[July 27, 2017] |
|
Digi International Reports Third Fiscal Quarter 2017 Results
Digi International® Inc. (NASDAQ: DGII), a leading global provider of
machine-to-machine (M2M) and Internet of Things (IoT) connectivity
products and services, reported revenue of $45.7 million for the third
fiscal quarter of 2017 compared to our guidance range of $44.0 million
to $47.0 million and to $52.1 million in the third fiscal quarter of
2016. Net income for the third fiscal quarter of 2017 was $1.3 million,
or $0.05 per diluted share, compared to our guidance range of $0.03 to
$0.06 per diluted share and to net income for the third fiscal quarter
of 2016 of $4.3 million, or $0.16 per diluted share. When adjusted for
the restructuring charges noted below, as well as discrete tax benefits,
adjusted income per diluted share was $0.08 in the third fiscal quarter
of 2017.
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)
from Continuing Operations in the third fiscal quarter of 2017 was $2.1
million, or 4.7% of total revenue, compared to $5.9 million, or 11.4% of
total revenue, in the third fiscal quarter of 2016. EBITDA from
Continuing Operations for the third fiscal quarter of 2017 included
restructuring charges of $2.5 million. Stock-based compensation expense
was $1.2 million in the third fiscal quarter of 2017 compared to $0.9
million in the third fiscal quarter of 2016. Stock-based compensation is
included in EBITDA. Reconciliations of GAAP and non-GAAP financial
measures, including EBITDA from Continuing Operations, appear at the end
of this release.
"We continued to see strong sequential growth in our Digi Smart
Solutions group and our product business performed as expected for the
quarter," said Ron Konezny, President and Chief Executive Officer. "We
were pleased with our profitability performance particularly when
considering the $2.5 million of restructuring charges taken in the
quarter."
Restructuring
As disclosed in our Form 8-K filed on June 1, 2017, our Board of
Directors approved a restructuring plan. The restructuring plan
primarily impacted our France location. In addition, we also eliminated
certain employee costs in the U.S. The restructuring is a result of a
decision to consolidate our France operations to our Europe, Middle East
and Africa ("EMEA") headquarters in Munich. The restructuring charges of
$2.5 million, which included $2.3 million of employee costs and $0.2
million of contract termination costs, were incurred during the third
quarter of fiscal 2017.
GAAP and Non-GAAP Results
GAAP Results from Continuing Operations
|
(in thousands, except per share data)
|
|
Q3 2017
|
|
Q3 2016
|
|
YTD 2017
|
|
YTD 2016
|
Total Revenue
|
|
$
|
45,739
|
|
|
$
|
52,130
|
|
|
$
|
136,529
|
|
|
$
|
152,551
|
|
Gross Profit
|
|
$
|
22,485
|
|
|
$
|
25,977
|
|
|
$
|
65,840
|
|
|
$
|
75,076
|
|
Gross Margin
|
|
49.2
|
%
|
|
49.8
|
%
|
|
48.2
|
%
|
|
49.2
|
%
|
Operating Income
|
|
$
|
709
|
|
|
$
|
5,125
|
|
|
$
|
4,643
|
|
|
$
|
12,067
|
|
Operating Income as % of Total Revenue
|
|
1.6
|
%
|
|
9.8
|
%
|
|
3.4
|
%
|
|
7.9
|
%
|
Income from Continuing Operations
|
|
$
|
1,335
|
|
|
$
|
4,277
|
|
|
$
|
5,023
|
|
|
$
|
9,634
|
|
Income from Continuing Operations per Diluted Share
|
|
$
|
0.05
|
|
|
$
|
0.16
|
|
|
$
|
0.19
|
|
|
$
|
0.37
|
|
|
Non-GAAP Results from Continuing Operations*
|
(in thousands, except per share data)
|
|
Q3 2017
|
|
Q3 2016
|
|
YTD 2017
|
|
YTD 2016
|
Adjusted Income from Continuing Operations
|
|
$
|
2,276
|
|
|
$
|
3,931
|
|
|
$
|
5,869
|
|
|
$
|
9,110
|
|
Adjusted Income from Continuing Operations per Diluted Share
|
|
$
|
0.08
|
|
|
$
|
0.15
|
|
|
$
|
0.22
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
EBITDA from Continuing Operations
|
|
$
|
2,127
|
|
|
$
|
5,922
|
|
|
$
|
8,882
|
|
|
$
|
15,079
|
|
EBITDA from Continuing Operations as % of Total Revenue
|
|
4.7
|
%
|
|
11.4
|
%
|
|
6.5
|
%
|
|
9.9
|
%
|
* A reconciliation of GAAP to non-GAAP financial measures appears at
the end of this release.
