AVOCENT REPORTS HIGHER SALES AND NET INCOME
FOR SECOND QUARTER
HUNTSVILLE, Ala. (July 21, 2005) - Avocent Corporation (NASDAQ:AVCT) today reported higher sales for the second quarter
ended July 1, 2005.
“Our total sales rose to $89.5 million during the second quarter of 2005. We experienced a strong
sequential rebound in sales in the second quarter, especially in our U.S. sales of branded products,” stated John R. Cooper, chairman and chief executive officer of Avocent Corporation. “We also experienced excellent
growth from international markets and our embedded solutions.
“We stepped up certain marketing programs during the quarter to focus on new products, including the reintroduction of DSView3,” continued Mr.
Cooper. “The marketing programs had a positive impact on our second quarter sales as evidenced by the strong rebound in U.S. sales from the first quarter.
“During the second quarter, we followed through on our
commitment to narrow our research and development efforts by closing three satellite research and development offices and making other selected headcount reductions. In addition, we moved to realign our sales force
slightly to better match our customers and markets. Our results for the quarter include approximately $1.3 million in severance costs related to these office closings and other headcount adjustments."
Second Quarter Results
Income
prior to intangible amortization and merger-related expenses was $15.9 million, or $0.31 per diluted share, compared with income prior to intangible amortization and merger-related expenses of $15.3 million, or $0.30
per diluted share, in the second quarter of 2004. (See “Use of Non-GAAP Financial Measures” discussion below.) Net adjustments to reconcile to GAAP net income were $4.8 million in the second quarter of 2005,
including $6.6 million in intangible amortization and a $2.5 million tax benefit. Net adjustments to reconcile to GAAP net income were $28.7 million in the second quarter of 2004, including $6.4 million in
amortization of intangible amortization, a $21.7 million charge for acquired in-process research and development expense related to OSA and a $1.7 million tax benefit.
GAAP net income for the second quarter of 2005 was $11.1 million, or $0.22 per diluted share. This compares with a GAAP net loss of $13.4 million, or $0.27
per diluted share, in the second quarter of 2004.
Net sales for the second quarter increased 2.0% to $89.5 million compared
with sales of $87.8 million in the second quarter of 2004. Sales rose 16.6% sequentially from the first quarter of 2005 on the strength of higher OEM, branded and OSA sales. Branded sales declined 8.4% from the
second quarter of 2004 and accounted for 51.1% of total sales. OEM sales increased 15.7% from the second quarter of 2004 and accounted for 48.9% of total second quarter 2005 sales. U.S. sales declined 0.1% to $52.8
million and international sales rose 5.2% to $36.7 million compared with the second quarter of 2004.
“Demand for digital
products remains strong and was a key factor in our margin growth this quarter,” continued Mr. Cooper. “Digital product sales represented approximately 53% of revenues this quarter, up from 47% of revenues in the second
quarter of last year.”
Gross profit for the second quarter of 2005 increased 4.4% to $52.8 million with a gross margin
of 59.0%. This compared with gross profit of $50.6 million and a gross margin of 57.6% in the second quarter of 2004. The increase in gross profit was due to higher sales of digital, embedded and IPMI-enabled
products.
Research and development expenses increased 28.2% to $14.4 million, or 16.1% of sales, compared with $11.2 million, or 12.8% of sales, in the second quarter of 2004. This increase was due primarily to
additional engineering teams added from the acquisitions of OSA and Sonic Mobility. R&D expense for the second quarter of 2005 also included approximately $800,000 in severance costs related to the closed offices.
Selling, general and administrative expenses rose 9.0% to $24.0 million compared with $22.0 million in the second quarter of 2004. The increase included an increase in marketing costs related to new products,
higher legal fees from the Raritan lawsuit prior to reaching the settlement and approximately $500,000 in severance costs related to realigning our sales force.
Avocent’s balance sheet and cash position remained strong
as of July 1, 2005. The Company’s cash flow from operations was approximately $21 million for the second quarter of 2005 with approximately $317 million in cash, cash equivalents and investments at the quarter’s
end. Avocent had no long-term debt as of July 1, 2005.
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 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 second quarter results conference call to be held July 21, 2005. 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 (including our combined embedded KVM and IPMI solutions), 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 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.