NMS Communications Announces Second Quarter Financial Results.

Business/Technology Editors

FRAMINGHAM, Mass.--(BUSINESS WIRE)--July 11, 2001

NMS Communications, formerly Natural MicroSystems (NASDAQ: NMSS), the leading supplier of technology for tomorrow's networks, today announced results for the second quarter ended June 30, 2001.

Revenues (in thousands) for the second quarter of 2001 were $16,764 compared to $32,125 for the corresponding quarter in 2000, a decrease of 47.8%. Pro forma net loss (in thousands), which excludes the effects of acquisition-related and purchased intangibles amortization charges, restructuring charges, impairment charges and other non-recurring items, for the quarter, was $9,251 versus net income of $3,099 reported for the first quarter of 2000. Pro forma loss per diluted share for the quarter was $0.25 compared to income of $0.09 for the comparable period in 2000, based on 36.6 million and 34.9 million weighted average diluted shares outstanding, respectively.

Revenues (in thousands) for the first six months of 2001 were $43,381 compared to $59,847 for the corresponding first six months in 2000, a decrease of 27.5%. Pro forma net loss (in thousands), which excludes the effects of acquisition-related and purchased intangibles amortization charges, restructuring charges, impairment charges and other non-recurring items, for the first six months, was $13,065 versus net income of $3,384 reported for the first six months of 2000. Pro forma loss per diluted share for the first six months was $0.36 compared to income of $0.10 for the comparable period in 2000, based on 36.5 million and 32.3 million weighted average diluted shares outstanding, respectively.

"We posted disappointing results this quarter, as the broad-based communications industry slowdown continues," said Bob Schechter, NMS Communications' Chairman and CEO. "While the environment remains very difficult, we are intensely focused on markets where we are confident of a return to substantial longer term growth, such as voice web platforms for service providers and enterprises, IP media services platforms, and packet voice and broadband access solutions."

Schechter continued, "During this quarter, we extended our leadership delivering breakthrough products essential to current and next-generation networks. Our HearSay(TM) platform, which now integrates VoiceXML and audio streaming functionality with universal network integration and media resources, represents the industry's first complete platform for voice web applications. We also launched a new version of PacketMedia(TM), with unsurpassed density and expanded features, enabling IP voice technology to be used for advanced enhanced services -- streaming audio to the phone, voice-activated dialing, voice web services, wireless web access, IP conferencing and more -- over both packet networks and the public switched telephone network (PSTN)."

"In June, we shut down our IP Services Management business to better concentrate on the growth opportunities previously mentioned. We continue to deliver world-class operational support, increasingly required by our customers as they seek to make their operations more effective and responsive. Our strong balance sheet, with best-in-class DSOs -- and $276 million in available cash and marketable securities -- provide the financial foundation for continued leadership," Schechter concluded.

Strengthened Product Portfolio

In addition to the products mentioned above, during the second quarter, NMS continued its record of delivering products and services that help customers achieve time-to-market, cost and performance objectives, reinforcing its position as the industry's trusted technology leader.

NMS introduced the industry's highest capacity T1/E1 trunk interface for enhanced services switches. Supporting up to 16 T1/E1 interfaces per slot, with on-board processing for IVR and CAS/ISDN signaling, the Convergence

Generation(TM) (CG) 6100C series delivers unprecedented expansion capacity and dramatically reduces cost per port for communications equipment providers building carrier-class switches, gateways and media servers for worldwide deployment.

The Company also announced a series of successful customer deployments of its Signaling System 7 (SS7) Global Messaging Toolkit. Equipment providers from Israel, China, Austria, Italy, and Brazil affirmed the value of the Toolkit which, in contrast to other commercially available SS7 platforms, lets communications equipment suppliers implement country-specific SS7 call-control variants on demand and thus benefit from significantly faster time-to-market and lower development costs for their SS7-based products.

The value of NMS' SS7 offerings was also affirmed by IntelliNet Technologies, a global provider of SS7 over IP development tools and services for the fixed and Internet Protocol (IP) wireless markets. IntelliNet has deployed NMS' field-proven SS7 software in its gateway and application development products to take advantage of carrier-grade redundancy and accelerated time-to-market that this product offers developers of IP to PSTN convergence gateways and wireless infrastructure.

