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Digi International Reports Second Quarter Fiscal 2011 Results

Revenue and Net Income Increase 10.3% and 32.7%, Respectively, Compared to Second Quarter Fiscal 2010

(Minneapolis, MN, April 21, 2011) - Digi International® Inc. (NASDAQ: DGII, www.digi.com) reported revenue of $49.7 million for the second quarter of fiscal 2011, compared with $45.1 million for the second quarter of fiscal 2010, an increase of $4.6 million, or 10.3%. Net income was $2.2 million, or $0.09 per diluted share, in the second quarter of fiscal 2011 compared to $1.7 million, or $0.07 per diluted share, in the year ago comparable quarter, an increase of $0.5 million, or 32.7%. Financial highlights for the second quarter of fiscal 2011 include:

“I’m very pleased with our strong financial performance this quarter,” said Joe Dunsmore, Digi’s Chief Executive Officer. “More importantly, we are continuing to see large lead customers accelerating their deployment of our wireless M2M solutions across our targeted vertical markets. Our sales pipeline is ramping, with increased visibility including large purchase orders from customers in the fleet management and medical device verticals. As a result, I am optimistic as we move into the second half of our fiscal year that our revenue and profitability momentum will continue.”

Business Results for the Three Months Ended March 31, 2011

Revenue from embedded products in the second quarter of fiscal 2011 was $22.4 million compared to $20.2 million in the second quarter of fiscal 2010, an increase of $2.2 million, or 10.9%. Revenue from non-embedded products was $27.3 million in the second quarter of fiscal 2011 compared to $24.9 million in the second quarter of fiscal 2010, an increase of $2.4 million, or 9.8%.

Revenue in North America was $29.7 million in the second quarter of fiscal 2011, compared to $26.5 million in the second quarter of fiscal 2010, an increase of $3.2 million, or 12.1 %. Revenue in EMEA (Europe, Middle East and Africa) was $12.0 million in the second quarter of fiscal 2011, compared to $12.3 million in the comparable quarter a year ago, a decrease of $0.3 million, or 2.6%. Revenue in the Asia countries was $6.8 million in the second quarter of fiscal 2011, compared to $5.3 million in the second quarter of fiscal 2010, an increase of $1.5 million, or 28.7%. Latin American revenue was $1.2 million in the second quarter of fiscal 2011, compared to $1.0 million in the comparable quarter a year ago.

Gross profit was $25.7 million in the second quarter of fiscal 2011 compared to $22.7 million in the same period of the prior year, an increase of $3.0 million, or 12.8%. The gross margin was 51.6% in the second quarter of fiscal 2011 compared to 50.5% in the second quarter of fiscal 2010. The gross margin was higher in the second quarter of fiscal 2011 than in the comparable period a year ago primarily due to favorable product mix, product cost reductions, and reduced amortization of purchased and core technology.

Total operating expenses in the second quarter of fiscal 2011 were $22.0 million, or 44.2% of revenue, compared to $20.6 million, or 45.6% of revenue, in the second quarter of fiscal 2010. The increase in operating expenses in the second quarter of fiscal 2011 compared to the same quarter of the prior year is primarily due to increased investment in the iDigi® platform and the full reinstatement for fiscal 2011 of the incentive compensation program which had been only partially reinstated in fiscal 2010. Operating expenses in the second quarter of fiscal 2010 benefited by $0.4 million, or 0.8% of revenue, due to a reduction of the restructuring reserve because expenses associated with the plan were less than expected.

Digi reported operating income of $3.7 million, or 7.4% of net sales, in the second quarter of fiscal 2011 compared to $2.2 million, or 4.9% of net sales, in the second quarter of fiscal 2010.

Net income was $2.2 million in the second quarter of fiscal 2011, or $0.09 per diluted share, compared to $1.7 million, or $0.07 per diluted share, in the second quarter of fiscal 2010. Net income benefited by $0.2 million, net of taxes, or $0.01 per diluted share, during the second quarter of fiscal 2010 as a result of a reduction of the restructuring reserve.

