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ScanSoft Announces Second Quarter 2004 Results
Monday August 9, 4:12 pm ET
PEABODY, Mass.--(BUSINESS WIRE)--Aug. 9, 2004--
Record Revenue in Network and Embedded Speech, Momentum in
PDF Fuel Strong Performance; Continued Synergies Improve Operating
Margins
ScanSoft, Inc. (Nasdaq: SSFT - News), 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(TM) 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: |
