EX-99.7 2 a4869582ex997.txt PRESS RELEASE Exhibit 99.7 Avocent Reports First Quarter Results HUNTSVILLE, Ala.--(BUSINESS WIRE)--April 21, 2005--Avocent Corporation (NASDAQ:AVCT) today reported revenue of $76.8 million for the first quarter ended April 1, 2005. "Avocent's first quarter results were consistent with the revised revenue estimates provided in mid-March," stated John R. Cooper, chairman and chief executive officer of Avocent Corporation. "Sales to OEMs increased over last year, however, sales of our U.S. branded products were lower than we originally expected due to a number of factors we previously discussed in March. Sales activity increased later in the quarter and we are pleased with the recovery in our branded sales, which have moved closer to more normal levels in recent weeks. "We continued to invest in research and development in the first quarter to support new product introductions and products under development. We recorded our first design wins that combined embedded KVM and IPMI solutions during the quarter and believe this area holds excellent promise for Avocent in the future. We remain positive about our new product pipeline and the impact it will have on future sales." First Quarter Results Income prior to intangible amortization and merger-related expenses was $7.3 million, or $0.14 per diluted share, compared with income prior to intangible amortization and merger-related expenses of $16.1 million, or $0.33 per diluted share, in the first 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 first quarter of 2005, including $6.6 million in intangible amortization and a $1.8 million tax benefit. Net adjustments to reconcile to GAAP net income were $7.6 million in the first quarter of 2004, including $4.8 million in amortization of intangible assets, $6.5 million in acquired in-process R&D expenses and a $4.6 million tax benefit. GAAP net income for the first quarter of 2005 was $1.8 million, or $0.04 per diluted share. This compares with a GAAP net income of $8.5 million, or $0.17 per diluted share, in the first quarter of 2004. Net sales for the first quarter declined 10.8% to $76.8 million compared with sales of $86.1 million in the first quarter of 2004. Branded sales declined 27.6% from the first quarter of 2004 and accounted for 47.8% of total sales. OEM sales rose 13.3% from the first quarter of 2004 and accounted for 52.2% of total first quarter 2005 sales. U.S. sales declined 21.9% to $40.0 million and international sales rose 5.6% to $36.8 million compared with the first quarter of 2004. "OEM sales benefited from the contribution of embedded products," continued Mr. Cooper. "We believe our opportunities in this area will continue to expand as we strengthen our embedded product suite. International sales also increased, reflecting the investments we made in our sales infrastructure in certain European and Asian countries." Gross profit for the first quarter of 2005 declined 13.0% to $43.6 million with a gross margin of 56.7%. This compared with gross profit of $50.1 million and a gross margin of 58.2% in the first quarter of 2004. The decrease in gross profit was due to the lower sales volume. Research and development expenses increased 53.4% to $14.5 million, or 18.8% of sales, compared with $9.4 million, or 11.0% of sales, in the first quarter of 2004. This increase was due primarily to increased investments in new products, supporting new product introductions and an increase in R&D staff to support these efforts. Selling, general and administrative expenses rose 9.6% to $22.3 million compared with $20.3 million in the first quarter of 2004. The increase included higher legal costs in the first quarter to support patent litigation scheduled for trial in the second quarter. Avocent's balance sheet and cash position remained strong as of April 1, 2005. The Company's cash flow from operations was approximately $10 million for the first quarter of 2005 with over $325 million in cash, cash equivalents and investments at the quarter's end. Avocent had no long-term debt as of April 1, 2005. "We used our strong cash position to repurchase approximately 700,000 shares of Avocent's stock during the first quarter," continued Mr. Cooper. "We have repurchased approximately one million shares to date under the two million share repurchase authorization announced in November 2004." 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 webcast and rebroadcast of its first quarter results conference call to be held April 21, 2005. The live broadcast will be available online 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. AVOCENT CORPORATION Condensed Consolidated Statements of Operations (Unaudited, in thousands, except per share data) For the Quarter Ended April 1, 2005 Operational Adjustments GAAP (a) ----------- ------------------- Net sales $ 76,805 $ 76,805 Cost of sales 33,223 33,223 -------- ---------- ------- Gross profit 43,582 43,582 Research and development expenses 14,176 $ 291 14,467 Selling, general and administrative expenses 21,903 377 22,280 Amortization of intangible assets - 6,622 6,622 -------- -------- ------- Operating income 7,503 (7,290) 213 Other income (expense), net 1,955 (15) 1,940 -------- -------- ------- Income before provision for income taxes 9,458 (7,305) 2,153 Provision for income taxes 2,137 (1,818) 319 -------- -------- ------- Net income $ 7,321 $ (5,487)$ 1,834 ======== ======== ======= Earnings per share: Basic $ 0.15 $ 0.04 Diluted $ 0.14 $ 0.04 Weighted average shares and common equivalents outstanding: Basic 50,208 - 50,208 Diluted 51,510 (58) 51,452 For the Quarter Ended April 2, 2004 Operational Adjustments GAAP (a) ----------- ------------------- Net sales $ 86,085 $86,085 Cost of sales 35,888 $ 95 35,983 -------- -------- ------- Gross profit 50,197 (95) 50,102 Research and development expenses 9,254 174 9,428 Acquired in-process research and development expense - 6,490 6,490 Selling, general and administrative expenses 19,725 610 20,335 Amortization of intangible assets - 4,762 4,762 -------- -------- ------- Operating income 21,218 (12,131) 9,087 Other income (expense), net 1,151 (14) 1,137 -------- -------- ------- Income before provision for income taxes 22,369 (12,145) 10,224 Provision for income taxes 6,253 (4,572) 1,681 -------- -------- ------- Net income $ 16,116 $ (7,573)$ 8,543 ======== ======== ======= Earnings per share: Basic $ 0.34 $ 0.18 Diluted $ 0.33 $ 0.17 Weighted average shares and common equivalents outstanding: Basic 47,650 - 47,650 Diluted 49,538 (25) 49,513 (a) Note: Adjustments relate to acquired in-process research and development expense from the Crystal link acquisition and amortization of deferred compensation (from the capitalization of the value of stock options assumed) and intangibles recorded as the result of the merger of Apex and Cybex in July 2000 and the acquisitions of Equinox, 2C, Soronti, Crystal Link, OSA and Sonic Mobility. The calculation of weighted average shares and common equivalents outstanding differs due to excluding the average unamortized deferred compensation expense in calculating the operational diluted shares outstanding. AVOCENT CORPORATION Condensed Consolidated Balance Sheets (Dollars in thousands) April 1, December 31, 2005 2004 (Unaudited) (Unaudited) ------------ ------------ Cash, cash equivalents and short-term investments $241,346 $239,799 Accounts receivable, net 50,034 60,948 Current and deferred income tax receivable 6,134 7,095 Other receivables, net 397 566 Inventories, net 24,316 21,232 Other current assets 6,788 4,982 ------------ ------------ Total current assets 329,015 334,622 Investments 84,127 91,547 Property and equipment, net 39,328 39,896 Goodwill 270,001 269,892 Intangible assets, net 27,421 33,981 Other assets 887 843 ------------ ------------ Total assets $750,779 $770,781 ============ ============ Accounts payable and other accrued expenses $15,200 $21,368 Income tax payable 8,356 8,494 Other current liabilities 16,515 16,767 ------------ ------------ Total current liabilities 40,071 46,629 Non-current liabilities 7,712 10,855 Total stockholders' equity 702,996 713,297 ------------ ------------ Total liabilities and stockholders' equity $750,779 $770,781 ============ ============ CONTACT: Avocent Corporation Dusty Pritchett, 256-217-1300