DSET's Net Income Up 61%; Revenues Up 55%
Results Driven by Sales to CLECs and DSL Providers
Bridgewater, NJ - April 20, 2000 - (NASDAQ: DSET) - DSET
Corporation, a leading supplier of business-to-business e-commerce
connectivity solutions for the telecom industry, today reported
record first-quarter net income and revenues. This was the
company's twenty-eighth consecutive profitable quarter.
Net income for the quarter ended March 31, 2000 amounted
to $921,000, or $0.08 per share, assuming dilution, as compared
with $572,000, or $0.05 per share, assuming dilution, for
the quarter ended March 31, 1999. The weighted average number
of fully diluted common shares outstanding in each period
was 12.1 million and 11.3 million, respectively.
For the first quarter of 2000, total revenues amounted to
$11.6 million, as compared with $7.5 million for the same
period in 1999, a 55.1% increase. For the first quarter of
2000, license revenues accounted for $8.1 million, or 69.8%
of total revenues, and service revenues accounted for $3.5
million, or 30.2% of total revenues. For the same period in
1999, license revenues accounted for $4.2 million, or 55.6%
of total revenues, and service revenues accounted for $3.3
million or 44.5% of total revenues. Accordingly, compared
to the first quarter of 1999, license revenues increased 94.9%
and service revenues rose 5.4%.
Of total revenues, $7.0 million, or 60.2%, came from sales
to competitive local exchange carriers (CLECs) and data local
exchange carriers (DLECs), with the balance coming from sales
to network equipment vendors. Geographically, revenues from
North America comprised 95.6% of total revenues.
Gross margin for the quarter was 73.8% versus 79.3% in the
prior year. Gross margin for license revenues decreased to
90.1% in the first quarter from 93.2% in the same quarter
in 1999. Gross margin for service revenues decreased to 36.2%
in the first quarter of 2000 from 61.9% in the same quarter
of 1999.
Quarterly Analysis
Record Number of New Customers
DSET won a record number of 10 new customers in the quarter,
all competitive service providers, which raised our total
of such customers to 33. Our performance for the quarter and
growth in our pipeline reinforce our belief that this emerging
market is finally picking up steam.
The new customers for the quarter included three DLECs and
seven CLECs. This is evidence of the initial success of our
strategy to provide solutions for DLECs as well as providing
our CLEC customers with the same DSL-based solutions.
Strong Year-Over-Year and CLEC Order Growth
Our 55% growth over Q1 1999 was driven by an approximate
400% increase from our 33 CLEC and DLEC customers. Even though
our revenues are down sequentially, as has been our seasonal
pattern, the $7.0 million in revenues from CLECs and DLECs
was part of $11 million in new orders taken from this group
of customers during the quarter. Given these trends, we believe
that we are on the threshold of consistent sequential growth
in CLEC and DLEC revenues as a result of our strong competitive
position in this marketplace. As expected, revenues from our
application tools business declined 39% from the first quarter
of 1999 and 45% from the fourth quarter of 1999.
Stronger Mix of License and Service Revenues
License sales accounted for 70% of our revenues for the quarter,
which reflects the fact that virtually all of our products
previously under development are now shipping. As we go forward,
we expect that license sales will generate 60% to 70% of our
revenues for the year. The corresponding decrease in the percentage
of service revenues reflects our move away from doing custom
development work.
Operating Performance
· Operating income increased to 8.9% of revenues in
the first quarter of 2000 from 4.9% of revenues in the first
quarter of 1999.
· Operating expenses as a percentage of revenues were
64.9% in Q1 2000 compared to 74.4% in Q1 1999.
· Service margins at 36.2% were driven lower by higher
implementation costs arising from the use of third-party resources
and other support costs associated with satisfying customer
requirements within a compressed time frame.
· We expect near-term improvements in hiring and training
of DSET employees will reduce the need to use third-party
resources for the implementation of our products.
· We believe that revenues from maintenance contracts
should ramp up in the middle of the year as new CLECs deploy
our products in their operating environments.
· We anticipate that quarterly services margins will
increase to the 40% to 50% range by the third quarter.
· We believe that higher sales and lower operating-expense
ratios over the remainder of the year will offset any higher
customer-support costs incurred in the first half of the year.
Accounts Receivable Lower, DSOs Trending Down
Accounts receivable collection and days sales outstanding
(DSOs) are areas where we made considerable progress during
the quarter. This was accomplished through a concerted effort
to improve our collection process, negotiate more advantageous
contract provisions, and have our sales teams work more closely
with customers to ensure cash collection.
· Total accounts receivable were reduced from $20.1
million as of December 31, 1999 to $14.4 million as of March
31, 2000, a 28% reduction.
· DSOs were reduced to 113 days as of March 31, 2000
compared to 122 days as of December 31, 1999.
· Unbilled receivables were $3.8 million as of March
31, 2000 in contrast to $4.8 million for the previous quarter,
a 21% reduction.
· Percentage of completion (POC) sales, which drive
unbilled receivables, were 20% of revenues for the first quarter
of 2000 compared to a historical average of 30%. POC sales
are expected to be less than 10% of total revenues by the
end of the third quarter.
· Deferred revenues increased by 92% to $3.3 million
as of March 31, 2000 as compared to $1.7 million as of December
31, 1999, mainly as a result of pre-paid maintenance contracts
received in the quarter.
