[April 23, 2015] |
|
Digi International Reports Second Fiscal Quarter 2015 Results
Digi International® Inc. (NASDAQ:DGII) reported revenue of
$53.2 million for the second fiscal quarter of 2015, compared with $45.9
million for the second fiscal quarter of 2014, an increase of $7.3
million, or 15.8%. Net income for the second fiscal quarter of 2015 was
$1.4 million, or $0.06 per diluted share, compared to net income of $0.7
million, or $0.03 per diluted share, in the prior year comparable
quarter.
Non-GAAP net income for the second fiscal quarter of 2015 was $1.1
million, or $0.04 per diluted share, compared to non-GAAP net loss for
the second fiscal quarter of 2014 of $0.4 million, or $0.01 loss per
diluted share. Non-GAAP net income for the second fiscal quarter of 2015
excludes restructuring charges of $0.3 million, net of tax, announced in
February 2015, and proceeds received from an insurance recovery of $0.7
million, net of tax. Non-GAAP net income for the second quarter of
fiscal 2014 excludes discrete tax benefits of $1.1 million. The
reconciliation of GAAP net income to non-GAAP net income is provided
later in this release.
"Changes made in the second quarter to focus the company and improve
execution are yielding positive results. We lowered our cost structure
with our restructuring in February. Revenue from our cellular and RF
product lines was particularly strong, and our services revenue improved
from the first quarter," said Ron Konezny, President and Chief Executive
Officer. "We've recovered from the fire experienced at our subcontract
manufacturing location in Thailand and we're back to normal delivery
times," continued Mr. Konezny. "The team is working hard to leverage the
momentum we have created."
Below is a table setting forth certain GAAP and non-GAAP results:
GAAP Results
|
(in thousands, except per share data)
|
|
Q2 2015
|
|
Q2 2014
|
|
YTD 2015
|
|
YTD 2014
|
Total Revenue
|
|
$
|
53,151
|
|
|
$
|
45,882
|
|
|
$
|
101,874
|
|
|
$
|
93,204
|
|
Gross Profit
|
|
$
|
24,078
|
|
|
$
|
21,780
|
|
|
$
|
46,000
|
|
|
$
|
44,688
|
|
Gross Margin
|
|
45.3
|
%
|
|
47.5
|
%
|
|
45.2
|
%
|
|
47.9
|
%
|
Operating Income (Loss)
|
|
$
|
942
|
|
|
$
|
(649
|
)
|
|
$
|
(678
|
)
|
|
$
|
(21
|
)
|
Operating Income (Loss) as % of Total Revenue
|
|
1.8
|
%
|
|
(1.4
|
)%
|
|
(0.7
|
)%
|
|
-
|
%
|
Net Income
|
|
$
|
1,446
|
|
|
$
|
738
|
|
|
$
|
1,107
|
|
|
$
|
1,426
|
|
Net Income per Diluted Share
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
$
|
0.05
|
|
|
Non-GAAP Results*
|
(in thousands, except per share data)
|
|
Q2 2015
|
|
Q2 2014
|
|
YTD 2015
|
|
YTD 2014
|
Net Income (Loss)
|
|
$
|
1,125
|
|
|
$
|
(367
|
)
|
|
$
|
298
|
|
|
$
|
159
|
|
Net Income (Loss) per Diluted Share
|
|
$
|
0.04
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
2,712
|
|
|
$
|
1,242
|
|
|
$
|
3,002
|
|
|
$
|
3,812
|
|
Adjusted EBITDA as % of Total Revenue
|
|
5.1
|
%
|
|
2.7
|
%
|
|
2.9
|
%
|
|
4.1
|
%
|
* A table with a detailed reconciliation to non-GAAP information is
provided at the end of this earnings release.