Business Results for the Six Months Ended March 31, 2011

For the six months ended March 31, 2011, Digi reported revenue of $98.1 million compared to revenue of $88.0 million for the six months ended March 31, 2010, an increase of $10.1 million or 11.4%. Revenue from embedded products for the first six months of fiscal 2011 was $43.5 million compared to $38.2 million in the first six months of fiscal 2010, an increase of $5.3 million or 13.7%. Revenue from non-embedded products was $54.6 million in the first six months of fiscal 2011 compared to $49.8 million in the first six months of fiscal 2010, an increase of $4.8 million or 9.6%. Net sales in the first six months of fiscal 2011 were unfavorably impacted by foreign currency translation of $0.4 million when compared to the same period in the prior fiscal year.

For the six months ended March 31, 2011, Digi reported net income of $4.6 million, or $0.18 per diluted share, compared to net income for the six months ended March 31, 2010 of $2.9 million, or $0.12 per diluted share. Net income for the first six months of fiscal 2011 benefited by $0.6 million, or $0.02 per diluted share, resulting from a reversal of tax reserves for various jurisdictions’ tax matters and the enactment of legislation extending the research and development credit that allowed Digi to record tax credits earned during the last three quarters of fiscal 2010 in the first quarter of fiscal 2011. Net income benefited by $0.2 million, net of taxes, or $0.01 per diluted share, during the first six months of fiscal 2010 as a result of a reduction of the restructuring reserve.

Digi’s cash and cash equivalents and marketable securities balance, including long-term marketable securities, was $95.9 million at March 31, 2011, an increase of $4.3 million from December 31, 2010. Please refer to the Condensed Consolidated Statements of Cash Flows which are included in this earnings release for additional cash flow details. At March 31, 2011, Digi’s current ratio was 6.8 to 1 compared to 6.5 to 1 at December 31, 2010.

Second Fiscal Quarter 2011 Business Highlights:

Smart Grid Related Announcements

Key Wireless Announcements and Partnerships

Fiscal 2011 Guidance

For the third fiscal quarter of 2011, Digi projects revenue in a range of $51 million to $56 million. Digi projects net income per diluted share in a range of $0.11 to $0.16 cents.

For the full fiscal year 2011, Digi projects revenue in a range of $200 million to $212 million, which is an increase of $5 million at the lower end of the range from the guidance previously provided. Digi anticipates that the most likely full-year revenue will be approximately $206 million. Digi projects annual net income per diluted share to be in a range of $0.40 to $0.52, which is an increase of $0.12 at the lower end of the range from the guidance previously provided. The projected annual net income per diluted share of $0.40 to $0.52 is an increase of 11.1% to 44.4% over net income per diluted share for fiscal 2010.

Second Fiscal Quarter 2011 Conference Call Details

Digi invites all those interested in hearing management's discussion of its quarter, on Thursday, April 21, 2011 after market closeat 5:00 p.m. EDT (4:00 p.m. CDT), to join the call by dialing (866) 770-7125 and entering passcode 17696382. International participants may access the call by dialing (617) 213-8066 and entering passcode 17696382. 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 99981013 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 website at www.digi.com, or call 877-912-3444.

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," "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, uncertainty in global economic conditions which could negatively affect product demand and the financial solvency of the company’s customers and suppliers, the impact of natural disasters such as the earthquake and tsunami in Japan that could negatively impact the company’s supply chain and customers, the ability to achieve the anticipated benefits and synergies associated with acquisitions, and the 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, 2010 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 historical non-GAAP operating income, net income and net income per diluted share data.

Digi 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 historical and projected operating income, net income and net income per diluted share exclusive of the change in estimate of restructuring expenses and reversals of tax reserves and 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 taxes and restructuring, 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:
Steve Snyder
Digi International
952-912-3637

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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