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/ Gokul V. Hemmady | ||
Gokul V. Hemmady | |||
Senior Vice President, Chief Financial Officer and Treasurer |
Digi International Reports Fourth Fiscal Quarter and Full Year 2018 Results | ||||||
Strong Performance from Both Business Segments Drives Record Revenues |
GAAP Results | ||||||||||||||||
(in thousands, except per share data) | Q4 2018 | Q4 2017 | YTD 2018 | YTD 2017 | ||||||||||||
Total Revenue | $ | 65,662 | $ | 45,105 | $ | 228,366 | $ | 181,634 | ||||||||
Gross Profit | $ | 30,963 | $ | 21,334 | $ | 108,883 | $ | 87,174 | ||||||||
Gross Margin | 47.2 | % | 47.3 | % | 47.7 | % | 48.0 | % | ||||||||
Operating Income | $ | 1,905 | $ | 4,164 | $ | 2,322 | $ | 8,807 | ||||||||
Operating Income as % of Total Revenue | 2.9 | % | 9.2 | % | 1.0 | % | 4.8 | % | ||||||||
Net Income | $ | 3,608 | $ | 4,343 | $ | 1,303 | $ | 9,366 | ||||||||
Net Income per Diluted Share | $ | 0.13 | $ | 0.16 | $ | 0.05 | $ | 0.35 |
Non-GAAP Results* | ||||||||||||||||
(in thousands, except per share data) | Q4 2018 | Q4 2017 | YTD 2018 | YTD 2017 | ||||||||||||
Adjusted Net Income | $ | 2,206 | $ | 4,172 | $ | 3,071 | $ | 10,041 | ||||||||
Adjusted Net Income per Diluted Share | $ | 0.08 | $ | 0.16 | $ | 0.11 | $ | 0.37 | ||||||||
Adjusted EBITDA | 7,528 | 7,011 | 22,465 | 23,516 | ||||||||||||
Adjusted EBITDA as % of Total Revenue | 11.5 | % | 15.5 | % | 9.8 | % | 12.9 | % | ||||||||
* A reconciliation of GAAP to non-GAAP financial measures appears at the end of this release. |
Digi International Reports Fourth Fiscal Quarter and Full Year 2018 Results |
Revenue Detail Quarter | |||||||||||||||
(in thousands) | Q4 2018 | Q4 2017 | Change | % Change | |||||||||||
Product | $ | 53,317 | $ | 40,881 | $ | 12,436 | 30.4 | % | |||||||
Services | 3,078 | 1,703 | 1,375 | 80.7 | % | ||||||||||
Solutions | 9,267 | 2,521 | 6,746 | 267.6 | % | ||||||||||
Total revenue | $ | 65,662 | $ | 45,105 | $ | 20,557 | 45.6 | % | |||||||
North America, primarily United States | $ | 49,222 | $ | 28,071 | $ | 21,151 | 75.3 | % | |||||||
Europe, Middle East and Africa | 9,335 | 10,344 | (1,009 | ) | (9.8 | )% | |||||||||
Asia | 5,767 | 5,446 | 321 | 5.9 | % | ||||||||||
Latin America | 1,338 | 1,244 | 94 | 7.6 | % | ||||||||||
Total revenue | $ | 65,662 | $ | 45,105 | $ | 20,557 | 45.6 | % |
Digi International Reports Fourth Fiscal Quarter and Full Year 2018 Results |
Revenue Detail Fiscal Year | |||||||||||||||
(in thousands) | FY 2018 | FY 2017 | Change | % Change | |||||||||||
Product | $ | 191,050 | $ | 166,480 | $ | 24,570 | 14.8 | % | |||||||
Services | 10,456 | 7,757 | 2,699 | 34.8 | % | ||||||||||
Solutions | 26,860 | 7,397 | 19,463 | 263.1 | % | ||||||||||
Total revenue | $ | 228,366 | $ | 181,634 | $ | 46,732 | 25.7 | % | |||||||
North America, primarily United States | $ | 163,397 | $ | 117,749 | $ | 45,648 | 38.8 | % | |||||||
Europe, Middle East and Africa | 39,211 | 39,403 | (192 | ) | (0.5 | )% | |||||||||
Asia | 20,881 | 19,892 | 989 | 5.0 | % | ||||||||||
Latin America | 4,877 | 4,590 | 287 | 6.3 | % | ||||||||||
Total revenue | $ | 228,366 | $ | 181,634 | $ | 46,732 | 25.7 | % |
Digi International Reports Fourth Fiscal Quarter and Full Year 2018 Results |
• | Cash and cash equivalents and marketable securities balance of $62.8 million, a decrease of $52.2 million from the end of fiscal 2017. The decrease in cash is related directly to the purchase price and other costs associated with the TempAlert and Accelerated acquisitions. Cash and marketable securities increased sequentially by $8.1 million from the end of third quarter of fiscal 2018. Subsequent to the end of fiscal 2018, during the first quarter of fiscal 2019, we received $9.7 million from two customers of which $7.4 million was applied to accounts receivable. |
