EX-99 2 c06771exv99.htm PRESS RELEASE exv99
 

EXHIBIT 99
(digi logo)
Digi International Reports Third Quarter 2006 Revenue Growth of 18.7%
from Third Quarter 2005
Minneapolis — July 17, 2006 — Digi International, Inc. (NASDAQ: DGII) Digi reported revenue of $35.9 million compared to $30.2 million during the same quarter of fiscal 2005, an increase of $5.7 million, or 18.7%. The increase was primarily attributable to increased revenue from growth products and acquired products, offset in part by a decline in mature product lines.
Gross profit margin in the third quarter of 2006 was 57.6% compared to 60.3% during the same quarter of fiscal 2005. This decline was caused by product mix changes, higher manufacturing expenses, and the higher percentage of Rabbit® product sales in comparison to the third quarter of 2005.
Total operating expenses in the third quarter of 2006 were $16.9 million, compared to $14.5 million in the third quarter of 2005. The increase was primarily due to acquisitions completed in the third quarter of 2005. Digi also recorded a $0.6 million pre-tax charge in the third quarter of 2006 for stock-based compensation as a result of the adoption of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (FAS 123R), in the first quarter of 2006. A charge of $0.3 million for acquired in-process research and development due to the acquisition of Rabbit® is included in operating expenses for the third quarter of 2005.
Digi’s effective income tax rate for the third quarter of 2006 was 22.6% compared to 37.7% in the third quarter of 2005. The decrease in the effective tax rate was primarily due to recovery of additional discrete tax benefits in the third quarter of 2006.
Digi reported net income of $3.3 million for the third quarter of 2006, or $0.14 per diluted share, compared to $2.5 million, or $0.11 per diluted share, for the third quarter of 2005. Stock-based compensation expenses reduced Digi’s earnings per diluted share by $0.02 for the third quarter of 2006. Earnings per diluted share were $0.16, excluding the impact of stock-based compensation expenses.
For the nine months ended June 30, 2006, Digi reported revenue of $103.6 million, compared to $89.0 million for the nine months ended June 30, 2005, an increase of $14.6 million, or 16.4%. For the nine months ended June 30, 2006, Digi reported net income of $8.1 million, or $0.34 per diluted share, compared to $14.2 million, or $0.61 per diluted share, for the nine months ended June 30, 2005. Stock-based compensation expenses reduced earnings per diluted share by $0.05 for the first nine months of 2006. Earnings per diluted share, excluding the impact of stock-based compensation expenses, were $0.39 for the first nine months of 2006. As a result of a

 

 

Digi International Reports Third Quarter Fiscal 2006 Results — Page 2
settlement with the Internal Revenue Service on an audit of prior fiscal years, Digi recorded a reversal of $5.7 million of previously established income tax reserves, equating to $0.24 per diluted share positive impact in the second quarter of 2005. Excluding the impact of the favorable tax settlement, earnings per diluted share would have been $0.37 for the first nine months of 2005.
Digi’s current ratio is 4.9 to 1, and the Company has no debt other than capital lease obligations. Digi’s cash and cash equivalents and marketable securities balance at the end of the third quarter was $65.9 million, up $5.9 million from the end of the prior quarter. Digi’s cash per share on June 30, 2006, defined as cash and cash equivalents and marketable securities divided by shares outstanding as of June 30, 2006 of 23,140,330, was $2.85.
“We are pleased with the positive revenue and earnings results and momentum that we have established,” said Joe Dunsmore, Digi’s Chief Executive Officer.
Third Quarter Highlights
  •  
Digi International is now listed on the NASDAQ Global Select Market, which has the highest listing standards of any market in the world as measured by financial and liquidity requirements.
 
  •  
Digi continued to make progress on carrier certifications for the Digi Connect® WAN family of wireless/cellular products with twelve certifications added during the quarter including Verizon Wireless. The Digi Connect WAN is now certified on nineteen carrier networks, spanning GSM and CDMA technologies, in the United States, Canada, Asia and Latin America.
 
  •  
Digi received acceptance into Rockwell Automations’ Encompass Program, a third-party product referencing program that helps Rockwell Automation customers find best-in-industry technologies compatible with Rockwell Automation products. Rockwell recognized the Digi Connect WAN family of industrial cellular routers as “best-in-class.”
 
  •  
Digi expanded its wireless/cellular router family with the introduction of the ConnectPortTM WAN, the industry’s first upgradeable, commercial-grade 3G Wireless WAN router. 3G technologies bring faster speeds to remote wireless communications, with downloads today averaging 400-700kbps and the promise of even faster speeds in the future. The ConnectPort WAN is already certified on Cingular Wireless and Sprint.
 