|
|
Business Results for the Three Months Ended
June 30, 2017 and 2016
Revenue Detail QTD
|
(in thousands)
|
|
Q3 2017
|
|
Q3 2016
|
|
Change
|
|
% Change
|
Cellular routers and gateways
|
|
$
|
10,768
|
|
|
$
|
10,756
|
|
|
$
|
12
|
|
|
0.1
|
|
RF
|
|
7,099
|
|
|
9,517
|
|
|
(2,418
|
)
|
|
(25.4
|
)
|
Embedded
|
|
11,799
|
|
|
13,774
|
|
|
(1,975
|
)
|
|
(14.3
|
)
|
Network
|
|
10,994
|
|
|
16,500
|
|
|
(5,506
|
)
|
|
(33.4
|
)
|
Total hardware product revenue
|
|
40,660
|
|
|
50,547
|
|
|
(9,887
|
)
|
|
(19.6
|
)
|
Services and solutions
|
|
5,079
|
|
|
1,583
|
|
|
3,496
|
|
|
220.8
|
|
Total revenue
|
|
$
|
45,739
|
|
|
$
|
52,130
|
|
|
$
|
(6,391
|
)
|
|
(12.3
|
)
|
|
|
|
|
|
|
|
|
|
North America, primarily United States
|
|
$
|
30,305
|
|
|
$
|
34,412
|
|
|
$
|
(4,107
|
)
|
|
(11.9
|
)
|
Europe, Middle East and Africa
|
|
9,703
|
|
|
11,681
|
|
|
(1,978
|
)
|
|
(16.9
|
)
|
Asia
|
|
4,508
|
|
|
5,013
|
|
|
(505
|
)
|
|
(10.1
|
)
|
Latin America
|
|
1,223
|
|
|
1,024
|
|
|
199
|
|
|
19.4
|
|
Total revenue
|
|
$
|
45,739
|
|
|
$
|
52,130
|
|
|
$
|
(6,391
|
)
|
|
(12.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our cellular product category includes cellular routers and all
gateways. The RF product category includes XBee® modules as
well as other RF Solutions. The embedded product category includes Digi
Connect® and Rabbit® embedded systems on module
and single board computers. The network product category, which has the
highest concentration of mature products, includes console and serial
servers and USB connected products. Our services and solutions offerings
include Digi Smart Solutions, wireless design services, the Digi Device
Cloud platform and enterprise support services.
Total revenue decreased 12.3% to $45.7 million in the third
fiscal quarter 2017 from $52.1 million in the third fiscal quarter 2016.
-
Hardware product revenue decreased by $9.9 million, or 19.6%, in the
third fiscal quarter of 2017 compared to the third fiscal quarter of
2016. All product categories declined, with the exception of cellular
routers and gateways revenue, which was consistent with the same
quarter a year ago. Our decline in network product revenue was more
than anticipated, as there were significant terminal server sales to
large customers in the prior fiscal year, partially offset by an
increase in USB connected products revenue during the quarter.
Embedded and RF product revenue also declined as we had significant
sales to large customers in the prior fiscal quarter. Additionally,
embedded products declined due to a decrease of sales of Rabbit®
embedded modules, which are in the mature portion of their product
life cycle.
-
Services and solutions revenue increased by $3.5 million, or 220.8%,
in the third fiscal quarter of 2017 compared to the comparable quarter
in fiscal 2016. The increase was driven primarily by the growth of our
Digi Smart Solutions business, which includes $2.4 million of
incremental revenue from our recent acquisitions. We acquired SMART
Temps on January 9, 2017 and FreshTemp on November 1, 2016.
Gross profit was $22.5 million, or 49.2% of revenue in the third
fiscal quarter of 2017 compared to $26.0 million, or 49.8% of revenue in
the same period of the prior year, a decrease of $3.5 million. Gross
profit was negatively impacted by lower hardware product revenue and
product mix as the network category, which includes traditionally higher
margin products, declined. This was partially offset by an increase in
services and solutions gross profit from our Digi Smart Solutions
business during the third quarter of fiscal 2017 compared to the same
period in the prior fiscal year.
Operating income for the third fiscal quarter of 2017 was $0.7
million, or 1.6% of revenue, compared to operating income of $5.1
million or 9.8% of revenue, for the third fiscal quarter of 2016, a
decrease of $4.4 million. The operating income decline was a result of
the decrease in gross profit of $3.5 million, as described above, and an
increase in operating expenses of $0.9 million. Operating expenses
increased by $0.9 million in the third quarter of fiscal 2017 compared
to the same period in the prior fiscal year, which included
restructuring charges of $2.5 million, partially offset by lower
compensation-related expense.
Income from Continuing Operations was $1.3 million in the third
fiscal quarter of 2017, or $0.05 per diluted share, compared to $4.3
million, or $0.16 per diluted share, in the third fiscal quarter of 2016.
EBITDA from Continuing Operations in the third fiscal quarter of
2017 was $2.1 million, or 4.7% of total revenue, compared to $5.9
million, or 11.4% of total revenue, in the third fiscal quarter of 2016.
Please refer to the tables at the end of this earnings release that
provide reconciliations from GAAP to non-GAAP information.
