Natural MicroSystems Announces Financial Results; Company Well Positioned for Next Wave of Telecom Growth.

Business/Technology Editors

FRAMINGHAM, Mass.--(BUSINESS WIRE)--Jan. 17, 2001

Natural MicroSystems Corporation (NASDAQ: NMSS), the technology leader enabling a new era of communications, today announced results for the fourth quarter and for the year ended December 31, 2000.

Revenues (in thousands) for the fourth quarter of 2000 were $34,228 compared to $25,014 for the corresponding quarter in 1999, an increase of 37 percent. Pro forma net income (in thousands), which excludes the effects of acquisition-related and purchased intangibles amortization charges and other non-recurring items, for the quarter, was $688 versus a net loss of $715 reported for the fourth quarter of 1999. Pro forma income per diluted share for the quarter was $0.02 compared to a loss of $0.03 for the comparable period in 1999, based on 38.3 million and 24.1 million weighted average diluted shares outstanding, respectively.

Revenues (in thousands) for the year ended December 31, 2000 were $134,612 compared to $79,476 for the year ended December 31, 1999, an increase of 69 percent. Pro forma net income (in thousands) for the year was $7,996 versus a net loss of $10,057 reported for the year ended December 31, 1999. Pro forma income per diluted share for the year ended December 31, 2000 was $0.23 compared to a net loss of $0.44 for the comparable period in 1999 based on 34.4 million and 23.0 million weighted average diluted shares outstanding, respectively.

For the quarter ended December 31, 2000, Natural MicroSystems generated $5.7 million in cash flow from operations and invested $3.2 million in capital expenditures.

"December revenues were disappointing, reflecting a more uncertain economic environment and a broad-based slowdown in planned communications equipment spending. While these factors impacted our Q4 results and are likely to have a continued effect for the first half of 2001, the past year was nevertheless a year of strong growth and important accomplishments for NMS, said Bob Schechter, Natural MicroSystems chairman and CEO. With breakthrough solutions and important new customers, we established a leadership position in some of the most exciting new communications markets such as the voice web, packet media services and new packet voice infrastructure solutions. These markets, still in their early stages, are beginning to deliver compelling value in the form of dramatically lowered costs and exciting new services and applications. Our conviction remains strong that our focus on these markets will provide superior long-term growth."

Schechter continued, "For the full year, top line growth, at 69%, was our strongest ever, and we achieved substantially improved profitability with continued best-in-class asset management performance. We grew and improved our infrastructure in important areas such as support services and supply chain management, bringing us closer to achieving "trusted partner" status with many of our most important customers. And we enter the new year on very solid financial footing, including $309 million in available cash, enabling us to continue aggressively executing our strategic agenda."

During the year, NMS won new projects and deepened its relationships with Ericsson, Cisco, Nortel, Alcatel, Motorola, Siemens, NEC, Comverse and Clarent and continued its strong partnerships with Sun and Motorola Computer Group.

The company also acquired new customers and established partnerships representative of the new era in communications, including Yahoo!, BeVocal, MessageBlaster, GenSoft ITT, Mercury Mobile, Nuance, Speechworks, and Philips.

The company's success in both the public and enterprise network infrastructure markets worldwide continued with new customers that included:

--Telit Networks, a leading manufacturer of products for GSM networks;

--CyberUMS and LOCUS, the dominant suppliers of large-scale next-generation unified messaging solutions in the burgeoning Korean communications market;

--Henan Mobile Communications and Liaoning Mobile Communications, exclusive wireless communications service providers in the two most populous Chinese provinces; and

--JetStream, TdSoft and MetaSwitch, acknowledged innovators in voice-over-Broadband products.

In September, NMS signed an agreement with EBV Elektronik Systems, who now serves as NMS' exclusive pan-European channel partner, providing a full range of products and services including best-in-class technical support, systems integration, logistical support and application assistance. Earlier in the year, NMS signed a similar agreement with Integrys, its exclusive channel partner for Canada.

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. Early in the year, the company launched PacketMedia(TM), an IP media server platform offering unparalleled carrier-grade sound quality and functionality with real-time media streaming and simultaneous play and record for network-based applications.

NMS delivered HearSay(TM), the first integrated, extensible product designed to drive the rapid development and deployment of highly scalable voice-driven Web applications, voice portal solutions and V-commerce (voice-enabled e-commerce) solutions. HearSay integrates NMS' award-winning media processing platforms with products from the market's premier speech recognition software providers. Nuance, a leader in voice interface software, joined NMS in the development of the first version of HearSay, providing the speech recognition engine.

The company launched a new carrier-class CompactPCI-based platform, the CG6000, supporting "in-the-network" deployments where scalability, reliability, flexibility, high availability and worldwide certifications and approvals are absolute requirements.