  •  
Digi announced a strategic relationship with Microsoft where Digi will offer support for the Microsoft® .NET Micro Framework on its industry-leading line of wired and wireless embedded modules. The .NET Micro Framework extends the reach of Microsoft’s embedded solutions to integrated device platforms with smaller memory footprints.

 

 

Digi International Reports Third Quarter Fiscal 2006 Results — Page 3
Fourth Fiscal Quarter 2006 Guidance
For the fourth quarter of fiscal 2006, Digi expects revenue to be in the range of $34.5 million to $39.5 million. Digi expects fourth quarter earnings per diluted share to be in the range of $0.11 to $0.18, excluding the impact of stock-based compensation expenses of $0.02 per diluted share. Digi estimates reported earnings per diluted share, including the impact of stock-based compensation expenses, will be $0.09 to $0.16.
For the full year, Digi forecasts revenues to be in the range of $138 million to $143 million, or a 10% to 14% increase from 2005. Digi expects 2006 earnings per diluted share to be in the range of $0.50 to $0.57, excluding the impact of stock-based compensation expenses. Digi estimates that stock-based compensation expenses will reduce earnings per diluted share by approximately $0.07 per diluted share for the full fiscal year. Digi estimates reported earnings per diluted share, including the impact of stock-based compensation expenses, will be in the range of $0.43 to $0.50 for the 2006 fiscal year.
Third Quarter Fiscal 2006 Conference Call Details
Digi invites all those interested in hearing management’s discussion of the quarter to attend its third quarter fiscal 2006 conference call, scheduled for Monday, July 17, 2006, at 4:00 p.m. CT, either by phone or via the Internet. Participants can access the call by dialing (212) 676-5250. A replay will be available for one week following the call by dialing (800) 633-8284 for domestic participants or (402) 977-9140 for international participants, and entering access code 21298290 when prompted. Participants may also access a live Web cast of the conference call through the investor relations section of Digi’s website, www.digi.com.
About Digi International
Digi International, based in Minneapolis, makes device networking easy by developing easy to use and cost effective products and technologies. Digi markets its products through a global network of distributors and resellers, systems integrators and original equipment manufacturers (OEMs).
Forward-looking Statements
This press release contains statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which generally can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “target,” “estimate,” “may,” “will,” “expect,” “plan,” “project,” “should,” or “continue” or the negative thereof or other variations thereon or similar terminology. Such statements are based on information available to management as of the time of such statements and relate to, among other things, expectations of the business environment in which the Company operates, projections of future performance, perceived opportunities in the market and statements regarding the Company’s mission and vision. Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, including risks related to the highly competitive market in which

 

 

Digi International Reports Third Quarter Fiscal 2006 Results — Page 4
the Company operates, rapid changes in technologies that may displace products sold by the Company, declining prices of networking products, the Company’s reliance on distributors, delays in the Company’s product development efforts, uncertainty in consumer acceptance of the Company’s products, and changes in the Company’s level of revenue or profitability. These and other risks, uncertainties and assumptions identified from time to time in the Company’s filings with the Securities and Exchange Commission, including without limitation, its annual report on Form 10-K for the year ended September 30, 2005 and its quarterly reports on Form 10-Q, could cause the Company’s future results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. Many of such factors are beyond the Company’s ability to control or predict. These forward-looking statements speak only as of the date for which they are made. The Company disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
     
Digi International Contact
  Investors Contact
S. (Kris) Krishnan
  Erika Moran / Tom Caden
(952) 912-3125
  The Investor Relations Group
s_krishnan@digi.com
  New York, NY
 
  212-825-3210

 

 

Digi International Reports Third Quarter Fiscal 2006 Results — Page 5
Digi International Inc.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
                                 
    Three months ended     Nine months ended  
    June 30, 2006     June 30, 2005     June 30, 2006     June 30, 2005  
Net sales
   $ 35,860     $ 30,208     $ 103,616     $ 88,989  
Cost of sales (A)
     15,222       12,003       44,126       34,489  
 
                        
Gross profit
     20,638       18,205       59,490       54,500  
 
                                
Operating expenses:
                                
Sales and marketing (A)
     7,277       6,446       20,830       19,300  
Research and development (A)
     5,402       3,778       15,227       11,850  
General and administrative (A)
     2,521       2,649       8,545       7,187  
Intangibles amortization
     1,687       1,349       5,046       3,883  
In-process research and development
     —       300       —       300  
 
