DSET's Q2 Net Income Increases
232%; Revenues Up 78%
Sales to CLECs up 443%
Bridgewater, NJ - July 25, 2000 - (Nasdaq: DSET) - DSET
Corporation today reported record second-quarter net income
and revenues. This was the company's twenty-ninth consecutive
profitable quarter.
Net income for the quarter ended June 30, 2000 amounted to
$2.2 million or $0.18 per share, assuming dilution, as compared
with $653,000, or $0.06 per share, assuming dilution, for
the quarter ended June 30, 1999. The weighted average number
of fully diluted common shares outstanding in each period
was 12.2 million and 11.8 million, respectively.
For the second quarter of 2000, total revenues amounted to
$16.2 million, as compared with $9.1 million for the same
period in 1999, a 78.0% increase. For the second quarter of
2000, license revenues accounted for $12.2 million, or 75.2%
of total revenues, and service revenues accounted for $4.0
million, or 24.8% of total revenues. For the same period in
1999, license revenues accounted for $5.2 million, or 57.5%
of total revenues, and service revenues accounted for $3.9
million or 42.5% of total revenues.
Of total revenues, $12.0 million, or 74.2%, came from sales
to competitive local exchange carriers (CLECs) and an application
service provider (ASP). This is an increase of 443% over the
$2.2 million in sales to CLECs in the second quarter of 1999.
Geographically, revenues from North America comprised 97.2%
of total revenues.
Gross margin for the quarter was 78.7% versus 73.8% for the
first quarter of 2000 and 79.0% for the second quarter of
1999. Gross margin for license revenues was 92.6% in the second
quarter compared to 90.1% in the first quarter of this year
and 94.7% in the same quarter of 1999. Gross margin for service
revenues was 36.6% in the second quarter of 2000 compared
to 36.2% for the first quarter of this year and 57.7% in the
second quarter of 1999.
Net income for the six months ended June 30, 2000 was $3.1
million or $0.26 cents per share, assuming dilution, as compared
to $1.2 million or $0.11 cents per share, assuming dilution,
last year.
Revenue for the six-month period increased 67.7%
to $27.8 million as compared to $16.6 million in the prior
year. License revenue was $20.3 million, or an increase of
116.0% for the six-month period, and service revenue was $7.5
million, or an increase of 4.7% as compared to the prior year.
Quarterly Analysis
Record Number of Facilities-Based CLEC Customers
DSET won 8 facilities-based CLECs and one ASP during the
quarter. Over the past year, we have averaged 5 new facilities-based
CLECs per quarter. It is this group of customers that represents
the greatest revenue potential for DSET.
Repeat Sales to Existing Customers
Four CLECs that had already installed DSET interconnection
gateways purchased additional products from us in the quarter
to meet their respective business needs. These carriers either
purchased additional gateways or our applications that enhance
sales-force productivity or qualify the "DSLability"
of local loops for potential customers.
DSET and MetaSolv Software
Of the 8 new facilities-based CLECs that purchased DSET gateways
in the quarter, 7 will be installing, or have already installed,
MetaSolv Software, Inc.'s Telecom Business SolutionTM
(TBSTM) order management
and service fulfillment solution integrated with their DSET
solutions. With the addition of these sales, 31 CLEC customers
in our total base of 41 have now purchased both DSET gateways
and MetaSolv's TBS software to facilitate the flow-through
processing of orders between the CLECs and their trading partners.
Transition Strategy Results in Strong Sequential CLEC Sales
Growth
Revenues from CLECs for the second quarter of 2000 were $12.0
million compared to $7.0 million for the first quarter of
the year, a 71% increase. This strong sequential growth is
encouraging as we gain momentum in the electronic-bonding
gateway market and move almost completely out of the market
for application development tools and certain number portability
applications used in the SS7 network. A key benefit of this
strategy is that we can redeploy a significant amount of engineering
talent to our increasingly profitable gateway products.
Strong License Sales
Our strong license sales for the quarter reflect the current
dominant position of DSET gateway solutions in the CLEC market
and increasing demand for our products. As we exit the markets
for software tools and some number portability applications,
service revenues generated by maintenance and custom development
efforts in these market segments will continue to decline.
We expect this decline to be offset by CLEC service revenues
(maintenance), which normally begin 6 to 9 months after a
product is sold.
