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Nuance Communications (NASDAQ:NUAN)

Q4 2012 Earnings Call

November 19, 2012 5:00 pm ET

Executives

Kevin Faulkner

Paul A. Ricci - Chairman and Chief Executive Officer

Thomas L. Beaudoin - Chief Financial Officer and Executive Vice President

Analysts

Shyam Patil - Raymond James & Associates, Inc., Research Division

Daniel H. Ives - FBR Capital Markets & Co., Research Division

Jennifer A. Swanson - Morgan Stanley, Research Division

Brent Thill - UBS Investment Bank, Research Division

Richard H. Davis - Canaccord Genuity, Research Division

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Shaul Eyal - Oppenheimer & Co. Inc., Research Division

Scott Zeller - Needham & Company, LLC, Research Division

Gregory Dunham - Goldman Sachs Group Inc., Research Division

John F. Bright - Avondale Partners, LLC, Research Division

Nandan Amladi - Deutsche Bank AG, Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Nuance's Fiscal 2012 and Fourth Quarter Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded.

With us today are Chairman and Chief Executive Officer of Nuance, Mr. Paul Ricci; CFO, Mr. Tom Beaudoin; and Vice President of Investor Relations, Mr. Kevin Faulkner. At this time, I'd like to turn the call over to Mr. Faulkner. Please go ahead.

Kevin Faulkner

Thank you. Before we begin, I'll remind everyone that matters we discuss this afternoon include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to our recent SEC filings for a detailed list of risk factors. As noted in our press release, we also issued a set of prepared remarks in advance of this call, which are available on our website. Those remarks are intended to serve in place of extended formal comments, and we'll not repeat them here.

Now let me turn the call over to Paul Ricci.

Paul A. Ricci

Good afternoon. Before taking your questions, I would like to underscore a few key points. Nuance had an exceptional fiscal 2012. Our fiscal 2012 financial results were unprecedented, 25% revenue growth, 27% EPS growth, 29% net income growth, 32% operating cash flow growth, along with record bookings.

We're of course very pleased with these strong financial results. But equally important was a significant strategic and operational progress we made across our business. Nuance has become the industry standard for voice and natural language solutions, making our technologies broadly available to our APIs and developer tools. Our cloud-based developer programs are now serving more than 14,000 developers across our Healthcare, Mobile and Enterprise markets while also continuing to build broader application suites serving these key markets.

In our Mobile & Consumer business, we expanded our privileged position as a premier provider of voice and natural language solutions for the leading smartphone platforms worldwide. We continued our unrivaled leadership in the automotive market while delivering early success in the emerging market for connected car solutions. We entered another new market with the launch of Dragon TV and captured a majority of the leading television makers.

We increased the penetration of our Mobile Services through leading global carriers, smartphone makers and application developers. By the end of Q4, fiscal '12 we were, at an annualized rate, processing 5 billion mobile cloud transactions, shipping in 20 million voice-enabled cars and shipping voice and natural language or predictive text technologies in more than 800 million phones, all while supporting between 38 and 70 languages, depending upon the product.

We improved growth in our Enterprise business. We saw encouraging progress in our Enterprise on-demand business with renewed bookings in the second half of the year and record Professional Services. We processed more than 7.5 billion interactions in our on-demand centers.

We also unveiled Nina, a platform for delivering customized virtual systems for customer self-service. The Nina launch generated a great deal of enthusiasm from existing and new customers, and the breadth of our pipeline reflects unprecedented demand. Nuance has now achieved more than 3,000 deployments with our Enterprise Solutions, supporting 55 languages. Our rapidly growing voice biometric solutions comprise more than 70% of the total worldwide enrollment of voice biometric voiceprints.

In our Healthcare business, we saw continued strength in our Dragon Medical and radiology solutions and an expansion of our on-demand business, where we're processing nearly 5 billion lines annually.

More than 450,000 physicians now use Nuance Healthcare Solutions, and we're supporting a developer community in 22 languages. We recently began a strategic transformation, combining clinical documentation, CLU and computer-aided coding to implement a clinically oriented end-to-end solution that will revolutionize the industry's approach to healthcare documentation. We expect our Healthcare business to generate more than $1 billion in revenue in FY '13, placing us among the larger healthcare IT software and service providers.

In our Imaging business, the integration of our Equitrac and eCopy solution continues the evolution of our Imaging business towards OEM and Enterprise Solutions. More than 100,000 MFPs with Nuance embedded software shipped last year, and more than 1 billion printed pages were managed by Nuance Imaging software solutions.

