VTEK Vodavi Technology

Vodavi Technology Inc. (Nasdaq: VTEK), a provider of business telecommunications solutions, today announced results for its second quarter ended June 30, 2005. For the second quarter of 2005, the company reported revenue of $10.6 million compared with revenue of $11.2 million in the second quarter of 2004. Net income totaled $369,000, or $0.09 per share, in the most recent quarter compared with net income of $453,000, or $0.11 per share, in the comparable period of 2004. The company reported revenue of $20.5 million for the six months ended June 30, 2005 compared with $21.0 million for the first half of 2004. Net income for the first six months of 2005 totaled $564,000, or $0.14 per share, compared with $670,000, or $0.16 per share, in the comparable period of 2004. Gregory K. Roeper, chief executive officer, stated, "Our reported revenue in the second quarter was negatively impacted by the decisions of many of our distribution partners to reduce inventories in their warehouses. Actual purchases of our products by our dealers increased by approximately 3% during the second quarter as compared to the second quarter of 2004. The reduction in our reported revenue is directly related to the reduced levels of inventory in the channel. Channel inventories remain at all time lows with approximately one month of supply on hand. While this had a negative impact in the second quarter, it does bode well for future periods as overall inventory turns should improve. "We continue to see increasing demand for our IP product offerings. Revenue associated with our IP products increased by approximately 75% over the second quarter of 2004 and by 86% over the first half of 2004. With the investments made in product development over the last several quarters, combined with the investments we made in the first half of 2005 into sales and marketing, we are well positioned to meet the demands of this shift in technology. "During the quarter we were also able to continue with our planned investments into our sales force, including dedicated IP personnel, and our Direct Office operation without significantly impacting our earnings or cash flow. During the first half of 2005 we generated approximately $896,000 of cash flow from operations compared with $836,000 during the first half of 2004." For a more detailed discussion of the company's financial results, please refer to the company's Form 10-Q for the quarterly period ended June 30, 2005, filed with the Securities and Exchange Commission. Teleconference Information The company has scheduled a teleconference to discuss its results on Wednesday, Aug. 3, 2005, at 5 p.m. Eastern time. To participate in the teleconference, please dial 800-834-7251 at least 10 minutes prior to the start of the call. International participants should dial 706-645-9262. Please refer to Conference ID: 8239557. A replay of the teleconference will be available beginning Aug. 3, 2005, at approximately 7 p.m. Eastern time through Sept. 3, 2005. To listen to the replay by phone, dial 800-642-1687. If calling internationally, please call 706-645-9291. About Vodavi Vodavi Technology Inc. is headquartered in Phoenix. The company designs, develops, markets and supports a broad range of business telecommunications solutions. Vodavi products include digital and IP-based telecommunications systems, computer telephony products, and voice-processing systems including voice mail, fax mail, and Internet messaging for a wide variety of commercial applications. For more information on Vodavi, visit www.vodavi.com. This press release contains forward-looking statements, including statements regarding the company's business strategies, the company's business, and the industry in which the company operates as well as expectations regarding revenue and income levels, and the market acceptance of new product introductions. These forward-looking statements are based primarily on the company's current expectations and are subject to a number of risks and uncertainties, some of which are out of the company's control. Actual results could differ materially from the forward-looking statements as a result of numerous factors, including those set forth in the company's Form 10-K filed with the Securities and Exchange Commission. -0- *T VODAVI TECHNOLOGY INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS In thousands except per share amounts Three Months Ended Six Months Ended June 30, June 30, -------------------- ----------------- 2005 2004 2005 2004 ----------- -------- -------- -------- REVENUE, net $10,599 $11,240 $20,465 $21,027 COST OF GOODS SOLD 6,738 7,296 13,130 13,704 ----------- -------- -------- -------- GROSS MARGIN 3,861 3,944 7,335 7,323 ----------- -------- -------- -------- OPERATING EXPENSES: Engineering and product development 500 492 1,018 1,013 Selling, general and administrative 2,787 2,712 5,441 5,209 ----------- -------- -------- -------- 3,287 3,204 6,459 6,222 ----------- -------- -------- -------- OPERATING INCOME 574 740 876 1,101 INTEREST (INCOME) EXPENSE (21) 4 (33) 14 ----------- -------- -------- -------- INCOME BEFORE INCOME TAXES 595 736 909 1,087 INCOME TAX PROVISION 226 283 345 417 ----------- -------- -------- -------- NET INCOME $369 $453 $564 $670 =========== ======== ======== ======== EARNINGS PER COMMON SHARE: Diluted $0.09 $0.11 $0.14 $0.16 =========== ======== ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING: Diluted 4,092 4,071 4,118 4,115 =========== ======== ======== ======== VODAVI TECHNOLOGY INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS In thousands June 30, Dec. 31, 2005 2004 -------- --------- CURRENT ASSETS: Cash $4,678 $4,000 Accounts receivable, net 6,946 7,145 Inventory 3,515 4,569 Deferred income taxes 454 454 Prepaids and other current assets 840 519 -------- --------- Total current assets 16,433 16,687 PROPERTY AND EQUIPMENT, net 1,301 1,363 GOODWILL 725 725 OTHER LONG-TERM ASSETS 45 50 -------- --------- $18,504 $18,825 ======== ========= CURRENT LIABILITIES: Trade accounts payable $697 $497 Accrued liabilities 919 1,352 Accrued rebates 426 641 Trade accounts payable to stockholder 3,554 3,990 -------- --------- Total current liabilities 5,596 6,480 DEFERRED INCOME TAXES 24 24 STOCKHOLDERS' EQUITY 12,884 12,321 -------- --------- $18,504 $18,825 ======== ========= *T