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Digi International Reports Third Fiscal Quarter 2009 Results

Exceeds Street Revenue and EPS Consensus Estimates

(Minneapolis, MN, July 23, 2009) - Digi International® Inc. (NASDAQ: DGII, www.digi.com) reported revenue of $44.5 million for the third fiscal quarter of 2009, compared with $47.0 million for the third fiscal quarter of 2008, a decrease of $2.5 million, or 5.4%. Digi acquired substantially all of the assets of MobiApps Holdings Private Limited (MobiApps) on June 8, 2009.

"During the third quarter, we posted sound financial results. We are very proud of the progress we have made in recent months," said Joe Dunsmore, Digi's Chief Executive Officer. "In the third quarter, Digi completed the acquisition of MobiApps, which added satellite M2M technology to our product portfolio and further expanded our iDigi platform, about which we are quite excited. We were further pleased by Digi's recent naming to the Fortune Small Business list of ‘America's 100 Fastest Growing Small Public Companies'. We believe that when we emerge from the general economic downturn, Digi will be well-positioned as a market leader because of our strong balance sheet, our investment in strategic acquisitions, and our pursuit of cutting-edge technology and solutions, as exemplified by the iDigi platform."

Below is a table setting forth certain GAAP and Non-GAAP results:


A table with more detailed reconciliations between GAAP operating income to non-GAAP operating income and GAAP net income and net income per diluted share to non-GAAP net income and net income per diluted share is provided later in this earnings release.

Business Results for the Three and Nine Months Ended June 30, 2009

Revenue from embedded products in the third fiscal quarter of 2009 was $20.5 million compared to $20.7 million in the third fiscal quarter of 2008, a decrease of $0.2 million, or 1.1%. Revenue from non-embedded products was $24.0 million in the third fiscal quarter of 2009 compared to $26.3 million in the third fiscal quarter of 2008, a decrease of $2.3 million, or 8.7 %. Revenue from embedded products includes $1.0 million of Spectrum revenue in the third fiscal quarter of 2009. MobiApps was acquired on June 8, 2009, and contributed $47,000 of embedded products revenue from date of acquisition. Revenue from non-embedded products includes Sarian-branded revenue of $6.1 million and $2.4 million for the third fiscal quarter of 2009 and 2008, respectively. Sarian Systems, Ltd. and Spectrum Design Solutions, Inc. were acquired in April 2008 and July 2008, respectively. The strengthening of the U.S. dollar compared to the Euro and UK pound sterling had an unfavorable impact on revenue of $1.7 million in the third fiscal quarter of 2009 compared to the third fiscal quarter of 2008.

Revenue by geographic region is shown below:

Gross profit was $21.4 million in the third fiscal quarter of 2009 compared to $24.9 million in the same period in the prior year. The gross margin was 48.2% in the third fiscal quarter of 2009 compared to 52.9% in the third fiscal quarter of 2008, a decline of 4.7 percentage points. The gross margin was lower in the third fiscal quarter of 2009 than in the comparable period a year ago due to unfavorable product mix within both the embedded and non-embedded products, including sales of Sarian non-embedded products and Spectrum embedded products which provide lower gross profit margins, as well as higher manufacturing expenses.

Total operating expenses in the third fiscal quarter of 2009 were $20.8 million, or 46.9% of revenue, compared to $22.2 million, or 47.3% of revenue, in the third fiscal quarter of 2008. Total operating expenses for the third quarter of fiscal 2009 include a charge for restructuring expenses of $2.0 million. Total operating expenses for the third quarter of fiscal 2008 include a charge of $2.1 million for in-process research and development and other expenses related to the acquisition of Sarian. The decrease in operating expenses in the third fiscal quarter of 2009 compared to the same quarter in the prior year is primarily due to savings from the restructuring plan and the elimination of the incentive compensation program for fiscal 2009, offset partially by incremental ongoing operating expenses for Sarian and Spectrum.

Net income was $1.4 million in the third fiscal quarter of 2009, or $0.06 per diluted share, compared to $2.0 million, or $0.08 per diluted share, in the third fiscal quarter of 2008. Non-GAAP net income and net income per diluted share for the third fiscal quarter of 2009 and 2008 were $2.2 million, or $0.09 per diluted share, and $3.9 million, or $0.15 per diluted share, respectively, as detailed elsewhere in this earnings release.

For the nine months ended June 30, 2009, Digi reported revenue of $125.9 million compared to revenue of $134.6 million for the nine months ended June 30, 2008, a decrease of $8.7 million, or 6.5%. Revenue from embedded products for the first nine months of fiscal 2009 was $55.8 million compared to $63.1 million in the first nine months of fiscal 2008, a decrease of $7.3 million, or 11.5%. Revenue from non-embedded products was $70.1 million in the first nine months of fiscal 2009 compared to $71.5 million in the first nine months of fiscal 2008, a decrease of $1.4 million, or 2.0%. Revenue from embedded products includes $3.2 million of Spectrum revenue in the first nine months of fiscal 2009. Revenue from non-embedded products includes Sarian-branded revenue of $14.2 million and $2.4 million for the first nine months of fiscal 2009 and fiscal 2008, respectively.