NMS demonstrated the interoperability of PacketMedia and NMS' Fusion IP Telephony development platform at the International Softswitch Consortium's recent MGCP (Media Gateway Control Protocol) Interop event, using the MGCP standard with offerings from leading telecommunications hardware, software and service providers. This was another illustration of the Company's commitment to support new and emerging communications industry standards -- and, importantly, to enable customers to focus on application development rather than underlying technology, compliance and support.

Continued Leadership in Speech-Driven Applications

Consolidating its leading position, during this quarter NMS announced that CyberTel Inc. has built its recently enhanced CyberCOM(TM)-SC Universal Communications platform around NMS' voice processing hardware and software. The CyberCom-SC enables carriers and service providers to offer multi-modal synchronized management of messages (voice mail, pager, fax and e-mail) from any device, including wireline and wireless telephones, PCs, PDAs, television set-top boxes or web browsers to any other device, connected to any IP or telephone network. As society continues to rely on a growing number of channels for personal and business communications, unified messaging services like those enabled by CyberTel's platform are becoming increasingly popular for managing a plethora of information via a single intuitive interface -- voice.

Further affirmation of NMS leadership in delivering carrier-grade products for innovative communications applications came with the announcement that Authentify, Inc., a leading provider of telephone-based identity management solutions, is deploying Authentify Register(TM), its state-of-the-art Internet identity authentication service, on NMS voice platforms, taking advantage of carrier-grade density and price/performance, as well as the robust interface to the public-switched telephone network worldwide provided by NMS products. Authentify Register integrates with existing security, e-commerce and operational infrastructures, enabling organizations to perform real-time two-factor user authentication during an Internet session via standard web browser and telephone line, thus providing a strong transaction audit trail and dramatically reducing Internet fraud.

Through its professional services organization, NMS enabled Nextira Federal, a leading provider of core networking solutions to the U.S. federal government, to offer its government clients a highly reliable, secure means of sending and receiving classified voice and data over the public-switched telephone network. NMS integrated its universal port software into Nextira Federal's Synchrony(R)ST Secure Voice Application Server Module to extend support for third generation secure telephone units -- STUIII.

The company also announced that its voice processing hardware is the foundation for ONEder ASR(TM), a voice-activated auto attendant solution that answers phones, listens to callers and takes actions based on callers' requests. The ONEder system makes locating a person within an organization easier by eliminating the need to remember numbers associated with the office, fax, pager, home and mobile phones of individuals.

Continued Leadership in High-Growth Regions

NMS announced that its professional services organization was selected by NTT Comware, a subsidiary of Nippon Telegraph and Telephone Corporation (NTT) Group, the world's largest telecommunications company, to develop an IP media server for its IP-based IVR and conferencing application to be marketed to Japanese telecommunications service providers. These service providers are now in the process of deploying IP networks and are seeking applications, such as conferencing, that will allow them to deliver new revenue-generating services that capitalize on next-generation infrastructure. NTT Comware deemed NMS' professional services group strategic to accelerated, high quality results.

NMS also signed an agreement with NTT-ME (Nippon Telegraph and Telephone-Multimedia and Engineering) Corporation to collaborate on SS7 offerings. Under the terms of this agreement, NTT-ME, a leading provider of innovative multimedia communications solutions, will distribute several NMS product lines and collaborate on SS7 development and promotion in the Japan market.

Further evidence of the Company's dominance in high-growth, high-value markets came with the announcement that LOCUS Corporation has deployed NMS state-of-the-art hardware platforms as the foundation for its intelligent peripheral solution in Korea Telecom, the largest telecommunications service provider in Korea. The Locus Intelligent Point System (LIPS) powers value-added enhanced services as well as basic convenience call services, including unified messaging services, voice portals, voice over IP (VoIP), integrated voice response (IVR), fax over IP, toll-free services, tele-voting and auto collect calls. Services delivered span both the traditional public switched telephone network and the Internet.

In June, the company announced a partnership with InfoTalk that reaffirms the Company's strong position in both Asian markets and speech-driven applications. With the partnership comes a first-of-its kind integration between the two companies' award-winning solutions: NMS' HeaySay voice portal platform and InfoTalk's e-t@lk conversational speech understanding engine. The NMS/InfoTalk integrated platform will allow carriers and enterprises to deploy a variety of advanced speech-driven applications, such as voice portals, unified messaging, and customer relationship management (CRM) solutions for consumers who speak either or both English and Chinese languages, including mainland Putonghua, Taiwan Mandarin, and Cantonese.

