Applied Innovation Inc. Announces Record Second Quarter Results; Net Sales Increased 46% and Earnings Per Share Up 36%.Business Editors DUBLIN Dublin, city, Republic of Ireland Dublin, Irish Baile Átha Cliath, county borough (1991 pop. 915,516), Leinster, capital of the Republic of Ireland, on Dublin Bay at the mouth of the Liffey River. , Ohio--(BUSINESS WIRE)--July 20, 2000 Applied Innovation Inc. (Nasdaq:AINN AINN Artificial Intelligence Neural Network ) today announced operating results for the second quarter and six months ended June June: see month. 30, 2000. Net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight for the three months ended June 30, 2000 were a record $18.3 million, up 46% compared with $12.5 million a year ago. The increase in net sales was primarily due to higher demand for the Company's AIscout(TM), AISwitch 180(TM), and AI130(TM) products, which accounted for approximately $3.9 million of the second quarter 2000 increase, while Enhanced Services Enhanced service is service offered over commercial carrier transmission facilities used in interstate communications, that employs computer processing applications that act on the format, content, code, protocol, or similar aspects of the subscriber's transmitted information; revenues rose $1.9 million during the most recent quarter. For the six months ended June 30, 2000, net sales increased 40% to $32.6 million versus $23.4 million last year. Net income for second quarter 2000 increased 36% to $2.3 million compared to $1.7 million the prior year. Diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of for second quarter 2000 increased 36% to $0.15 per share from $0.11 per share in the comparable 1999 period. For the six months ended June 30, 2000, net income was $3.8 million, or $0.24 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, versus $2.9 million, or $0.19 per diluted share. Gerard B. Moersdorf, Jr., Chairman, stated, "Driven by continued expansion of our customer base as well as the introduction of new products and services, we achieved record quarterly revenues and very strong growth in profits. Additionally, we accomplished several other important strategic and tactical objectives during the period. -- As announced separately today, Applied Innovation elected Bob Smialek as President and Chief Executive Officer. Bob's leadership and prior experience rapidly growing businesses and shareholder value are a welcome addition to the Company. For more information about this exciting and important announcement, please see Applied Innovation's separate news release today. -- We also recently hired Tom McCabe Tom McCabe (born 28 April, 1954) is a Scottish Labour Party politician, a former Minister for Finance in the Scottish Executive, and Member of the Scottish Parliament for Hamilton South. as Vice President, Business Development. In this newly created position, Tom will assist us as we introduce more new products and enter additional new markets. -- With the addition of Bob Smialek and Tom McCabe, along with our previously announced addition of Kathy Barrick as Vice President, Human Resources The fancy word for "people." The human resources department within an organization, years ago known as the "personnel department," manages the administrative aspects of the employees. , we have compiled an excellent management team to lead the Company forward. -- We released our AIflex(TM) products to production during the quarter. A new customer, Adelphia Communications Corporation ("Adelphia") selected AIflex to help speed the deployment time of its fiber optic infrastructure. Adelphia is the sixth largest U.S. cable company. -- Revenues for our recently formed Enhanced Services division exceeded expectations, particularly in the area of integration, test and installation of co-location and 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 deployments. In fact, for one customer alone, we have received orders for over 165 integrated DSL systems comprised of our AIscout, a digital subscriber line access multiplexer A Digital Subscriber Line Access Multiplexer (DSLAM) allows telephone lines to make faster connections to the Internet. It is a network device, located near the customer's location, that connects multiple customer Digital Subscriber Lines (DSLs) to a high-speed Internet ("DSLAM (DSL Access Multiplexor) A central office (CO) device for ADSL service that intermixes voice traffic and DSL traffic onto a customer's DSL line. It also separates incoming phone and data signals and directs them onto the appropriate carrier's network. See DSL. "), a cross-connect and a copper-loop testing system. -- Our agreement with Lucent Technologies to resell re·sell tr.v. re·sold , re·sell·ing, re·sells 1. To sell again. 2. To sell (a product or service) to the public or to an end user, especially as an authorized dealer. our products began to produce results with the sale of 100 of our AIspy(TM) units to one of their customers." Michael P. Keegan, Vice President, Chief Financial Officer, added, "Our strong revenue and income growth reflects the rapid changes in our markets. Our traditional 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 continue to deploy our products in their expanding networks, and our newer CLEC (Competitive Local Exchange Carrier) An organization offering local telephone service that is not one of the traditional telephone companies. The Telecommunications Act of 1996 allowed competition to the incumbent telcos (ILECs), enabling new companies (CLECs) customers are building out networks at a incredible pace. Further, with our AIscout product and systems integration capabilities leading the way, we have firmly established ourselves as a significant DSL solutions provider. We achieved initial results in the 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 market with AIflex installations during the period, and we plan to expand our fiber optic product line-up later in the year. We were also pleased that our gross profit as a percentage of net sales for our products rebounded nicely during the quarter, attributed primarily to higher volume and manufacturing efficiencies for our AIscout product line." Keegan added, "We expect to see continued growth in our Enhanced Services area over the remainder of the year, particularly for systems integration and installation work. Although such work achieves lower gross profits than our products, it allows us to establish stronger relationships with our customers. Given the rapid changes in our customer base and the markets we serve, we have been expanding our marketing activities, as well as increasing our sales and service personnel during the year. We expect this trend to continue for the remainder of the year, propelling pro·pel tr.v. pro·pelled, pro·pel·ling, pro·pels To cause to move forward or onward. See Synonyms at push. [Middle English propellen, from Latin our product and Enhanced Services revenues to a targeted growth rate nearing 40%." Other operational results: The Company established an