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Digi International Reports 25.3% Increase in Revenue for First Fiscal Quarter 2007 Over First Fiscal Quarter 2006

(Minneapolis, MN, January 18, 2007) - Digi International® Inc. (NASDAQ: DGII) reported revenue of $41.8 million for the first fiscal quarter of 2007 compared with $33.4 million for the first fiscal quarter of 2006, an increase of $8.4 million, or 25.3%. Other financial highlights for the quarter include:

  • Revenue increased sequentially from the fourth quarter of fiscal 2006 by 1.9%, despite a traditionally weaker first fiscal quarter.
  • Operating income increased by 50% over the first fiscal quarter of 2006.
  • Digi met its quarterly revenue and earnings per share guidance.

MaxStream, which Digi acquired in July 2006, contributed $4.6 million in revenue for the quarter. Revenue from embedded products in the first quarter of fiscal 2007 was $16.6 million, an increase of $2.6 million, or 18.5% compared to the first quarter of 2006. Revenue from non-embedded products was $25.2 million in the first quarter of 2007, an increase of $5.8 million, or 30.2% compared to the first quarter of 2006.

Gross profit margin in the first quarter of 2007 was 52.6% compared with 54.5% during the same quarter of fiscal 2006. The decrease in gross profit margin in the first quarter of 2007 compared to the first quarter of 2006 was due to lower sales of mature products with higher gross profit margins, as well as higher manufacturing expenses. Gross profit margin includes the amortization of identifiable intangibles for purchased and core technology, which impacted gross profit margin in the first quarter of 2007 and 2006 by 2.8% and 3.5% respectively.

Total operating expenses in the first quarter of 2007 were $17.7 million, or 42.3% of revenues, compared with $15.3 million, or 45.9% of revenue, in the first quarter of 2006. The increase in operating expenses is attributable to the inclusion of operating expenses pertaining to MaxStream and variable compensation expenses related to the increase in revenue. Operating expenses as a percent of net sales decreased by 3.6 percentage points in the first quarter of 2007 compared to the first quarter of 2006 as Digi continues to focus on controlling expenses while increasing revenue.

Operating income improved to $4.3 million, or 10.3% of net sales, in the first quarter of 2007, compared with $2.9 million, or 8.6% of net sales, in the first quarter of 2006.

Net income was $3.8 million in the first quarter of 2007, or $0.15 per diluted share, compared with $2.2 million in the first quarter of 2006, or $0.09 per diluted share, or an increase of 74.2%. As a result of the extension of the research and development credit for two additional years beyond calendar 2005, a benefit for research and development credits earned during the last three quarters of fiscal 2006 was recorded in the first quarter of 2007, resulting in an additional tax benefit of $0.5 million, or $0.02 per diluted share.

Digi's cash and cash equivalents and marketable securities balance at the end of the first quarter of 2007 was $61.5 million, an increase of $2.6 million over the cash and cash equivalents and marketable securities balance at the end of fiscal 2006. Digi's current ratio is 5.2 to 1, and the Company has no debt other than insignificant amounts of capital lease obligations.

"We started off fiscal 2007 with a good quarter," said Joe Dunsmore, Digi's Chief Executive Officer. "We are pleased with our financial results, particularly our continued strong profitability."

First Fiscal Quarter 2007 Business Highlights:

  • Digi's MaxStream branded XBee™ product family has been ZigBee Certified by the ZigBee Alliance, an association of companies working together to enable reliable, cost-effective, low-power, wirelessly networked, monitoring and control products based on an open global standard. The XBee and XBee-PRO OEM RF modules passed rigorous independent testing to become one of only four products to receive ZigBee certification.
  • Digi launched a Rev A version of its ConnectPort™ WAN VPN, the industry's first commercial-grade EVDO Rev A Wireless WAN (WWAN) router. With broadband download and upload speeds, it is the first commercial-grade solution to take advantage of enhanced Rev A EVDO wireless networks to enable wireless connections to remote sites and devices at DSL speeds.
  • Digi's MaxStream® announced the availability of the XBee XTender™ wireless bridge that extends the range of ZigBee™ and 802.15.4 networks up to 40 miles.
  • The Company strengthened its Board of Directors with the election of Ahmed Nawaz. Mr. Nawaz brings to Digi's Board extensive general management experience, as well as global sales and marketing experience in the communications technology arena.

Second Fiscal Quarter 2007 Guidance
For the second quarter of fiscal 2007, Digi expects revenue to be in the range of $39 million to $44 million. Digi expects second fiscal quarter 2007 earnings per diluted share to be in a range of $0.11 to $0.17.

First Quarter 2007 Conference Call Details
Digi invites all those interested in hearing management's discussion of its quarter, on Thursday, January 18 at 4:00 p.m. CST, to join the call by dialing (888) 328-2938. International participants may access the call by dialing (415) 537-1811. A replay will be available beginning on January 18, 2007 at 7:00 pm CST and continuing for one week following the call by dialing (800) 633-8284 for domestic participants or (402) 977-9140 for international participants and entering access code 21321536 when prompted. Participants may also access a live webcast of the conference call through the investor relations section of Digi's website, www.digi.com.

About Digi International
Digi International, based in Minneapolis, is the leader in device networking for business. Digi develops reliable products and technologies that enable companies to connect and securely manage local or remote electronic devices over the network or via the web.

Forward-looking Statements
This press release contains statements that constitute "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 generally can be identified by the use of forward-looking terminology such as "anticipate," "believe," "target," "estimate," "may," "will," "expect," "plan," "project," "should," or "continue" or the negative thereof or other variations thereon or similar terminology. Such statements are based on information available to management as of the time of such statements and relate to, among other things, expectations of the business environment in which the Company operates, projections of future performance, perceived opportunities in the market and statements regarding the Company's 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 the Company operates, rapid changes in technologies that may displace products sold by the Company, declining prices of networking products, the Company's reliance on distributors, delays in the Company's product development efforts, uncertainty in consumer acceptance of the Company's products, and changes in the Company's level of revenue or profitability. These and other risks, uncertainties and assumptions identified from time to time in the Company's filings with the Securities and Exchange Commission, including without limitation, its annual report on Form 10-K for the year ended September 30, 2006 and its quarterly reports on Form 10-Q, could cause the Company's future results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. Many of such factors are beyond the Company's ability to control or predict. These forward-looking statements speak only as of the date for which they are made. The Company disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Digi International Inc.
Condensed Consolidated Statement of Operations

Digi International Inc.
Condensed Consolidated Balance Sheet

Digi International Inc.
Condensed Consolidated Statement of Cash Flows

Investor Contacts:
S. (Kris) Krishnan
Digi International
Email: S. (Kris) Krishnan

Tom Caden
Dian Griesel Inc.
Email: Tom Caden

For more information, visit Digi's Web site at www.digi.com, or call 877-912-3444 (U.S.) or 952-912-3444 (International).

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