Delaware | 1-34033 | 41-1532464 | ||
(State of Incorporation) | (Commission file number) | (I.R.S. Employer Identification No.) | ||
11001 Bren Road East, Minnetonka, Minnesota | 55343 | |||
(Address of principal executive offices) | (Zip Code) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 | Results of Operations and Financial Condition. |
Item 9.01 | Financial Statements and Exhibits. |
No. | Exhibit | Manner of Filing | |||
99.1 | Furnished Electronically |
DIGI INTERNATIONAL INC. | |||
By: | /s/ Michael C. Goergen | ||
Michael C. Goergen | |||
Senior Vice President, Chief Financial Officer and Treasurer |
Digi International Reports First Fiscal Quarter 2018 Results | ||||||
Smart Solutions Continues Growth | ||||||
Digi Acquires Cellular Growth Company Accelerated Concepts, Inc. |
• | Amortization expense of $1.0 million, or $0.04 per diluted share, related to our recent acquisition of TempAlert, LLC ("TempAlert") |
• | Three non-cash adjustments included in our income tax provision related to the Tax Cuts and Jobs Act of 2017 and Accounting Standards Update 2016-09 ("ASU 2016-09"), which in aggregate totaled $3.1 million, or $0.12 per diluted share |
Digi International Reports First Fiscal Quarter 2018 Results |
GAAP Results | ||||||||
(in thousands, except per share data) | Q1 2018 | Q1 2017 | ||||||
Total Revenue | $ | 45,197 | $ | 45,175 | ||||
Gross Profit | $ | 21,937 | $ | 21,453 | ||||
Gross Margin | 48.5 | % | 47.5 | % | ||||
Operating (Loss) Income | $ | (2,123 | ) | $ | 2,422 | |||
Operating (Loss) Income as % of Total Revenue | (4.7 | )% | 5.4 | % | ||||
Net (Loss) Income | $ | (4,569 | ) | $ | 2,357 | |||
Net (Loss) Income per Diluted Share | $ | (0.17 | ) | $ | 0.09 |
Non-GAAP Results* | ||||||||
(in thousands, except per share data) | Q1 2018 | Q1 2017 | ||||||
Adjusted Net (Loss) Income | $ | (1,804 | ) | $ | 2,253 | |||
Adjusted Net (Loss) Income per Diluted Share | $ | (0.07 | ) | $ | 0.08 | |||
Adjusted EBITDA | 2,791 | 5,429 | ||||||
Adjusted EBITDA as % of Total Revenue | 6.2 | % | 12.0 | % | ||||
* A reconciliation of GAAP to non-GAAP financial measures appears at the end of this release. |
Revenue Detail YTD | |||||||||||||||
(in thousands) | 2017 | 2016 | Change | % Change | |||||||||||
Cellular routers and gateways | $ | 9,577 | $ | 13,756 | $ | (4,179 | ) | (30.4 | ) | ||||||
RF | 8,682 | 6,574 | 2,108 | 32.1 | |||||||||||
Embedded | 11,061 | 11,841 | (780 | ) | (6.6 | ) | |||||||||
Network | 9,134 | 11,002 | (1,868 | ) | (17.0 | ) | |||||||||
Total hardware product revenue | 38,454 | 43,173 | (4,719 | ) | (10.9 | ) | |||||||||
Services and solutions | 6,743 | 2,002 | 4,741 | 236.8 | |||||||||||
Total revenue | $ | 45,197 | $ | 45,175 | $ | 22 | — | ||||||||
North America, primarily United States | $ | 29,579 | $ | 29,662 | $ | (83 | ) | (0.3 | ) | ||||||
Europe, Middle East and Africa | 10,156 | 9,811 | 345 | 3.5 | |||||||||||
Asia | 4,528 | 4,568 | (40 | ) | (0.9 | ) | |||||||||
Latin America | 934 | 1,134 | (200 | ) | (17.6 | ) | |||||||||
Total revenue | $ | 45,197 | $ | 45,175 | $ | 22 | — |
• | Hardware product revenue decreased by $4.7 million, or 10.9%, in the first fiscal quarter of 2018 compared to the first fiscal quarter of 2017. This primarily was due to a decline in our cellular product revenue as the prior year had a large sale to a significant customer and a new cellular product introduction. We also experienced a decline in network products mostly related to USB connected products revenue due to significant sales to a large customer in the prior fiscal year. Most of our network products are in the mature phase of their product life cycles and are facing a long-term trend of revenue decline. We also had a decline in embedded products mostly related to legacy embedded products, which are also in the mature portion of their product life cycle. This was offset partially by an increase in RF product revenue as we had larger sales to certain customers in both the North America and EMEA regions. |
Digi International Reports First Fiscal Quarter 2018 Results |
