EX-99.1 2 dgii-ex991_20161027.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1
 
 
 

diginewlogo.jpg

 
 
Digi International Reports Fourth Fiscal Quarter and Full Year 2016 Results
 
 
Focus on Profitability Results in
 43% Increase in Income from Continuing Operations for FY16 compared to FY15
(Minneapolis, MN, October 27, 2016) - Digi International® Inc. (NASDAQ: DGII), the M2M solutions expert, reported its fourth fiscal quarter and full year 2016 financials.
The financial highlights for the fourth fiscal quarter and year ended September 30, 2016 include:

▪
Revenue for the fourth fiscal quarter of 2016 was $50.5 million compared to revenue for the fourth fiscal quarter of fiscal 2015 of $54.2 million. Revenue for fiscal 2016 was $203.0 million compared to revenue for fiscal 2015 of $203.8 million.

▪
Net income for the fourth fiscal quarter of 2016 was $3.8 million, or $0.14 per diluted share, compared to net income for the fourth fiscal quarter of 2015 of $3.0 million, or $0.12 per diluted share. Income from continuing operations for the fourth fiscal quarter of 2016 was $3.8 million, or $0.14 per diluted share, compared to $3.7 million, or $0.14 per diluted share, in the prior year comparable quarter. Income from continuing operations was $13.5 million in fiscal 2016, or $0.51 per diluted share, compared to $9.4 million, or $0.37 per diluted share, in fiscal 2015. Income from continuing operations increased by 42.9% for the fiscal year 2016 compared to fiscal 2015.

▪
Adjusted EBITDA from Continuing Operations (Earnings Before Interest, Taxes, Depreciation and Amortization, adjusted for gain from insurance recovery) in the fourth fiscal quarter of 2016 was $5.9 million, or 11.8% of total revenue, compared to $6.5 million, or 11.9% of total revenue, in the fourth fiscal quarter of 2015. For the full fiscal year 2016, Adjusted EBITDA from Continuing Operations was $21.0 million, or 10.4% of total revenue, compared to $16.9 million, or 8.3% of total revenue in fiscal 2015. Adjusted EBITDA increased by 24.6% for fiscal year 2016 compared to fiscal 2015. Please see Reconciliation of Income from Continuing Operations to Adjusted EBITDA from Continuing Operations later in this earnings release.

▪
Cash, cash equivalents and marketable securities were $137.7 million at September 30, 2016 an increase of $31.9 million from the end of the prior fiscal year.
"We're pleased with our fiscal 2016 results, particularly with our strong profit and cash generation. One of our goals is to improve our consistency of performance," said Ron Konezny, President and Chief Executive Officer. "We are working hard to simplify and scale the business which helped us achieve our double digit EBITDA goal. We will continue to focus on our three key priorities, which include maintaining a consistently profitable business model, generating top line revenue growth, and building a hardware-enabled solutions business," continued Mr. Konezny.
Below is a table setting forth certain GAAP and non-GAAP results:
GAAP Results from Continuing Operations
(in thousands, except per share data)
 
Q4 2016
 
Q4 2015
 
YTD 2016
 
YTD 2015
Total Revenue
 
$
50,454

 
$
54,173

 
$
203,005

 
$
203,847

Gross Profit
 
$
24,604

 
$
26,305

 
$
99,680

 
$
97,121

Gross Margin
 
48.8
%
 
48.6
%
 
49.1
%
 
47.6
%
Operating Income
 
$
5,038

 
$
5,314

 
$
17,105

 
$
10,889

Operating Income as % of Total Revenue
 
10.0
%
 
9.8
%
 
8.4
%
 
5.3
%
Income from Continuing Operations
 
$
3,844

 
$
3,668

 
$
13,478

 
$
9,433

Income per Diluted Share from Continuing Operations
 
$
0.14

 
$
0.14

 
$
0.51

 
$
0.37


1
 
 
 
 
 
Digi International Reports Fourth Fiscal Quarter and Full Year 2016 Results

Non-GAAP Results from Continuing Operations*
(in thousands, except per share data)
 
