Nuance Communications, Inc. - Analyst/Investor Day

| About: Nuance Communications, (NUAN)

Nuance Communications, Inc. (NASDAQ:NUAN)

December 08, 2011 9:30 am ET


Kevin Faulkner -

Robert Weideman - Senior Vice President and General Manager of Imaging Division

Michael Thompson -

Unknown Executive -

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

Vlad Sejnoha -

Janet M. Dillione - Executive Vice President and General Manager of Healthcare Business

Steven G. Chambers - President of Sales & Marketing and Executive Vice President of Enterprise Division

Paul Ricci - Chairman and Chief Executive Officer


Scott Zeller - Needham & Company, LLC, Research Division

Brent Thill - UBS Investment Bank, Research Division

Daniel T. Cummins - ThinkEquity LLC, Research Division

Unknown Analyst

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

Nandan Amladi - Deutsche Bank AG, Research Division

Kevin Faulkner

Good morning, everyone. Welcome to Nuance's FY '12 Financial Analyst Day. I'm Kevin Faulkner, Vice President of Investor Relations. We appreciate your attendance and dedication of time today and also your support over the last year.

Just a couple of preliminary notes that I wanted to go over. I want to remind everybody that today's presentation includes 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 Nuance's annual report on Form 10-K for the fiscal year ended September 30, 2011 for a detailed list of risk factors.

One final point. We have materials today that includes non-GAAP financial measures, and we provided in appendix. You should refer to the GAAP to non-GAAP reconciliation appendix to today's materials for information regarding the use of non-GAAP financial measures. The reconciliation appendix can be found on the Investor Relations page of the website under the heading Financial Analyst Day, and it will also be appended to the soft copy of materials that are available today.

So without further ado, let's get the day started.


Unknown Executive

Ladies and gentlemen, please welcome Chief Executive Officer, Paul Ricci.

Paul Ricci

Good morning, everyone, and thank you very much for coming. We appreciate you taking the time today. We know there's a lot going on in the world and this is a big commitment of time, so we really appreciate you making this time.

We have -- I have a relatively limited mission this morning to do some introduction, and then, my primary purpose is to make sure you have an opportunity to get more visibility into Nuance's management team.

After myself, Vlad Sejnoha, who's our Chief Technology Officer is going to come up and try to give you an integrated view of how our technologies work across all our businesses. I think after Vlad, Mike Thompson, who is the General Manager of our Mobile & Consumer business, will come up and talk about the Mobile business. You know there's a lot going on there right now. Following Mike, Steve Chambers, who both run our Enterprise division and is a President of our Sales and Marketing group, is going to come out and talk about our enterprise business; followed by Janet Dillione, who's the General Manager of our Healthcare business; and then Robert Weideman, who runs our Imaging business, who will talk about that business; and then finally, Tom Beaudoin, who I think most of you already know, is our Chief Financial Officer, will come up and talk about some of our financial performance.

In addition to giving an opportunity to meet our management team in more depth, there are 2 other things that I hope to achieve today. The first is to really convey to you a sense of a market shift that we believe is going on right now, that is redefining the opportunities for the company and we're going to return to that. And finally, to give you some clear understanding of what the specific mechanics and leverage for growth are in fiscal '12 and beyond.

So this is, I think without hyperbole, the most momentous time in this company's trajectory. We've been at this for a decade or so, and I haven't seen a time quite like this, in which there is a deep interest and a pervasive interest in voice and natural language processing of human communications that's spreading across all of our markets. I think you're aware of the heightened visibility and mobility, and that is, in fact, really quite extraordinary. But we're seeing that same heightened awareness and visibility and interest in our other markets. And I think one thing you will really come away from away from today is a better appreciation of how all the activity going on in voice and language processing right now is affecting our respective markets.

I do want to say just a couple of words about our financial performance. It was a very good year for us financially. Tom is going to go through this in much more detail. So I don't want to dwell on it. There are important things that we achieved last year that we are very pleased with, one of them was the resurgent license growth. We're seeing that license growth driven by the performance of our Mobile business, but also the sale of our Dragon brand, partly in consumer, but in particular, the strength of our Dragon brand in the Healthcare and Medical business, and Janet will return to that.

Our On-Demand revenues continue to go well. The year coming, I think we'll have even stronger growth in On-Demand, and you'll see some of the reasons for that in our cloud-based investments that we're talking about and some of the positioning we're doing. This time this year, we will certainly be a company with total On-Demand revenues across the business of well into the 400s. And it's a formidable business for us now if you look across all of our markets.

In addition to the financial performance, there was a lot of work in Nuance last year in positioning ourselves for some of the changes that in fact we anticipated would happen and are happening, and I think they are serving us well as we look forward over the next couple of years. And I just want to spend a little bit of time on each of them.

First, investments in customer relationships. I'll come back to that point. The second is a new class of innovative solutions that have been under development for several years. We made really quite extraordinary investments and I think progress in these areas last year, and we'll continue with those investments this year. The third were a select set of acquisitions. We're known as an acquisitive company. I think last year's acquisitions are probably a reasonable representation of what our strategy is with respect to acquisitive growth. And finally, some of the departure last year was substantial enhancement of our investments in branding and demand creation, and I'll return to that point.

First about customer relationships. I have discussed in earnings calls over the last year or perhaps more the shifting nature of Nuance's relationships with its largest customers. We have seen a trend that's been going on for a couple of years that really accelerated last year, and I think it's going to accelerate even more, particularly in Mobile, but not only Mobile this year as some of our largest customers are looking for a much more collaborative partnership with us, in which they may co-invest with us, they may do joint research with us, perhaps even share the benefits of some of the products that are being brought to market. So we see this in a whole class of Mobile customers: Apple, HTC, Ford, BMW, others that are not on this list. And I think that as much as I referenced in last month's earnings call, this is going to be the nature, increasingly going to be the nature of our Mobile engagements as we have these deep relationships with carriers, manufacturers in the various submarkets that we address. And I think Mike will give you some greater sense about this in the Mobile business in particular. We view this as very attractive for us because we think that the reason these companies are requesting these kinds of relationships is they have respect for the depth of our technology, but also that our capacity for providing research services, engineering services and design services, very importantly, design services, is unique. And they are looking for a way to leverage those services and accelerating their own time-to-market.

But it's not just the Mobility. We're seeing the same thing happen in Healthcare, where some of our largest customers have become a much more involved relationship with us, and Janet will talk about some of these. We're particularly pleased with the partnership we announced with the University of Pittsburgh Medical Center. UPMC is a very leading institution in Healthcare. They wanted us as a supplier to them as our customer, but in the course of that engagement, we actually defined a very ambitious joint development and research initiative together, including a technical staff at UPMC and Nuance, and in fact, we're even building a small technical team in Pittsburgh in support of that. And 3M is another example of this and one that Janet will talk more about in her talk.

And finally, in this regard, in some ways, our enterprise business is where this kind of engagement really started. Nuance's sweet spot in the Enterprise market is really in serving high-end customers in defining really quite different user experience in their contact center, and we do that through really very extensive engagements. And we've talked previously about US Airways there or others. And I think as you listen to Steve today, you'll get an understanding of how our technology portfolio and services have evolved to facilitate this more. But these customer relationships require a significant amount of upfront investment, and I spoke to you during earnings calls over the last year about making these investments. We did that. We staffed and supported them. That will happen again this year as we're seeing a greater demand for these.

There are a whole class of new solutions that some of which have been announced at Nuance, some of which will be announced over the course of this year. You're going to get a fair amount of discussion about it today, so I'm not going to go into the particulars. What I'd like to do is to just sound a couple of unifying themes.

First, across all of our product and service portfolios, you're going to hear today that investments in natural language processing are the primary -- the center of mass of our investments right now in R&D. We've been investing in natural language processing for quite some time, but you'll get an extent of the magnitude of that today, and including some of the initiatives we have underway, the joint research activities that we defined with IBM and other things.

The second is that for all of our businesses, having mobile-enabled product and services is becoming increasingly important. Of course, that's always been the case in our Mobile business, but as you'll hear in healthcare, imaging and in enterprise, a more mobile-centric strategy for our product investments is an important cornerstone of the foundation we're building.

Nuance has, for a number of years, been migrating towards the delivery of its solutions in cloud services, a theme you will hear today is an acceleration of that effort as we see more and more demand for cloud services. It's -- the defining offer, of course, in Healthcare. It's the defining offer for us in Enterprise. What you're going to, I think, get a better sense today to the extent to which Mobile Services are going to define the next generation of offerings and mobility, and even perhaps some in our Imaging business.

And the final theme across our product investments, that is somewhat of a departure for us over the last year or so is the new set of investments in building platforms for the developer communities. As Nuance's IP portfolio and technology portfolio continue to expand, we began to realize that we were under leveraging the developer community in some of our markets, and in particular, we were very successful in the last year in launching a new developer platform in our Mobile business and in our Healthcare business. And I think you'll see ways in which that's giving us a great deal of leverage. We're actually amazed that the number of transactions that are now being driven in our Mobile business from our development platform and applications that have been built by these developers. And I think Janet will give you a sense to which the -- in which the developer platform that we built in Healthcare is critical to enabling voice and natural language transactions related to the EMR system and integrating forward into the revenue cycle management market as well.

We continue to do acquisitions. We get asked a lot about acquisitions by all of you, and I might just make a couple of comments about acquisitions we did in the last year, try and echo some of the unifying themes that I've told you about before. One acquisition that I really want to highlight is Equitrac, it's been a terrific acquisition for us in the Imaging business. And I will say, Robert, will have an opportunity to explain to you how through the acquisition of Equitrac and the solutions in eCopy, that he's really redefined our Imaging business around a much more network-centric set of offerings that are sold in conjunction with our larger partners in that business. It's really quite an exciting transformation of that business.

Swype, I think, is a company that many of you are aware. A lot of analyst notes were written about. A lot of blogs are written about it. It's a technology that is complementary to our own Mobile technologies and is accelerating our ability to provide a Mobile platform for our partners to do multimodal user interface capabilities. And I think Mike will speak to that somewhat.

Generally speaking, what we're trying to do with acquisitions is, first, enhance our organic growth. We find that by bringing our products into channels of acquisitions that we're -- that we've -- that we're buying or by bringing their products into our channels, we can accelerate growth. The second thing we're doing is looking for complementary technologies that can be closely integrated with our own capabilities to create a stronger offering. Swype is a good example of that. Webmedx is another example of that, and Janet can talk some about that. And the third thing that we're trying to do with acquisitions is accelerate access to particular market or particular channel that we may not participate in. For example, in Healthcare. We've made acquisitions that brought us into the mid-market, where Nuance wasn't primarily targeted. And in Loquendo, we acquired Loquendo really to enhance our access to the European market in the enterprise business.

Those are generally our themes. I think the acquisitions we did last year are very representative of our strategy in this business and probably as good a predictor as any of the kinds of things we've been looking at as we move forward.

As I mentioned, a departure over the last year has been the acceleration of investments in demand creation, advertising around our brands. I think many of you have probably seen the Dragon brand, which have been ubiquitous on television. But our brand investments really go beyond that. I should first say about the Dragon branding that those campaigns have been exceptionally productive for us. Peter Mahoney and his team, who run that business, have really found a scalable formula for success in demand creation, and we're seeing, I think, a very felicitous feedback group [ph] between our own advertising in that segment and the general awareness that now is starting to grow about speech in the marketplace. As a result, the response rate through our advertising are unprecedented, it's been very attractive for us. Last year was a record level of investment. This year is considerably more, and this quarter, as we go into the holiday seasons, is especially intense in that area.

But our investments in branding and demand creation go beyond just our mobile -- our consumer products. We're investing and promoting our development platforms, which I mentioned a few minutes ago. And importantly, we think that our brand is underrepresented in the Healthcare market and we're increasing our investments there to create more visibility around what we think is a very unique set of offerings for that market. So this is going to be a continued source of investment as we look into '12 and '13.

So just in closing the introduction, I'd like to mention a little bit about what we think are the 3 sources -- the 3 things that are going to drive growth the most as we look over this year. The first is this new generation of solutions, which we think will create new product and services revenues. I'll come back to that. The second is the appearance and the demand for virtual assistants. I'm going to dwell on that for a few minutes, and then there'll be much more discussion about it. And the third, just to reiterate what I have said previously, Nuance's investments are increasingly skewed towards offering our capabilities through a cloud architecture, and we believe the appetite and the interest around that from our customers and partners is such that it's going to create significant revenue growth for us this year. I think I mentioned earlier that, that will be one of our fastest revenue lines, perhaps the fastest revenue line of growth this year.

To say a few things about the natural language investments, again, this is the priority investment across all of our technology portfolio. But I want to give you some sense about the way to think about this. The world is really moving from the problem of recognizing what is said to acting on the intent or achieving the outcome of what the user is trying to achieve. And our products, our technologies are designed to take advantage of the appetite for doing that. A group of technologies have come together, that I'll elaborate on in a moment and then Vlad will spend much more time on, but this is an important theme for you to think about as you understand the course of Nuance's technology investments. We're moving from recognition to outcomes. And that's a theme that I think you'll see, not just in our Mobile business, but across our other businesses.

To give you another example, in Healthcare, we have a solution under development that as the doctor is prescribing, is providing the information about the patient visit and the symptoms and so forth. The system, in realtime, is querying its knowledge base and determining areas where the doctor really ought to augment the record that he or she is dictating to achieve -- to be more precise. To provide more normative descriptions of some of the capabilities. And we know that because we have certain content and records that allow us to know that in certain instances, doctors tend not to be as precise as they should about a particular medical condition that they're describing. And it's important to do that, both for the precision of the electronic record as well as achieving the right coding in the revenue cycle, the billing cycle in the hospital. So this integration of voice recognition, semantic processing, reasoning over some knowledge representation is a very important scheme that you're going to hear today, and one that's really shifting the focus of how our products are going to be designed and the kind of solutions we're building. And as I mentioned, this will be true across all of our businesses, and I think you'll get a sense of that today.

By now, everyone here of course knows the enthusiasm around the new class of virtual assistants, DragonGo! appeared earlier this year, with the enormous reception. Every time we see a review of DragonGo!, we're -- we've just been elated. It's got enormous reception. And of course, more recently, Apple launched Siri. And I think people are beginning to understand this notion that it's possible to integrate these technologies, but again, voice recognition, semantic processing, knowledge representation, dialogue management, state management, all into one solution, that is a really quite a powerful solution. And capable of really understanding user intent in going to the outcome.

The point about the virtual assistants is it is going to redefine the way the paradigm with rich user interactions occur in mobile devices, I think that's for sure. And that's going to happen in quite an accelerated way in our opinion now. But it is going to go beyond just the traditional smartphone application that we see right now. It's going to affect a whole range of consumer electronic devices. I think earlier today, some of you saw a demonstration at the television outside. Certainly, we're going to see this capability in automobile. We're going to see it in televisions. We're going to see it in other consumer electronic devices. But it's also going to move into other markets. I think Steve will -- Steve Chambers, will help you understand the way in which this capability, in some way, as was already anticipated in the Enterprise Solutions that we've been building over the last 5 years. And in fact, the dialogue management, the state management technologies and those solutions is very instrumental in building this class of capabilities. And in our view, is this is precisely the paradigm which is going to permeate contact center as we look out over the next few years. That's a very exciting opportunity for us when you think about the evolution of our own enterprise business, and I already referred to a way in which we think this is going to be important as well in the Healthcare business.

Nuance has been making investments in migrating its markets towards On-Demand solutions for a number of years. As I mentioned earlier, the defining solutions we have in Enterprise and Healthcare already are On-Demand. We are accelerating this, and we believe this will be an important source of growth for us this year. We think that a number of cultural barriers have been crossed that make organizations more receptive to accepting this even in some of the markets where we saw some resistance, particularly the enterprise market. And that's going to be an important source of growth for us as we look out this year and next year.

So just in wrapping up, I'm going to turn this now over to Vlad Sejnoha, who's Nuance's Chief Technology Officer. Just the themes that I'd ask you to look forward today are -- this migration from voice-recognition to natural language processing to outcomes. The theme of Mobility, to the importance of design. We provide a lot of design and engineering and research services. We think our design capabilities are critical for our customers, and provide an important source of differentiation for us. And finally, of course, the migration to the cloud.

So with that, I'm going to ask Vlad to come up.

Unknown Executive

The next speaker is -- ladies and gentlemen, please welcome Vlad Sejnoha.

Vlad Sejnoha

Good morning, and thank you again for being here. Thanks for the introduction, Paul. As Paul mentioned, we are at the beginning of a major transformation in the way users interact with mobile devices, applications, contents and many automated services.

