Nuance Communications, Inc.
Q3 2011 Earnings Call Transcript

Published: 10 Aug 2011

[Operator:]

Ladies and gentlemen thank you for standing by, and welcome to Nuance's Third Quarter 2011 Conference Call. [Operator Instructions] With us today are the Chairman and Chief Executive Officer of Nuance, Mr. Paul Ricci; CFO, Mr. Tom Beaudoin; and Vice President of Investor Relations, Mr. Kevin Faulkner. At this time, I would like to turn the call over to Mr. Faulkner. Please go ahead, sir.

[Kevin Faulkner:]

Thanks. Before we begin, I remind everyone that matters we discuss this afternoon include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to our recent SEC filings for a detailed list of risk factors. As noted in our press release, we issued, along with our releases, a set of prepared remarks in advance of this call. Those remarks are intended to serve in place of extended formal comments and we will not repeat them here. Now let me turn the call over to Mr. Paul Ricci.

[Paul Ricci:]

Thank you, Kevin. Before taking your questions, I might underscore a few points from today's documents. To begin, Nuance delivered 13% organic revenue growth in the quarter, an acceleration from the previous quarter. We delivered improved performance in our Healthcare and Mobile & Consumer markets. Revenue growth drove improved operating margin and operating cash flows. We achieved strong bookings in Healthcare and important design wins in Mobile. Nuance's Imaging business continued what promises to be record year for the business along several dimensions. In view of the momentum created in Q3, we're raising our Q4 revenue guidance range in addition to updating guidance to reflect recent acquisitions. Nuance continues to make investments targeted at accelerating growth in fiscal 2012. In particular, we're funding and expanding set of strategic engagements in our mobile market, the demand for our advanced cloud-based services continues to grow. In healthcare, we are also pursuing strategic initiatives with key partners, which leverage our voice and clinical language understanding technologies. We will now take your questions.

[Operator:]

And the first question comes from the line of Daniel Ives, FBR.

[Daniel Ives:]

First off, with the guidance, could you just try to apples-to-apples it with the acquisition with Equitrac? What is that contributing just so we could kind of x it out to compare everywhere 3 months ago?

[Paul Ricci:]

Well, our guidance in the previous quarter was $3.52 to $3.70 and by non-GAAP revenue implied in the full year guidance, in the third quarter guidance we gave previously. You should think of revenues full quarter, fourth quarter revenues for all 3 acquisitions being roughly in the $20 million range.

[Daniel Ives:]

Okay. So you're raising it by about $10 million. Can you just call out the legal expense in Q4 and what -- is that something new?

[Paul Ricci:]

Nuance has ongoing legal expenses, and particularly, we've had increasing expenses related to intellectual property. But we're in the middle of significant litigation that began -- accelerated last quarter and primarily occurred in the fourth quarter. And so there were some extraordinary expenses in the third quarter and more significant in the fourth quarter that we've called out in the prepared remarks document.

[Daniel Ives:]

And then just lastly and I'll pass along. Just talking about with design wins on mobile, just anecdotally from a high level, I mean, do you feel that there's some big wins ones coming that could be like game changers in terms of just spreading the gospel like how you're thinking about that in terms of the design wins, what we should be expecting over the next few months?

[Paul Ricci:]

We do think in the next 6 months that you'll see a significantly greater visibility of Nuance's voice services on a number of Mobile devices, and I think the visibility of that will accelerate the awareness of our technology on Mobile devices, much as DragonGo! has done in recent weeks. And I suspect it will create yet additional demand by more Mobile & Consumer manufacturers to incorporate voice capabilities in their devices.

[Operator:]

Next, we'll go to the line of Shyam Patil of Raymond James & Associates.

[Shyam Patil:]

Paul, you talked about accelerating growth or you reiterated accelerating growth next year. Can you talk about the level of visibility into that and just what gives you confidence that that's going to play out and the key drivers for that?