The company also opened a branch in Israel, leveraging its reputation there as a global leader in the IP media server and access gateway components industry to build its business in essential technologies for voice web services and voice portals. Activities in Israel include sales, marketing and technical support as well as product research and development.

NMS Conference Call Web Cast

NMS Communications webcasts its conference calls to assure the broad dissemination of information in real time. To access the Second Quarter 2001 conference call, which is scheduled for 5:00 p.m. ET today, log on to the company website at www.nmscommunications.com and click on the webcast icon in the Investor Relations section.

About NMS Communications (formerly Natural MicroSystems)

NMS Communications (NASDAQ: NMSS) strives to lead in the design, development and distribution of hardware and software for the communications industry's most advanced solutions. Using NMS products and services, the world's leading networking and telecommunications suppliers get their solutions to market faster, and at lower costs. NMS supplies the essential technologies for network-based IP media services, voice Web applications, speech-driven enterprise solutions such as customer relationship management (CRM), and packet voice and broadband access services, including voice over IP (VoIP), voice over DSL (VoDSL) and voice over wireless local loop (VoWLL).

NMS Communications: Technology for Tomorrow's Networks -- Today.

Visit www.nmscommunications.com for more information.

Statements in this document expressing the beliefs and expectations of management regarding future performance are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's expectations as of the date of this document and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to risks and uncertainties including, but not limited to, a continued slowdown in communications spending, quarterly fluctuations in financial results, the availability of products from vendors and other risks. These and other risks are detailed from time to time in the Company's filings with the Securities and Exchange Commission, including the Company's annual report on Form 10-K for the year ended December 31, 2000. In addition, while management may elect to update forward-looking statements at some point in the future, management specifically disclaims any obligation to do so, even if its estimates change.

Natural MicroSystems, NMS Communications, Convergence Generation, PacketMedia, and HearSay are trademarks of NMS Communications Corporation. All other product or corporate references are trademarks or registered trademarks of their respective companies.

                          NMS COMMUNICATIONS
            Pro Forma Consolidated Statements of Operations
              (In $000's except share and per share data)
                              (Unaudited)

                            For the Three            For the Six
                             Months Ended            Months Ended
                               June 30,                June 30,
                          2001        2000        2001         2000

Revenues              $  16,764   $  32,125   $  43,381   $   59,847
Cost of
 revenues(a)              8,416      11,901      19,414       22,401
Gross profit              8,348      20,224      23,967       37,446

Operating expenses:
 Selling, general and
  administrative(b)      13,636       11,589      28,287      22,384
 Research and
  development(c)          9,724       6,940      18,403       13,924
 Restructuring charge(d)   --          --          --           --
 Impairment charge(e)      --          --          --           --
  Total operating
   expenses              23,360      18,529      46,690       36,308

Operating income (loss) (15,012)      1,695     (22,723)       1,138

Other income, net(f)        780       3,073       2,623        4,068

Income (loss) before
 income taxes           (14,232)      4,768     (20,100)       5,206

 Income tax expense
  (benefit)(g)           (4,981)      1,669      (7,035)       1,822

Net income (loss)   $    (9,251) $    3,099 $   (13,065) $     3,384

Basic net income (loss)
 per common share   $     (0.25) $     0.09 $    (0.36)  $      0.11

Weighted average
 basic shares
 outstanding         36,572,778  33,034,544  36,497,300   30,454,144

Diluted net income (loss)
 per common share   $     (0.25) $     0.09 $     (0.36) $      0.10

Weighted average
 diluted shares
 outstanding         36,572,778  34,911,324  36,497,300   32,289,728

(a) Excludes $447 of amortization of purchased intangibles for the
quarter ended June 30, 2001; $903 of amortization of purchased
intangibles for the six months ended June 30, 2001; $89 of
amortization of purchased intangibles for the quarter ended June 30,
2000; $179 of amortization of purchased intangibles for the six months
ended June 30, 2000.