So for years now, the predominant design of these enterprise has been effectively shrunken version of a desktop on mobile devices. And that has a lot of useful features. It's been a wonderful thing to use all these years, but it's getting cluttered. Users have to traverse many pages of application icons, go through layers of menus to find the information or the functionality that they want. Now what happened recently is that based in the -- that natural language understanding have become powerful enough that it's now become possible for a user to compress all of the steps required to find an application, launch it, type into it, interact with it into a single utterance.

In this example, a user simply has to say that one utterance, find and launch the application to make the restaurant reservation and fill out the complete form with all the relevant information. And this is here and now. The realization that this is now possible, that voice and natural language understanding, in effect represents a new building block, a new dimension you can add to the user interface, has put immense excitement and as Paul said, an unprecedented uptake of this technology.

These constants of the instantiated number of applications, and the number is growing, which includes our own DragonGo!, about which we'll be a bit more later, and has been given a very important and public stamp of approval by Apple, through it its Siri virtual assistant. These applications are a [indiscernible] of things to come. And as more people become aware that this is now a new opportunity to rebuild the user interface from the ground up, not simply add speech technology on as an ad on, as an afterthought, but integrate voice and natural language understanding deeply and rebuild the UI from the ground up, we're going to get a lot of experimentation over the next few years. This is a very exciting time for us. Some commentators had reacted to this change by comparing its importance to the advent of the graphic user interface in the '80s. So this is a really important time for us in this industry.

Before I give you more examples on how are we dealing with this, I wanted to give you just a very quick overview of the voice and natural language understanding framework that we have built out for the past year to be ready for this moment. For those of you who know us primarily as the providers of speech recognition and text-to-speech, I want to say that we do much more.

Even on the input side, we already handle text through predictive text typing, but also now through gesture input, gesture recognition. But importantly, we dedicate a lot of efforts and investments in resources to an area we call meaning extraction. This is a collection of techniques and modules that analyze the input, whether it's coming in of speech or as text or even as a gesture. If it’s syntactic, it's semantic processing, basically infer what the user's intent was, what service they are trying to address, whether explicitly or implicitly, what are the major parameters of the request, what are the entities the user is interested in, what are the attributes, in this instance, a movie, looking for a schedule or particular actor.

On the output side, meaning extraction or meaning processing is also important. In a virtual assistant application when you want to communicate with the user, you have to put together natural sounding sentences that request more information or convey information for the user. Also by understanding the text that you want to synthesize, we can make our speech synthesis sound far more natural and compelling to listen to. The meaning extraction module work with something we call reasoning and conversational management. This is really the brain of the system. It understands the overall task. What are the goals? What is the user trying to achieve here? And tries to advance the transaction towards those goals. And it does that by understanding the past history, what happened earlier, the task context. For example, what other applications are open, what resources are available. It uses method data, time of day, user's location. You also have the user model. What are this user's tendencies, preferences? It integrates all of that, and uses decision logic inference and basically computes the next state of interaction. That could be communicating back to the user to request more information, to convey information, to retrieve something, to perform an action and so on and so forth. We have also extended this part of the system to handle dealing with unstructured data in answering questions on structured data. And I'll talk more about that later.

This component communicates with other services, it could be off-board, they could be Web services, partner applications, applications on the device. And so in a sense, the logic of the interaction is extended beyond this framework. All of our meaning extraction and reasoning modules are driven off, what we call knowledge representation. These are descriptions of the type of entities the users want to interact with. They could include things like medical oncology, which are descriptions of diseases, procedures, drugs, allergy, their relationships, their attributes like dosages and so forth. And then they're interconnected through relationship, something -- either type something else, something can do this thing and other thing. All of that is used by all the processing modules, it'll be smarter about understanding what the user wants.

Another big trend here is that a lot of these algorithms, these techniques are increasingly statistical. Meaning that they can be trained from data, from label data. By giving them exemplars, these techniques can automatically discover patterns and get better and more accurate over time. And this is a natural extension of what we've been doing in the area of speech recognition over the years. And it's very powerful, because it allows us to capitalize on the immense volumes of user data that are flowing through our servers.

Finally, on the output side, we don't only communicate with the user by voice anymore, but also by text or by simply displaying results. In a virtual assistant application, you might actually try to have a real human-like conversation in other applications like semantic search, where users simply want to see a result. In a question answering system, he just wanted one answer. So this is all of that together in a general comprehensive and reusable framework that we'll be using across the divisions to build products in each.

One advantage I want to underscore of building all of these elements and owning the full stack is that we're able to optimize all those components to work together, which is not possible frequently when you combine technology from multiple vendors.

So what can you do with this? This is one example. Semantic search. So our traditional or so-called index search produces results that are list of blue links. In a mobile setting, that's very hard to consume. It's difficult to know the relative quality of those links without actually clicking on them and exploring what's there, that's very costly. And in fact, a lot of focal search in mobile is not about exploration, as it might be when you're using search in a desktop. More and more often, users -- rather wants to go to a trusted source and get specific information, and users have been finding ways around the traditional index search in mobile. So recognizing that, what we did is we built DragonGo! But rather than producing a list of blue links, takes the user's utterance, puts it through our meaning and natural language understanding extraction, and infers the general intent. What kind of a domain are you interested in? What is the thing that you care about? What are -- are there other information about it being provided in the utterance? And then we go to a relevant destination. We try to return complementary results. So if it's a product query, we might give you several shopping sites, including a local one. If it's a query about a movie, we'll give you movie time, IMDb, movie review sites. For the restaurants, a reservation page, we offer you something else. But we never restrict where you can go. You can tell us where you want to go. And so we're acting as a filter on the Web, narrowing your set of choices, but rather speeding your way from your intent to your desired outcome.

The ability to bypass the traditional search portals in this way is very exciting to a lot of our partners, particularly handset OEMs. They're very excited by this possibility, as are a lot of our content providers. Also, if you can imagine understanding the user query at a fairly deep level opens doors to things like very focused advertising. So this -- as Paul said, this application has been a great success.

One aspect I would like to underscore here is that our voice and natural language understanding platform brings with it a lot of pretty deep integrations through a range of content and application partners. And so these, in fact, augment the platform itself. The platform is not just some UI recognition understanding technology, but it's really extended by the services provided by all of these integrated partners. They, in a sense, amplify the value of what we build and provide the user. And these guys, in turn, have their own sources and relationships. And so what you get is this network effect, where the natural language understanding user interface is a conduit to the aggregated value of all those relationships. And so, what we're looking at is this is a way of sort of getting a hold of the compound value of the Web in a very consumable way for the user. This idea is very much in line with the notion of the semantic Web, where users easily find relevant services, which are discoverable on the web and interacts with them using natural means. And this is recognized by a lot of reviewers of our application.

I've mentioned that we handle multimodal inputs. Here’s a little example of what we can do, you can highlight the text on a screen in this prototype. And using a particular gesture, you can call an action to happen. In this case, invoking semantic search, where you actually want to see where this business is. This is one example of what you can do by combining all these modalities. This is particularly important in our customer care business, where you traditionally interacted with callers using speech in kind of an assistant dialogue system. We can now do that through text to -- by handling SMS, chat or in a completely multimodal blended fashion on a modern device where the user can use his speech, gesture, text all blended together, whatever is most appropriate for any given step of interaction. We have made sure that all of the understanding models under the hood are common across all the modalities. So this is very scalable.

So a little bit about, "Why now?" We've been talking about natural language for a number of years, but it looks like we are coming through kind of an exit. And one reason is that we are benefiting from a lot of the data that are flowing through our servers from the earlier generations of applications. Traditionally, when people went about building natural language understanding systems, they were mostly hand-built, basically, consisted of engineers and linguists sitting down and writing grammar rules, but attempted to capture all the patterns of the language that were associated with a particular meaning. When you do that, you do well for a while, but the ramp up of those systems is fairly fast. But then you hit the tail, it suddenly becomes harder and harder to capture the rarer and rarer formulations that correspond to a particular meanings. So these systems invariably tops out at rather modest levels of performance and we're generally a failure. The availability of data and ample computation have made it possible to bring in a completely new class of techniques called machine learning. And these are statistical pattern recognition techniques, which are able to discover these patterns automatically by giving the given examples. And they can generalize. They can generalize the unseen forms. So initially, they're data hungry, but very quickly, they overtake the rule-based approach. So makes sense to combine the 2, quickly ramp up your initial system, capture the robust repeatable patterns in the language by writing those and as quickly as possible complemented by these automatic methods, which then feed off the data and keep them converging, basically forever, and they converge at a much higher performance rates. So this has been really kind of a renaissance of the natural language understanding field, and this is why you're seeing this flourishing of apps and technology today.

So they are important. How do we get our data? We have literally millions of hours of user speech going through our servers, both through our own applications, Web consumer, Healthcare, voicemail, customer care as well as those from partners. And Paul referred to our developer program, this is not available both to in the consumer space as well as in Healthcare, the make-out cloud API available and we have immense success with this program. In less than 1 year, we've gone from essentially 0 to over 6,000. And I just checked today, we are up at 6,600 sign-ups where people are actively integrating our cloud APIs into a variety of applications. And some of the graduates, which have actually hit the market, are pretty impressive. There's Siri, there's Amazon's Price Check, Walmart has just joined our ranks recently and the number of healthcare applications. Those are all feeding data back to us and giving us experience with context, application, ideas and workflows, with which we might not be that familiar. So this is an immense wealth of training data for the natural language framework.

Our framework is distributed. Part of this in the cloud, but part of this is also deployable on specific devices. From a user's perspective, it's all transparent or the user doesn't know where -- what is happening. And this is important because this allows us to optimize the resources, minimize the latency, maximize the efficiency of use of your resources. It also makes it possible to regain some functionality when you're disconnected. This is obviously key in applications like the connected car. I'm sure you've heard that the predictions that within 3 years, most new cars in the U.S. will have built-in connectivity, high-bandwidth connectivity. This really is transforming that world. We are building on in-car user interfaces which allow users who hopefully are idle -- busy -- hands busy, interacting with a number of services, including media control, navigation, command-and-control other functions in the car, as well as searches and now more and more actual messaging where drivers are dictating text messages and e-mails, correcting them by voice without having to look at a screen, and then having the responses read back to them and PDFs. So automatic, I should obviously want some of those core services to persist even when not connected. Another benefit of this distributed architecture is that if the user uses multiple devices, all of these data are flowing back up to the server, where they're being aggregated. We're distilling them, extracting them, learning best practices, updated models and then pushing those back out for the devices. So again, another network effect. And if you're a user of multiple Nuance systems, you'll see that performance improves everywhere, independent of what you use when. And again, very powerful.

So I talked about how to interact with structured data. So things like movie listings, product catalogs, but what about unstructured data? And what is unstructured data? The medical reports that doctors dictate that are transcribed increasingly through speech recognition are a good example. The resulting text contains immense amount of critical and valuable information. It's critical to other physicians who might inherit that patient. It's critical for billing. It's really a patient record. And the government has mandated that in order to make this data more usable, so they wouldn't require rereading each time, hospitals are now obligated to enter the salient information into electronic health records or EHR. This is very laborious, very expensive, and you can imagine, very unpopular with doctors. So a natural pension, an opportunity, and this has been a great application for our machine learning, statistical fact extraction, again, part of our comprehensive framework. When we take text like this and actually discover the meaning, we find major concepts, their relationships, their attributes, "patient is allergic", "allergic to a particular drug", "it occurred in this manner", "patient is being prescribed with drug", "particle dosage", "particle frequency", and all of those data can automatically be uploaded to the EHR, where they become available and more consumable. There are other applications, Paul alluded to as well, we can start defining billing codes automatically, that's another big primarily manual industry right now. And also perform realtime quality checks on a doctor's documentation. We can -- and by understanding what the doctor is saying, we can compare that against the standard ways of expressing that information and come back to the doctor with hints about clarification, for example.

How are we doing on this? So I think this is a very telling and representative example. We started working on this in October 10, and by feeding in more data and improving our algorithms over time, we have dramatically improved our performance now to very exciting levels and the end is not in sight. So this is really a good poster child of what you can do, with valuable contents out there that's currently not very useful because of its form.

We're taking that even further and in one of our collaborations with IBM. We are building a footprint, again, based on our natural language understanding framework and some technology from IBM to answer the actual questions against unstructured data. The important thing to realize here, this is not just keyword search. For one, in many settings, it is not useful to return a set of documents, that's the person doing the query had to read through and assess their relevance and dig for the information.

Second, the query might be expressed in language which is not overlapping with the way that information is expressed in the document. It might be expressed in a synonymous manner but there are no matching words. So in order to tie the 2 together, you actually have to understand the meaning of both the question and the information you're looking through.

Third, the information that you're looking for might be distributed across multiple documents, and the answer requires synthesizing the distributed information into one whole. So this is a very exciting area, and obviously, the applicability to Healthcare is huge, allowing doctors to quickly scan through the vast library of medical journals and reference books.

Some example of what we are -- what we call exploiting the dark matter. This is a term of trade in the search industry and refers to information which is either very difficult to find or very difficult to consume in its present form. And so medical reports are good example. But there are lots of other applications waiting to be built. Enterprise content. A lot of enterprises have a lot of good documentation, product manuals that could be very helpful to callers with specific technical issues. Except today, there is no way of getting from A to B. A question answering system, of course, can digest those data and be able to give the user not only an answer, but also a confidence and pointer to the sources of bits of information, the documents from which it simplifies the answers, so you can always trace through that history to get to the source and assess whether the system was right.

There are applications in Mobile in the consumer space as well. A lot of content, for example, print media that is difficult to pore through on a mobile device. You might want to ask a question about a particular restaurant reviewed in New York Times last week. You don't want to scour through that whole issue on your phone. Wouldn't it be more convenient to simply ask? Or simply ask what are the closing hours of business XYZ, and not be shown their Web page and I have to dig through on your smartphone and tablet, but simply be told, because the information is there.

So let's talk about the technology foundation, which is obviously critical, but we also understand that design and usability of the resulting systems are equally important, in particular because the natural language understanding aspect of a system is its personality. This is what the user experiences. Does the system feel smart? Is it obvious? Is it fragile? Do I know what to do? How do I know when it doesn't understand something? It's also for a lot of our partners, and especially with their brand, they wanted to feel good. They want it to make users happy. So we have poured an immense amount of effort into usability. And we have labs across the company where we actively run subjects working with our applications and iterating on the results. This is just an example where we actually have people using driving simulators, performing tests like lane-change tests. They're instrumented so we can tell how well they're doing, which is correlated to the cognitive load while they're interacting with various prototypes of user interfaces.

This graph is an example, we were comparing if speech-only in-car interface against some alternatives. And the vertical axis is lane mean deviation. So 0 is good. You're following the optimal path, the system tells you to change lanes, left, right and avoid certain obstacles. High numbers are bad. The rightmost point is texting in the car with a lane deviation of over 1 meter. And that’s pretty big, pretty dangerous. And base is on the left, as you can see, is the user of the speech user interface was comparable.

So just to wrap it up, what we have was very hard in assembling all the assets that we think we need to build next-generation application intelligence. And it includes technology, the reusable, scalable of voice and natural language understanding platform. It's a combination of statistical and rule-based algorithm. A distributed cloud, a massive computational framework on which this lives. We have the linguistic resources, the knowledge bases or the ontology, which are domain-specific and reusable, they're growing all the time. The language models, the lexicon list. Then there are the partnerships, both e-content partners that we integrate with, as well as our customers with whom we work very closely to build the technology in very deeply into their systems. There are the developer partners or developer program, who help out us explore new application concepts in a very effective manner. They're also -- the research relationships that bring in additional ideas. There's the usability. But finally and maybe most important is our focus. We have a singular focus on this particular area, this particular technology and making it successful in real product in the hands of users.

And so this is really the foundation of what you're going to see presented in divisional reviews later today.

So I started by talking about the imminent transformation of the user interface, and I want to close by showing a very brief video, which captures some of those concepts. And the premise here is a user working with a tablet, browsing a new movie trailer and then engaging in a number of other actions seamlessly because he's got voice and natural language understanding deeply integrated into the platform. It understands the context of what the user is doing and helps him execute the transition among these applications. So if you could please play that.


All right. Thank you very much. I'll hand things over to Mike Thompson right now. He's the General Manager of our Mobile division.

Unknown Executive

Ladies and gentlemen, please welcome Mike Thompson.