Q4 2016
 
Q4 2015
 
YTD 2016
 
YTD 2015
Adjusted Income from Continuing Operations
 
$
3,790

 
$
3,689

 
$
12,900

 
$
8,252

Adjusted Income per Diluted Share from Continuing Operations
 
$
0.14

 
$
0.14

 
$
0.49

 
$
0.33

 
 
 
 
 
 
 
 
 
Adjusted EBITDA from Continuing Operations
 
$
5,941

 
$
6,471

 
$
21,020

 
$
16,875

Adjusted EBITDA from Continuing Operations as % of Total Revenue
 
11.8
%
 
11.9
%
 
10.4
%
 
8.3
%
* Tables with detailed reconciliations to non-GAAP information are provided at the end of this earnings release.
Business Results for the Three Months Ended September 30, 2016 and 2015
Revenue Detail QTD
(in thousands)
 
2016
 
2015
 
Change
 
% Change
Cellular routers and gateways
 
$
12,547

 
$
16,218

 
$
(3,671
)
 
(22.6
)
RF
 
7,342

 
9,558

 
(2,216
)
 
(23.2
)
Embedded
 
15,792

 
13,219

 
2,573

 
19.5

Network
 
12,894

 
13,460

 
(566
)
 
(4.2
)
Total product revenue
 
48,575

 
52,455

 
(3,880
)
 
(7.4
)
Service
 
1,879

 
1,718

 
161

 
9.4

Total revenue
 
$
50,454

 
$
54,173

 
$
(3,719
)
 
(6.9
)
 
 
 
 
 
 
 
 
 
North America, primarily United States
 
$
33,145

 
$
36,619

 
$
(3,474
)
 
(9.5
)
Europe, Middle East and Africa
 
11,269

 
10,924

 
345

 
3.2

Asia
 
5,228

 
5,699

 
(471
)
 
(8.3
)
Latin America
 
812

 
931

 
(119
)
 
(12.8
)
Total revenue
 
$
50,454

 
$
54,173

 
$
(3,719
)
 
(6.9
)
Our cellular product category includes cellular routers and all gateways, and 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 service offerings include wireless design services and cold chain solutions along with revenue generated from the enterprise support services and Digi Device Cloud platform.
Total revenue was $50.5 million in fourth fiscal quarter of 2016 compared to $54.2 million in the fourth fiscal quarter of 2015.
•
Product revenue decreased by $3.9 million, or 7.4%, in the fourth fiscal quarter of 2016 compared to the fourth fiscal quarter of 2015. This decrease was driven primarily by lower sales of cellular routers and gateways and RF products. Cellular routers and gateways revenue decreased by $3.7 million, or 22.6%, compared to the fourth fiscal quarter of 2015. Cellular router and gateway revenue is driven by large awards-based customer projects and is subject to revenue fluctuations from quarter to quarter. RF revenue decreased by $2.2 million, or 23.2% as a result of lower sales to significant customers in the solar energy market. These decreases were partially offset by an increase in revenue from embedded products. Embedded revenue increased as a result of significant customers moving to production of their products that use our modules.
•
Service revenue increased by $0.2 million, or 9.4%, in the fourth fiscal quarter of 2016 compared to the comparable quarter in fiscal 2015, primarily due to incremental revenue of Cold Chain Solutions as a result of our acquisition of Bluenica Corporation in October 2015.

2
 
 
 
 
 