We achieved this progress across our business while raising our operating margin by 190 basis points, significantly better than our guidance, and increasing our investments in R&D and sales and marketing. We intend to accelerate these investments in FY '13 because we believe they will increase our organic growth in the second half of the year and into FY '14 and because we believe they will further strengthen our market leadership.

The strength of our conviction about investing now for accelerated growth will be apparent to investors as they note the material increase in expenses this quarter, which are associated almost entirely with increased R&D investments, engineering services associated with large mobile engagements, sales headcount and advertising expenses. We simply believe that our markets are continuing to a transition whereby the paradigm of interaction with information systems will increasingly shift to virtual agents and intelligent systems, which seamlessly combine voice recognition, natural language processing, advanced dialogue capabilities and reasoning systems to better interpret and anticipate user intent. By increasing our investments now, we put ourselves in the best position to fully capitalize on this important opportunity.

We'll now take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from the line of Shyam Patil with Raymond James.

Shyam Patil - Raymond James & Associates, Inc., Research Division

I guess the first question is around the December quarter revenue guidance. It seems to be taking into account the more seasonality than previous years. Can you maybe just talk about that a little bit?

Paul A. Ricci

Well, there are several factors at work in the relative quarterly loading of revenues this year. One is that some of the revenue contribution, of course, will have been from our recent acquisitions, and experience has taught us to be cautious about the rate at which those revenues will come online. Secondly, we are dealing with a number of macroeconomic trends, which give us some caution as we think about the quarter. Perhaps the most important factor, however, is that, as we've mentioned several places in our prepared remarks, our revenues increasingly combine licenses, services and on-demand contributions, which tend to elongate the recognition of revenue and therefore, will result in some skimming of revenue towards the back half of the year.

Shyam Patil - Raymond James & Associates, Inc., Research Division

Great. And then in terms of the organic revenue growth acceleration you're expecting in the second half, can you maybe talk a little bit about what level you're thinking and what level you might be thinking at for 2014 if all plays out in the second half of this year?

Paul A. Ricci

Well, what I think we said in the comments that we published was that we anticipated organic growth for the year, the year we're in now, fiscal '13, being at or above the annual organic rate for the full year FY '12, which is the period of time in which we think it's most meaningful to think about growth rate. As I said in my comments now, we're increasing investments because we believe we can accelerate that organic growth in the second half of this year and in FY '14. I don't want to get into the business of providing FY '14 guidance. And you should think of those growth rates as being better than this, the current growth rates. But it's difficult to provide specific projections.

Shyam Patil - Raymond James & Associates, Inc., Research Division

Fair enough. And just my last question, could you maybe break out the acquisition contribution of what you expect Quantim and JATA to contribute in 2013 and maybe how we should think about the linearity of those -- of the revenue flow for those acquisitions as well?

Paul A. Ricci

Well, we don't historically provide specific revenue guidance around acquisitions, but we realize these are 2 meaningful acquisitions, and a reasonable estimate for you might be $90 million to $100 million for the full year, with some skewering towards the second half of the year. It's difficult, though, to be more specific in part because those revenues will be blended with other revenues from our Healthcare business in provider-wide contracts that we expect to do that comprehend various revenue and product and services streams.

Operator

Your next question comes from the line of Daniel Ives with FBR.

Daniel H. Ives - FBR Capital Markets & Co., Research Division

So on the quarter on the Healthcare side, obviously organic growth, mid-single digits. Just kind of talk about moving forward because obviously, pretty positive on the growth rates there. And just in the quarter, is that just more of a timing on revenues that kind of goes into next year that gives you the confidence as far as the growth rate?

Paul A. Ricci

Yes, there were 3 or 4 factors in the fourth quarter, some of which were at play in the third quarter as well. It was, in retrospect, a difficult year-over-year comparison in licensing revenues because of a strong finish in the previous year, perhaps more difficult than we appreciate it. But the -- we did see some migration of line revenues to our Dragon Medical product. We saw some erosion of line revenues overall. Some of that is anticipated in our plans. We saw some slippage in Dragon licensing revenues from the September quarter into this year, some associated with the federal government. But I will say that overall, I consider those to be quarterly matters. And as you could tell from our prepared remarks and from my comments just now, our perspective on the Healthcare business is really quite strong and even more so as we begin to unveil the end-to-end solutions that include our new acquisitions.

