ScanSoft Announces Second Quarter 2004 Results
Record Revenue in Network and Embedded Speech, Momentum in PDF
Fuel Strong Performance; Continued Synergies Improve Operating Margins
PEABODY, Mass., August 9, 2004 - ScanSoft, Inc. (Nasdaq: SSFT), the global leader of speech and imaging solutions, today announced financial results for the second quarter ended June 30, 2004.
ScanSoft reported second quarter 2004 revenue of $46.1 million, a 66 percent increase over second quarter 2003 revenue of $27.7 million. Income from operations before amortization of acquisition-related intangible assets, restructuring charges and non-cash stock compensation for the second quarter of 2004 was $4.5 million, a $3.5 million increase from $1.0 million reported for the second quarter of 2003. After including amortization of acquisition-related intangible assets, restructuring charges and non-cash stock compensation, ScanSoft reported second quarter 2004 income from operations of $0.5 million, compared with a loss from operations of $3.0 million in the second quarter of 2003. Net income before amortization of acquisition-related intangible assets, restructuring charges and non-cash stock compensation was $3.6 million, or $0.03 per diluted share, compared with $1.0 million, or $0.01 per diluted share for the second quarter of 2003. After including amortization of acquisition-related intangible assets, restructuring charges and non-cash stock compensation, ScanSoft reported a second quarter 2004 net loss of $0.4 million, or breakeven per basic share, compared with a net loss of $2.9 million, or $0.04 per basic share, in the second quarter of 2003.
For the first six months of 2004, ScanSoft reported total revenue of $88.9 million, a 60 percent increase over revenue of $55.6 million in the first six months of 2003. Income from operations before amortization of acquisition-related intangible assets, restructuring charges and non-cash stock compensation for the first six months of 2004 was $6.1 million, a $2.0 million increase from $4.1 million reported for the first six months of 2003. After including amortization of acquisition-related intangible assets, restructuring charges and non-cash stock compensation, ScanSoft reported a loss from operations of $2.5 million for the first six months of 2004, compared with a loss from operations of $2.8 million in the first six months of 2003. Net income before amortization of acquisition-related intangible assets, restructuring charges and non-cash stock compensation was $5.4 million, or $0.05 per diluted share, compared with $3.8 million, or $0.05 per diluted share, in the first six months of 2003. After including amortization of acquisition-related intangible assets, restructuring charges and non-cash stock compensation, ScanSoft reported a net loss of $3.2 million, or $0.03 per basic share, in the first six months of 2004 compared with a net loss of $3.1 million, or $0.05 per basic share, in the first six months of 2003.
"ScanSoft's solid results in the second quarter were fueled by continued growth in our network speech solutions, particularly in North America and within telecommunications, and by strong performance in our embedded speech and PDF solutions," said Paul Ricci, chairman and CEO of ScanSoft. "In the quarter, we continued to see the benefits from ongoing efforts and investments in expanding our global partner network, ensuring on-time product delivery, generating additional leverage in operations and strengthening our global sales and professional services organizations."
Highlights from ScanSoft's second quarter include:
- Record Revenue in Network Speech: ScanSoft experienced record revenue from its network speech technologies, applications and professional services, driven largely by strong performance in North America and telecommunications, with continued contributions from strategic partners such as Avaya, Cisco, and Nortel. In addition, revenue from professional services was at a record level in the quarter. The company signed new or expanded agreements with BellSouth, Cendant, CVS, Delta, the Internal Revenue Service, Lufthansa, Qwest, T-Mobile, Verizon, and Virgin Mobile.
- Growth in Imaging and PDF Solutions: New products and growing demand for PDF solutions contributed to 29 percent annual growth in ScanSoft's imaging and PDF product families. In the second quarter, ScanSoft launched new PDF solutions including a new version of PDF Converter as well as PDF Create!, a new application that provides flexible and affordable PDF creation capabilities for businesses and departments of any size. In addition, ScanSoft sustained the momentum of its OmniPage Pro 14 launch through international rollouts and ongoing channel and partner activities.
