Delaware | 1-34033 | 41-1532464 | ||
(State of Incorporation) | (Commission file number) | (I.R.S. Employer Identification No.) | ||
9350 Excelsior Blvd., Suite 700 | ||||
Hopkins, Minnesota | 55343 | |||
(Address of principal executive offices) | (Zip Code) |
11001 Bren Road East, Minnetonka, Minnesota 55343 | ||
(Registrant’s former address, if changed since last report) |
¨ | 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 First Fiscal Quarter 2019 Results | ||||||
Momentum Continues with Strong Start to Fiscal 2019 |
GAAP Results | ||||||||
(in thousands, except per share data) | Q1 2019 | Q1 2018 (as adjusted)* | ||||||
Total Revenue | $ | 62,313 | $ | 44,955 | ||||
Gross Profit | $ | 29,783 | $ | 21,959 | ||||
Gross Margin | 47.8 | % | 48.8 | % | ||||
Operating Income (Loss) ** | $ | 5,558 | $ | (1,999 | ) | |||
Operating Income as % of Total Revenue | 8.9 | % | (4.5 | )% | ||||
Net Income (Loss) ** | $ | 4,682 | $ | (4,487 | ) | |||
Net Income (Loss) per Diluted Share | $ | 0.17 | $ | (0.17 | ) |
Digi International Reports First Fiscal Quarter 2019 Results |
Non-GAAP Results** | ||||||||
(in thousands, except per share data) | Q1 2019 | Q1 2018 (as adjusted)* | ||||||
Adjusted Net Income (Loss) | $ | 1,160 | $ | (1,722 | ) | |||
Adjusted Net Income (Loss) per Diluted Share | $ | 0.04 | $ | (0.06 | ) | |||
Adjusted EBITDA | $ | 6,161 | $ | 2,963 | ||||
Adjusted EBITDA as % of Total Revenue | 9.9 | % | 6.6 | % | ||||
*Prior period information has been restated for the adoption of ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which we adopted on October 1, 2018. ** A reconciliation of GAAP to non-GAAP financial measures appears at the end of this release. |
Revenue Detail Fiscal Year | |||||||||||||||
(in thousands) | Q1 2019 | Q1 2018 (as adjusted)* | Change | % Change | |||||||||||
Product | $ | 50,812 | $ | 38,454 | $ | 12,358 | 32.1 | % | |||||||
Services | 2,482 | 2,426 | 56 | 2.3 | % | ||||||||||
Solutions | 9,019 | 4,075 | 4,944 | 121.3 | % | ||||||||||
Total revenue | $ | 62,313 | $ | 44,955 | $ | 17,358 | 38.6 | % | |||||||
North America, primarily United States | $ | 46,335 | $ | 29,337 | $ | 16,998 | 57.9 | % | |||||||
Europe, Middle East and Africa | 10,104 | 10,156 | (52 | ) | (0.5 | )% | |||||||||
Asia | 5,080 | 4,528 | 552 | 12.2 | % | ||||||||||
Latin America | 794 | 934 | (140 | ) | (15.0 | )% | |||||||||
Total revenue | $ | 62,313 | $ | 44,955 | $ | 17,358 | 38.6 | % |
Digi International Reports First Fiscal Quarter 2019 Results |
• | Cash and cash equivalents and marketable securities balance of $76.5 million, an increase of $13.7 million during the quarter. The increase primarily related to $10.0 million of proceeds received in the first fiscal quarter of 2019 for the sale of our corporate headquarters. We also experienced strong cash collections related to accounts receivable. |
• | Current and long-term contingent liabilities of $10.1 million. |
• | In October 2018, we signed a thirteen-year lease agreement with minimum lease obligations of $15.9 million for 59,497 square feet of office space. This is now our new headquarters location in Hopkins, Minnesota, which is approximately three miles from our previous headquarters. |
• | TrackIt, a Command Alkon company and leading provider of fleet solutions for transportation and hauling of construction materials, entered into a multi-year agreement to use Digi’s Wireless Vehicle Bus Adapter and active vehicle monitoring services for critical vehicle data. The agreement covers a minimum of 25,000 vehicles managed by TrackIt over a period of several years. |
• | A large retailer selected AT&T's wireless network with Digi cellular routers to roll out primary and backup LTE connectivity to over 7,000 locations. They will use our products as their VPN gateway and firewall with built-in LTE network access and to provide a second cellular uplink for dual-WAN functionality. In moving to this solution, all traditional wired Internet circuits will be eliminated. This project is expected to complete a full roll-out over approximately 18 months. |
• | A global leader in the gaming and lottery industry has selected Digi for a 3G to 4G conversion project. This project entails upgrading this customer’s existing connectivity infrastructure across a variety of state contracts off of a variety of 3G cellular networks to 4G LTE networks. This project includes the upgrade of roughly 20,000 sites with Digi’s WR21s over the next twelve months. Digi was selected due to our comprehensive portfolio, supply chain readiness and packaging options. |
