AVOCENT REPORTS HIGHER SALES AND NET INCOME
FOR THIRD QUARTER
HUNTSVILLE, Ala. (October 20, 2005) - Avocent Corporation (NASDAQ:AVCT) today reported higher sales for the third quarter ended September 30, 2005. Net sales for
the third quarter increased 5.9% to $96.7 million compared with sales of $91.3 million in the third quarter of 2004.
“Avocent’s sales, gross margin and net income rose in the third quarter and benefited
from increased demand for our digital and embedded products,” stated John R. Cooper, chairman and chief executive officer of Avocent Corporation. “Digital product sales accounted for 53.2% of revenues in the third quarter,
up from 48.7% in the third quarter of 2004, on the strength of new products introduced since last year, including DSView3. We also posted record revenues from embedded products this quarter as project wins continue to
contribute to revenue growth.
“Sequentially, we were pleased to experience 8% growth in revenues from the second quarter of 2005,” continued Mr. Cooper. “Branded sales particularly demonstrated strength, with a
sequential increase of 14%."
Income prior to intangible amortization and merger-related expenses was $18.0 million, or $0.36 per diluted share, compared with income prior to intangible amortization and
merger-related expenses of $17.2 million, or $0.34 per diluted share, in the third quarter of 2004. (See “Use of Non-GAAP Financial Measures” discussion below.) Net adjustments to reconcile to GAAP net income
were $1.7 million in the third quarter of 2005, including $2.7 million in intangible amortization and a $1.8 million tax benefit. Net adjustments to reconcile to GAAP net income were $6.4 million in the third
quarter of 2004, including $6.5 million in intangible amortization, a $1.1 million charge for acquired in-process research and development expense related to Sonic Mobility and a $2.8 million tax benefit.
GAAP net
income for the third quarter of 2005 was $16.4 million, or $0.33 per diluted share. This compares with GAAP net income of $10.8 million, or $0.21 per diluted share, in the third quarter of 2004.
Branded sales
increased 6.2% from the third quarter of 2004 and accounted for 54.0% of total sales. OEM sales increased 5.5% from the third quarter of 2004 and accounted for 46.0% of total third quarter 2005 sales. U.S. sales
increased 3.6% to $58.0 million and international sales rose 9.6% to $38.7 million compared with the third quarter of 2004.
“Sales were up in all major geographic regions and were particularly strong in Asia in the
third quarter,” continued Mr. Cooper. “We have increased our sales and marketing staff in Asia during the past two years. As a result, branded and OEM sales in Asia were up 21% compared with the third quarter of last
year.”
Gross profit for the third quarter of 2005 increased 7.9% to $57.3 million with a gross margin of 59.3%. This compared with gross profit of $53.1 million and a gross margin of 58.2% in the third quarter of
2004. The increase in gross profit was due to higher sales of digital products and higher royalty income.
Research and development expenses increased 24.3% to $14.6 million, or 15.1% of sales, compared with $11.8
million, or 12.9% of sales, in the third quarter of 2004. This increase was due primarily to additional engineering teams added from the acquisition of Sonic Mobility and engineering staff added to support embedded
products and other key development projects.
Selling, general and administrative expenses declined 2.1% to $20.8 million compared with $21.2 million in the third quarter of 2004. The decline in SG&A
expenses was due primarily to lower legal fees and lower Sarbanes-Oxley compliance costs, although these savings were partially offset by increased investments in marketing programs.
Avocent’s balance sheet and cash
position remained strong as of September 30, 2005. The Company’s cash flow from operations was approximately $21 million for the third quarter of 2005 with approximately $333 million in cash, cash equivalents and
investments at the quarter’s end. Avocent had no long-term debt as of September 30, 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 third
quarter results conference call to be held October 20, 2005. 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), 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.