Michael Thompson

Thank you, Vlad. Thank you. Hello, everybody. I'm Michael Thompson. Welcome. That was a very intense presentation about what's going on from Vlad. But man, I'm going to tell you the Mobile story now, but a lot of what he said is really driving it.

It's been a big year for Mobile. In fact, the last few months have been insane. My entire leadership team has been around the world 10x in the last year. It's been crazy. And in many ways, the world changed, I think, in early October for Nuance, as Paul said. So let's start this with a commercial.


So has anybody seen that commercial? Raise your hand, you people? Yes? I can tell you with certainty that every electronics company in the world have seen it. Every automotive company has seen it. Most operators have seen it, and that commercial and the entire advertising campaign along with it are having a big, big impact. Apple didn't invent the mouse, but they mainstreamed it. They didn't invent the graphical user interface, but they mainstreamed it. They didn't invent touchscreens, but they mainstreamed it. And when I say mainstreamed it, I mean, really mainstreamed it. And I think in October, Apple just put speech on the center stage on the spotlight and everybody thought, “we're experiencing that in a very, very big way right now.” And it's exciting. It's exciting.

So the Mobile opportunity, we told you this last year, $5 billion opportunity, upper half is what we focused on primarily last year. 2.5 trillion voicemails per year, 1.6 billion phones sold per year, 7 million automobiles, whole bunch of computers. All of those are doing and using what we sell: Predictive text, swipe technology, voice-recognition capabilities, handwriting capability. And that opportunity is absolutely growing. It's growing driven in part by what Apple has done, they put it on the main stage. But it's growing in general, because there are more connected devices, there are more touchscreens, those devices have higher computing power and those devices are capable of more things. Everything Vlad just talked just talked about. That phenomenon is absolutely soaring.

From the bottom half of the chart, there's a whole bunch of new categories too. Tablets. Who could've thoughts tablets would hit? Such an impact. Everyone is building tablets around the world. Some are going to be successful, some might fail, but it is a brand-new category perfect for what Nuance does. Connected televisions, gaming consoles, connected DVD players, the entire category of the living room. Every one of them has issues with their interfaces. That's new opportunities for us, so I'll talk about that.

Let me shift to a few more commercials because this opportunity is very real.


So those are just sampling of the commercials that are out there right now. There are speech commercials on every night. They are global in nature. First one was from somewhere. Speech and touch solutions are becoming critical messages in the way these great brands, some example there, are promoting their product. And it's reaching millions of real people, people who use these things. And that's why the Mobile opportunity is growing. And it's going to grow for a while.

Today we thought we'd deconstruct the Mobile division a little bit so you'd get better insights into the diversity of what we're doing, how we're organized and what kind of growth we're seeing. There's 4 business units in this division actually: Dragon Desktop business, Voicemail-to-Text business, Mobile Handsets business and the Automotive business. I'm going to take you each -- through each of those. We're going to start with where it all started, foundational business, Dragon for the desktop.

All that awareness that I just showed was literally hundreds of millions of people who are seeing those commercials around the world, they have an awareness that speech exists. They have an awareness that speech works, and it works well. We're capitalizing on that with how our massive Dragon consumer advertising campaign, a very coordinated campaign, television, other forms of advertising. We're capitalizing on that. But 2 statistics for you just embrace here. Traditional retail sales has been tough for software companies. What this chart shows is 2010 and 2011, how we're doing in retail sales of Dragon. 13.5% growth 2010 industry was at 0.2%. This year, 33.9% growth at this fiscal year '11. 33.9% growth while the industry shrink. People are aware of speech. Other software buying through the traditional retail channel, they are going to have trouble. This is just an amazing statistic of awareness and demand for the Dragon brand and the Dragon on the desktop and on the Mac products.

We're not stopping there. We believe very strongly in broad distribution. So there are Dragon brand extensions. This year we launched what's called Dragon Express on the Mac App Store. It was promoted by Apple pretty heavily, interestingly. It was a featured application. And it reached the #2 grossing app in the App Store behind Lion. Lion is Apple's operating system, of course. That's just ridiculous. We were just thrilled with this achievement. Brand-new product, version 1, new distribution model, people are embracing it, shoots right to the top. Again, this is the awareness that exists between the general marketplace and then our own Dragon brand within it. And again, it's not going to slow down, not going to slow down.

Let me shift gears now. Voicemail-to-Text. Everybody uses voicemail, right? Show of hands for people who really love voicemail calling in, right? Checking their voicemail? Nobody likes it. We have built quietly an amazing business called Dragon Voicemail-to-Text. People hate voicemail, and we're doing everything possible to erase it. Now there are a lot of voicemails. I forgot the number, I set a few slides -- but it's a huge number globally. While we set out to create better experience around voicemail for operators. These are just a few of our operator customers. We've had incredible success with the operators, building up relationships around voicemail. Because you see, voicemail is owned by the operators. They make money on it in various ways, varied around the world. But Google, Microsoft, those guys don't participate so much in the operator voicemail world. They're experimenting with some things, of course. But the operators own those voicemail boxes, they own those customer relationships and they embrace our Voicemail-to-Text solutions to create new opportunities for their customers.

Let me explain what it does. When I call you and you're not there, I'll leave you a message. System shifts the audio to Nuance's cloud, our automated system converts that into text, ships it back to the Mobile phone and it shows up as an e-mail or an SMS in a beautifully formatted way. I haven't called a voicemail box in 1.5 years. No need to call voicemail, it already show up in my inbox and I read them. When I look for the audio, I can listen to the audio, it's right there as an attachment. People love this product and it's very, very sticky. And depending on where you are in the world, the operators can make money off of it. They can relaunch, they can bundle, they can position it, it's innovative. Google is nowhere to be found. They're doing their own thing, in fact, operators are almost dead set against them in this area. Huge opportunity for us, let me show you some statistics.

67% year-over-year transaction growth in our Dragon Voicemail-to-Text cloud. It's been growing up into the right quarter-after-quarter for quite some time. This is all 100% cloud-based recurring revenue, On-Demand revenue, and it will continue to be. We have Voicemail-to-Text, which is the flagship product.

There's also a Missed Call Messenger. Missed Call messenger is for those parts of the world like China that don't have voicemail boxes proliferated in quite the way the same way the U.S. does. You know what happens there is you call, you just -- you have nothing. It rings and rings and that's it. While we've been able to hang infrastructure connecting to our cloud off the back of those phone calls, so that when you get 3 rings in, nobody answers the systems wakes up and says, do you want to sent a text to that person just speak it. That's called Missed Call Messenger. We shoot that message to the person and boom, no more call in the voicemail box. That's a really important economics for the operator because they actually complete the call. They make money that way. Definitely in other parts of the world. Huge opportunity in voicemail and quietly becoming a very, very important part of the overall Mobile division.

Innovation. We're not done yet. The Visual Voicemail is just a really cool thing, also mainstreamed by Apple. The Visual Voicemail -- the current Visual Voicemail experience that most of you are familiar with is you get still notification that shows up in application that you have a voicemail. Then you press a button and then you go listen to it. So it's better than dialing the voice mailbox. Well, what we're innovating, and we have deals signed and this will be coming to market with the operators, called Dragon Visual Voicemail. The Visual Voicemail client actually ships you the message, similar to Voicemail-to-Text solution I just described, you read it. You can also reply using your voice. You can dictate right into the client, ship that message right back. You can listen to it using our text-to-speech right on the phone. You don't need to call anything. The phone [indiscernible] the Text-to-speech right on the phone. It's the very same text-to-speech you've heard on many, many Mobile phones before. This is the future of voicemail. Voicemail as it exists today is gone. It's going away, you can't make new money, can't -- it's not keeping speed, keeping up to speed of innovation around Mobile, and this is our play, and operators are in embracing them in a very, very big way.

Alright. Let's shift gears again. The Dragon Mobile handsets business. A very, very exciting business. All kinds of activity going on. The Siri effect is very real. We've talked about it a lot, but it's going to change the way people interact with their Mobile phones. People are talking about it at parties. They tell their friends, "Have you done this? Have you used this thing?” Incredible. The guy last night said to me, “I bought the I iPhone 4S specifically because of this thing and it blew me away." The best-selling iPhone ever. We all expect it to be when the Christmas season and the holiday season is over. The Siri effect on the world is going to be huge. It's going to be huge.

We talked a lot about these innovations, but these are the things we're investing all of our time in and all the conversations we're having with all the other manufacturers who build mobile phones around the world. It's got to have natural language understanding; it's got to be conversational in the right places. Contextually aware, all of those other things below, personalized, the design has to be phenomenal.

You set up our entire organization and I'll talk about this a couple of times. To collaborate with the OEMs, to build phenomenal solutions for them.

They can't just launch a second-tier solution. They've got to design something that's at least as good as Siri, better than Siri in certain areas, and differentiated from Siri. Our whole services organizations are designed to collaborate with the OEMs around these complex innovations so that they can bring something beautiful to market.

So look at the numbers. I'll tell you what this chart is. The last chart I showed you was the cloud-based Voicemail to Text transaction. This is our connected mobile phone transaction. So I've got a good growth rate, 84% year-over-year transaction growth in the last year, need a little color on this too. This doesn't include any of our embedded software, we ship on hundreds and millions of phones on embedded software. It's not showing here at all. And there are -- this chart doesn't include all the OEMs we have because certain OEMs are very secretive and we're not allowed to say anything about anything. But this is a good representative thing that I thought would be important to see. Just using this chart, 84% year-over-year growth.

The green are our direct-to consumer applications. We launched our first one, 2 years ago, almost to the day, Dragon Dictation in U.S. English. We made it free because we wanted to show the market what was possible. And that was very, very tricky decision at the time.

We continue to launch our direct-to consumer applications. Almost all are for free, not all, but almost all are for free, because that gives us the ability to show what's possible. We collect data, we learn what's possible. We innovate, we improve, we get awareness, we create a buzz. That's what the green chart represents, the green part of the chart.

The red represents our developers. We decided early on, "Hey, I think there are some good opportunities to really broaden a killer developer program here. And a developer study coming to a stand, a Dragon Dictation app, and that sounds cool. I want to put some of that in my app." And that's where you see the red start to grow.

The blue is our bread-and-butter. The blue is our OEM relationships. We got very broad OEM relationships. And as I said, shipped millions of business software on many different kinds of devices. It started to take off because they saw what was possible. What I can tell you with certainty is that the blue is going to explode. The blue will explode in the coming fiscal year. It's going to make all of these charts look tiny, in fact, but that's part of the Siri effect.

We spent a lot of discussion about DragonGo! and the natural language understanding capabilities it has. What I wanted to introduce is, yes, it is incredible. In fact, it's the showcase application for NLU in the market in many ways. It's almost magical. Go read the ratings on the app store and you'll see a lot of those kinds of comments. Magical, I can't believe it knew that, how did it know that, it took me right there. Really, really cool.

200 content partner relationships. What's interesting is that it's creating new business opportunities for Nuance. Our historical business model in mobile has been royalties and transactions, but because we built a stable of content, partner relationships and we have very, very deep distribution globally in a lot of different handsets, looked [indiscernible] interesting position to generate new money. We are now generating money, what we call post-sale monetization revenues, associated with content sales, affiliate programs or advertising.

It's new, it's young, but it's an exciting part of what's in front of us for all the reasons that Vlad described. The user gets a better experience. It gets you where you want to go. Fact, content guys happy? Users happy? OEMs trying to differentiate the phone. So this is a big, big opportunity for Nuance and a lot on the horizon here.

This is a global game. We are a global company. We do more business in mobile outside the U.S. by far than we do inside the U.S. And we continue to invest everywhere in the world to be ready for our global customers. We launched since last we talked, for those of you who were here last year. 25 languages now, Dragon Dictation and Dragon Search. That's our flagship language strategy for connected services on a mobile phone. Every country we launch in -- not everyone, almost everyone, we go to #1 and #2, or #1 and #3. Dragon Dictation is almost always #1.

It's been an incredible run, creating awareness, making people aware. They're seeing these commercials. We're providing that on the app store in an easy way. There's 15 more languages planned. We're not slowing down here. We're going to have the biggest global footprint to serve our OEM customers, Dictation, Search and NLU, plus all of our existing embedded capabilities. A very, very important part of our strategy, global footprint.

A lot of talk about the developers. This has been an awesome program. Awesome. Developers say, "Can I have an access to a little bit of stuff?" So last year, we launched NDEV -- this year, rather, January of this year, we launched NDEV. And the developers just started pouring in the door. And all year long, we've been layering on the functionality that those developers had access to. So first, we just started with Dictation, and we added search, then we added more languages, so that developers in Germany could start building apps. I think our most recent announcement was Russia. We just launched the developer program in Russia. So all the developers in Russia can use our cloud-based developer tools.

We then layered TTS on, so that developers could use TTS. And we created a 3-tiered program. Developers who -- 2 guys in the garage who are just experimenting, free for them. Free in big way, actually. We want to inspire to get development going. All the way up to Emerald tiers, which is all customs-based stuff. A lot of these companies experiment a little bit or maybe a group inside of a top-tier company experiment and then moves to mainstream. That's where we partner and we strike our big, consumer contractual relationships.

Marquee names across the board. Right. And I forgot one point about that, that's why I get to this. We develop across all 3 of the major smartphone platforms: Android, iOS and Windows Phone 7. Developers like that because developers want to be able to go on the broadest footprint that they can.

In Android, we're talking about a little bit more. I can get some questions about Android. Android was great for Nuance last year. We did great. I mean, we're on a high-flying operating system.

Our message is very simple, very simple. And by the way, we're shipping on a hundreds -- we're shipping keyboard and keyboard-related technologies on hundreds of Android devices, speech on over 70 devices in different configurations. We are very, very active on Android, and you see some customers here. But our theory is very simple. Android market is taking off. Every Android manufacturer has launched their first set of Android phones and they are into what is now the competitive battlefield of being an Android player. They need to look a little bit different, they need to act a little bit different. Need to be differentiated. If you see 7 black Android phones with exactly the same functionality, how do you choose which one you're going to buy? You just go write the price, right? It's a bad place to be.

Because Nuance has all of these infrastructure and OEM relationships designed to customize for the OEM, we are building very, very strong relationships around this next generation of innovative solutions.

Some of the innovations the 4-in-1 keyboard, never been done before. Speak, touch, write, Swype there's a large OEM pipeline of activity around new solutions. In response to Siri -- not just in response to Siri, it's been coming anyway. Siri might help. It's got to have an answer. That's the Android.

Fourth business unit, Automotive business. This is an incredible business. Very hard to build the big, successful mobile business in Automotive space. They are not very many software companies who are super successful in Automotive.

Our Automotive business, best brands in the world, top-tier brands. This business is growing, 2 very simple reasons. Ford and some of the leaders in the early voice recognition sophisticated design made huge success around marketing the voice-enabled solutions. All of the companies have reacted. The positioning of a car have shifted from engines and tires and whatever, to what's the user experience in the car, what's the consumer electronics like? How do I control things? Where's my map system? Go to a dealer and listen to the conversations people have. What is it -- do they have voice control? Does the map system have voice control? Can I ask it [indiscernible] to play? 10 years ago, it wasn't happening. It's happening every single day in every single part of automotive supplier. We are growing because we're increasing our footprint in the software we put on there.

It started with just text to speech, then it was text to speech, a little bit of speech recognition, now it's text to speech, a lot of speech recognition and natural language. So our software footprint is growing. All right?

On top of that, there's a whole new revenue stream associated with the connected car. Vlad mentioned it. Cars are going to be connected. If you overstep in the car, which is really hard, you're always in there, you got to be doing everything you can do in the cloud. It's going to be powerful.

There will be top-tier brands, top-tier shipping with dictation capabilities from Nuance in the cloud connected this year. And there will be many, many to follow. So they all see the potential here for awesome performance, about sophisticated services in the car. Really, really exciting.

Just a little more, just a little more. And this is simply at our [indiscernible] emerging segments. Talk about the living room. We've built -- there it is.


So that [indiscernible] as we speak of the living room. The living room is becoming completely connected. If anyone's bought a TV or DVD player or a gaming console, it's completely connected. That's perfect for us. If you've ever used those products, their search and messaging are terrible. They're awful, you can't control them. You got this thing with 100 buttons on it, it's really, really bad, but we've built 2 labs. Everything you just saw there is live, it's real, it's running in our labs. We've got a lab here in Boston and a lab in California, in Silicon Valley. And those labs are full with customers who see the potential of where this is going. And you will see television and living room-related products start to ship with our software this year in high-volume. There's just incredible potential in the living room to improve. We even have some demos out front where you guys can see stuff during -- after the session. All the stuff companies are looking into this and it's one of the next big battlefields.

