Dialogic Inc. Reports Second Quarter 2011 Financial Results

Wednesday, August 10, 2011

Achieves record second quarter non-GAAP revenues of $58.7M-Achieves record Video revenues and first Mobile Backhaul Optimization revenue-NextGen products comprised 69% of non-GAAP revenue primarily from BRIC (Brazil, Russia, India, China) countries and MEA (Middle East, Africa) regionReaffirms full year Business Outlook

MILPITAS, Calif.--(BUSINESS WIRE)-- Dialogic Inc. (NASDAQ:DLGC), a leading provider of communications technologies that power advanced networks, today announced second quarter financial results for the period ending June 30, 2011.

"This quarter we achieved the highest quarterly revenue in our company's history," said Nick Jensen, Dialogic's Chairman and Chief Executive Officer. "We saw strong demand for our NextGen products including our newest Bandwidth Optimization, Video and Infrastructure products in the world's fastest growing mobile networks markets, specifically in the BRIC countries and the MEA region. These NextGen products made up 69% of second quarter non-GAAP revenues, a record level versus 61% in the first quarter of 2011. In the second quarter, we also recognized our first revenue on our new Mobile Backhaul products. We anticipate that revenues for the Mobile Backhaul and Video products will grow significantly in future quarters as mobile operators expand network capacity to address the demand for data services."

Financial Results

On a GAAP basis, Dialogic achieved the following financial results for the second quarter 2011 as compared to the results of the first quarter of 2011:

• Revenue of $55.8 million, as compared to $44.9 million
• Gross Margin of 59% as compared to 57%
• Operating Expense of $38.2 million, as compared to $42.6 million
• Net Loss attributable to common shareholders of $11.3 million or $0.36 per share, as compared to $21.3 million or $0.68 per share

As reflected below in the reconciliation of the second quarter 2011 Statement of Operations to Adjusted EBITDA, on a non-GAAP basis, Dialogic achieved the following financial results for second quarter 2011 as compared to the results of the first quarter 2011:

• Revenue of $58.7 million, as compared to $45.9 million
• Gross Margin of 62%, as compared to 63%
• Operating Expenses of $33.4 million, as compared to $35.0 million
• Adjusted EBITDA of $3.1 million, as compared to $(6.1) million

"In the second quarter, we saw several trends which are indicative of our business. First, the investments we have made over the previous quarters in video and mobile backhaul optimization products are now starting to contribute to our results, through contracts with customers and partners like Telefonica and Nokia Siemens Networks. Second, as we have stated in previous quarters, we expect to see declining revenues from the Legacy products, which are mostly the TDM based board and blade business. Those applications are increasingly transitioning from special purpose hardware to IP Media Server software running on general purpose servers. As the Legacy business declines, it is being replaced by the growth from our NextGen products. Also, our Class 4 Softswitch continues to win significant design wins worldwide. Our book to bill for the second quarter was slightly below one, but is slightly above one for the first half of 2011."

Recent Highlights

• Record second quarter revenue from several product groups, including Video, Switching and IP Media Servers
• Initial Mobile Backhaul optimization deployments with Telefonica in Latin America
• Awarded large Session Border Control (SBC) contract from an Asian tier 1 carrier

Business Outlook for 2011

Today Dialogic reaffirmed its 2011 Business Outlook that was originally issued on February 28, 2011.

"In summary, we are very pleased with our second quarter's financial results," said Jensen. "Our product strategy has been validated by some of the world's largest mobile network operators in some of the world's fastest growing mobile markets. We are encouraged by our prospects and believe that we have the right products at the right time to create new revenue opportunities and reduce expenses for mobile network operators as data dominates mobile networks."

Use of Non-GAAP Financial Measures

Some of the measures in this press release are non-GAAP financial measures within the meaning of the SEC Regulation G. Dialogic believes that presenting non-GAAP net loss and non-GAAP net loss allocable to common stockholders is useful to investors, because it describes the operating performance of Dialogic. Dialogic management uses these non-GAAP measures as important indicators of the company's past performance and in planning and forecasting performance in future periods. Dialogic considers EBITDA, as adjusted, an important measure of its ability to generate cash flows to service debt, fund capital expenditures and fund other corporate investing and financing activities. EBITDA, as adjusted, eliminates the non-cash effect of tangible asset depreciation and amortization of intangible assets and stock-based compensation as well as certain nonrecurring expenses. EBITDA should be considered in addition to, rather than as a substitute for, pre-tax income, net income and cash flows from operating activities. The non-GAAP financial information Dialogic presents may not be comparable to similarly-titled financial measures used by other companies, and investors should not consider non-GAAP financial measures in isolation from, or in substitution for, financial information presented in compliance with GAAP. You are encouraged to review the reconciliation of non-GAAP financial measures to GAAP financial measures included elsewhere in this press release.