Daniel H. Ives - FBR Capital Markets & Co., Research Division

Okay. And then just on the Mobile side, I mean obviously, you don't know about specific deals. But just thinking about where we were a year ago, talk about the pipeline or the large deals now, did you feel like all of those got time, they were bigger than expected, the sophistication of it, just kind of speak to -- from a high level, the mobile deals, not just this quarter but just going into next year, how you're thinking about that segment.

Paul A. Ricci

Well, as I said in my opening comments just now, the -- Nuance exited fiscal '12, I think, with an extraordinary position in our participation, either with our voice technologies, our natural language processing and reasoning technologies or both, across the preponderance of smartphone platforms in the world today. We feel very good about that, and we consider that a major accomplishment in fiscal '12. In addition, as our comments suggested, we continued our progress in the automotive market, which has been a steady, successful evolution for us as we acquired more and more market share in design wins and as we've expanded that market to include connected services. We think much of that is yet to play out in fiscal '13. The -- we've also talked about some new markets with television and other electronic consumer markets. And we believe that the growth in FY '13 is going to be punctuated primarily by cloud-based mobile services. That, too, is a contributor to the fact that revenues will come relatively later in the year than earlier in the year.

Daniel H. Ives - FBR Capital Markets & Co., Research Division

Okay. And just a last question on the cash flow guidance for the year. So obviously, that's pretty consistent. So these acquisitions doesn't seem it's going to have a negative cash flow impact. Is the right way to think about?

Paul A. Ricci

I think that's right. And I would note that if you were to annualize the second half of the year cash flows in the company, you will see that the cash flow performance in the business continues to be quite robust.

Operator

Next question comes from the line of Jennifer Lowe with Morgan Stanley.

Jennifer A. Swanson - Morgan Stanley, Research Division

Just going back to the earlier question on the Healthcare business, I guess it sounds like that the demand trends there had been pretty strong, but it also looks like there were some slippage and things like that. Was there any change in buyer behavior associated with any uncertainty around the elections or any of the change in deadlines around ICD-10? Or will those add some of the delays that you saw there were separate from any of the trends in the healthcare IT market overall?

Paul A. Ricci

Well, we honestly couldn't attribute it to the election. There was some slippage in federal business, but I don't have any reason to associate that with the elections. I think that -- I wouldn't associate the Healthcare growth rate in the fourth quarter with any one thing in particular, but several things. And I would just reemphasize, our overall view is that when we look ahead to fiscal '13, revenue growth and organic growth are going to be led primarily by the strong organic growth performances we expect in the Mobile and in the Healthcare business.

Jennifer A. Swanson - Morgan Stanley, Research Division

Great. And can you -- curious a little bit, the Enterprise business was stronger this quarter. Do you feel like you've kind of turned the corner there and that's something that will be more sustainably strong going forward now that you've anniversary-ed that one deal that went away? Or is that one that we should anticipate maybe remains a little bit more volatile heading into fiscal '13?

Paul A. Ricci

I think what I'll say is this, if you look at the full year of fiscal '11, Enterprise growth was 0 or slightly negative. And if you look at the full year of fiscal '12, I think it was 7% or 8%. And I think the full year is the right period of time at which to evaluate growth, particularly a business that has some on-premise license income, meaningful on-premise licensing component. We anticipate seeing growth comparable in fiscal '13 to what we saw in fiscal '12, perhaps slightly better in the Enterprise business, if we realize some of our opportunities. And if the -- in the second half of the year, some of the demand -- on-demand business that we booked late in fiscal '12 comes online. But I think that that's the way we would view that business right now.

Jennifer A. Swanson - Morgan Stanley, Research Division

And just one last one for me, so if we look at the seasonality in the business going forward, if you start to rotate to a model where more of the revenues are coming in under subscriptions, your term licenses are on-demand agreements versus traditional perpetual licenses, it looks like the license contribution this Q4 was lighter than what we would normally see in a Q4. Is that a function of anything specific to this quarter or should we be thinking about that going forward as well as how the seasonality of the business will transition as you start to see more of these on-demand type of deals?

Paul A. Ricci

It's difficult for us to say. We certainly saw some effects of the European economy in the fourth quarter licensing. But I think it's difficult to be -- to suggest any material change in seasonality right now.

Operator

Your next question comes from the line of Brent Thill with UBS.

