New Product Introduction Expected to Have Positive Revenue Impact Cash Operating Expenses Down 44 Percent From First Quarter 2001 Updated Outlook for 2002 and Early 2003 KIRKLAND, Wash., May 2 -- ImageX (R), Inc., the leading provider of online solutions for distributing, managing and producing sales and marketing materials today announced revenues of $12.1 million for the quarter ended March 31, 2002, compared with revenues of $14.6 million for the same period last year. Cash operating loss for the quarter ended March 31, 2002 was $3.3 million excluding the non-cash, cumulative effect of change in accounting principle, a one-time lease restructuring charge, and charges for depreciation, amortization and loss on disposal of assets. As of March 31, 2002, ImageX had cash, cash equivalents and short-term investments of $15.4 million, representing a decrease of $2.0 million from December 31, 2001. ImageX President and CEO Rich Begert noted that this week's introduction of the new ImageX.com Channel Marketing System should have substantial positive impact on second half revenue performance. "The ImageX Channel Marketing System will provide new revenue sources for the future and leverage the expertise embodied in our existing technologies. Our goal is to continue to provide customers extraordinary value for their investment and continuing cost savings for their print production programs," Begert said. "The features of the ImageX Channel Marketing System are based on our core competencies: distributed electronic purchasing, custom online catalogs, purchasing and pricing rules, manufacturing and distribution logistics, and financial tracking and settlement. These skills were developed in the design of our ImageX Print System and we are using them in new applications to provide customers more service, more savings and more flexibility for management of channel partners," Begert added. For the first quarter 2002, the company reported a cash operating loss of $4.0 million, or $0.13 per basic and diluted share, after including a one-time lease restructuring charge. For the same period last year, the company reported a cash operating loss on the same basis of $9.9 million or $0.37 per share. For the first quarter of 2002, ImageX recorded a non-cash, transitional impairment loss of approximately $30.2 million ($0.98 per share) as a result of the January 1, 2002 adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which requires that goodwill no longer be amortized to earnings, but instead be tested at least annually for impairment. The company also incurred a restructuring charge of $667,000 ($0.02 per share) related to the renegotiation of a lease on the corporate headquarters office space, which will result in cash savings of $1.7 million over the remaining lease term. Reflecting the effects of the items noted above, the company's net loss, including all non-cash items, was $37.4 million, or $1.21 per share, on 30.8 million weighted average shares outstanding, compared with a net loss of $15.2 million, or $0.58 per share, for the same period last year. Financial Highlights ImageX reported gross profit of $4.3 million for the first quarter of 2002, compared with gross profit of $4.7 million for the same period last year. Gross margin improved to 35.2 percent for the first quarter 2002, compared with gross margin of 31.8 percent for the same period last year. Total operating expenses before depreciation, amortization, and loss on disposal of assets were $8.4 million for the first quarter, compared with $14.9 million for the same period last year, a decline of 43.9 percent. Chief Financial Officer, Robin L. Krueger, said, "Our cash consumption continues to decline in spite of revenue softness and we are closely monitoring our progress toward cash flow breakeven in the first half of 2003." * Operational Highlights * Major actions and initiatives over the quarter included: * Expense performance continues to drive positive results. Operating expenses fell 6.4 percent, excluding one-time lease restructuring charges, compared to the fourth quarter of 2001. "Year over year, operating expenses declined 44 percent, which represents one and a half years of continuing expense reductions," Begert said. Additional declines in operating expenses are expected to be more modest during 2002, as sales and marketing expenses are expanded to support new product introductions and revenue growth. As of March 31, 2002, total team members were 400. * New leadership and redesigned sales force. With the addition of Gary Tidd, Vice President of Sales and Business Development, new sales staffing and processes are being rapidly implemented. A new sales strategy based on enterprise selling, rigorous return on investment analysis, and documented customer cost savings is expected to positively impact revenues. This shift particularly supports all company products including the ImageX Channel Marketing System, ImageX Print System, along with other print and fulfillment services. The existing sales staff of 18 will continue to support sales of the ImageX Print System to existing customers as well as new customers for traditional print products. * Rapid growth of patent portfolio creates new opportunities. ImageX received two patents during the first quarter on its print production technology from the U.S. Patent and Trademark Office. The patents relate to most digital file conversion technologies utilized within an automated print system. In addition, the company has received three Notices of Allowance and has 84 patents pending. "The ImageX print technology is fully protected by the timely filing of our patents. We intend to take all necessary and reasonable steps to ensure that we are compensated for developing this innovative print technology," Begert said. * Operational efficiencies achieved with patented technology. During the quarter we converted approximately $3 million of traditional customer revenue to our automated print production technology. This reduced our direct labor by 64%, reduced plant facilities expense by 46% and increased production throughput by 67%. Using our automated technology could generate $1 million of annualized savings on an estimated $3 million potential revenue. "The productivity improvements we have realized as a consequence of implementing our prepress and file formatting technology have been astounding," stated Begert. "As we continue to improve our operations, we believe other print manufacturers may be able to realize similar gains using our technology." * New product launches fuel growth at Extensis software. New product upgrades and international releases, coupled with a continued sales growth from the Suitcase product line bolstered first quarter revenues. New software introductions include upgrades to Portfolio 6, digital asset management software for creative professional workgroups, and QX-Tools Pro, productivity tools for QuarkXPress users. Revenues have been further supported by high product ratings from influential industry publications including Macworld, Photoshop User, MacUser (UK), and MacFormat (UK). The Preflight Online product was integrated into publishing workflows for both WAM!NET and Cygnus Business Media. Financial Outlook "Our current plans, based on new revenue from the Channel Marketing System and economic recovery in the second half of 2002, support cash flow break-even by the end of the first half of 2003," stated Krueger. "While the last several quarters have been challenging as a consequence of soft economic conditions and the related impact on revenue, expense control has helped continue our progress with improving cash loss per share statistics adjusted for one-time charges." For the balance of 2002, based on weaker than expected revenue performance in the first quarter, we expect modest revenue improvement in the second quarter and more significant revenue improvement in the third and fourth quarters, reaching revised annual 2002 revenue of between $55 and $62 million. Cash operating expenses are expected to continue declining with total cash losses for the year of less than $10 million.