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Aspect Communications Reports First Quarter 2005 Financial Results

Aspect Communications Corporation (Nasdaq: ASPT - News), a leading provider of enterprise customer contact solutions, today reported financial results for the first quarter ended March 31, 2005.

FIRST QUARTER FINANCIAL RESULTS:

Revenues for the first quarter of 2005 totaled $90.6 million compared to $96.8 million for the fourth quarter of 2004 and $91.5 million for the first quarter last year. Product revenue in the first quarter of 2005 was $30.9 million compared to $33.7 million for the fourth quarter of 2004 and $28.1 million for the first quarter of 2004. Services revenue totaled $59.7 million in the first quarter compared to $63.0 million for the fourth quarter of 2004 and $63.4 million for the first quarter of 2004.

Net income attributable to common shareholders for the first quarter was $10.8 million or a profit of $0.13 per share on a basic and fully diluted basis. This compares with a net income attributable to common shareholders of $15.5 million or a profit of $0.19 per share for the fourth quarter of 2004 and a net income attributable to common shareholders of $13.4 million or a profit of $0.17 per share for the first quarter of 2004.

"In addition to seeing improved stability in our support revenue stream, we are encouraged by our year-over-year growth in product revenue," said Gary Barnett, Aspect President and CEO. "We saw strong growth in our workforce productivity product line and our core ACD business, which is testimony to both our innovation and execution strength. We continue to build on our solid financial position, through effective cost management, helping to ensure Aspect's long-term success and leadership in the contact center sector."

For the first quarter of 2005, gross margins were 60%. This compares to 60% for the fourth quarter of 2004 and 61% for the first quarter of 2004. Operating expenses were $40.3 million for the first quarter of 2005 compared to $39.0 million for the fourth quarter of 2004 and $37.9 million in the first quarter of 2004.

Cash, cash equivalents, and short-term investments totaled $219.2 million as of March 31, 2005. This compares to $202.6 million as of December 31, 2004. The company generated $18.3 million in cash from operations during the first quarter. Accounts receivable at quarter-end totaled $48.0 million and days sales outstanding were 39 days compared to 38 days at December 31, 2004.

FIRST QUARTER OPERATIONAL HIGHLIGHTS:

Aspect received revenue from customers across a variety of industry segments. Some of these customers included: British Telecom for Royal Mail Group, DHL, Danversbank, Fairfax County, Healthfirst, Puget Sound Energy, Response Insurance and StarTek.

BUSINESS OUTLOOK:

The following statements are forward-looking, and actual results may differ materially:

The company is planning for second quarter total revenue to be in a range of $90 million to $92 million.

The company expects to complete consolidation of its San Jose facilities in the second quarter of 2005. Acceleration of the lease obligation on the vacated facilities will result in a second quarter restructuring charge of approximately $4 million and will impact second quarter earnings per share by approximately $0.04 per share.

Second quarter operating income, including the impact of the restructuring charge discussed above, is expected to be in a range of $10 million to $11 million.

Earnings per share for the second quarter, including the impact of the restructuring charge discussed above, is expected to be in a range of $0.08 per share to $0.10 per share.

The company will host a conference call and web-cast today at 2:00 p.m. Pacific Time to discuss first quarter 2005 results. A replay of the conference call will be available from April 19, 2005 at 5:00 p.m. Pacific Time through April 26, 2005 at 8:59 p.m. Pacific Time by calling 800-388-9064 or 402-220-1116. The web-cast and replay of the conference call may be accessed from the company's home page at www.aspect.com.

About Aspect Communications

Aspect Communications Corporation is a leading provider of contact center solutions and services that enable businesses to manage and optimize customer communications. Aspect's global customer base includes more than two-thirds of the Fortune 50 and leading corporations in a range of industries, including transportation, financial services, insurance, telecommunications, retail and outsourcing, as well as large government agencies. The company's leadership is based on two decades of expertise. Aspect is headquartered in San Jose, Calif., with offices in countries around the world.

Notes on financial presentation: Actual financial results are prepared in accordance with U.S. generally accepted accounting principles.