Brent Thill - UBS Investment Bank, Research Division

Paul, you have good performance in the operating margin. I'm just curious in terms of how you're thinking about it over the next several years. Do you feel like there's a trade-off that we had for investment where you could see that 190 basis points pause a little while you reinvest so we continue to think that this is still a story that can support much higher operating margins down the road?

Paul A. Ricci

Well as you know, Tom and I guided this previous -- this last year to not anticipate this kind of margin expansion, and it occurred. But having said that, we're really encouraging you to view this year as one in which we were not prioritizing margin expansion. We're prioritizing organic revenue growth, and we're working mightily as an organization to put the investments in place that will facilitate that growth as we exit -- as we get to the back half of this year and exit into fiscal '14. And those investments really are proceeding. We're hiring research and development personnel at an unprecedented level in the company. We set very aggressive goals for staffing our sales, quota-bearing sales, headcount in the first quarter of this year, and we're roughly on target to achieve that staffing. The level of advertising this quarter in support of our Dragon product line worldwide is unprecedented by several millions of dollars, which is weighing on expenses this quarter. And we're doing all of that to further accelerate growth as we go throughout the year. So I really wouldn't look to material margin expansion this year.

Brent Thill - UBS Investment Bank, Research Division

Okay. And just a quick follow-up on how you look at M&A. You've obviously done a lot. You have approximately $1 billion of net debt now. I mean, do you feel like it's time to digest what you have? Or do you feel like you're still being pretty proactive on the M&A side as you head into '13?

Paul A. Ricci

Well, we get asked this question routinely, and we -- our view is the same, which is that we expect M&A contribution as a proportion of overall revenues in the company to continue to diminish. We did make a couple of material acquisitions recently in Healthcare because we saw strategic transformation available, one that I might add the Healthcare division architected over a period of time and executed on rather methodically. And I think that in view of that, the likely expectation for investors should be a relatively limited period of acquisition or perhaps of acquisitions that are relatively small in nature.

Operator

Your next question will come from the line of Richard Davis with Canaccord.

Richard H. Davis - Canaccord Genuity, Research Division

Kind of 2 just quick follow-ups. So one, you talked about some partnership arrangements with firms like Cerner and things like that. Is it -- as an outsider, is it logical to think about those firm's growth, let's say, in Electronic Health Records and stuff driving your business? In other words, what I'm trying to get at is what is kind of partnership relationship? Is there -- obviously if they sell more, you sell more or something like that. And then as a follow-up question, it would just be a quick drill down a little bit on what Brent asked. You talked about services mix going up a bit in Healthcare. Would you expect that over time for technology to replace or at least create operating leverage in those -- in that side of the house? That's it.

Paul A. Ricci

On your first question, we do believe that the future revenue streams we've articulated with respect to mobile-based services in Healthcare and the clinical documentation improvement to be strongly affiliated with our partnerships that we've already announced and partnerships, additional partnerships, particularly associated with Electronic Health Records in medical. The -- and your second question, we're going to see a migration, continued migration, towards blended solutions in Healthcare that comprise on-premise licenses, cloud-based services and some manual -- some labor-based editing services. It has been and continues to be our strategy to diminish the amount of labor contribution even as we've acquired some firms with large labor populations. Our goal over time is to get greater leverage out of that labor contribution over more customers, and that continues to be our policy.

Operator

Next question comes from the line of Jeff Van Rhee with Craig-Hallum.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Paul, a couple of questions. First just on the backend loading of the year. You've been making this transition from licenses to on demand for a while. And what -- can you just expand on that? What is it about the rev rec or sales cycles that seemingly maybe has accelerated? This transition seems to have been going on for a while, but what amped it up right now?

Paul A. Ricci

Well, I think we have to look segment by segment to discuss that. And I'll mention quickly, in the Enterprise business, we did see a strength in our on-demand bookings in the later half and particularly the fourth quarter of fiscal '12. And it typically takes 6 to 12 months to implement those contracts, so we don't see appreciable contributions until the end of this fiscal year. This is true of all of the Nina-based implementations, which began in the second half and towards the end of fiscal '12. All will contribute revenues only materially towards the end of this fiscal year. In Mobile, I think we've said for some time, certainly throughout fiscal '12, that we would see a gradual migration from embedded licenses to either cloud-based services or a hybrid solution. And both are occurring, in fact it is the combination of the 2 that we think is the most formidable capability and model for the future. And -- but that requires an elongation of revenues as well because the implementations of the cloud-based revenues begin to contribute -- the implementation of cloud-based solutions begin to contribute revenue over time. And in Healthcare, what I might mention is that we are seeing some movement towards blended solutions in which we provide both on-premise and transactional-based services to large providers, and that tends to cause licensing revenue to be spread out over time, which is fine. It gives it a more of a subscription quality, but it does slow down revenue contributions. And we did see that, to some extent, in the third and fourth quarter of this last year.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Okay. And then just 2 others. Geographically, could you just describe the last couple of quarters and sort of progression through the most recent quarter in terms of the environment you face, particularly EMEA? And then I'll give you the last one and then jump off. You mentioned the sales hedge. Where are you now? And can you quantify the goals?

