ScanSoft Announces Return to Profitability in Fourth Quarter

Fourth Quarter Revenues Up 62% Over Prior Year

PEABODY, Mass., - February 13, 2001 - ScanSoft, Inc. (Nasdaq: SSFT), a leading provider of paper-to-digital solutions for desktop, network and corporate workgroups, today announced financial results for the fourth quarter and the full year ended December 31, 2000.

Fourth Quarter Results
ScanSoft's total revenues for the fourth quarter of 2000 increased 62% to $14.0 million, compared to revenues of $8.6 million in the same period of 1999. Year-over-year revenue growth for the fourth quarter was fueled by growth in Europe and higher worldwide OEM activity benefiting from a broader product portfolio. ScanSoft reported net income before amortization of intangible assets of $0.4 million, or $0.01 per diluted share, compared to net income of $0.6 million or $0.02 per diluted share, for the fourth quarter of 1999. After including the effect of the amortization item, ScanSoft reported a net loss of $6.2 million, or $0.13 per diluted share, compared to a net loss of $19 thousand, or $0.00 per diluted share for the fourth quarter of 1999.

Comments on the Fourth Quarter
"Sequential revenue growth over the third quarter resulted from the successful introduction of PaperPort in Europe, higher OEM revenues from new accounts including our OmniForm agreement with Hewlett-Packard and growth in our corporate licensing efforts," said Richard Palmer, chief financial officer of ScanSoft. "We are pleased that the Company was able to increase revenue and operating profits over the third quarter despite a slowdown in PC and scanner sales in North America. Expenses continued to decline reflecting the full benefit of the cost reduction actions implemented earlier in the year."

Full year 2000 Results
For the full year 2000, total revenues increased 55% to $49.1 million compared to revenues of $31.6 million in 1999. ScanSoft reported a net operating loss (before acquired in-process R&D, amortization of intangible assets, restructuring and other charges, and unusual items) of $7.6 million, or $0.18 per diluted share, compared to net income of $2.6 million, or $0.08 per diluted share, a year ago. Including the effects of acquired in-process R&D, amortization of intangible assets, restructuring and other unusual charges, the Company reported a net loss of $53.3 million, or $1.26 per diluted share, for the full year 2000, compared to a net loss of $2.7 million, or $0.11 per diluted share, a year ago.

Comments on 2000
"Our fourth quarter results demonstrated meaningful progress at the completion of what proved to be a difficult year for ScanSoft," said Paul Ricci, chairman and CEO of ScanSoft. "ScanSoft acquired Caere to accelerate both revenue and profit growth with the combined product lines and sales resources of the two companies. Post-transaction disruptions caused delays in the release dates of key products and logistical issues associated with integrating the channel activities. During the second half the senior management team focused on four critical actions to recapture the acquisition benefits: (a) establishing firm release dates in 2001 for our major products; (b) reducing expenses through further cost synergies; (c) completing the strategic agreement with Microsoft for TIFF-FX; and, (d) hiring additional sales personnel to expand our sales coverage. In 2001, we plan to consolidate these operational gains, leverage our extensive product investments of the past 18 months, and execute on the central elements of our growth agenda."

2001 Focus

The Company's objectives for 2001 are:

1. Increased revenue growth from ScanSoft's core products, driven by a major new release in each segment. The Company will have major new product releases for its OCR, paper management and electronic forms product lines all within this calendar year;
   
2. Continued expansion of ScanSoft's sales channel, with the addition of 15 sales people targeted at direct licensing opportunities, expanding the Company's VAR channels, and extending the Company's geographical coverage in Southern Europe, Latin America and the Pacific Rim;
   
3. Increased productivity through operational efficiency, including a project underway to streamline key business processes around a unified ERP system, the further migration of sustaining engineering to ScanSoft's Budapest subsidiary, and the elimination of certain channel and non-selling marketing expenses; and
   
4. Accelerated investments in Internet and mobile solutions, including the introduction of a second Internet service targeted at small and medium sized businesses and certain vertical segments, as well as mobile solutions for OmniForm and PaperPort.

2001 Revenue/Profit Guidance
The Company will provide revenue and profit guidance for the full year 2001 during the investor call tomorrow.

Investor Call
ScanSoft will hold an investor conference call at 11:00 a.m. (ET) tomorrow to discuss the Company's results. To listen to the call, please call (913) 981-4910 approximately 10 minutes prior to the start of the call. For those who are not available to listen to the live conference call, a replay will be available via telephone starting at approximately 2:00 p.m. (ET) February 14th until 11:30 p.m. (ET) on February 18th. The access number for the replay is (888) 203-1112 or (719) 457-0820; confirmation number 504284. 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.scansoft.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, MA with European headquarters in the Netherlands, ScanSoft, Inc. (Nasdaq:SSFT) is the leading developer of paper-to-digital solutions that enable users to leverage the power of their scanners, digital cameras and other electronic devices. ScanSoft's award-winning product line - PaperPort Deluxe, Pagis Pro, TextBridge Pro, OmniPage Pro, OmniPage Pro Scan Suite Plus, OmniForm, eOmniForm, Paper Converter, Kai's PhotoSoap2, Kai's SuperGoo, Kai's PowerShow, PhotoFactory, 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 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 10 and other future products. ScanSoft continues to cultivate and develop strategic partnerships to deliver the most comprehensive and cost-effective solutions for its customers.

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 6.5 million registered users of ScanSoft products. ScanSoft can be found on the Web at www.scansoft.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 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.

ScanSoft, TextBridge, Pagis Pro, PaperPort Deluxe, Paper Converter, OmniPage, OmniForm, eOmniForm, Developer's Kit 2000, PhotoFactory, Kai's PhotoSoap2, Kai's Power Show, and Kai's SuperGoo 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.

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