- Strong Performance in Embedded Solutions: Revenue from embedded speech applications continued to grow sequentially and year-over-year as the company secured numerous design wins and benefited from new applications that customers and partners brought to global markets. In the quarter, ScanSoft secured critical design wins with one of the world's largest handset manufacturers, a pioneer in mobile GPS devices, and Magneti Marelli, an international leader in the design and production of high-tech components and systems for the automotive industry.
- Speech Technology Integration and Innovation: ScanSoft introduced OpenSpeech™ Recognizer 3.0, establishing a new industry benchmark for speech recognition software. It represents the first product integrating SpeechWorks and ScanSoft technologies and underscores the value of integrating technologies to achieve superior performance. This offering marks the beginning of product innovations that leverage ScanSoft's superior speech technologies, application expertise and intellectual property.
- Leverage in Operations: ScanSoft continued to generate additional operating leverage and recognized additional synergies in its business. Operating margins, before other income, taxes, depreciation and charges, increased year-over-year from four percent to ten percent in the second quarter 2004.
"As we approach the one-year anniversary of the SpeechWorks acquisition, we are pleased with ScanSoft's substantial gains in the market as we continue to seize opportunities that extend our leadership and deliver unparalleled applications and technologies," Ricci added. "As speech increasingly becomes the preferred means for customer self-service across numerous industries, we see growing demand for our speech expertise and solutions. Throughout this past year, our global partner network, including leaders such as Avaya, Cisco, Genesys, IBM, Intervoice, Microsoft, Nortel, and VoiceGenie, have provided unflagging support and helped us to achieve and maintain our strong revenue growth."
Restatement of SpeechWorks International Pre-Acquisition Financial Statements
ScanSoft will restate the previously reported financial results of SpeechWorks International Inc., which ScanSoft acquired in August 2003, for the fiscal years 2000, 2001 and 2002 and the first six months of 2003, following the completion last week of an independent review of certain transactions included in SpeechWorks' historical financial results.
ScanSoft determined that certain transactions had been improperly accounted for at SpeechWorks while conducting an internal inquiry related to a customer dispute. Upon first learning of these matters, the company notified its Audit Committee, which then retained independent outside counsel and accountants to conduct a review, which has just been completed.
ScanSoft concluded, in consultation with its independent outside advisors and its auditors, that SpeechWorks improperly recognized revenue in the following four instances:
- $900,000 reported as license revenue in the first quarter of 2001 should have been recorded as additional paid-in-capital in consideration for modifying an outstanding equity instrument.
- $2.0 million of license revenue reported over the second, third and fourth quarters of 2001 should have been recorded as deferred revenue and recognized in future periods as the prepaid licenses were deployed.
- $1.037 million of revenue reported in the third quarter of 2000, as part of a barter transaction that involved the exchange of licenses for inventory, did not meet the accounting requirements for a barter transaction and, therefore, should not have been recognized.
- $1.343 million of revenue recognized on a percentage of completion basis over seven quarters, beginning in the fourth quarter of 2001 and ending with the second quarter of 2003, was recorded in advance of when the revenue should have been recognized as a result of errors in the percent of completion calculations.
The restatement has no impact on ScanSoft's historical financial statements, operations or performance. The scope of the inquiry included a review of similar transactions in the SpeechWorks financial statements and no additional errors were found. ScanSoft will file with the Securities and Exchange Commission a Form 8K/A that contains the restated financial statements of SpeechWorks for the fiscal years 2000, 2001 and 2002 and for the first six months of fiscal 2003. The following table summarizes the impact of restating the reported results for the previously noted transactions:
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SpeechWorks International, Inc.
