's a great question. Obviously, we're really excited about Saekara. You know, to begin, you know, their founder, Harjinder Sandhu, you know, is an ex-nuance entrepreneur. you know, leader within the R&D group. So, you know, I would say we've remained friends and the engineering teams have remained, you know, quite friendly over many years. And, you know, when you get, you know, very smart teams of scientists working on really one of the hardest problems in health tech, if you will, you know, you have a lot to discuss. And in our view, it You know, and obviously in theirs, it became somewhat of we have an opportunity here to, I think, combine the world's brightest and smartest scientists on trying to solve this problem. So we obviously spent some time with them. You know, we felt like we could gain, you know, an incredible group of 25, near 30, you know, members to the DAX team, which is great for the solution and the roadmap. as well as we really did feel like some of their not just IP, but their capabilities and some of the feature functionalities that they were perhaps more focused on than us in these early days would be all additive to ultimately the DAC solution going forward. And I think those attributes will manifest themselves over time. So You know, for us, as we've said to you and others, you know, we view this as very much a long-term journey. So we're just really thrilled, I think, you know, to have, you know, his team and his company, you know, kind of come back to Nuance and really complement ours. On the modality, let me, I forgot that second part. On the modality or factor, I would say that, you know, You know, we're approaching the market with DACs, and I know, say, Cara, with, you know, the use of the mobile phone, many of our DACs users are still using the app versus, you know, the unit on the wall. And so I think ultimately that's going to become, you know, more of our customer choice rather than the form factor that, you know, having one leading with the other. Certainly telehealth creates another form factor, right? where the integration into a Teams platform, if you will, is right there within the desktop. And I think this is something that's going to support all types of modalities and use cases from the phone to hardware in the room to other use cases.
spk04: Appreciate the thoughts, Mark. Thank you very much. All right. Thank you.
spk09: Our next question comes from Saket Kalia with Barclays. Please go ahead.
spk06: Awesome. Hey, guys. Thanks for taking my questions here. Mark, maybe first for you on DAX. That was a great data point just on 40% of the deals this quarter coming from existing customers sort of expanding the number of doctors. Maybe the question there is, What specialties do you find are growing in adoption? And how is that sort of changing that average footprint for a hospital, that average footprint per hospital? Understanding that it's still very early, but does that all make sense?
spk02: Yeah, hey, Socket. It does, and, you know, at the fear of frustrating you with my answer, you know, because we're seeing like a variety of, of cases across our early docs customers that are now expanding. For example, in the quarter you saw us talk about Rush, where they're expanding a number of different specialties on lower doc counts. And we announced four expansions in this quarter. There are others as well, because none of the customers are buying docs with the intention of just starting and keeping at the, call it, low levels that we talked about, the 10, 20 initial deployments. So, you know, what we're seeing is an expansion of customers staying within early specialties and expanding the dock counts. And we're also seeing, I would say, you know, equally the same, you know, specialty expansions within, you know, our early DAX customers. So, you know, we're watching it very closely because we'd love to, you know, find that trend line. And Rob would love to focus, you know, as precisely as he could to accelerate growth. But, you know, we feel very good about it. And I think, you know, the fact that, you know, we announced this quarter called 40% of the DAX bookings on expansion cases, you know, that's a super, you know, encouraging sign for us, you know, this early, I think, in DAX's life. So, Again, I'm not maybe giving you a precise answer because we're really seeing, I think, a variety of ways our customers are really focused on, you know, adding to the population using it.
spk06: No, that makes sense. That makes sense, and it's good to hear as well. Dan, maybe for the follow-up for you, it was helpful to hear some of the strength in intelligent engagement within the enterprise business, that is. Can you just remind us what you've said about how big intelligent engagement is in the context of the broader enterprise business and maybe how the revenue components inside of intelligent engagement are different than the IVR part of the business?
spk07: Sure. Hey, Socket. Nice to hear from you. And, yeah, enterprise had a terrific quarter this quarter, so we were really pleased. You know, when you think about intelligent engagement, it represents around 45% today of the broader enterprise business, and that will grow over time. We talked about IVR voice being flattish over time and the growth, the longer-term growth, that 4% to 7% over the midterm really coming from the intelligent engagement business. When you think about the components, historically, the voice IVR business has been primarily license, M&S, and professional services, so a traditional license-type business. The intelligent engagement is a real mix. It can really span across all the different revenue categories and delivery types of method, but the largest category is the hosting category, and so we're very focused on the cloud in that space.
spk06: Very helpful. Thanks, guys.
spk09: Thanks, Rocket. Our next question comes from Stephanie Davis with SVP Learing. Please go ahead.
spk01: Thank you. And as always, congrats on the quarter. Another solid being raised.
