AVOCENT REPORTS RECORD SALES FOR THIRD QUARTER
Represents 19% Increase Over Third Quarter 2003
HUNTSVILLE, Ala. (October 21, 2004) - Avocent Corporation (NASDAQ:AVCT) today reported higher sales for the third quarter and nine months ended October 1, 2004.
“Avocent’s sales rose 19.4% to a record $91.3 million due to increased demand from OEM customers and higher sales of
branded products,” stated John R. Cooper, president and chief executive officer of Avocent Corporation. “Our growth in sales was
generated across all product lines and geographic markets. We also recorded revenue from the first shipments of IPMI-enabled products by Dell and IBM that include our IPMI technology.
“We continued to invest in research and development during the quarter to fund new product development. The increase in R&D to
$11.8 million, or 12.9% of sales, reflects increased spending for new products that will be introduced in the fourth quarter and future IPMI-enabled products. In addition, the higher costs reflect R&D staff added
through the acquisitions of OSA, Crystal Link, Soronti, and Sonic Mobility since the third quarter of last year. We are excited about the opportunities provided by the new technologies added through each of these
acquisitions.
“We completed the acquisition of Sonic Mobility late in the third quarter. The acquisition expands our markets beyond fixed IT assets such
as servers to include the fast-growing markets for mobile IT assets, including BlackBerry, Pocket PC, and Palm platforms. We are
already working to incorporate Sonic Mobility’s proprietary secure wireless systems administration and mobile device management into Avocent products and are excited about the potential for expanding our market base,” continued
Mr. Cooper.
Third Quarter Results
Income prior to intangible amortization and merger-related expenses rose 12.4% to $17.2 million, or $0.34 per diluted share (including a net decrease of $0.03 per share attributable to OSA), compared with income prior to
intangible amortization and merger-related expenses of $15.3 million, or $0.32 per diluted share, in the third quarter of 2003. (See “Use of Non-GAAP Financial Measures” discussion below.) Net adjustments to
reconcile to GAAP income were $6.4 million in the third quarter of 2004, including $6.5 million in intangible amortization and a $1.1 million charge for acquired in-process research and development expense
related to Sonic Mobility. In addition, the adjustments included a $2.8 million tax benefit. Net adjustments to reconcile GAAP income were $1.8 million in the third quarter of 2003, including $4.7 million in
amortization of intangible assets, offset somewhat by $3.2 million in realized gains from the sale of an equity investment.
GAAP
net income for the third quarter of 2004 was $10.8 million, or $0.21 per diluted share. This compares with a GAAP net income of $13.5 million, or $0.28 per diluted share, in the third quarter of 2003.
Net sales for the third quarter rose 19.4% to $91.3 million compared with sales of $76.5 million in the third quarter of 2003. Branded sales rose 14.0% from the third quarter of 2003 and accounted for 53.8% of sales. OEM sales rose 26.3% from the third quarter of 2003 and accounted for 46.2% of total third quarter 2004 sales. OEM sales were strong in the third quarter due to increased demand for digital products from domestic and international customers. U.S. sales increased 14.6% to $56.0 million and international sales rose 27.8% to $35.3 million compared with the third quarter of 2003.
“We experienced strong sales across all product lines,” continued Mr. Cooper. “Demand for our digital products
continues to build and represented approximately 49% of third quarter sales. We expect digital sales will represent over 50% of total revenues by year-end as we launch new products and benefit from increased revenues from
embedded technologies. We also enjoyed excellent growth from our core KVM products, including newer models such as our high-end AMX product line and our secure SwitchView which is sold to government customers.”
Gross profit for the third quarter of 2004 rose 21.9% to $53.1 million with a gross margin of 58.2%. This compared with gross profit of $43.6 million and a gross margin of 57.0% in the third quarter of 2003. The increase in gross profit was due to the higher sales base and improved product mix, including higher sales of digital, embedded products and IPMI-enabled products.
Research and development expenses increased 65.8% to $11.8 million, or 12.9% of sales, compared with $7.1 million, or 9.3% of sales, in the third quarter of 2003.
Selling, general and administrative expenses rose 25.9%
to $21.2 million compared with $16.8 million in the third quarter of 2003. The increase was due to higher costs related to the addition of the Soronti, Crystal Link, OSA and Sonic Mobility sales and marketing teams, the
expansion of certain sales and marketing programs, legal fees and other costs related to protecting our intellectual property rights, and Sarbanes-Oxley Act compliance costs.
Avocent’s balance sheet and cash position remained strong as of October 1, 2004. The Company’s cash flow from operations was approximately $19 million for the third quarter of 2004 with over $300 million in cash,
cash equivalents and investments at the quarter’s end.
Use of Non-GAAP Financial Measures
Income prior to intangible amortization 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, and significant and unusual non-recurring gains and losses on sales 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 third quarter results conference call to be held October 21, 2004. The live broadcast will be available on-line at www.avocent.com as well as www.vcall.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,
the future effect of past acquisitions (including expected revenues and market opportunities), and engineering and design
activities. 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 12, 2004. 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.