(In thousands, except per share date)
2002
--------------------------------------------------
As As
Reported Restated Change
--------------------------------------------------
Total Revenue $36,007 $35,802 $(205)
--------------------------------------------------
Net Income/(Loss) $(51,897) $(52,102) $(205)
==================================================
Earnings Per Share(a) $(1.58) $(1.59) $(0.01)
(a) Basic and Diluted
2001
--------------------------------------------------
As As
Reported Restated Change
--------------------------------------------------
Total Revenue $43,136 $39,635 $(3,501)
--------------------------------------------------
Net Income/(Loss) $(46,849) $(49,797) $(2,948)
==================================================
Earnings Per Share(a) $(1.46) $(1.56) $(0.09)
(a) Basic and Diluted
2000
--------------------------------------------------
As As
Reported Restated Change
--------------------------------------------------
Total Revenue $29,338 $28,301 $(1,037)
--------------------------------------------------
Net Income/(Loss) $(36,551) $(37,110) $(559)
==================================================
Earnings Per Share(a) $(2.29) $(2.33) $(0.04)
(a) Basic and Diluted
Six Months Ended
June 30, 2003
--------------------------------------------------
As As
Reported Restated Change
--------------------------------------------------
Total Revenue $20,079 $20,260 $181
--------------------------------------------------
Net Income/(Loss) $(19,145) $(18,964) $181
==================================================
Earnings Per Share(a) $(0.57) $(0.57) $-
(a) Basic and Diluted
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Investor Call
In conjunction with this announcement, ScanSoft management will conduct a Webcast and conference call on Monday, August 9 at 4:30 pm ET. Those who wish to listen to the live broadcast should visit the Investor Relations section of the company's Website at www.nuance.com at least 15 minutes prior to the event and follow the instructions provided to ensure the necessary audio applications are downloaded and installed.
The conference call can be heard live by dialing (800) 539-9343 or (706) 643-0195 and refer to the conference name ScanSoft, or conference number 9090069, five minutes prior to the call. A replay of the call will be available within 24 hours of the announcement. To access the replay, dial (800) 642-1687 or (706) 645-9291 and enter conference number 9090069.
About ScanSoft, Inc.
ScanSoft, Inc. (Nasdaq: SSFT) is the global leader of speech and imaging solutions that are used to automate a wide range of manual processes - saving time, increasing worker productivity and improving customer service. For more information regarding ScanSoft products and technologies, please visit www.nuance.com.
Trademark reference: ScanSoft, the ScanSoft logo, SpeechWorks, OpenSpeech, OmniPage Pro, PDF Converter, and PDF Create! are registered trademarks or trademarks of ScanSoft, Inc. in the United States and other countries. All other company or product names mentioned may be the trademarks of their respective owners.
This press release contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements relating to: future demand for, performance of, and opportunities for growth in ScanSoft's speech solutions and productivity applications; future revenue contributions from relationships with ScanSoft's partners; potential synergies from the acquisition of SpeechWorks; the continued strength of existing products, services and relationships as well as the introduction of new products, services and relationships; the market for ScanSoft's products; and ScanSoft's strategic and operational plan. Such statements are based on current expectations that are subject to a number of risks and uncertainties, and actual results may differ materially. These risks and uncertainties include, without limitation, the following: fluctuations in demand for ScanSoft's existing and future products; the possible loss of, or a significant curtailment of, purchases by any one or more of ScanSoft's principal customers; ScanSoft's dependence on OEM customers; ScanSoft's reliance on a small number of distribution and fulfillment partners; difficulties with integrating product plans and operations of acquired businesses and the accounting effects of such acquisitions on ScanSoft's operating and financial results; economic conditions in the United States and abroad; ScanSoft's ability to control and successfully manage its expenses, inventory and cash position; the effects of competition, including pricing pressure; possible defects in products and technologies; and the potential volatility in ScanSoft's stock price. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in ScanSoft's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2003. ScanSoft undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this document.
Second Quarter 2004 Financial Statements Follow
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ScanSoft, Inc.