For the nine months ended June 30, 2009, Digi reported net income of $3.1 million, or $0.12 per diluted share, compared to net income for the nine months ended June 30, 2008, of $8.8 million, or $0.33 per diluted share. Net income for the first nine months of fiscal 2009 was reduced by the charge for restructuring expenses of $1.3 million, net of tax, or $0.05 per diluted share, offset partially by tax benefits of $0.9 million, or $0.03 per diluted share, resulting from the reversal of tax reserves associated with the extension of the research and development credit, the resolution of certain state tax matters, and the closing of a prior tax year. Net income for the first nine months of fiscal 2008 was reduced by the charge for in-process research and development and other expenses associated with the acquisition of Sarian of $2.1 million, or $0.08 per diluted share, partially offset by a tax benefit of $0.2 million, or $0.01 per diluted share, resulting from the reversal of tax reserves associated with the closure of a prior tax year.

Digi's cash and cash equivalents and marketable securities balance, including long-term marketable securities, was $66.9 million at June 30, 2009, an increase of $3.3 million over the cash and cash equivalents and marketable securities balance at March 31, 2009. Digi re-purchased 893,162 shares of stock during the first nine months of fiscal 2009 for $6.6 million. Please refer to the Condensed Consolidated Statements of Cash Flows which is included in this earnings release for additional cash flow details. At June 30, 2009, Digi's current ratio was 5.7 to 1 compared to 6.4 to 1 at March 31, 2009.

Third Fiscal Quarter 2009 Business Highlights:

Recognition

iDigi Bundled Wireless Solutions

Wireless Acquisition

Other Wireless Announcements


Guidance
For the fourth quarter of fiscal 2009, Digi expects revenue to be in the range of $39 million to $45 million. Net income per diluted share for the fourth quarter of fiscal 2009 is expected to be in a range of $0.04 to $0.10. For the full fiscal year, Digi projects revenue to be in the range of $165 million to $171 million. Net income per diluted share for the full fiscal year is projected to be in a range of $0.16 to $0.22. Projected net income per diluted share for the full fiscal year includes the restructuring charge included in total operating expenses of $1.3 million, net of tax, or $0.05 per diluted share, and reversals of tax reserves and other discrete tax benefits of $0.9 million, or $0.04 per diluted share.

Third Fiscal Quarter 2009 Conference Call Details
Digi invites all those interested in hearing management's discussion of its quarter, on Thursday, July 23, 2009, after market close at 5:00 p.m. EST (4:00 p.m. CST), to join the call by dialing (866) 804-6924 and entering passcode 81363110. International participants may access the call by dialing (857) 350-1670 and entering passcode 81363110. 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 96872399 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 is making wireless M2M easy by developing reliable products and solutions to connect and securely manage local or remote electronic devices over the network or via the Web. Digi offers the highest levels of performance, flexibility and quality, and markets its products through a global network of distributors and resellers, systems integrators and original equipment manufacturers (OEMs). For more information, visit Digi's Web site at www.digi.com, or call 877-912-3444.

For more news and information on Digi International® Inc., please visit www.IRGnews.com/coi/DGII where you can find the CEO's video, a fact sheet on the company, investor presentations, and more.

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, the current uncertainty in global economic conditions which could negatively affect product demand, the recent financial crises affecting the banking system and financial markets which could negatively impact the financial solvency of the Company's customers and suppliers, the extreme volatility in fixed income, credit and equity markets which could result in actual amounts realized on the Company's debt securities or other investments that differ significantly from current market values, the ability to achieve the anticipated benefits and synergies associated with acquisitions, 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, 2008 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.

This release includes non-GAAP operating income, net income and earnings per diluted share data.

Management understands that there are material limitations on the use of non-GAAP measures. Non-GAAP measures are not substitutes for GAAP measures, such as operating income or net income, 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. Digi believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Digi's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Digi's results of operations in conjunction with the corresponding GAAP measures.

Digi believes that providing operating income and net income and earnings per diluted share exclusive of the impact of restructuring expenses, in-process research and development and other acquisition-related expenses, and the reversal of tax reserves and other discrete tax benefits permits investors to compare results with prior periods that did not include these items. Management uses the aforementioned non-GAAP measures to monitor and evaluate ongoing operating results and trends and to gain an understanding of the comparative operating performance of the Company. In addition, shareholders in the Company have expressed an interest in seeing financial performance measures exclusive of the impact of decisions relating to restructuring charges, acquisitions, and taxes, which while important, are not central to the core operations of Digi's business.

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).

All brand names and product names are trademarks or registered trademarks of their respective companies.

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