ACADEMIA

Ditech Networks reported financial results for the three and nine month periods ended January 31, 2012.

The financial results for the three months ended January 31, 2012 were as follows:

-- Revenues were $4.2 million. PhoneTag voice-to-text revenues were approximately $1.3 million in the quarter, an increase of approximately 18% quarter over quarter.

-- Cash used in operations was $0.9 million. The majority of the cash used was invested in PhoneTag operations, development and trials.

-- GAAP operating expenses for the quarter were $4.2 million, up $0.1 million from $4.1 million in the previous quarter due to an increase in investment of PhoneTag trials and development expense, and down from $4.6 million for the corresponding quarter last year as a result of cost savings initiatives put in place throughout the last twelve months. Ditech Networks expects its investment in PhoneTag R&D and trials to continue to increase modestly in the near future.

-- Non-GAAP(1) operating expenses were $4.0 million.

-- GAAP net loss for the quarter was $2.7 million or $(0.10) per share.

-- Non-GAAP(1) net loss for the quarter was $2.5 million or $(0.09) per share.

The financial results for the nine months ended January 31, 2012 were as follows:

-- Revenues were $11.1 million.

-- Cash used in operations was $4.1 million.

-- GAAP operating expenses were $12.6 million.

-- Non-GAAP(1) operating expenses were $12.1 million.

-- GAAP net loss was $8.6 million or $(0.32) per share.

-- Non-GAAP(1) net loss was $8.0 million or $(0.30) per share.

(1) A reconciliation of the non-GAAP to GAAP financial measures for the three and nine month periods ended January 31, 2012 and 2011 is included at the end of this press release. These non-GAAP financial measures exclude stock-based compensation expense, the expense related to amortization of purchased intangible assets, severance and restructuring costs, and the tax effects of the excluded amounts.

Since October 31, 2011, Ditech Networks:

-- Signed 10 new PhoneTag customers, broadening the reach and distribution for the voicemail-to-text product line.

-- Implemented a number of cost savings programs targeted at reducing PhoneTag cost of revenue, the results of which are expected to commence in the quarter ended April 30, 2012, with the biggest impact in the first six months of fiscal 2013.

-- Moved into a smaller facility that is expected to save the company approximately $100,000 per quarter.

"I am pleased with the results of our PhoneTag offering, with approximately 18% revenue growth for the quarter," said Ken Naumann, President and CEO. "Our PhoneTag revenue increase is primarily the result of our providing voice-to-text services to a domestic Tier 1 company for the entire quarter. Our strategy for PhoneTag growth is predicated on domestic and international Tier 1 targets, but we continue to see strong demand for PhoneTag within the Tier 2 carriers and adjacent application providers targeting the enterprise market. In the third quarter, we signed 10 new customer contracts."

"Revenue results for our voice quality assurance, or VQA, products in the third quarter improved, as historically we have seen the majority of our VQA revenue in the second half of our fiscal year," continued Mr. Naumann. "We expect this trend to continue, although visibility into VQA revenue remains difficult, and revenue results remain choppy. The majority of our cost savings initiatives have been directed at VQA, and we have successfully reduced costs in this area."

The company sees further reductions in expenses coming primarily from a reduction in lease and related facility expenses, offset by ongoing investment in PhoneTag language and platform development.

In the long term, the company's plan is to emphasize its voice application business and partner with other companies to increase PhoneTag's reach and opportunities. Ditech Networks will attempt to continue to monetize its VQA algorithms while continuing to pursue PhoneTag in multiple channels to grow the business at a faster rate.