Digi International Reports First Fiscal Quarter 2019 Results |
• | A major German integrator providing managed VPN services has made a significant investment in Digi’s Remote Manager (DRM) to be rolled out across several thousand node points (Digi routers), used in a variety of applications across many customers. The aim is to increase efficiency of all processes around the management and maintenance of their communications infrastructure. A further major driver was the increased sensitivity for security risks. DRM now allows them to roll out security patched across a network of thousands of endpoints within hours. |
• | A leading manufacturer of residential solar energy devices has selected Digi’s XBee3 ZigBee module for inclusion in their next-generation product. The XBee3 ZigBee will enable reliable, short-range communication in a meshing environment containing XBee3 and third-party ZigBee devices. The XBee3’s Bluetooth Low Energy ("BLE") feature will be used to simplify product provisioning. In a space where time-to-market is critical, the XBee3 ZigBee module in this case enabled rapid software implementation via an easy-to-use API and simple hardware integration with its new micro form-factor. The company plans to begin deployments in mid-2019 with annual volumes potentially reaching 100,000 units. |
• | One of the nation’s largest retailers expanded their SmartSense deployment across thousands of pharmacy locations to ensure compliance with new requirements to monitor ambient temperature and humidity in the pharmacy. The retailer trusted SmartSense to project manage the nationwide roll-out. |
• | Festival Foods, one of Wisconsin’s largest privately-held grocers, selected SmartSense for task management and continuous temperature monitoring across all its locations. The implementations are being made to help improve food quality and safety, increase employee efficiency and reduce inventory loss. Festival Foods operates 32 locations across Wisconsin. |
• | A leading national grocery chain selected SmartSense to monitor it’s distribution network in the Northwest. SmartSense is monitoring over 350 refrigerated trucks and distribution sites, providing real-time insight into the cold chain and asset tracking. |
• | A Midwest grocery chain selected SmartSense to monitor pharmacies in over 200 locations to ensure compliance. This same retailer chose SmartSense to implement digital checklists within the Deli and C-Store operations. The combined solutions will help to ensure compliance, improve consumer safety, and reduce inventory loss across the board. |
Digi International Reports First Fiscal Quarter 2019 Results |
Digi International Reports First Fiscal Quarter 2019 Results |
Gokul Hemmady | ||
Senior Vice President, Chief Financial Officer and Treasurer | ||
Digi International | ||
952-912-3737 | ||
Email: gokul.hemmady@digi.com | ||
Digi International Reports First Fiscal Quarter 2019 Results |
Three months ended December 31, | |||||||
2018 | 2017 (as adjusted)* | ||||||
Revenue: | |||||||
Product | $ | 50,812 | $ | 38,454 | |||
Services and solutions | 11,501 | 6,501 | |||||
Total revenue | 62,313 | 44,955 | |||||
Cost of sales: | |||||||
Cost of product | 25,813 | 19,210 | |||||
Cost of services and solutions | 5,977 | 3,179 | |||||
Amortization of intangibles | 740 | 607 | |||||
Total cost of sales | 32,530 | 22,996 | |||||
Gross profit | 29,783 | 21,959 | |||||
Operating expenses: | |||||||
Sales and marketing | 11,657 | 9,760 | |||||
Research and development | 9,518 | 7,751 | |||||
General and administrative | 3,117 | 6,447 | |||||
Restructuring reversal | (67 | ) | — | ||||
Total operating expenses | 24,225 | 23,958 | |||||
Operating income | 5,558 | (1,999 | ) | ||||
Other income, net: | |||||||
Interest income, net | 116 | 205 | |||||
Other income (expense), net | 48 | (45 | ) | ||||
Total other income, net | 164 | 160 | |||||
Income (loss) before income taxes | 5,722 | (1,839 | ) | ||||
Income tax provision | 1,040 | 2,648 | |||||
Net income (loss) | $ | 4,682 | $ | (4,487 | ) | ||
Net income (loss) per common share: | |||||||
