ScanSoft's Third-Quarter Revenues Increase 25%

Operating Income Climbs to $3.1 Million; Company Raises Full-Year Guidance

PEABODY, Mass., - October 24, 2001 ScanSoft, Inc. (Nasdaq: SSFT), a leading provider of paper-to-digital solutions, today announced financial results for the third quarter ended September 30, 2001.

Third Quarter Results
ScanSoft reported revenues for the third quarter of 2001 of $17.1 million, an increase of 25 percent from the same period in 2000. Income from operations for the third quarter of 2001 was $3.1 million versus breakeven in the third quarter of 2000. Net income before intangibles was $3.6 million, or $0.06 per diluted share, compared with a net loss before intangibles of $0.3 million, or $0.01 per share, for the third quarter of 2000. Income from operations and net income exclude amortization of intangible assets. After including this item, ScanSoft reported a net loss of $3.2 million, or $0.06 per share, in the third quarter of 2001 compared with a net loss of $7.1 million, or $0.15 per share, for the third quarter of 2000.

For the first nine months of 2001, ScanSoft reported total revenues of $44.9 million, up 28 percent from revenues of $35.0 million in the first nine months of 2000. Income from operations was $6.0 million, compared with a loss of $7.4 million for the first nine months of 2000. Net income was $6.0 million, or $0.11 per share, versus a net loss of $8.0 million, or $0.20 per share, for the nine months ended September 30, 2000. In both cases, income (loss) from operations and net income (loss) exclude amortization of intangible assets and the effect of a 2000 restructuring charge. After including the effect of amortization and the 2000 restructuring charge, ScanSoft reported a net loss of $14.5 million, or $0.30 per share, in the first nine months of 2001 compared with a net loss of $47.0 million, or $1.15 per share, for the first nine months of 2000.

Comments on the Third Quarter
"This was an exceptional quarter for ScanSoft, particularly when viewed in the context of the uncertain economy," said Paul Ricci, ScanSoft's chairman and chief executive officer. "Year over year we have grown our third-quarter revenues by 25 percent, while improving our operating margins. We also continued to meet our critical product delivery dates and to exceed our cash flow objectives."

"Our third-quarter revenues reflect continued acceptance of OmniPage Pro 11 in the United States and Western Europe and our broad and expanding base of OEM partners, including Microsoft," Ricci added. "While sales in Latin America and Australia were disappointing, they were offset by better-than-expected North American channel revenues and recovery in Europe, fueled in part by the OmniPage Pro launch as well as our sales expansion in Europe."

In the third quarter, businesses and organizations of all sizes and in a variety of markets continued to turn to ScanSoft for paper-to-digital solutions that streamline business processes, reduce expenditures and improve productivity. During the quarter, ScanSoft added a number of organizations to its customer base, including the Internal Revenue Service, Procter & Gamble and AutoDesk, and expanded OEM relationships with partners including Hewlett-Packard, Brother, Konica, Fujitsu and Xerox.

Mike Tivnan, ScanSoft's president and chief operating officer, said, "In the third quarter, we continued to meet internal milestones, including the on-time launch of OmniPage Pro 11 in Europe and PaperPort Deluxe 8.0 in the U.S., and further improved our operating performance. By fully extending our supply chain improvements to Europe, the company improved its gross margin to 80 percent, up two percentage points over Q3 2000. In addition, we continued to reduce expenses while following through on aggressive product delivery and sales expansion initiatives. During the quarter, the Company lowered R&D spending from 28 to 21 percent of revenue over Q3 2000 and, similarly, reduced SG&A expenses from 50 to 40 percent of revenue."

Status of Cash Balances and Stock Buyback Program
At September 30, 2001, ScanSoft reported ending cash balances of $9.3 million and no debt. During the third quarter, ScanSoft repurchased 350,000 shares of the two million share buyback program that was announced on August 22, 2001. "We achieved quarterly improvement in our net cash position despite effectively pursuing our stock buyback program," said Richard Palmer, ScanSoft's chief financial officer. "This improvement was made possible by the continuing strength of our operating cash flows."