Supplemental Condensed Consolidated Statements of Operations
Excluding amortization of intangible assets and restructuring charges
(in 000's, except per share amounts)
Unaudited
Three months
ended Six months ended
June 30, June 30,
----------------- -----------------
2004 2003 2004 2003
-------- -------- -------- --------
Product licenses $34,648 $25,663 $65,504 $51,171
Professional services 11,436 856 21,444 1,864
Related parties 43 1,224 1,955 2,544
-------- -------- -------- --------
Total revenue 46,127 27,743 88,903 55,579
Costs and expenses:
Cost of product licenses 3,541 2,916 7,017 6,186
Cost of professional services 7,939 1,657 14,665 2,689
Research and development 8,611 8,350 17,829 15,527
Selling, general and administrative 21,585 13,842 43,300 27,078
-------- -------- -------- --------
Total costs and expenses 41,676 26,765 82,811 51,480
Income from operations 4,451 978 6,092 4,099
Other income (expense), net (206) 388 243 410
-------- -------- -------- --------
Income before income taxes 4,245 1,366 6,335 4,509
Provision for income taxes 685 371 984 716
-------- -------- -------- --------
Net income $3,560 $995 $5,351 $3,793
======== ======== ======== ========
Net income per share: basic $0.03 $0.01 $0.05 $0.06
======== ======== ======== ========
Net income per share: diluted $0.03 $0.01 $0.05 $0.05
======== ======== ======== ========
Weighted average common shares:
basic 107,443 69,383 105,199 68,541
======== ======== ======== ========
Weighted average common and
common equivalent shares: diluted 117,056 81,132 115,328 79,181
======== ======== ======== ========
ScanSoft, Inc.
Condensed Consolidated Statements of Operations
Including amortization of intangible assets and restructuring charges
(in 000's, except per share amounts)
Unaudited
Three months ended Six months ended
June 30, June 30,
----------------- -----------------
2004 2003 2004 2003
-------- -------- -------- --------
Product licenses $34,648 $25,663 $65,504 $51,171
Professional services 11,436 856 21,444 1,864
Related parties 43 1,224 1,955 2,544
-------- -------- -------- --------
Total revenue 46,127 27,743 88,903 55,579
Costs and expenses:
Cost of product licenses 3,541 2,916 7,017 6,186
Cost of professional services 7,939 1,657 14,665 2,689
Cost of revenue from amortization
of intangible assets 2,805 2,672 5,621 4,729
Research and development 8,611 8,350 17,829 15,527
Selling, general and administrative 21,585 13,842 43,300 27,078
Stock based compensation 530 26 849 51
Amortization of other intangible
assets 635 423 1,303 784
Restructuring and other charges - 817 801 1,346
-------- -------- -------- --------
Total costs and expenses 45,646 30,703 91,385 58,390
Income (loss) from operations 481 (2,960) (2,482) (2,811)
Other income (expense), net (206) 388 243 410
-------- -------- -------- --------
Income (loss) before income taxes 275 (2,572) (2,239) (2,401)
Provision for income taxes 685 371 984 716
-------- -------- -------- --------
Net loss $(410) $(2,943) $(3,223) $(3,117)
======== ======== ======== ========
Net loss per share: basic $(0.00) $(0.04) $(0.03) $(0.05)
======== ======== ======== ========
Net loss per share: diluted $(0.00) $(0.04) $(0.03) $(0.05)
======== ======== ======== ========
Weighted average common shares:
basic 103,881 65,821 101,637 64,979
======== ======== ======== ========
Weighted average common shares:
diluted 103,881 65,821 101,637 64,979
======== ======== ======== ========
ScanSoft, Inc.
Condensed Consolidated Balance Sheet
(Unaudited, in thousands)
Assets June 30, December 31,
2004 2003
Current
assets:
Cash and cash equivalents $22,648 $42,584
Marketable Securities 5,196 -
Accounts receivable, net 38,806 40,271
Receivable from related party 124 2,133
Prepaid expenses and other current assets 7,427 9,691
----------------------
Total current assets 74,201 94,679
Goodwill, net 246,231 243,266
Long term marketable securities 17,144 -
Other intangible assets, net 47,296 54,286
Property and equipment, net 7,703 6,977
Other assets 4,097 2,732
----------------------
Total assets $396,672 $401,940
======================
Liabilities and stockholders' equity
Current liabilities:
Short term note payable $589 $904
Accounts payable and accrued expenses 27,660 28,596
Deferred revenue 10,322 13,672
Other current liabilities 5,969 7,202
----------------------
Total current liabilities 44,540 50,374
----------------------
Long term portion of deferred revenue 204 490
Long term note payable 27,830 27,859
Other long term liabilities 17,937 19,991
----------------------
Total liabilities 90,511 98,714
Stockholders' equity: 306,161 303,226
----------------------
Total liabilities and stockholders' equity $396,672 $401,940
======================
ScanSoft, Inc.