|
Business Results for the Three Months
Ended March 31, 2015 and 2014
|
|
Revenue Detail QTD
|
(in thousands)
|
|
Q2 2015
|
|
Q2 2014
|
|
Change
|
|
% Change
|
Growth hardware
|
|
$
|
30,376
|
|
|
$
|
20,815
|
|
|
$
|
9,561
|
|
|
45.9
|
|
Mature hardware
|
|
17,732
|
|
|
19,745
|
|
|
(2,013
|
)
|
|
(10.2
|
)
|
Total product revenue
|
|
48,108
|
|
|
40,560
|
|
|
7,548
|
|
|
18.6
|
|
Service
|
|
5,043
|
|
|
5,322
|
|
|
(279
|
)
|
|
(5.2
|
)
|
Total revenue
|
|
$
|
53,151
|
|
|
$
|
45,882
|
|
|
$
|
7,269
|
|
|
15.8
|
|
|
|
|
|
|
|
|
|
|
North America, primarily United States
|
|
$
|
32,388
|
|
|
$
|
27,352
|
|
|
$
|
5,036
|
|
|
18.4
|
|
Europe, Middle East and Africa
|
|
12,383
|
|
|
11,943
|
|
|
440
|
|
|
3.7
|
|
Asia
|
|
5,714
|
|
|
4,996
|
|
|
718
|
|
|
14.4
|
|
Latin America
|
|
2,666
|
|
|
1,591
|
|
|
1,075
|
|
|
67.6
|
|
Total revenue
|
|
$
|
53,151
|
|
|
$
|
45,882
|
|
|
$
|
7,269
|
|
|
15.8
|
|
Total revenue grew 15.8% to $53.2 million in the second fiscal
quarter of 2015 from $45.9 million in the second fiscal quarter of 2014.
-
Product revenue increased by $7.6 million, or 18.6%, in the second
fiscal quarter of 2015 compared to the prior year's comparable
quarter, driven primarily by cellular router and gateway products and
RF modules. We estimate that approximately $1.5 million of revenue
recorded in the second fiscal quarter of 2015 was a result of orders
that were delayed from the first fiscal quarter of 2015 that could not
be fulfilled due to the impact of the fire at our subcontract
manufacturing location.
-
Service revenue decreased by $0.3 million, or 5.2%, in the second
fiscal quarter of 2015 compared to the prior year's comparable quarter.
-
Total revenue in the second fiscal quarter of 2015 was unfavorably
impacted by foreign currency translation of $1.1 million when compared
to the same period in the prior fiscal year as a result of the
weakening of the Euro and British Pound.
Gross profit was $24.1 million, or 45.3% of revenue, in the
second fiscal quarter of 2015 compared to $21.8 million, or 47.5% of
revenue, in the same period of the prior year, an increase of $2.3
million.
-
Hardware product gross margin was 47.0% in the second fiscal quarter
of 2015 compared to 50.7% in the same quarter in the prior year. Gross
margin was negatively impacted by product mix, as revenue from mature
hardware products was replaced with revenue from growth hardware
products that generally have lower gross margins.
-
Service gross margin for the second fiscal quarter of 2015 was 29.1%
compared to 23.1% in the same quarter in the prior year, resulting
from improved utilization of consulting labor in connection with the
restructuring.
Operating expenses were $23.1 million, or 43.5% of revenue in the
second fiscal quarter of 2015, compared to $22.4 million, or 48.9% of
revenue in the same quarter in the prior year. Operating expenses for
the second fiscal quarter of 2015 included approximately $0.5 million
for restructuring of our India and Etherios operations. We closed our
India office in March, resulting in a restructuring charge of $0.2
million for severance in connection with a reduction in force of 38
employees. We also restructured our Etherios operations, reflecting our
refocus on CRM and service cloud implementations. We scaled the business
to current and expected revenue levels resulting in a workforce
reduction of 21 employees and a severance charge of $0.3 million.
Operating income for the second fiscal quarter of 2015 was $0.9
million as compared to an operating loss of $0.7 million for the second
fiscal quarter of 2014. This $1.6 million increase in operating income
resulted from an increase in gross profit of $2.3 million, partially
offset by an increase in operating expenses of $0.7 million. Operating
income for the second fiscal quarter of 2015 included the aforementioned
restructuring expenses of $0.5 million.
Other income, net of $1.4 million included approximately $1.0
million of insurance proceeds related to the replacement of our capital
equipment destroyed in the fire at our subcontract manufacturer's
location. Other income, net also included foreign currency transaction
net gains and interest income.
Net income was $1.4 million in the second fiscal quarter of 2015,
or $0.06 per diluted share, compared to $0.7 million of net income, or
$0.03 per diluted share, in the second fiscal quarter of 2014.
-
Net income in the second fiscal quarter of 2015 was reduced by a
restructuring charge of $0.3 million, net of tax, or $0.01 per diluted
share.
-
Net income in the second fiscal quarter of 2015 included insurance
proceeds of $0.7 million, net of tax, or $0.03 per diluted share.