All right. In summary, we are very, very busy. We're having a blast. This Siri effect is very real for us. We're seeing just tremendous interest in what we're doing. The innovation going on is insane. The rate of innovation has been staggering. It was 2 years ago, just 2 years ago when we launched Dragon Dictation on the iPhone. We've seen a lot of growth since then. There's a lot more to come.

Nuance is unique in our differentiated offerings. It's full bundle, all languages bundled together. It's very, very unique. And we package that with our services to the customers so they can customize and differentiate. And they need that customization and that differentiation.

And then lastly, this developer area where we're building new relationships, and this content area where we're striking a new partnership. This is new for us. And it's exploding and that's creating new business models in deeper and deeper reach. We've always had the view that we wanted to build an ecosystem, cross-platform ecosystems around the Nuance capabilities, and that's exactly what's happening.

So that's my pitch. And I thank you very much. I look forward to the Q&A later. Steve Chambers, President Steve Chambers, is going to talk about the Enterprise division.

Unknown Executive

Ladies and gentlemen, please welcome, Steve Chambers.

Steven G. Chambers

Good morning. Mike talks a lot about the Siri effect, and if you think it's just a consumer interaction commentary, consumers interacting with their music, with their Facebook content, that's actually not the case. We hear on a daily basis, not a weekly basis, major banks, insurance companies, travel and tourism companies saying to us, we want to have Siri for Enterprise and it started to permeate our Enterprise conversation. In terms of division, those companies hold for the type of experiences they want to deliver their consumers when those consumers want to access flight information, banking information, et cetera. So it's been profound and you're going to hear a lot about the themes, Vlad, Paul and Mike spoke about, really driving into our Enterprise business at Nuance.

This is the key difference, really, between the Enterprise customer mindset and the mindset of a consumer trying to retrieve and work with their content like their music library or their television programming. We are impatient people, and one very key correlation is the degree to which you can service a consumer of a business service or business information or content, quickly, is directly related to the degree of satisfaction they experience from their interaction. They are impatient. So this idea of delivering outcomes and making them immediate is the cornerstone of what we do in Enterprise.

These are the objectives we're trying to fulfill, and in some cases, the problems we're trying to solve, what makes the Nuance Enterprise solution investment worthy. I won't go through them, but what's become a dominant theme is the theme of experienced, shorter interactions, reduced customer effort, support for customers through whatever access channel they wanted to use to get to that corporate content, be it phone, text, email, IM, SMS agent, et cetera. It's a highly complex model of service delivery these days, and yet even in that complexity, consumers want simplicity, speed, elegance.

I'm going to give you a brief on what happened in FY '11 because it was actually a big year for Nuance. We've started developing new solutions we'll talk about here. We returned to growth in Q4, which was fantastic. We have a deep conviction about our Mobile-Enterprise product. Our authentication or security products, Voice Biometrics is one of the most active-selling products that we have in the Enterprise portfolio. We have a cloud care, that's the Nuance hosted operation.

And then in 2011, we began some deep investments and focused on multi-channel solutions. You're going to hear Enterprise -- Nuance Enterprise moving from the voice channel into the text space Enterprise customer care channels, email, SMS, IM, et cetera.

And finally, analytics. Customers are constantly saying “you're powering my interactions and you're servicing my customers, that's great. What can I learn or infer from their behavior or how they're interacting through your system to help my business operate more smoothly and more effectively” and that's been a major area of our investment as well.

So on mobile, we have over 45 million Nuance Mobile Care devices deployed and we're seeing about a 200% growth in NMC devices year-over-year. And Nuance Mobile Care is really the first generation Mobile Care Enterprise products from Nuance. You're going to hear me talk about Nuance Mobile Advantage, which is an entirely new product with a new set of capabilities and that's where we've really tried to take what all that feedback about NLU-powered interactions, the Siri effect, that interaction model with a virtual agent, and take it one step further by delivering all that natural language and recognition capability, but in a dialogue format, not just one question, one response, but in a dialogue the way you and I would have with an actual person that we were trying to transact, book a flight, et cetera.

Authentication. We have the largest Voice Biometric deployment in the world and it's in Turkey, and it has taken authentication from 20 seconds down to 5 seconds. The power of this product to reduce one of the most expensive areas of contact center, which is consumer authentication, just correspondingly directly related to fraud, fraud minimization, and also, significantly more complex when you get consumers interacting with your corporate content, on secured channels across multiple channels. So this Voice Biometric is a big area for us. I'll predict that within a year, you'll see every major banking institution in the United States have a Voice Biometrics-servicing capability. And I think you'll start to see it just permeate Enterprise. The interest is fantastic and the technology has passed security thresholds and usability thresholds, and it really just collapses the time it takes to authenticate yourself, and eliminates issues with people not remembering their passwords and bailing out to agents, et cetera.

Cloud care. You can see on the bottom some of the customer logos. We have the largest automated voice services implementations in the world in our Nuance-hosted operation. We have about 1 billion minutes that will traverse that platform this year. We should be anticipating -- we are anticipating to be upward towards 2.5 billion to 3 billion within 3 years.

We also have our outbound capabilities in its hosted operations, so we provide some significant -- notify you need to check the bank, for example, and then have you call-in and service you with automation, outbound and inbound, all powered from our hosted platform. We have a major implementation at U.S. Airways, that was quite exciting. And I'm going to play you something. This is just audio, it's not a video. But I want to hear you a little bit of what's invigorating investment for all the applications we already have in the market. We have upward towards 18,000 applications deployed worldwide. Some marketing into that base of customers under a new value proposition of, enrich the experience, modernize your automated telephony interactions with your customers, use natural language to make it personalized.

So I've already set up in U.S. Airways a reservation. So when I call in, you're going to hear it acknowledge me and then I'm going to explain why it's so special and some of the feedback we heard direct from the CEO of U.S. Airlines about this product.


Clearly [indiscernible] with that first-class upgrade, but what's interesting about that, you might here that and say, "Well, and that's okay. What did that mean?" It know who I was. It tagged me by my first name. It knew what my last interaction was and introduced it upfront in the conversation, anticipating an issue I might have. It also answered something that I had told the system in prior interactions was important to me, and that's my dividends miles balance. All that, right up front and allowed me to confirm, which was the most logical, predictive agenda I would have given that my last touch happened to have been a reservation.

The CEO sent us a message unsolicited saying, how this capability, this system redefined care and drove a whole new level of experience and shot satisfaction up. He also had overheard in the last snowstorm we had, that strange snowstorm early in the season, down in the south, he was in the airport and actually listens to 4 people who had heard their flight was canceled, dialed that automated system and their first response to each other was a commentary about how surprised there were about the interaction with that system. So with over 18,000 apps installed worldwide and the promise of our hosting and delivering the full Nuance capability, personalization, recognition, natural language, multiple languages, outbound, inbound, all available via the Nuance care cloud, we're looking for great things from that particular area of the Enterprise business.

And this is an example of one -- this is just an example, benchmarking, one thing you would want to do with an airline, doing that same thing across 4 other leading U.S. suppliers and you can see that difference in time. And again, the demography matters here relative to the impatient consumer, a relatively recent study from Forrester about demographic attitudes showed that 87% -- 83% of Gen Y prefer self-service. The #1 reason they prefer self-service is the perception that it's faster than waiting for an agent and time is the most important variable to them when they interact with their merchant partners.

So this variable cannot underestimate how powerful this is for us to walk into businesses and say, we can collapse that interaction time, personalize it, make it more enriched and deliver you something that will make the customers feel you are second to none in terms of your service delivery capabilities.

So that was the FY '11 highlights. These are the drivers for FY '12 and they do differ. Smartphones proliferating. The Nuance Mobile Advantage product takes direct aim at this phenomenon. I think everyone understands the power of mobile phones in general. I think what you might not know, I'll give you an example. One major U.S. airline we were with last week, I said, "How many callers are calling you from mobile phones this year?" 92%. "How many callers called you from mobile phones in 2002, 2003?" 33%. "Of that 93% in the United States, how many are smartphones the US-made?" We've done research about that because we don't understand why our downloadable app doesn't have higher usage, why it has abandonment rate, there's something wrong with the experience because of that 93%, United Airlines travelers who access their company's content via mobile phones, 70% are on smartphones. So this particular phenomenon of smartphone proliferation is a particular interest to us because we're going to deliver our Nuance Mobile Care product over those phones, first and foremost.

Speech in natural language, that's a Siri effect. And that's a company's [indiscernible] -- just last week, we had a big -- 2 weeks ago, a big consumer experience forum right in Boston and Progressive Insurance is a customer of ours. And the gentleman running mobile strategies and I were sitting next to each other at lunch. We were talking about Flo, that character they have in their commercials and he said, "We really -- our downloadable apps feels a little flat. We want to use all the brand equity we built with Flo. We want kind of an avatar expression of Flo. But it's got to be like Siri, it's got to kind of understand what you say and what you mean.” We started talking about Nuance Mobile Advantage. He already came to the conclusion, “but it can't be that ask-a-question-answer because that's dated and kind of staccato. It used to be dialogue like you'd have with a person because that's the type of insurance narratives we get into with customers. They ask us a question, and modify the question, they want to pull up, look at some information, and then they want to transact, talk to a person at that point, which is great.”

So this is real. That Siri has permeated the consciousness of the consumer, that businesses know that, and say, "Okay, I need a little bit better than that because I get into dialogues, I don't just do question-response." And it's coming to us as a clear need. I mentioned multi-channels and I mentioned consumer demand for self-service, particularly in younger demographic segments like Gen Y.

So this is another example, I thought it was a clever phenomenon, we never would've heard this 2 years ago. The idea that -- and this person was speaking to a group of peers and Nuance people, so he was kind of admitting, look we've shoved technology down consumers throats, ATMs, automatic check-in, they haven't asked for this, we've shoved it to them because we want to reduce our costs. This now, we're in an era where we can't keep up with the demand our consumers are asking from us with respect to automation and self-service.

Okay, so I'm going to hover [ph] for a second because I think you know us as the folks who automate interaction over voice and telephony channels. What is out there that I really would like to take you a look at in the demo station, is all our natural language investments and capabilities brought not only to the voice channel but into the text channel.

And why is this important?

It's important because Web self-service rates are abominable. The dissatisfaction we hear when we go to customers and say, "Let's talk about your completion for your customers who are web-interfaced." We hear a litany of not good enough, things are difficult to find, people bailout, so our natural language apply to those text-based channels introduces an entire incremental addressable market for Nuance, this Web customer self-service.

And similarly, the mobile market with Nuance mobile advantage will break us in, in a much more powerful way right into that phenomenon of mobile usage to access Enterprise content.

These are the 4 drivers that we've asked the Enterprise organization, sales and the division to focus on. Hosting, access and security, improvement of Web self-service and then mobile. On Hosting, the reasons on the left I think everyone already knows and understands. When we can deliver that U.S. Airways experience in a hosted interaction on a fast model and go out and talk to all the Enterprise customers who've spent a lot of money on capital equipment, depreciating, delivering mediocre experiences in their view, it's very powerful because the fundamentals on the left are driving companies to consider hosting our capabilities of integrating our best of technologies in our hosted operation, is another payoff for them to get a better experience through engaging us in the hosted area of the Nuance care cloud.

On a security basis, we have Nuance Voice Biometrics, one of the fastest-growing products in the Enterprise portfolio. Authentication is difficult. Single sign-on in the Web caused a bit of breakthrough on the Web and a breakdown as it's gone across channels.

Telephony-based validation of consumer identity to minimize fraud, to deliver compliant information to the consumer via privacy standards is a problem. It's extraordinarily expensive. That's why every single banking and financial service institution, all the majors in the U.S., are piloting or have deployed this technology and will deploy this technology.

I want to talk to you briefly about 2 ways it gets deployed. On the left, this is you have a pass phrase. So you'll have registered your voice print and then you'll deliver that voice print. It authenticates you and unlocks whatever capabilities, security access you have. Not dissimilar from a combination of an ATM card and you knowing its password with a machine, you've put in the right password, it unlocks screens for you.

So that's interesting and it's logical and it's where every company starts, but where they all want to get to is the second area of investment. This is the ability to not disrupt the consumer's interaction, to allow the consumer to begin his or her dialogue through your automated system and in the process of that dialogue, validate their identity with as high a confidence as you would with your pass phrase. This is very important because the passive enrollment, once you know a consumer and have captured some audio with that consumer, it is a fantastic experience. To start talking and interacting with the system and have it without you remembering the password, which is difficult when you're standing in a public place or around other people. The ability for it to say, yes, I know who you are, security identity validated, let's move forward.

This is also a technology that's going to make its way into Mike's organization, such that you'll be able to use Voice Biometrics on mobile devices to unlock the phone's capabilities as well.

It's a huge area for us. We have fantastic customer traction. Large deployments right now, and I think on the left is where the deployments will be for the next year, 1.5 years, and then we're going to see an explosion on the right because it's going to open up all forms of easy, consumer validation to load in personalized settings, for example.

This is the Prodigy program. This is where we took all our natural language understanding, learnings and expertise. And all our knowledge over the years in dialogues, how people dialogue with systems, packaged it together and made it available to power chat-based text automated exchanges or email or instant message, automated exchanges.

I want to give you an example of how big this is. One of the top 3 banks in China is going to be our first major deployment for this technology, and that's another interesting side note. It's a statistical-based technology, not just a rules-based technology. So our ability to bring it to new language markets will be far easier. Our first deployment is going to be in Mandarin. 30% of that bank's customers access their banking information via automated chat. It's just a very different social and consumer service interaction model than in the U.S.

They've put out an RFP. We brought our Prodigy to -- the first time we brought Prodigy in a newest-selling situation this past year. There were 8 companies who participated. The threshold was 60% and that was considered investment worthy by that bank. We hit 88% out-of-the-box. There was one company in the high 50s, and the rest were around 28% to 32%. This is going to be an amazingly beneficial area for companies to apply Prodigy to their web-based service interactions, not only because that natural language is going to understand the query and it also -- our natural language will be used to take all that structured content that a consumer might search again and understand its meaning.

So Prodigy understands the input or query meaning, and then it also has rendered a content understandable via natural language and the match is profound; that's what gives us the 88% correct response while everyone else was 58% lower in that example.

This stat is real. 91% -- Forrester did research and we found this to be very consistently played back to us when we talk about natural language in the contact center over Web self-service. 91% of self-service queries on the Web don't return the right answer.

If the consumer gets the wrong answer, 37% of them who start online and experience 2 or 3 mistakes on their search bail to an agent, and very importantly they don't want to deal with automation at that point. It is not hard to ROI-justify Prodigy for use in the contact center because calls flood to agents from the Web. So not only from an experience basis, a better Web self-service experience, but also from this intermediating cost to agents, this product fits in a very well-positioned place.

Now we use this internally and you'll see out there when you look at the demo, you'll see a chart with our own Dragon consumer experience where we used a major company CRM package and they had a little natural language in the package. And we achieved a pretty abysmal first response to a Web query resolution rate. We added Prodigy to it and the results went right up into the high 60s and we're heading towards the lower 80s at this point.

So that's out there in a demo form. It's a different dialogue than we've had. We've never talked to you about bringing all our natural language capabilities into the world of web-based or text-based self-service. Huge problem for Enterprise, and Prodigy aims to solve it.

I mentioned that these are the 3 aspects because it's not just natural language, it's that central piece. In the center of this diagram is a dialogue. I'll give you an example of how this plays out.

A Siri example. So let's say in a typical, you ask a question, you get a point answer: if you are talking to an airline and you happen to say or type in, how many bags am I allowed on the flight? And when it comes back and says, by policy, every passenger is allowed 2 carry-ons. And then you say, “what if I am a elite status number?” 99% of systems fail. They search on elite status number, they pullback extraneous information, you're sunk. Because of the dialogue management and our knowledge of how people interact in natural dialogue, we can purpose all that natural language capability into dialogue capabilities as well, such that in a Prodigy powered-interaction, it would return to the right answer. It would know your previous context, was how many bags are allowed on a flight. Your modification was, how about if I am an elite flyer, and it will return the right answer. It's a huge experience benefit and also cost savings benefit in one.

This is the Nuance mobile advantage product. I'm just going to walk you through the 3 cheese wedges because it's really important, and I'll give you an example of why they’re important.

One of the largest banks in the United States, we had a mobile strategy meeting with them 3 weeks ago and we learned a lot. One of the first things we learned is they've had, on -- primarily on iOS, but iOS and Android, they've had 27.5 million downloads of their app. Can you guess what the atrophy rate is or the abandonment rate is? Here's the statistics.

