- Nuance is an enterprise conversational AI company that consistently generates +$250 million of FCF and ~$1.8 billion of revenue every year.
- While revenue has been flat for years, growth has reaccelerated to ~10% in recent times after the Cerence spin-off.
- The continuing success of the turnaround will hinge upon the growth in recurring revenue, driven by the adoption of Dragon Medical, its cloud-based healthcare offering.
- So far, Dragon Medical's traction has been strong. ARR grew by 70% in 2018 and 38% in 2019.
- The company also has an attractive $500 million share repurchase program, 86% of which remains unexercised.
Nuance (NASDAQ:NUAN) is a cash-flow compounder with strong fundamentals and moat in the healthcare and enterprise segments. At present, Nuance is a ~$2 billion-a-year business with a consistent double-digit FCF (free cash flow) margin. While growth has slowed down to a single digit in recent years, the turnaround that involved a spin-off of its automotive business Cerence (NASDAQ:CRNC) has been successful. In recent times, growth has reaccelerated to a double-digit zone. Moreover, the company also has a $500 million share repurchase program with ~86% of it yet to be exercised.
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