Enhanced Services division in first quarter 2000. Enhanced Services enables Applied Innovation to further strengthen customer relationships through specific system integration and installation projects. These activities are labor-based and generate lower gross margin than product sales. Gross profit on product sales was $9.1 million, or 57.9% of net sales, for second quarter 2000, compared with $7.0 million, or 58.4% of net sales, for the same period last year. Increased sales of the recently introduced AIscout contributed to higher gross profit on product sales than the 52.3% achieved in first quarter 2000. Enhanced Services gross profit for the three months ended June 30, 2000 was $0.4 million, or 17.5% of Enhanced Services net sales, versus $0.2 million, or 35.8% of Enhanced Services net sales, a year ago. The difference between the two quarters is attributed to a much larger mix of integration orders in 2000, which achieve lower overall gross profits. The Company's gross profit improved $2.4 million to $9.6 million for second quarter 2000. As a percentage of net sales, gross profit was 52.4% versus 57.3% for the comparable period last year. The lower gross margin as a percentage of net sales is principally due to Enhanced Services, which contribute lower incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. profitability than product sales, but increase the Company's business opportunities. Research and development ("R&D") expenses for second quarter 2000 were $2.1 million, or 11% of net sales, versus $1.8 million, or 14% of net sales, in the comparable 1999 period. For the six months ended June 30, 2000, R&D expenses were $4.0 million, or 12% of net sales, compared to $3.4 million, or 15% of net sales last year. The increase in R&D is primarily attributed to additional staffing and expenditures on new product initiatives. For the remainder of 2000, we expect R&D expenses to continue to exceed prior year amounts, and to increase as a percentage of net sales compared to the second quarter 2000 amount. Selling, general and administrative ("SG&A") expenses for second quarter 2000 were $4.4 million, or 24% of net sales, compared to $2.9 million, or 23% of net sales, for second quarter 1999. For the six months ended June 30, 2000, SG&A expenses were $8.0 million, or 25% of net sales, compared to $6.1 million, or 26% of net sales in the prior year. The increase in SG&A spending is primarily related to new sales and sales engineering positions, increased expenditures for Enhanced Services, as well as higher marketing expenditures. The Company's effective tax rate of 32% during the quarter and six-months ended June 30, 2000 is lower than the 36% effective rate for the comparable periods last year, primarily due to estimated research and experimentation credits in 2000. The Company's operations generated $2.5 million of cash during the first half of 2000, and the Company had $21.9 million of cash and investments at June 30, 2000. During the six months ended June 30, 2000, the Company did not repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. any of its shares under its previously announced share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. program. As of June 30, 2000, the Company had purchased 448,000 shares pursuant to the 1 million stock repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. program at an average price of $3.72. Headquartered in Dublin, Ohio Dublin is a city in Delaware, Franklin, and Union counties in the U.S. state of Ohio. The population was 31,392 at the 2000 census. In 2006, the population was estimated to be 36,565[1], and Dublin continues to be one of the fastest-growing suburbs of Columbus. , Applied Innovation is the leading provider of mediation mediation, in law, type of intervention in which the disputing parties accept the offer of a third party to recommend a solution for their controversy. Mediation has long been a part of international law, frequently involving the use of an international commission, products that enable communications between network elements and operations support systems Operations Support Systems (also called Operational Support Systems or OSS) are computer systems used by telecommunications service providers. The term OSS most frequently describes "network systems" dealing with the telecom network itself, supporting processes such for the management of telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. carriers' networks. Information about Applied Innovation, its products and services can be found on the World Wide Web at www.aiinet.com, or by calling 1-800-247-9482. See attached financial highlights for the second quarter and six-months ended June 30, 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 a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. , 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 our capabilities as a DSL solutions provider (paragraph five), plans for additional fiber optic products later in the year (paragraph five) and expectations regarding Enhanced Services and overall net sales growth for 2000 (paragraph six), expected R&D expenditures during 2000 (paragraph ten), estimated research and experimentation credits in 2000 (paragraph twelve). 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 2000, the acceptance of the Company's present products and its ability to develop new products 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, 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
Summary Balance Sheet Information
(Unaudited)
June 30, 2000 December 31, 1999(b)
------------- -----------------
Cash and investments(a) $21,875,000 $19,071,000
Current assets 38,150,000 30,359,000
Total assets 52,012,000 44,594,000
Current liabilities 10,160,000 7,507,000
Shareholders' equity 41,852,000 37,088,000
Total liabilities and
stockholders' equity $52,012,000 $44,594,000
(a) Includes non-current investments of $5,170,000 and $5,347,000 as
of June 30, 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 Ended Six Months Ended
June 30, June 30,
------- -------
2000 1999 2000 1999
---- ---- ---- ----
Net sales $18,284,000 $12,523,000 $32,646,000 $23,377,000
Cost of sales 8,706,000 5,345,000 15,532,000 9,611,000
----------- ----------- ----------- -----------
Gross profit 9,578,000 7,178,000 17,114,000 13,766,000
R&D 2,092,000 1,782,000 4,034,000 3,401,000
SG&A 4,428,000 2,936,000 8,044,000 6,139,000
----------- ----------- ----------- -----------
Income from
operations 3,058,000 2,460,000 5,036,000 4,226,000
Interest and other
income 306,000 169,000 611,000 382,000
----------- ----------- ----------- -----------
Income before
taxes 3,364,000 2,629,000 5,647,000 4,608,000
Income taxes 1,076,000 947,000 1,807,000 1,660,000
----------- ----------- ----------- -----------
Net income $ 2,288,000 $ 1,682,000 $ 3,840,000 $ 2,948,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted EPS $ 0.15 $ 0.11 $ 0.24 $ 0.19
Diluted shares 15,748,265 15,695,590 15,805,398 15,758,668
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