Paul A. Ricci

The -- like other software companies, we have seen a difficult environment in Europe, and we anticipate that, that environment is going to remain challenging for the foreseeable future. With respect to the sales headcount, we had a goal of achieving an appreciable increase in our Healthcare-based headcount in the first quarter of this year, and I believe that hiring is preponderantly done, not entirely done but substantially so. We also had a goal of increasing headcount in our Enterprise business in North America for the first quarter of this year. And I think we've made material progress on that, although I don't think it's complete.

Operator

Our next question comes from the line of Shaul Eyal with Oppenheimer.

Shaul Eyal - Oppenheimer & Co. Inc., Research Division

Back to the 30% international breakdown of this 30%, is EMEA the majority of that right now?

Paul A. Ricci

I'm going to let Tom handle that question.

Thomas L. Beaudoin

No, it's split between EMEA and Asia Pacific. I don't have the exact breakdown. But we get sizable revenues from both of those regions and a little bit from Japan and again, how you account territories.

Shaul Eyal - Oppenheimer & Co. Inc., Research Division

Got it. Okay. Back to the Transcend acquisition you guys did a number of quarters ago. So I think you mentioned you started kind of by guiding conservatively. How did that play out for you over the past couple of quarters? Is it better-than-expected revenues or in line with respect to your internal estimates?

Paul A. Ricci

Well, as I've said previously in this call relative to other acquisitions, we don't provide specific numbers on individual acquisitions.

Shaul Eyal - Oppenheimer & Co. Inc., Research Division

Okay. That's fair enough. One final question on my end. You spoke a little bit about kind of some federal business slippage. Can you -- is it kind of Healthcare-driven, Enterprise or kind of across?

Paul A. Ricci

I was referring to Healthcare.

Operator

Next question comes from the line of Scott Zeller with Needham & Company.

Scott Zeller - Needham & Company, LLC, Research Division

Question on margins. We heard from your comments earlier about the 100 to 200 bps coming down for next year in gross margin. Would you expect to see that entirely in the Hosting line? Or would that be spread out?

Paul A. Ricci

The answer is basically yes. We would expect to see that moving substantially there.

Scott Zeller - Needham & Company, LLC, Research Division

Okay. And are you willing to talk about a broad target for license revenue growth for fiscal '13?

Paul A. Ricci

No, sorry.

Operator

Next question comes from the line of Greg Dunham with Goldman Sachs.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

First question is a clarification. Did I hear you correct that you expected the Healthcare business to be $1 billion business next year? Or are we talking about a run rate?

Paul A. Ricci

We expect the Healthcare business to be roughly $1 billion business in the year.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Okay. And then I guess my follow-up would be even looking at kind of the $100 million from these recent acquisitions and some trends and follow-through, that embeds a pretty significant acceleration in growth in the back half from the 5% level that you've done here in this last quarter. What kind of visibility do you have to that acceleration?

Paul A. Ricci

Well, the -- you're right. It does contemplate an acceleration of growth, and we do anticipate that. And that's driven by expectations we have based on the reception to new products that we have acquired in the recent 2 acquisitions, on new products that we are now showing to the market that will contribute revenues later this year, as well importantly to the expansion revenues we associate with the material increase in sales coverage that we talked about in earlier questions.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Okay. And one final question for me. I'm trying to understand the gross margin, the maintenance, that coming down while the gross margin and product coming up. Is that really driven by the on-demand factor that you -- in the previous question. Is that how I should think about it as? Why the discrepancy is really the question.

Paul A. Ricci

So if the mix of revenues were held constant, you would see gross margins go up because we have productivity initiatives led by operations team that were reasonably effective last year and we expect will provide further reductions in our cost of goods -- further productivity in our cost of goods this year. However, the mix is not remaining constant. We're seeing a movement as we described in a number of questions -- in response to a number of questions earlier in this call, a movement towards increased technical services, Professional Services, connected services, Hosting, some editing services and Healthcare. All of those will involve lower margins and licensing revenues and therefore, we'll see a margin decline associated with that mix even after the productivity benefits in each of those line items.

