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Digi International Reports 21.4% Increase in Revenue for Third Fiscal Quarter 2007 Over Third Fiscal Quarter 2006

(Minneapolis, MN, July 23, 2007) - Digi International® Inc. (NASDAQ: DGII) reported revenue of $43.5 million for the third quarter of 2007 compared with $35.9 million for the third quarter of 2006, an increase of $7.6 million, or 21.4%. Other financial highlights for the quarter include:

  • Operating income and net income increased by 35.9% and 103.0%, respectively, over the third quarter of 2006.
  • Earnings per diluted share increased by 86% over the third quarter of 2006, including discrete tax benefits recorded in the third quarters of fiscal 2007 and 2006.
Revenue from embedded products in the third quarter of 2007 was $18.8 million, an increase of $5.1 million, or 37.2%, compared to the third quarter of 2006. Revenue from non-embedded products was $24.7 million in the third quarter of 2007, an increase of $2.6 million, or 11.6%, compared to the third quarter of 2006. MaxStream-branded product revenue was $5.4 million for the third quarter of 2007. MaxStream was acquired on July 27, 2006.

Gross profit margin in the third quarter of 2007 was 52.8% compared with 54.3% during the same quarter of fiscal 2006. The decrease in gross profit margin was due to lower sales of higher gross profit margin mature products and other product mix changes within both the embedded and non-embedded product categories. Gross profit margin includes the amortization of identifiable intangibles for purchased and core technology, shown separately on our Condensed Consolidated Statements of Operations.

Operating expenses as a percent of net sales decreased by 2.7 percentage points in the third quarter of 2007 compared with the third quarter of 2006 as Digi continues to focus on controlling expenses while increasing revenue. Total operating expenses in the third quarter of 2007 were $ 17.9 million, or 41.1% of revenue, compared with $ 15.7 million, or 43.8% of revenue, in the third 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 income increased by 35.9% in the third quarter of 2007 compared to the same quarter of 2006. Operating income was $ 5.1 million, or 11.7% of net sales, in the third quarter of 2007, compared with $ 3.8 million, or 10.5% of net sales, in the third quarter of 2006.

Digi recorded a discrete tax benefit of $2.9 million in the third quarter of 2007 equating to $0.11 per diluted share pertaining to the closing of a domestic tax return and the settlement of a foreign tax audit. As a result of the aforementioned events taking place in the third quarter of 2007, Digi reversed previously established tax reserves associated with these items. During the third quarter of 2006 Digi recorded a tax benefit of $0.6 million equating to $0.02 per diluted share pertaining to the recovery of discrete tax benefits in the quarter.

Net income was $ 6.8 million in the third quarter of 2007 compared to $3.3 million in the third quarter of 2006, an increase of 103.0%. Earnings per diluted share were $0.26 in the third quarter of 2007 compared to $0.14 in the third quarter of 2006, an increase of 86%.

For the nine months ended June 30, 2007, Digi reported revenue of $128.2 million compared to revenue of $103.6 million for the nine months ended June 30, 2006, or an increase of 23.7%. For the nine months ended June 30, 2007, Digi reported net income of $ 14.2 million compared to $8.1 million for the nine months ended June 30, 2006, an increase of 75.3%. Earnings per diluted share were $0.55 for the first nine months of 2007 compared to $0.34 for the comparable period in 2006, an increase of 59%.

Digi's cash and cash equivalents and marketable securities balance at the end of the third quarter of 2007 was $ 78.0 million, an increase of $19.1 million over the cash and cash equivalents and marketable securities balance at the end of fiscal 2006. Digi's current ratio is 5.7 to 1, and the Company has no debt other than insignificant amounts of capital lease obligations.

"This was another strong quarter for Digi," said Joe Dunsmore, Digi's Chief Executive Officer. "In particular, our operating income improvement of 35.9% year over year is indicative of our positive operating momentum."

Third Quarter 2007 Business Highlights:

Fourth Quarter and Full Year 2007 Guidance
For the fourth quarter of 2007, Digi expects revenue to be in the range of $43.5 million to $48.5 million. Earnings per diluted share for the fourth quarter of 2007 are expected to be in a range of $0.15 to $0.21. For the full fiscal year, Digi projects revenue to be in the range of $171.7 to $176.7 million, or an increase over fiscal year 2006 revenue of 19% to 22%. Digi is increasing its full fiscal year earnings per diluted share guidance to a range of $0.70 to $0.76.

Third Quarter 2007 Conference Call Details
Digi invites all those interested in hearing management's discussion of its third quarter on Monday, July 23, 2007 at 5:00 p.m. EDT (4:00 p.m. CT), to join the call by dialing (800) 287 0835. International participants may access the call by dialing (212) 676 4902. A replay will be available two hours after the completion of the call 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 21343599 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 on 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
952-912-3125
Email: S. (Kris) Krishnan

Tom Caden
Dian Griesel Inc.
212-825-3210
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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