Highlights
Woodland Hills, CA, February 4, 1999--Vertel®Corp.
(Nasdaq:VRTL),
a leading supplier of telecommunications network management software, reports
revenues for the quarter ended Dec. 31, 1998, of $3.5 million, compared
with revenues of $5.1 million for the same quarter in 1997. Loss from operations
for the fourth quarter 1998 excluding a one-time gain on the sale of securities
was $2.5 million, compared with an operating loss from continuing operations
of $1.5 million in the year ago quarter. Results for the 1997 fourth quarter
included a charge of $1.5 million for restructuring expenses.
As previously announced, during the quarter the company sold its holdings of Series B and Series C preferred stock in Sonoma Systems for approximately $10.3 million. As a result, Vertel recorded a gain on the sale of the securities of $7.6 million. Net income, including the gain on sale, was $6.1 million, or $0.24 per diluted share. In the fourth quarter of 1997, Vertel reported a net loss from continuing operations of $1.4 million, or ($0.06) per share, including the $1.5 million in restructuring expenses.
Fourth quarter 1998 margins were adversely impacted by lower license revenues and lower consulting service revenues that resulted primarily from deferrals of customer orders, as previously announced. Revenues from both licenses and services are expected to rebound in the first quarter 1999, when the company expects that several of these orders and other transactions will be realized. As a result, margins are also expected to rebound to recent historical levels.
During the quarter Vertel also recognized approximately $850,000 classified as other income which was related to the assignment of certain contracts in connection with the company's sale of CDPD and pACT technologies to AMP Inc.
The sale of Sonoma securities nearly doubled the company's cash balance, to $20.5 million as of Dec. 31, 1998.
"Selling the majority of our investment in Sonoma Systems significantly enhanced our balance sheet," said Gordon Almquist, Vertel's vice president of finance and chief financial officer. "The sale provided us with substantial working capital for both the expansion of our core business in the delivery of standards based, turnkey telecommunications network management software solutions and the acquisition of technologies to support our entry into new markets."
During the year, the company made significant strides in growing its business base. Vertel quadrupled the number of carrier customers using its products and services to build network and service-level management solutions. The company doubled its accounts with independent software vendors (ISVs) that use Vertel platforms for provisioning, service activation and service assurance solutions.
Vertel also strengthened its strategic alliances with key industry leaders
such as Hewlett-Packard and Microsoft Corp. Worldwide demand for the jointly
developed HP/Vertel OpenView Telecom TMN suite was robust, with more than
20 new customers and the revenue stream from HP gaining momentum. Vertel
also witnessed its Microsoft NT server-based platforms increase with over
25 new customers for the year.
"Vertel will focus on broadening the mediation and element management solutions portfolio for the access and backbone technology markets, which are expected to be among the industry's fastest growing," said Brown. "The vast deployments of digital subscriber loop and fiber backbone technologies are creating substantial demand for our highly interoperable management software to hasten delivery of services to consumers."
Second, Vertel is developing a strong position in the emerging Asian and EMEA (Europe, Middle East and Africa) telecommunications markets. The company leads the TMN market in China, enjoys strong positions in both Korea and Japan, and has recently entered the South African market.
"The telecommunications markets in Asia and EMEA are experiencing dramatic growth," said Brown. "While other companies focus primarily on the United States, we think these emerging markets offer tremendous growth potential.
"Vertel's activities for the fourth quarter reflect its strategy of adapting its business model to new opportunities in both the U.S. and international telecommunications markets. The company strengthened its position in the access and ADSL markets with a number of key customer wins including Atlantech, a market leader in ADSL management systems. Vertel also furthered its relationships with a number of key customers worldwide, growing major accounts such as Siemens in Europe, Lucent Technologies in the United States, and Nippon Telephone and Telegraph (NTT) and NEC Corporation in Japan. To meet the growing demand for telecommunications solutions in emerging markets, the company expanded its professional services unit, opening new offices in Berlin and Korea.
"Vertel will leverage our expertise in technology for managing today's telecommunications infrastructure to enable carrier-grade, IP-network buildouts," said Brown. "Our global customer base provides a strong foundation for addressing this high-growth emerging market."