Certain statements contained in this press release, including but not limited to, statements relating to expected second quarter total revenue, operating income and earnings per share are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities and Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, and are made under its safe-harbor provisions. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Specific factors that may cause actual revenue, operating income and earnings per share results to differ include: the significant percentage of Aspect's quarterly sales consummated in the last few days of the quarter and the potential for delays in closing of sales or product deliveries make financial predictions especially difficult and raise a substantial risk of variance in actual results; changes in the overall mix and volume of product line revenues can have a significant impact on gross margin and profitability; the loss of support customers or if one or more support contracts is delayed, reduced or cancelled; fluctuations in our North American and International business levels and/or economic conditions, the hiring and retention of key employees, insufficient, excess or obsolete inventory and variations in valuation, and foreign exchange rate fluctuations can all cause revenues and income to fall significantly short of anticipated levels. The economic, political and other uncertainties caused in the United States and throughout other regions of the world add to these challenges. Additional risks that could cause actual results to differ materially from those projected are discussed in Aspect's Form 10-K for the year ended December 31, 2004, as filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. Aspect undertakes no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

NOTE: Aspect, the Aspect logo and the phrases and marks relating to other Aspect products and services discussed in this press release constitute one or both of the following: (1) registered trademarks and/or service marks of Aspect Communications Corporation in the United States and/or other countries or (2) intellectual property subject to protection under common law principles. All other names and marks mentioned in this document are properties of their respective owners.



ASPECT COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts - unaudited)

Three months ended
-----------------------------------
March 31, December 31, March 31,
2005 2004 2004
---------- ----------- ---------
Net revenues:
Software license $19,127 $20,743 $16,605
Hardware 11,737 12,999 11,530
Services:
Software license updates
and product support 51,555 51,995 54,257
Professional services and
education 8,184 11,015 9,095
-------- ----------- ---------
Services 59,739 63,010 63,352
-------- ----------- ---------
Total net revenues 90,603 96,752 91,487
-------- ----------- ---------
Cost of revenues:
Cost of software license
revenues 2,768 2,672 1,555
Cost of hardware revenues 7,133 8,308 8,331
Cost of services revenues 25,561 27,377 25,239
Amortization of intangible
assets 724 724 725
-------- ----------- ---------
Total cost of revenues 36,186 39,081 35,850
-------- ----------- ---------

Gross margin 54,417 57,671 55,637

Operating expenses:
Research and development 11,400 10,624 11,343
Sales and marketing 19,011 19,632 19,599
General and administrative 8,965 6,499 6,940
Restructuring charges 411 -- --
Amortization of intangible
assets and stock-based
compensation 507 2,261 17
-------- ----------- ---------
Total operating expenses 40,294 39,016 37,899
-------- ----------- ---------
Income from operations 14,123 18,655 17,738

Interest and other income
(expense), net 758 743 (54)

Income before income taxes 14,881 19,398 17,684
Provision for income taxes 1,786 1,627 2,110
-------- ----------- ---------
Net income 13,095 17,771 15,574
Less preferred stock
dividend, accretion, and
amortization (2,314) (2,269) (2,136)
-------- ----------- ---------
Net income attributable to common
shareholders $10,781 $15,502 $13,438
======== =========== =========
Basic earnings per share (1) $0.13 $0.19 $0.17

Basic weighted average shares
outstanding 60,757 59,973 57,740

Diluted earnings per share $0.13 $0.19 $0.17

Diluted weighted average shares
outstanding 86,047 85,882 86,181


(1) Pursuant to GAAP, the Company is required to present earnings per
share "as if" all earnings were distributed to Common
and Preferred Shareholders. Under this "two class" method,
earnings are allocated to Common and Preferred Shareholders in
proportion to their respective ownership interests. This
calculation for the three months ended March 31, 2005 would
allocate approximately 73% of the current earnings to Common
Shareholders and yield $0.13 earnings per share per Common
Shareholder, as shown above. However, the Company has not in the
past, and does not currently intend to, declare a distribution
of earnings. Absent this "as if" apportionment earnings per Common
share would be $0.15 for the three months ended March 31, 2005.


