Applied Innovation 4Q 2000 Net Income Increases 38% On Strong Sales Growth.Business & High-Tech Editors DUBLIN, Ohio--(BUSINESS WIRE)--Feb. 8, 2001 Results Reflect Considerable New Product and Integration Service Revenues and Diversification Diversification A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance. Notes: Diversification is possibly the greatest way to reduce the risk. of Customer Base Applied Innovation Inc. (Nasdaq:AINN AINN Artificial Intelligence Neural Network ) reported today that it ended its year with record sales and earnings for both its fourth quarter and full year ended December 31, 2000. Quarterly Results Sales for the current quarter more than tripled to a record $52.3 million compared to $14.4 million for the fourth quarter 1999. The strong sales growth was fueled primarily by systems integration revenues, as well as solid demand for the Company's AIscout(TM) product, core AIswitch products, and AppliedView(TM) operating support system software. As previously reported, systems integration revenues, which accounted for more than 57% of fourth quarter sales, include sales from the integration of third party equipment with the Company's own products, and provide a lower gross margin than the Company's product revenues. Net income for the current quarter increased 38% to $3.5 million, or $0.22 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared to $2.5 million, or $0.16 per diluted share, for the prior year. The weighted average shares outstanding for diluted EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. were 16.2 million in the fourth quarter 2000, compared with 15.5 million diluted shares for the same period a year ago. Full Year Results Sales for the full year more than doubled to $116.1 million, from $49.5 million recorded in 1999. Net income increased 45% to a record $10.1 million, or $0.63 per diluted share, for the full year 2000, compared to $7.0 million, or $0.45 per diluted share, recorded for the full year 1999. The weighted average shares outstanding for diluted EPS were 16.0 million for 2000 compared with 15.6 million diluted shares for the same period a year ago. Robert L. Smialek, President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , stated, "It is very gratifying grat·i·fy tr.v. grat·i·fied, grat·i·fy·ing, grat·i·fies 1. To please or satisfy: His achievement gratified his father. See Synonyms at please. 2. to report this exceptional performance in a year of such economic uncertainty in several of our target markets. AI continued to experience solid demand from both its existing base of RBOC (Regional Bell Operating Company) The Bell telephone companies that were spun off of AT&T by court order in 1984 (the Divestiture). Also known as the "Baby Bells," the initial seven RBOCs were Nynex, Bell Atlantic, BellSouth, Southwestern Bell, US West, customers as well as from new customers. Despite a tripling in fourth quarter sales, our associates rose to the challenge and, without interruption INTERRUPTION. The effect of some act or circumstance which stops the course of a prescription or act of limitation's. 2. Interruption of the use of a thing is natural or civil. , continued to provide the same high level of industry-leading service that our customers have come to expect from AI. In fact, considerable progress was made this past year to enhance our service capabilities as a strategic profit center, with the addition of key management in the service area, expansion of our service offerings, and a significant increase in our field service associates. Our strong service capabilities combined with our high level of telephony knowledge and networking expertise has afforded us the opportunity to serve the industry-leading telecom providers such as Verizon, SBC (1) (SBC Communications Inc., San Antonio, TX, www.sbc.com) A large, national telecommunications company that grew from a multitude of local and regional companies, including Southwestern Bell, Pacific Bell and Nevada Bell, into a single, unified brand by 2002. , Sprint, Qwest, AT&T and McLeodUSA." Michael P. Keegan, Vice President and Chief Financial Officer, added, "We ended the year on solid financial footing, with no debt, and over $26 million in cash and investments. Operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. increased more than 30% to $6.1 million for the year, despite a significant increase in selling expenses related to the higher sales volume, and substantial third party equipment purchases associated with our systems integration activities. We did, however, experience a decline in our operating profit margin Operating profit margin The ratio of operating profit to net sales. , which was the expected result of the increased sales mix sales mix See product mix. of lower-margin systems integration business. While systems integration margins are lower than traditional product margins, through the systems integration business we gain both critical third party product knowledge and a solid foothold foot·hold n. 1. A place providing support for the foot in climbing or standing. 2. A firm or secure position that provides a base for further advancement. foothold Noun 1. with new customers, which we believe will lead to new product orders." 