AVOCENT REPORTS RECORD SALES AND NET INCOME
FOR FOURTH QUARTER
HUNTSVILLE, Ala. (January 19, 2006) - Avocent Corporation (NASDAQ:AVCT) today reported record sales and net income for the fourth quarter and year ended December 31,
2005. Net sales for the fourth quarter increased 6.8% to $106.8 million compared with sales of $100.0 million in the fourth quarter of 2004.
“Avocent set new records for sales through all
distribution channels in the fourth quarter,” stated John R. Cooper, chairman and chief executive officer of Avocent Corporation. “We also gained traction in all major markets, including the U.S., Europe and
Asia. Our growth benefited from higher sales of newer products and contributions from acquisitions made over the past two years. Revenues from digital products and embedded technologies were especially strong compared with
last year.
“Avocent’s gross margin exceeded 60% for the first time and benefited from a higher percentage of digital products and embedded technologies. Our GAAP operating margin for the fourth quarter
of 2005 was 24.3% due to the higher gross margin and lower research and development expense. 2005 was the first year that digital products accounted for more than half of Avocent’s total revenues,” continued
Mr. Cooper.
Fourth quarter 2005 operational income, which is prior to intangible amortization, tax on repatriated earnings, gain on sale of property held for investment and merger-related expenses, was $24.6 million, or
$0.49 per diluted share, compared with income prior to intangible amortization, merger-related expenses, and equity impairment charges of $20.6 million, or $0.40 per diluted share, in the fourth quarter of
2004. (See “Use of Non-GAAP Financial Measures” discussion below.) Net adjustments to reconcile to GAAP net income were $5.5 million in the fourth quarter of 2005, including $2.5 million in intangible
amortization and $3.8 million in tax on repatriated earnings. During the fourth quarter of 2005, we repatriated $90 million of earnings from our overseas subsidiaries pursuant to the American Jobs
Creation Act of 2004. Net adjustments to reconcile to GAAP net income were $8.6 million in the fourth quarter of 2004, including $6.6 million in intangible amortization and $3.4 million in impairment charges
related to investments in two private companies. In addition, the adjustments in 2004 included a related $3.0 million tax benefit.
GAAP net income for the fourth quarter of 2005
increased 57.9% to $19.1 million, or $0.38 per diluted share. This compares with GAAP net income of $12.1 million, or $0.23 per diluted share, in the fourth quarter of 2004. Weighted average shares outstanding declined
3.3% over the year to 49.8 million at the end of fiscal 2005 due to Avocent’s repurchase of shares under its previously announced stock repurchase program.
Branded sales increased 11.1% from the fourth quarter of
2004 and accounted for 53.5% of total fourth quarter 2005 sales. OEM sales increased 2.2% from the fourth quarter of 2004 and accounted for 46.5% of total fourth quarter 2005 sales. U.S. sales increased 6.1% to $60.1
million and international sales rose 7.7% to $46.7 million compared with the fourth quarter of 2004.
Gross profit for the fourth quarter of 2005 increased 10.3% to $65.1 million with a gross margin of 60.9%, a
record for Avocent. This compared with gross profit of $59.0 million and a gross margin of 59.0% in the fourth quarter of 2004. The increase in gross profit was due to higher sales and improved product mix, including
increased sales of digital products, software and IPMI products.
Research and development expenses increased 3.6% to $13.4 million, or 12.5% of sales, compared with $12.9 million, or 12.9% of sales, in the fourth
quarter of 2004. “Our focus on R&D has been a primary catalyst in expanding our digital product offerings. Avocent was the first to market with a digital KVM product and we are the leader in this fast
growing segment. In addition, our margins have benefited due to the increased percentage of digital products we sell and the improved manufacturing efficiencies we have achieved through product enhancement and
redesigns,” continued Mr. Cooper.
Selling, general and administrative expenses increased 9.6% to $23.3 million compared with $21.2 million in the fourth quarter of 2004. The increase in SG&A expenses
was due primarily to higher selling expenses related to the increase in sales and additional marketing expenditures for recently introduced products.
“We announced the reorganization of our operations during the
fourth quarter into five divisions based on key product segments and markets within the company,” continued Mr. Cooper. “We expect the new divisions will facilitate our continued growth by enhancing customer
service, speeding delivery of products to market, and better focusing Avocent’s research, development and marketing expenditures.”
Avocent’s balance sheet and cash position remained strong as of
December 31, 2005. The Company’s cash flow from operations was approximately $19 million for the fourth quarter of 2005 with approximately $346 million in cash, cash equivalents and investments at the
quarter’s end. Avocent had no long-term debt as of December 31, 2005.
Use of Non-GAAP Financial Measures
Income prior to intangible amortization, tax on repatriated earnings, gain on sale of property
held for investment and merger-related expenses, or operational income as used in the attached financial statement schedules, is not a measure of financial performance under generally accepted accounting principles (GAAP) and
should not be considered a substitute for or superior to GAAP. Avocent’s management uses operational income as a financial measure to evaluate performance and allocate resources within the Company. Management
believes this measure presents the Company’s results on a more comparable operational basis by excluding non-cash amortization expenses, non-operational expenses associated with mergers and acquisitions, taxes paid on
repatriated earnings from overseas subsidiaries, and significant and unusual non-recurring gains and losses on sales or impairments of investments made by Avocent. Avocent believes that operational income is a measure of
performance used by some investment banks, analysts, investors and others to make informed investment decisions. Other companies may calculate operational income in a different manner so this measure may not be comparable
to similar measures presented by other companies. A reconciliation of Avocent’s results using operational measures and GAAP is set forth in the condensed consolidated statements of operations included in this press
release.
Conference Call Information
Avocent will provide an on-line, real-time Web-cast and rebroadcast of its fourth quarter results conference call to be held January 19, 2006. The live broadcast will
be available on-line at www.avocent.com as well as www.investorcalendar.com beginning at 10:00 a.m. central time. The on-line replay will follow immediately and continue for 30 days.
About Avocent Corporation
Avocent Corporation is the leading supplier of connectivity solutions for enterprise data centers, service providers and financial institutions worldwide. Branded products
include switching, extension, intelligent platform management interface (IPMI), remote access and video display solutions. Additional information is available at: www.avocent.com.
Forward-Looking Statements
This press release contains statements that are forward-looking statements as defined within the Private Securities Litigation Reform Act of 1995. These include statements
regarding the development, introduction, features, and benefits of new products and technologies, the size and growth of the current and future markets for these products and technologies (including our combined embedded KVM
and IPMI solutions), engineering and design activities, and expected benefits resulting from our reorganization. These forward-looking statements are subject to risks and uncertainties that could cause actual results to
differ materially from the statements made, including the risks associated with general economic conditions, risks attributable to future product demand, sales, and expenses, risks associated with reliance on a limited number
of customers, component suppliers, and single source components, risks associated with acquisitions, risks associated with product design efforts and the introduction of new products and technologies, and risks associated with
obtaining and protecting intellectual property rights. Other factors that could cause operating and financial results to differ are described in Avocent’s annual report on Form 10-K filed with the Securities and
Exchange Commission on March 14, 2005. Other risks may be detailed from time to time in reports to be filed with the SEC. Avocent does not undertake any obligation to publicly update its forward-looking statements
based on events or circumstances after the date hereof.