• | Current and long-term contingent liabilities of $10.1 million, an increase of $3.7 million from the end of fiscal 2017. This increase is comprised of the addition of $2.3 million related to the fair value of contingent consideration for the Accelerated acquisition and an increase in fair value of $2.1 million in fiscal 2018 associated with better than expected performance by Accelerated. This was partially offset by a decrease of $0.7 million related to the Bluenica and FreshTemp® contingent consideration. |
• | A North American based global leader of IP video solutions for the bus and passenger rail industry has selected Digi’s WR44R router to offload video via Wi-Fi while the bus or train is at the depot. The solution will use LTE cellular to transmit maintenance data and live stream video in case of an emergency. Digi was selected for our vast experience in this application and the product’s ease of use. The project calls for an estimated 500 devices per year for approximately three years. |
• | A global leader in the lottery and gaming management industry has developed a retail solution to dispense lottery instant games located in retail brick and mortar stores. The system provides insights, visibility and data for lotteries to better understand how products perform at retailer locations. Digi’s WR21 transport routers were selected to provide this access in order to deliver valuable data streams that simultaneously track and reconcile game sales in real-time. The solution mitigates operational costs for retailers associated with ticket theft. |
• | A leading global industrial gas company has selected Digi for a connected tank monitoring solution using our Connect Sensor and Digi Remote Manager® products. The customer chose Digi based on the complete solution, cost savings and increase in data they will be able to capture to drive their logistics systems. The solution will begin to deploy in early calendar 2019. |
• | A utility company in northern Germany, has elected to use Digi’s WR31 cellular routers to equip their local power distribution points with cellular monitoring due to their robust design and reliable operation. During the first phase 150 nodes will be replaced with a full roll-out that will cover several thousand sites. |
Digi International Reports Fourth Fiscal Quarter and Full Year 2018 Results |
• | The VA Medical Center in Palo Alto, California, one of the largest VA centers in the country, selected SmartSense by Digi™ to monitor their pharmacy/lab, dietary, surgery and off-site clinics. We have currently deployed over 900 sensors. |
• | Jenny Craig, with approximately 600 company-owned and franchised centers worldwide, will deploy SmartSense by Digi™ at their centers located in the United States and Canada to ensure proper temperatures are maintained for their freezers which store their food products. |
• | SmartSense by Digi™ is now monitoring over 130 pharmacies at Giant Food Inc., a supermarket chain based in Maryland with 169 stores. |
• | A large supermarket chain in Northeastern United States selected SmartSense by Digi™ to monitor their pharmacy freezers and refrigerators at over 150 of their sites. |
Digi International Reports Fourth Fiscal Quarter and Full Year 2018 Results |
