Digital Lightwave Reports Record Revenues and Earnings for Third-Quarter 1999. $14.2 Million Revenues, $0.09 EPS; Company Reports Other Matters - Company Financial Information

Cambridge Telcom Report, Oct 25, 1999

Digital Lightwave, Inc. (Nasdaq: DIGL), a leading provider of innovative optical networking products and technology, has announced record revenues and earnings for the third quarter ended September 30, 1999.

Third-quarter revenues were $14.2 million, more than double the $6.9 million reported a year ago and up 32 percent sequentially from revenues of $10.7 million for the second quarter of 1999. Net income was $2.6 million, or $0.09 earnings per share (diluted), up from $0.1 million, or just above break-even per share, for the second quarter and compared with a net loss of $4.5 million, or a loss of $0.17 per share, for the third quarter of 1998.

"The Internet and other multimedia services are driving increases in bandwidth demands that require the deployment of optical networking technologies," said Gerry Chastelet, chairman, president and chief executive officer of Digital Lightwave. "By providing products that enable the cost-effective installation, maintenance and management of optical networks, Digital Lightwave is playing a significant role in helping to optimize network performance and meet these demands. This trend, and the strength of our high-speed optical monitoring technology, has spurred Digital Lightwave's operating growth and profitability to date."

Revenues for the nine months of 1999 were $33.0 million, more than double the revenues of $15.9 million reported for the nine months of 1998. Net income for the nine months of 1999 was $1.1 million, or $0.04 per share, compared with a pro forma net loss of $14.1 million, or a loss of $0.53, for the same period a year ago. The pro forma net loss excludes $9.5 million, or $0.36 per share, of special charges related to a litigation settlement and a restructuring recognized in the first half of fiscal 1998.

During the third quarter, Digital Lightwave added several new customers, including 2nd Century Communications, Cellular South, KMC Telecom, Motorola, Progress Telecommunications (an affiliate of Florida Power), and World Wide Technology. Existing customers taking product deliveries during the quarter included Alcatel, Ameritech, AT&T Local Services, BellSouth, Cerent, CIENA, Cisco Systems, IXC, Level 3, MCI WorldCom, Nortel Networks, and Tellabs.

Other highlights of the quarter included the introduction of a new product in the Network Access Agent (NAA) product family, the NAA IV, designed for Dense Wave Division Multiplexing (DWDM). The NAA IV was developed in response to customers' needs for a centralized test and monitoring system, which enables communications service providers to more easily, cost-effectively and rapidly monitor, test and resolve network issues for both new and existing optical networks.

Other Matters

The company and Dr. Bryan J. Zwan, the company's majority stockholder and a director, entered into an agreement which provides that (i) the board size will be increased from four to five members, (ii) two new outside directors will be appointed to the board upon the approval of Dr. Zwan and a majority of the current board and one current outside director will step down, (iii) the newly formed board will stay in place at least until the company's annual meeting in 2001 and (iv) the company will enter into agreements containing provisions with respect to change of control, severance and non-compete with current senior management. With respect to the Company's current financing needs, the company is considering financing alternatives including the conversion of the pending registration statement on file with the Securities and Exchange Commission into an equity offering. There can be no assurance that the company will be successful in completing a public offering or obtaining alternative financing on a timely basis, if at all. The company is unable to predict the impact that these events will have on the company's business, results of operations or its financial condition.

Digital Lightwave serves the growing optical networking industry -- high-speed telecommunications networks based on fiber-optic technology -- with products that monitor, maintain and manage voice, data and multimedia communication networks. Digital Lightwave customers include leading telecommunications service providers and equipment manufacturers. The company is headquartered in Clearwater, Florida, and can be located on the Internet at http://www.lightwave.com.

    Digital Lightwave, Inc.
Consolidated Statements of Operations
            (Unaudited)
 (In thousands, except share and per-share data)

                         Three Months Ended      Nine Months Ended
                            September 30,          September 30,
                             1999       1998         1999      1998

Sales                    $14,162      $6,915     $33,002    $15,864
Cost of goods sold         4,851       2,620      11,729      6,057
Gross profit               9,311       4,295      21,273      9,807

Operating expenses:
Engineering and development2,325       4,290       7,746     11,291
Sales and marketing        3,147       3,526       9,006      8,562
General and administrative 1,187       1,096       3,511      4,639
Reorganization charges        --          --          --      1,018
Litigation settlement         --          --          --      8,500
Total operating expenses   6,659       8,912      20,263     34,010
Operating income (loss)    2,652     (4,617)       1,010   (24,203)
Other income                (11)         102          63        547
Income (loss) before
 income tax                2,641     (4,515)       1,073   (23,656)
Provision for income taxes    --          --          --         --
Net income (loss)         $2,641    ($4,515)      $1,073  ($23,656)

Per share of common stock:
Net income (loss) per share$0.10     ($0.17)       $0.04    ($0.89)

Diluted income (loss)
 per share                 $0.09     ($0.17)       $0.04    ($0.89)

Weighted average common
shares outstanding    26,863,115  26,484,670  26,656,797 26,463,408

Weighted average
common and common
equivalent shares
outstanding             28,590,833 26,484,670 27,517,832 26,463,408

         Digital Lightwave, Inc.
       Consolidated Balance Sheets
              (In thousands)

                                     September 30,    December 31,
                                          1999            1998
                                       (Unaudited)

ASSETS

Current assets:
 Cash and cash equivalents                   $4,779          $3,848
 Accounts receivable, net                    11,533           7,152
 Inventories                                  5,396           5,476
 Prepaid expenses and other current assets    1,720             748
  Total current assets                       23,428          17,224

Property and equipment, net                   8,938           9,274
Other assets                                    925           1,060
  Total assets                              $33,291         $27,558

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable and accrued liabilities    $8,506          $6,468
 Accrued settlement charges                   6,305           8,489
 Notes payable, net of discount               2,996              --
 Interest payable                               132              --
  Total current liabilities                  17,939          14,957

Long-term liabilities                           189             281
  Total liabilities                          18,128          15,238

Stockholders' equity:
Preferred stock                                  --              --
Common stock                                      3               3
Additional paid-in capital                   59,697          57,927
Accumulated deficit                        (44,537)        (45,610)
Total stockholders' equity                   15,163          12,320
  Total liabilities and
   stockholders' equity                     $33,291         $27,558