-
Net income in the second fiscal quarter of 2014 included a discrete
tax benefit of $1.1 million, or $0.04 per diluted share, resulting
from the remeasurement and reversal of certain tax reserves in
conjunction with the settlement of a federal income tax audit.
Non-GAAP net income, including the adjustments listed above, was $1.1
million in the second fiscal quarter of 2015, or $0.04 per diluted
share, compared to Non-GAAP net loss, including the adjustment listed
above, which was $0.4 million in the second fiscal quarter of 2014, or
$0.01 loss per diluted share.
Adjusted EBITDA (Earnings Before Insurance Proceeds, Interest, Taxes,
Depreciation and Amortization) in the second fiscal quarter of 2015
was $2.7 million, or 5.1% of net sales, compared to $1.2 million, or
2.7% of net sales, in the second fiscal quarter of 2014. See
Reconciliation of Net Income to Earnings Before Insurance Proceeds,
Interest, Taxes, Depreciation and Amortization later in this earnings
release.
Business Results for the Six Months Ended
March 31, 2015 and 2014
|
|
Revenue Detail YTD
|
(in thousands)
|
|
Q2 2015
|
|
Q2 2014
|
|
Change
|
|
% Change
|
Growth hardware
|
|
$
|
56,226
|
|
|
$
|
42,618
|
|
|
$
|
13,608
|
|
|
31.9
|
|
Mature hardware
|
|
36,815
|
|
|
39,931
|
|
|
(3,116
|
)
|
|
(7.8
|
)
|
Total product revenue
|
|
93,041
|
|
|
82,549
|
|
|
10,492
|
|
|
12.7
|
|
Service
|
|
8,833
|
|
|
10,655
|
|
|
(1,822
|
)
|
|
(17.1
|
)
|
Total revenue
|
|
$
|
101,874
|
|
|
$
|
93,204
|
|
|
$
|
8,670
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
North America, primarily United States
|
|
$
|
63,101
|
|
|
$
|
56,789
|
|
|
$
|
6,312
|
|
|
11.1
|
|
Europe, Middle East and Africa
|
|
23,614
|
|
|
23,540
|
|
|
74
|
|
|
0.3
|
|
Asia
|
|
11,117
|
|
|
10,069
|
|
|
1,048
|
|
|
10.4
|
|
Latin America
|
|
4,042
|
|
|
2,806
|
|
|
1,236
|
|
|
44.0
|
|
Total revenue
|
|
$
|
101,874
|
|
|
$
|
93,204
|
|
|
$
|
8,670
|
|
|
9.3
|
|
Total revenue grew 9.3% to $101.9 million in the first six months
of fiscal 2015 from $93.2 million in the first six months of fiscal 2014.
-
Product revenue increased by $10.5 million, or 12.7%, in the first six
months of fiscal 2015 compared to the prior year's comparable period,
driven primarily by cellular router and gateway products and RF
modules.
-
Service revenue decreased by $1.8 million, or 17.1%, in the first six
months of fiscal 2015 compared to the prior year's comparable period
as a result of completing fewer contracts.
-
Total revenue in the first six months of 2015 was unfavorably impacted
by foreign currency translation of $1.5 million when compared to the
same period in the prior fiscal year as a result of the weakening of
the Euro and British Pound.
Operating loss for the first six months of fiscal 2015 was $0.7
million as compared to an operating loss of $0.02 million for the first
six months of fiscal 2014. Operating loss increased by $0.7 million and
resulted from an increase in operating expenses of $2.0 million,
partially offset by an increase in gross profit of $1.3 million.
Operating loss for the first six months of fiscal 2015 includes the
aforementioned restructuring expenses of $0.5 million.
Net income was $1.1 million in the first half of fiscal 2015, or
$0.04 per diluted share, compared to $1.4 million of net income, or
$0.05 per diluted share, in the first half of fiscal 2014. Non-GAAP net
income was $0.3 million in the first half of 2015, or $0.01 per diluted
share, compared to $0.2 million of net income in the first half of 2014,
or $0.01 per diluted share. Please refer to the Reconciliation of Net
Income and Net Income per Diluted Share to Non-GAAP Net Income (Loss)
and Net Income (Loss) per Diluted Share later in this earnings release.
Adjusted EBITDA (Earnings Before Insurance Proceeds, Interest, Taxes,
Depreciation and Amortization) in the first half of fiscal 2015 was
$3.0 million, or 2.9% of net sales, compared to $3.8 million, or 4.1% of
net sales, in the first half of fiscal 2014. See Reconciliation of Net
Income to Earnings Before Insurance Proceeds, Interest, Taxes,
Depreciation and Amortization later in this earnings release.