4Q and Full Year Highlights During the fourth quarter, we reached agreement with the leading South African telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. provider to supply our core AIswitch and AIscout products, as well as special engineering support for SDH (Synchronous Digital Hierarchy) The European counterpart to SONET. See SONET. SDH - Synchronous Digital Hierarchy (international SONET equivalent) management solutions. This agreement has the potential to be a multi-year, multi-million dollar contract. Also during the fourth quarter, we received our largest order to-date for the Company's AppliedView(TM) software and related workstations and services, nearly $5 million, from major telecommunications provider, Verizon. Our software will allow Verizon to manage its extensive installed base of Applied Innovation equipment. Early in 2001, we hired Karl Fox, as Vice President of Engineering, who has direct responsibility for product engineering, network management software and research and development. Fox has a significant track record of innovation and creativity in entrepreneurial situations, including Director of Network Security for Extant ex·tant adj. 1. Still in existence; not destroyed, lost, or extinct: extant manuscripts. 2. Archaic Standing out; projecting. , Inc., the telecommunications division of Dynegy, Inc. (NYSE NYSE See: New York Stock Exchange :DYN dyn abbr. dyne ), and co-founder of Morning Star Technologies, an internetworking and network security company, which was eventually acquired by Ascend Communications / Lucent Technologies. During the summer, we announced the formation of LuxPath Networks, a new division focusing on broadband fiber optic transmission products. The division's flagship product A primary product of a company, which is typically why the company was founded and/or what made it well known. For example, MS-DOS, Windows and the Microsoft Office suite have been flagship products of Microsoft. CorelDRAW is a flagship product of Corel Corporation. , LuxConnect(TM), is currently on track for availability in the 2001 second quarter and is aimed at the rapidly growing broadband metro access market. During the third quarter, we introduced DSoLution(TM), a new integrated DSL DSL in full Digital Subscriber Line Broadband digital communications connection that operates over standard copper telephone wires. It requires a DSL modem, which splits transmissions into two frequency bands: the lower frequencies for voice (ordinary (Digital Subscriber Line See DSL. (communications, protocol) Digital Subscriber Line - (DSL, or Digital Subscriber Loop, xDSL - see below) A family of digital telecommunications protocols designed to allow high speed data communication over the existing copper telephone lines between end-users and ) system that uses fiber optics fiber optics, transmission of digitized messages or information by light pulses along hair-thin glass fibers. Each fiber is surrounded by a cladding having a high index of refractance so that the light is internally reflected and travels the length of the fiber in conjunction with existing copper line loops, which is well positioned to solve significant barriers to DSL deployment. DSoLution is currently being tested by a large service provider with plans for a nationwide DSL network. Early in 2001, Gerard B. Moersdorf, Founder and Chairman of the Board, was awarded Executive of the Year by the Industry and Technology Council of Central Ohio. The Top CAT (Contributions to the Advancement of Technology) 2000 Award recognizes individuals, teams of individuals, organizations, corporations and partnerships who are top contributors in helping to build a strong technology community in Central Ohio. Other Operating Results Total gross profit for the 2000 fourth quarter was $12.0 million, or 23%, on sales of $52.3 million, compared to total gross profit of $7.8 million, or 54%, on sales of $14.4 million for the 1999 fourth quarter. For the full year 2000, the gross profit was $40.2 million, or 35%, on sales of $116.1 million, compared to a gross profit of $28.6 million, or 58%, on sales of $49.5 million. The fourth quarter 2000 gross profit on product sales of $19.6 was $9.3 million, or 47% of product sales, compared with a gross profit of $7.9 million, or 58%, of $13.8 million in product sales for the same period last year. The decrease in gross profit as a percentage of sales is largely due to the inclusion of lower-margin workstations to support a large AppliedView system shipped in the fourth quarter 2000. For the full year, the Company's gross profit on product sales was $34.7 million, or 54%, of $64.0 million in product sales, compared to gross profit on product sales of $27.8 million, or 59% of $47.0 million in product sales. Integration and services revenues were $32.6 million for the fourth quarter 2000, compared to $0.6 million in the prior year quarter. For the full years 2000 and 1999, integration and services revenues were $52.0 million and $2.6 million, respectively. The significant increase is attributable to systems integration as well as field installation sales. Integration and services gross profit for the three months ended December 31, 2000 was $2.7 million, or 8% of such revenues, versus near breakeven breakeven 1. The level of output or sales necessary to cover fixed expenses. Companies in industries that have high fixed costs and, consequently, high breakevens, such as automobile and steel manufacturing, are likely to exhibit large fluctuations for the year earlier fourth quarter. For the full year, integration and services gross profit was $5.5 million, or 11% of such revenues, versus $0.9 million, or 35% of such revenues for the full year 1999. The difference in gross margin for the fourth quarter and full year is attributed to a higher sales mix of system integration business in 2000, which includes third-party equipment costs. The Company's operations used $1.1 million in