Business Results for the Nine Months Ended June
30, 2017 and 2016
Revenue Detail YTD
|
(in thousands)
|
|
Q3 2017
|
|
Q3 2016
|
|
Change
|
|
% Change
|
Cellular routers and gateways
|
|
$
|
35,972
|
|
|
$
|
35,826
|
|
|
$
|
146
|
|
|
0.4
|
|
RF
|
|
21,634
|
|
|
26,582
|
|
|
(4,948
|
)
|
|
(18.6
|
)
|
Embedded
|
|
35,352
|
|
|
40,697
|
|
|
(5,345
|
)
|
|
(13.1
|
)
|
Network
|
|
32,641
|
|
|
44,421
|
|
|
(11,780
|
)
|
|
(26.5
|
)
|
Total hardware product revenue
|
|
125,599
|
|
|
147,526
|
|
|
(21,927
|
)
|
|
(14.9
|
)
|
Services and solutions
|
|
10,930
|
|
|
5,025
|
|
|
5,905
|
|
|
117.5
|
|
Total revenue
|
|
$
|
136,529
|
|
|
$
|
152,551
|
|
|
$
|
(16,022
|
)
|
|
(10.5
|
)
|
|
|
|
|
|
|
|
|
|
North America, primarily United States
|
|
$
|
89,678
|
|
|
$
|
98,312
|
|
|
$
|
(8,634
|
)
|
|
(8.8
|
)
|
Europe, Middle East and Africa
|
|
29,059
|
|
|
33,663
|
|
|
(4,604
|
)
|
|
(13.7
|
)
|
Asia
|
|
14,446
|
|
|
15,162
|
|
|
(716
|
)
|
|
(4.7
|
)
|
Latin America
|
|
3,346
|
|
|
5,414
|
|
|
(2,068
|
)
|
|
(38.2
|
)
|
Total revenue
|
|
$
|
136,529
|
|
|
$
|
152,551
|
|
|
$
|
(16,022
|
)
|
|
(10.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue decreased 10.5% to $136.5 million in the first nine
months of 2017 from $152.6 million in the first nine months of 2016.
-
Hardware product revenue decreased by $21.9 million, or 14.9%, in the
first nine months of fiscal 2017 compared to the first nine months of
fiscal 2016. This decrease occurred in all product categories, other
than cellular routers and gateways, which was consistent with the
first nine months of the prior fiscal year. Our decline in network
product revenue was more than anticipated as there were significant
terminal server sales to large customers in the prior fiscal year,
partially offset by an increase in USB connected products revenue.
Embedded and RF product revenue also declined as we had significant
sales to large customers in the prior fiscal year. Additionally,
embedded products declined due to a decrease of sales of Rabbit®
embedded modules, which are in the mature portion of their product
life cycle.
-
Services and solutions revenue increased by $5.9 million, or 117.5%,
in the first nine months of fiscal 2017 compared to the first nine
months of fiscal 2016. This was driven primarily by the growth of our
Digi Smart Solutions business. Services and solutions revenue includes
$3.9 million of incremental revenue from the acquisitions of SMART
Temps and FreshTemp in the first nine months of fiscal 2017. We
acquired SMART Temps on January 9, 2017 and FreshTemp on November 1,
2016.
-
Included in revenue performance for the year was a foreign currency
translation decrease of $0.6 million when compared to the same period
in the prior fiscal year, primarily caused by the weakening of the
British Pound and Euro against the U.S. dollar.
Gross profit was $65.8 million, or 48.1% of revenue in the first
nine months of fiscal 2017 compared to $75.1 million, or 49.2% of
revenue for the same period in the prior fiscal year, a decrease of $9.3
million. Gross profit was negatively impacted by lower hardware product
revenue and product mix during the first nine months of fiscal 2017
compared to the same period in the prior fiscal year. This was driven by
the decline of the network category, which includes traditionally higher
margin products compared to our other hardware products, partially
offset by an increase in services and solutions gross profit for the
first nine months of fiscal 2017 compared to the same period in the
prior fiscal year.
Operating income for the first nine months of fiscal 2017 was
$4.6 million, or 3.4% of revenue, as compared to operating income of
$12.1 million, or 7.9% of revenue, for the same period in the prior
fiscal year, a decrease of $7.5 million. The operating income decline
was a result of the decrease in gross profit of $9.3 million, as
described above, partially offset by operating expense savings of $1.8
million. Operating expense savings were primarily due to lower
compensation-related expense, partially offset by the restructuring
charges of $2.5 million in the third quarter of fiscal 2017, incremental
expense for the SMART Temps acquisition of $1.0 million and other M&A
expense of $0.8 million. During the third quarter of fiscal 2016, we
incurred restructuring expenses of $0.7 million pertaining to our
corporate staff and related employee termination costs associated with
the merging of our Dortmund, Germany office into our Munich, Germany
office and contract termination charges associated with the
consolidation of our Minneapolis, Minnesota office into our Minnetonka,
Minnesota headquarters.
Income from Continuing Operations was $5.0 million in the first
nine months of fiscal 2017, or $0.19 per diluted share, compared to $9.6
million, or $0.37 per diluted share, in the first nine months of fiscal
2016.
Income from Discontinued Operations, after income taxes had no
activity in fiscal 2017, but was $3.2 million in the first nine months
of fiscal 2016, or $0.12 per diluted share resulting from the sale of
the Etherios business in October 2015 to West Monroe Partners.