spk02: Thanks, Stephanie.
spk01: So I wanted to continue on the Seikara question. The deal accelerates your headcount for a space where it's traditionally been very tough to recruit. Does that mean you'll be able to leverage this to accelerate your backend improvements around DAX for quality review automation? Or are you planning for now to keep the teams relatively separate?
spk02: Well, let me start with the last part of the question. I'll work into the beginning. The teams will definitely be integrated, and they've already begun that process. So we're very excited about that. And, you know, I think As far as roadmap acceleration and product sophistication, if you will, acceleration, we have a very aggressive roadmap to begin with. If my R&D leaders were here, they would say, please don't answer the question with acceleration. I think they're right. I think we're still trying to solve a very hard problem. Relative to automation, I think You know, certainly having 25, 30 new members of the team that have spent many years trying to solve the same problem is obviously incredibly helpful. And so I think time will ultimately tell, you know, if we can get there faster. At the same time, you know, SACARA does bring not just these talented employees, but it also does carry with it some IP that we feel is, you know, additive to, you know, you know, the capabilities of DAX over, you know, the kind of midterm, if you will. So for us, it was really just quite natural. And of course, you know, when you're able to welcome, you know, you know, someone back to the company that's, you know, you know, knows everything about our culture and has really developed a lot of his own capabilities and cultures at a different company, it kind of, it's real nice.
spk01: Before I continue my next question, I have one jab. How are you going to keep him in the company this time? He keeps leaving in and developing more stuff you guys are buying.
spk02: Well, perhaps, but I feel pretty good. I've gotten to know Harjinder a little bit, and I know that I think for this to have worked, I think there had to be a very mutual respect of you know, the two companies' directions, the two companies' capabilities. And I really said, I think I said it earlier, you know, I think, you know, finding, you know, a set of scientists and incredibly smart individuals that are trying to solve a similar problem to another equally smart and bright set of scientists, I think that's where the magic can really be created and happen. And I think it, you know, I think that's the opportunity here. So... More to come, I think it'll be a real positive path here.
spk01: I understand. And one last one out of me, just given we've been monitoring Saekara and they've had a lot of wins on the med group side, could this expand your reach a bit more into the ambulatory practice side of the world, or is that still TBD?
spk02: I mean, listen, I think Saekara's strength is incredible. really building on the engineering and product capability side. And I think, you know, one of the complementing factors here is really putting our go-to-market along with their capabilities as well. So, you know, and as you know, Stephanie, we've been focused ourselves, you know, on that mid-market ambulatory space with good results. So I think they complement each other. You know, I I think, you know, largely, you know, the reason this made sense was less about, you know, customer footprint, because that's certainly, it's super early days for all of us. But I think, you know, what I mentioned earlier is really the appeal.
spk01: Understood. Super helpful, and congrats again on the continued execution.
spk02: Thanks, Stephanie.
spk09: Our next question comes from Daniel Ives with Wedbush Securities. Please go ahead.
spk11: Thanks. So, and first for Robert and then Mark, obviously, as well. When you're seeing a lot of these DACS deployments, what sort of surprised you as you're sort of now getting into some of these sales cycles and expansions? I mean, is it, does it feel like the expansions are happening quicker than expected, the types of customers, whether it's specialists or hospitals? Can you maybe just dive a little deeper into some of these interactions with customers on DAX?
spk08: Yeah, so this is Rob. Thanks for the question, Dan. So, you know, if there are any surprises that really, you know, to the upside, and I think probably not a surprise, but what's really, you know, been gratifying and reassuring is that pretty much universally, you know, when the physicians use it, they experience, you know, an immediate increase in their quality of life. And it comes across in varying ways in terms of how they give us the feedback. But right at the user level, and it's not like weeks into using it, it's like days into using it. So I think that's been really a strong positive for us here early on. And it's great to have them helping us as we go through the selling cycle. So I think that's been really positive. I mean, certainly having launched something as game-changing as this solution is, right into the pandemic, you know, that part we learn every day because we're really selling, you know, the entire selling cycle has occurred in a non-standard environment. You know, that's from the, you know, leveraging the great skill set of an experienced sales team with a new solution in the market. And so, you know, we still learn in that respect every day. But I would say, you know, again, it's a positive thing in terms of what we didn't expect, the resilience of the solution, the tenacity of these conversations that continue through all these different challenges, which you well know. So I think overall it's been positive, and the expansions only validate what the team thought of when they first conjured the idea and brought it to market. And so we feel fortunate that we're able to have folks not only buy once but buy again.
spk11: Great. Could you sure expand on Microsoft as a partner, especially when we think about everything they're doing on the, on the ACI front and how they play into spreading the gospel, especially on some of the next gen technologies.
