Applied Innovation Inc. Reports Solid First Quarter Results; EPS Up 40% on Strong Sales Growth; Services Revenues Up More than 300%.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)--April 19, 2001 Applied Innovation Inc. (Nasdaq:AINN AINN Artificial Intelligence Neural Network ) today reported operating results for its first quarter ended March 31, 2001. Quarterly Results Sales for the first quarter ended March 31, 2001 grew 78% to $25.6 million, from $14.4 million recorded in the first quarter last year. The strong sales improvement was fueled by solid growth in the Company's service business, reflecting increased demand for installation services, and more than 20% growth in product sales. Net income for first quarter 2001 was $2.2 million, or $0.14 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 $1.6 million, or $0.10 per diluted share, for the prior year first quarter. "We were able to generate solid sales and earnings performance in our first quarter, despite the weakening weak·en tr. & intr.v. weak·ened, weak·en·ing, weak·ens To make or become weak or weaker. weak  en·er n. economy and caution in our
telecom customers' capital spending capital spendingSpending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. patterns," said Bob Smialek, President and Chief Executive Officer. "Demand was particularly strong for our installation services, with revenues increasing more than 300% from a year ago. We also continued to experience strong demand for our AIscout(TM) product with over 700 units shipped in the first quarter. While we recorded nearly $5.8 million in systems integration revenues, this reflects the wind down of a major 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 integration project that began in the fall of 2000, and we do not expect significant activity in this area during the second quarter." Q1 Highlights During the quarter we: -- Formed a strategic alliance with Foundry Networks(R), Inc. (Nasdaq:FDRY) to market an innovative solution to deliver Optical Broadband Gigabit Ethernet services to the Metro Edge. The combination of Foundry's high-performance Gigabit Ethernet switching and routing technologies along with Applied Innovation's industry experience in delivering carrier grade solutions to the telecommunications market will provide a robust, highly scalable and cost-effective solution. Through this alliance, we are targeting emerging Metro service providers, such as the Building Local Exchange Carriers (BLECs), EtherLECs and OpticalLECs, as well as established ILEC and IXC service providers looking to provide higher bandwidth data solutions for their existing customer base. -- Exhibited the interoperability and combined capabilities of Applied Innovation's LuxPath Networks products with Foundry's BigIron Layer 3 Gigabit Ethernet switch at the 2001 Optical Fiber Communications Conference in early March in Anaheim, California, where more than 800 companies exhibited and more than 37,000 communications and IT professionals attended. -- Continued with the implementation of our global expansion strategy, signed distributor relationships for product marketing in both Mexico and South Korea. -- Experienced continued success with our AIscout(TM) product, shipping more than 700 units. This brings the total number of units shipped since the product's introduction in late 1999 to more than 3,300. Other Operating Results Product sales grew 21% to $16.3 million from $13.5 million in the prior year quarter. The first quarter 2001 gross profit on product sales was $9.0 million, or 55% of product sales, compared with a gross profit of $7.1 million, or 53% of product sales for the same period last year. The slight improvement in gross profit is primarily due to growth in higher margin software revenue. Integration and services revenues were $9.4 million for first quarter 2001, compared to $0.8 million in the prior year quarter. Excluding approximately $5.8 million of integration revenues from first quarter 2001, service revenue of $3.5 million increased 340% from a year ago. The significant increase is attributable to strong demand for field installation services from several key customers. Integration and services gross profit for the three months ended March 31, 2001 was $2.6 million, or 28% of such revenues, versus $0.4 million, or 48% of such revenues, last year. The difference in gross margin for the first quarter 2001 versus a year ago is attributed to a higher sales mix sales mix See product mix. of system integration business in 2001, which includes third-party equipment costs. Total gross profit for the 2001 first quarter was $11.6 million, or 45%, on sales of $25.6 million, compared to total gross profit of $7.5 million, or 52%, on sales of $14.4 million for the 2000 first quarter. Research and development ("R&D") expenses for first quarter 2001 were $2.6 million, or 10% of sales, versus $1.9 million, or 14% of sales for the comparable 2000 first quarter. The increase in R&D spending is primarily attributable to additional staffing and expenditures on new product initiatives. Selling, general and administrative ("SG&A") expenses for first quarter 2001 were $6.1 million, or 24% of sales, compared to $3.6 million, or 25% of sales, for first quarter 2000. The increase in SG&A spending is primarily related to new sales and sales engineering positions, increased administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. for our services division, as well as higher marketing expenditures. The Company's effective tax rate of 34% for first quarter 2001 is higher than the 32% effective rate for the comparable period last year, primarily due to estimated research and experimentation credits growing at a slower rate than taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. . Company Outlook "To date, we continue to exhibit strong growth, although we have seen some caution in recent weeks from our telecom customers," said Smialek. "While we have not experienced any order cancellations, we did face some delays in orders from several of our customers late in the first quarter and continuing into early second quarter. Nonetheless, we remain optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about our long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. growth prospects and believe that the current capital spending 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 the telecom industry represents a pause and regrouping rather than the start of a protracted pro·tract tr.v. pro·tract·ed, pro·tract·ing, pro·tracts 1. To draw out or lengthen in time; prolong: disputants who needlessly protracted the negotiations. 