• | Services and solutions revenue increased by $4.7 million, or 236.8%, in the first fiscal quarter of 2018 compared to the first fiscal quarter of 2017. This primarily was driven by the growth of our Digi Smart Solutions business. Services and solutions revenue includes $3.5 million of incremental revenue from the acquisitions of TempAlert and SMART Temps. We acquired TempAlert on October 20, 2017 and SMART Temps on January 9, 2017. We are now servicing more than 38,000 sites and our annual recurring revenue stream continues to grow. Revenue in Digi Wireless Design Services and our Digi Remote Manager increased $0.7 million in the three months ended December 31, 2017 compared to the same period a year ago. |
• | Included in revenue performance for the year was a foreign currency translation increase of $0.3 million when compared to the same period in the prior fiscal year. This primarily was caused by the strengthening of the British Pound and Euro against the U.S. dollar. |
1. | A one-time adjustment of $2.5 million, or $0.09 per diluted share, related to the re-measurement of our net deferred tax assets as a result of the Act which lowered the U.S. corporate tax rate from 35% to 21%. |
2. | An adjustment of $0.1 million for the one-time transition tax based on our post-1986 earnings and profits ("E&P") that we previously deferred from U.S. income taxes. At December 31, 2017 we did not fully completed our accounting for the tax effects of the enactment of the Act, however, in certain cases we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. |
3. | An adjustment of $0.5 million, or $0.02 per diluted share, for the adoption of ASU 2016-09 which requires the expensing of the tax deficiencies related to stock awards that historically were recorded in additional paid-in capital. |
• | Cash and cash equivalents and marketable securities balance, including long-term marketable securities, of $78.1 million, a decrease of $36.9 million from the end of fiscal 2017. Digi completed one acquisition in fiscal 2018, for a total cash expenditure of $40.7 million (excluding cash acquired of $0.6 million). Please refer to the Condensed Consolidated Statements of Cash Flows for more information. |
• | Current and long-term contingent liabilities of $6.0 million. |
Digi International Reports First Fiscal Quarter 2018 Results |
• | Trailcon Leasing signed a multiyear agreement to implement Digi SafeTempsTM to fulfill its main objective of providing exceptional service to its customers, which includes many of Canada's largest for-hire carriers, private fleets and major grocery and retain chains, with a high-performing, reliable fleet of equipment. |
• | Taco John's will offer Digi's task management and food temperature monitoring solution to their entire chain of approximately 400 restaurants throughout the United States. Digi will automate their food temperature monitoring and task logging to greatly simply the effort for employees while ensuring public health compliance. |
• | We deployed sensors in approximately 90 locations for a North Carolina hospital. The solution will monitor its pharmacy, lab, dietary, operating room and off-site physician network locations. |
• | A large convenience store and gas station retailer based in the southeastern U.S., has chosen Digi Smart Solutions as their temperature monitoring vendor for food safety storage at all of their 465 locations. Digi will enable their team to remotely view all sites, while alerts will be fully integrated into their third party service maintenance group. |
• | A northeastern U.S. grocery chain awarded Digi’s TempAlert solution a contract to monitor over 90 of its pharmacy locations. |
• | The Massachusetts Bay Transportation Authority (MBTA) is currently installing Positive Train Control (PTC) technology across all commuter rail lines. As part of the installation, the MBTA is deploying Digi’s WR44R cellular rail router for on-board IP communications and backhaul to the MBTA’s Operations Control Center. |
• | The Metropolitan Transportation Authority (MTA) of New York is installing countdown clocks in the B-Division subway stations to identify trains and their arrival times for waiting riders. The Digi WR31 cellular router has been equipped at aboveground stations to provide backup WAN communications to MTA’s Rail Control Center. |
• | Telus, a large mobile network operator in Canada, deployed approximately 180 PC Mobile Kiosks across a large grocery store chain in Canada. Digi’s WR11 was used as a primary communication device for Credit/Debit transactions and activation PC. This was part of an initial deployment through the Telus Enterprise program where Telus is supplying a turnkey supported mobile solution. |