Operating Performance
Gross margins for license revenues of 92.6% were in line
with expectations. Service gross margins at 36.6% were in
line with previously forecast levels.
We believe that service margins should recover to the 40%
to 50% range in the second half of the year as we see additional
revenue from CLEC installation services and maintenance, as
well as the reduced cost of installations. We continue to
believe that our higher than expected license sales will continue
to offset lower service margins.
Operating income increased to more than 16% of revenues in
the second quarter of 2000 from 6.0% of revenues in the second
quarter of 1999.
Operating expenses as a percentage of revenues declined to
62% in the second quarter of 2000 as compared to 73% in the
second quarter of 1999.
Continued DSO Improvements
Days sales outstanding (DSOs) for the second quarter of 2000
were 108, continuing the downward trend from year-end 1999.
Additionally, in early July, several customers made payments
due in June that reduced DSOs by the equivalent of 12 days.
The benefits of revised contracts and accelerated installation
procedures are being realized and reinforce our belief that
we will be able to reach our previously stated goal of a DSO
target range of 85 to 95 days by the end of the year.
Unbilled receivables continued to decrease, being $3.4 million
in the second quarter of this year compared to the $3.8 million
we reported for the first quarter of 2000.
Percentage of completion (POC) sales were 13% for the second
quarter as compared to 20% in the first quarter of 2000 and
our historical average of 30% per year.
The ASP Model for CLECs Starts to Take Shape
A key element of our strategy in the competitive telecom
market is to enable CLECs and DLECs to gain the benefits of
our software through application service providers if that
is their choice of business models. During the quarter, we
signed up an ASP that has aggressive plans to offer interconnection
services via DSET gateways as well as related ordering and
billing services. On July 25, NetworkOSS, Inc. announced that
they had chosen DSET's gateways for use in their ASP. This
is an additional ASP signed up since the end of the second
quarter. We expect that as many as 5 ASPs will have chosen
to use DSET gateways by the end of 2000.
We expect that the revenue generated from our ASP partners
will be incremental to our revenue plans, starting with a
small increase in 2001 and building steadily in 2002.
DSET is thus making it possible for carriers to "have
it their way" when it comes to setting up the software
infrastructure necessary to rapidly and efficiently turn on
new phone services for their customers. They can either hire
an IT staff and manage the gateways internally, or outsource
gateway management to an ASP of their choice. In either case,
both the customer and DSET will benefit.
DSET Targets the Canadian CLEC Market
In the second quarter, we contracted for the exclusive distribution
rights to a suite of electronic-bonding gateways from Daleen
Technologies that are designed to meet the technical requirements
of the Canadian telecommunications market. We believe there
will be 50 to 60 Canadian CLECs that will be prospective customers
for these gateways over the next 24 months.
The newly deregulated, growing telecom market in Canada gives
us an excellent opportunity to achieve the goal of expanding
our geographical product coverage. We will also establish
a subsidiary, DSET Canada, and open an office in Toronto to
better serve our Canadian customers with product enhancements
as well as technical-support, installation, training, and
field-engineering services.
In addition to expanding our geographical coverage, we believe
that offering these gateways for the Canadian market will
enhance our relationships with MetaSolv Software and other
alliance partners. By extending our coverage geographically
with a new set of DSET products, we will also expand the opportunities
for us to leverage each other's business and customer relationships.
Looking Forward
"We are very pleased with our results for the second
quarter, especially given that they reflect the costs associated
with our strategy to transition out of DSET's legacy businesses
into new and more profitable software solutions designed for
an ever increasing number of competitive carriers," said
Bill McHale, president and chief executive officer of DSET.
"The transition into these new markets continues to move
forward with increasing momentum and success.
"Our growing customer base, the relationship we have
built with MetaSolv, our move into the ASP market, and our
expansion into Canada all strengthen our competitive position.
These achievements encourage us to continue saying that we
are comfortable with the outlook for our products and services
over the next few years."
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 rapidly
sell, provision and maintain a growing range of services for
customers in the competitive telecom market. 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.
MetaSolv is a registered trademark, and MetaSolv Software
and TBS are trademarks of MetaSolv Software, Inc.
All other trademarks are the property of their respective
owners.
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