[Paul Ricci:]

Well, there are number of things that we've been doing that position us for improved growth as we go into next year. And I think we're seeing the benefits of those in the second half of this year. So in some ways, there was, I think, some concerns about growth in the first half of this year. And I think actions we've taken over the last 12 months have benefits in the second half, and I think those will continue into fiscal '12. They include continuing to increase the size of our sales organizations, making investments alongside important partners in our Mobile business, which I think will continue to drive revenues, expanding our partnerships and technology investments in Healthcare, particularly in the area of Clinical Language Understanding, which opens new product -- sources of product line revenues for us, and I think expands the revenue opportunities of our partnerships as well. And I should also just mentioned that we, of course, have seen a rebound in our Imaging business, which we also think will continue into next year because of the investments we've made there.

[Shyam Patil:]

Great. And then around the margins, how should we think about margin expansion as a goal going forward on an annual basis without getting to the specifics of 2012 guidance?

[Paul Ricci:]

Well, as we've tried to indicate for the past year or so, our focus in the near term is on accelerating revenue growth. And therefore, in putting back into the business as much prudent investment as we think we could manage to achieve that growth, and those investments includes some of the things that I've just mentioned in answer to your prior question. We believe that improved growth is our #1 priority because it increases our strategic position, it creates additional funding of capabilities for research and development, which we think drives future revenues, and we think will have the most beneficial effect on our midterm cash flows. So right now, our focus on is on strengthening our revenue growth. As a result, we've advised investors to look for reduced margin operating margin improvement year-over-year. It remains to be seen whether that plays out or not.

[Shyam Patil:]

And then my last question, could you just talk a little bit about the debt balance, if you could, just the terms for the various large pieces and how you expect to handle those pieces as they may mature within the next 2 or 3 years?

[Paul Ricci:]

Well, I think the most important change from the past has been that we did our restructuring of our $650 million term loan and about $450 million, $475 million of that has been extended through what period, Tom?

[Thomas Beaudoin:]

March 2016.

[Paul Ricci:]

March of 2016. So we have had a couple of hundred million of a due in March of 2013.

[Thomas Beaudoin:]

March of 2013, Paul. So about $152 million due in March '13 and $487 due in March 2016. And that's an extension from our March '13 original term loan.

[Operator:]

Next, we go to the line of Nandan Amladi of Deutsche Bank.

[Nandan Amladi:]

With the recent acquisition that Medquist made of multimodal, how do you see the competitive environment changing?

[Paul Ricci:]

Not really at all. Medquist is 1 of a number of them early services organizations that we compete with. With significantly less technology foundation the Nuance has and I think that continues to be the case.

[Nandan Amladi:]

A quick follow-up if I might. The growth of your transcription run rate lines appears to have slowed a little bit over the past 2 quarters, we went from 18% year-over-year to 16% to now 12%. Can you discuss what might be behind this?

[Paul Ricci:]

Well, it has slowed a bit. Some of that is simply the result of the base getting much larger. But I think you will see some improvement in that as we look at over the next few quarters as we continue to focus on the next generation of our host services technologies, as well as our expanded sales and marketing efforts in this area.

[Operator:]

Next, we go to the line of Brent Thill, UBS.

[John Byun:]

This is John Byun for Brent Thill. In the Mobile Device side, I mean, traditionally, you've had a lot of -- it was embedded for basic control. Where do you think you may be at this point in terms of getting more reach in functionality beyond the basic command and control in that space?

[Paul Ricci:]

Well, Nuance, for quite some while now, has been positioning with our partners, a hybrid architecture that includes embedded functionality as well as network-based functionality. Embedded functionality is not only command-and-control, but it does include command-and-control, as you note. We believe in that hybrid architecture. Our partners believe in it. I believe it will be the norm of our architecture that prevails in devices over the next few years. And now we'll include the variety of functionality that we've talked about ranging from voice dialing to calling up favorite content, media content on the device to far more complex searches. And dictation-based messaging, which is the kinds of things you see in Dragon Search and perhaps with even more what we see recent release of DragonGo!, which just gotten so much attention and applause.