                        
Total operating expenses
     16,887       14,522       49,648       42,520  
 
                        
 
                                
Operating income
     3,751       3,683       9,842       11,980  
Other income, net
     575       306       1,461       809  
 
                        
Income before income taxes
     4,326       3,989       11,303       12,789  
Income tax provision (benefit)
     978       1,505       3,205       (1,455 )
 
                        
 
                                
Net income
   $ 3,348     $ 2,484     $ 8,098     $ 14,244  
 
                        
 
                                
Net income per common share, basic
   $ 0.14     $ 0.11     $ 0.35     $ 0.64  
 
                        
 
                                
Net income per common share, diluted
   $ 0.14     $ 0.11     $ 0.34     $ 0.61  
 
                        
 
                                
Weighted average common shares, basic
     23,124       22,588       22,968       22,381  
 
                        
 
                                
Weighted average common shares, diluted
     23,904       23,296       23,695       23,420  
 
                        
(A)  
Stock-based compensation expense charges due to adopting FAS 123R as of October 1, 2005 are included in the above income statement for the three and nine months ended June 30, 2006 as shown below:
                                 
Cost of sales
   $ 22             $ 65          
Sales and marketing
     185               504          
Research and development
     132               401          
General and administrative
     240               772          
 
                            
 
   $ 579             $ 1,742          
 
                            

 

 

Digi International Reports Third Quarter Fiscal 2006 Results — Page 6
Digi International Inc.
Condensed Consolidated Balance Sheets
(In thousands)
                 
    June 30, 2006     September 30, 2005  
ASSETS
   (unaudited)        
Current assets:
                
Cash and cash equivalents
   $ 14,422     $ 12,990  
Marketable securities
     51,442       37,184  
Accounts receivable, net
     19,232       16,897  
Inventories, net
     19,090       18,527  
Other
     5,419       5,115  
 
            
Total current assets
     109,605       90,713  
Property, equipment and improvements, net
     19,904       20,808  
Identifiable intangible assets and goodwill, net
     59,764       65,017  
Other
     1,041       1,093  
 
            
Total assets
   $ 190,314     $ 177,631  
 
            
 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
 
                
Current liabilities:
                
Capital lease obligations, current portion
   $ 406     $ 414  
Accounts payable
     5,235       6,272  
Accrued expenses
     9,688       10,726  
Income taxes payable
     6,944       3,306  
 
            
Total current liabilities
     22,273       20,718  
Capital lease obligations, net of current portion
     817       1,181  
Net deferred tax liabilities
     255       2,195  
 
            
Total liabilities
     23,345       24,094  
Total stockholders’ equity
     166,969       153,537  
 
            
Total liabilities and stockholders’ equity
   $ 190,314     $ 177,631  
 
            

 

 

Digi International Reports Third Quarter Fiscal 2006 Results — Page 7
Digi International Inc.
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
                 
    Three months ended     Nine months ended  
    June 30, 2006     June 30, 2006  
Operating activities:
                
Net income
   $ 3,348     $ 8,098  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
                
Depreciation of property, equipment and improvements
     677       1,949  
Amortization of identifiable intangible assets and other assets
     1,919       5,744  
Stock-based compensation
     579       1,742  
Deferred income taxes
     (731 )     (1,987 )
Other
     97       (436 )
Changes in operating assets and liabilities:
                
Accounts receivable
     (189 )     (696 )
Inventories
     (383 )     (1,068 )
Other assets
     (136 )     (293 )
Accounts payable and accrued expenses
     (463 )     (2,838 )
Income taxes payable
     962       3,636  
 
            
Net cash provided by operating activities
     5,680       13,851  
 
            
Investing activities:
                
Purchase of held-to-maturity marketable securities, net
     (7,125 )     (14,258 )
Purchase of property, equipment, improvements and certain other intangible assets
     (161 )     (1,055 )
 
            
Net cash used in investing activities
     (7,286 )     (15,313 )
 
            
Financing activities:
                
Principal payments on long-term obligations
     (116 )     (372 )
Tax benefit related to the exercise of stock options
     155       485  
Proceeds from stock option plan transactions
     258       2,931  
Proceeds from employee stock purchase plan transactions
     196       555  
 
            
Net cash provided by financing activities
     493       3,599  
Effect of exchange rate changes on cash and cash equivalents
     (155 )     (705 )
 
            
Net (decrease) increase in cash and cash equivalents
     (1,268 )     1,432  
Cash and cash equivalents, beginning of period
     15,690       12,990  
 
            
Cash and cash equivalents, end of period
   $ 14,422     $ 14,422