DSET Reports Financial Results
for First Quarter
Bridgewater, NJ - April 26, 2001 - (Nasdaq: DSET) - DSET
Corporation today reported financial results for the first
quarter ended March 31, 2001.
For the first quarter of 2001, total revenues amounted to
$3.4 million, as compared with $5.3 million in the fourth
quarter of 2000 and as compared to $11.6 million for the first
quarter of 2000.
Sales to the competitive service providers (CSPs) —including
cable companies, independent LECs, CLECs, and utility companies—
that comprise our primary customer base were up 17% sequentially,
or $2.8 million in the first quarter of 2001 compared to $2.4
million in the fourth quarter of 2000.
For the first quarter of 2001, license revenues accounted
for $1.5 million, or 44.5% of total revenues, and service
revenues accounted for $1.9 million, or 55.5% of total revenues.
The loss for the quarter before restructuring and other charges
was $7.5 million, or a loss of $0.64 per share on a basic
and diluted basis, as compared with net income of $921,000,
or $0.08 per share on a diluted basis, for the quarter ended
March 31, 2000. In addition to the losses noted above, the
company recognized restructuring and other charges of $3.4
million, or $0.29 per share. This resulted primarily from
discontinuing the company's Canadian operations and the costs
associated with writing off its Canadian product licenses.
It also included additional charges for the costs of further
consolidation of operations in the United States.
The weighted average number of basic and diluted common shares
outstanding for the first quarter of 2001 was 11.6 million
and the number of diluted common shares for the first quarter
of 2000 was 12.1 million.
First-Quarter Analysis
We won a major contract from Cox Communications valued at
over $2 million. One of the largest telecommunications providers
in the U.S., Cox is a financially sound, growing company that
continues to be successful despite the turmoil in the telecom
sector. Cox is an example of the type of competitive service
provider that we are targeting as a potential customer for
our electronic-bonding gateways.
While the revenue numbers we've reported for the quarter
are low, we expected this. We have based our internal plan
for 2001 on benefiting from a small increase in capital spending
by our customers in the third and fourth quarters of this
year. Consequently, $3.4 million in revenues for the first
quarter is close to the expectations set under our plan.
In the area of expense management, we took significant additional
steps in the quarter to re-size the company and focus on developing
and selling gateways to competitive service providers in the
United States. Our approach was to ensure that we could live
up to the agreements that we had made with our customers in
the United States and Canada. Secondly, we wanted to be able
to continue to enhance our products so that we could maintain
our competitive position and win new accounts during this
year and next.
In addition to closing on the sale of our Chinese subsidiary
in exchange for partial ownership in the acquiring company,
we also closed our Canadian subsidiary's facility in Toronto,
as we did not believe that the reduced revenue potential from
Canadian CSPs would translate into profits.
These actions, coupled with attrition and additional reductions
in employee headcount in the first quarter, should enable
us to end April 2001 with approximately 175 people. We had
approximately 320 employees on December 31, 2000.
Looking Forward
From a product development perspective, we continue to make
excellent progress with moving our gateways over to our Java-based
Next Generation Platform. Utilizing software-industry standards
but enriched by our own expertise, this is the software base
upon which we plan to expand our business, whether it is to
Europe or to different industries within the United States.
Feedback from customers, potential OEM partners, and prospects
has been very positive.
We plan to release at least 18 new versions of our products
by the end of the year, including a major upgrade to our ezLocal
gateway, which has already been deployed by many competitive
service providers across the U.S. We are also exploring the
enterprise market, as the largest companies have extensive
telecommunications networks and need to communicate efficiently
with their service providers.
We continue to make progress in our partnership with Siebel
Systems. We believe that the interface between our trouble
administration gateway and their customer relationship management
(CRM) system will be validated in the second quarter of this
year. Our competitors do not have a product comparable to
our ezTroubleAdmin gateway and we believe that there is also
the potential for interfacing other DSET gateways with Siebel's
CRM software.