Balance Sheet, Liquidity and Capital Structure
We continue to maintain a strong balance sheet, highlighted by:
-
Our cash and cash equivalents and marketable securities balance,
including long-term marketable securities, was $92.4 million at March
31, 2015, an increase of $0.4 million over the comparable balance at
September 30, 2014.
-
We had no debt on the balance sheet as of March 31, 2015.
-
At March 31, 2015, our current ratio was 6.9 to 1 compared to 6.8 to 1
at September 30, 2014.
Customer Highlights:
-
Contour Networks' industry-first PCI Certified Private Cellular
Network provides ATM, Point-of-Sale (POS), vending, and healthcare
kiosk customers with the opportunity to avoid costly regulatory
audits, while keeping their customers' information safe and their
brands protected. The global network and payment provider selected
Digi TransPort® WR11 and WR21 routers to provide consistent
uptime and reliability to its global portfolio.
-
IGT, the world's largest lottery business, was chosen by the
government of Mexico to provide 11,000 new lottery terminals equipped
with Digi TransPort® WR cellular routers for terminal
connectivity. The new lottery units will replace current kiosks
throughout the country and provide instant ticket and draw-based games.
-
One of America's leading rail transportation companies has once again
partnered with Digi. By selecting Digi's TransPort®
WR21 4G LTE router, the organization will replace costly wireline
solutions that were becoming a burden to support. Digi's LTE cellular
routers allow a drop-in, dedicated connection across the entire
network, spanning 32,000 miles. The Digi technology will also provide
improved data transfer rates and cost savings over existing hard-wired
legacy connections.
-
A pioneer of home and business security technology with more than 25
brands sold in nearly 130 countries has selected the Digi ConnectCard™
for i.MX28 to leverage wireless capabilities for remote operation of
digital locks in order to improve security and efficiency in
facilities.
-
A leading manufacturer and distributor of innovative sensing solutions
including thermal imaging systems, visible-light imaging systems and
measurement and diagnostic systems chose to design Digi
International's ConnectCore® CC6 into a new range of
thermal image cameras for professional and commercial markets.
-
Seattle Sports Sciences, Inc. changes how soccer teams train with
their flagship product, the SideKick® soccer training
machine. Now, as a result of their collaboration with Digi
International, they will release their next generation of products, a
revolutionary control and automation suite under the ISOTechne™ brand.
ISOTechne™ supports pre-defined programs that combine delivery of the
ball with movement of players and skill in playing the ball. By
utilizing Digi Wireless Design Services' expertise and Digi XBee®
technology, Seattle Sport Sciences has created a system of targets
that the player runs to as each ball is fired. The ball launch system
controls ball direction, speed and ball spin. Wireless sensors
precisely track the player's response. For the first time ever,
coaches are able to immediately and objectively compare players'
performance under nearly identical conditions. Seattle Sport Sciences
engages many of the marquee sports programs in the world to redefine
training sequences and performance metrics.
Reconciliation of Net Income and Net Income per Diluted Share
|
to Non-GAAP Net Income (Loss) and Net Income (Loss) per Diluted
Share
|
(In thousands of dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
Six months ended March 31,
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Net income and net income per common share, diluted
|
|
$
|
1,446
|
|
|
$
|
0.06
|
|
|
$
|
738
|
|
|
$
|
0.03
|
|
|
$
|
1,107
|
|
|
$
|
0.04
|
|
|
$
|
1,426
|
|
|
$
|
0.05
|
|
Restructuring reserve, net of taxes
|
|
337
|
|
|
0.01
|
|
|
-
|
|
|
-
|
|
|
337
|
|
|
0.01
|
|
|
53
|
|
|
NM
|
|
Proceeds from insurance recovery, net of taxes
|
|
(659
|
)
|
|
(0.03
|
)
|
|
-
|
|
|
-
|
|
|
(659
|
)
|
|
(0.03
|
)
|
|
-
|
|
|
-
|
|
Discrete tax benefits for extended research and development
tax credits and expiration of statute of limitations in
various tax jurisdictions, and re-measurement and
reversal of certain tax reserves as a result of a federal
income tax audit
|
|
1
|
|
|
NM
|
|
|
(1,105
|
)
|
|
(0.04
|
)
|
|
(487
|
)
|
|
(0.02
|
)
|
|
(1,320
|
)
|
|
(0.05
|
)
|
Non-GAAP net income (loss) and net income (loss) per diluted
share*
|
|
$
|
1,125
|
|
|
$
|
0.04
|
|
|
$
|
(367
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
298
|
|
|
$
|
0.01
|
|
|
$
|
159
|
|
|
$
|
0.01
|
|
Diluted weighted average common shares
|
|
|
|
25,273
|
|
|
|
|
26,144
|
|
|
|
|
24,816
|
|
|
|
|
26,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM means Not Meaningful
|
*Earnings per share presented are calculated by line item and
certain amounts may not add due to use of rounded numbers.