Digi International Reports Fourth Fiscal Quarter and Full Year 2016 Results

Gross profit was $24.6 million, or 48.8% of revenue in the fourth fiscal quarter of 2016 compared to $26.3 million, or 48.6% of revenue in the same period of the prior year, a decrease of $1.7 million. The decrease in gross profit was primarily driven by reduced revenue in our cellular routers and gateways and RF product categories. This was offset partially by manufacturing cost reductions on certain products across product categories.
Operating income for the fourth fiscal quarter of 2016 was $5.0 million, or 10.0% of revenue, as compared to an operating income of $5.3 million or 9.8% of revenue, for the fourth fiscal quarter of 2015. Operating income decreased by $0.3 million in comparison to the same period in the prior fiscal year. This was a result of a decrease in gross profit of $1.7 million as described above offset by a decrease in operating expenses of $1.4 million.
Income from Continuing Operations was $3.8 million in the fourth fiscal quarter of 2016, or $0.14 per diluted share, compared to $3.7 million, or $0.14 per diluted share, in the fourth fiscal quarter of 2015.
Loss from Discontinued Operations, after income taxes was $0.7 million, or $0.03 loss per diluted share, in the fourth fiscal quarter of 2015. This represents the loss associated with our Etherios business in the year ago fourth fiscal quarter. As previously disclosed, we sold our Etherios business on October 23, 2015.
Adjusted EBITDA from Continuing Operations in the fourth fiscal quarter of 2016 was $5.9 million, or 11.8% of total revenue, compared to $6.5 million, or 11.9% of total revenue, in the fourth fiscal quarter of 2015.
Please refer to the tables later in this earnings release that provide reconciliations from GAAP to non-GAAP information.
Business Results for the Twelve Months Ended September 30, 2016 and 2015
Revenue Detail YTD
(in thousands)
 
2016
 
2015
 
Change
 
% Change
Cellular routers and gateways
 
$
48,373

 
$
58,666

 
$
(10,293
)
 
(17.5
)
RF
 
33,924

 
34,373

 
(449
)
 
(1.3
)
Embedded
 
56,489

 
51,063

 
5,426

 
10.6

Network
 
57,315

 
51,395

 
5,920

 
11.5

Total product revenue
 
196,101

 
195,497

 
604

 
0.3

Service
 
6,904

 
8,350

 
(1,446
)
 
(17.3
)
Total revenue
 
$
203,005

 
$
203,847

 
$
(842
)
 
(0.4
)
 
 
 
 
 
 
 
 
 
North America, primarily United States
 
$
131,457

 
$
127,592

 
$
3,865

 
3.0

Europe, Middle East and Africa
 
44,932

 
47,523

 
(2,591
)
 
(5.5
)
Asia
 
20,390

 
22,907

 
(2,517
)
 
(11.0
)
Latin America
 
6,226

 
5,825

 
401

 
6.9

Total revenue
 
$
203,005

 
$
203,847

 
$
(842
)
 
(0.4
)
Total revenue decreased 0.4% to $203.0 million in fiscal 2016 from $203.8 million in fiscal 2015.
•
Product revenue increased by $0.6 million, or 0.3%, in fiscal 2016 compared to fiscal 2015. This increase was driven primarily by embedded and network products, as certain significant legacy customers continued to purchase these products. This increase was offset by the decrease in sales of cellular routers and gateways.
•
Service revenue decreased by $1.4 million, or 17.3%, in fiscal 2016 compared to fiscal 2015, primarily due to lower revenue in wireless design services, partially offset by incremental revenue from Digi Cold Chain Solutions.
•
Included in our revenue performance for the year was a foreign currency translation decrease of $1.1 million when compared to the same period in the prior fiscal year and was primarily caused by the weakening of the Euro and British Pound against the U.S. dollar.


3
 
 
 
 
 