The company added to this product line with PowerBlade(TM), the breakthrough "system in a slot" for VoIP gateways and IP media servers that delivers lowest-cost scalability, high availability and easy expansion available today.

Further supporting the need for innovative, powerful yet cost-effective solutions to the challenges presented by the public network infrastructure and network-based services, the company unveiled a multi-function edge access platform for the migration and deployment of premium IP-based services. The open architecture of the CG6000, Fusion(TM), and PolicyPoint(TM) provide integrated voice and data IP service control and management with "any-to-any" connectivity essential in today's heterogeneous networks.

NMS continued to invest in its award-winning SS7 software, adding carrier-grade features that multiplied the flexibility and reliability for providers of high-demand enhanced services solutions.

PolicyPoint, the company's award-winning IP multi-service platform for end-to-end quality of service (QoS), received numerous certifications, including from Sprint, Qwest, and Concord Communications. Additionally, NMS and Trendium, a leading provider of service support systems, unveiled an integrated end-to-end service quality management solution for carriers and service providers. This solution targets the enterprise VPN service market, which many analysts expect will grow from $10 billion in 2001 to $29 billion in 2003.

Natural MicroSystems webcasts its conference calls to assure the broad dissemination of information in real time. To access the Fourth Quarter 2000 conference call, which is scheduled for 5:30 p.m. ET, log on to the company website at www.nmss.com and click on the webcast icon in the Investor Relations section.

About Natural MicroSystems

Natural MicroSystems (NASDAQ: NMSS) is the technology leader making it possible for the world's top networking and communication equipment suppliers to create and accelerate communications infrastructure and services. The Framingham, MA company designs, develops and supplies network-quality hardware and software components and provides design and customization services that are enabling a new era of communications.

Deployed in more than 65 countries, NMS' products and technologies are at the foundation of today's high-value communications systems, including network-based enhanced service platforms, media and access gateways, media servers, voice portals, web-enabled call centers, unified messaging platforms and wireless networks. NMS has a long history of technology innovations that advance the rapid growth of the communications industry worldwide, including breakthroughs such as the first complete open IP gateway, the first complete open packet media server and leadership in bringing open, scalable CompactPCI to the telecommunications industry. More information about NMS is available at http://www.nmss.com.

Statements expressing the beliefs and expectations of management regarding future performance are forward-looking and involve risks and uncertainties including, but not limited to, quarterly fluctuations in results, continued slowdown in communications spending, and other risks. These risks are detailed from time to time in the Company's filings with the Securities and Exchange Commission, including the Company's form 10-K for the year ended December 31, 1999. Actual results may differ materially from management expectations.

Natural MicroSystems, Fusion, PolicyPoint, PowerBlade, PacketMedia and HearSay are trademarks of Natural MicroSystems Corporation. Alliance Generation is a registered trademark of Natural MicroSystems Corporation. All other product or corporate references are trademarks or registered trademarks of their respective companies.

                   NATURAL MICROSYSTEMS CORPORATION
            Pro Forma Consolidated Statements of Operations
              (In $000's except share and per share data)
                              (Unaudited)

                           For the Three            For the Twelve
                            Months Ended             Months Ended
                            December 31,             December 31,
                        2000        1999         2000        1999

Revenues            $    34,228 $    25,014  $   134,612 $     79,476
Cost of
 revenues (a)            12,839       9,810       49,651       31,310

Gross profit             21,389      15,204       84,961       48,166
Operating
 expenses:
 Selling,
  general and
  administrative (b)     14,756      10,208       50,717       39,114
 Research and
  development (c)         7,848       6,244       30,205       24,705
  Total operating
   expenses              22,604      16,452       80,922       63,819

Operating income
 (loss)                  (1,215)     (1,248)       4,039      (15,653)
Other income,
 net (d)                  2,273         148        8,263          181
Income (loss) before
 income taxes             1,058      (1,100)      12,302      (15,472)
 Income tax expense
  (benefit) (e)             370        (385)       4,306       (5,415)

Net income (loss)   $       688 $      (715) $     7,996 $    (10,057)
 Basic net income
  (loss) per common
  share             $      0.02 $     (0.03) $      0.24 $      (0.44)
 Weighted average
  basic shares
  outstanding        36,400,472  24,075,416   33,147,471   22,964,684

 Diluted net income
  (loss) per common
  share             $      0.02 $     (0.03) $      0.23 $      (0.44)
 Weighted average
  diluted shares
  outstanding        38,347,380  24,075,416   34,400,929   22,964,684


(a) Excludes $1,174 of the purchase accounting write-up of IML
inventory to fair value at the date of acquisition, $1,315 of a
reserve to write-down IML inventory to the lower of cost or market
value and $455 of amortization of purchased intangibles for the
quarter ended December 31, 2000; $52 of amortization of purchased
intangibles for the quarter ended December 31, 1999; $3,749 of the
purchase accounting write-up of IML inventory to fair value at the
date of acquisition, $1,315 of a reserve to write-down IML inventory
to the lower of cost or market value and $1,099 of amortization of
purchased intangibles for the twelve months ended December 31, 2000;
$210 of amortization of purchased intangibles for the twelve months
ended December 31, 1999.