Reconciliation of Supplemental Financial Information
(in 000's, except per share amounts)
Unaudited
Three months
ended Six months ended
June 30, June 30,
2004 2003 2004 2003
-------- -------- -------- --------
Non-GAAP Financial Measures:
GAAP Gross Margin 69.0% 73.9% 69.3% 75.5%
Cost of revenue from amortization
of intangible assets 6.1% 9.6% 6.3% 8.5%
-------- -------- -------- --------
Non-GAAP gross margin 75.1% 83.5% 75.6% 84.0%
======== ======== ======== ========
GAAP net loss $(410) $(2,943) $(3,223) $(3,117)
Cost of revenue from amortization
of intangible assets 2,805 2,672 5,621 4,729
Amortization of other intangible
assets 635 423 1,303 784
Restructuring and other charges - 817 801 1,346
Stock based compensation 530 26 849 51
Net income excluding acquisition
related amortization and -------- -------- -------- --------
restructuring charges $3,560 $995 $5,351 $3,793
======== ======== ======== ========
Net income per share, excluding
acquisition related amortization
and restructuring charges: basic $0.03 $0.01 $0.05 $0.06
======== ======== ======== ========
Net income per share, excluding
acquisition related amortization
and restructuring charges:
diluted $0.03 $0.01 $0.05 $0.05
======== ======== ======== ========
Shares used in computing net income
per share, excluding acquisition
related amortization and
restructuring charges:
Weighted average common shares:
basic 107,443 69,383 105,199 68,541
======== ======== ======== ========
Weighted average common and common
equivalent shares: diluted 117,056 81,132 115,328 79,181
======== ======== ======== ========
ScanSoft, Inc.
Reconciliation of Supplemental Financial Information
(in 000's, except per share amounts)
Unaudited
Three months Six months ended
ended
June 30, June 30,
---------------- -----------------
2004 2003 2004 2003
------- -------- -------- --------
Non-GAAP Financial Measures:
GAAP Operating Margin Percentages 1.0% -10.6% -2.9% -5.0%
Plus:
Cost of revenue from amortization of
intangible assets 6.1% 9.6% 6.3% 8.5%
Amortization of other intangible
assets 1.4% 1.5% 1.5% 1.4%
Restructuring and other charges 0.0% 2.9% 0.9% 2.4%
Stock based compensation 1.1% 0.1% 1.0% 0.1%
------- -------- -------- --------
Non-GAAP operating margin 9.6% 3.5% 6.8% 7.4%
======= ======== ======== ========
GAAP Income from operations
Income from operations $481 $(2,960) $(2,482) $(2,811)
Plus:
Cost of revenue from amortization of
intangible assets 2,805 2,672 5,621 4,729
Amortization of other intangible
assets 635 423 1,303 784
Restructuring and other charges - 817 801 1,346
Stock based compensation 530 26 849 51
------- -------- -------- --------
Non-GAAP income from operations $4,451 $978 $6,092 $4,099
======= ======== ======== ========
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This press release and the reconciliation contained herein disclose certain financial measures that may be considered non-GAAP financial measures because they exclude amortization of acquisition-related intangible assets, restructuring charges and non-cash stock compensation. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles in the United States. These non-GAAP financial measures are provided to enhance the user's overall understanding of our current financial performance and our prospects for the future. Management believes that these non-GAAP financial measures present a useful measure of our operating performance because they exclude identified non-cash and restructuring charges. Management uses these measures for evaluating historical performance and for forecasting and planning for future periods. These measures, however, should be considered in addition to, and not as a substitute for, or superior to, other measures of financial performance prepared in accordance with generally accepted accounting principles. The non-GAAP measures included in our press release have been reconciled to the nearest GAAP measure.
Contact Information
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