|
Reconciliation of Net Income to Earnings Before Insurance
Proceeds, Interest, Taxes, Depreciation and
|
Amortization (Adjusted EBITDA)
|
(In thousands of dollars)
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
Six months ended March 31,
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
|
|
|
% of total revenue
|
|
|
|
% of total revenue
|
|
|
|
% of total revenue
|
|
|
|
% of total revenue
|
Total revenue
|
|
$
|
53,151
|
|
|
100.0
|
%
|
|
$
|
45,882
|
|
|
100.0
|
%
|
|
$
|
101,874
|
|
|
100.0
|
%
|
|
$
|
93,204
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,446
|
|
|
|
|
$
|
738
|
|
|
|
|
$
|
1,107
|
|
|
|
|
$
|
1,426
|
|
|
|
Recovery of insurance proceeds
|
|
(1,014
|
)
|
|
|
|
-
|
|
|
|
|
(1,014
|
)
|
|
|
|
-
|
|
|
|
Interest income, net
|
|
(54
|
)
|
|
|
|
(49
|
)
|
|
|
|
(92
|
)
|
|
|
|
(92
|
)
|
|
|
Income tax provision (benefit)
|
|
874
|
|
|
|
|
(1,317
|
)
|
|
|
|
19
|
|
|
|
|
(1,241
|
)
|
|
|
Depreciation and amortization
|
|
1,460
|
|
|
|
|
1,870
|
|
|
|
|
2,982
|
|
|
|
|
3,719
|
|
|
|
Adjusted EBITDA*
|
|
$
|
2,712
|
|
|
5.1
|
%
|
|
$
|
1,242
|
|
|
2.7
|
%
|
|
$
|
3,002
|
|
|
2.9
|
%
|
|
$
|
3,812
|
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Percentages presented may not add due to use of rounded numbers.
|
Guidance
For the third fiscal quarter of 2015, we project revenue in a range of
$51 million to $54 million. We project net income per diluted share to
be in a range of $0.02 to $0.05 for the third fiscal quarter of 2015.
For the full fiscal year 2015, we have narrowed our guidance range and
project revenue of $203 million to $210 million and net income per
diluted share to be in a range of $0.07 to $0.15.
Second Fiscal Quarter 2015 Conference Call Details
As announced on April 9, 2015, Digi will discuss its second quarter
results on a conference call on Thursday, April 23, 2015 after market
close at 5:00 p.m. EDT (4:00 p.m. CDT). The call will be hosted by Ron
Konezny, President and Chief Executive Officer.
Digi invites all those interested in hearing management's discussion of
its quarter to join the call by dialing (844) 241-1224 and entering
passcode 22791819. International participants may access the call by
dialing (262) 912-4765 and entering passcode 22791819. A replay will be
available within approximately two hours after the completion of the
call, and for one week following the call, by dialing (855) 859-2056 for
domestic participants or (404) 537-3406 for international participants
and entering access code 22791819 when prompted. Participants may also
access a live webcast of the conference call through the investor
relations section of Digi's website at www.digi.com.
The webcast will remain on our website for one week after the live
session is completed.
A copy of this earnings release can be accessed through the financial
releases page of the investor relations section of Digi's website at www.digi.com.
For more news and information on Digi International® Inc., please visit www.digi.com/aboutus/investorrelations.
About Digi International
Digi International is the M2M solutions expert, combining products and
services as end-to-end solutions to drive business efficiencies. Digi
provides the industry's broadest range of wireless products, a cloud
computing platform tailored for devices and development services to help
customers get to market fast with wireless devices and applications.
Digi's entire solution set is tailored to allow any device to
communicate with any application, anywhere in the world. For more
information, visit Digi's website at www.digi.com,
or call 877-912-3444 (U.S.), or 952-912-3444 (International).