EBITDA from Continuing Operations in the first nine months of
fiscal 2017 was $8.9 million, or 6.5% of total revenue, compared to
$15.1 million, or 9.9% of total revenue, in the first nine months of
fiscal 2016. Stock compensation expense included in our EBITDA from
continuing operations for the first nine months of fiscal 2017 and 2016
was $3.5 million and $2.7 million, respectively.
Please refer to the tables at the end of this earnings release for
reconciliations from GAAP to non-GAAP information.
Balance Sheet, Liquidity and Capital Structure
Digi continues to maintain a strong balance sheet. As of June 30, 2017,
Digi had:
-
Cash and cash equivalents and marketable securities balance, including
long-term marketable securities, of $111.3 million, a decrease of
$26.4 million from the end of fiscal 2016. Digi completed two
acquisitions in the first nine months of fiscal 2017, for a total cash
expenditure of $30.1 million (net of cash acquired of $0.5 million).
Please refer to the Condensed Consolidated Statements of Cash Flows
for more information.
-
Current and long-term contingent liabilities of $9.4 million.
-
No debt.
A current ratio of 8.1 to 1, compared to 8.2 to 1 at September 30, 2016.
Stock Repurchase
During the third quarter of fiscal 2017, we began to repurchase our
common stock on the open market, under a new program authorized by our
Board of Directors on May 2, 2017. During the third quarter of fiscal
2017, we repurchased 28,691 shares for $0.3 million.
Customer Highlights
SMART SOLUTIONS
-
Rite Aid Corporation added 3,150 SMART Guards with glycol probes to
their front-of-store food service operations. This initial push
equipped more than 600 stores with equipment needed to monitor
perishable items, including Reach-In and Open Air Linear Cases.
-
Minnesota Children's Hospital deployed 625 SMART Guards to their two
hospitals and off-site physician group. SMART Temps is monitoring lab
samples, pharmacy medications and vaccinations, cryogenics and
environmental humidity and temperature readings.
-
A pharmacy management services provider installed over 300 SMART
Guards at over 90 pharmacy sites to monitor their medication and
vaccination storage.
-
In May, SMART Temps was selected as the preferred vendor for one of
the top purchasing groups for hospitals across the country. This
agreement makes the SMART Temps a preferred solution for over 3,750
hospitals and 130,000 healthcare providers.
-
UCLA selected SMART Temps to monitor one of the country's most
prestigious college and university food service programs that serves
over one million meals per year.
-
Digi International was awarded a SMART Temps contract with the Dallas
Independent School District, one of the largest school districts in
the country.
-
A grocery retailer awarded SafeTemps with a contract for 26 of its
grocery market locations, which will include over 3,000 sensors and
gateways managing food safety.
-
VersaCold, one of Canada's largest supply chain companies, selected
SafeTemps to monitor approximately 200 trucks and 20 warehouses.
PRODUCTS
-
The new Digi TransPort® LR54 router was selected for upgrading
telecommunications infrastructure in at least 122 weather forecast
offices used to disseminate weather content to over 1,000 very high
frequency (VHF) transmitter sites - including the equipment monitoring
and control systems at the VHF sites. Digi TransPort LR54 routers
incorporate a FIPS 140-2 cryptographic module with key cybersecurity
and LTE Advanced (CAT 6) cellular features, along with support for
multiple wireless standards, carriers and channels.
-
A major southwestern U.S. city has initiated deployment of the Digi
TransPort WR44R for a new traffic control communications network that
will connect traffic equipment to a central system so that signals can
be operated in real-time. This will reduce congestion and delays by
transmitting live intersection video to help detect unusual traffic
situations.
-
Grupo Dragón, one of the largest electric renewable energy generators
in Mexico, has chosen Digi TransPort routers to manage telemetry data
for their load management system. Grupo Dragón selected us because of
the security, reliability and dedicated support of our products.
-
A South African customer is ramping up production of its BIMS
(Biometric Identity Management System) for a voter verification
project. The customer remarked that they could not have achieved their
technology objectives without Digi ConnectCore® 6UL and the support of
the Digi Technical Team.
-
A major system integrator in Shanghai selected Digi Transport WR21
extended-temperature 4G routers for traffic flow monitoring and signal
control in an eastern Chinese city with total demand of over
500 routers.
-
A state health authority in Australia has selected and deployed more
than 400 Connect ES 8 and more than 500 Digi Remote Manager® licenses
to manage ICU equipment.
Fiscal 2017 Guidance
For the fourth fiscal quarter of 2017, Digi projects revenue to be in a
range of $44 million to $47 million and income from continuing
operations per diluted share to be in a range of $0.07 to $0.10.
For the full fiscal year 2017, Digi projects revenue to be in a range of
$181 million to $184 million, and income from continuing operations per
diluted share to be in a range of $0.26 to $0.29.
Third Fiscal Quarter 2017 Conference Call
Details
As announced on July 6, 2017, Digi will discuss its third fiscal quarter
results on a conference call on Thursday, July 27, 2017 after market
close at 5:00 p.m. EDT (4:00 p.m. CDT). The call will be hosted by Ron
Konezny, President and Chief Executive Officer and Mike Goergen, Chief
Financial Officer.
