Financial: VocalTec Reports First Quarter 1999 Results - Company Financial Information

EDGE, On & About AT&T, May 3, 1999

VocalTec Communications Ltd. (Nasdaq:VOCL), the Internet protocol (IP) communications company, Tuesday announced revenues of $6.0 million for the first quarter ended March 31, 1999, an increase of 23 percent over the first quarter ended March 31, 1998. The net loss for the first quarter of 1999 was $9.9 million, or $0.86 per share, and was in line with management's preliminary estimate as disclosed on April 12, 1999. The net loss for the first quarter of 1998 was $2.4 million, or $0.23 per share.

As indicated earlier, the greater than expected loss is attributable to lower than expected sales, a less favorable sales mix and higher operating expenses, including larger than expected reserves for bad debt and other adjustments.

Commenting on the results, Dr. Elon Ganor, chairman of VocalTec, said "Despite the disappointing quarter, we are no less confident of either the potential of the VoIP market or of our own prospects for success. We are continuing to gain important new customers as evidenced by the recent announcements concerning AT&T Global Clearinghouse and China Telecom. With several field trials, commercial pilots and laboratory evaluations in progress, we are well-positioned to participate in wide-scale deployments down the road."

"We expect to see small to medium scale deployments for PC-to-phone, international callback and calling card applications to be awarded in the second half of this year," said Doron Zinger, president and CEO of VocalTec. "Despite their relatively small size, these are likely to be highly competitive situations with a number of vendors vying for the business. As we have indicated previously, wide-scale deployments of infrastructure and value-added services by the major telcos will probably not occur before the fourth quarter at the earliest and most probably beginning sometime during the first half of 2000. Meanwhile, we will continue to cultivate new service provider customer relationsships by pursuing field trials and small commercial pilots."

Deployments during the quarter included a strategically important relationship with China Telecom, the largest carrier in China. VocalTec was chosen to supply a full turnkey solution for a nationwide trial IP telephony network. At the current high rate of growth, China will soon surpass the United States as the country with the largest number of phone lines.

During the quarter, Dacom International Inc., a subsidiary of Dacom Corp., one of South Korea's largest long distance, international telephone and on-line service providers announced that it is offering IP telephony phone-to-phone service to its business and residential customers using VocalTec's IP telephony products. Dacom International is offering international service to corporate subscribers using VocalTec Telephony Gateways located in Korea and the United States.

Also during the first quarter, VocalTec introduced two new products. The first, VocalTec Internet Phone Call Waiting, allows all classes of service providers (including ISPs, CLECs, established telcos and new carriers) to offer a virtual second line to online customers for receiving incoming regular phone calls while connected to the Internet. The Company also announced Surf&Call Center product suites designed for the carrier and call center markets to extend customer service to e-commerce. Surf&Call Center enables online shoppers to easily make toll free calls directly from a web site to any telephone or formal call center. Surf&Call Center Pro enables online shoppers to speak over the Internet to call center agents as well as jointly surf web pages and fill out online forms in a secure environment.

Finally, in March, the Company announced VocalTec Ensemble Sound, the latest generation of standards-compliant software technology designed to deliver quality voice and enhanced communications services over IP networks. Based on patent-pending proprietary technology, Ensemble Sound is a set of algorithms that monitors and dynamically adjusts to network conditions to help overcome delays or distortions in the transmission of real-time voice and multimedia communications.

VocalTec develops and markets award-winning software that enables voice, fax and multimedia communications over packetized networks, including both private networks and the public Internet. VocalTec pioneered the commercial IP (Internet protocol) telephony industry in 1995 with the first commercial IP telephony solution. Since then, VocalTec has built one of the largest research and development teams dedicated solely to IP telephony, has one of the largest footprints of users in the carrier and consumer markets and has played a leading role in the development of industry standards. VocalTec's technical expertise is a driver in moving the industry forward with its end-to-end, standards-compliant solutions for global multi-service deployments for all classes of carriers. For the latest company information, visit VocalTec on the World Wide Web at http://www.vocaltec.com.