FOOL CONFERENCE CALL SYNOPSIS*
By Dale Wettlaufer (TMF Ralegh)

Ascend Communications
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One Ascend Plaza, 1701 Harbor Bay Pkwy.
Alameda, CA 94502-3002
(510) 769-6001
http://www.ascend.com

ALEXANDRIA, Va., (July 16, 1997)/FOOLWIRE/ --- On July 15, 1997, Ascend Communications reported second fiscal quarter 1997 financial results. On a conference call to discuss the quarter were Mory Ejabat, President and CEO; Bob Dahl, CFO; Dan Smith, EVP and General Manager of the Core Switching Systems business group; Mark Johnson, Comptroller; and Bernie Schneider, VP of Strategic Business Development.

OVERVIEW. During the quarter, Ascend closed on two acquisitions, of Cascade Communications and Whitetree Inc.. Merger charges of $150.3 million were taken in the second quarter. As a result of the Cascade acquisition, we are able to deliver end-to-end networking solutions for carriers, ISPs, and corporate customers worldwide. We have made significant progress toward completing the integration of Ascend and Cascade. The integration of the sales, marketing, and customer support functions are totally complete. We are currently working on the manufacturing and finance organizations, moving toward complete integration by the end of the year.

We have reduced headcount at the combined company by over 250 people. We expect the cost savings associated with these reductions as well as potential synergies recognized by the combination of the companies will result in the acquisition being non-dilutive on a going forward basis. Product integration with Cascade is also underway. The development teams of the two companies have been working on the integration of all products to produce the most seamless, easily managed, and highly advanced network solutions available.

PRODUCTS. We are also happy to announce that the 56K modem cards for the TNT are now shipping. We completed customer testing of the boards last week and they are in full production. We begin shipping the 56Kbps modems for the traditional MAX family immediately. We currently have over 550,000 ports of the MAX and MAX TNT 56Kbps installed in ISPs worldwide. We have also announced the continuation of the GetFLEX program, which enables customers to upgrade their existing systems to support 56 FLEX. Our GetFLEX program has been such a success so far that we already have over 200 POPs supporting 56K FLEX. Over 2,700 ISP POPs will support 56K technology, including Prodigy, Erol's, and AOL. During the quarter, when we announced the 56K modem, we announced that we would reduce prices by 15% for total systems.

GRF revenues contributed 4% of Ascend's stand-alone revenues in the quarter, a 40% sequential increase. The GRF contributed 3% of the combined company's revenues in the second quarter. The GRF is being used, or is in the testing phase, with 20 of the 35 U.S. backbone providers. New customer wins for the GRF 400 this quarter include Essential Communications and Connect One. Overall, the GRF product is right on track with our internal plan and we are very pleased with the progress it has made this quarter.

FRAME RELAY AND ATM. Frame relay appears be strengthening. Frame relay contributed to about 79.5% of Cascade revenues, compared to 80.9% for the first quarter. Frame relay posted an 8% sequential revenue increase from Q1. Frame comprised 25.3% of the combined company's revenues. We continue to build our market position in frame relay this quarter with the new customers, including Frontier, Teleport Communication Group, and MetroNet Communications.

Our ATM product group contributed 11.9% of Cascade's stand-alone business, compared to 10.7% of Cascade stand-alone last quarter, or a 22.3% sequential increase. ATM contributed 4% of total revenues for the combined company. We continue to be pleased with the success and acceptance of the CBX-500. New ATM customers announced this quarter include Bell Atlantic-NYNEX, BellSouth, and Virtual International.

BUSINESS UNITS. We have organized into four business units following the Cascade acquisition: 1. Access and concentrator products; 2. Core switching systems; 3. Multimedia access products; and 4. Remote products. On a going-forward basis, we will be reporting revenue breakouts on a business units basis, rather than on a products basis. For this quarter, revenue contribution for business units was as follows: 1. Access and concentrator products, 55%; 2. Core switching systems, 32%; 3. Multimedia access products, 4%; and 4. Remote products, 5%. Service, training, and other revenues contributed about 4%.

REVENUE BREAKDOWNS. Revenues from outside of North America contributed 38% of combined sales. Ascend's stand-alone revenue from outside North America increased to 45%. Revenues from Japan increased to 25% of total revenues, boosted by strong demand during the major part of the quarter for the MAX 4000 and boxes supporting 56K technology. The effort to increase the presence of Cascade in international markets paid off this quarter with a new customers in German, Switzerland, and France. International demand for Ascend products was tempered this quarter by production transition issues. With many European customers delaying decisions based on their desire to test both out TNT product and the 56K Flex functionality. While at this time we do not see anything which suggests a major decline, carrier demand in Europe remains cautious due to the fact that we will be dealing with the seasonality issues during the third quarter in Europe, which would make timing of the orders difficult to predict.

BUSINESS TRENDS AND GOALS. Because of the uncertainties regarding our European business, we are expecting business to be flat in that area. International business in general should grow in the single-digit percentage range during the third quarter. In North America, we continue to see our ISP and carrier business increasing. Additionally, we are seeing corporate demand increasing for remote access applications. The demand in these areas provide for a high single-digit or low double-digit growth percentage over the next quarter. In an effort to continue supporting our customer with leading edge technologies, we introduced several new products this quarter: MAX 2012, 2024, 4048, and 4060; Pipeline 15; Selectools software; second generation IDSL technology based on IDSL; and also flow control processor cards for the CBX-500.

FINANCIAL HIGHLIGHTS. To facilitate investors' understanding of financial results, we did attach to the press release a set of financial statements (included below) which included on a stand-alone basis separate financial results for each Ascend and Cascade.