cash during the 2000 fourth quarter, primarily attributable to higher accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying and inventories to support a large systems integration project. For the full year 2000, the Company generated a strong $6.1 million in cash from operations. As a result of this robust cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses , the Company held more than $26.3 million in cash and investments at December 31, 2000. Company Outlook Mr. Smialek commented, "We began 2001 with very strong market fundamentals and a strategic position that should allow us to enjoy solid performance this year, assuming no further material deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. of the economy. Thus far in 2001, despite a slowing in systems integration activities, we have not seen a slowdown For articles with similar titles, see Slow Down (disambiguation). A slowdown is an industrial action in which employees perform their duties but seek to reduce productivity or efficiency in their performance of these duties. in product orders compared to a year ago from our telecom customers. As we previously stated, we experienced an unusually high volume of systems integration services in the second half of 2000, however, this type of business is difficult to forecast. Therefore, absent similar unusually large deployment projects, systems integration revenue will most likely decline in 2001." "Given the present challenging economic environment and the lowered estimates for spending by communications service providers A Communications Service Provider or CSP is a company that transports information electronically. The term encompasses public and private companies in the wireline, wireless, Internet, cable, satellite, and managed services businesses. in 2001, we are taking a conservative approach to the systems integration business and are, therefore, budgeting no new systems integration projects in 2001. However, because of the strong market fundamentals for our core products, we still believe that we will be able to achieve a total sales level about equal to 2000. We believe the telecommunications market remains one of the most attractive markets in which to do business, especially for emerging companies like Applied Innovation, which offer innovative products to improve service to customers in a competitive marketplace for internet and telecommunications services In telecommunication, the term telecommunications service has the following meanings: 1. Any service provided by a telecommunication provider. 2. . Additionally, based upon our projection for a more favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. sales mix from higher-margin products, software and services in 2001, we anticipate that we will not experience any negative earnings impact caused by a slowdown or even elimination of the lower margin integration services business. As a result, we expect diluted EPS growth of 15% to 20%, or in the range of $0.72 - $0.76. If we do, however, receive new systems integration projects in 2001 the opportunity for continued sales growth is quite strong. We have also not factored into our 2001 plans the potential positive impact of a ramp up Ramp Up To increase a company's operations in anticipation of increased demand. Notes: A company might 'ramp up' operations if they just signed a contract creating substantially more demand for their product. See also: Demand, Economies of Scale in demand for our new products." Gerry Moersdorf, Chairman of the Board, said, "We entered 2001 with a very strong management team, a healthy financial position, a solid operational structure, and a host of new products targeted at the most rapidly growing segments of the telecom industry. We remain optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about the potential for our recently formed LuxPath Networks, which is focused exclusively on high-speed optical Ethernet transmission products; as well as our new DSoLution(TM), which enables the cost-effective deployment of DSL into newer residential neighborhoods and business parks served by fiber fed DLCs (Digital Loop Carriers In telephone communications, a technology that increases the number of channels in the local loop by converting analog signals to digital and multiplexing them back to the end office. ). As our industry continues the nationwide rollout of DSL, there should also be even greater need for our core network management products. If demand continues to grow for our core products as a result of the DSL rollout, and market acceptance builds for our new products, the potential for higher performance is strong." Applied Innovation is a leader in the design, manufacture, and deployment of state-of-the-art management solutions for simplifying the control of today's complex networks of physically dispersed dis·perse v. dis·persed, dis·pers·ing, dis·pers·es v.tr. 1. a. To drive off or scatter in different directions: The police dispersed the crowd. b. and technically diverse elements. AI also recently entered the high-speed data transport market with the formation of LuxPath Networks, a division focused on the development of broadband Ethernet aggregation and transport products, which provide high-capacity, carrier-quality, fiber optic transmission solutions. For more Information about LuxPath Networks, visit www.luxpath.com, or call 1-877-781-4900. Applied Innovation, headquartered in suburban Columbus, Ohio Columbus is the capital and the largest city of the American state of Ohio. Named for explorer Christopher Columbus, the city was founded in 1812 