[John Byun:]

And among your segments, I mean, they're all seem to be doing very well, except maybe Enterprise seems to be lagging a bit. Could you just talk a little bit about what the dynamics are there more recently and what actions you maybe taking?

[Paul Ricci:]

Well, we've talked about Enterprise for a number of quarters now, and I've articulated what our plan is there. And it has continued to be a challenge. We believe that Nuance's host On-Demand services and Enterprise are extremely unique. We do not believe that anyone else can provide the kind of capability that we do for very large customers who are looking to bring state-of-the-art customer care to their call centers. And I provided evidence of that, the remarkable solution that U.S. Airways has recently unveiled, in which we worked on with them. So my view is that, that solution is going to continue to gain traction, and we're going to win large customers in favor of that solution and that it will expand the revenues. We've been hurt by the fact that one of our large customers from the past has had declining volumes and has had declining revenue contributions to us. As we go into fiscal 12, the effect of that will diminish because the base of that revenue contribution has been so significantly diminished over the course of this year. In addition to that, the business is also bringing out several new offerings that will sell both directly and through our channel partners, that include analytics capabilities and other advanced dialogue capabilities for our customers, as well as in integration with other kinds of non-voice customer care. I think the combination of all those things, along with the expansion of channel partners that the company has been working on, will restore growth to that business. But it is a challenging business. And the Enterprise communications market is a challenging market. So we still believe in it, but it's going to take some time to see a rebound.

[Operator:]

Next, we go to the line of Shaul Eyal, Oppenheimer & Co.

[Shaul Eyal:]

I want to try and stay for a second on the Enterprise business. Given kind of the slight weakness anyone would expect that growth in call volumes given everything that has happened over the past couple of weeks should also in some way kind of drive the business. My question is do you think at kind of current levels, kind of the high 16, maybe low 17s kind of per quarter-over-quarter, is kind of the quarterly run rate that we kind of should be expecting for the next few quarters ahead?

[Paul Ricci:]

Well, our plan internally is for growth in the business. So the brief answer to your question is no. We expect to grow that business. But as I said in the answer to the previous question, we've had a challenged achieving our plans in that business and it has been somewhat frustrating. But I return to my earlier point. We have extremely differentiated capabilities in that business, and we believe that we are raising the awareness for state-of-the-art capabilities in voice, media and customer care. And we think that those in combination with our Mobile assets and customer care are going to drive growth in that business over the next year.

[Shaul Eyal:]

And now you've got another good quarter of strong cash flows. I know that kind of you were saying in the prepared remarks that next quarter is going to be kind of a little bit of a debt reduction by about $20 million. But leaving that aside, can we be taking kind of the cash flows you have been printing over the past 2, 3 quarters now as kind of that or would it be the company's cash flow -- sustainable cash flow levels for the next few quarters?

[Paul Ricci:]

Putting aside the restructuring matter that we called on at our prepared remarks, our objective has been to track cash flows closely to non-GAAP net income, and therefore, we should expect cash flows to grow as we look out over the next 4 quarters as we grow our profitability in the business.

[Operator:]

And next, we go to the line of John Bright, Avondale Partners.

[John Bright:]

Once again I commend you guys on putting out the prepared remarks, it creates more constructive conversation. Within those, Paul, I think throughout the release, those references associated with the strategic engagement in the Mobile market, and I think you alluded in the prior question that you might see a benefit within the next 6 months, and then the question after that, it was about margins and you said the margins have somewhat being constrained. Because of this, is it fair to assume that if we look out beyond 6 months that we might have the opportunity for margin expansion?

[Paul Ricci:]

Well, let me just say a word about the way you phrase the question. I think we've referred to strategic engagements, and I want to emphasize that point. The nature of the Mobile business is changed to one where our engagements with a number of important partners has become more extensive in co-development. And that, I think that's a trend that will continue. And what we have found is that therefore our expense base is growing in satisfaction of those partnership engagements. Not necessarily completely in front of revenues, but certainly in front of some of the revenue expansion that we expect to see. So that the answer to your second half of your question is yes, we believe that the engagements that we described will yield additional revenues as we look out next year. Having said that, I should say that the Mobile business is a very attractive margin business and we've want to be realistic about the margin improvements in that business.