After 12 months, 99% of the apps downloaded aren't accessed within a 3-month period. That's what their data over the last 2.5 years suggests.

So they might think they have a Mobile Care solution, which they don't anymore, because they were one of the ones who said, "I want Siri for Enterprise. It needs to be a dialogue. It can't be just this visual app because companies -- customers don't use it with enough frequency. We're having a huge abandonment rate."

So when we start on the Discover tab, and this thing called Nuance Call Intercept, that's a way to make the app available to more and more customers. They dial a number, we prompt them to look at the screen, or we download the app to their compatible phone. You have the usage, all those black circles are elements of this new Nuance Mobile Advantage. And again, this is the next-generation Nuance Mobile Care.

All those black circles, authentication, using your voice in a natural dialogue and connecting to existing agent capabilities, the CTI connection. If I'm on a mobile phone and then I go this far in my interaction, you know that the kiss of death is the call gets transferred and it starts all over again. Mobile connect is the intelligent transfer of exactly where you were in your interaction, such that an agent can immediately pick up.

And then finally, the transition to other forms. So this is a major product for us. It is Siri for Enterprise, this is that. It's Siri for Enterprise but with advanced dialogue, the type of dialogues we really understand consumers want to have from all our time doing automated customer service.

I'm going to show you on the next slide an animation, it's very brief, it's about 1.5 minutes. It show you a little bit what this looks like in its environment. This is an internal demo, it's not a customer demo because we usually demo live, and we're the customers. I just wanted to give you a flavor of what this next-gen Nuance Mobile Care can do.


We showed this application to that bank who expressed the atrophy in their current visual-only download. They're going to be the first customer for this. There is some intense natural language going on in the background and a lot of data from their bank on their own consumer interactions behavior like, do you prompt a transfer at that point when the balance might get below on screen and allow them that the immediate outcome.

So it's quite a bit different. As their mobile strategy VP said, "This is how we need to think because we've been pushing these banking apps thinking everyone is just going to use them again and again. They are showing they're not. We're missing something. We're being asked to provide more personal services and make it just simpler than the endless menus on screen." So we aim to do that with this Nuance mobile authentication product.

And in 2012, taking the existing business we have, injecting it with all that new experience capabilities, personalization, our entire hosted operation, ala-U.S. Airways, the existing Voice Biometrics business bringing into the domain of contact center when so many companies want to invest in consumer authentication over a voice channel. And then these new products that weren't even part of our mix last year in Prodigy, already validated by one of the largest banks in the world, in Mandarin in China, and Nuance mobile connect here which is the particular product of the bank in the United States is going to be deploying, I feel great that these new solutions are not only meeting a need, but really taking advantage of all those capabilities, Vlad spoke of earlier in the natural language domain and Mike spoke of earlier in the entire societal impact of the Siri effect. All coming into Enterprise, allowing us to articulate a lot of new value around Prodigy and Nuance Mobile Advantage. In particular, those 2 new solutions.

So thank you very much, I appreciate your time. I want to bring out Janet Dillione who's the EVP of our healthcare business, who will talk to you about healthcare business and strategy. No? Are you breaking?

Kevin Faulkner


Steven G. Chambers

That's a good choice.

Kevin Faulkner

So we'll have Janet up here in about 10 minutes, but it's been an exciting day so far, hopefully, you're learning a lot, but we think we've held you here for quite a while. Let's take a 10-minute break and reassemble, that would be about 11:40. Thanks.


Unknown Executive

[Operator Instructions] Ladies and gentlemen, please welcome, Janet Dillione.

Janet M. Dillione

Good morning, everyone. [indiscernible] public speaking, don't follow the children, test or break, so hopefully, everyone's returned on time.

So I'm excited to have a chance to spend a few minutes with you. I had the opportunity to speak to you last year. I'll give you some updates, but to get started at a high-level I, think you had some great insights from Paul and Vlad, with Nuance healthcare, fundamentally, we've established leadership for 3 key reasons.

Reason number one is we continue to deliver unique, differentiating innovative solutions into the market. Number two, our solutions continues to deliver improved productivity for our customers. And lastly, our solutions continue to meet and -- our promises. We promised customer results. We consistently achieved customers results. That's in my voice, let's hear it from the voice of the customer.


And last year, we talked about the fact that Nuance healthcare is somewhat of a stealth force, if you will, in healthcare IT, perhaps a little bit unrecognized. Paul mentioned how we're investing and upgrading our branding healthcare. I'll walk you through that. So this year, we also talked about revenue growth of growing an expanding customer base, of growing and expanding channel with strategic partners. And I've talked about innovation last year that we brought to market in 2011. I'm going to talk about innovation this year and what's coming to market in 2012.

So with that, let's take a look at again, what we accomplished since 2011. Nuance continues to lead the market with Clinical Language Understanding solutions that support clinical documentation. We again continue to deliver innovation. We have become one of the top 20 healthcare IT vendors in the world. Top 20 healthcare IT vendors in the world. Our clinical documentation solutions and services have been established. And this year, we are expanding that portfolio through Clinical Language Understanding. I think Vlad did a fantastic job of walking you through what that means and trying to understand it. We invested significantly last year. We shifted, we poised again, knowing that we are going to establish a beachhead, a sustainably differentiated position in innovation and what we fundamentally believe is the next generation in voice, which is understanding. And I'm going to walk you that in detail.

To give you a frame of reference of some scale when I say perhaps an unrecognized stealth force, in 2011, you need to consider 10,000 healthcare organizations around the world used Nuance solutions. We documented more than 1 billion patient records. And last year, we achieved record-breaking bookings on our eScription platform. And finally, for those of you that watch healthcare IT, today, over 83% of the hospitals that have won awards as most wired hospitals in America, 83% are Nuance customers. So truly a stunning performance.

In terms of strategic deals I mentioned, some of the -- Paul actually highlighted some of these deals. I'm going to walk you through them in a little bit more. And last year, we talked about the ecosystem that we've established in 2010. We continue to establish that ecosystem in 2011. And what I hinted at last year was, leaders were coming to us. And we continue to see that last year, and again, I'm going to walk you through that.

They continue to come to us because we've proven consistently that we can automate clinical documentation and traditional documentation, that we can dramatically improve radiology workflows, and I'll walk you through whether market share is and our position is there. And finally, an emerging area for us is that we are able to add value to the clinical data that we captured.

In 2011, we added some tremendous marquee needs to our portfolio. Let me highlight a few for you now. In the Nordic regions, an often unrecognized area of global healthcare IT leadership. For those of you who have the opportunity to travel, Nordic regions tend to be extremely sophisticated in healthcare IT. Norway actually legislate it, the use of voice in healthcare. We have tremendous market share in excess of 80% of the entities in Norway using Nuance speech solutions.

This past year, Sweden enacted a similar legislation. We are prepared. We have solutions in the market and are going into the market with our partners, Max Manus, et cetera.

Last year, I hinted at the fact that we were taking eScription global, that we were taking it to the U.K. This year, what I can tell you is not only did we take it there, we went with a partner, Accenture, and we are live. We are live at a trust in Birmingham. I was there 3 weeks ago. It's called Warsaw [ph]. It's considered one of the more innovative trusts in the NHS system. We picked Warsaw [ph] because we saw an opportunity to establish a proven result, which is essentially what the U.K. is waiting for. Someone to show them the way, how can we save money and get productivity into the NHS system. We established benchmark with extension before we ever started. We have met or exceeded the benchmarks, and again, 3 weeks ago, I was there and actually spent time with 2 medical secretaries, there is still that role in the U.K. health system, and they described for me how the room I was standing in 3 weeks ago -- excuse me 3 months ago, would have been drowning in tapes because the physicians still dictated that way and tapes would come rubber banded with the paper and that's what working through. You have to imagine, record turnaround measured in weeks. Sometimes in months to get clinical reports back. The 2 medical secretaries, it was about 2:30 in the afternoon and they shared with me that there were done with the work for the day, there was no backlog, and they were going to other areas to offer their support, to document they record. So we think we've got unbelievable results, clearly measurable results that we are taking further into the NHS market with our partner, Accenture.

UPMC. Paul mentioned it, and I want to spend a few minutes on UPMC because it's unique and represents a very different type of deal for us. And I believe there is no other deal like it right now in healthcare.

UPMC is in excess of $12 billion-healthcare system in the U.S. market. One of the largest globally. But UPMC is also unique because it's not just a healthcare provider. It's a payer. And there are very few of those environments the U.S. market, less than 5. UPMC is one of those, the largest.

So they represent a very, very interesting market place for us and I'm going to talk about that a little bit in the middle -- excuse me, towards later in the presentation. But because UPMC is a payer and a provider, they actually represent an environment that have governments [indiscernible]. It's what they're trying to do with federal legislation and again, I'll talk to you about that in a moment.

But what did UPMC see in us? Why Nuance? Why did they want us? They wanted us because UPMC does things to scale. They have over 13 entities, again, they're over $12 billion in revenue, they are very large. They wanted one strategic partner to provide speech and documentation solutions in the Enterprise.

But as they said, they didn't want a transaction, they didn't want a contract, they wanted a strategic partner. They also wanted the opportunity to take speech to the next era of meaning, to introduce Clinical Language Understanding. They sit on a tremendous amount of data and they wanted a partner that could advance their interest in that area.

What did we see in UPMC? Again, a partner, of enormous scale, a payer and a provider, but also a partner who has spent the last 15 years holding onto their data. And Vlad made a comment, if you listened to it, he said this is the cliche [ph] learning environment, it is data hungry. It is. We have CLU engines in healthcare that do exactly what Vlad said. They are rules-based and statistical. Those machines are data hungry. And the partnership with UPMC gave us a treasure trove of data. That is allowing us to feed that clinical language engine that's inside of healthcare and make us extremely smart, much more quickly and again, establishing that differentiating position.

So, along with all that, the other thing to keep in mind, is UPMC again, is rolling out our solutions across the Enterprise. So there's an R&D collaboration specifically around Clinical Language Understanding. They are a test lab, they are a test site. There are a clinical validation partner. We meet with them weekly, we are working with their physicians in validating our solutions. But again UPMC is also rolling out our branded solutions, the Dragon Medical through all the physicians using Epic and Cerner, clearly, the 2 leading EMRs. They are rolling out eScription and displacing their current solution to every transcription environment. They transcribe in both the hospital and the clinic and the physician office environment. And lastly, PowerScribe. UPMC is rather famous, with their expertise in radiology, and we will be the radiology documentation solution across those several hundred radiologists. So an exciting project. We are on schedule with that enterprise rollout. You will be hearing more, more about it in 2012.

And lastly, I like future Lahey. They're in our backyard. They're very, very close to our Burlington office. There is again another rather famous, very sophisticated clinical provider in an environment that the U.S. system is trying to move to, which is a heavily ambulatory environment. And Lahey partnered with us not only to continue to rollout speech and they were a phenomenal user of Dragon, but they actually came to us because they had heard what we were ICD-10, and I'm going to talk to you a little more about that in the next few minutes.

During 2011, again, we didn't stop, and thus again, I'd like to phrase it that we -- it's sustainable, differentiating innovation. We are maniacal. We absolutely believe and invest to make sure that we are leaders in innovation, that we bring fundamentally different things into healthcare. We continued to do that last year. We've rolled out in 20 new products and services globally, including taking speech to the German, to the French, to the Spanish market through Dragon Medical for the first time.

We continued to rollout speech solutions to capture that patient's story. Healthcare IT, both here and in the European market, is a fundamental change agent for making healthcare more efficient and better for all of us. Again, we speak to our employees, imagine that solution being used by a clinician who's treating your family member. Now design that solution and get the speed and consistency that you need and again, that's what gets us jazzed, and that's what keeps us going here.

But again, in terms of innovation, we've continued to expand the portfolio through the introduction of Clinical Language Understanding, and what we also saw last year in 2011 is speech has now become a standard. You very rarely will answer an enterprise of any sophistication or scale that is looking to go to Meaningful Use that has not made the realization I must give speech to my physician. I cannot get them to embrace point-and-click or to migrate from their solutions. I must offer them choices. I must offer them a sophisticated transcription with sophisticated and rapid turnaround times. And I must give them the opportunity for self edit. So a very emerging different position for us if you think about the last several years, it's from a desktop or pilots in an emergency room department. Last year, we took speech to the Enterprise. And we began to see an extremely large scale of implementations. An example would be Advocate. A very, very large health provider in the Midwest. We rolled out Dragons at over 600 clinicians in their Cerner environment.

And Cleveland Clinic, there is only one clinic, the clinic. Over 1,000 physicians today will document at Cleveland Clinic using our speech solutions. So again, continued market share and innovation delivery into the healthcare market.

This year, I hinted that just -- we went from the desktop, we got to the Enterprise. We realized we had to exist in a citric-friendly environment, we've done that, we scaled. But we also hinted that we were going to get to the cloud. I mentioned last year and it remains true, there is no more mobile worker than the clinician. There's no such thing as a physician sitting at a desktop. There's no such thing as a nurse sitting at a desk. They are tremendously mobile. We made a large investment last year in the cloud. I'm completely thrilled to stay in here and say that we launched cloud-based hit at compliant speech.

We launched it at hint [ph]. We launched it along with Nuance Healthcare Developer Platform. You heard Michael talk about a development platform in mobile. We have that healthcare. Again, medical speech, typical [ph] compliant and already we have 100 partners that are embedding Nuance speech into their solutions.

These are very sophisticated well-insurance partners. Folks like Epocrates. They are the mobile standards in clinical content. Over 90% of physicians today are going to look and use Epocrates as their content provider. Epocrates is embedding our speech into their solutions. When Vlad did his presentation, you saw an image. It was a skeleton, it would like in a CT, that is provided by Calgary Scientific, very sophisticated image-processing they've embedded our speech into their solution.

Mass General is rolling out. Mobile solutions, they are building on their own, embedding our speech. University of Miami is building mobile solutions for their physicians, embedding our speech.

We are committed, again, we will differentiate, we will be market leaders in mobile speech. We are thrilled with the performance we're seeing, we're thrilled with the accuracy. We're thrilled with the lack of latency. We are getting tremendous response time. Our partners are able to implement the speech, and we spent a lot of time on this measured in minutes.

They download the URL. Their apps are speech-enabled again measured in minutes. Again, we took speech around the world in October. We launched the Nuance Healthcare Development Platform in Istanbul, Turkey, for the EMEA market. Over 125 partners in attendance at that meeting. So again, we're working in the European market to bring cloud-based speech as well.

Last week, at our SNA, the Radiological Society of North America, 65,000 radiology attendees, the single largest healthcare conference in the world. We announced PowerScribe, 360 mobile and enabling radiology reporting on the go. We could not get spot in the booth. Truly, the hot app featured -- the day after we launched it in the booth, featured the next day on the RSNA website to everyone who stopped by Nuance and see the first mobile application launch since the radiology space launch supporting 360. So again, mobility is a very, very significant investment for us and one that we will continue, going forward.

I also want to feature, again, the voice of the customer. It's not just us saying that our solutions are validated, that our solutions are differentiating, that our solutions bring value. Our customers say it. And the way we -- that gets measured in healthcare IT is through class. If you know how healthcare purchasers buy, they do 2 things.

First, they go to their board and they say, "I've looked at this solution, and here's their class rating." And the second thing they do, is call someone they consider up here and ask, “what solution are you using?”

So again, to have this kind of validation where we have 6 solutions ranked #1 in class, eScription for the seventh consecutive year ranked as the #1 speech recognition solution as a little bit empty over here, this will be eScription 2011, right? We're going to have 8 years in a row.

And then finally, we added -- Paul mentioned Webmedx, that was an acquisition. Webmedx brought a couple of things, but most especially, they brought the #1 ranking in the transcription services industry. So we've added another marquee customer satisfaction, and Paul mentioned, specifically targeted at the mid-market and that's what we added to Webmedx. So again, we're very proud of this because it is most especially the voice of the customer.

Again, I talked about and I've -- sharing with you how leaders are coming to us, that continues. This is a very, very lofty slide. These are some of the marquee names in global healthcare IT, and I want to talk about a few of them quickly here and I'll focus on a couple of them, going forward.

Number one, 3M. Paul mentioned 3M. And there is a reason why the leader in clinical documentation, speech-enabled solutions and Clinical Language Understanding entered a strategic partnership with the absolute gold standard in coding. The absolute, unquestioned 30-year-plus leader in coding, which is 3M. And I'll walk you through a detailed example of that in a moment.