ASPECT COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands - unaudited)

March 31, December 31, March 31,
2005 2004 2004
-------- ----------- ---------
Assets
Current assets:
Cash, cash equivalents and short-
term investments $219,168 $202,631 $194,999
Accounts receivable, net 48,012 49,163 39,062
Inventories 3,745 3,340 5,607
Other current assets 17,058 13,138 20,663
-------- ----------- ---------
Total current assets 287,983 268,272 260,331

Property and equipment, net 62,277 62,494 66,225
Intangible assets, net 4,292 5,015 7,187
Other assets 4,273 4,723 5,528
-------- ----------- ---------
Total assets $358,825 $340,504 $339,271
======== =========== =========

Liabilities, redeemable convertible
preferred stock, and shareholders'
equity
Current liabilities:
Short-term borrowings $124 $150 $143
Accounts payable 5,403 7,491 6,590
Accrued compensation and related
benefits 19,357 19,252 19,518
Other accrued liabilities 58,562 61,954 56,568
Deferred revenues 55,670 48,003 63,407
-------- ----------- ---------
Total current liabilities 139,116 136,850 146,226

Long term borrowings 138 155 40,013
Other long-term liabilities 4,523 5,793 9,219
-------- ----------- ---------
Total liabilities 143,777 142,798 195,458

Redeemable convertible preferred
stock 44,804 42,490 35,817

Shareholders' equity 170,244 155,216 107,996
-------- ----------- ---------
Total liabilities, redeemable
convertible preferred stock, and
shareholders' equity $358,825 $340,504 $339,271
======== =========== =========


ASPECT COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands - unaudited)

Three months ended
---------------------------------
March 31, December 31, March 31,
2005 2004 2004
-------- ----------- ---------
Cash flows from operating activities:
Net income $13,095 $17,771 $15,574
Reconciliation of net income to cash
provided by operating activities:
Depreciation 4,011 5,807 6,105
Amortization of intangible assets 724 724 743
Non-cash compensation and
services expenses 507 2,261 --
Loss on disposal of property 2 10 9
Loss on short-term investment,
net 399 371 267
Changes in operating assets and
liabilities:
Accounts receivable, net 317 (6,215) 206
Inventories (457) 769 507
Other current assets and
other assets (3,589) 2,394 (732)
Accounts payable (2,068) 147 1,658
Accrued compensation and related
benefits 228 (1,794) 1,741
Other accrued liabilities (2,867) (2,509) (10,177)
Deferred revenues 7,973 (1,072) 13,078
-------- ----------- ---------
Cash provided by operating
activities 18,275 18,664 28,979

Cash flows from investing activities:
Purchase of investments (29,394) (36,777) (61,054)
Proceeds from sales and maturities of
investments 27,967 39,580 33,317
Property and equipment purchases (3,903) (2,783) (3,827)
-------- ----------- ---------
Cash provided by (used in)
investing activities (5,330) 20 (31,564)

Cash flows from financing activities:
Proceeds from issuance of common
stock, net 3,649 2,358 7,642
Payments on capital lease obligations (43) (56) (33)
Proceeds from borrowings -- -- 40,000
Payments on borrowings -- -- (40,979)
Payments on financing costs -- (32) (1,053)
-------- ----------- ---------
Cash provided by financing
activities 3,606 2,270 5,577

Effect of exchange rate changes
on cash and cash equivalents (421) 1,941 273
-------- ----------- ---------
Net increase in cash and cash
equivalents 16,130 22,895 3,265
Cash and cash equivalents:
Beginning of period 89,250 66,355 75,653
-------- ----------- ---------
End of period 105,380 89,250 78,918

Short-term investments at the end of
period 113,788 113,381 116,081
-------- ----------- ---------
Cash, cash equivalents and short-term
investments $219,168 $202,631 $194,999
========= ========== ==========
Supplemental disclosure of cash flow
information:
Cash paid for interest $171 $142 $643
Cash paid for income taxes $1,324 $1,660 $2,967
Supplemental schedule of noncash
investing and financing activities:
Accrued preferred stock dividend
and amortization of redemption
premium $1,939 $1,898 $1,779
Amortization of beneficial
conversion feature $375 $371 $357

--------------------------------------------------------------------------------
Source: Aspect Communications Corporation

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