[John Bright:]

Next question is on the Enterprise segment. Paul, in the prepared text as well, you did mention and I think you alluded to a second ago, one, Enterprise On-Demand customer that's seen revenues declined and it's been continually taking place. A couple of questions, one, remind us what industry that customer might be from? And then secondly, what is their doing [indiscernible].

[Paul Ricci:]

I can't really talk about the industry because it would be inappropriate to disclose the customer. They've had significant declines, and we're paying on a transactional basis and they've had significant decline in their volumes associated with the solution. I think that has to do with changes, fundamental changes in their industry as well. But the important point is that the base of those revenues has declined enough this year but it's something it's going to be as big a factor next year.

[John Bright:]

Shouldn't be the drag it was on Enterprise this year?

[Paul Ricci:]

That's right.

[John Bright:]

If I can, Tom, a question about guidance. What are you assuming for organic growth in the September guidance?

[Thomas Beaudoin:]

We don't really -- we don't forecast organic growth for forward quarters.

[Operator:]

And next, we go to the line of Jeff Van Rhee, Craig-Hallum.

[Jeffrey Rhee:]

Paul, several questions. Maybe started a high-level just in terms of the macro-environment for the global kiosk domestically, EMEA, elsewhere. Can you talk to the environment you've experienced and how it's progressed in the last 3 to 6 weeks?

[Paul Ricci:]

Well, it's just hard to say anything about 3 to 6 weeks. But let me say it that I think looking over the span of the last couple of quarters, 2 things have occurred. One is we are seeing some softness in the European consumer, which effects some of our Dragon sales in particular in Europe, and we're certainly seeing a weakness in Japan, and we have anticipated some of that in the fourth quarter, although we haven't anticipated a sharpening of it. And we are worried, as I suspect, your question alludes to about uncertainty in the North American climate. But we haven't really seen specific effects of that, except maybe some weakness in the Enterprise communications purchasing. But I wouldn't overstate that.

[Jeffrey Rhee:]

Okay. And while you're on the Enterprise, just for clarity, the one customer that drove Enterprise On-Demand down, can you give us a sense of that customer as a percent of revenues in the Enterprise segment?

[Paul Ricci:]

Well, by now, it's come down significantly so that it -- this year, will only be less than 5% of revenues in that business.

[Jeffrey Rhee:]

And the Enterprise On-Demand growth rates outside of that customer, how would the year-over-year growth look in the last 2 quarters, namely as the growth in Enterprise On-Demand expect customer accelerating, decelerating or steady?

[Paul Ricci:]

I don't have those numbers, but it is markedly better.

[Jeffrey Rhee:]

Okay. And then one last and then I'll jump off. The cash flow statement outlined around $300 million used in acquisitions. I think we're familiar with Webmedx and Equitrac. Is there anything else in that $300 million that's where you're calling out outside of sort of follow-on payments to previously announced acquisitions?

[Thomas Beaudoin:]

No, no. Just some follow-on smaller activities, but no.

[Jeffrey Rhee:]

Follow-on, as in payments for prior acquisitions, but there's no other ones in there that we're not aware of?

[Thomas Beaudoin:]

Right.

[Operator:]

And next, we'll go to line of Ilya Grozovsky, Morgan Joseph.

[Ilya Grozovsky:]

I have a question about your operating expenses. So you guys have pretty much telegraphed that you're going to be ramping them next year, but they seem to be under some pretty tight controls this quarter and next quarter. Why aren't you ramping them presently?

[Paul Ricci:]

Well, we have been ramping them. It's a difficult hiring environment, so we've not been able to achieve the full benefits of some of our hiring plans this year-to-date, the full effect. I also would note that we had an offsetting R&D credit this quarter due to one of our partnerships. But in fact, we have been increasing them. And the other place, it might be less apparent is some of the expense growth is going into cost of goods in the Mobile line, which is where we would account for some of the R&D hiring that's related to Mobile Services.