Digi International Reports Fourth Fiscal Quarter and Full Year 2016 Results

Gross profit was $99.7 million, or 49.1% of revenue in fiscal 2016 compared to $97.1 million, or 47.6% of revenue in the prior fiscal year, an increase of $2.6 million. The increase in gross profit was driven primarily by strong revenue performance in our network category which traditionally has higher margin products, as well as manufacturing cost reductions.
Operating income for fiscal 2016 was $17.1 million, or 8.4% of revenue, as compared to an operating income of $10.9 million or 5.3% of revenue, for fiscal 2015. Operating income increased by $6.2 million as a result of an increase in gross profit of $2.6 million as described above and a decrease in operating expenses of $3.6 million. Operating income for fiscal 2016 included restructuring expenses of $0.8 million primarily 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 our consolidation of our Minneapolis office into our Minnetonka headquarters, which included lease termination charges for our downtown Minneapolis office.
Income from Continuing Operations was $13.5 million in fiscal 2016, or $0.51 per diluted share, compared to $9.4 million, or $0.37 per diluted share, in fiscal 2015. Adjusted income from continuing operations was $12.9 million in fiscal 2016, or $0.49 per diluted share, compared to adjusted income from continuing operations of $8.3 million in fiscal 2015, or $0.33 per diluted share.
Income (Loss) from Discontinued Operations, after income taxes was income of $3.2 million in fiscal 2016, or $0.12 per diluted share, compared to a loss from discontinued operations, after income taxes of $2.8 million, or $0.11 loss per diluted share, in fiscal 2015. Digi sold its Etherios business in October 2015 to West Monroe Partners, which resulted in an after tax gain on sale, of $3.3 million, or $0.13 per diluted share.
Adjusted EBITDA from Continuing Operations in fiscal 2016 was $21.0 million, or 10.4% of total revenue, compared to $16.9 million, or 8.3% of total revenue, in fiscal 2015.
Please refer to the tables later in this earnings release that provide reconciliations from GAAP to non-GAAP information.
Balance Sheet, Liquidity and Capital Structure
We continue to maintain a strong balance sheet, highlighted by:
•
Our cash and cash equivalents and marketable securities balance, including long-term marketable securities, was $137.7 million at September 30, 2016, an increase of $6.2 million from the end of the third quarter 2016 and an increase of $31.9 million over the comparable balance at the end of our fiscal year 2015. Please refer to the Condensed Consolidated Statements of Cash Flows for more information.
•
Inventory was $26.3 million at September 30, 2016, a decrease of $5.6 million over the comparable balance at September 30, 2015.
•
We had no debt on the balance sheet as of September 30, 2016.
•
At September 30, 2016, our current ratio was 8.2 to 1 compared to 6.9 to 1 at September 30, 2015.
Customer Highlights
The National Oceanic and Atmospheric Administration, NOAA, purchased several hundred Digi Passport® console servers for the NEXRAD Weather Surveillance Radar (WSR) program. The Passports transmit time-critical meteorological information originating from NEXRAD Radars. Previously, NOAA installed Digi cellular routers for wireless backup communications between the Radars and National Weather Service (NWS) Weather Forecast Offices (WFOs).
NEC New Zealand, a subsidiary of the Japanese technology corporation NEC, has selected Digi XBee® RF modules and Digi ConnectCore® 6 Single Board Computer (CC6) for its sensing platform for smart cities, the Kite Flexible Sensing Platform. Kite enables a city to implement any sensor, in any location, to measure data. NEC New Zealand is in the process of deploying 100 of Digi ConnectCore 6 SBCs and Digi XBee modules in Auckland, Christchurch and Wellington as part of proof-of-concept projects.

4
 
 
 
 
 
Digi International Reports Fourth Fiscal Quarter and Full Year 2016 Results

Non-GAAP Financial Measures

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 September 30,
 
Twelve months ended September 30,
 
2016
 
2015
 
2016
 
2015
Income and income per diluted share from continuing operations
$
3,844

 
$
0.14

 
$
3,668

 
$
0.14

 
$
13,478

 
$
0.51

 
$
9,433

 
$
0.37

Restructuring reserve
—

 
—

 
—

 
—

 
747

 
0.03

 
403

 
0.02

Gain from insurance recovery
—

 
—

 
—

 
—

 
—

 
—

 
(1,375
)
 
(0.05
)
Tax effect from restructuring reserve and gain from insurance recovery
—

 
—

 
—

 
—

 
(262
)
 
(0.01
)
 
340

 
0.01

Discrete tax benefits (1)
(54
)
 
NM

 
21

 
NM

 
(1,063
)
 
(0.04
)
 
(549
)
 
(0.02
)
Adjusted income and adjusted income per diluted share from continuing operations
$
3,790

 
$
0.14

 
$
3,689

 
$
0.14

 
$
12,900

 
$
0.49

 
$
8,252

 
$
0.33

Diluted weighted average common shares
 
 
26,621

 
 
 
25,846

 
 
 
26,311

 
 
 
25,227

NM means Not Meaningful
(1)
Discrete tax benefits include additional domestic refunds resulting from amended prior year tax return filings, extended research and development tax credits and expiration of statute of limitations in various tax jurisdictions.