2001 Comments and Guidance
"During the fourth quarter, we expect to benefit from all three of our major 2001 product launches - OmniPage Pro 11, PaperPort 8.0, and OmniForm 5.0 - as well as the continuing strength of our OEM relationships and the expanded capacity of our sales organization," Ricci said. "But, while our fourth quarter is traditionally our strongest, the economic uncertainty being faced by all companies today prompts us toward cautious guidance. Therefore, we expect revenues in the fourth quarter to be in the range of $16.5 million to $18.0 million. On the strength of our third-quarter results, we are raising our full-year EPS guidance, before the amortization of intangibles, to $0.16 to $0.18, from $0.11 to $0.15 as previously announced.

Investor Call
In conjunction with this announcement, the Company will conduct its quarterly conference call at 10:00 a.m. (ET) today, October 24, 2001. To listen to the call, please telephone (913) 981-5507 or (800) 289-0436 approximately 10 minutes beforehand. For those who are not available to listen to the live conference call, a telephone replay will be available starting at approximately 1:00 p.m. (ET) on October 24 until 11:30 p.m. (ET) on Wednesday, October 31, 2001. The access number for the replay is (719) 457-0820 or (888) 203-1112; the confirmation number is 594937.

The conference call will also be broadcast live over the Internet. Investors interested in listening to the call should log onto the Company's Web site at www.nuance.com at least 10 minutes prior to the broadcast. Investors will also have access to an archived version of the call on the Company's Web site.

About ScanSoft, Inc.
Headquartered in Peabody, Mass., with European headquarters in The Netherlands, ScanSoft, Inc. (Nasdaq: SSFT) is a global leader in paper-to-digital solutions for desktop, network, Internet and mobile environments that enable users to leverage the power of their scanners, digital cameras and other electronic devices. ScanSoft's award-winning product line - OmniPage Pro, TextBridge Pro, PaperPort Deluxe, Pagis Pro, OmniForm, eOmniForm, and numerous software developer's kits - enables users to capture, recognize, edit, manage and share documents and photos electronically by taking advantage of ScanSoft's cutting-edge technology.

ScanSoft has established numerous strategic partnerships with the industry's leading scanner and multifunction vendors to deliver the most comprehensive and cost-effective solutions for its customers. Vendors who have chosen ScanSoft's cutting-edge products and technologies include Brother, Canon, Epson, Fujitsu, Hewlett-Packard, IBM/Lotus, Mustek, Primax, Sharp, Symantec Corporation, Visioneer, Xerox and others. ScanSoft's leading technologies have been licensed by Microsoft for use in Office XP and other future products.

ScanSoft software is sold, marketed and supported worldwide through retail, dealer and OEM channels and the Internet, capturing the small to medium size business and corporate markets. There are more than 8 million registered users of ScanSoft products. ScanSoft can be found on the Web at www.nuance.com.

Trademark reference: ScanSoft, OmniPage, OmniPage Pro, TextBridge, PaperPort, PaperPort Deluxe, Pagis, OmniForm, eOmniForm, and Developer's Kit 2000 are registered trademarks or trademarks of ScanSoft, Inc., in the United States and/or other countries. All other trademarks and trade names are hereby recognized and may be registered to their respective holders.

Safe Harbor Statement: 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 the Company's expectations: fourth-quarter 2001 revenues of $16.5 million to $18.0 million and earnings per share, before amortization of intangible assets, of $0.16 to $0.18 for the full year 2001. These statements are based on ScanSoft's current expectations and estimates as to prospective events and circumstances that 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, economic conditions in the U.S. and abroad, the ability to complete an deliver products and services within currently estimated time frames and budgets, the ability to effectively manage diverse and geographically dispersed operations, difficulties with integrating product plans, schedules and resources, difficulties in implementing 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.