Sales were $311.7 million, an increase of 51.6% over Q2 1996 and an increase of 6.5% over comparable sales for Q1 1997. Net income before the one-time merger charges was $62.4 million, or $0.31, and increase of 40.6% over Q2 1996 and an increase of 2.3% over Q1 1997. The one-time charges for the acquisitions of Whitetree and Cascade amounted to $150.3 million on a pre-tax basis and $111.3 million, or $0.57 per share, on an after-tax basis.

ASCEND. Ascend's bookings were strong and the book-to-bill ratio was once again greater than 1.0. Strength in North America and Asia offset some softness we saw in Europe, particularly in Germany and England. Sales for Ascend on a stand-alone basis were $212.5 million, an increase of 69.8% over last year and 5% sequentially. Sales in the June quarter were delayed by the initial production ramp-up and shipment of 56K modems for both conventional MAX products as well as our TNT products. During the latter part of the quarter, we were able to recover in terms of ramping up production capacity, but it did affect overall shipment patterns during the quarter.

Looking at sales by product, comparing the second quarter with the first. 1. Access concentrator products - the traditional MAX products - They accounted for 82% of the business in the second quarter, down from 85% in Q1. 2. Pipeline products accounted for 7% of revenues, up from 6% in Q1. Multimedia products accounted for 6% in Q2, up from 5% in Q1. GRF products - the core switching products - increased to 4%, up from 3% in Q1. All other services and training revenues accounted for the other one percent.

Sales by channel over Q1. The ISP channel contributed 34% of Ascend revenues, down from 50% in Q1. Sales were biased in Q1 as we were rapidly ramping up initial production shipments of the TNT product, and a substantial amount of our production capacity had been allocated to the ISP channel, and specifically to larger customers within that channel. Sales by channel and by product in the second quarter tended to move back to our more traditional patterns of distribution. The carrier channel stayed level at 17% compared with Q1. Resellers saw a tremendous improvement, accounting for 47% of revenues, compared with 31% in the prior quarter. The pickup in the reseller channel was coincident with the pickup in the international pattern of business, and most specifically within Japan. Finally, end users accounted for 2% of the business, as compared to 1% in the first quarter.

Sales by geography. We saw a recovery internationally, as forecasted. International business accounted for 46% of revenues, up from 34% in Q1. North America accounted for 54% of revenues, as compared with 66% in the first quarter. More specifically, looking at the international contribution. The Pacific Rim enjoyed a tremendous rebound, accounting for 30% of revenues in the quarter, up from 13% in the first quarter. Japan specifically accounted for 25% of revenues in the quarter, up from 9% in Q1. Europe was soft, accounting for 15% of sales, compared with 21% in Q1.

Customer concentration. In the second quarter, only one customer accounted for more than 10% of sales, whereas two customers combined accounted for 35-36% of revenues last quarter.

MARGINS. Regarding gross margins, they were virtually unchanged in the quarter. Gross margins were 65.4%, compared with 65.7% in Q1. Operating expenses were 33.4% of sales, up from 30.6% in Q1. The increase was primarily due to higher R&D spending, specifically relating to our acquisitions of Whitetree and Intercon, which were brought online at the beginning of the second quarter. Operating margins for Ascend on a stand-alone basis were 32% of sales, down from 35.1% of sales in Q1, but still within the business model. Net income on a stand-alone basis was $45.4 million, or $0.35 per share, for a return on sales of 21.4%, down from $46.3 million, or $0.36 per share, and 22.9% in Q1. Regarding financial position, we generated positive cash flow in the quarter. Cash and equivalents at the end of June were $477.9 million, an increase of about $18 million over the end of the March quarter. Accounts receivable days sales outstanding (DSO) was 60 days as a consequence of the back-end loaded shipment patterns we experienced. Inventory turned over 4.1 times on an annualized basis, down from 5.5 times at the end of March, once again due to the delay in shipping 56K.

CASCADE. Cascade has continued to show good progress during the quarter on all fronts and is tracking very nicely with our expectations. Sales were $99.2 million, up 10% over Q1. Bookings were well above 1-to-1 in the quarter, a very positive book-to-bill ratio, and the company continues to build backlog, as has been the stated objective of the company. Sales by product: Frame relay continues to dominate the business, accounting for 80% of revenues, largely unchanged from Q1. ATM revenues represented 12% of total revenues, and other service revenues and billable charges were 8% of total revenues.

Cascade's North American sales accounted for 78% of total sales, compared to 82% in Q1. International business accounted for 22% of sales, compared with 18% last quarter, reflecting Cascade's continuing focus and investments in strengthening its international presence. Gross margins were 64.5%, up one percentage point from last quarter. Operating margins also improved by one percentage point over last quarter, to 25.6%. Net income for Cascade was $17 million, for a 17.2% return on sales, or $0.17 per share, up from $14.8 million and $0.15 in the March quarter. Cascade also improved its cash position during the quarter. Cash and equivalents at the end of the quarter were $138.5 million. DSO improved to 70 days, as compared to 77 days at the end of March. We still have a hockey stick in shipment patterns, but some progress was made during the quarter. Finally, inventory turned over 5.8 times annualized, as compared to 5.6 times at the end of March.

We're reasonable pleased with the financial results for the quarter, particularly given the many activities that were underway in connection with the completion of our merger and the completion of our integration plan of the two companies.

The two organizations have been combined and are working together and are working together as a single enterprise and the R&D organizations are beginning to collaborate and develop joint programs on a going-forward basis. In connection with the merger and transitioning, we did eliminate 250 positions from the company. We've taken such action that we believe is required to insure that, for the last half of the year, the results of the combined businesses will not be dilutive.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.