(b) Excludes $7,140 of amortization of purchased intangibles primarily
related to the IML acquisition, $6,010 of non-cash compensation
expense primarily related to the IML acquisition, $289 of amortization
of debt issuance costs and $201 of legal expenses assumed as the
result of the QWES.com acquisition for the quarter ended June 30,
2001; $13,909 of amortization of purchased intangibles primarily
related to the IML acquisition, $4,572 reversal of an accrual related
to additional consideration that will not be paid to the former
shareholders of IML, $10,295 of non-cash compensation expense
primarily related to the IML acquisition, $576 of amortization of debt
issuance costs and $343 of legal expenses assumed as the result of the
QWES.com acquisition for the six months ended June 30, 2001; $217 of
amortization of purchased intangibles for the quarter ended June 30,
2000; $433 of amortization of purchased intangibles for the six months
ended June 30, 2000.

(c) Excludes $479 of payments made to employees of Mobilee pursuant to
the Mobilee merger agreement for the quarter and six months ended June
30, 2001.

(d) Excludes $682 of severance obligations, $516 of inventory
reserves, $650 of fixed asset reserves, $1,516 of committed lease
payments and $189 of other restructuring expenses related to closure
of QWES.com and the lease payments for an unoccupied facility for the
quarter and six months ended June 30, 2001.

(e) Excludes $55,347 impairment charge to adjust the carrying value of
IML assets to fair value for the quarter and six months ended June 30,
2001.

(f) Excludes $2,640 of foreign currency translation gain generated by
the remeasurement of intercompany debt that was established in
accordance with the IML transaction, $955 of impairment loss for the
write down to fair market value of a minority investment and $174 gain
realized on minority investment for the quarter ended June 30, 2001;
$297 of foreign currency translation loss generated by the
remeasurement of intercompany debt that was established in accordance
with the IML transaction, $6,062 of impairment loss for the write down
to fair market value of a minority investment and $174 gain realized
on minority investment for the six months ended June 30, 2001; $915 of
gain realized on minority investments for the quarter ended June 30,
2000; $1,897 of gain realized on minority investments for the six
months ended June 30, 2000.

(g) Assumes a corporate tax rate of 35% for all periods presented.



                          NMS COMMUNICATIONS
                 Consolidated Statements of Operations
              (In $000's except share and per share data)
                              (Unaudited)

                         For the Three                For the Six
                          Months Ended                Months Ended
                            June 30,                    June 30,
                        2001          2000         2001          2000

Revenues         $     16,764  $     32,125 $     43,381  $     59,847

Cost of revenues        8,863        11,991       20,317        22,580

Gross profit            7,901        20,134       23,064        37,267

Operating expenses:
  Selling, general and
   administrative      27,277        11,806       48,838        22,817
  Research and
   development         10,203         6,940       18,882        13,924
  Restructuring charge  3,553          --          3,553          --
  Impairment charge    55,347          --         55,347          --
    Total operating
     expenses          96,380        18,746      126,620        36,741

Operating
 income (loss)        (88,479)        1,388     (103,556)          526

Other income
 (loss), net            2,639         3,989       (3,563)        5,965

Income (loss)
 before income
 taxes                (85,840)        5,377     (107,119)        6,491

 Income tax expense       250           376          475           454

Net income (loss) $   (86,090) $      5,001 $   (107,594) $      6,037

Basic net income
 (loss) per
 common share     $     (2.35) $       0.15 $      (2.95) $       0.20

Weighted average
 basic shares
 outstanding       36,572,778    33,034,544   36,497,300    30,454,144

Diluted net
 income (loss)
 per common
 share           $      (2.35) $       0.14 $      (2.95) $       0.19

Weighted average
 diluted shares
 outstanding       36,572,778    34,911,324   36,497,300    32,289,728




                          NMS COMMUNICATIONS
                 Condensed Consolidated Balance Sheet
                               (In $000)

                                             June 30,   December 31,
                                               2001         2000
   ASSETS                                   (Unaudited)
Current assets:
 Cash, cash equivalents
  and marketable securities                  $275,830     $309,154
 Accounts receivable,
  net of allowance for
  uncollectable accounts of
  $847 and $1,260, respectively                 9,264       18,840
 Inventories                                   10,706        7,781
 Prepaid expenses and other
   current assets                               7,394        7,467
     Total current assets                     303,194      343,242

Property and equipment, net                    22,099       19,768
Other long-term assets                          8,261       16,340
Goodwill and other intangibles, net            57,046      119,428

Total assets                                 $390,600     $498,778

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities                          $ 22,492     $ 31,794

Long-term obligations, less
 current portion                              175,000      175,000

Stockholders' equity                          193,108      291,984
Total liabilities and stockholders' equity   $390,600     $498,778