Digi International Reports Fourth Fiscal Quarter and Full Year 2018 Results |
Gokul Hemmady | ||
Senior Vice President, Chief Financial Officer and Treasurer | ||
Digi International | ||
952-912-3737 | ||
Email: gokul.hemmady@digi.com | ||
Digi International Reports Fourth Fiscal Quarter and Full Year 2018 Results |
Three months ended September 30, | Fiscal year ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenue: | |||||||||||||||
Product | $ | 53,317 | $ | 40,881 | $ | 191,050 | $ | 166,480 | |||||||
Services and solutions | 12,345 | 4,224 | 37,316 | 15,154 | |||||||||||
Total revenue | 65,662 | 45,105 | 228,366 | 181,634 | |||||||||||
Cost of sales: | |||||||||||||||
Cost of product | 27,403 | 21,439 | 96,332 | 85,369 | |||||||||||
Cost of services and solutions | 6,543 | 1,920 | 20,280 | 7,647 | |||||||||||
Amortization of intangibles | 753 | 412 | 2,871 | 1,444 | |||||||||||
Total cost of sales | 34,699 | 23,771 | 119,483 | 94,460 | |||||||||||
Gross profit | 30,963 | 21,334 | 108,883 | 87,174 | |||||||||||
Operating expenses: | |||||||||||||||
Sales and marketing | 11,987 | 8,398 | 44,517 | 33,955 | |||||||||||
Research and development | 8,605 | 7,262 | 33,178 | 28,566 | |||||||||||
General and administrative | 8,355 | 1,510 | 28,565 | 13,331 | |||||||||||
Restructuring charges, net | 111 | — | 301 | 2,515 | |||||||||||
Total operating expenses | 29,058 | 17,170 | 106,561 | 78,367 | |||||||||||
Operating income | 1,905 | 4,164 | 2,322 | 8,807 | |||||||||||
Other income, net: | |||||||||||||||
Interest income, net | 89 | 219 | 420 | 608 | |||||||||||
Other income (expense), net | 85 | (134 | ) | 48 | 76 | ||||||||||
Total other income, net | 174 | 85 | 468 | 684 | |||||||||||
Income before income taxes | 2,079 | 4,249 | 2,790 | 9,491 | |||||||||||
Income tax (benefit) provision | (1,529 | ) | (94 | ) | 1,487 | 125 | |||||||||
Net income | $ | 3,608 | $ | 4,343 | $ | 1,303 | $ | 9,366 | |||||||
Net income per common share: | |||||||||||||||
Basic | $ | 0.13 | $ | 0.16 | $ | 0.05 | $ | 0.35 | |||||||
Diluted | $ | 0.13 | $ | 0.16 | $ | 0.05 | $ | 0.35 | |||||||
Weighted average common shares: | |||||||||||||||
Basic | 27,323 | 26,557 | 27,083 | 26,432 | |||||||||||
Diluted | 28,160 | 26,885 | 27,652 | 27,099 |
Digi International Reports Fourth Fiscal Quarter and Full Year 2018 Results |
Three months ended September 30, | Fiscal year ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net income | $ | 3,608 | $ | 4,343 | $ | 1,303 | $ | 9,366 | |||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||
Foreign currency translation adjustment | 193 | 1,984 | (865 | ) | 2,041 | ||||||||||
Change in net unrealized gain (loss) on investments | 10 | (12 | ) | (31 | ) | (14 | ) | ||||||||
Less income tax (provision) benefit | (3 | ) | 4 | 6 | 5 | ||||||||||
Reclassification of realized loss on investments included in net income (1) | — | — | 31 | — | |||||||||||
Less income tax benefit (2) | — | — | (8 | ) | — | ||||||||||
Other comprehensive income (loss), net of tax | 200 | 1,976 | (867 | ) | 2,032 | ||||||||||
Comprehensive income | $ | 3,808 | $ | 6,319 | $ | 436 | $ | 11,398 |
Digi International Reports Fourth Fiscal Quarter and Full Year 2018 Results |
September 30, 2018 | September 30, 2017 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 58,014 | $ | 78,222 | |||
Marketable securities | 4,736 | 32,015 | |||||
Accounts receivable, net | 50,817 | 28,855 | |||||
Inventories | 41,644 | 30,238 | |||||
Receivable from sale of business | — | 1,998 | |||||
Other | 2,613 | 3,032 | |||||
