ScanSoft Announces First Quarter 2000 Results
Company Completes Acquisition of Caere Corporation;
Launches New Products Including Paper Converter for Microsoft's Front Page 2000
PEABODY, Mass., - May 10, 2000 - ScanSoft, Inc. (Nasdaq: SSFT), a leading provider of digital imaging software, today announced financial results for the first quarter ended March 31, 2000.
First Quarter Results
ScanSoft's total revenues for the first quarter of 2000 increased 64% to $7.4 million, compared to revenues of $4.5 million in the same period of 1999. ScanSoft reported a net loss of $3.7 million, or $0.12 per share compared to a net loss of $459,000 or $0.02 per share for the first quarter of 1999, before in-process R&D write-offs, goodwill amortization and unusual items. Including the effects of these items, ScanSoft reported a net loss of $23.9 million, or $0.78 per share, compared to a net loss of $4.0 million, or $0.18 per share for the first quarter of 1999.
Revenues in the current quarter, while significantly higher than prior year due to additional revenues resulting from the acquisition of Caere, were adversely affected by three factors. First and most importantly, ScanSoft elected to change its method of estimating revenue reserves to more closely align reported revenues with end user purchases. Second, there were disruptions to both the marketplace and the internal workforces of ScanSoft and Caere resulting from ScanSoft's March 13th acquisition of Caere. Third, important new product introductions occurred too late to have a substantial impact on the current quarter's results.
While the impact of the latter two factors is difficult to quantify, the change in method of estimating reserves resulted in incremental revenue reserves of approximately $3.7 million, with an offsetting and equal negative impact to first quarter revenue. The impact of the change also reflects higher distributor and retail inventories resulting from acquisition related disruption, and the timing of new product introductions. Because the Company enjoys high gross margins on sales, most of this amount adversely affected profit as well. "The Company believes that this change, which results in a one-time adverse impact to revenue and earnings, will provide a simpler and more reliable revenue recognition process," said Richard S. Palmer, ScanSoft's Chief Financial Officer. "Moving forward, this change in method of estimating revenue reserves eliminates any incentive to increase distributor or retail inventories above the minimum levels required to efficiently satisfy customer demand, and should result in lower operational costs through reduced returns, lower obsolescence, reduced freight and lower distributor incentive payments."
Comments on the First Quarter
President and CEO Michael K. Tivnan commented on the first quarter, "We have significantly strengthened the Company with the acquisition of Caere, and the integration is proceeding as planned. We expect to begin realizing cost savings in the second quarter and continue to believe we will achieve annualized savings of $10 million as we finish the year. During the first quarter, we expanded our relationships with key OEMs including Visioneer/Primax and Xerox. Product development was also an area of significant accomplishment, as we launched a number of new products, including Paper Converter for Microsoft's Front Page 2000. We also added a record 750,000 new registered users. Combined with Caere's, our total registered base now totals 7 million users. This large and growing community is valuable for product upgrades and cross-selling, and will become increasingly important when we introduce web-based imaging services later this year."
ScanSoft Completes Acquisition of Caere Corporation
The addition of Caere strengthens ScanSoft's ability to develop and deliver cutting-edge technology and products and offers new business opportunities. In summary, the acquisition and integration of Caere Corporation is expected to:
- Result in $10 million in annualized cost savings through the elimination of more than 70 overlapping positions (an 18% reduction) and more efficient marketing programs.
- Create key distribution synergies, including a much stronger international presence, a registered user base of 7 million people and key OEM commitments.
- Enable the Company to focus on new areas for growth including internet services and a larger role in electronic forms.
The acquisition was valued at $140 million under the terms of the transaction based upon the receipt by Caere's common stockholders of $4.00 in cash and $7.75 in ScanSoft common stock for each share of Caere.
Product Enhancements and Strategic Partnerships
On March 20th, ScanSoft launched Paper Converter for Microsoft's FrontPage 2000, the world's best-selling Web site creation and management tool. This innovative new software product quickly converts paper documents and images -- including formatted text, tables and photos -- into editable HTML and seamlessly integrates them with Microsoft's FrontPage 2000. The Microsoft and ScanSoft teams worked closely together to couple FrontPage 2000 and Paper Converter, creating new and unique content development opportunities for businesses of all sizes.
Throughout the first quarter, ScanSoft strengthened its award-winning product line and strategic alliances.