Forward-Looking Statements
This press release contains forward-looking statements that are based
on management's current expectations and assumptions. These
statements often can be identified by the use of forward-looking
terminology such as "anticipate," "believe," "estimate," "may," "will,"
"expect," "plan," "project," "should," or "continue" or the negative
thereof or other variations thereon or similar terminology. Among
other items, these statements relate to expectations of the business
environment in which the company operates, projections of future
performance, perceived marketplace opportunities and statements
regarding our mission and vision. Such statements are not
guarantees of future performance and involve certain risks,
uncertainties and assumptions, including risks related to the highly
competitive market in which our company operates, rapid changes in
technologies that may displace products sold by us, declining prices of
networking products, our reliance on distributors and other third
parties to sell our products, delays in product development efforts,
uncertainty in user acceptance of our products, the ability to integrate
our products and services with those of other parties in a commercially
accepted manner, potential liabilities that can arise if any of our
products have design or manufacturing defects, our ability to defend or
settle satisfactorily any litigation, uncertainty in global economic
conditions and economic conditions within particular regions of the
world which could negatively affect product demand and the financial
solvency of customers and suppliers, the impact of natural disasters and
other events beyond our control that could negatively impact our supply
chain and customers, potential unintended consequences associated with
restructuring or other similar business initiatives that may impact our
ability to retain important employees, the ability to achieve the
anticipated benefits and synergies associated with acquisitions, and
changes in our level of revenue or profitability which can fluctuate for
many reasons beyond our control. These and other risks,
uncertainties and assumptions identified from time to time in our
filings with the United States Securities and Exchange Commission,
including without limitation, our annual report on Form 10-K for the
year ended September 30, 2014 and subsequent quarterly reports on Form
10-Q and other filings, could cause the company's future results to
differ materially from those expressed in any forward-looking statements
made by us or on our behalf. Many of such factors are beyond our
ability to control or predict. These forward-looking statements
speak only as of the date for which they are made. We disclaim
any intent or obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise.
Presentation of Non-GAAP Financial Measures
This release includes non-GAAP net income (loss) and net income
(loss) per diluted share, respectively, and earnings before insurance
proceeds, interest, taxes, depreciation and amortization (Adjusted
EBITDA), which is a non-GAAP measure.
We understand that there are material limitations on the use of
non-GAAP measures. Non-GAAP measures are not substitutes for GAAP
measures, such as net income (loss), for the purpose of analyzing
financial performance. The disclosure of these measures does not
reflect all charges and gains that were actually recognized by the
company. These non-GAAP measures are not in accordance with, or
an alternative for measures prepared in accordance with, generally
accepted accounting principles and may be different from non-GAAP
measures used by other companies. In addition, these non-GAAP
measures are not based on any comprehensive set of accounting rules or
principles. We believe that non-GAAP measures have limitations in
that they do not reflect all of the amounts associated with our results
of operations as determined in accordance with GAAP and that these
measures should only be used to evaluate our results of operations in
conjunction with the corresponding GAAP measures. Additionally,
we understand that Adjusted EBITDA does not reflect our cash
expenditures, the cash requirements for the replacement of depreciated
and amortized assets, or changes in or cash requirements for our working
capital needs.
We believe that providing historical and net income (loss) and net
income (loss) per diluted share, respectively, exclusive of such items
as reversals of tax reserves and discrete tax benefits, restructuring,
and income from insurance proceeds permits investors to compare results
with prior periods that did not include these items. Management
uses the aforementioned non-GAAP measure to monitor and evaluate ongoing
operating results and trends and to gain an understanding of our
comparative operating performance. In addition, certain of our
stockholders have expressed an interest in seeing financial performance
measures exclusive of the impact of matters such as the impact of
decisions related to taxes, which while important, are not central to
the core operations of our business. Additionally, management
believes that the presentation of Adjusted EBITDA as a percentage of
revenue is useful because it provides a reliable and consistent approach
to measuring our performance from year to year and in assessing our
performance against that of other companies. We believe this
information helps compare operating results and corporate performance
exclusive of the impact of our capital structure and the method by which
assets were acquired. Adjusted EBITDA is also used as an internal
metric for executive compensation, as well as incentive compensation for
the rest of the employee base, and it is monitored quarterly for these
purposes.
