The 6,000 people workforce at Nuance (NUAN) are, in one way or another, behind most of the voice technology products that consumers and business use each day.
Think iPhone, Siri, Chrysler, DirecTV, LG Technologies, etc. Think call centers, healthcare voice systems, voice activated products, etc. That is Nuance, somewhat quietly functioning as an OEM (original equipment manufacturer) behind today's leading voice recognition products. The company designs and develops speech technology products for customer service call centers, the healthcare sector, and, of course, mobile devices.
The Burlington, Mass., company's 2011 sales were approximately $1.4 billion, and management recently announced financial results for its third quarter of fiscal 2012 showing a 31.3% increase in revenue ($431.7 million over $328.9 million). Net income ($79.3 million, or $0.25 per diluted share, compared with $41.6 million, or $0.13 per diluted share. Operating margin was up slightly (36.1%, up from 35.4%).
On an extremely positive note, cash flow from operations was up 41.4% ($141.5 million over $100.1 million). Nuance ended the third quarter of fiscal 2012 with a balance of cash and cash equivalents of $539.6 million. Their market Cap is 7.22B, with their stock price trading at around $24 with a 52wk Range of 16.32 - 31.15.
Extremely competent management and acquisition prowess has enabled the company to grow significantly since the late 90's into a powerful firm with significant partners with sales representation in more than 70 countries. Chairman and CEO Paul Ricci has, since 1999, strung together strategic acquisitions and business alliances that have transformed the company into the world's leading provider of speech solutions.
So with strong quarterly and annual financial performances, a good future with contracts and relationships with some of the tech industries biggest players, technology that is deep rooted and growing in industry, and strong patents, what is next for Nuance Communications?
Perhaps to become part of Apple. Reportedly, Apple has approximately $120 billion of cash on hand, and that continues to accumulate at about 4 billion per month. Apple's stock closed recently at $665.15 a share, making their market capitalization at $623.5 billion, the most valuable company in the world, at present and to date.
Again, Nuanc 's current market cap is 7.22B. Apple could pay a premium of $10 billion and not put a dent in its cash reserves. Furthermore, at its current cash accumulation rate, it would recover that cash investment in less than three months. At present, Apple licenses the use of its voice technology Siri from Nuance. It's becoming a more important aspect of what Apple does with its products. It is an understatement to say that speech recognition technology has a bright and profitable future.
From a competitive standpoint, if Apple doesn't buy Nuance, someone else with significant cash on hand could. Someone like Google (GOOG), increasingly becoming the chief rival of Apple, specifically on the mobile device front, where the likes of speech recognition lives. Apple has quietly continued to purchase technology and companies throughout the last 18 month period. Its latest was AuthenTec, (AUTH) a mobile security company, for $356 million in cash, pocket change for Apple.
Nuance matters. They are an important company to the top leaders in the technology field across the board. Their significance is growing every quarter, with every new product release that incorporates their technology into new products. It is likely they are on the acquisition target list of multiple firms. A bidding war could erupt if they are put in play, driving up the share price significantly. Good for shareholders, not so for the acquiring firm.
Additional Disclosure: The article was also published on The Chairman's Blog.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.