Applied Digital Access Announces Second Quarter Results; ADA's Focus On Core Strengths Improves Operating Results.

SAN DIEGO--(BUSINESS WIRE)--July 19, 1999--

Applied Digital Access Inc. (ADA) (Nasdaq:ADAX) a leading provider of innovative service activation and assurance solutions to the telecommunications industry, announced today that revenue for the second quarter of 1999 totaled $8.9 million compared to $8.6 million in the second quarter of 1998.

Sequentially, second quarter revenue was up 23% from $7.2 million in the first quarter of 1999. ADA incurred a second quarter net loss of $0.8 million, or $0.06 per share, a 68% improvement compared to the second quarter of 1998 when the company recorded a net loss of $2.7 million, or $0.21 per share. Sequentially, the company's net loss was reduced 64% from a net loss of $0.18 per share in the first quarter.

Revenue for the first six months of 1999 totaled $16.1 million, a 16% increase from $13.9 million for the same period last year. For the first six months of 1999, the company incurred a net loss of $3.2 million, or $0.24 per share, a 60% improvement compared to the same period last year when the company recorded a net loss of $7.9 million, or $0.62 per share.

Revenue from the company's network systems products and services totaled $5.8 million in the second quarter of 1999 compared to $5.4 million in the second quarter of 1998 and $4.8 million in the first quarter of this year. For the first six months of 1999, revenue from network systems products and services totaled $10.6 million compared to $8.9 million in the same period last year. Revenue from the company's network management software applications and services totaled $3.1 million in the second quarter of 1999, relatively unchanged from the second quarter of 1998 and up from $2.4 million in the first quarter of this year. For the first six months of 1999, revenue from the company's network management software applications and services totaled $5.5 million compared to $4.9 million in the same period last year.

Gross margins for the three and six months ended June 30, 1999 were 60%, compared to 56% and 47%, respectively, in the same periods last year. The improvements were primarily due to improved gross margins related to the company's Remote Module product line.

Operating expenses for the three and six months ended June 30, 1999 decreased 18% and 11%, respectively, compared to the same periods in 1998. The decreases resulted from lower research and development costs related to the termination of a joint development agreement (JDA) with Northern Telecom Inc. (Nortel) and lower travel and customer service expenses in sales and marketing.

In March 1999, the company's JDA with Nortel was terminated. Each company had contributed technology and development resources to the project conducted under the JDA. Nortel and ADA were responsible for total JDA development costs at the rate of 60% and 40%, respectively. For the three and six months ended June 30, 1999, operating expenses included a $0.3 million and $3.5 million offset, respectively, to research and development expenses representing Nortel's proportionate share of development costs incurred under the JDA compared to $1.0 million and $1.7 million in the respective periods last year. The $3.5 million offset to research and development expenses for the six months ending June 30, 1999, included a one-time cumulative adjustment of $1.4 million that increased Nortel's proportionate share of total JDA development costs from 50% to 60%.

The net loss for the first six months of 1999 included a one-time charge of $1.4 million, recorded in the first quarter of 1999, to cover the costs of a restructuring program. The restructuring program was designed to align ADA's operations with its core business and improve operational efficiencies.

The restructuring charge included approximately $0.6 million in cash charges for severance and benefit costs related to a reduction in workforce, the closure of an R&D facility, and associated administrative expenses. The balance of the restructuring charge related to non-cash charges for the write-down of capital assets.

The majority of the restructuring charges were related to the termination of the JDA with Nortel. As of June 30, 1999, ADA had substantially completed the restructuring program.

ADA's cash balance totaled $14.3 million at June 30, 1999, compared to $12.5 million at December 31, 1998. Inventory totaled $4.2 million at June 30, 1999, compared to $5.7 million at December 31, 1998.

Don Strohmeyer, president and chief executive officer of ADA stated, "We are very pleased with our second quarter results. Our energies continue to be directed at improving our operations in all areas. The focus we have placed on our core market strengths is paying dividends. We are enlarging our marketing and sales capability, product volumes are up, our customer base is growing and we are keeping a close eye on our expense levels. We are confident that the future of ADA is one of solid performance."