[Operator:]

And next, we'll go to the line of Scott Zeller, Needham & Company.

[Scott Zeller:]

A question about the Healthcare business. But can you give us some color about what will happen in demand if the consumer starts to pass on what might be thought of as discretionary exams and how that may impact the overall radiology picture for demand?

[Paul Ricci:]

Well, we have some recent history and this, and of course, in the 2008 period. And there appears to be some effect, but I would not call it the first order effect for us. So it's just -- we haven't -- we don't call it out because we don't think it's material to our business.

[Operator:]

And next, we go to the line of Scott Sutherland, Wedbush.

[Scott Sutherland:]

The 3 acquisitions you did in Q3, can you highlight the contribution of revenue and EPS they had in the fiscal Q3?

[Paul Ricci:]

I don't have those numbers that was relatively modest on revenue and neutral on EPS.

[Scott Sutherland:]

On your hosting services revenue line, which I take it it's a large customer that's been in declining volumes, primarily have you seen other hosting revenue still ramping outside of Professional Services?

[Paul Ricci:]

Yes, we had -- someone else had asked this question in a different form, and I had noted the answer is yes to that.

[Scott Sutherland:]

Actually, it was made for Tom. On the math here, the way you take organic growth whether the acquisition has always been part of the company? Your Mobile organic growth was 2 percentage points higher than the total growth in Mobile. Can you talk about the math there, something that was kind of funny that cause the organic to exceed total growth?

[Thomas Beaudoin:]

As reported versus?

[Scott Sutherland:]

Yes, you did 31% organic, but you reported only 29%.

[Thomas Beaudoin:]

Yes, I mean, I have to look at that but I think it's just the way the acquisitions fall against the revenue. I guess, reported for that particular quarter. Then they kind of come in throughout the quarter.

[Operator:]

Next is the line of Neil Herman, Ticonderoga Securities.

[Neil Herman:]

If you were to take your crystal ball and try to look out a year from now, could you kind of give us a sense in terms or a guess where you think your presence may be with respect to the major smartphone platforms?

[Paul Ricci:]

Well, I think without disclosing activities that are confidential, what I could say is that it's our expectation to participate on most of the major smartphone platforms, which are, as you know, shrinking in number. And with most of the manufacturers.

[Operator:]

Next is from the line of Brad Whitt of Gleacher.

[Bradley Whitt:]

I just wondered, Paul, if you could comment a little bit on the modification strategy around DragonGo!. It looks like a pretty impressive application, and what's the kind of go-to-market strategy? Do you need a different distribution strategy around that? If you could just help us understand that a little bit.

[Paul Ricci:]

Well, DragonGo! will achieve advertising revenues as we sign up partners and get referral and transactional fees. We will also realize revenues from variations of that product that are sold in conjunction integrated indirectly with some partners.

[Bradley Whitt:]

Okay then, last question would be you mentioned on your prepared remarks about having some success cross-selling your Imaging products into the Healthcare verticals. Just curious as to kind of where you are on that. Are you selling that with your Healthcare sales reps or just the primarily the Imaging sales reps selling into that customer base? And just kind of give us balance on that strategy.

[Paul Ricci:]

It's primarily our Imaging sales organization now, but we are starting the work of leveraging our Healthcare sales organization and marketing organization towards that end as well. They have to be careful at the pace at which we to do that because they have a full agenda in the quarters for the year built on their current product lines and we don't want to cause disruption.

[Operator:]

And next, we'll go to the line of Steve Koenig, Longbow Research.

[Steven Koenig:]

I'd like to inquire about the Healthcare segment. We weren't modeling any boost from acquisitions in that segment, but it looks like there was about 9 points from acquisitions or about $10 million in the quarter. We all thought, Webmedx closed in July. So can you help us understand where did that roughly $10 million of revenue come from what acquisition?

[Paul Ricci:]

I'm not going to give specific numbers for each acquisition, but I think your calculations are simply wrong about Q3. I don't know what the precise contribution was, but it wasn't that large.