We have debated whether or not to provide guidance for 2001
because there is so much uncertainty about the capital spending
outlook for our customer base. With our stock trading at just
above $1 per share, we believe our investors have concluded
that the market for our gateway products may be too limited
due to the challenges faced by competitive service providers.
Therefore, with this in mind, we have decided to give guidance
regarding what we believe is achievable this year.
Looking back to mid-year 2000, we thought at the time that
sales to competitive service providers could produce $80 million
to $90 million in revenues in 2001. We now see the potential
to generate between $20 million and $25 million in revenues
from this market. This assumes that there is limited revenue
in the second quarter and that business picks up in the third
and fourth quarters.
To break even at our current expense levels, we estimate needing
$10 million of quarterly revenue. We anticipate approaching
this level in the fourth quarter of this year and will continue
to look for new ways to increase revenues and reduce operating
expenses while achieving our longer-term goals. The projected
loss for 2001 before restructuring and other charges at the
revenue levels mentioned above could be between $15 million
and $20 million.
At the low end of our projected revenue range ($20 million),
we could end 2001 with approximately $14 million in cash.
At the high end, we could end with about $19 million. This
assumes no cash outlays for acquisitions or other unanticipated
events.
Is this achievable? We think so. We started the year with
a backlog of more than $6.5 million and have already picked
up another $2 million to $3 million. Is there $10 million
to $15 million in business in the gateway market in the remaining
months of 2001? We believe so.
We have surveyed most of our prospective customers and more
than 40 indicated that they would like to purchase gateways
over the next 6 to 12 months. Will their cash position during
this period allow them to invest in gateways? We can't be
sure at this time.
We see electronic-bonding gateways as one product line among
many if we are successful in expanding our suite of solutions
via acquisitions or the development of new products internally.
We continue to explore the possibility of partnering with
private OSS companies that have recognized that their valuations
are dramatically reduced and their chances for an IPO may
be limited for the foreseeable future. We believe that we
can produce a greater return to shareholders over the next
few years if we pursue a selective expansion strategy in the
OSS space rather than try to sell the company in the short
term.
We have been a company that has refocused itself many times
to take advantage of the changing landscape in the telecom
industry, and we plan to continue to do the same over the
next few years. Through the second quarter of 2000, we had
29 consecutive quarters of profitability and we are working
diligently to get back on that track.
Conference Call on Friday, April 27, 2001
A conference call will be held at 11:00 AM Eastern Time on
April 27 during which the quarter's results will be discussed
by William P. McHale, Jr., DSET's chairman, president and
chief executive officer, and by Bruce M. Crowell, vice president
and chief financial officer of DSET.
Investors can listen to a live Webcast of the conference call
at www.StreetFusion.com. The DSET Web site, www.dset.com,
will also have a direct link to the conference-call broadcast
at this site. Listeners should go to the Web site at least
15 minutes prior to the call to download and install any necessary
audio software.
For those who cannot listen to the live Webcast, the teleconference
will be archived on both the DSET and StreetFusion sites for
30 days. In addition, you may also listen to the playback
of the call after 2:30 PM by dialing 1-800-475-6701, access
code 583386 through May 4, 2001.
About DSET
DSET is a leading supplier of software known as electronic-bonding
gateways that enable competitive service providers in the
telecommunications industry to implement an automated Trading
Partner Network (TPN). A TPN plays a critical role in lowering
the cost of acquiring customers, reducing the amount of time
required to turn on services for new customers, and minimizing
the time required to resolve service outages to ensure higher
customer satisfaction and less customer turnover. DSET provides
the installation, training, interoperability-testing, and
maintenance services needed to put TPNs into production and
maintain efficient operation. 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:
Financial: Bruce Crowell, Chief Financial Officer,
908-526-7500 Ext. 1775, e-mail bcrowell@dset.com
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.
All other trademarks are the property of their respective
owners.
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