For more information, visit our Web site at www.digi.com,
or call 877-912-3444 (U.S.) or 952-912-3444 (International).
Digi International Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
Six months ended March 31,
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Revenue:
|
|
|
|
|
|
|
|
|
Hardware product
|
|
$
|
48,108
|
|
|
$
|
40,560
|
|
|
$
|
93,041
|
|
|
$
|
82,549
|
|
Service
|
|
5,043
|
|
|
5,322
|
|
|
8,833
|
|
|
10,655
|
|
Total revenue
|
|
53,151
|
|
|
45,882
|
|
|
101,874
|
|
|
93,204
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
Cost of hardware product
|
|
25,498
|
|
|
20,012
|
|
|
48,610
|
|
|
40,275
|
|
Cost of service
|
|
3,575
|
|
|
4,090
|
|
|
7,264
|
|
|
8,241
|
|
Total cost of sales
|
|
29,073
|
|
|
24,102
|
|
|
55,874
|
|
|
48,516
|
|
Gross profit
|
|
24,078
|
|
|
21,780
|
|
|
46,000
|
|
|
44,688
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
10,299
|
|
|
10,399
|
|
|
21,091
|
|
|
20,618
|
|
Research and development
|
|
7,779
|
|
|
7,411
|
|
|
15,341
|
|
|
14,668
|
|
General and administrative
|
|
4,540
|
|
|
4,619
|
|
|
9,728
|
|
|
9,342
|
|
Restructuring charges, net
|
|
518
|
|
|
-
|
|
|
518
|
|
|
81
|
|
Total operating expenses
|
|
23,136
|
|
|
22,429
|
|
|
46,678
|
|
|
44,709
|
|
Operating income (loss)
|
|
942
|
|
|
(649
|
)
|
|
(678
|
)
|
|
(21
|
)
|
Other income, net:
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
54
|
|
|
49
|
|
|
92
|
|
|
92
|
|
Other income, net
|
|
1,324
|
|
|
21
|
|
|
1,712
|
|
|
114
|
|
Total other income, net
|
|
1,378
|
|
|
70
|
|
|
1,804
|
|
|
206
|
|
Income (loss) before income taxes
|
|
2,320
|
|
|
(579
|
)
|
|
1,126
|
|
|
185
|
|
Income tax provision (benefit)
|
|
874
|
|
|
(1,317
|
)
|
|
19
|
|
|
(1,241
|
)
|
Net income
|
|
$
|
1,446
|
|
|
$
|
738
|
|
|
$
|
1,107
|
|
|
$
|
1,426
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
$
|
0.06
|
|
Diluted
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
$
|
0.05
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
Basic
|
|
24,492
|
|
|
25,644
|
|
|
24,319
|
|
|
25,680
|
|
Diluted
|
|
25,273
|
|
|
26,144
|
|
|
24,816
|
|
|
26,189
|
|
Digi International Inc.
|
Condensed Consolidated Statements of Comprehensive (Loss) Income
|
(In thousands)
|
(Unaudited)
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
Six months ended March 31,
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Net income
|
|
$
|
1,446
|
|
|
$
|
738
|
|
|
$
|
1,107
|
|
|
$
|
1,426
|
|
Other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(3,356
|
)
|
|
(181
|
)
|
|
(5,729
|
)
|
|
162
|
|
Change in net unrealized gain (loss) on investments
|
|
23
|
|
|
26
|
|
|
(6
|
)
|
|
64
|
|
Less income tax (provision) benefit
|
|
(9
|
)
|
|
(10
|
)
|
|
2
|
|
|
(25
|
)
|
Reclassification of realized loss on investments included in
net income (1)
|
|
1
|
|
|
-
|
|
|
1
|
|
|
-
|
|
Other comprehensive (loss) income, net of tax
|
|
(3,341
|
)
|
|
(165
|
)
|
|
(5,732
|
)
|
|
201
|
|
Comprehensive (loss) income
|
|
$
|
(1,895
|
)
|
|
$
|
573
|
|
|
$
|
(4,625
|
)
|
|
$
|
1,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Recorded in Other income, net on our Condensed Consolidated
Statement of Operations.
|
Digi International Inc.