[Steven Koenig:]

Well, your as reported growth in Healthcare was something like 21 or 22 points, your organic growth was something like 13 points. So those numbers are correct. I'm reading it from your report. So I'm just wondering, we didn't know there are any acquisitions in that segment this quarter.

[Paul Ricci:]

Someone here is trying to look at the numbers and give me some advice on this. I don't actually. . .

[Thomas Beaudoin:]

Okay, so Paul, just a little bit on the organic growth and the acquisitions. It can be the effect of an acquisition having a higher growth than the average of the core, which then can enforce the average for the organic to be higher than the as reported. And in some cases, they can actually go the other way and it can be slightly less in a particular quarter. The long-term growth potential is still high, but sometimes as we talk about in our call remarks, sometimes at the beginning, it's down a little bit from where it was maybe a year ago due to some economic factors in a particular acquisition. So there's a plus and minus effect here that's causing, I think, a couple of these anomalies that you guys are seeing.

[Steven Koenig:]

Okay. Your methodology is included in acquisition both before and after.

[Thomas Beaudoin:]

I think we can have them for a year so sometimes.

[Steven Koenig:]

And then if I could just follow up, just a housekeeping question, the legal expenses and in particular the Q4 items that you expect, are those included in your reconciliation? In other words, are those expenses excluded for your non-GAAP earnings?

[Paul Ricci:]

I think those expenses are included in our non-GAAP earnings.

[Thomas Beaudoin:]

Those particular legal expenses that we called out are included in our non-GAAP operating expenses.

[Steven Koenig:]

So they will impact your non-GAAP earnings negatively?

[Paul Ricci:]

They're within our guidance for non-GAAP earnings, but yes, they will be [indiscernible] to our non-GAAP earnings.

[Operator:]

And next, we go to the line of Mike Latimore, Northland Capital Markets.

[Ian Kell:]

This is actually Ian in for Mike today. Just a couple of quick ones, can you give us an update on the Voicemal to Text rollout at Telefonica and when that might be fully implemented?

[Paul Ricci:]

I don't have details on that specific customer. I do know there were, over the last few months, there have been a number of important milestones, including volumes ramping in Mexico and other milestones in Central and South America. But I don't have the specifics of that. I can say, and I think we may have referenced in our remarks, we had an exceptional quarter in Voicemail to Text. We have both -- the absolute performance of the business in the quarter was quite good and the bookings were really quite strong.

[Ian Kell:]

Do you have any other Tier 1 wins in the quarter?

[Paul Ricci:]

Tier 1?

[Ian Kell:]

Telco wins...

[Paul Ricci:]

We had telco wins, I don't know what Tier 1 means.

[Ian Kell:]

Okay. And just quick on the Imaging side, sounds like the eCopy is going well at that release. How should we look at just the long-term growth rates on the Imaging side? Can you give us any sort of guidance there?

[Paul Ricci:]

Just before I do, just on your previous question, I think in the prepared remarks, there are a number of carriers mentioned in the Voicemail to Text in terms of new bookings. But on Imaging, well, as I said in the last couple of quarters, the inherent growth in that business, which we used to think of as being much more modest, it seems a bit better now. And that seems to be driven by the, in particular, by the position we find ourselves in as partner with most of the large multifunction device manufacturers, printer manufacturers. So why I can't give you a specific growth target for 2012 at this point, I can say with confidence that our growth indications for that business will be higher than we had planned for 2011.

[Operator:]

And next, we go to the line of Dan Cummins with ThinkEquity.

[Daniel Cummins:]

A couple of questions. I heard you when you said you don't guide with respect to organic growth forward. But would you perhaps be willing to give us some sense directionally for the final quarter and the fiscal year?

[Paul Ricci:]

I think what we've said overall is that we anticipated that organic growth in the second half of the year would be better than the first half, and would position us in the range of, for the full year, in the range of 9% or 10% or something of that effect.