Basic | $ | 0.17 | $ | (0.17 | ) | ||
Diluted | $ | 0.17 | $ | (0.17 | ) | ||
Weighted average common shares: | |||||||
Basic | 27,513 | 26,748 | |||||
Diluted | 28,075 | 26,748 |
Digi International Reports First Fiscal Quarter 2019 Results |
Three months ended December 31, | |||||||
2018 | 2017 (as adjusted)* | ||||||
Net income (loss) | $ | 4,682 | $ | (4,487 | ) | ||
Other comprehensive (loss) income, net of tax: | |||||||
Foreign currency translation adjustment | (1,569 | ) | 271 | ||||
Change in net unrealized gain (loss) on investments | 5 | (21 | ) | ||||
Less income tax (provision) benefit | (2 | ) | 3 | ||||
Other comprehensive (loss) income, net of tax | (1,566 | ) | 253 | ||||
Comprehensive income (loss) | $ | 3,116 | $ | (4,234 | ) |
Digi International Reports First Fiscal Quarter 2019 Results |
December 31, 2018 | September 30, 2018 (as adjusted)* | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 72,222 | $ | 58,014 | |||
Marketable securities | 4,247 | 4,736 | |||||
Accounts receivable, net | 46,371 | 49,819 | |||||
Inventories | 47,036 | 41,644 | |||||
Other | 3,814 | 2,613 | |||||
Assets held for sale | — | 5,220 | |||||
Total current assets | 173,690 | 162,046 | |||||
Property, equipment and improvements, net | 11,827 | 8,354 | |||||
Identifiable intangible assets, net | 36,772 | 39,320 | |||||
Goodwill | 153,578 | 154,535 | |||||
Deferred tax assets | 5,503 | 6,600 | |||||
Other | 357 | 1,291 | |||||
Total assets | $ | 381,727 | $ | 372,146 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 16,021 | $ | 12,911 | |||
Accrued compensation | 6,672 | 8,190 | |||||
Unearned revenue | 7,812 | 3,177 | |||||
Contingent consideration on acquired businesses | 5,944 | 5,890 | |||||
Other | 4,322 | 5,405 | |||||
Total current liabilities | 40,771 | 35,573 | |||||
Income taxes payable | 785 | 851 | |||||
Deferred tax liabilities | 566 | 334 | |||||
Contingent consideration on acquired businesses | 4,203 | 4,175 | |||||
Other non-current liabilities | 392 | 720 | |||||
Total liabilities | 46,717 | 41,653 | |||||
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; 34,076,394 and 33,812,838 shares issued | 341 | 338 | |||||
Additional paid-in capital | 258,010 | 255,936 | |||||
Retained earnings | 156,643 | 151,961 | |||||
Accumulated other comprehensive loss | (25,092 | ) | (23,526 | ) | |||
Treasury stock, at cost, 6,435,618 and 6,385,336 shares | (54,892 | ) | (54,216 | ) | |||
Total stockholders’ equity | 335,010 | 330,493 | |||||
Total liabilities and stockholders’ equity | $ | 381,727 | $ | 372,146 |
Digi International Reports First Fiscal Quarter 2019 Results |
Three months ended December 31, | |||||||
2018 | 2017 (as adjusted)* | ||||||
Operating activities: | |||||||
Net income (loss) | $ | 4,682 | $ | (4,487 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||
Depreciation of property, equipment and improvements | 1,133 | 759 | |||||
Amortization of identifiable intangible assets | 2,540 | 1,694 | |||||
Stock-based compensation | 1,414 | 1,053 | |||||
Deferred income tax provision | 1,333 | 2,995 | |||||
Gain on sale of property, equipment and improvements | (4,396 | ) | — | ||||
Change in fair value of contingent consideration | 243 | (407 | ) | ||||
Bad debt/product return provision | 206 | 14 | |||||
Inventory obsolescence | 450 | 450 | |||||
Restructuring reversal | (67 | ) | — | ||||
Other | 113 | 57 | |||||
Changes in operating assets and liabilities (net of acquisitions) | (1,540 | ) | (3,456 | ) | |||
Net cash provided by (used in) operating activities | 6,111 | (1,328 | ) | ||||
Investing activities: | |||||||
Proceeds from maturities and sales of marketable securities | 491 | 4,296 | |||||
Proceeds from sale of Etherios | — | 2,000 | |||||
Acquisition of businesses, net of cash acquired | — | (40,084 | ) | ||||
Proceeds from sale of property and equipment | 10,047 | — | |||||
Purchase of property, equipment, improvements and certain other identifiable intangible assets | (1,775 | ) | (453 | ) | |||
Net cash provided by (used in) investing activities | 8,763 | (34,241 | ) | ||||
Financing activities: | |||||||
Acquisition earn-out payments | (161 | ) | — | ||||
Proceeds from stock option plan transactions | 662 | 2,972 | |||||
Proceeds from employee stock purchase plan transactions | 289 | 380 | |||||
Purchases of common stock | (964 | ) | (636 | ) | |||