Reconciliation of Income from Continuing Operations to Adjusted EBITDA from Continuing Operations
(In thousands of dollars)
 
Three months ended September 30,
 
Twelve months ended September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
% of total
revenue
 
 
 
% of total
revenue
 
 
 
% of total
revenue
 
 
 
% of total
revenue
Total revenue
$
50,454

 
100.0
%
 
$
54,173

 
100.0
%
 
$
203,005

 
100.0
%
 
$
203,847

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
3,844

 
 
 
$
3,668

 
 
 
$
13,478

 
 
 
$
9,433

 
 
Recovery of insurance proceeds
—

 
 
 
—

 
 
 
—

 
 
 
(1,375
)
 
 
Interest income, net
(99
)
 
 
 
(80
)
 
 
 
(254
)
 
 
 
(214
)
 
 
Income tax provision
1,144

 
 
 
1,609

 
 
 
3,212

 
 
 
3,684

 
 
Depreciation and amortization
1,052

 
 
 
1,274

 
 
 
4,584

 
 
 
5,347

 
 
Adjusted EBITDA from continuing operations
$
5,941

 
11.8
%
 
$
6,471

 
11.9
%
 
$
21,020

 
10.4
%
 
$
16,875

 
8.3
%


Share Repurchase Program
On April 26, 2016, our Board of Directors authorized a new program to repurchase up to $15.0 million of our common stock primarily to return capital to shareholders. This new repurchase authorization expires on May 1, 2017. Shares repurchased under the new program may be made through open market and privately negotiated transactions from time to time and in amounts that management deems appropriate. The amount and timing of share repurchases, if any, will depend upon market conditions and other corporate considerations. There were no repurchases in fiscal 2016.

5
 
 
 
 
 
Digi International Reports Fourth Fiscal Quarter and Full Year 2016 Results

Fiscal 2017 Guidance
For the first fiscal quarter of 2017, we project revenue to be in a range of $45 million to $48 million. We project income per diluted share from continuing operations to be in a range of $0.06 to $0.08 for the first fiscal quarter of 2017.
For the full fiscal year 2017, we project revenue to be in a range of $200 million to $210 million. Digi projects income per diluted share from continuing operations to be in a range of $0.38 to $0.46.
Fourth Fiscal Quarter and Year-End 2016 Conference Call Details
As announced on October 6, 2016, Digi will discuss its fourth fiscal quarter and year-end results on a conference call on Thursday, October 27, 2016 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.
We invite all those interested in hearing management's discussion of its quarter and full year 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 93493957. International participants may access the call by dialing (262) 912-4765 and entering passcode 93493957. 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 93493957 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 the M2M solutions expert, combining products and services as end-to-end solutions to drive business efficiencies. Digi provides the industry’s broadest range of wireless products, a cloud computing platform tailored for devices and development services to help customers get to market fast with wireless devices and applications. Digi's entire solution set is tailored to allow any device to communicate with any application, anywhere in the world. 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, 2015 and subsequent quarterly reports on Form 10-Q and other filings, could cause the company's future results to differ

6
 
 
 
 
 
Digi International Reports Fourth Fiscal Quarter and Full Year 2016 Results

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 adjusted 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 adjusted 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, gains from insurance recoveries, and 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 adjusted 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 rest of the employee base, and it is monitored quarterly for these purposes.

Investor Contact:
Mike Goergen
 
 
Senior Vice President, Chief Financial Officer and Treasurer
 
 
Digi International
 
 
952-912-3737
 
 
Email: mike.goergen@digi.com
 
 
 
 
 
For more information, visit our Web site at www.digi.com, or call 877-912-3444 (U.S.) or 952-912-3444 (International).

