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This document contains proprietary information. Use of this information or reproduction of this document,in whole or part, is not allowed without the written consent of Ditech Communications Corporation.
Corporate OverviewTim Montgomery
Chairman of the Board, President & CEO
Corporate OverviewTim Montgomery
Chairman of the Board, President & CEO
2Proprietary
Forward Looking StatementsForward Looking StatementsWe must point out that as with similar presentations, the following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed here. We will attempt to identify such forward-looking statements with qualifying words such as… "we intend, plan, believe, estimate, predict…or, “we may,” “could” or “will," or other comparable language. Factors that could cause results to be different include factors discussed today in this presentation, as well as those detailed in the section entitled “Future Growth and Operating Results Subject to Risk” in the Ditech Communications’ Annual Report on Form 10-Q for the quarter ended January 31, 2005 (filed March 8, 2005 with the Securities and Exchange Commission).
3Proprietary
About DitechAbout DitechDitech Communications designs and developsvoice processing systems and solutions forcommunications networks
Founded in 1983; Voice Processing Products since 1987
180 Employees
Headquartered in Mountain View, CA
Listed on NASDAQ exchange since 1999
$134 Million in Cash and Investments. $35M used in stock repurchase
No debt
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Complete System Level SolutionsComplete System Level Solutions
VoiceProcessing
Systems
Scalable Hardware Platforms
DensityPower
ElementManagement
Systems
Customizable
Software Algorithms
Echo CancellationVQA
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We Reduce CAPEX & Improve Quality for Mobile, Wireline and VoIP CarriersWe Reduce CAPEX & Improve Quality for Mobile, Wireline and VoIP Carriers
PSTN GSM- HR
Echo &Voice Quality
Solutions
GSM
VoIP
CapacityEnhancement
Solutions
VoIPSolutions
CDMA GSM-AMR
3G CDMA
6Proprietary
Global, Industry Leading CustomersGlobal, Industry Leading Customers
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53% Y/Y Revenue Growth for First 9 months53% Y/Y Revenue Growth for First 9 months
As reported in our quarterly filings on Form 10-Q or Form 10-K annual filing (previously reported as EchoCancellation Revenue). All amounts on a GAAP basis.
FY04
$7.6 $8.3 $9.1$10.0$10.7
$14.5
$21.3$23.1
$25.5$24.3
$21.3
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
FY03 FY05
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Strong Gross MarginsStrong Gross Margins
As reported in our quarterly filings on Form 10-Q or Form 10-K annual filing (previously reported as EchoCancellation Gross Margins). All amounts on a GAAP basis.
57%59%
65% 64% 65% 66% 66%68%
75%78% 78%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
FY04FY03 FY05
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Balance Sheet Summary – As of 1/31/05Balance Sheet Summary – As of 1/31/05
Cash and Investments $134 Million
$35M used in stock repurchase
Accounts Receivable $17 Million
DSO 72 Days
Inventory Turns 4
Debt ZERO
Holiday Shutdown –Non Linearity
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Product StrategyProduct Strategy
2003 Future2004 2005
VQA
Pack
et
Echo Mob
ile/C
ircui
t
VoIP
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Flexible Scalable PlatformsFlexible Scalable Platforms
SX-24/30
QUAD T1/E1
BVP FlexOC3/STM1 to DS3/STS1
Quad Voice Processor(QVP)
Echo Cancellation
VQA
VoIP
Packet Voice Processor
12Proprietary
Echo & VQA in Mobile Echo & VQA in Mobile
Phone
Hybrid echo
Class 5SwitchClass 4
BSCMSC
Cell Phone
Class 4
Class 4
PSTN
Acoustic echo
Noise
Level
REMOVED
REMOVED
Echo is caused by the return of a signal from a far-end device.
We hear more echo as far-end delay increases
Background Noise forces cell phones to use higher rate
transmission.
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Echo Cancellation Market Today-SnapshotEcho Cancellation Market Today-Snapshot
� Nortel� Lucent� Ericsson� Nokia� Siemens� Alcatel
NMSS
TLAB
DITCInternal EC
70%
Note: External EC Data based on July 31, June 30 and July 2, 2004 10Q results respectively
15Proprietary
NMSS
TLAB
DITC
Internal EC 70%
Internal Echo
VQA
Ext Echo
VQA expands Mobile OpportunityVQA expands Mobile Opportunity
Echo Market~$700M /year
$1.2B/year Market
Note: 2005 and beyond, annual market estimate- Ditech Analysis
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VQA Customer Engagement CycleVQA Customer Engagement Cycle
3-5 6-81-2 12-18 months
Customer
Engagem
ent
Trial
Agreemen
t
Trial
First
Deploym
ent
Network
Deployment
700+ GSM & CDMAOperators
Total Elapsed Time
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World wide VQA Engagement FunnelWorld wide VQA Engagement Funnel
Deployment
Trials Agreement
Trial
First Deploy
Customer Engagements
Tele.Ring, AirTel
2 Asian Customers
30+
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Voice-over-IP presents growth opportunitiesVoice-over-IP presents growth opportunities
Growth Driven by end-to-end VoIP based services
$0
$2
$4
$6
2004 2005 2006 2007 2008
Rev
enue
$B
WW Carrier Equipment Revenue for VoIPInfonetics Carrier Equipment Revenue Forecast- February 05
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Approaching the mainstream, VoIP requires new capabilitiesApproaching the mainstream, VoIP requires new capabilities
Interconnect VoIP networks with each other while ensuring format compatibility
Overcome voice quality impairments due to large variety of VoIP devices in enterprise and residence, as well as networks
Measure voice quality to adhere to Service Level Agreements
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Packet Voice Processor supports these new carrier requirementsPacket Voice Processor supports these new carrier requirements
The Packet Voice Processor leverages our TDM experience with new features targeted for improving VoIP networks
Works in conjunction with Media Gateways and SBCs for processing voice calls
Class 4
• Large Scale• 5-9’s reliability• Convert Formats• Cancel Echo • Measure Quality
Packet Voice Processor
Media GW
Border Controller
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Packet Voice ProcessorPacket Voice Processor
Next Generation VoIP system supporting:VoIP Codec TranscodingVoice and Packet Quality AssuranceVoice Quality Measurement and Monitoring
System and PerformanceHardware & software system Transcode, enhance and measure at full scale and full rateUp to 18,000 simultaneous VoIP sessions per system
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Ditech addresses fundamental new problems in End-to-End VoIP callingDitech addresses fundamental new problems in End-to-End VoIP calling
Decrease CAPEX for carrier VoIP interconnects with cost-effective codec format conversion
Reduce tech support costs with voice quality processing
Measure and report for SLA enforcement
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Market for VoIP end-to-end Services equipment is $1.5B in 2007Market for VoIP end-to-end Services equipment is $1.5B in 2007
$0
$300
$600
$900
$1,200
$1,500
CY2005 CY2006 CY2007
Mill
ions
SBCMG
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The Packet Voice Processor represents a $500M TAM in 2007The Packet Voice Processor represents a $500M TAM in 2007
$0
$300
$600
$900
$1,200
$1,500
CY2005 CY2006 CY2007
Mill
ions
SBCPVPMG
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The Ditech Communications AdvantageThe Ditech Communications Advantage
Targeted Solutions by Market
Focus on Customers/Strong Relationships
Investing in Next Generation Solutions
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SummarySummary
Strong FinancialsRevenue GrowthStrong Balance Sheet – Generating CashCommitment to Profitability
Strong Market PresenceFocusing on Growth SegmentsProviding System Level SolutionsProven Technology - Momentum
Growing Future MarketsBenefiting from Past Investments