Digi invites all those interested in hearing management's discussion of
its quarter to access a live webcast of the conference call through the
investor relations section of Digi's website at www.digi.com.
Participants may also join the call directly by dialing (855) 638-5675
and entering passcode 51229441. International participants may access
the call by dialing (262) 912-4765 and entering passcode 51229441. A
replay will be available within approximately three hours after the
completion of the call, and for one week following the call, by dialing
(855) 859-2056 for domestic participants or (404) 537-3406 for
international participants and entering access code 51229441 when
prompted. A replay of the webcast will be available for one week through
Digi's website.
A copy of this earnings release can be accessed through the financial
releases page of the investor relations section of Digi's website at www.digi.com.
For more news and information on Digi International Inc., please visit www.digi.com/aboutus/investorrelations.
About Digi International
Digi International (NASDAQ: DGII) is a leading global provider of
business and mission-critical machine-to-machine (M2M) and Internet of
Things (IoT) connectivity products and services. We help our customers
create next-generation connected products and deploy and manage critical
communications infrastructures in demanding environments with high
levels of security, relentless reliability and bulletproof performance.
Founded in 1985, we've helped our customers connect over 100 million
things, and growing. For more information, visit Digi's website at www.digi.com,
or call 877-912-3444 (U.S.) or 952-912-3444 (International).
Forward-Looking Statements
This press release contains forward-looking statements that are based
on management's current expectations and assumptions. These
statements often can be identified by the use of forward-looking
terminology such as "anticipate," "believe," "estimate," "looking
forward," "may," "will," "expect," "plan," "project," "should," or
"continue" or the negative thereof or other variations thereon or
similar terminology. Among other items, these statements relate
to expectations of the business environment in which the company
operates, projections of future performance, perceived marketplace
opportunities and statements regarding our mission and vision. Such
statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions. Among others, these include
risks related to the highly competitive market in which our company
operates, rapid changes in technologies that may displace products sold
by us, declining prices of networking products, our reliance on
distributors and other third parties to sell our products, delays in
product development efforts, uncertainty in user acceptance of our
products, the ability to integrate our products and services with those
of other parties in a commercially accepted manner, potential
liabilities that can arise if any of our products have design or
manufacturing defects, our ability to defend or settle satisfactorily
any litigation, uncertainty in global economic conditions and economic
conditions within particular regions of the world which could negatively
affect product demand and the financial solvency of customers and
suppliers, the impact of natural disasters and other events beyond our
control that could negatively impact our supply chain and customers,
potential unintended consequences associated with restructuring or other
similar business initiatives that may impact our ability to retain
important employees, the ability to achieve the anticipated benefits and
synergies associated with acquisitions or divestitures, and changes in
our level of revenue or profitability which can fluctuate for many
reasons beyond our control. These and other risks, uncertainties
and assumptions identified from time to time in our filings with the
United States Securities and Exchange Commission, including without
limitation, our annual report on Form 10-K for the year ended September
30, 2016 and subsequent quarterly reports on Form 10-Q and other
filings, could cause the company's future results to differ materially
from those expressed in any forward-looking statements made by us or on
our behalf. Many of such factors are beyond our ability to
control or predict. These forward-looking statements speak only
as of the date for which they are made. We disclaim any intent or
obligation to update any forward-looking statements, whether as a result
of new information, future events or otherwise.
Presentation of Non-GAAP Financial Measures
This release includes adjusted income from continuing operations,
adjusted income per diluted share from continuing operations, and EBITDA
from continuing operations, each of which is a non-GAAP measure.
We understand that there are material limitations on the use of
non-GAAP measures. Non-GAAP measures are not substitutes for GAAP
measures, such as 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. We
believe that non-GAAP measures have limitations in that they do not
reflect all of the amounts associated with our results of operations as
determined in accordance with GAAP and that these measures should only
be used to evaluate our results of operations in conjunction with the
corresponding GAAP measures. Additionally, we understand that
EBITDA from continuing operations does not reflect our cash
expenditures, the cash requirements for the replacement of depreciated
and amortized assets, or changes in or cash requirements for our working
capital needs.
We believe that providing historical and adjusted income and income
per diluted share from continuing operations, respectively, exclusive of
such items as reversals of tax reserves, discrete tax benefits and
restructuring 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 our
comparative operating performance. In addition, certain of our
stockholders have expressed an interest in seeing financial performance
measures exclusive of the impact of matters such as the impact of
decisions related to taxes and restructuring, which while important, are
not central to the core operations of our business. Additionally,
management believes that the presentation of EBITDA from continuing
operations as a percentage of revenue is useful because it provides a
reliable and consistent approach to measuring our performance from year
to year and in assessing our performance against that of other companies.
We believe this information helps compare operating results and
corporate performance exclusive of the impact of our capital structure
and the method by which assets were acquired. EBITDA from
continuing operations is used as an internal metric for executive
compensation, as well as incentive compensation for the broader employee
base, and it is monitored quarterly for these purposes.
For more information, visit Digi's Web site at www.digi.com,
or call 877-912-3444 (U.S.) or 952-912-3444 (International).