at the confluence of the Scioto and Olentangy rivers, and assumed the functions of state capital in 1816. is traded on NASDAQ under the symbol AINN. For further information, please visit us at www.aiinet.com or call 1-800-247-9482 NOTICE: Applied Innovation will hold a conference call on Thursday, February 8, 2001 at 10 a.m. to discuss its fourth quarter results. Applied Innovation Chairman of the Board, Gerry Moersdorf, President and CEO, Bob Smialek and Mike Keegan, Chief Financial Officer, will host the call. The call will be broadcast live over the Internet and can be accessed at the Applied Innovation website (http://www.aiinet.com.) If you are unable to participate during the live webcast, the call will be archived and available at the same address. The Company will also continue to offer its traditional conference call telephonic replay from approximately 12:30 p.m. February 8, 2001 through 12:30 p.m. Eastern Standard Time on February 13, 2001. The phone number for the replay is (888) 203-1112. Enter confirmation number 713513 to access the replay. See attached financial highlights for the fourth quarter and twelve months ended December 31, 2000. This press release contains certain forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. created thereby. Those statements include, but are not limited to, all statements regarding intent, beliefs, expectations, projections, forecasts, and plans of the Company and its management, and specifically include statements regarding: new product sales as a result of systems integration activities (paragraph six); future sales potential with new customers (paragraphs seven); future potential and availability date The date after notification of mobilization by which forces will be marshalled at their home station or mobilization station and available for deployment. See also home station; mobilization; mobilization station. for LuxPath Networks' products (paragraphs ten and twenty); DSoLution potential (paragraphs eleven and twenty); effects of overall economic and industry trends and resulting performance in 2001 (paragraph seventeen through nineteen); growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. for systems integration services and product sales (paragraphs seventeen through nineteen); and 2001 demand for new products, sales and EPS growth expectations (paragraphs eighteen and nineteen). These forward-looking statements involve numerous risks and uncertainties, including, without limitation: the Company's ability to generate sales orders The sales order, sometimes abbreviated as SO, is an order received by a business from a customer. A sales order may be for products and/or services. Given the wide variety of businesses, this means that the orders can be fulfilled in several ways. during fiscal 2001, the acceptance of the Company's present products and services and its ability to develop new products and services as planned and on budget, the impact of competitive products and services, the ability to hire technical staff, the Company's ability to adapt to technological changes, the availability of capital, and other risks and uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings, including the Company's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December 31, 1999. One or more of these factors have affected, and could in the future affect, the Company's business and financial results in future periods and could cause actual results to differ materially from plans and projections. Therefore, there can be no assurances that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company, or any other persons, that the objectives and plans of the Company will be achieved. All forward-looking statements made in this press release are based on information presently available to the management of the Company. The Company assumes no obligation to update any forward-looking statements.
APPLIED INNOVATION INC.
SUMMARY FINANCIAL HIGHLIGHTS
(Amounts in thousands, except per share numbers
and shares outstanding)
Summary Balance Sheet Information
December 31, 2000 December 31, 1999(b)
----------------- -----------------
Cash and investments(a) $26,274 $19,071
Current assets 65,901 30,359
Total assets 80,668 44,594
Current liabilities 30,697 7,507
Stockholders' equity 49,992 37,088
Total liabilities and
stockholders' equity $80,668 $44,594
(a) Includes non-current investments of $5,868 and $5,347 as of
December 31, 2000 and December 31, 1999, respectively.
(b) Certain reclassifications have been made to December 31, 1999
balances to conform to current year presentation.
Summary Operational Information
(Unaudited)
Three Months Year
Ended December 31, Ended December 31,
------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
Net sales $52,297 $14,368 $116,103 $49,524
Cost of sales 40,261 6,588 75,906 20,917
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Gross profit 12,036 7,780 40,197 28,606
R&D 1,963 2,036 8,177 7,479
SG&A 5,307 2,879 18,455 11,965
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Income from operations 4,766 2,864 13,565 9,162
Interest and other income 388 255 1,354 924
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Income before taxes 5,154 3,119 14,919 10,086
Income taxes 1,649 572 4,774 3,081
---------- ---------- ---------- ----------
Net income $3,505 $2,547 $10,145 $7,005
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Diluted EPS $ 0.22 $ 0.16 $ 0.63 $ 0.45
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Diluted shares 16,174,289 15,509,583 16,014,153 15,647,050
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