• | A large medical company in Sweden has selected Digi’s CC6UL for their analysis equipment. The CC6UL 1GB variant was selected specifically for the additional DRAM, which improved the performance of their analysis algorithm that they previously only thought possible on higher end platforms. |
• | A large Finnish company that designs and builds equipment essential for chemical, biological, radiation and nuclear (CBRN) monitoring has selected the Digi CC6UL for its new range of products. |
• | Clear Channel has selected Digi’s Transport Routers for remote connectivity for their digital signs to manage content. Clear Channel is fitting Digi products to new signs as well as retrofitting existing signs with Digi products. Clear Channel will use products from the Digi transport router category including the WR11, WR21, WR31 and WR44’s depending upon the sign and location requirements. |
Digi International Reports First Fiscal Quarter 2018 Results |
Digi International Reports First Fiscal Quarter 2018 Results |
Mike Goergen | ||
Senior Vice President, Chief Financial Officer and Treasurer | ||
Digi International | ||
952-912-3737 | ||
Email: mike.goergen@digi.com | ||
Digi International Reports First Fiscal Quarter 2018 Results |
Three months ended December 31, | |||||||
2017 | 2016 | ||||||
Revenue: | |||||||
Hardware product | $ | 38,454 | $ | 43,173 | |||
Services and solutions | 6,743 | 2,002 | |||||
Total revenue | 45,197 | 45,175 | |||||
Cost of sales: | |||||||
Cost of hardware product | 19,210 | 22,337 | |||||
Cost of services and solutions | 3,443 | 1,174 | |||||
Amortization of intangibles | 607 | 211 | |||||
Total cost of sales | 23,260 | 23,722 | |||||
Gross profit | 21,937 | 21,453 | |||||
Operating expenses: | |||||||
Sales and marketing | 9,760 | 8,322 | |||||
Research and development | 7,751 | 6,905 | |||||
General and administrative | 6,549 | 3,804 | |||||
Total operating expenses | 24,060 | 19,031 | |||||
Operating (loss) income | (2,123 | ) | 2,422 | ||||
Other income, net: | |||||||
Interest income, net | 205 | 126 | |||||
Other (expense) income, net | (45 | ) | 574 | ||||
Total other income, net | 160 | 700 | |||||
(Loss) income before income taxes | (1,963 | ) | 3,122 | ||||
Income tax provision | 2,606 | 765 | |||||
Net (loss) income | $ | (4,569 | ) | $ | 2,357 | ||
Net (loss) income per common share: | |||||||
Basic | $ | (0.17 | ) | $ | 0.09 | ||
Diluted | $ | (0.17 | ) | $ | 0.09 | ||
Weighted average common shares: | |||||||
Basic | 26,748 | 26,175 | |||||
Diluted | 26,748 | 26,972 |
Digi International Reports First Fiscal Quarter 2018 Results |
Three months ended December 31, | |||||||
2017 | 2016 | ||||||
Net (loss) income | $ | (4,569 | ) | $ | 2,357 | ||
Other comprehensive income (loss), net of tax: | |||||||
Foreign currency translation adjustment | 271 | (3,755 | ) | ||||
Change in net unrealized loss on investments | (21 | ) | (24 | ) | |||
Less income tax benefit | 3 | 9 | |||||
Other comprehensive income (loss), net of tax | 253 | (3,770 | ) | ||||
Comprehensive loss | $ | (4,316 | ) | $ | (1,413 | ) |
Digi International Reports First Fiscal Quarter 2018 Results |
December 31, 2017 | September 30, 2017 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 45,610 | $ | 78,222 | |||
Marketable securities | 28,204 | 32,015 | |||||
Accounts receivable, net | 30,292 | 28,855 | |||||
Inventories | 31,119 | 30,238 | |||||
Receivable from sale of business | — | 1,998 | |||||
Other | 4,823 | 3,032 | |||||
Total current assets | 140,048 | 174,360 | |||||
Marketable securities, long-term | 4,247 | 4,753 | |||||
Property, equipment and improvements, net | 12,723 | 12,801 | |||||
Identifiable intangible assets, net | 34,469 | 11,800 | |||||
Goodwill | 149,333 | 131,995 | |||||
Deferred tax assets | 6,237 | 9,211 | |||||
Other | 451 | 269 | |||||
Total assets | $ | 347,508 | $ | 345,189 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 6,330 | $ | 6,240 | |||
Accrued compensation | 4,555 | 4,325 | |||||
Accrued warranty | 1,164 | 987 | |||||
Accrued professional fees | 793 | 928 | |||||
Unearned revenue | 4,135 | 1,343 | |||||
Contingent consideration on acquired businesses | 2,411 | 388 | |||||
Accrued restructuring | 1,631 | 1,656 | |||||
Other | 2,451 | 2,113 | |||||
Total current liabilities | 23,470 | 17,980 | |||||
Income taxes payable | 685 | 877 | |||||
Deferred tax liabilities | 486 | 534 | |||||
