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Digi International Reports Second Fiscal Quarter 2008 Results

Strong International Revenue Growth Offsets Weakness in the Americas

(Minneapolis, MN, April 28, 2008) - Digi International® Inc. (NASDAQ: DGII, http://www.digi.com) reported revenue of $43.1 million for the second fiscal quarter of 2008, compared with $42.9 million for the second fiscal quarter of 2007, an increase of $0.2 million, or 0.5%. Revenue in the Americas was $26.5 million in the second fiscal quarter of 2008 compared to $28.8 million in the second fiscal quarter of 2007, a decrease of $2.3 million, or 8.2%. Revenue in Europe was $12.6 million in the second fiscal quarter of 2008 compared to $10.8 million in the comparable quarter a year ago, an increase of $1.8 million, or 17.1%. Revenue in the Asia Pacific region was $4.0 million in the second fiscal quarter of 2008 compared to $3.3 million in the second fiscal quarter of 2007, an increase of $0.7 million, or 22.8%.

"Strong international growth has served to offset the Americas' weakness," said Joe Dunsmore, Digi's Chief Executive Officer. "While the economic slowdown in the U.S. has dampened overall growth, Digi is positioned very well to emerge from it in a strengthened competitive position."

Revenue from embedded products in the second fiscal quarter of 2008 was $21.7 million, compared to $18.4 million in the second fiscal quarter of 2007, an increase of $3.3 million, or 17.9%. Revenue from non-embedded products was $21.4 million in the second fiscal quarter of 2008, compared to $24.5 million in the second fiscal quarter of 2007, a decrease of $3.1 million, or 12.6%.

The gross profit margin was $23.2 million, or 53.8% for the second fiscal quarter of 2008 compared to $22.5 million, or 52.5% for the second fiscal quarter of 2007, an increase of $0.7 million. The gross profit margin was higher than the comparable quarter a year ago by 1.3 percentage points, primarily due to product and mix changes within both the embedded and non-embedded product groups and a decrease in amortization of purchased and core technology. Amortization of purchased and core technology decreased by $0.2 million in the second fiscal quarter of 2008 compared to the same quarter a year ago, and accounted for a 0.5 percentage point increase in gross profit margin.

Total operating expenses in the second fiscal quarter of 2008 were $19.5 million, or 45.3% of revenue, compared to $17.8 million, or 41.5% of revenue, in the second fiscal quarter of 2007. Operating expenses were higher in the second fiscal quarter of 2008 compared to the comparable quarter a year ago primarily as a result of incremental headcount resulting in increased compensation-related sales and marketing and research and development expenses, as well as increased expenses resulting from continuing investments in the Drop-In Networking initiative and international expansion.

Digi reported operating income of $3.7 million, or 8.5% of net sales, in the second fiscal quarter of 2008 compared to $4.7 million, or 11.0% of net sales, in the second fiscal quarter of 2007.

Net income was $3.1 million in the second fiscal quarter of 2008, or $0.12 per diluted share, compared to $3.6 million in the second fiscal quarter of 2007, or $0.14 per diluted share.

For the six months ended March 31, 2008, Digi reported revenue of $87.6 million compared to revenue of $84.7 million for the six months ended March 31, 2007, an increase of $2.9 million, or 3.5%. Revenue in the Americas was $55.3 million in the first six months of fiscal 2008 compared to $58.4 million in the same period a year ago, a decrease of $3.1 million, or 5.2%. Revenue in Europe was $23.8 million for the first six months of fiscal 2008 compared to $19.6 million in the comparable period a year ago, an increase of $4.2 million, or 21.1%. Revenue in the Asia Pacific region was $8.5 million in the first six months of fiscal 2008 compared to $6.7 million in the first six months of fiscal 2007, an increase of $1.8 million, or 28.3%.

Revenue from embedded products in the first six months of fiscal 2008 was $42.4 million, compared to $35.1 million in the first six months of fiscal 2007, an increase of $7.3 million, or 21.0%. Revenue from non-embedded products was $45.2 million in the first six months of 2008, compared to $49.6 million in the comparable period in 2007, a decrease of $4.4 million, or 8.9%.

For the six months ended March 31, 2008, Digi reported net income of $6.8 million, or $0.26 per diluted share, compared to net income for the six months ended March 31, 2007 of $7.4 million, or $0.28 per diluted share. Net income benefited by $0.5 million, or $0.02 per diluted share, during the first six months of fiscal 2007 as a result of a retroactive benefit from the extension of the research and development credit.

Digi's cash and cash equivalents and marketable securities balance, including long-term marketable securities, was $100.8 million at March 31, 2008, an increase of $13.2 million over the cash and cash equivalents and marketable securities balance at September 30, 2007, which includes 4.5 million Euros, or approximately $7.0 million, received from the sale of the building in Dortmund, Germany in March 2008. At March 31, 2008, Digi's current ratio was 7.3 to 1, and the Company had no debt other than capital lease obligations.

Second Fiscal Quarter 2008 Business Highlights:

Digi continues to expand its wireless Drop-in Networking product family, with several announcements:

Other launches included the following:

Revised Guidance
Digi is revising its guidance for fiscal year 2008 as a result of the impact of the economic slowdown in the U.S., primarily due to weakness in revenue generated in North America, and the acquisition of Sarian Systems which was announced today in a concurrent press release. For the full fiscal year, Digi forecasts 2008 revenue to be in a range of $180 million to $192 million, or an increase over fiscal 2007 revenue of 4% to 11%. Fiscal 2008 revenue guidance includes estimated revenue from Sarian Systems from date of acquisition of approximately $6 to $8 million. Digi expects earnings per diluted share for fiscal 2008 to be in a range of $0.38 to $0.52, which includes estimated in-process research and development and other expenses totaling $0.08 to $0.10 associated with the acquisition of Sarian Systems as of April 28, 2008. Fiscal 2008 earnings per diluted share are expected to be in a range of $0.46 to $0.62, excluding estimated in-process research and development and other acquisition-related expenses. Digi anticipates that organic revenue growth rates will return to an estimated range of 10 – 20% when the North American economy returns to normal GDP growth.

Below is a reconciliation of our reported earnings per diluted share guidance to the guidance excluding estimated in-process research and development and other acquisition-related expenses:

Reconciliation of Reported Diluted Earnings per Share Guidance for Fiscal 2008 to Diluted Earnings per Share, Excluding Estimated In-Process Research and Development and other Acquisition-Related Expenses

 

Second Fiscal Quarter 2008 and Sarian Acquisition Conference Call Details
Digi invites all those interested in hearing management's discussion of its quarter and the Sarian acquisition, on Monday, April 28, 2008 after market close at 5:00 p.m. EDT (4:00 p.m. CT), to join the call by dialing (800) 237-9752 and entering passcode 17264102. International participants may access the call by dialing (617) 847-8706 and entering passcode 17264102. A replay will be available two hours after the completion of the call, and for one week following the call, by dialing (888) 286-8010 for domestic participants or (617) 801-6888 for international participants and entering access code 44427522 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, continued or increasing weakness in North America and developing weakness in other regions due to changes in economic conditions, 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, 2007 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
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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