I mentioned UPMC, renowned not only for innovation in patient care, very innovative in the world of cardiovascular and orthopedic, but also known to be a developer of, an investor in, and a leading indicator of differentiating healthcare IT. And then finally, IBM. I think everyone here has probably heard of Watson. We are the Watson in healthcare. We have been collaborating for just about one year now with IBM. We intend to use our Clinical Language Understanding sophistication that we've talked about and that Vlad walked you through to bring evidence to the point of care. Not only evidence, and Vlad talked about that need to crawl across extraordinary amounts of data, but patient-specific evidence. So what's the best way to treat a patient that presents with the conditions that Janet is presenting with today at this moment? What's the best way to handle that? We see a way to do that with Watson. I'll walk you through in a second, but we absolutely see a way to do that in 2012 with Watson.

Well, they --that's 2011, a glimpse of what we've done, a strong year, exciting year, new solutions, new revenue, a growing revenue, a growing customer base.

As I look ahead to 2012, we absolutely intend to continue the revenue growth, to continue the customer growth, to continue to deliver results, what I need to talk you through, 2012 is very different in healthcare. And I need to walk you through why.

In 2012, there are several things happening. It's one of the more chaotic periods and I've been doing healthcare IT for longer than I'd like to let you know about. But this is unusually, unusually chaotic time in healthcare IT -- as a consumer, you're seeing it in newspapers because you're hearing about ObamaCare and healthcare legislations, but if you're on the trenches, and if you're working in healthcare on a daily basis, there is some very specific reasons why.

Number one, there is an emerging, emerging business model in healthcare called an ACO, an Accountable Care Organization. If ACOs become the dominant delivery mechanism, which right now are being funded by CMS as pilot and which government legislation is sitting at, an Accountable Care Organization will fundamentally change the healthcare delivery system in the U.S. because of one reason, it will fundamentally change the way healthcare is reimbursed, and when you change reimbursement in healthcare, you changed the way healthcare is delivered and that's exactly what the U.S. government right now wants to do. And as I mentioned earlier, one of the absolute reasons why UPMC is such as dramatically appealing partner because they operate as an ACO. They are a payer and a provider. They are a bundled payment. They have to adjudicate and manage risk across the in-patient, the ambulatory [ph], the homes, the long-term care environment. Again, so we feel very, very good about how we sit, but we anticipate this impact of ACO through our solutions.

Number two, meaningful Use has not gone away, it's a little bit quieter. Because of something I'll talk to you about in a second. But Meaningful Use is still here. At the Very beginning of the way it has hit customers, hospitals, physicians have gotten the first round of payments. Very small percentage. The rest of the markets, arguably over 80% of the market is still building out and getting ready and trying to attest to Meaningful Use, stage one. If you watch the reg [ph], stage 2 is actually delayed, it was supposed to hit in 2012. Stage 2 is delayed because of one particular reason, a beast called ICD-10 and ICD-10 will hit the U.S. healthcare market in October of 2013.

If you would talk to a CEO, if you talk to a CFO, if you talk to Chief Medical Officer, or Chief Nursing Officer, a Chief Information Officer and you asked the famous question, "What keeps you awake at night?" They will have an autonomic nervous system response and they will yell ICD-10. It is the tsunami of healthcare. It's larger than life -- to hit every system in healthcare IT that is running has a file in it called ICD-9. Every one of those systems has to get upgraded between now and October of 2013. Every one of those systems has to get upgraded. So not only -- it's one thing to change it, but imagine being the CIO on the other end receiving endless updates from your vendors and having to apply that, work that for a while at the same time trying to get meaningful use.

So these 3 amazing influences are happening in healthcare and really fundamentally, there's one thing that they all affect, and there's one constant in healthcare whether it was the '60s, '70s, '80s, '90s, this decade of the 21st century, and that's the beast called clinical documentation.

And many patients don't know that, but there is a thing inside of healthcare called clinical documentation. It's absolute -- it's the thing that says how you are treated as a patient. It's the voice of the clinicians saying this is what I did to Janet, the patient. It communicates my story because it documents how I presented as a patient. But the other reality is it drives all reimbursements. Nothing gets paid in this global delivery system, but most specifically in the U.S. delivery system, without going through clinical documentation. And clinical documentation is the single most vexing area of Healthcare IT. It has been for years. There's no mystery why revenue cycle systems were implemented before clinical systems. It is because of clinical documentation.

If you look at the meaningful use requirements, what's the last thing that they legislated? It was physician documentation because it's so darn hard. When you see so many vendors enter healthcare IT and leave, it's because of clinical documentation. It's a fundamentally very, very taxing environment. It's not for the faint of heart, and it's getting fundamentally ripped apart and affected because of ICD-10.

We, in that chaos, see extraordinary opportunity. And what we realized pretty quickly as we began to look at this is that with ICD-10, it wasn't going to be sufficient just to capture the patients' story and the physicians' story. We had to help. We had to figure out a way to make that data mean something and mean something in this tsunami called ICD-10, and we're doing that through Clinical Language Understanding, and we're doing that through leveraging our solutions of capture.

There's a reason why we get to do things with ICD-10 that other vendors will struggle to do, and it's because today, 180,000 physicians in the U.S. will speak to Nuance through Dragon. 33% of all radiologists will speak to Nuance through PowerScribe. And 48 customers have entered our million-dollar club, which means they saved over $1 million using our transcription speech solution and including one that's actually saved over $40 million. And 100 partners are rolling out mobile solutions. So we have a position in this clinical documentation chaos that no other vendor has because of the captured technologies and the captured solutions that we've been able to roll out.

To think of it in a different way, we are inextricably linked, inextricably linked to the clinical documentation process, the clinical data capture. And again, what we are doing, and I'll walk you through solution in a moment, we're doing more than just capturing because we are migrating from making data digital to making that digital data meaningful.

Let's talk specifically about 3M. I mentioned it's the gold standard in clinical documentation -- excuse me, the gold standard in coding. Let me walk you through what coding is and let me walk you through ICD-10 for a second.

Again, today, when a physician takes care of Janet, they will -- they have to say what they did. They have to say what they did, number one, because they have to communicate to the other clinicians that are going to take care of Janet, whether it's a physician or a nurse. Number two, they've got to document what they did because they have -- for quality reasons. They've got to be able to have a record that would stand scrutiny, that says here is how we treated Janet. Number three, what they have to do is document what they did to get paid. There's no reimbursement to the hospital, there's no reimbursement for the physicians without clinical documentation.

But when the clinician speak, they speak clinically. They say Janet presented with pneumonia. Janet's got blood pressure this or her vital signs are XYZ. They're documenting clinically. That's not the way the ecosystem of revenue cycle works in the U.S. or anywhere else in the world. There's a thing that happens between that clinician speaking. It gets -- goes through a system known as coding, coders. There's a role out there called a coder. There are systems that support those coders. Let me get it get passed on to the famous revenue cycle systems of the world, whether it's Epic, Cerner, McKesson, Siemens, MEDITECH, whomever, then it gets transitioned over to a payer.

It's those coders, it's that translation of clinical language, decoding language, that is fundamentally affected by ICD-10. To put it in perspective, ICD-9, which is used today, 15,000 codes, ICD-10, 155,000 codes. 155,000. Today, approximately 20% of every clinical record requires a coder to go tap on the shoulder of a physician and ask, "What did you do. I need further specificity." The expectation with ICD-10 is 70% of every patient cases documented will require somebody to tap on the shoulder.

We see a way in using 3M to eliminate the need for that tap on the shoulder. What we will do, and as Paul gave a great description of, is we will, either through our front-end speech or our back-end speech, we will understand that narrative. We will pass it through our Clinical Language Understanding tool, and then we will bring back, realtime to the physician, greater specificity as needed.

We will actually prevent queries, did you mean this? Did you mean that? You can see the demo outside. I will tell you in my career, I've been blessed and fortunate to have solutions that I call it applications. When the customer looks at them, they say, "I have to have one of those." We have one of those with CAPD. They're -- every customer, every hospital is going to implement CAPD because they've got to attack the ICD-10 productivity problem, effectively reduce productivity of coders by 50%. There aren't enough living coders to withstand the productivity impact. So we think we have a tremendously differentiated technical solution.

I mentioned IBM and Watson. Again, here we're going to apply Clinical Language Understanding. Very early in calendar year 2012, you will see us bring our solution to market where we will put the tool in the hands of the physicians where they will be able to speak a query, and we will deliver evidence-based content back-to-back clinicians. Little known secret, no physicians have questions. They don't know the answer to every clinical situation that presents, and we've done a lot of screening on it. Most physicians would like to be able to get the answer while they're with the patient. So we think, again, we've got a tremendously exciting solution to bring to market.

So again, if I can walk you through, we have been able to fundamentally redefine the way clinical documentation is captured. What we expect to do with Clinical Language Understanding is fundamentally redefine the way clinical data is used in Healthcare.

So in 2012, we will continue to do, as we've talked about in terms of expanding customer partnership, expanding across the enterprise. But to put it in Nuance Healthcare speak, what we are going to do is enable customers to capture anywhere, anytime, to understand everything and use it for good.

Thank you. What I'd like to do now is introduce Robert Weideman, who's going to walk you through the story of Imaging.

Unknown Executive

Ladies and gentlemen, please welcome Robert Weideman.

Robert Weideman

Welcome, everybody. So I'm going to take a few minutes, very quickly, to bring up to speed on Nuance Document Imaging Division, why our customers value us, our growth strategy. We've done a couple of acquisitions in the past couple of years and tied that up for you, and take a look at 2012 and beyond and how we see a really exciting opportunity for our division.

When you take a look at Nuance Document Imaging, we actually leverage optical character recognition technology, or called the OCR, that we've had now for over a decade to convert paper information into visual information. And we apply that technology, along with PDF technology, into a range of products. We have products at the desktop that help people automate office document process to something as simple as turning the page of paper into a Microsoft Word document that you can edit, scan documents from copiers, what are called multi-function printers, into back-end systems and increase the overall productivity that an organization has with their office documents. Pretty simple. Our value proposition is easy to describe, and as a result of that, it's actually easy to gain customers.

And some example customers at the desktop. The Ministry of Defence in the U.K. had a problem. They have staff whose job it is to do other things other than manually typing, and they have lots of documents that matter that they needed to get from paper into Microsoft Word so that they could reuse them. Now their choice was to allow people to type. We've done a lot of typing tests. As a matter of fact, over 30,000 people have taken typing tests that we put forward with our Dragon team and our imaging team. And what we've learned is that the average office worker types 35 words a minute and they're about 58% accurate when you take spelling mistakes and typos into play.

We can convert for the Ministry of Defence a page of paper into 100% accurate text in Microsoft Word with layout in a few seconds. The office worker would take at least 15 minutes to do that, not counting layout. So we save 15 minutes a page. The Ministry of Defence has deployed this throughout the organization, actually $0.5 million purchase of OmniPage, in order to increase the productivity, 15 minutes a page at a time, for their office workers.

The New York Housing Authority has a staff of people that go out and actually interview people for their needs for housing applications. And they use to come back and actually manually enter the results, the field reports that they had filled out. They manually put that into the system. It takes hours to actually process an application into the system. They're using our eCopy solution now. When they come back to the office and instead of manually typing that in, they put it in the device. They hit scan, it goes directly into our system. We use our recognition technology to extract that data from the form and then move it directly into the Oracle system in a matter of seconds. That means their staff can focus on going out and doing more interviews and less time doing the back-office work that they were doing previously.

And then finally, Airbus uses our Equitrac solution. Equitrac is a recent acquisition of ours. Equitrac is print management, and what that means is pretty simple. In the usual way that people print in organizations where they don't have print management, when you say file print, the paper comes out of some device somewhere. And that's an uncontrolled event. And in large organizations, what that means is about 30% of what's printed is wasted either because people don't pick it up or they printed the wrong version, they have to print it again. The other problems that they have is that these prints are unsecured. People can print, it comes out of the device, you walk over to the device, other people can see it, and that's a problem. So with Equitrac, we actually apply business rules. People print exactly the same way, but we decide who can print black and white, who can print color, should you print 2-sided. And when you walk up to the device, paper's not just coming out. You flash your card, the same card you use to come into the building, and it brings up a menu. It says, "Do you really want to print this one. Yes, I'd really like to print that."

So Airbus has deployed that throughout their organization, saving 30% on their printing cost just by controlling the way the organization prints. And when you take a look at these 3 categories of solutions that we have, desktop solutions, scanning solutions for network devices and print solutions for network devices, it's a powerful combination. And we're seeing our business grow as a result of owning that complete opportunity.

So when you look at when we only had desktop products, we actually are the leader in desktop office automation solutions that are based around OCR. And in 2009, that was a $74 million business, pretty good business. We got -- we've been in the market for a long time in that space, very, very well respected with our OmniPage technology, our paper -- our PDF converter technology. But we've moved into eCopy scanning in 2010 and 2011. And in the course of this period of time, we've actually grown the business over 100%.

And we did that because 3 years ago, we implemented a growth strategy that says how do we leverage our desktop position and actually deliver solutions that are going to move up the stack, that are going to help people automate document processes at the department level and the work group level, eCopy, and how can we then move into the enterprise? And the recent acquisition of Equitrac is really going to accelerate our opportunities across the board.

So as we look into 2012, what is our focus? The first is this combination of scan, PDF and print that's really unique. And I'm going to drill into that for you and show you why that's really transformed our business recently. We're going to leverage the broader Nuance. You'll be actually surprised how much of an overlap there is in the Imaging division with the rest of Nuance Enterprise, Healthcare and Mobile. And the cloud and mobile are opportunities for us as well. And given the breadth of technologies that we have and the relationships that we have particularly in our mobile space, you're going to see -- you're already seeing some very good things from us in cloud and mobile, and you'll see more.

So when we look specifically at scan, PDF and print, it turns out that some people scan. Now it happens that when they do scan, they need to scan. People that buy eCopy, need eCopy. So you have companies that actually implement invoice processing. So instead of manually typing in invoice information, they'll add to their MFP touchscreen, eCopy scan to our invoice processing system and will extract information from that and move it right into the system. Contracts processing, healthcare records processing, real estate processing, mortgage application processing, all is done in eCopy. But at the end of the day, some people scan. A great audience, a great product, and we can reach to a certain number of people with that.

It turns out also that a lot of people use PDF. And I'll bet a lot of people in this room not only use PDF, but use our PDF product because we've developed PDF that's as good as Adobe Acrobat but very focused on the office worker, what we call Better PDF for Business. We deliver all the rich features that Adobe has but at 1/3 of the price and focus on the office worker. And that's broadened the audience, to be able to talk to more people that need these solutions. Chrysler, for example, 60,000 pieces of this. Credit Suisse, Bank of America, state [ph] very, very strong business for us because a lot of people use PDF.

But adding Equitrac to the equation has really changed our equation because it turns out that everybody prints. Some people scan, a lot of people use PDF, but everybody prints. And that's expanded the customer conversations that we can have and expanded our value to our channel partners, and it's expanded our value to our customers. And as a result of that, we're seeing a real transformation in engagements with customers.

In the eCopy business, in the lifetime of the eCopy business even before we acquired them 2 years ago, a big deal was $200,000. That's a pretty good business. And the Equitrac business, in the lifetime of their business, we just acquired them last quarter, a big deal was $300,000. In the time that we've owned Equitrac, it's been 4 months now, we've closed multiple more million-dollar deals for eCopy, more million-dollar deals for Equitrac than in the history of those 2 companies even prior to us owning them. As a matter of fact, we just closed a booking of $8 million with one of our OEM partners for a worldwide global deployment to a large financial institution that's going to be using eCopy and Equitrac together throughout the organization. It's going to be the way they scan from their copier. It's going to be the way the entire organization prints. And they're going to drive the benefits of that as a result.

And so we're seeing not only our current -- our ongoing business actually becoming more robust, but we're seeing the opportunities increase as we engage with more customers.

This is also done -- the Equitrac acquisition has also added a lot to our partnerships with our OEM channels. When we say these partnerships, these are meaningful relationships. Canon actually sells eCopy. They've built a $70 million business a year selling our solutions as part of their Canon printers. If you go up to their devices, they have a touchscreen. It will say eCopy on it with the customers they sell that to.

Ricoh, turns out, was a very large customer or channel for Equitrac. When you add eCopy and Equitrac to these partners, it has magnified our value to these partners. And in fact, we're now having more relationships with these partners who are selling both eCopy and Equitrac as their preferred solutions for scanning and print management into their sales team. And that's leverage for us because I've got a sales team that supports this but they've got thousands and thousands of salespeople engaged with customers every day on how can we optimize your office document workloads, and our solutions allow them to do that.

