Visual Networks Reports Third Quarter Results

21 October 2005

Visual Networks, Inc.(R) (Nasdaq: VNWK) today reported financial results for the third fiscal quarter ended September 30, 2005. Revenue for the third quarter was $11.6 million, an increase of 2 percent from $11.4 million reported in the second quarter and a decrease of 16 percent compared with $13.8 million reported in the prior year's third quarter.

Thecompany reported net income of $691,000, or $0.02 per share, compared with a
net loss of $1.2 million, or $0.03 per share, in the second quarter, and net income of $246,000 or $0.01 per share, in the previous year's third quarter.

The company took a one-time litigation charge of $725,000, or $0.02 per share, pursuant to a complete settlement agreement with Paradyne Corporation and Zhone Technologies, Inc. The company exited the quarter with $10.3 million in cash and cash equivalents. Accounts receivable of $7.9 million at September 30, 2005 represented 63 days sales outstanding.

"We are pleased with our third quarter performance, as revenue from our
Ethernet appliances doubled from the previous quarter and our application
performance management software modules continued to see strong demand," said
Larry Barker, President and CEO of Visual Networks. "The solid market
adoption of our new technologies positions us for growth as four of our major
service provider channels -- AT&T, SBC, MCI and Verizon -- enter the final
phases of their merger processes."

Third Quarter Highlights:

* Added over 20 new enterprise customers;
* Recorded approximately 25 percent of quarterly revenues from sales of
newest products -- Ethernet appliances and application performance
management and Voice over Internet Protocol (VoIP) software modules;
* Returned to profitability;
* Hired Daniel Kim as director of sales for new Asia/Pacific operations;
* Announced forthcoming release of Select Bandwidth Manager for Citrix
Presentation Server which provides granular visibility into Citrix
application protocols;
* Launched VoIP Planner, new synthetic call generation solution for VoIP;
* Introduced VoIP Advisor product bundle for distribution by our VAR
partners;
* Passed our ISO 9001 Surveillance Audit;
* Raised $10 million in a private placement;
* Settled outstanding IP litigation via agreement with Paradyne
Corporation and Zhone Technologies, Inc; and
* Addressed nearly 300 prospective customers at events in Chicago and
Philadelphia as presenting sponsor of Network World's VoIP technology
tour.

Future Expectations
The company expects fourth quarter revenue to be in the range of $12.0 to
$13.0 million and EPS to be in the range of $0.02 and $0.04.

Broadcast of Third Quarter Results
Visual Networks' management will host a discussion of this afternoon's
announcement with investors and financial analysts today, Thursday, October
20, 2005 at 4:45 p.m. (EDT). To participate in the teleconference, please
dial 617.614.4925 and enter passcode 20656386. A live web cast of the call
will also be available at http://www.visualnetworks.com/news.
For those unable to listen to the live call, a replay will be available
from 6:45 PM EDT on October 20, 2005 until 6:45 p.m. EDT on October 22, 2005
by dialing 617-801-6888 and entering passcode 93791602. An archive of the
call will be available online shortly following the conclusion of the live
call on Visual Networks' Web site at http://www.visualnetworks.com/news.

About Visual Networks
Visual Networks, Inc. (Nasdaq: VNWK) is a leading provider of network and
application performance management solutions. The company's technologies
enable enterprises to reliably and securely manage the delivery and
performance of key applications such as Voice over IP (VoIP) across their
infrastructures. Visual Networks' products increase application and network
availability, optimize the use of bandwidth across the network, and reduce
operating costs across traditional and IP-based infrastructures. For more
information, visit http://www.visualnetworks.com.

Note to Investors
This press release contains forward-looking information within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, and is subject to the safe harbor created by those
sections. The forward-looking information is based upon current information
and expectations regarding Visual Networks and its subsidiaries. These
estimates and statements speak only as of the date on which they are made, are
not guarantees of future performance, and involve certain risks, uncertainties
and assumptions that are difficult to predict. Therefore, actual outcomes and
results could materially differ from what is expressed, implied, or forecasted
in such forward-looking statements. Visual Networks assumes no obligation to
update the information contained in this press release. Visual Networks'
future results may be impacted by risks associated with market acceptance of
Visual UpTime Select, fluctuations in IT budgets and spending, issues related
to the Company's distribution channels, rapid technological change and the
emerging services market, potential fluctuations in quarterly operating
results, its dependence upon sole and limited source suppliers and
fluctuations in component pricing and availability, its dependence upon key
employees, and its ability to retain employees. Visual Networks' future
results may also be impacted by other risk factors listed from time to time in
its SEC filings, including, but not limited to, the Company's Quarterly
Reports on Form 10-Q and its Annual Report on Form 10-K.

Visual Networks, Inc.

Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)

For the For the
Three Months Ended Nine Months Ended
September 30, September 30,

2004 2005 2004 2005

Revenue $13,817 $11,572 $38,481 $32,574
Cost of revenue 4,284 3,393 11,609 9,867
Gross profit 9,533 8,179 26,872 22,707
Operating expenses:
Research and development 2,378 2,045 7,439 6,790
Sales and marketing 4,054 3,982 11,826 11,947
General and administrative 2,560 1,917 7,012 5,817
Restructuring - - - 716
Total operating
expenses 8,992 7,944 26,277 25,270
Income (loss) from operations 541 235 595 (2,563)
Other income (expense) - (125) (262) (672)
Settlement of litigation - (725) - (725)
Gain on derivative liability - 1,931 - 1,931
Interest expense, net (295) (625) (991) (1,144)
Net income (loss) $246 $691 $(658) $(3,173)
Basic and diluted income (loss)
per share $0.01 $0.02 $(0.02) $(0.09)

Visual Networks, Inc.

Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)

December 31, September 30,
2004 2005

Assets
Current assets:
Cash and cash equivalents $11,317 $10,292
Accounts receivable, net 9,335 7,921
Inventory 3,822 3,000
Other current assets 940 566
Total current assets 25,414 21,779
Property and equipment, net 2,001 1,420
Total assets $27,415 $23,199

Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses $9,341 $8,423
Convertible debentures, net of unamortized
debt discount 8,163 -
Deferred revenue 3,388 1,769
Total current liabilities 20,892 10,192
Long-term debt, net - 8,187
Total liabilities 20,892 18,379
Stockholders' equity 6,523 4,820
Total liabilities and stockholders'
equity $27,415 $23,199

Visual Networks, Inc.

Condensed Consolidated Statements of Cash Flows
(in thousands, except per share data)
(unaudited)

For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2005 2004 2005

Cash Flows from Operating Activities:
Net income (loss) $246 $691 $(658) $(3,173)

Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization 319 297 1,063 968
Bad debt expense 58 (61) 52 (51)
Deferred compensation expense 33 33 154 99
Non-cash interest expense 218 139 718 536
Gain on derivative liability - (1,931) - (1,931)
Early extinguishment of debt - 125 262 672
Changes in assets and liabilities:
Accounts receivable (2,054) 1,238 (4,358) 1,465
Inventory (1,152) 331 189 822
Other assets 42 417 (587) 120
Accounts payable and accrued
expenses 1,133 1,401 1,297 (916)
Deferred revenue (209) (571) (1,240) (1,619)
Net cash provided by (used in)
operating activities (1,366) 2,109 (3,108) (3,008)
Cash Flows from Investing Activities:
Net sales of short term investments 528 - 1,530 -
Expenditures for property and
equipment (340) (134) (762) (387)
Net cash provided by (used in)
investing activities 188 (134) 768 (387)
Cash Flows from Financing Activities:
Repayment of convertible debentures - (2,000) (1,500) (9,000)
Repayment of short-term debt - (4,000) - -
Proceeds from long-term debt - 10,000 - 10,000
Exercise of stock options and
issuance of common stock
under employee stock purchase plan 140 23 686 1,370
Net cash provided by (used in)
financing activities 140 4,023 (814) 2,370
Net increase (decrease) in Cash and
Cash Equivalents (1,038) 5,998 (3,154) (1,025)
Cash and Cash Equivalents, Beginning
of Period 13,555 4,294 15,671 11,317
Cash and Cash Equivalents,
End of Period $12,517 $10,292 $12,517 $10,292

Visual Networks, Inc.

Additional Financial Information

The following presents additional financial information about Visual
Networks for the three months ended December 31, 2004, March 31, 2005, June
30, 2005 and September 30, 2005 respectively (dollars in thousands).

12/31/04 3/31/05 6/30/05 9/30/05

Days Sales Outstanding
Calculation:
Days sales outstanding
("DSOs"') are calculated
as follows:

Accounts Receivable $9,335 $6,356 $9,098 $7,921
Quarterly sales/ $14,162/ $9,564/ $11,438/ $11,572/
Days in quarter 92 90 91 92
Days sales outstanding 60.6 59.8 72.4 63.0

Inventory Turns Calculation:
Inventory turns are
calculated as follows:

Days in year 366 365 365 365
Inventory/ $3,822/ $4,024/ $3,331/ $3,000/
(Quarterly COGS/ ($4,271/ ($3,399/ ($3,075/ ($3,339/
Days in quarter) 92) 90) 91) 92)

Inventory turns 4.4 3.4 3.7 4.4

Employees:
Research and development 57 57 44 46
Sales and marketing 62 68 61 59
Manufacturing and
customer service 12 11 9 9
General and administrative 28 27 15 15
Total Employees 159 163 129 129

Revenue:
Uptime:
Classic $1,899 $883 $53 $-
Select 11,385 8,338 11,022 11,235
IP Insight 857 338 354 324
Royalties 20 5 9 13
Total $14,161 $9,564 $11,438 $11,572

Revenue:
Hardware $5,853 $4,508 $3,990 $5,337
Software 6,026 3,129 5,413 4,197
Services 2,282 1,927 2,035 2,038
Total $14,161 $9,564 $11,438 $11,572

Common stock outstanding 33,982 34,492 34,656 34,676
Weighted average share
calculations:
Basic weighted average
shares outstanding 33,546 34,241 34,607 34,784
Effect of dilutive
securities:
Employee stock options 2,441 - - 374
Diluted weighted average
shares outstanding 35,987 34,241 34,607 35,158
Net income (loss) $673 $(2,695) $(1,169) $691
Basic income (loss) per
share $0.02 $(0.08) $(0.03) $0.02
Diluted income (loss)
per share $0.02 $(0.08) $(0.03) $0.02