Operator

Next question comes from the line of John Bright with Avondale Partners.

John F. Bright - Avondale Partners, LLC, Research Division

Paul, a knock on the stock has been regarding the number of acquisitions to take place, and you've gotten a number of questions on this. Given the difficulty of measuring externally your success from these acquisitions, how do you suggest we should judge the success of these acquisitions?

Paul A. Ricci

Well, it's not for me to answer for you how you want to judge them. But I might make some comments about how we think about them. We do think about our overall revenue growth, organic revenue growth, which we give a great deal of detail behind, which assumes we've owned those acquisitions for the full period reporting. More importantly, we pay a lot of attention to the earnings contribution, the cash flow from operations contribution per share and increasingly internally, we look at the unlevered cash flow per share. And we think all of those suggest that we're driving real value from these acquisitions in a continuous, steady, improving way year-over-year.

John F. Bright - Avondale Partners, LLC, Research Division

All right. I'm going to shift back to the quarter itself and some information in the prepared text, specifically the annualized line run rate on Nuance's Healthcare business. It's slightly declined sequentially. Could you maybe associate that to a percentage of revenues and tell us how you would interpret that data?

Paul A. Ricci

I don't have the answer to the percentage of revenues. I can't answer that question. I think I wouldn't associate very much with it at all. We did -- I did talk earlier about the fact that we are seeing, in our Dragon sales, some erosion of lines associated with the use of Dragon. That's not entirely new phenomena. It's becoming an increasing phenomena. But I don't think we think that one quarter's data on that line is particularly important. I think the trend over time is quite steady, and I think as we look back from it a year from now, the trend will continue more or less as it has over the last 6 or 7 or 8 quarters.

John F. Bright - Avondale Partners, LLC, Research Division

In guidance, I appreciate your providing the organic growth expectation of at least 12% for FY '13 on the call. That's new. Is the guide message that we're seeing is maybe the higher margin licensing slowing down somewhat possibly due to your success in penetrating on the Mobile side offset somewhat by acceleration in services on-demand and the investment you're making?

Paul A. Ricci

So the growth rates in our on-demand services this year were quite high. And we expect that trend to continue for structural reasons throughout the computer technology industry that you're well familiar with. So that trend is certain to continue. We're not signaling particular problems in our licensing revenue, but a greater accentuation in a cloud-based world towards revenues that comprise increasingly these hosted base revenues. I will say that the nature of our solutions in the Mobile business also is increasingly incorporating professional engineering services as we're building very unique solutions for very large partners who want differentiation to serve their platforms.

John F. Bright - Avondale Partners, LLC, Research Division

Final question. Also in the prepared text regarding guidance, you talked about usage-based pricing in Mobile. Would you give us an example of what you're talking about there?

Paul A. Ricci

So we have -- of course, our cloud-based solutions are priced in a number of ways, but some of them are transactionally based, based on the number of interactions that flow through the network to which we're providing them either with a carrier or smartphone manufacturer, and I think that's the reference.

Operator

We have time for one more question, and that question comes from the line of Nandan Amladi with Deutsche Bank.

Nandan Amladi - Deutsche Bank AG, Research Division

A question on the Enterprise segment. With the strong pipeline that you made reference to in the prepared remarks, that Nina and biometrics, the recent 8% organic growth is also a nice uptick from what we've seen in previous quarters. What do you think is a reasonable growth rate for at least the next fiscal year?

Paul A. Ricci

Well, we -- as the previous questioner noted, we provided some forward-looking guidance on organic growth rate for the total business, and that's something we haven't done in the past. And so I'm reluctant to delve deeper into forward-looking organic guidance because it sets up to many webs of expectations. Let me say this, our organic growth rate is going to be led by Mobile and Healthcare, which we expect to grow at relatively higher rates, and followed by Enterprise and Imaging, which we expect to grow at relatively lower rates. I did suggest to an earlier caller who asked a question that the performance in FY '12 for our Enterprise business is probably reasonably indicative as we look forward.

Okay, then. We want to thank you all for joining us again this quarter, and we look forward to speaking to you again next quarter.

Operator

And ladies and gentlemen, that does conclude today's conference. I want to thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect.

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