- Visioneer, a leading digital imaging hardware company, selected ScanSoft as the sole supplier of paper management and optical character recognition (OCR) software, in a deal estimated at $5 million over a three-year period.
- ScanSoft introduced TextBridge Pro Millenium, the latest version of its Optical Character Recognition (OCR) software, which offers proven accuracy of better than 99%, improvements in the product's interaction with Microsoft Office 2000, and a new Live Updates feature.
- ScanSoft also introduced Pagis Pro Millenium Suite, which includes support for Hewlett Packard JetSend, Windows 2000 and Live Updates, as well as the latest TextBridge Pro Millennium OCR and Kai's PhotoSoap2 image editing applications.
- ScanSoft reached agreement with Brother International Corporation to bundle its PaperPort paper management software with their CopyPoint printer.
Senior Management Changes
ScanSoft has strengthened its senior management team. Richard S. Palmer, previously a finance executive with Xerox Corporation, was recently named ScanSoft's new CFO; Valorie Cook Carpenter, Senior Vice President of Marketing and Akos Reszler, Senior Vice President of Budapest Operations, joined ScanSoft from Caere; and Jerry Kent, previously with PricewaterhouseCoopers, was named Controller and Chief Accounting Officer.
Outlook
Tivnan concluded, "With the acquisition of Caere completed and the integration well underway, ScanSoft moves forward as a digital imaging software leader that is poised to expand its business both domestically and internationally. We see exciting opportunities to leverage our world-class technology and OEM relationships as we continue to develop new and innovative digital imaging software solutions. This should enable us to meet our previously stated objective of producing revenue at an annualized rate of approximately $100 million in the second half of 2000."
About ScanSoft, Inc.
Headquartered in Peabody, MA, ScanSoft, Inc. (Nasdaq: SSFT) is a leading developer of digital imaging software that enables users to leverage the power of their scanners, digital cameras, and other electronic devices. ScanSoft's award-winning product line - Pagis® Pro, TextBridge® Pro, PaperPort® Deluxe™, OmniPage Pro®, OmniForm®, OmniPage Pro Scan Suite Plus™, PageKeeper®, Kai's PhotoSoap2™, Kai's SuperGoo™, Kai's PowerShow™, and PhotoFactory™ - enables users to capture, recognize, edit, manage and share documents and photos electronically by taking advantage of ScanSoft's cutting-edge technology.
ScanSoft software is sold and marketed worldwide through retail, dealer and OEM channels and the Internet, capturing the consumer, small office/home office (SOHO) and corporate markets. There are approximately 7 million registered users of ScanSoft products. For additional information, visit www.nuance.com.
Except for the historical information contained herein, this press release includes forward-looking statements within the meaning of Section 21(e) of the Securities Exchange Act of 1934. These statements include an expectation that the Company will reduce annualized operating costs by approximately $10 million and produce revenue at an annualized rate of approximately $100 million in the second half of 2000. These statements are based on ScanSoft's current expectations and estimates as to prospective events and circumstances which may or may not be in ScanSoft's control and as to which there can be no firm assurances given. These forward-looking statements are subject to risks and uncertainties and there can be no assurance that any of these forward-looking statements may prove to be correct and actual results may differ materially. These risks and uncertainties include, but are not limited to, our ability to effectively manage diverse and geographically dispersed operations, difficulties with integrating product plans, schedules and resources, difficulties in implementing the planned cost reductions, potential that the information and estimates used to predict the cost savings were not accurate, market acceptance of ScanSoft's products, competitive products, pricing pressures, maintenance of distribution channels, and other risks detailed from time to time in ScanSoft's SEC reports. ScanSoft disclaims any intent or obligation to update these forward-looking statements.
TextBridge, Pagis, PaperPort, PaperPort Deluxe, Scanner Suite, OmniPage, OmniForm, and PageKeeper, are registered trademarks or trademarks of ScanSoft, Inc. All other trademarks and trade names are hereby recognized and may be registered to their respective holders.
ScanSoft's consolidated statements of operations and balance sheets follow.
ScanSoft, Inc.
Supplemental Consolidated Statements of Operations
(in 000s, except per share amounts)
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NOTE: The Supplemental Consolidated Statements of Operations exclude in-process R&D write-offs, amortization of intangible assets and unusual items.
ScanSoft, Inc.
Consolidated Statements of Operations
(in 000s, except per share amounts)
Unaudited
Balance Sheet Highlights
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