Net cash (used in) provided by financing activities | (174 | ) | 2,716 | ||||
Effect of exchange rate changes on cash and cash equivalents | (492 | ) | 241 | ||||
Net increase (decrease) in cash and cash equivalents | 14,208 | (32,612 | ) | ||||
Cash and cash equivalents, beginning of period | 58,014 | 78,222 | |||||
Cash and cash equivalents, end of period | $ | 72,222 | $ | 45,610 | |||
Supplemental schedule of non-cash investing and financing activities: | |||||||
Transfer of inventory to property, equipment and improvements | $ | (200 | ) | $ | (312 | ) | |
Accrual for purchase of property, equipment, improvements and certain other identifiable intangible assets | $ | (2,883 | ) | $ | (27 | ) |
Digi International Reports First Fiscal Quarter 2019 Results |
Accumulated | ||||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Paid-In | Retained | Comprehensive | Stockholders’ | |||||||||||||||||||||||||
(in thousands) | Shares | Par Value | Shares | Value | Capital | Earnings* | Loss | Equity | ||||||||||||||||||||||
Balances, September 30, 2017 | 33,008 | $ | 330 | 6,437 | $ | (54,533 | ) | $ | 245,528 | $ | 150,363 | $ | (22,659 | ) | $ | 319,029 | ||||||||||||||
Cumulative-effect adjustment from adoption of ASU 2016-09 | 52 | (33 | ) | 19 | ||||||||||||||||||||||||||
Net income | (4,487 | ) | (4,487 | ) | ||||||||||||||||||||||||||
Other comprehensive loss | 253 | 253 | ||||||||||||||||||||||||||||
Employee stock purchase plan issuances | (46 | ) | 389 | (9 | ) | 380 | ||||||||||||||||||||||||
Repurchase of common stock | 64 | (636 | ) | (636 | ) | |||||||||||||||||||||||||
Issuance of stock under stock award plans | 473 | 5 | 2,967 | 2,972 | ||||||||||||||||||||||||||
Stock-based compensation expense | 1,053 | 1,053 | ||||||||||||||||||||||||||||
Balances, December 31, 2017 | 33,481 | $ | 335 | 6,455 | $ | (54,780 | ) | $ | 249,591 | $ | 145,843 | $ | (22,406 | ) | $ | 318,583 | ||||||||||||||
Balances, September 30, 2018 | 33,813 | $ | 338 | 6,385 | $ | (54,216 | ) | $ | 255,936 | $ | 151,961 | $ | (23,526 | ) | $ | 330,493 | ||||||||||||||
Net income | 4,682 | 4,682 | ||||||||||||||||||||||||||||
Other comprehensive income | (1,566 | ) | (1,566 | ) | ||||||||||||||||||||||||||
Employee stock purchase plan issuances | (33 | ) | 288 | 1 | 289 | |||||||||||||||||||||||||
Repurchase of common stock | 84 | (964 | ) | (964 | ) | |||||||||||||||||||||||||
Issuance of stock under stock award plans | 263 | 3 | 659 | 662 | ||||||||||||||||||||||||||
Stock-based compensation expense | 1,414 | 1,414 | ||||||||||||||||||||||||||||
Balances, December 31, 2018 | 34,076 | $ | 341 | 6,436 | $ | (54,892 | ) | $ | 258,010 | $ | 156,643 | $ | (25,092 | ) | $ | 335,010 |
Digi International Reports First Fiscal Quarter 2019 Results |
Three months ended December 31, | |||||||||||||||
2018 | 2017 (as adjusted)* | ||||||||||||||
Net income (loss) and net income (loss) per diluted share | $ | 4,682 | $ | 0.17 | $ | (4,487 | ) | $ | (0.17 | ) | |||||
Restructuring reversal | (67 | ) | — | — | — | ||||||||||
Gain on sale of building | (4,396 | ) | (0.16 | ) | — | — | |||||||||
Tax effect from restructuring reversal and gain on sale of building | 1,047 | 0.04 | — | — | |||||||||||
Discrete tax (benefits) expense (1) | (106 | ) | — | 2,765 | 0.10 | ||||||||||
Adjusted net income (loss) and adjusted net income (loss) per diluted share (2) | $ | 1,160 | $ | 0.04 | $ | (1,722 | ) | $ | (0.06 | ) | |||||
Diluted weighted average common shares | 28,075 | 26,748 |
(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 in October 2018 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 December 31, | |||||||||||||
2018 | 2017 (as adjusted)* | ||||||||||||
% of total revenue | % of total revenue | ||||||||||||
Total revenue | $ | 62,313 | 100.0 | % | $ | 44,955 | 100.0 | % | |||||
Net income | $ | 4,682 | $ | (4,487 | ) | ||||||||
Interest income, net | (116 | ) | (205 | ) | |||||||||
Income tax provision | 1,040 | 2,648 | |||||||||||
Depreciation and amortization | 3,673 | 2,453 | |||||||||||
Stock-based compensation | 1,414 | 1,053 | |||||||||||
Gain on sale of building | (4,396 | ) | — | ||||||||||
Restructuring reversal | (67 | ) | — | ||||||||||
Acquisition expense | (69 | ) | 1,501 | ||||||||||
Adjusted EBITDA | $ | 6,161 | 9.9 | % | $ | 2,963 | 6.6 | % |
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