Digi International Inc.
|
Condensed Consolidated Statements of Operations
|
(In thousands, except per share amounts)
|
(Unaudited)
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenue:
|
|
|
|
|
|
|
|
|
Hardware product
|
|
$
|
40,660
|
|
|
$
|
50,547
|
|
|
$
|
125,599
|
|
|
$
|
147,526
|
|
Services and solutions
|
|
5,079
|
|
|
1,583
|
|
|
10,930
|
|
|
5,025
|
|
Total revenue
|
|
45,739
|
|
|
52,130
|
|
|
136,529
|
|
|
152,551
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
Cost of hardware product
|
|
20,286
|
|
|
24,988
|
|
|
64,213
|
|
|
73,981
|
|
Cost of services and solutions
|
|
2,968
|
|
|
1,165
|
|
|
6,476
|
|
|
3,494
|
|
Total cost of sales
|
|
23,254
|
|
|
26,153
|
|
|
70,689
|
|
|
77,475
|
|
Gross profit
|
|
22,485
|
|
|
25,977
|
|
|
65,840
|
|
|
75,076
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
8,504
|
|
|
8,627
|
|
|
25,557
|
|
|
25,310
|
|
Research and development
|
|
7,420
|
|
|
7,948
|
|
|
21,304
|
|
|
23,543
|
|
General and administrative
|
|
3,337
|
|
|
4,283
|
|
|
11,821
|
|
|
13,409
|
|
Restructuring charges (reversals), net
|
|
2,515
|
|
|
(6
|
)
|
|
2,515
|
|
|
747
|
|
Total operating expenses
|
|
21,776
|
|
|
20,852
|
|
|
61,197
|
|
|
63,009
|
|
Operating income
|
|
709
|
|
|
5,125
|
|
|
4,643
|
|
|
12,067
|
|
Other (expense) income, net:
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
153
|
|
|
43
|
|
|
389
|
|
|
155
|
|
Other (expense) income, net
|
|
(221
|
)
|
|
(359
|
)
|
|
210
|
|
|
(520
|
)
|
Total other (expense) income, net
|
|
(68
|
)
|
|
(316
|
)
|
|
599
|
|
|
(365
|
)
|
Income from continuing operations, before income taxes
|
|
641
|
|
|
4,809
|
|
|
5,242
|
|
|
11,702
|
|
Income tax (benefit) provision
|
|
(694
|
)
|
|
532
|
|
|
219
|
|
|
2,068
|
|
Income from continuing operations
|
|
1,335
|
|
|
4,277
|
|
|
5,023
|
|
|
9,634
|
|
Income from discontinued operations, after income taxes
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,230
|
|
Net income
|
|
$
|
1,335
|
|
|
$
|
4,277
|
|
|
$
|
5,023
|
|
|
$
|
12,864
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.05
|
|
|
$
|
0.17
|
|
|
$
|
0.19
|
|
|
$
|
0.38
|
|
Discontinued operations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
0.13
|
|
Net income (1)
|
|
$
|
0.05
|
|
|
$
|
0.17
|
|
|
$
|
0.19
|
|
|
$
|
0.50
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.05
|
|
|
$
|
0.16
|
|
|
$
|
0.19
|
|
|
$
|
0.37
|
|
Discontinued operations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
0.12
|
|
Net income
|
|
$
|
0.05
|
|
|
$
|
0.16
|
|
|
$
|
0.19
|
|
|
$
|
0.49
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
Basic
|
|
26,522
|
|
|
25,904
|
|
|
26,390
|
|
|
25,684
|
|
Diluted
|
|
26,956
|
|
|
26,300
|
|
|
27,110
|
|
|
26,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Earnings per share presented are calculated by line item and may not
add due to the use of rounded amounts.
|
|
|
|
|
|
Digi International Inc.
|
Condensed Consolidated Statements of Comprehensive Income
|
(In thousands)
|
(Unaudited)
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income
|
|
$
|
1,335
|
|
|
$
|
4,277
|
|
|
$
|
5,023
|
|
|
$
|
12,864
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
2,535
|
|
|
(1,272
|
)
|
|
57
|
|
|
(1,718
|
)
|
Change in net unrealized gain (loss) on investments
|
|
8
|
|
|
6
|
|
|
(2
|
)
|
|
49
|
|
Less income tax (expense) benefit
|
|
(3
|
)
|
|
(2
|
)
|
|
1
|
|
|
(18
|
)
|
Reclassification of realized gain on investments included in net
income (1)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7
|
)
|
Less income tax provision (2)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3
|
|
Other comprehensive income (loss), net of tax
|
|
2,540
|
|
|
(1,268
|
)
|
|
56
|
|
|
(1,691
|
)
|
Comprehensive income
|
|
$
|
3,875
|
|
|
$
|
3,009
|
|
|
$
|
5,079
|
|
|
$
|
11,173
|
|
|
|
(1)
|
|
Recorded in Other (expense) income, net on our Condensed
Consolidated Statements of Operations.
|
|
|
(2)
|
|
Recorded in Income tax (benefit) provision on our Condensed
Consolidated Statements of Operations.
|
|
|
|
|
|
Digi International Inc.