(b) Excludes $6,803 of amortization of purchased intangibles primarily
related to the IML acquisition, $5,840 of non-cash compensation
expense related to the IML acquisition, $237 of amortization of debt
issuance costs, $203 of legal expenses assumed as the result of the
QWES.com acquisition and $352 of payroll taxes on stock option
exercises for the quarter ended December 31, 2000; $193 of
amortization of purchased intangibles for the quarter ended December
31, 1999; $14,054 of amortization of purchased intangibles primarily
related to the IML acquisition, $13,356 of non-cash compensation
expense related to the IML acquisition, $237 of amortization of debt
issuance costs, $203 of legal expenses assumed as the result of the
QWES.com acquisition and $1,280 of payroll taxes on stock option
exercises for the twelve months ended December 31, 2000; $771 of
amortization of purchased intangibles for the twelve months ended
December 31, 1999.

(c) Excludes $1,000 related to the execution of a funded research and
development agreement acquired in the IML transaction for the quarter
ended December 31, 2000; $1,000 related to the execution of a funded
research and development agreement acquired in the IML transaction and
$3,300 write-off of purchased in-process research and development
related to the IML acquisition for the twelve months ended December
31, 2000.

(d) Excludes $2,291 of foreign currency transaction loss generated by
the conversion of intercompany debt to equity in accordance with the
IML transaction and $167 of gain realized on minority investment for
the quarter ended December 31, 2000; $2,291 of foreign currency
transaction loss generated by the conversion of intercompany debt to
equity in accordance with the IML transaction, $2,228 of gain realized
on minority investments and $484 of recovery of previously written-off
note receivable for the twelve months ended December 31, 2000; $1,235
of merger related expenses from the QWES.com acquisition for the
quarter and twelve months ended December 31, 1999.

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

                   NATURAL MICROSYSTEMS CORPORATION
                 Consolidated Statements of Operations
              (In $000's except share and per share data)

                          For the Three            For the Twelve
                          Months Ended              Months Ended
                          December 31,              December 31,
                          (Unaudited)
                        2000        1999        2000         1999

Revenues           $    34,228  $    25,014  $   134,612  $    79,476

Cost of revenues        15,784        9,862       55,814       31,520

Gross profit            18,444       15,152       78,798       47,956

Operating expenses:
 Selling, general
  and
  administrative        28,191       10,401       79,848       39,885
 Research and
  development            8,848        6,244       34,505       24,705
  Total operating
   expenses             37,039       16,645      114,353       64,590

Operating loss         (18,595)      (1,493)     (35,555)     (16,634)

Merger costs              --          1,235         --          1,235
Other income, net          148          148        8,684          181

Loss before income
 taxes                 (18,447)      (2,580)     (26,871)     (17,688)

 Income tax expense
  (benefit)                 13        5,594          780        1,000

Net loss           $   (18,460) $    (8,174) $   (27,651) $   (18,688)

 Basic net loss per
  common share     $     (0.51) $     (0.34) $     (0.83) $     (0.81)

 Weighted average
  basic shares
  outstanding       36,400,472   24,075,416   33,147,471   22,964,684


 Diluted net loss
  per common share $     (0.51) $     (0.34) $     (0.83) $     (0.81)

 Weighted average
  diluted shares
  outstanding       36,400,472   24,075,416   33,147,471   22,964,684

                   NATURAL MICROSYSTEMS CORPORATION
                 Condensed Consolidated Balance Sheet
                               (In $000)

                                December 31,      December 31,
                                    2000             1999

ASSETS

Current assets:
 Cash and marketable securities   $309,154         $ 23,454
 Accounts receivable, net of
  allowance for uncollectable
  accounts of $1,260 and
  $1,408, respectively              18,840          11,604
 Inventories                         7,781           5,393
 Prepaid expenses and other
  current assets                     7,467           5,044

  Total current assets             343,242          45,495

Property and equipment, net         19,768          14,871
Other long-term assets              16,507           6,883
Goodwill, net                      119,261           3,460

Total assets                      $498,778        $ 70,709

LIABILITIES AND STOCKHOLDERS'
 EQUITY

Current liabilities               $ 29,506        $ 19,890

Long-term obligations, less
 current portion                   177,288             306

Stockholders' equity               291,984          50,513

Total liabilities and
 stockholders' equity             $498,778        $ 70,709