"The customer service organization that Hamilton is building will add
new dimension to the value we bring to our customers," said Brown.
FINANCIAL TABLES FOLLOW
VERTEL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Thousands, except per share amounts) (Unaudited) Three Months Ended Twelve Months Ended December 31, December 31, 1998 1997 1998 1997 Revenues: License $ 2,390 $ 3,659 $12,564 $ 12,590 License - related party - - 737 - Service and other 1,148 1,481 5,066 5,887 -------- -------- -------- -------- Net revenues 3,538 5,140 18,367 18,477 Cost of revenues: License 121 242 816 876 Service and other 1,074 1,050 3,863 3,606 -------- -------- -------- -------- Total cost of revenues 1,195 1,292 4,679 4,482 -------- -------- -------- -------- Gross profit 2,343 3,848 13,688 13,995 Operating expenses: Research and development 1,915 1,310 6,639 5,600 Sales and marketing 1,995 1,764 7,310 7,829 General and administrative 956 755 3,014 3,719 Restructuring Expense - 1,513 - 1,513 -------- -------- -------- -------- Total 4,866 5,342 16,963 18,661 -------- -------- -------- -------- Operating loss from continuing operations (2,523) (1,494) (3,275) (4,666) Other income, net 8,809 93 10,998 171 -------- -------- -------- -------- Income (loss) from continuing operations before provision for income taxes 6,286 (1,401) 7,723 (4,495) Provision for income taxes 150 - 446 - -------- -------- -------- -------- Income (loss) from continuing operations 6,136 (1,401) 7,277 (4,495) Loss from discontinued operations - (1,477) - (6,415) -------- -------- -------- -------- Net income (loss) 6,136 (2,878) 7,277 (10,910) Other comprehensive income, net - 17 425 42 -------- -------- -------- -------- Comprehensive income (loss) $ 6,136 $ (2,861) $ 7,702 $(10,868) ======== ======== ======== ======== Basic net income (loss) per common share: Income (loss) from continuing operations $ 0.25 $(0.06) $0.31 $(0.21) Loss from discontinued operations - (0.07) - (0.31) Net income (loss) 0.25 (0.13) 0.31 (0.52) Fully diluted net income (loss) per common share: Income (loss) from continuing operations 0.24 (0.06) 0.29 (0.21) Loss from discontinued operations - (0.07) - (0.31) Net income (loss) 0.24 (0.13) 0.29 (0.52) Weighted average shares outstanding used in net income (loss) per common share calculations: Basic 24,912 21,819 23,321 21,120 Fully diluted 25,807 21,819 24,698 21,120 VERTEL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Thousands, except share amounts) ASSETS December 31, December 27, 1998 1997 -------------- --------------- (Unaudited) Current assets: Cash and short-term investments $20,473 $ 6,252 Trade accounts receivable (net of allowances of $556 as of December 31, 1998 and $452 as of December 27, 1997) 3,883 4,941 Prepaid expenses and other current assets 1,134 925 --------- --------- Total current assets 25,490 12,118 Property and equipment, net 1,025 766 Investments 1,437 - Other assets 365 566 --------- --------- $28,317 $13,450 ========= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 426 $ 733 Accrued wages and related liabilities 907 660 Accrued restructuring expenses 224 1,487 Other accrued liabilities 3,473 2,100 Deferred revenue 1,115 531 Net liabilities of discontinued operations - 196 --------- -------- Total current liabilities 6,145 5,707 Deferred rent - 10 --------- -------- Total liabilities 6,145 5,717 --------- -------- Shareholders' equity: Preferred stock, par value $.01, 2,000,000 shares authorized; none issued and outstanding Common stock, par value $.01, 50,000,000 shares authorized; shares issued and outstanding 1998, 24,954,545; 1997, 24,146,518 249 227 Additional paid-in capital 79,553 78,661 Accumulated deficit (57,483) (64,760) Accumulated comprehensive deficit (147) (2,003) --------- -------- Total 22,172 12,125 Less notes receivable from issuance of common stock - (4,392) --------- -------- Total shareholders' equity 22,172 7,733 --------- -------- $28,317 $13,450 ========= =======
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