In respect of the foregoing, Dialogic provides the following supplemental information to provide additional context for the use and consideration of the non-GAAP financial measures used elsewhere in this press release:

"EBITDA" is defined as earnings before interest, taxes, depreciation and amortization. "Adjusted EBITDA" is defined as EBITDA plus adjustments for nonrecurring items or other adjustments. Adjusted EBITDA includes EBITDA and also non-cash stock compensation expense, purchase price adjustments resulting from the fair value adjustments of the assets and liabilities of Veraz Networks as of October 1, 2010, acquisition related costs, restructuring expenses and foreign exchange gains (losses). Acquisition costs include investment banker fees, legal expenses, and other fees incurred in connection with the acquisition. Dialogic considers Adjusted EBITDA as a key metric in evaluating its financial performance.

Stock-based compensation: These expenses consist of expenses for employee stock options, restricted stock units and employee stock purchases under ASC 718. Dialogic excludes stock-based compensation expenses from our non-GAAP measures primarily because they are non-cash expenses and are also excluded by our lender in the calculation of EBITDA. As Dialogic applies ASC 718, it believes that it is useful to its investors to understand the impact of the application of ASC 718 to its operational performance, liquidity and its ability to invest in research and development and fund acquisitions and capital expenditures. While stock-based compensation expense calculated in accordance with ASC 718 constitutes an ongoing and recurring expense, such expense is excluded from non-GAAP results because it is not an expense that typically requires or will require cash settlement by Dialogic and because such expense is not used by management to assess the core profitability of our business operations. Dialogic further believes these measures are useful to investors in that they allow for greater transparency to certain line items in our financial statements. In addition, excluding this item from various non-GAAP measures better facilitates comparisons to our competitors' operating results.

SEC inquiry expense: Due to the generally nonrecurring nature and magnitude of expense associated with the SEC inquiry, Dialogic excludes such expenses from its non-GAAP measures primarily because they are not indicative of ongoing operating results. Further, excluding this item from non-GAAP measures facilitates management's internal comparisons to our historical operating results.

Conference Call Information

Dialogic will hold its second quarter earnings conference call at approximately 4:30pm Eastern Time on Thursday, August 11, 2011. Dialogic will offer a live webcast of the conference call, which will also include forward-looking information. For parties in the United States and Canada, call 1-800-860-2442 to access the conference call. International parties can access the call at 412-858-4600. The webcast will be accessible from the "Investor Relations" section of the Dialogic website (www.dialogic.com). The webcast will be archived for a period of 30 days. A telephonic replay of the conference call will also be available two hours after the call and will run for one month. To hear the replay, parties in the United States and Canada should call 1-877-344-7529 and enter passcode 10002564. International parties should call 1-412-317-0088 and enter passcode 10002564. In addition, Dialogic's press release will be distributed via Business Wire and posted on the Dialogic website before the conference call begins (DLGC-IR).

For over 25 years, Dialogic (NASDAQ: DLGC) and its subsidiaries have been providing communications platforms and technology to enterprise and service provider markets. Our portfolio of IP and TDM based multimedia processing and call control technologies enables developers and service providers to build and deploy innovative applications without concern for the complexities of the communications medium or network. This empowers our customers to unleash the profit from video, voice and data for advanced networks. For more information on Dialogic, visit www.dialogic.com.

This press release may contain forward-looking statements regarding future events that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results. These forward-looking statements involve risks and uncertainties, as well as assumptions that if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include but are not limited to, future revenues, adjusted gross margin, adjusted EBITDA, growth of certain product lines and other risks and uncertainties described more fully in our documents filed with or furnished to the SEC. More information about these and other risks that may impact Dialogic's business is set forth in the "Risk Factors" section in our Annual Report on Form 10-K for the year ended December 31, 2010 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, each as filed with the SEC. These filings are available on a website maintained by the SEC http://www.sec.gov/. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

Dialogic is a registered trademark of Dialogic Inc. or a subsidiary. All other company and product names may be trademarks of the respective companies with which they are associated.