Contingent consideration on acquired businesses | 3,570 | 6,000 | |||||
Other non-current liabilities | 681 | 654 | |||||
Total liabilities | 28,892 | 26,045 | |||||
Total stockholders’ equity | 318,616 | 319,144 | |||||
Total liabilities and stockholders’ equity | $ | 347,508 | $ | 345,189 |
Digi International Reports First Fiscal Quarter 2018 Results |
Three months ended December 31, | |||||||
2017 | 2016 | ||||||
Operating activities: | |||||||
Net (loss) income | $ | (4,569 | ) | $ | 2,357 | ||
Adjustments to reconcile net (loss) income to net cash used in operating activities: | |||||||
Depreciation of property, equipment and improvements | 711 | 656 | |||||
Amortization of identifiable intangible assets | 1,694 | 345 | |||||
Stock-based compensation | 1,053 | 1,173 | |||||
Excess tax benefits from stock-based compensation | — | (183 | ) | ||||
Deferred income tax provision | 2,954 | 619 | |||||
Change in fair value of contingent consideration | (407 | ) | (82 | ) | |||
Bad debt/product return provision | 14 | 264 | |||||
Inventory obsolescence | 450 | 450 | |||||
Other | 57 | (12 | ) | ||||
Changes in operating assets and liabilities (net of acquisitions) | (3,285 | ) | (7,622 | ) | |||
Net cash used in operating activities | (1,328 | ) | (2,035 | ) | |||
Investing activities: | |||||||
Purchase of marketable securities | — | (25,470 | ) | ||||
Proceeds from maturities and sales of marketable securities | 4,296 | 32,155 | |||||
Proceeds from sale of Etherios | 2,000 | 3,000 | |||||
Acquisition of businesses, net of cash acquired | (40,084 | ) | (1,690 | ) | |||
Purchase of property, equipment, improvements and certain other identifiable intangible assets | (453 | ) | (554 | ) | |||
Net cash (used in) provided by investing activities | (34,241 | ) | 7,441 | ||||
Financing activities: | |||||||
Acquisition earn-out payments | — | (518 | ) | ||||
Excess tax benefits from stock-based compensation | — | 183 | |||||
Proceeds from stock option plan transactions | 2,972 | 2,787 | |||||
Proceeds from employee stock purchase plan transactions | 380 | 297 | |||||
Purchases of common stock | (636 | ) | (390 | ) | |||
Net cash provided by financing activities | 2,716 | 2,359 | |||||
Effect of exchange rate changes on cash and cash equivalents | 241 | (2,350 | ) | ||||
Net (decrease) increase in cash and cash equivalents | (32,612 | ) | 5,415 | ||||
Cash and cash equivalents, beginning of period | 78,222 | 75,727 | |||||
Cash and cash equivalents, end of period | $ | 45,610 | $ | 81,142 | |||
Supplemental schedule of non-cash investing and financing activities: | |||||||
Liability related to acquisition of business | $ | — | $ | (1,300 | ) | ||
Accrual for purchase of property, equipment, improvements and certain other identifiable intangible assets | $ | (27 | ) | $ | (105 | ) |
Digi International Reports First Fiscal Quarter 2018 Results |
Three months ended December 31, | |||||||||||||||
2017 | 2016 | ||||||||||||||
Net (loss) income and net (loss) income per diluted share | $ | (4,569 | ) | $ | (0.17 | ) | $ | 2,357 | $ | 0.09 | |||||
Discrete tax expense (benefits) (1) | 2,765 | 0.10 | (104 | ) | 0.00 | ||||||||||
Adjusted net (loss) income and adjusted net (loss) income per diluted share (2) | $ | (1,804 | ) | $ | (0.07 | ) | $ | 2,253 | $ | 0.08 | |||||
Diluted weighted average common shares | 26,748 | 26,972 |
(1) | Discrete tax expense (benefits) includes one-time adjustments for the re-measurement of deferred tax assets and adoption of ASU 2016-09 relating to the accounting for the tax effects of stock compensation. This was partially offset by reversals of tax reserves due to the expiration of statutes of limitation. |
(2) | Adjusted net (loss) income per diluted share may not add due to the use of rounded numbers. |
Three months ended December 31, | |||||||||||||
2017 | 2016 | ||||||||||||
% of total revenue | % of total revenue | ||||||||||||
Total revenue | $ | 45,197 | 100.0 | % | $ | 45,175 | 100.0 | % | |||||
Net (loss) income | $ | (4,569 | ) | $ | 2,357 | ||||||||
Interest income, net | (205 | ) | (126 | ) | |||||||||
Income tax provision | 2,606 | 765 | |||||||||||
Depreciation and amortization | 2,405 | 1,001 | |||||||||||
Stock-based compensation | 1,053 | 1,173 | |||||||||||
Acquisition expense | 1,501 | 259 | |||||||||||
Adjusted EBITDA | $ | 2,791 | 6.2 | % | $ | 5,429 | 12.0 | % |
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