[Daniel Cummins:]

Okay. Great. Let's see, the total value of the On-Demand contracts, up about 7% quarter-on-quarter. Can you give us a sense of the relative contributions of Healthcare and Mobile, and is that all organic?

[Paul Ricci:]

I can't give you a break out between Healthcare and Mobile, and I don't have the detail to tell you whether it's all organic. Although I strongly suspect that it's all organic.

[Daniel Cummins:]

Okay. Well, with 2 more, sorry. The potential acquisition plan, Paul, let's say over the 12 to 18 months, assuming you continue to do the size deals that you've been doing most recently, do you think that you'll definitely be able to fund those from existing and projected cash flow or would you anticipate taking on new debt?

[Paul Ricci:]

That's going to depend significantly on the valuations in the market, which are very difficult to predict, especially in the environment we're in right now. We've had a period over the last 18 months of finding it relatively difficult until recently to achieve prices that we thought were acceptable. And then recently, we've been successful in small number of deals that we thought were favorably priced. Our current plans are to fund our acquisitions from our existing cash balances and from our future cash flows. I can't rule out that we would take additional debt. But that will depend upon the debt markets and opportunities and the inherent financial returns available to us in doing that. And it's very speculative at this point.

[Daniel Cummins:]

And then finally, just on Medquist, with them taking on multimodal, what is the relationship at this point between Nuance and Medquist? Are you customers of one another, either going forward or temporarily? Or is it still a more or less they're your customer?

[Paul Ricci:]

No, we're not customers of Medquist. Medquist is a customer of Nuance. And as I believe will continue to be a customer of Nuance for a number of years.

[Operator:]

And our last question comes from the line of Tom Roderick, Stifel, Nicolaus.

[Tom Roderick:]

So first question from me. In thinking about the Webmedx acquisition, maybe just thinking strategically about that, can you help us understand what it is you're looking to gain out of sort of moving into the manual transcription market a bit more aggressively, what Webmedx brings you? And what the margin profile of that looks like and ultimately, how do you move that margin profile to up or above the total company average?

[Paul Ricci:]

That wasn't really our objective in buying Webmedx. We have, from time to time, bought a small transcription company when we felt that the customers that they brought were attractive to our overall business, and would allow us to continue to expand our existing business, where we are selling primarily a technology-based solution that has some backend services behind the technology. And that was the case of Webmedx. We, of course, believe that by applying our technology to that business, we would be able to increase our margins and profitability. And I might also mention just to reference back something I said earlier, is our intention to bring our Clinical Language Understanding technology to that customer base as well as our existing customer base.

[Tom Roderick:]

And Paul, [Audio Gap] Let me try that again. Can either of you disclose what you actually what you paid for Webmedx and what the full year run rate on that business might look like in terms of contribution?

[Paul Ricci:]

The answer is no to both questions. We haven't published the amount we paid, and we're not projecting full year contributions at this point for fiscal '12.

[Tom Roderick:]

Okay. Last one for me on the restructuring charge in the fourth quarter. Is that primarily related to redundancies associated with the acquisitions made thus far this year? Are there any kind of core functions that are being reduced as part of that restructuring?

[Paul Ricci:]

Well, when we buy an acquisition, we integrate that acquisition fully into the company. And sometimes, that involves reductions or restructuring of the operations of the acquired business, and sometimes, it involves restructuring of elements of our business depending on the optimality of the mix of those 2 things. And I don't know in this particular instance what the balance is between those 2. But what we can say is that the costs, the restructuring costs are related directly to the benefit of achieving the synergies and potential of those 3 acquired businesses.

[Operator:]

And there are no other questions at this time. Please continue.

[Paul Ricci:]

Okay. Well, we thank you, all, again for joining us for our quarterly earnings call, and we look forward to speaking to you again next quarter. Thank you.

[Operator:]

Ladies and gentlemen, this conference will be made available for replay after 7 P.M. today, running through Tuesday, August 23, 2011, at midnight. You may access the AT&T Executive Playback Service at any time by dialing 1 [phone] and entering the access code of 210912. International participants may dial 1 [phone]. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.