|
Condensed Consolidated Balance Sheets
|
(In thousands)
|
(Unaudited)
|
|
|
|
|
|
|
|
June 30,
|
|
September 30,
|
|
|
2017
|
|
2016
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
92,052
|
|
|
$
|
75,727
|
Marketable securities
|
|
17,230
|
|
|
58,382
|
Accounts receivable, net
|
|
28,561
|
|
|
28,685
|
Inventories
|
|
33,008
|
|
|
26,276
|
Receivable from sale of business
|
|
1,988
|
|
|
2,997
|
Other
|
|
3,651
|
|
|
3,578
|
Total current assets
|
|
176,490
|
|
|
195,645
|
Marketable securities, long-term
|
|
2,011
|
|
|
3,541
|
Property, equipment and improvements, net
|
|
13,288
|
|
|
14,041
|
Identifiable intangible assets, net
|
|
12,529
|
|
|
4,041
|
Goodwill
|
|
131,069
|
|
|
109,448
|
Deferred tax assets
|
|
8,047
|
|
|
7,295
|
Non-current receivable from sale of business
|
|
-
|
|
|
1,959
|
Other
|
|
268
|
|
|
196
|
Total assets
|
|
$
|
343,702
|
|
|
$
|
336,166
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
9,829
|
|
|
$
|
8,569
|
Income taxes payable
|
|
84
|
|
|
167
|
Accrued compensation
|
|
3,339
|
|
|
10,787
|
Unearned revenue
|
|
1,709
|
|
|
361
|
Contingent consideration on acquired businesses
|
|
1,147
|
|
|
513
|
Accrued restructuring
|
|
2,302
|
|
|
-
|
Other
|
|
3,400
|
|
|
3,411
|
Total current liabilities
|
|
21,810
|
|
|
23,808
|
Income taxes payable
|
|
810
|
|
|
1,490
|
Deferred tax liabilities
|
|
504
|
|
|
616
|
Contingent consideration on acquired businesses
|
|
8,275
|
|
|
9,447
|
Other non-current liabilities
|
|
717
|
|
|
776
|
Total liabilities
|
|
32,116
|
|
|
36,137
|
|
|
|
|
|
Total stockholders' equity
|
|
311,586
|
|
|
300,029
|
Total liabilities and stockholders' equity
|
|
$
|
343,702
|
|
|
$
|
336,166
|
|
|
|
|
|
|
|
|
Digi International Inc.
|
Condensed Consolidated Statements of Cash Flows
|
(In thousands)
|
(Unaudited)
|
|
|
|
|
|
Nine months ended June 30,
|
|
|
2017
|
|
2016
|
Operating activities:
|
|
|
|
|
Net income
|
|
$
|
5,023
|
|
|
$
|
12,864
|
|
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
|
|
|
|
|
Depreciation of property, equipment and improvements
|
|
2,187
|
|
|
2,088
|
|
Amortization of identifiable intangible assets
|
|
1,842
|
|
|
1,474
|
|
Stock-based compensation
|
|
3,502
|
|
|
2,663
|
|
Excess tax benefits from stock-based compensation
|
|
(326
|
)
|
|
(202
|
)
|
Deferred income tax provision
|
|
(648
|
)
|
|
748
|
|
Gain on sale of business
|
|
-
|
|
|
(2,870
|
)
|
Change in fair value of contingent consideration
|
|
(1,330
|
)
|
|
187
|
|
Bad debt/product return provision
|
|
338
|
|
|
116
|
|
Inventory obsolescence
|
|
1,030
|
|
|
1,284
|
|
Restructuring charges
|
|
2,515
|
|
|
747
|
|
Other
|
|
138
|
|
|
89
|
|
Changes in operating assets and liabilities (net of acquisitions)
|
|
(14,729
|
)
|
|
1,395
|
|
Net cash (used in) provided by operating activities
|
|
(458
|
)
|
|
20,583
|
|
Investing activities:
|
|
|
|
|
Purchase of marketable securities
|
|
(33,469
|
)
|
|
(56,256
|
)
|
Proceeds from maturities and sales of marketable securities
|
|
76,149
|
|
|
46,664
|
|
Proceeds from sale of investment
|
|
-
|
|
|
13
|
|
Proceeds from sale of Etherios
|
|
3,000
|
|
|
2,849
|
|
Acquisition of businesses, net of cash acquired
|
|
(30,111
|
)
|
|
(2,860
|
)
|
Purchase of property, equipment, improvements and certain other
identifiable intangible assets
|
|
(1,577
|
)
|
|
(1,584
|
)
|
Net cash provided by (used in) investing activities
|
|
13,992
|
|
|
(11,174
|
)
|
Financing activities:
|
|
|
|
|
Acquisition earn-out payments
|
|
(518
|
)
|
|
-
|
|
Excess tax benefits from stock-based compensation
|
|
326
|
|
|
202
|
|
Proceeds from stock option plan transactions
|
|
3,264
|
|
|
6,732
|
|
Proceeds from employee stock purchase plan transactions
|
|
686
|
|
|
688
|
|
Purchases of common stock
|
|
(922
|
)
|
|
(546
|
)
|
Net cash provided by financing activities