Total current assets | 157,824 | 174,360 | |||||
Marketable securities, long-term | — | 4,753 | |||||
Property, equipment and improvements, net | 6,270 | 12,801 | |||||
Identifiable intangible assets, net | 39,320 | 11,800 | |||||
Goodwill | 154,535 | 131,995 | |||||
Deferred tax assets | 6,665 | 9,211 | |||||
Other | 1,291 | 269 | |||||
Assets held for sale | 5,220 | — | |||||
Total assets | $ | 371,125 | $ | 345,189 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 12,911 | $ | 6,240 | |||
Accrued compensation | 8,190 | 4,325 | |||||
Accrued warranty | 1,172 | 987 | |||||
Accrued professional fees | 1,367 | 928 | |||||
Unearned revenue | 2,579 | 1,343 | |||||
Contingent consideration on acquired businesses | 5,890 | 388 | |||||
Accrued restructuring | 453 | 1,656 | |||||
Other | 2,413 | 2,113 | |||||
Total current liabilities | 34,975 | 17,980 | |||||
Income taxes payable | 851 | 877 | |||||
Deferred tax liabilities | 334 | 534 | |||||
Contingent consideration on acquired businesses | 4,175 | 6,000 | |||||
Other non-current liabilities | 510 | 654 | |||||
Total liabilities | 40,845 | 26,045 | |||||
Stockholders’ equity: | |||||||
Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued and outstanding | — | — | |||||
Common stock, $.01 par value; 60,000,000 shares authorized; 33,812,838 and 33,007,993 shares issued | 338 | 330 | |||||
Additional paid-in capital | 255,936 | 245,528 | |||||
Retained earnings | 151,748 | 150,478 | |||||
Accumulated other comprehensive loss | (23,526 | ) | (22,659 | ) | |||
Treasury stock, at cost, 6,385,336 and 6,436,578 shares | (54,216 | ) | (54,533 | ) | |||
Total stockholders’ equity | 330,280 | 319,144 | |||||
Total liabilities and stockholders’ equity | $ | 371,125 | $ | 345,189 |
Digi International Reports Fourth Fiscal Quarter and Full Year 2018 Results |
Fiscal years ended September 30, | |||||||
2018 | 2017 | ||||||
Operating activities: | |||||||
Net income | $ | 1,303 | $ | 9,366 | |||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||
Depreciation of property, equipment and improvements | 2,835 | 2,900 | |||||
Amortization of identifiable intangible assets | 9,435 | 2,597 | |||||
Stock-based compensation | 4,854 | 4,659 | |||||
Excess tax benefits from stock-based compensation | — | (326 | ) | ||||
Deferred income tax provision | (508 | ) | (2,108 | ) | |||
(Gain) loss on sale of property, equipment and improvements | (622 | ) | — | ||||
Change in fair value of contingent consideration | 1,377 | (4,364 | ) | ||||
Bad debt/product return provision | 1,120 | 361 | |||||
Inventory obsolescence | 2,056 | 1,850 | |||||
Restructuring charges | 301 | 2,515 | |||||
Other | 67 | (9 | ) | ||||
Changes in operating assets and liabilities (net of acquisitions) | (24,996 | ) | (14,966 | ) | |||
Net cash (used in) provided by operating activities | (2,778 | ) | 2,475 | ||||
Investing activities: | |||||||
Purchase of marketable securities | — | (61,964 | ) | ||||
Proceeds from maturities and sales of marketable securities | 32,032 | 87,105 | |||||
Proceeds from sale of Etherios | 2,000 | 3,000 | |||||
Acquisition of businesses, net of cash acquired | (56,258 | ) | (30,111 | ) | |||
Proceeds from sale of property and equipment | 731 | — | |||||
Purchase of property, equipment, improvements and certain other identifiable intangible assets | (1,842 | ) | (1,773 | ) | |||
Net cash used in investing activities | (23,337 | ) | (3,743 | ) | |||
Financing activities: | |||||||
Acquisition earn-out payments | — | (518 | ) | ||||
