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Digi International Reports Revenue Increases for Fourth Fiscal Quarter and Full Year 2010 of 18.1% and 10%, Respectively, Compared to Fourth Fiscal Quarter and Full Year 2009

Meets Street EPS Consensus Estimates for Fourth Fiscal Quarter and Full Year 2010

(Minneapolis, MN, October 28, 2010) - Digi International® Inc. (NASDAQ: DGII, www.digi.com)

Financial highlights for the quarter and fiscal year ended September 30, 2010 include:

“2010 was a year of continued profitability and a return to top-line growth,” said Joe Dunsmore, Digi’s Chief Executive Officer. “Revenue for fiscal year 2010 increased $16.6 million, or 10.0%, and the fourth fiscal quarter

of 2010 marked Digi’s thirty-first consecutive quarter of profitability. We continued to show solid growth momentum in our wireless product lines and thus we believe we are in a very strong market position entering fiscal 2011.”

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

Business Results for the Three Months Ended September 30, 2010

Digi reported revenue of $47.3 million for the fourth fiscal quarter of 2010 compared to $40.0 million for the fourth fiscal quarter of 2009, an increase of $7.3 million, or 18.1%.

Revenue from embedded products in the fourth fiscal quarter of 2010 was $21.9 million compared to $18.8 million in the fourth fiscal quarter of 2009, an increase of $3.1 million, or 16.2%.  Revenue from non-embedded products was $25.4 million in the fourth fiscal quarter of 2010 compared to $21.2 million in the fourth fiscal quarter of 2009, an increase of $4.2 million, or 19.9%.  Net sales in the fourth fiscal quarter of 2010 were unfavorably impacted by foreign currency translation of $0.6 million when compared to the same period in the prior fiscal year. 

Revenue in North America was $26.8 million in the fourth fiscal quarter of 2010, compared to $24.2 million in the fourth fiscal quarter of 2009, an increase of $2.6 million, or 10.8%.  Revenue in EMEA (Europe, Middle East and Africa) was $12.7 million in the fourth fiscal quarter of 2010, compared to $10.7 million in the comparable quarter a year ago, an increase of $2.0 million, or 19.0%.  Revenue in the Asia Pacific region was $6.3 million in the fourth fiscal quarter of 2010 compared to $4.0 million in the fourth fiscal quarter of 2009, an increase of $2.3 million, or 57.5%.  Latin American revenue was $1.5 million in the fourth fiscal quarter of 2010, compared to $1.1 million in the comparable quarter a year ago, an increase of $0.4 million, or 27.3%.

Gross profit was $24.0 million in the fourth fiscal quarter of 2010 compared to $19.4 million in the same period in the prior year. The gross margin was 50.8% in the fourth fiscal quarter of 2010 compared to 48.5% in the fourth fiscal quarter of 2009, an increase of 2.3 percentage points. The gross margin was higher in the fourth fiscal quarter of 2010 than in the comparable period a year ago primarily due to product cost reductions and lower manufacturing expenses, partially offset by unfavorable product mix .

Total operating expenses in the fourth fiscal quarter of 2010 were $20.6 million, or 43.7% of revenue, compared to $18.3 million, or 45.8% of revenue, in the fourth fiscal quarter of 2009. Total operating expenses in the fourth fiscal quarter of 2010 included $0.3 million of residual expenses resulting from the investigation discussed within our third quarter Form 10-Q and described later in this earnings release, and a benefit of $0.1 million resulting from a reversal of the restructuring reserve since expenses associated with the plan were less than expected.  Total operating expenses increased by $2.1 million, excluding the aforementioned items, primarily due to the reinstatement for fiscal 2010 of the incentive compensation program which had been eliminated in fiscal 2009, increased commission expenses related to the increase in revenue, and consulting and professional services fees. 

Net income was $2.2 million in the fourth fiscal quarter of 2010, or $0.09 per diluted share, compared to $1.0 million, or $0.04 per diluted share, in the fourth fiscal quarter of 2009. Non-GAAP net income and non-GAAP net income per diluted share for the fourth fiscal quarter of 2010 and 2009 were $2.4 million, or $0.09 per diluted share, and $0.7 million, or $0.03 per diluted share, respectively, as detailed elsewhere in this earnings release. 

Business Results for the Twelve Months Ended September 30, 2010

For the twelve months ended September 30, 2010 (fiscal 2010), Digi reported revenue of $182.5 million compared to revenue of $165.9 million for the twelve months ended September 30, 2009 (fiscal 2009), an increase of $16.6 million, or 10.0%. Revenue from embedded products in fiscal 2010 was $82.4 million compared to $74.7 million in fiscal 2009, an increase of $7.7 million, or 10.4%.  Revenue from non-embedded products was $100.1 million in fiscal 2010 compared to $91.2 million in fiscal 2009, an increase of $8.9 million, or 9.7%. Revenue from embedded products included satellite revenue of $1.8 million in fiscal 2010 and $0.4 million in fiscal 2009 from date of acquisition of MobiApps Holdings Private Limited on June 8, 2009.