spk08: Yeah. So I'll stay, I'll stay on that if I could. Um, you know, we've been, we just continue to be super pleased, um, you know, and grateful that we have the opportunity to work as closely with them as we do. I think we think about the market in similar ways. And so, you know, it's really, we go to market together in a complimentary manner. And it's not just, you know, on the healthcare side, it's across our whole business. We have opportunities to work closely together and to really enhance much of what they're doing. So we think it's a big draw because it's not just a chance to go to market, so to speak, and get more distribution for our stuff. But our stuff, we think, helps create great interest in some of the stuff that they sell. So it truly is a complimentary offering on enterprise and healthcare. It's still early, but we have dedicated teams on both sides, and we have great levels of access within their organization. I get to meet with the top levels of their teams across the whole enterprise of Microsoft. And so, you know, when I see that level of interest at this stage of the game, I know we're out to something really good. And, you know, every week we find a new nugget somewhere, and we're working on ways to work that, you know, efficiently to the benefit of our mutual customers really at the end. And that's where, you know, once that starts to kind of, you know, become that kind of regular process, I think we're going to really see great results.
spk11: Great. And Mark, any additional thoughts? Thanks.
spk02: Hey, Dan. No, I mean, I think Rob hit it. I mean, certainly on the DAC side, you know, we're seeing very promising results. You know, we continue to obviously measure the data, you know, and some of the data that we saw early continues to really hold quite strong. I mean, there's the whole patient side of DACs and really the many benefits that you know, we don't speak a lot about, but, you know, kind of data points where patients, you know, are feeling, you know, 95, 98%, you know, more time spent with their physician who's not focused on the computer, greater satisfaction in the appointment. So there's just, there continues to be just, in many ways, like contributing data points that we learn, you know, that obviously will help shape our product roadmaps, but help us learn of the value that the solution can create. And it's different per physician and at times per institution. The Microsoft relationship, I'd say from day one, we've continued to really, I think, appreciate and benefit from that partnership mutually. And I think that continues, as Rob said, certainly on the go-to-market side where quota can be shared and targets can be worked together in very complementary ways, as well as the access to great capabilities on the tech side and the core tech side, I think, are meaningful to us for the future. So I'd say all very positive, Dan.
spk11: Awesome. Thanks, everyone.
spk09: Thank you. Our next question comes from Vikram Kesevobotla with Guggenheim Securities. Please go ahead.
spk03: Yeah, thank you for taking the question. I wanted to start on DAX, and in particular, I'm just curious if you have any updated thoughts on the pricing strategy there, if you've learned anything through these initial expansion discussions or maybe your latest feedback from customers and through the pilots and through your demonstration, just any updated thoughts on the pricing model.
spk08: Hi, this is Rob. Thanks for the question. You know, largely, you know, we still are enjoying, you know, kind of a similar trajectory in terms of the pricing right now. We're focused on, you know, based on customer feedback also on subscription models that really benefit them with understanding, you know, how they're going to pay and creating a more predictable pattern of payment. You know, we learn, though, every day on how they want to consume it. And so, you know, we've continued to be responsive. But overall, I think we're in a really good, you know, position in terms of leveraging their feedback, putting out something that, you know, resonates with them and is around, you know, the same price point that we've been discussing, you know, over the past, you know, since the launch essentially.
spk02: Yeah, Vikram, this is Mark. So, yeah, just a little more color on that. So, you know, for starters, I think you heard it from Rob just to make sure that You know, the price points we've discussed are still the price points, and there's no change to that. And I think, you know, additionally, you know, what we're learning, and again, you know, we're sensitive to our customers' needs, and quite honestly, you know, Nuance has built its great healthcare franchise with this level of sensitivity, you know, just given the margin profiles and the expense and budget process. you know, that may take place within these systems. And, you know, certain specialties may have, you know, different volumes of patient throughput, office hours, exam hours, surgical hours. So, you know, we try to work within, you know, I'd say a very controllable model on our side, you know, that's, you know, has low cost of administration and execution, but also I think gives the end customer what they need relative to DAX and DAX pricing.
spk03: Okay, great. And then maybe just one follow-up on that point. You obviously kept the DAX ARR guidance for this year in fiscal 21. I'm just curious if any of the deals that you've talked about so far, are they contributing to that DAX ARR number so far this year? And just how should we think about the cadence of execution on that fund throughout fiscal 21? Any color there would be helpful. Thanks.
spk02: Yeah. Hey, Vikram. So this is Mark again. So we're still holding the full year ARR guide. We gave the DAX guide for the full year of 10 to 20 million. We're not changing those numbers. But of course, everything we do every day, every week, every month, and every quarter contributes to those ARR numbers. So it goes in no matter what. And obviously, Rob's success contributes. entirely to that. So, you know, we did get off to a very good start, as we've mentioned, and it is a very good start, meaning it's Q1, and it's probably a little bit early. I think we need a little more time, a bit more execution, you know, over the next, call it 100, 120 days, you know, to really to know if our full year opportunities, you know, have changed.