|
|
2,836
|
|
|
7,076
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
(45
|
)
|
|
(431
|
)
|
Net increase in cash and cash equivalents
|
|
16,325
|
|
|
16,054
|
|
Cash and cash equivalents, beginning of period
|
|
75,727
|
|
|
45,018
|
|
Cash and cash equivalents, end of period
|
|
$
|
92,052
|
|
|
$
|
61,072
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
|
Receivable related to sale of Etherios
|
|
$
|
-
|
|
|
$
|
4,931
|
|
Liability related to acquisition of businesses
|
|
$
|
(1,310
|
)
|
|
$
|
(10,550
|
)
|
Accrual for purchase of property, equipment, improvements and
certain other identifiable intangible assets
|
|
$
|
-
|
|
|
$
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures
TABLE 1
Reconciliation of Income and Income per Diluted Share from
Continuing Operations to Adjusted Income and Adjusted Income per
Diluted Share from Continuing Operations
|
(In thousands of dollars, except per share amounts)
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Nine months ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Income and income per diluted share from continuing operations
|
|
$
|
1,335
|
|
|
$
|
0.05
|
|
|
$
|
4,277
|
|
|
$
|
0.16
|
|
|
$
|
5,023
|
|
|
$
|
0.19
|
|
|
$
|
9,634
|
|
|
$
|
0.37
|
|
Restructuring reserve
|
|
2,515
|
|
|
0.09
|
|
|
(6
|
)
|
|
NM
|
|
2,515
|
|
|
0.09
|
|
|
747
|
|
|
0.03
|
|
Tax effect from restructuring reserve
|
|
(880
|
)
|
|
(0.03
|
)
|
|
2
|
|
|
NM
|
|
(880
|
)
|
|
(0.03
|
)
|
|
(262
|
)
|
|
(0.01
|
)
|
Discrete tax benefits (1)
|
|
(694
|
)
|
|
(0.03
|
)
|
|
(342
|
)
|
|
(0.01
|
)
|
|
(789
|
)
|
|
(0.03
|
)
|
|
(1,009
|
)
|
|
(0.04
|
)
|
Adjusted income and adjusted income per diluted share from
continuing operations (2)
|
|
$
|
2,276
|
|
|
$
|
0.08
|
|
|
$
|
3,931
|
|
|
$
|
0.15
|
|
|
$
|
5,869
|
|
|
$
|
0.22
|
|
|
$
|
9,110
|
|
|
$
|
0.35
|
|
Diluted weighted average common shares
|
|
|
|
26,956
|
|
|
|
26,300
|
|
|
|
27,110
|
|
|
|
26,156
|
*NM means not meaningful
|
|
|
(1)
|
|
Discrete tax benefits include reversals of tax reserves due to the
expiration of statutes of limitation, and extended research and
development tax credits.
|
|
|
(2)
|
|
Adjusted income per diluted share may not add due to the use of
rounded numbers.
|
|
|
|
|
|
TABLE 2
Reconciliation of Income from Continuing Operations to EBITDA
from Continuing Operations
|
(In thousands of dollars)
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Nine months ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
% of
|
|
|
|
% of
|
|
|
|
% of
|
|
|
|
% of
|
|
|
|
|
total
|
|
|
|
total
|
|
|
|
total
|
|
|
|
total
|
|
|
|
|
revenue
|
|
|
|
revenue
|
|
|
|
revenue
|
|
|
|
revenue
|
Total revenue
|
|
$
|
45,739
|
|
|
100.0
|
%
|
|
$
|
52,130
|
|
|
100.0
|
%
|
|
$
|
136,529
|
|
|
100.0
|
%
|
|
$
|
152,551
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations (1)
|
|
$
|
1,335
|
|
|
|
|
$
|
4,277
|
|
|
|
|
$
|
5,023
|
|
|
|
|
$
|
9,634
|
|
|
|
Interest income, net
|
|
(153
|
)
|
|
|
|
(43
|
)
|
|
|
|
(389
|
)
|
|
|
|
(155
|
)
|
|
|
Income tax provision
|
|
(694
|
)
|
|
|
|
532
|
|
|
|
|
219
|
|
|
|
|
2,068
|
|
|
|
Depreciation and amortization
|
|
1,639
|
|
|
|
|
1,156
|
|
|
|
|
4,029
|
|
|
|
|
3,532
|
|
|
|
EBITDA from continuing operations
|
|
$
|
2,127
|
|
|
4.7
|
%
|
|
$
|
5,922
|
|
|
11.4
|
%
|
|
$
|
8,882
|
|
|
6.5
|
%
|
|
$
|
15,079
|
|
|
9.9
|
%
|
|
|
(1)
|
|
Stock-based compensation of $1.2 million and $0.9 million for the
three months ended June 30, 2017 and 2016, respectively, and
stock-based compensation of $3.5 million and $2.7 million for the
nine months ended June 30, 2017 and 2016, respectively, is included
in EBITDA from continuing operations.
|
View source version on businesswire.com: http://www.businesswire.com/news/home/20170727006395/en/
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