7
 
 
 
 
 
Digi International Reports Fourth Fiscal Quarter and Full Year 2016 Results

Digi International Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
Three months ended
September 30,
 
Twelve months ended
September 30,
 
2016
 
2015
 
2016
 
2015
Revenue:
 
 
 
 
 
 
 
Hardware product
$
48,575

 
$
52,455

 
$
196,101

 
$
195,497

Service
1,879

 
1,718

 
6,904

 
8,350

Total revenue
50,454

 
54,173

 
203,005

 
203,847

Cost of sales:
 
 
 
 
 
 
 
Cost of hardware product
24,284

 
26,816

 
98,265

 
101,155

Cost of service
1,566

 
1,052

 
5,060

 
5,571

Total cost of sales
25,850

 
27,868

 
103,325

 
106,726

Gross profit
24,604

 
26,305

 
99,680

 
97,121

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
8,537

 
8,482

 
33,847

 
37,574

Research and development
7,412

 
7,801

 
30,955

 
29,949

General and administrative
3,617

 
4,708

 
17,026

 
18,306

Restructuring charge, net
—

 
—

 
747

 
403

Total operating expenses
19,566

 
20,991

 
82,575

 
86,232

Operating income
5,038

 
5,314

 
17,105

 
10,889

Other (expense) income, net:
 
 
 
 
 
 
 
Interest income, net
99

 
80

 
254

 
214

Other (expense) income, net
(149
)
 
(117
)
 
(669
)
 
2,014

Total other (expense) income, net
(50
)
 
(37
)
 
(415
)
 
2,228

Income from continuing operations, before income taxes
4,988

 
5,277

 
16,690

 
13,117

Income tax provision
1,144

 
1,609

 
3,212

 
3,684

Income from continuing operations
3,844

 
3,668

 
13,478

 
9,433

Income (loss) from discontinued operations, after income taxes
—

 
(683
)
 
3,230

 
(2,845
)
Net income
$
3,844

 
$
2,985

 
$
16,708

 
$
6,588

 
 
 
 
 
 
 
 
Basic net income (loss) per common share:
 
 
 
 
 
 
 
Continuing operations
$
0.15

 
$
0.15

 
$
0.52

 
$
0.38

Discontinued operations
$
—

 
$
(0.03
)
 
$
0.13

 
$
(0.12
)
Net income (1)
$
0.15

 
$
0.12

 
$
0.65

 
$
0.27

Diluted net income (loss) per common share:
 
 
 
 
 
 
 
Continuing operations
$
0.14

 
$
0.14

 
$
0.51

 
$
0.37

Discontinued operations
$
—

 
$
(0.03
)
 
$
0.12

 
$
(0.11
)
Net income (1)
$
0.14

 
$
0.12

 
$
0.64

 
$
0.26

Weighted average common shares:
 
 
 
 
 
 
 
Basic
25,987

 
24,998

 
25,760

 
24,645

Diluted
26,621

 
25,846

 
26,311

 
25,227

(1) Earnings per share presented are calculated by line item and may not add due to the use of rounded numbers.

8
 
 
 
 
 
Digi International Reports Fourth Fiscal Quarter and Full Year 2016 Results

Digi International Inc.
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)

 
Three months ended
September 30,
 
Twelve months ended
September 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
3,844

 
$
2,985

 
$
16,708

 
$
6,588

Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(389
)
 
(165
)
 
(2,107
)
 
(4,323
)
Change in net unrealized gain (loss) on investments
4

 
(19
)
 
53

 
(21
)
Less income tax (provision) benefit
(2
)
 
6

 
(20
)
 
7

Reclassification of realized gain on investments included in net income (1)
—

 
—

 
(7
)
 
1

Less income tax provision (2)
—

 
—

 
3

 
—

Other comprehensive loss, net of tax
(387
)
 
(178
)
 
(2,078
)
 
(4,336
)
Comprehensive income
$
3,457

 
$
2,807

 
$
14,630

 
$
2,252

(1) Recorded in Other (expense) income, net on our Condensed Consolidated Statements of Operations.
(2) Recorded in Income tax provision on our Condensed Consolidated Statements of Operations.