spk07: Okay, great. Thank you.
spk09: Again, if you have a question, please press star then 1. Our next question comes from Jeff Van Ree with Craig Halem. Please go ahead.
spk05: Great. Thanks for taking my question, guys. A couple for me. Mark, as it relates to DAX, I'm just curious, as you've watched the opportunity evolve, your execution evolve, your technical capabilities evolve, how has your thinking on the addressable TAM changed? I'm sure you had a lot of question marks maybe about specialties, about some capabilities, how many of those million docs really ultimately were going to be addressable, but I wonder if there are a few milestones as you've been walking down this journey where there were kind of light bulbs that went on and said, okay, it's different than what I originally thought.
spk02: Hey, Jeff. Good to hear from you. I would say it's probably still early days. I'd say that we continue to make very good progress on the AI automation of the clinical note. And I think that's obviously the bedrock of the solution maturity, if you will. And I'd say that we're seeing very good results in those early specialties that have the volumes moving through them. And as we've explained in the past, you know, the add-on specialties actually require less data as you start to cascade through, call it all the, you know, kind of the ambulatory specialties, including primary care, which we also have in the market today. So, you know, very good progress there. And I think ultimately, you know, that keeps the TAM, you know, quite big for us. And, you know, we'll learn more, I'd say, in the next several quarters, you know, as these expansion cases begin to really, I think, blossom. Because, you know, we learn something when a customer goes from 10 to 20 docs within the same specialty. And we also learn something when a 25, you know, provider docs customer goes to 75 and spreads the specialties to three additional. So there's just a number of you know, I think use cases that we're, you know, learning, educating, and actually focused on that will ultimately yield in probably a more prescriptive response to you, Jeff. But for the moment, you know, the TAM-SAM conversation is probably a bit premature, but it will ultimately be something that rather than us do too much speculation on will ultimately, I think, yield.
spk05: Yeah, fair enough. Any change or kind of variance from expectations on your key cloud migrations, whether it's DMO, radiology, or CDE1, when you look at either the pace of the migrations or the retention along the path of migration?
spk02: I mean, I'll let Dan comment because I know he's dying to say something. But, no, I would say that, you know, Getting off to a great start was our number one goal for the year, and as you know, Jeff, in these high-recurring SaaS businesses, that's super critical, not just to feel good, but obviously for the full year. We continue to, I think, do very well against the portfolio that's still transitioning to cloud, as well as, I think, the new organic or strategic growth vectors of the cloud solutions. DMO internationally or in the mid-markets here or transitioning the Legacy Dragon base onto DMO. I think all things there, you know, we check the box on and feel very good about. Our radiology, you know, transition, which is still very early, moving to the cloud with PowerScribe 1 and getting the benefits of the platform there, you know, continuing to do you know, I think as we expected. So I would say all in all, CDE1 we'd include in that, which, again, is a smaller base that we've transitioned, you know, quite successfully, you know, early. So I'd say we feel good. Dan, you want to add any color?
spk07: Listen, I would love to add some more color to that, but Mark did a great job. I think we have a great start for the cloud this quarter. Everything hit, so we're feeling really good about the start, Jeff.
spk05: Yeah. Maybe if I could sneak one last one in there, Rob, I didn't get to get to you. So on the budgets, the buyer budgets, if you will, and sales cycles, what have you witnessed sort of last 90 days on either of those, any lengthening or shortening of cycles and anything surprising in terms of kind of how people are approaching their budgets?
spk08: Yeah. So it's Certainly, in the environment, it hasn't been easy on any budgets on either side of the house, enterprise or healthcare. But I think one of the things that we benefited from is there is spending, and our stack rank stays pretty high on the project list. So I think because of what we bring to the organizations that we serve, we're in the fight for whatever dollars are available. And, you know, it's up to us to prove that out in terms of, you know, the ROI that we bring. And so, you know, again, it hasn't been great. There's no easy money out there. But, you know, we have solutions that really make a difference for our customers. So we stay in the hunt all the way through. So, you know, no change, call it. But, you know, we're out there earning it.
spk05: Good. Good. Sounds good. I appreciate it. Thanks, guys.
spk08: All right, Jeff.
spk09: This concludes our question and answer session. I would like to turn the conference back over to Mark Benjamin for any closing remarks.
spk02: Okay. Well, I just want to thank everyone for joining us. Of course, I wish everyone, you know, great safety and good health during these tough times, and we'll speak to you very soon. So, thank you.
spk09: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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