For fiscal year 2010, Digi reported net income of $8.9 million, or $0.36 per fully diluted share, compared to net income for fiscal 2009 of $4.1 million, or $0.16 per diluted share.   Net income for fiscal 2010 was reduced by investigation and remediation expenses of $0.9 million, net of tax, or $0.04 per fully diluted share, offset by a reversal of the restructuring reserve of $0.3 million, net of tax, or $0.01 per diluted share, and tax benefits of $2.3 million, or $0.09 per diluted share, resulting from the reversal of tax reserves associated primarily with the closure of prior tax years through statute expiration and audit.  Net income for fiscal 2009 was reduced by the charge for restructuring expenses of $1.9 million, net of tax, or $0.07 per diluted share, offset partially by tax benefits of $1.2 million, or $0.05 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.

Digi’s cash and cash equivalents and marketable securities balance was $87.6 million at September 30, 2010, an increase of $5.1 million over the cash and cash equivalents and marketable securities balance, including long-term marketable securities, at June 30, 2010, and an increase of $11.8 million over the comparable balance at September 30, 2009.  Please refer to the Condensed Consolidated Statement of Cash Flows included in this earnings release for additional cash flow details. 

Fiscal 2010 Business Highlights Include:

Smart Grid Partnerships

Other Smart Grid Related Announcements

Key Wireless Partnerships and Customer Relationships

iDigi Services

Other Key Wireless Product Announcements



Guidance

Digi projects revenue in a range of $46 million to $49 million for the first fiscal quarter of 2011, and net income per diluted share in a range of $0.04 to $0.08. 

For the full year fiscal 2011, Digi projects revenue in a range of $195 million to $215 million, or an increase of 6.8% to 17.8% over fiscal year 2010.  Digi projects net income per diluted share to be in a range of $0.28 to $0.52.

Investigation and Remediation

As previously reported , after receiving allegations regarding possible violations of our gifts, travel and entertainment policy for activities in the Asia Pacific region by a few employees, we initiated an investigation of these policy and corresponding internal control issues, and any possible related violations of applicable law, including the Foreign Corrupt Practices Act.  We voluntarily disclosed the allegations to the United States Department of Justice (DOJ) and the United States Securities and Exchange Commission (SEC). 

We announced on August 2, 2010, that we had received confirmation through discussions with representatives of the DOJ and the SEC that they would not be initiating any enforcement proceedings against Digi, including not seeking any monetary or other sanctions. 

Based upon what we learned from the investigation, we have and are further strengthening our monitoring controls over foreign locations and other operational and regulatory compliance procedures, including retention of third party assistance to implement our remediation plan.  During the fourth quarter of fiscal 2010, Digi spent $0.3 million on investigation-related expenses and outside resources for consulting and assistance in implementing our remediation plan. 

Fourth Quarter and Year-End 2010 Conference Call Details

Digi’s management will discuss the fiscal fourth quarter and year-end results, on Thursday, October 28, 2010, after market closeat 5:00 p.m. EST (4:00 p.m. CST). To join the call, please dial 866-700-6067 and enter pass code 69760761. International participants may access the call by dialing 617-213-8834 and entering pass code 69760761. 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 70653530 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.

2011 Annual Meeting

Digi will hold its annual meeting of stockholders at the Minneapolis Marriott Southwest, 5801 Opus Parkway, Minnetonka, Minnesota, commencing at 3:30 p.m., Central Standard Time, on Thursday, January 20, 2011. 

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 http://www.digi.com/aboutus/investorrelations/ 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, potential weakness in North America, Europe and in other regions due to changes in economic conditions and the current uncertainty in global economic conditions which could negatively affect product demand   and 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 investment securities 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, 2009 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, earnings before taxes, depreciation and amortization (EBTDA), net income and net income 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.  Additionally, management understands that EBTDA does not reflect the Company’s cash expenditures, the cash requirements for the replacement of depreciated and amortized assets, or changes in or cash requirements for the Company’s working capital needs. 

Digi believes that providing operating income and net income and earnings per diluted share exclusive of the impact of investigation expenses, restructuring reserves and reversals, and the impact of 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 and taxes, which while important, are not central to the core operations of Digi’s business.  Additionally, management believes that the presentation of EBTDA as a percentage of net sales is useful to investors because it provides a reliable and consistent approach to measuring the Company’s performance from year to year and in assessing the Company’s performance against other companies.  Management believes that such information helps investors compare operating results and corporate performance exclusive of the impact of the Company’s capital structure and the method by which assets were acquired.  EBTDA is also used by management as a metric for executive compensation, as well as incentive compensation for the rest of the employee base, and it is monitored quarterly for these purposes.

Digi International Inc.
Condensed Consolidated Statement of Operations

Digi International Inc.
Condensed Consolidated Balance Sheet

Digi International Inc.
Condensed Consolidated Statement of Cash Flows

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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