So the combination of scan, PDF and print has provided us to our channel partners more value than they ever had before as independent products. And this is a lot of leverage with our partners in order to pursue opportunities with our mutual customers.

So we've got scan, PDF and print. We've got Equitrac, we've got eCopy, we got PDF converter. Now we're going to leverage that into the broader Nuance. And the opportunities here are very compelling.

So it turns out that our Enterprise division has sold to Barclays, some time back and a large customer now, for speech recognition for their call center. The Barclays uses our enterprise speech for that. It also turns out that Barclays now use eCopy to automate the processing of current account applications, checking account applications, when people are opening new accounts at 600 branches throughout Europe. So Barclays is not only using Nuance in their call center, they're using it in the branch. And those customer relationships that come together allow us to be a more valuable partner, Nuance, a more valuable partner and supplier to Barclays.

Our Mobile group, fantastic business. You saw Mike Thompson earlier talk about just the penetration of speech and technology, Swype technologies into various markets. Amazon uses our technology on the Kindle. Turns out that Amazon is a feature, if you go to, it's viewed by millions of people every day, called Search Inside. And Search Inside is they scan books in the back office of Amazon, and they use OmniPage OCR from Nuance to index those books and present that feature to their end users. So Amazon, an important customer for Nuance Mobile. Amazon, an important customer for Nuance Imaging.

Healthcare. Walter Reed, Bethesda actually merged together to form a single medical center, their national medical center. They use our Healthcare Solutions, our PowerScribe solutions and transcription processing solutions extensively. It also happens that this same hospital prints with Equitrac. And they've added that because they want to have HIPAA-compliant printing. They don't want prints -- print jobs to come out of printers without the person there that should be receiving that. They want a doctor or a nurse to walk up to a printer, swipe their card then print the job and pick it up out of the machine to remove the risk of violating patient privacy. They've implemented our solutions.

And when you take a look at where imaging solutions, these are all my customers, overlap with our Enterprise business, with our Mobile business, with our Healthcare business, the opportunities are fantastic. We are in 1,000 hospitals. Janet just showed you on her slides, she's in 10,000 hospitals. It's great for me. I'm going to come into those hospitals and provide a solution.

We're in 80% of the MLA 200 [ph]. We're in various significant banks with PDF deployment. All of this is going to come together to really help drive our business. And so we're going to be focused on driving our business into Nuance accounts, particularly in healthcare, particularly in the financial institutions in the coming year.

And so when you look at Nuance Imaging, we're not off to the side of the rest of Nuance. We're actually benefiting from being the part of the broader Nuance. And in fact, the broader Nuance is benefiting from our ability to deliver solutions to common customers that we have between organizations. And so the customer benefits that we get are real, but so are the technology benefits. You will see, at some point, on the touchscreens that you see with the modern copiers, you will see Swype technology being used instead of doing this off-keyboard. You will see, at some point, MFPs actually use text-to-speech and speech recognition. You will see that.

The other thing that you will see is you will see going to a copier and being able to select the workflow, that's the touchscreen that you'll see on the devices of copiers, that's eCopy. You'll be able to have a doctor or a nurse walk up with an unstructured piece of paper document, a note, a referral note from another doctor, put it in, hit a button and go through the exact same CLU cloud that is used for speech to process through the exact same workflow into the healthcare system.

So when you hear the healthcare organizations say capture anywhere, it's going to be absolutely true. If you're going to be having a recording, if you're going to have a piece of paper, wherever that capture is going to come from, we're going to be able to get the document directly in the workflow and leverage the investments they're already making in speech.

This is going to be a powerful addition to my ability to go to my channel partners Canon, Ricoh, Xerox and say, "Hey, how would you like to sell more to a hospital, and how would you like to do more than just sell paper and toner and copies? How would you actually like to sell part of an automated workflow to that customer?" And they love it because they're trying to find ways for their devices to become a more important part of the solution for their customers. Very exciting.

So I'll close on cloud and mobile. This again, the cloud and mobile is an opportunity for the entire industry. And in the past year, we've actually done a number of things to bring cloud and mobile to the office worker. We looked at smartphones before and actually have taken a look at that market of being able to deliver document solutions for phones. We like the form factor of the tablet because that's electronic paper. You can actually allow people to work with documents, and it never goes to paper.

So what can we do to leverage our solutions into that? PaperPort Anywhere is a cloud service. Think OfficeDrop, think, but specific for people that are working with scanned documents and digital documents. People who use paper port. So we've got a cloud service that allows people to post or to push their documents into the cloud, automatically synchronizing with their paper port on their PC and then be able to access those documents through iPad, through Android devices very easily.

eCopy PDF mobile. This is our PDF product at the desktop, PDF converter, presented to the user in iPad. So they can take notes, they can actually combine documents, they can take pictures of documents and use those, and then move them into cloud destinations including Google box, and our own PaperPort Anywhere service. PaperPort Notes, a companion to PaperPort Anywhere specific for people that want to take notes on their iPad and be able to share them through the cloud.

And then a really exciting opportunity is with the copiers. If you haven't taken a look, a close look at a copier with multifunction printer recently, take a look at a modern one. Any one that's been sold in the last 3 years. You'll find they have a touchscreen, and you'll find that that touchscreen is actually programmable. It's not dissimilar to what's happening in the smartbook phone market.

The manufacturers allow people like us to actually download and install applications on those copiers. And we've developed an application called eCopy Scan-to-Cloud. It's bundled on 100% of Canon IR advanced MFPs in Singapore at the moment that does a very light application on the device. It takes about 2 minutes to install on the device and links to our OCR cloud service to do document conversion.

So with that product, I can scan -- I can put a piece of paper in the device, hit a button, and I'm editing the document in Google docs when I go back to my desktop. I can scan documents directly into that are searchable PDFs and instantly able to be found with search. I can email to you a Word document of a piece of paper that I have now or a spreadsheet just through this service.

Now why does Canon like that? Not only does it leverage their infrastructure as an ecosystem around a device, but they don't have to embed OCR in the hardware. They avoid the expense of actually having to put all of the memory and firmware and everything that would be needed to add OCR to the device and instead, they can do it the way that smartphone world and the tablet world is doing it. They can actually leverage the cloud to add more features to that product and deliver more value to their customers.

So we've got great solutions in the cloud. We've got great solutions in scan, PDF and print. And we really see a very bright prospect for our division, not just leveraging the acquisitions we've done, which are going very, very well for us, but leveraging the broader Nuance and bringing forward more value to our common customers and leveraging our technology and the other work that's being done in the cloud and mobile to really drive our business in 2012 and beyond.

Thank you. So now I think we have Tom Beaudoin who's coming up, the CFO for Nuance.

Unknown Executive

Ladies and gentlemen, please welcome Tom Beaudoin.

Thomas L. Beaudoin

Thank you. Well, it's now good afternoon. I am the last speaker. I'd like to, again, just thank everybody for taking a time out in joining us today. And I'd also like to thank my fellow colleagues for doing a very good job of trying to set up what I'm going to talk about now around some of the financials.

And the first piece of that is that hopefully what you saw today is what's driving a very diverse set of business models across Nuance. And if you look at our revenue models and drivers, you can see that a lot of our products and a lot of our solutions today are offered to optimize the technology that Vlad talked about and to meet the customer deployment preferences as you bring those technologies to market as each of the business unit managers discussed.

I think the exciting news for the company is that what we've seen over the last few years is strong growth across all of those revenue types. If you look at the upper-right green line, that represents the continuing demand for products deployed in our licensed model. We've seen very significant growth, as Paul talked about earlier. Much of this demand is driven by our embedded mobile technologies, Dragon Consumer and Dragon Medical, a broader MFP solutions portfolio as Robert just described, and the recent positive trends we've seen in the enterprise on premise models.

We now published the breakout of On Demand revenue quarterly, represented by the dark green line on this chart. The compounded annual growth rate for our On Demand revenues has been 75% from the period fiscal '06 to fiscal '11, with 15% growth in FY '11. The significant contributors to this growth have been the healthcare information management solutions and our voice-to-text products.

As we've discussed, the Nuance On Demand business growth and our Enterprise business has been affected by declining business from one large customer. New customer deployments, as Steve described, will continue to contribute to growth as we move forward.

As a reminder, a significant portion of our On Demand business is transaction-based and is billed based on actual volume, so we basically have to go read the meter at the end of the period, and therefore, does not result in deferred revenue on our balance sheet.

We've published some metrics to try to help you see some of the growth in those revenue types. And at last year's Analyst Day, we introduced the 3-year estimated value of On Demand contracts, which are not shown on this chart, grew 17% in fiscal '11. As we continue to see growth across both our licensed and On Demand revenues, our gross margins, represented by the dark green line, has remained steady.

As our On Demand revenues have grown, we have delivered 11% percentage points of improvement since 2006 in our professional services and On Demand gross margins as represented by the light green line at the bottom. We are continuing to drive leverage as those businesses continue to grow. We have a number of efficiency and productivity initiatives in all areas of our cost of goods sold.

Our gross margins for fiscal '12 are expected to remain relatively constant through our recent trends, and we expect that professional services and On Demand will improve.

As we publish our results for fiscal '11, we started to report segments as of our most recent fiscal year. The presentation of these segments is consistent with the revenue presentation that we've had for the last 2 years. And this segment presentation also represents the way we manage our business internally.

For reference, segment profit is presented on a non-GAAP basis and reflect direct and allocated costs for the cost of goods sold within those businesses, for the R&D, research and development, and for sales and marketing. General and administrative expenses and other corporate-related costs are not allocated to these segments.

As you'll note, we achieved a very high profitability across all of our individual segments. Nuance has achieved a consistent record of delivering year-over-year operating margin improvement as shown in the dark line at the top of the chart. As we have guided, the operating margin growth rate over the last 2 years reflects our investments to support the market opportunity, the technology investments as described today to yield ongoing market and revenue growth opportunities.

We achieved significant leverage on sales and marketing over this time period while increasing our investments in demand generation and advertising as we've described in Paul's presentation and in some of the mobile and healthcare activity. Some of this leverage is also driven and is a result of the significant increase in our On Demand and other recurring revenues that have a renewal basis to them.

Our plan for FY '12 is to continue the investments in demand-generation activities, as well as increasing our research and development spending in both dollars and percentage of revenue. We expect the operating margins to improve by approximately 1 percentage point in FY '12 through continued leverage and continued focus on productivity and efficiency initiatives.

From a tax and tax structural viewpoint, in FY '11, our tax rate stayed fairly consistent to the prior fiscal year at approximately 4.1%, as represented by the light green line across the bars. As we have discussed, our tax rate is benefited by net operating losses and stock-based compensation deductions.

Given our continued growth in taxable income, we have been focused on a global tax planning and strategy. As part of the strategy, effective October 1, 2001, we have established our international headquarters in Dublin, Ireland. After considering our net operating losses, further stock-based compensation deductions and our international tax planning initiatives, we expect the FY '12 tax rate to be in the range of 6% to 7%, and in FY '13, we would expect that to be in the low to mid-teens. And beyond FY '13, the combination of all of these activities and the initiatives we're driving should put us in a very consistent range with world-class technology companies.

From a cash flow from operations standpoint, we talked earlier about the tremendous growth in cash flows that we've achieved over the last few years with a 42% compounded annual growth rate from '06 to FY '11. To remind you, the gap between CFFO and non-GAAP net income in FY '11 was driven by acquisition and integration payments and the APIC adjustment associated with stock-based compensation tax deductions. In FY '12, you can expect the CFFO as a percentage of non-GAAP income to be relatively similar to our FY '11 performance.

And again to summarize that, the key drivers on a go-forward basis would be a slight working capital to support our growth, again, further and continuing acquisition-related expenses, restructuring, those associated with those acquisitions and associated with productivity initiatives, and the APIC adjustment, which I want to remind everybody is net neutral to our overall accounts generation.

The company took advantage of some very favorable financial market conditions, and in July, we've completed and amend [ph] and extend to rebalance our existing debt. In October, we issued $690 million of convertible bonds, and that's the key to the $200 million share buyback to strengthen our capital structure.

These actions, combined with our ongoing cash flow growth, resulted in a significant deleveraging trend since FY '07. Our recent convertible debenture releverages us but significantly below where we were back in '07. For FY '12, you can expect some net -- increases to our net interest expense due to the financing activities.

The other effect of our recent financing activities is to increase our operational flexibility and to extend the payment time line of our debt. If you look at the top chart, that's the time line associated with our debt back in June, and the bottom reflects post the 2 financing activities, the time line of the debt payments under the new financing activities. And you can see that we've pushed those time lines out quite considerably.

There is one point that we've received a number of questions about around the terms of our convertible bonds. Our convertible bonds have a net share of settlement feature, which means the principal of both of our convertible bonds is always payable in cash. The portion that's payable in cash or stock, and that determination is our option, is only the premium above the conversion price. Therefore, the only dilutive effect of the convertible bond is if we choose to pay the premium and start. This feature plus the stock buyback decreases the dilutive effect of the convertible bonds.

In summary, I think you've seen that we -- as a company and through the presentations that you've seen today, we've achieved consistent revenue growth and are well-positioned as we move forward. We have increased over time, and I think you can from a lot of the solutions that the businesses are working on now. We've increased and we'll continue to increase our recurring revenue stream.

We have an opportunity to sustain double-digit growth. We have a significant focus on improving cash flow from operations, and we'll continue, I think, to deliver good performance there. We've strengthened our balance sheet through both the operations of the company and through some recent financing activities, and we continue to look for and to invest across the company in the critical areas that will fuel of the growth and achieve the market opportunity that you saw today. Thank you.

Unknown Executive

So we're going to start the Q&A session now. And we'd like to invite the management team up for the Q&A session. Paul will moderate, and we'll have folks in the audience with microphones, so we can hear the questions on the webcast. Thank you.

Question-and-Answer Session

Paul Ricci

Okay. It's not easy to see hands with these bright lights, so -- what? I think that helped. I'm not sure. It's still not easy to see, but okay.

Brent Thill - UBS Investment Bank, Research Division

It's Brent Thill from UBS. I have a question for Janet on the Healthcare business. The organic growth rate, I think, maybe wasn't what you're expecting this year. And can you help us just understand what was the impact this year? And it seems like there's a lot of trends that are going to help accelerate that organic growth rate, and ICD-10 you talked about. How big a factor is that going to be in helping Nuance accelerate?

Janet M. Dillione

I think I walked you through today, in 2012, we're launching several new solutions, which we see as direct contributors to organic growth. But also in 2012, you're going to continue to see what we began to see in the last quarter of 2011, which is expansion of those lines that we were bringing online in production. And what you saw happen in 2011 was a little bit of a reflection of -- in 2010. In our HIM line of businesses, there's a little bit of a lag between the booking and the revenues. It's getting those lines into production and it's a ramp time. And in 2010, we spent a good deal of time renewing customers and migrating customers to the eScription platform. So you saw that, and we were migrating customers in 2011, which had an impact. And you're seeing now in 2012, again, we had a record-breaking net new booking year last year, so you're going to see that new volume coming online for organic growth in 2012 along with the new solutions.

Paul Ricci

Okay. We have a question here.

Unknown Analyst

I have a question for Janet and then one for Steve on Enterprise. But, towards Janet, regarding the CAPD solutions, how should we think about the incremental uplift to economics for eScription and Dragon with CAPD versus without?

Janet M. Dillione

CAPD is actually complementary to both Dragon and eScription. We call it the -- so CAPD will actually work in a front-end workflow. We are positioning one to self edit. CAPD also will support a back-end workflow where the physician prefers to continue to dictate, and the dictation will go back through transcription, will do the same thing, will generate the automated query and will push that back to the physician workflow. So CAPD actually on top of both Dragon and eScription.

Unknown Analyst

Okay. And then, Steve, the Enterprise business, finally seems to have bottomed and we'd expect it to return to growth in fiscal '12. When do you think this business gets back to double-digit growth on the top line? And then on the margins, it seems like with the segment break out, the margins are essentially below corporate average. What kind of initiatives do you have in place to improve those?

Steven G. Chambers

On the second question, I think the new solutions you heard today are license-centric, so the margin contribution on selling licenses associated with mobile advantage, deployments associated with Prodigy [ph], they reflect more of the traditional license business of speech recognition, text to speech, speaker verification, those that are license-rich products relative. And the first question was expectations back to double-digit growth. I think, in certain areas of our business, for example, the license area of our business, we are looking through a return to double-digit growth based on the new solutions, to answer the second question, and we expect, based on bookings, that to show up towards the end of this fiscal year. So we feel strongly about the initial market reaction to those new solutions, and our current technologies like voice biometrics puts us in a good position to achieve in that time period, returning to double digits.

