Applied Innovation Provides Guidance on Second Quarter Earnings.

Business Editors, High Tech Writers

COLUMBUS, Ohio--(BUSINESS WIRE)--June 18, 2001

Applied Innovation Inc. (Nasdaq:AINN) today provided the near-term revenue and profitability outlook for the second quarter ending June 30, 2001. The Company expects revenues to be in the range of $14 to $16 million, compared to revenues of $18.3 million for the same period in 2000.

The Company's product revenues are expected to decline significantly compared to second quarter 2000. However, driven by continued strong demand for installation and enhanced services, the Company's service revenues are expected to increase considerably relative to second quarter 2000 results. This shift in the revenue mix towards lower-margin service revenue, combined with a higher operating cost base, is expected to result in approximately break-even net income for the current quarter. Despite the lower-than-expected operating results, the Company's balance sheet remains strong. The Company expects to close the quarter with approximately $28 million in cash and investments and no debt.

Robert L. Smialek, President and CEO of Applied Innovation, said, "We are experiencing slower sales due to the continuing slowdown in capital spending throughout the telecommunications industry. We have not yet seen market indications pointing to a reversal in this trend. Although our customer base primarily represents the strongest of the telecommunications companies, we are experiencing a marked delay in our customers' purchase order approval process as well as a push-out of several previously awarded projects. Demand for our network management equipment has consequently softened in the second quarter. This has occurred while the Company is in the process of shifting from full reliance on its hardware and software products to a product offering that includes services such as installation, consultation, and training. We remain confident in the growth prospects of our service offerings and we are still developing that business, albeit with lower margins than for our core business."

Smialek also stated that the Company is implementing cost cutting measures, including a workforce reduction of approximately 15 percent, effective today. "Severance costs of about $360,000 are included in our current break-even estimate for the second quarter. As a result of today's actions and related cost-cutting measures, our annualized operating cost base will be reduced by approximately $2.5 million."

Given the high level of uncertainty regarding a turn-around in telecommunications spending, the Company is unable to give revenue or earnings guidance regarding the balance of 2001. Nonetheless, Smialek said the Company's long-term financial prospects remain strong. "Our core products, which help telecommunications companies leverage equipment investments from multiple vendors, are continually being enhanced to appeal to both current customers and new markets. In addition, we are making significant progress in our international strategy and last year introduced LuxPath Networks to offer high-speed broadband delivery via gigabit Ethernet connections. We believe that end-user demand remains on a long-term growth trend, and we will continue our mission of providing creative and cost-effective solutions for the telecommunications industry."

The Company expects to release second quarter earnings on July 19, 2001, and will have a conference call at 10:00 a.m. EDT on that date to discuss the results.

About Applied Innovation

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 communications networks of physically dispersed and technically diverse elements. The Company provides hardware, software, service and turnkey network management solutions to leading telecommunications, cable, and Internet companies, including all Regional Bell Operating Companies.

Applied Innovation also participates in the high-speed data transport market through 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.

Applied Innovation, headquartered in suburban Columbus, Ohio, is traded on NASDAQ under the symbol AINN. For more information, please visit www.aiinet.com.

This press release contains certain forward-looking statements 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 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: revenue, sales mix, net income and balance sheet projections (paragraphs one and two); capital spending trends in the telecommunications market (paragraph three); expected charge in the second quarter 2001 and annualized savings relating to workforce reductions (paragraph four); and prospects for international and LuxPath Network sales (paragraph five). These forward-looking statements involve numerous risks and uncertainties, including, without limitation: the Company's ability to sell its products and services during the second quarter and the remainder of fiscal 2001, changes in capital spending by telecommunications carriers, 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 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.