Excess tax benefits from stock-based compensation | — | 326 | |||||
Proceeds from stock option plan transactions | 5,460 | 3,502 | |||||
Proceeds from employee stock purchase plan transactions | 1,115 | 685 | |||||
Purchases of common stock | (748 | ) | (938 | ) | |||
Net cash provided by financing activities | 5,827 | 3,057 | |||||
Effect of exchange rate changes on cash and cash equivalents | 80 | 706 | |||||
Net (decrease) increase in cash and cash equivalents | (20,208 | ) | 2,495 | ||||
Cash and cash equivalents, beginning of period | 78,222 | 75,727 | |||||
Cash and cash equivalents, end of period | $ | 58,014 | $ | 78,222 | |||
Supplemental schedule of non-cash investing and financing activities: | |||||||
Accrual for purchase of property, equipment, improvements and certain other identifiable intangible assets | $ | (78 | ) | $ | (36 | ) | |
Liability related to acquisition of business | $ | (2,300 | ) | $ | (1,310 | ) |
Digi International Reports Fourth Fiscal Quarter and Full Year 2018 Results |
Three months ended September 30, | Fiscal years ended September 30, | ||||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||||||
Net income and net income per diluted share | $ | 3,608 | $ | 0.13 | $ | 4,343 | $ | 0.16 | $ | 1,303 | $ | 0.05 | $ | 9,366 | $ | 0.35 | |||||||||||||||
Restructuring reserve | 111 | — | — | — | 301 | 0.01 | 2,515 | 0.09 | |||||||||||||||||||||||
Tax effect from restructuring reserve | (24 | ) | — | — | — | (71 | ) | — | (880 | ) | (0.03 | ) | |||||||||||||||||||
Discrete tax (benefits) expense (1) | (1,489 | ) | (0.05 | ) | (171 | ) | (0.01 | ) | 1,538 | 0.06 | (960 | ) | (0.04 | ) | |||||||||||||||||
Adjusted net income and adjusted net income per diluted share (2) | $ | 2,206 | $ | 0.08 | $ | 4,172 | $ | 0.16 | $ | 3,071 | $ | 0.11 | $ | 10,041 | $ | 0.37 | |||||||||||||||
Diluted weighted average common shares | 28,160 | 26,885 | 27,652 | 27,099 |
(1) | Discrete tax (benefits) expense 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 a net tax benefits for the release of a valuation allowance against U.S. federal capital loss carryforward related to expected capital gains tax in fiscal 2019 as a result of the sale of our Corporate Headquarters building in October 2019 and reversals of tax reserves due to the expiration of statutes of limitation and certain domestic tax credits. |
(2) | Adjusted net income per diluted share may not add due to the use of rounded numbers. |
Three months ended September 30, | Fiscal years ended September 30, | ||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
% of total revenue | % of total revenue | % of total revenue | % of total revenue | ||||||||||||||||||||||||
Total revenue | $ | 65,662 | 100.0 | % | $ | 45,105 | 100.0 | % | $ | 228,366 | 100.0 | % | $ | 181,634 | 100.0 | % | |||||||||||
Net income | $ | 3,608 | $ | 4,343 | $ | 1,303 | $ | 9,366 | |||||||||||||||||||
Interest income, net | (89 | ) | (219 | ) | (420 | ) | (608 | ) | |||||||||||||||||||
Income tax (benefit) provision | (1,529 | ) | (94 | ) | 1,487 | 125 | |||||||||||||||||||||
Depreciation and amortization | 3,264 | 1,468 | 12,270 | 5,497 | |||||||||||||||||||||||
Stock-based compensation | 1,256 | 1,157 | 4,854 | 4,659 | |||||||||||||||||||||||
Restructuring charges, net | 111 | — | 301 | 2,515 | |||||||||||||||||||||||
Acquisition expense | 907 | 356 | 2,670 | 1,962 | |||||||||||||||||||||||
Adjusted EBITDA | $ | 7,528 | 11.5 | % | $ | 7,011 | 15.5 | % | $ | 22,465 | 9.8 | % | $ | 23,516 | 12.9 | % |
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