|
Condensed Consolidated Balance Sheets
|
(In thousands)
|
(Unaudited)
|
|
|
|
|
|
|
|
March 31, 2015
|
|
September 30, 2014
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
45,657
|
|
|
$
|
47,490
|
Marketable securities
|
|
39,220
|
|
|
32,898
|
Accounts receivable, net
|
|
28,615
|
|
|
28,576
|
Inventories
|
|
33,881
|
|
|
31,247
|
Deferred tax assets
|
|
3,388
|
|
|
3,221
|
Other
|
|
4,877
|
|
|
4,249
|
Total current assets
|
|
155,638
|
|
|
147,681
|
Marketable securities, long-term
|
|
7,550
|
|
|
11,541
|
Property, equipment and improvements, net
|
|
14,617
|
|
|
13,231
|
Identifiable intangible assets, net
|
|
5,348
|
|
|
6,785
|
Goodwill
|
|
101,742
|
|
|
103,398
|
Deferred tax assets
|
|
5,087
|
|
|
7,383
|
Other
|
|
320
|
|
|
440
|
Total assets
|
|
$
|
290,302
|
|
|
$
|
290,459
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
11,375
|
|
|
$
|
10,451
|
Accrued compensation
|
|
7,677
|
|
|
8,133
|
Other
|
|
3,421
|
|
|
3,170
|
Total current liabilities
|
|
22,473
|
|
|
21,754
|
Income taxes payable
|
|
1,893
|
|
|
2,724
|
Deferred tax liabilities
|
|
322
|
|
|
272
|
Other noncurrent liabilities
|
|
481
|
|
|
411
|
Total liabilities
|
|
25,169
|
|
|
25,161
|
|
|
|
|
|
Total stockholders' equity
|
|
265,133
|
|
|
265,298
|
Total liabilities and stockholders' equity
|
|
$
|
290,302
|
|
|
$
|
290,459
|
Digi International Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
|
|
|
Six months ended March 31,
|
|
|
2015
|
|
2014
|
Operating activities:
|
|
|
|
|
Net income
|
|
$
|
1,107
|
|
|
$
|
1,426
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
Depreciation of property, equipment and improvements
|
|
1,445
|
|
|
1,828
|
|
Amortization of identifiable intangible assets
|
|
1,537
|
|
|
1,891
|
|
Stock-based compensation
|
|
2,222
|
|
|
2,070
|
|
Excess tax benefits from stock-based compensation
|
|
-
|
|
|
(44
|
)
|
Deferred income tax provision (benefit)
|
|
2,212
|
|
|
(1,065
|
)
|
Gain on insurance settlement related to property and equipment
|
|
(989
|
)
|
|
-
|
|
Bad debt/product return provision
|
|
518
|
|
|
(151
|
)
|
Inventory obsolescence
|
|
476
|
|
|
409
|
|
Restructuring charges, net
|
|
518
|
|
|
81
|
|
Other
|
|
(27
|
)
|
|
46
|
|
Changes in operating assets and liabilities
|
|
(7,459
|
)
|
|
(9,681
|
)
|
Net cash provided by (used in) operating activities
|
|
1,560
|
|
|
(3,190
|
)
|
Investing activities:
|
|
|
|
|
Purchase of marketable securities
|
|
(22,099
|
)
|
|
(5,157
|
)
|
Proceeds from maturities of marketable securities
|
|
19,763
|
|
|
13,778
|
|
Proceeds from insurance settlement related to property and equipment
|
|
1,014
|
|
|
-
|
|
Proceeds from sale of property and equipment
|
|
45
|
|
|
-
|
|
Purchase of property, equipment, improvements and certain
other intangible assets
|
|
(3,035
|
)
|
|
(1,921
|
)
|
Net cash (used in) provided by investing activities
|
|
(4,312
|
)
|
|
6,700
|
|
Financing activities:
|
|
|
|
|
Excess tax benefits from stock-based compensation
|
|
-
|
|
|
44
|
|
Proceeds from stock option plan transactions
|
|
6,006
|
|
|
3,209
|
|
Proceeds from employee stock purchase plan transactions
|
|
505
|
|
|
561
|
|
Purchases of common stock
|
|
(2,339
|
)
|
|
(5,416
|
)
|
Net cash provided by (used in) financing activities
|
|
4,172
|
|
|
(1,602
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
(3,253
|
)
|
|
329
|
|
Net (decrease) increase in cash and cash equivalents
|
|
(1,833
|
)
|
|
2,237
|
|
Cash and cash equivalents, beginning of period
|
|
47,490
|
|
|
41,320
|
|
Cash and cash equivalents, end of period
|
|
$
|
45,657
|
|
|
$
|
43,557
|
|
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