Nandan Amladi - Deutsche Bank AG, Research Division

Nandan Amladi with Deutsche Bank, a question for Janet. What are you seeing in pricing trends particularly as some of your transcription providers are beginning to consolidate?

Janet M. Dillione

I think that the pricing is always an interesting topic. I mean, we continue to lead the market in innovation. We don't choose nor do we need to compete on price in our major lines of business. As I mentioned, we have 48 customers that have achieved million dollars in savings. One that's included has saved $14 million. So we continue to see the price steady. We especially see the price steadying in the license business with differentiating solutions like Dragon. There's no doubt about -- on our On Demand business, so we've watched carefully and we put an enormous amount of energy into our cost part of that business and in keeping those productivity curve [ph]. Also there's a trend in the U.S. market, rather recent, last 6 to 9 months, there's a growing acceptance of what we would call follow the sun. So you're seeing a greater volume be able to migrate to an offshore environment, again where we get to -- get that pick up of productivity and cost performance, and that's the shift. That is a shift. 2011 you saw many more customers saying, "No, domestic only." And so we think that also supports keeping those margins up.

Unknown Analyst

I had 2 questions. The first one for Paul, and then the second one for Tom. Paul, on the Watson relationship, you already announced the relationship in the healthcare space. When can we expect to hear more on the other verticals? And then follow-up to Tom on the cash flows, you mentioned that the cash flows would not match the pro forma net income in fiscal '12. Is that a fair assessment? And then when can we see that gap start to close if not in fiscal '12?

Paul Ricci

So with respect to the question about Watson, we have announced a quasi-relationship with IBM with Watson and joint activities in the Healthcare business. And we do have plans for extending that to other markets, and there will be further discussion and announcements about those in this fiscal year.

Thomas L. Beaudoin

On the cash flow, there'll always be a slight differences because as I talked about, the way the accounting works, the restructuring and acquisition-related cost is always part of your cash flow from operations. And as I think all of you know, it's not part of our non-GAAP net income. And then as I said, you do have this phenomenon, in it's an accounting phenomenon, in the way they make you -- in the way you have to account for stock-based compensation. And it's a hit to cash flow from operations. It's a benefit to cash flow from financing. It has a net neutral effect on our overall cash flows. And the way the tax is used and net operating loss is first then you use stock-based compensation second. So we started as NOLs have expirations to them, we started to use more of our stock-based comp.

Paul Ricci

Other questions?

Scott Zeller - Needham & Company, LLC, Research Division

Scott Zeller from Needham. Regarding the mobile consumer business, there is an example of the targeted direct search and how some partners, maybe -- I think it may have been Amazon, there was the example of the Nike shoes, could you give us some color around the revenue model there and who actually would be paying extra for placement, for instance? And is that material revenue now and when would it be?

Paul Ricci

I think you can take the mic.

Michael Thompson

It's not significant revenue today. It's a new area that's going. Just to categorize the revenue, a live and thriving market on the Web, affiliate-based revenue or advertising-based revenue where when a particular company gets a user to a website, and that user does something, makes a restaurant reservation or buy something, that person who got them there can be paid some kind of affiliate revenue. That market is exploding on mobile, and we're in a unique position between distribution and content providers to benefit from that. But it's early, and it will grow over time. We're learning a tremendous amount with our partners right now.

Paul Ricci

Yes, go ahead.

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

Shaul Eyal with Oppenheimer. Question for Tom, Steve and Mike. Tom, with respect to tax rate in fiscal '14, when you mean in line with the U.S. tech companies, are we thinking high teens, low mid-20s, above that?

Thomas L. Beaudoin

Well, we don't have any guidance to a specific number, but I think if you kind of go look at where high-tech companies that are generating very significant operating profits, and therefore tax profits, that have kind a world-class global tax strategies in place, I think you'll get a sense of -- in the '14, '15 time period, you know where those companies kind of end up structurally.

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

Okay. And then for Tom and Mike, can you guys discuss kind of the competitive landscape. I would imagine -- Steve, I'm sorry, Steve and Mike. Steve, probably on your end there's more to be said. I don't know, maybe a little easier on Mike's front. But just any color that you can provide us with on the competitive front, competitive landscape.

Michael Thompson

So across the different business units that I described, the competitive landscape varies a little bit. But it's a competitive world out there. There are clearly a lot of investments being made with speech recognition. Google and Microsoft, they're both investing. They've got different levels of capabilities. And we see them in various ways across all of our markets. Combine that with a lot of venture capital-oriented startups, which are doing maybe some unique thing or some niche-oriented thing. And then we continue to see activity in pockets in different regions where somebody has specialized from a language basis. So our competitive dynamics are there.

Steven G. Chambers

Yes, I got to partition the answer because there are classes of competitors in the professional services aspect of the Enterprise delivery of applications. There's some companies that specialize in contact center services even down to niche services like use interface. We tend to be known as a company that can service all needs from design coding to deployment and actual tuning thereafter. There are a lot of competitors in each of those pockets on the services side. Technologically, on the speech recognition, text-to-speech verification side, there tends to be strong competitors in regional pockets. So there's a competitor in France. There'll be 2 or 3 competitors in China. So when we go up against companies that just want a language, the answer tends to be quite specific to that market. When we service a multinational like Dell, for example, and they need 15 languages, we're in better competitive standing because very few companies can offer all those languages. In the newer spaces, there are a lot of little competitors. In the natural language space that's associated with text-based virtual agents, for example, we're seeing a lot of those competitors. Our participation and RFPs like that one in China, 7 companies we weren't that familiar with that are just a lot weaker right now. There's not one big strong player, one of the reasons we feel strongly about our ability to compete and bring all that natural language expertise into those new customer service into action channels.

Paul Ricci

I might just augment that, and I agree with everything that's been said, but I'll make 2 points. First, when a partner in the mobile and the consumer arena is looking for a long-term partner to work with them in developing the kinds of interfaces we talk today over a 3- or 5-year period with the amount of resources and technology necessary in order to remain competitive. I'm hard-pressed to think of an alternative to Nuance that can work as an independent provider to those partners right now. And in the Enterprise space, I'm equally hard-pressed to think of anyone who could build the U.S. Airways application, run it at 4 or 5 9s [ph] in an On Demand environment. I just -- I don't see that company today. I think we have a very unique offering in those 2 norms [ph].

Daniel T. Cummins - ThinkEquity LLC, Research Division

Dan Cummins from ThinkEquity. First, for Michael or Steve. With respect to DragonGo! and the partners showing up on the results, that sounds very interesting as sort of a super set of the search paradigm. Can you just give us a little sense of how -- are we -- how it will work in terms of rankings perhaps? We're talking about a partner rank. Is it art, science, is it -- or economics, eventually economics? And how long before that might be material in the Mobile business?

Michael Thompson

I think we're learning a little bit right now. Our number one priority though is the user experience. And everything we're doing at this stage in the DragonGo! program is learning about how to make that experience phenomenal. How it evolves exactly with the different financial benefits of those relationships and how they might grow, I think you'll see similar models to that, which exists in the Web today. You've got people who pay for placement, people who try to get the best position, and they're willing to pay more money for that. Those things are all possible. But we and our rules starts with the user experience, and we're very focused on that right now.

Daniel T. Cummins - ThinkEquity LLC, Research Division

And just a quick one for Steve. The mobile experience apps, voice-enabled mobile experience apps from big consumer product and branded companies, how long before that could be material to the Enterprise business?

Steven G. Chambers

Now. That's the same principles used in the mobile experience applications that Mike's team is developing. The same know-how actually is being brought right into the Enterprise. The one thing, the interesting interdependence between mobile and enterprise is enterprise has a history of natural language and dialogues, interaction management, what you as a consumer of the business serve as a product want to achieve and the customer service interaction. So there's a lot of value. When Mike goes out and sell to large OEM handset manufacturer and they're saying, which they all do, "I want to beat Siri. I want to do better than Siri." Invariably, that takes us right into a conversation about a dialogue, a multi-turn stage dialogue-type of interaction beyond just one shot here and answer. That legacy understanding of multi-step dialogues immersed in natural language comes from Enterprise. So there's a little bit of Enterprise into Mobile right now that's speaking to delivering kind of the future Siri plus. And there's a little bit of Mobile into Enterprise in terms of mobile operating environment, Android iOS specializations, things like that.

Unknown Analyst

Just for Mike. There's some exciting references to what you guys might be doing with some of the Android OEMs. I'm just wondering, given that you're an important part of Apple's voice, Siri, how does that dynamic work if you're going out and helping effectively what a competitive phone's potentially catch-up on this very important competitive differentiator they just released? Does Apple care? Do they not care? How does that work?

Paul Ricci

With respect to Apple, we just can't talk about the relationship. We just can't. Sorry.

Unknown Analyst

Just a question for Steve. With all the new products that you're launching and the On Demand work that you've been doing for the past several quarters, how do you see the revenue mix evolving in On Demand versus the nontraditional license? Because some of the new applications you just mentioned you said licensed.

Steven G. Chambers

It's an interesting question because there's an aspect of Nuance Mobile advantage we just didn't get into the inside of the product. So there's an aspect of Nuance Mobile advantage that could be delivered by that. And some of the customer dialogues we're having about Prodigy as well, people are requesting it on a SaaS-based delivery, real-time information processing for natural language, meaning extraction, et cetera, real-time but hosted. So it's not quite as one or the other. I think the ratios we have now in On Demand, we expect On Demand to continue to grow relative in the mix. We're non-On Demand professional services and licenses and products and maintenance probably will be relatively -- On Demand will outpace the other areas based on our bookings and based on the dialogues we're having with customers now I think.

Unknown Analyst

One for Janet and one for Mike. For Janet, could you talk a little bit more about the joint solution you're working on with 3M? Just talk about when you expect to come to market with the beta and then when will it be generally available, the opportunity for Nuance.

Janet M. Dillione

We will go to beta with customers in Q1 calendar in 2012. You can imagine a 3 to 6 months beta process. We've got the -- both the back-end and the front-end workflow. So we're looking for probably tail end of fiscal 2012 for broad-based availability in the market. And again we're quite bullish on the solution. We have tremendously positive customer feedback. It's not going to be a -- it's going to contribute to revenue. It's not going to be a large injection of revenue in 2012 there. We're more forecasting in to 2013 when we go and see that pick up from the implementation.

Unknown Analyst

But around the, I guess the aggregate revenue opportunity, is it in the tens of millions of dollars for Nuance? Is it hundreds of millions of dollars? Just how should we think about that?

Janet M. Dillione

I mean, I don't know that it's in hundreds of millions of dollars in the scheme of things. I mean, it will be a hosted solution. So we'll take it as a valuable revenue across the term of the agreement. We clearly see it as a leading solution in the portfolio. I mean, I don't know that I can get much more specific than that at this point on that. But it will be a growth engine for us going into 2013.

Unknown Analyst

And then, Mike, you talked about the Siri effect. When should we see other OEMs come out with a Siri-like deployment in the market? Is that something that we should look for in 2012? Is it something that we should look for in 2013? And how much of the deployment would Nuance handle? Would it be end-to-end or would it just be to a certain layer?

Michael Thompson

Yes, we're shipping speech-enabled capability in high volume every month. And those innovations have been increasing dramatically over the last 12, 24 months. Flagship launches like the genius button in T-Mobile. Siri was a unique thing, and I think you will see a wave of things that are maybe more explicit responses to Siri, and they'll be coming in 2012. They'll be coming in 2012. What's the second question?

Paul Ricci

Are you going to do it end-to-end?

Michael Thompson

Oh, end-to-end for sure. We are very much involved in deep relationships with OEMs where we're participating in leading design. We're driving all of the voice recognition, and we're driving all the natural language and conversational understanding. Now many of these OEMs are -- have deep content relationships and their own design teams, so it's very deep integrated collaborative team. But from a software perspective, we're playing a very, very large role.

Unknown Analyst

One of the biggest questions that we get on the story is around the Mobile business. And I realize all of your contracts are very different, but I'm just curious if you can just help us understand what a typical blueprint looks like for a mobile customer? Is there an average look? Is it a couple of years? Is it 3 years? Is it unit-based? Or is it just over a term-based period? Can you just give us any more color to help us understand?

Paul Ricci

So just state the first part of the question again. I didn't...

Unknown Analyst

Just on how the mobile relationships are established. Is there a common blueprint that you find on the length of the term or the -- what ties you in terms of units or a fixed fee?

Paul Ricci

It's hard to speak to a common one because in my comments earlier today, I mentioned as I have on the earnings call that the nature of these relationships really is evolving. And it's evolved from what was more of a traditional OEM relationship where we supply them software and perhaps unlimited professional or engineering services. And they paid us primarily on a royalty basis to one in which there's much more extensive collaboration going on. And along with that, the terms have tended to increase. We talked over the last couple of years in a number of earnings calls about the fact that in response to competitive pressures of what we did throughout a number of our contracts just to move from longer terms for the contract in return for some price concessions. And so we have a mixture today. I think it's reasonable to assume that most of our big partners are in relatively longer-term contracts, although they -- some of those are near their ends now. And they usually involve some variable and some fixed compensation as part of the scheme.

Unknown Analyst

This is for Janet too. Should -- talking about 2012 and talking about how it's an unusually chaotic year, I'm struggling a little bit to understand whether that chaos is good or bad for you. I mean, I guess I wonder if does that mean that with all of the changes that everybody's going to rush to deploy one of the ICD-10? Or does that mean that people hold off on waiting to see what the accountable care organization, how that kind of flushes out on their EHR rollout? So if you think about baseline, does all the chaos mean like above the baseline or below baseline?

Janet M. Dillione

I think it's a great question. In 2012, the dominant impact will be from meaningful use and still trying to get that. And again that's where we see tremendous acceptance of our speech solutions as a fundamental standard in getting that meaningful use and get physicians to adopt. The second one will be ICD-10. I think ACA [ph] is a little bit very much on the edge, the leading customers there. So again in the chaos of 2012, we see great opportunity and, I mean, we're forecasting strong growth. And it's because the customers, again, are seeing us as a fundamentally vital tool to getting to meaningful use, and recently a fundamentally vital tool to be successful with ICD-10. So there's definitely positive growth drivers for us.

Unknown Analyst

Yes, for Mike. When you look at the other 2012 deals, you're talking about Siri-like on the OEM channel, can you feel like a lag then and then accelerate it over the last month or 2 based on what's happened with Apple?

Michael Thompson

Absolutely. Like you wouldn't believe.

Unknown Analyst

So could you just elaborate on that?

Michael Thompson

I'm very busy. We have amazing discussions going all over the world.

Paul Ricci

We have time for one more question.

Unknown Analyst

Maybe you guys can talk about your thoughts on M&A. What are some of the white spaces, the areas you're looking to go into? You obviously recently raised some capital. How much do you think you sort of would spend on any one deal or in aggregate in this coming year? And then also help us understand how you guys think about how you integrate these companies, and obviously there's a lot of restructuring costs that come out of that. Just help us understand the -- what sort of -- what's in those numbers?

Paul Ricci

Okay. I think it's a little difficult to say how much we might spend this year. It's -- I get asked that question a lot, and I usually point out that it depends on the pricing of assets in the marketplace. In some instances, pricing has definitely gotten better, but in other places, not so much. So I think it's hard to know. I said earlier today that I think that last year is probably as good a predictor of the future. The last year's activities are probably as good a predictor of the future as any with respect to M&A. And I would stay with that. I think in terms of the likely deals we would do, they would tend to be of similar sizes. Those are sizes of organizations that we find are reasonable to integrate, and we tend to find prices better in those asset -- in those price classes, those sizes. In terms of what spaces we might pursue, there are opportunities for acquisitions in all of our markets. And we have a very robust acquisition funnel. At times, it has been a little more active, and at times not so much so. So it's a little hard to say. We're clearly very interested in pursuing opportunities in healthcare that would extend -- that would further leverage the strength of our channel. And we're very interested in opportunities in mobile. Although as I've said in the past and in conversations related to this, it's not easy to find well-priced mobile assets. But mobile certainly a possibility, but the other markets are also possible.

Well, I want to thank you, all, very much. You've been a very patient audience, and we hope this has been helpful for you, and thank you again for coming.

Unknown Executive

So that concludes the webcast. And for the audience here in person, I just want to remind you that we do have lunch outside, as well as the demos. Thanks so much.

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