The accomplishments noted above contributed significantly
to our $7.7 million increase in cash and marketable securities
for the quarter.
We believe that we have reversed the rising trend in DSOs
that we experienced in 1999. By the end of the third quarter,
we expect our DSOs to drop to between 85 and 95 days.
Partners Played a Key Role
Our alliances with leading software suppliers and systems
integrators was another key factor for success in the quarter.
· Our partnering with MetaSolv at various levels has
contributed significantly to the fact that over 60% of DSET's
customers now use our electronic-bonding gateways in combination
with MetaSolv's Telecom Business SolutionTM
(TBSTM) order management
and service fulfillment solution.
· DSET is developing solutions with Vitria Technology
to automate the exchange of data between DSET gateways and
Vitria's BusinessWare® eBusiness platform to facilitate
integration with virtually any operations support system (OSS)
deployed by a CLEC. Additionally, the companies are working
together to provide a complete flow-through provisioning solution
for DLECs and ISPs in the DSL market.
· Under the terms of a multi-year agreement with Mercator®
Software, DSET has been licensed to embed Mercator Enterprise
Broker in DSET gateways as part of the overall solution for
electronically interconnecting competitive service providers
with a variety of trading partners.
· KPMG Consulting has selected DSET software products
for the operations support system (OSS) architecture that
KPMG recommends to competitive carriers. The DSET solutions
will be demonstrated to potential customers at KPMG's Digital
Broadband Solutions Centers nationwide.
· Agreements with systems integrators, including ADC
Telecommunications and Danet Inc., will provide our customers
with the comprehensive integration services needed to deploy
DSET's electronic-bonding solutions at their sites.
New Products Announced and Shipping
In the first quarter, DSET announced new products and began
shipping new releases of existing products.
· We announced the ezDSL Leads Qualification System,
which can greatly increase the efficiency and economy of DSL
sales and marketing efforts. This is the first in a suite
of products to automate sales and provisioning processes for
DSL providers and will ship in June 2000.
· A new version of DSET's ezLocal (LSR) ordering gateway
shipped during the quarter and offers CLECs the advantages
of UNE-P operation. Trading partner interfaces are now shipping
for seven of the eight major incumbent local exchange carriers
(ILECs).
· The latest version of the ezAccess (ASR) gateway
for ordering special high-capacity circuits became operational
at a major CLEC. Trading partner interfaces are now shipping
for all major ILECs.
· New versions of DSET gateways that support local
number portability (LNP) as well as 911, calling card, and
caller ID services were also shipped during the quarter, all
of which are integrated with MetaSolv's Telecom Business Solution
(TBS) system. Trading partner interfaces are shipping for
all of these products.
· We also started shipping our ezTroubleTicket gateway
as an off-the-shelf product during Q1. This product includes
a well documented API that enables integration with customer-care
systems from Clarify, Siebel, and other suppliers.
· Our ezLongDistance (PIC) gateway went into operation
at a key CLEC site.
Looking Forward
"Our experience during the first quarter reaffirms our
belief that we can more than double our CLEC business in 2000,"
said Bill McHale, DSET's president and chief executive officer.
"We've entered the DSL market and have already won customers
in this important telecom segment, reinforcing the optimism
we have regarding its potential for the future. We will also
work with our strategic partners to maximize the options that
our customers have for using DSET products.
"Our goal is to ensure that customers can get 'connected
by DSET,' based on their own operating strategies. If they
want to build an internal IT organization or outsource electronic-bonding
to an ASP or clearing house, we'll help them get it done 'their
way.'"
About DSET
DSET Corporation is a leading provider of business-to-business
e-commerce connectivity solutions for the global telecommunications
marketplace. The DSET suite of electronic-bonding gateways
is designed to interconnect the operations support systems
(OSSs) of service providers that must exchange information
and share network capabilities with trading partners to provision
and maintain a growing range of services for customers in
the competitive telecom market. DSET's local number portability
solutions play a key role in enabling business and residential
customers to change service providers without changing their
local phone numbers. DSET is headquartered in Bridgewater,
New Jersey, and the company's Web site can be viewed at www.dset.com.
Statements regarding financial matters contained in this
press release, other than historical facts, are forward-looking.
Since all statements about DSET's plans, estimates, and expectations
are based on current projections that involve risks and uncertainties,
and are subject to change at any time, the company's actual
results may differ materially from expected results. Investors
should consider these risks and uncertainties, which are discussed
in documents filed by DSET with the Securities and Exchange
Commission. These documents identify important factors that
could cause the actual results to differ materially from those
contained in the projections or forward-looking statements.
DSET expressly disclaims any obligation to update any forward-looking
statements.
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DSET Contacts:
Media Relations: Dean Maskevich, Marketing Communications,
908-526-7500 Ext. 1366, e-mail: dmaskevi@dset.com
Investor Relations: John P. Murphy, Westfield Investor Relations,
908-233-1558, e-mail: westfieldir@worldnet.att.net
DSET and the DSET logo are registered trademarks of DSET
Corporation.
MetaSolv is a registered trademark, and MetaSolv Software,
Telecom Business Solution, and TBS are trademarks of MetaSolv
Software, Inc.
BusinessWare is a registered trademark of Vitria Technology
Inc.
Mercator is a registered trademark of TSI International Software
Ltd., DBA Mercator Software.
All other trademarks are the property of their respective
owners.
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