9
 
 
 
 
 
Digi International Reports Fourth Fiscal Quarter and Full Year 2016 Results

Digi International Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
September 30,
2016
 
September 30, 2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
75,727

 
$
45,018

Marketable securities
58,382

 
47,191

Accounts receivable, net
28,685

 
27,788

Inventories
26,276

 
31,877

Deferred tax assets
—

 
3,252

Receivable from sale of business
2,997

 
—

Other
3,578

 
3,435

Current assets of discontinued operations
—

 
1,624

Total current assets
195,645

 
160,185

Marketable securities, long-term
3,541

 
13,626

Property, equipment and improvements, net
14,041

 
14,339

Identifiable intangible assets, net
4,041

 
2,648

Goodwill
109,448

 
100,183

Deferred tax assets
7,295

 
6,255

Non-current receivable from sale of business
1,959

 
—

Other
196

 
250

Non-current assets of discontinued operations
—

 
2,874

Total assets
$
336,166

 
$
300,360

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
8,569

 
$
6,673

Income taxes payable
167

 
828

Accrued compensation
10,787

 
10,156

Accrued warranty
1,033

 
1,014

Contingent consideration on acquired business
513

 
—

Other
2,739

 
3,037

Current liabilities of discontinued operations
—

 
1,481

Total current liabilities
23,808

 
23,189

Income taxes payable
1,490

 
1,546

Deferred tax liabilities
616

 
135

Contingent consideration on acquired business
9,447

 
—

Other non-current liabilities
776

 
457

Non-current liabilities of discontinued operations
—

 
95

Total liabilities
36,137

 
25,422

 
 
 
 
Total stockholders’ equity
300,029

 
274,938

Total liabilities and stockholders’ equity
$
336,166

 
$
300,360



10
 
 
 
 
 
Digi International Reports Fourth Fiscal Quarter and Full Year 2016 Results

Digi International Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Twelve months ended September 30,
 
2016
 
2015
Operating activities:
 
 
 
Net income
$
16,708

 
$
6,588

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation of property, equipment and improvements
2,742

 
2,949

Amortization of identifiable intangible assets
1,872

 
2,910

Stock-based compensation
3,654

 
4,301

Excess tax benefits from stock-based compensation
(212
)
 
—

Deferred income tax provision
1,115

 
(769
)
Gain on insurance settlement related to property and equipment
—

 
(1,375
)
Gain on sale of business
(2,870
)
 
—

Change in fair value of contingent consideration
(441
)
 
—

Bad debt/product return provision
168

 
357

Inventory obsolescence
1,734

 
1,284

Restructuring charges, net
747

 
509

Other
66

 
87

Changes in operating assets and liabilities
1,806

 
(2,767
)
Net cash provided by operating activities
27,089

 
14,074

Investing activities:
 
 
 
Purchase of marketable securities
(74,759
)
 
(54,427
)
Proceeds from maturities of marketable securities
73,706

 
38,028

Proceeds from sale of investment
13

 
—

Proceeds from sale of business
2,849

 
—

Acquisition of business, net of cash acquired
(2,860
)
 
—

Proceeds from insurance settlement related to property and equipment
—

 
1,400

Proceeds from sale of property and equipment
—

 
45

Purchase of property, equipment, improvements and certain other intangible assets
(2,729
)
 
(4,500
)
Net cash used in investing activities
(3,780
)
 
(19,454
)
Financing activities:
 
 
 
Excess tax benefits from stock-based compensation
212

 
—

Proceeds from stock option plan transactions
7,191

 
6,559

Proceeds from employee stock purchase plan transactions
896

 
925

Purchases of common stock
(550
)
 
(2,339
)
Net cash provided by financing activities
7,749

 
5,145

Effect of exchange rate changes on cash and cash equivalents
(349
)
 
(2,237
)
Net increase (decrease) in cash and cash equivalents
30,709

 
(2,472
)
Cash and cash equivalents, beginning of period
45,018

 
47,490

Cash and cash equivalents, end of period
$
75,727

 
$
45,018

 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
 
Receivable related to sale of business
$
4,956

 
$
—

Liability related to acquisition of business
$
(10,550
)
 
$
—

Accrual for purchase of property, equipment, improvements and certain other intangible assets
$
(183
)
 
$
(17
)

11