2. downturn Downturn The transition point between a rising, expanding economy to a falling, contracting one. downturn A decline in security prices or economic activity following a period of rising or stable prices or activity. ." "In light of the current economic and telecom business environment, we are taking a conservative approach in our financial forecast. Therefore, for the balance of this year, we are forecasting no additional systems integration projects, no DSoLution sales, nor significant sales from our LuxPath Networks division." "To the extent that we are awarded new systems integration projects, or we begin to see 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 either our DSoLution or LuxPath Networks products, then the opportunity for higher growth is quite possible. However, since we have seen an uneven pattern in orders near term, and despite Q1 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. growth of 40%, we are still maintaining our original forecast of EPS growth in the 15-20% range, or $0.72 to $0.76 per diluted share, for the full year. Note that we believe we can achieve this despite the weak environment, and that this forecast follows a year in which our EPS increased 40%." 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 high-speed adj. 1. Operated or designed for operation at high speed: a high-speed food processor. 2. Taking place at high speed: a high-speed chase. 3. data transport market with the formation of LuxPath Networks, a division focused on the development of broadband broadband Term describing the radiation from a source that produces a broad, continuous spectrum of frequencies (contrasted with a laser, which produces a single frequency or very narrow range of frequencies). Ethernet Ethernet Telecommunications networking protocol introduced by Xerox Corp. in 1979. It was developed as an inexpensive way of sending information quickly between office machines connected together in a single room or building, but it rapidly became a standard computer 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 Thursday: see week. , April 19, 2001 at 10 a.m. to discuss its first quarter results. Applied Innovation Chairman of the Board, Gerry Ger·ry , Elbridge 1744-1814. American politician. A signer of the Declaration of Independence (1776) and a delegate to the Continental Congress (1787), he served as governor of Massachusetts (1810-1811) and as Vice President of the United States Moersdorf Moersdorf (Luxembourgish: Méischdref) is a small town in the commune of Mompach, in eastern Luxembourg. As of 2005, the town has a population of 293. , 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. , Bob Smialek and Chief Financial Officer, Mike Keegan will host the call. The call will be broadcast live over the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the 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. April 19, 2001 through 12:30 p.m. Eastern Standard Time on April 24, 2001. The phone number for the replay is (888) 203-1112. Enter confirmation number 475013 to access the replay. See attached financial highlights for the first quarter ended March 31, 2001. 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: new product sales relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc DSL systems integration activities (paragraph three); future sales potential related to the Company's new products, including DSoLution and LuxPath Networks (paragraphs fifteen and sixteen); effects of overall economic and industry trends and resulting performance in 2001 (paragraphs three, fourteen and fifteen), and 2001 EPS growth expectations (paragraph sixteen). 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, 2000. 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
($ in thousands, except per share
and shares outstanding)
Summary Balance Sheet Information
(Unaudited)
March 31, 2001 December 31, 2000
-------------- -----------------
Cash and short-term investments $ 12,585 $ 20,406
Accounts receivable 22,299 29,991
Inventory 7,920 12,009
Other current assets 3,149 3,495
-------------- --------------
Current assets 45,953 65,901
Property, plant and equipment, net 8,604 8,613
Investments 10,575 5,867
Other non-current assets 309 307
-------------- --------------
Total assets $ 65,441 $ 80,688
============== ==============
Accounts payable $ 4,510 $ 19,826
Accrued expenses 4,868 6,930
Deferred revenue 3,297 3,941
-------------- --------------
Current liabilities 12,675 30,697
Stockholders'equity 52,766 49,992
-------------- --------------
Total liabilities and
stockholders' equity $ 65,441 $ 80,689
============== ==============
Summary Operational Information
(Unaudited)
Three Three
Months Ended Months Ended
March 31, 2001 March 31, 2000
-------------- --------------
Net sales $ 25,639 100% $ 14,363 100%
Cost of sales 14,011 6,827
-------------- --------------
Gross profit 11,628 45% 7,536 52%
R&D 2,622 10% 1,942 14%
SG&A 6,058 24% 3,616 25%
-------------- --------------
Income from operations 2,948 11% 1,978 14%
Interest and other income 449 305
-------------- --------------
Income before taxes 3,397 13% 2,283 16%
Income taxes 1,155 731
-------------- --------------
Net income $ 2,242 8% $ 1,552 11%
============== ==============
Diluted EPS $ 0.14 $ 0.10
============== ==============
Diluted shares 16,213,548 15,880,596
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