About Applied Digital Access

Applied Digital Access is a leading provider of innovative telecommunications service activation and assurance solutions that are backed by unparalleled customer support. These solutions enable a wide range of telecommunications service providers to improve network performance and quality of service, increase productivity, and lower operating expenses. The company is headquartered in San Diego and has product-development and support facilities in Vancouver, British Columbia and Terre Haute, Ind. Press releases and other information about Applied Digital Access, its products, and services are available on the Web at www.ada.com.

"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: Except for historical information contained in this release, the preceding may contain forward-looking statements. These forward looking statements include statements regarding the company's (i) market focus (ii) growth in product volumes and customer base and (iii) goal of improving operating results. These statements involve potential risks and uncertainties as detailed in the company's Annual Report on Form 10-K for the year ended 12/31/98. These risks include customer mergers, fluctuations in quarterly operating results, history of losses, competition, concentration of major customers, telephone company qualification requirements, dependence on two product lines, management of changing business, rapid technological change and dependence on new products, dependence on suppliers and subcontractors, high inventory levels and need to make advance purchase commitments, Year 2000 compliance, product recall and defects, government regulation, potential competition from RBOCs, proprietary technology, dependence on key personnel and volatility of stock price. The company's actual results could differ materially from those discussed in this release. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The company undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this release. -0-

                     APPLIED DIGITAL ACCESS INC.
            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                              (Unaudited)


                        For the Three Months       For the Six Months
                           Ended June 30,             Ended June 30,
                        1999            1998       1999          1998
                       (Amounts in thousands    (Amounts in thousands
                       except per share data)   except per share data)

Revenue               $8,863          $8,580    $16,065       $13,852
Cost of revenue        3,531           3,741      6,425         7,405

Gross profit           5,332           4,839      9,640         6,447

Operating expenses:
 Research and
  development          2,761           3,777      5,920         7,320
 Sales and marketing   2,147           2,551      4,426         4,831
 General and
  administrative       1,353           1,295      2,614         2,414

Total operating
 expenses              6,261           7,623     12,960        14,565

Operating loss          (929)         (2,784)    (3,320)       (8,118)

Interest income          134             168        254           342
Other income
 (expense), net           (7)             (6)        (8)          (16)

Loss before income
 taxes                  (802)         (2,622)    (3,074)       (7,792)

Provision for
 income taxes             41              36         95            73

Net loss               ($843)        ($2,658)   ($3,169)      ($7,865)

Net loss per share,
 basic and diluted    ($0.06)         ($0.21)    ($0.24)       ($0.62)

Weighted average
 common shares
 outstanding          13,037          12,675     12,977        12,650



                     APPLIED DIGITAL ACCESS INC.
                 CONDENSED CONSOLIDATED BALANCE SHEETS
                              (Unaudited)


                                               June 30,      Dec. 31,
                                                 1999          1998

                                         (Amounts in thousands)
ASSETS
Current assets:
 Cash, cash equivalents, and investments        $14,332       $12,513
 Accounts receivable, net                         5,161         6,111
 Inventory, net                                   4,227         5,679
 Deferred income taxes                              130           130
 Prepaid expenses and other current assets        1,365         1,700

    Total current assets                         25,215        26,133

Property and equipment, net                       3,472         5,466
Intangible assets, net                              681         1,247
Deferred income taxes                             1,510         1,426

                                                $30,878       $34,272

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 Accounts payable                                $3,089        $2,922
 Accrued expenses                                 1,491         2,374
 Accrued warranty                                 1,149         1,264
 Other current liabilities                        3,003         2,817

    Total current liabilities                     8,732         9,377

Shareholders' equity:
 Stock and paid-in capital                       55,493        55,073
 Accumulated deficit                            (33,347)      (30,178)

    Total shareholders' equity                   22,146        24,895

                                                $30,878       $34,272