Exhibit 99.1
Digi International Reports Third Fiscal Quarter 2012 Results
New Share Repurchase Program Announced
Minneapolis, MN — July 26, 2012 — Digi International® Inc. (NASDAQ: DGII, www.digi.com) reported revenue of $47.6 million for the third fiscal quarter of 2012, compared with $54.3 million for the third fiscal quarter of 2011, a decrease of $6.7 million, or 12.2%. Net income was $2.3 million, or $0.09 per diluted share, in the third fiscal quarter of 2012 compared to $3.6 million, or $0.14 per diluted share, in the year ago comparable quarter.
“Our financial results were disappointing in comparison to the record third quarter a year ago,” said Joe Dunsmore, Digi’s Chief Executive Officer. “As our business continues to shift from sales of legacy wireline products to broader based wireless solutions, we may continue to experience near term challenges in achieving significant growth. We continue to generate strong positive cash flow. With cash balances presently in excess of $100 million, our Board has approved a new share repurchase program of up to $20 million. This represents a significant return of cash to our stockholders while still leaving us with the flexibility to pursue strategic acquisitions or other growth opportunities that may arise.”
Business Results for the Three Months Ended June 30, 2012
Revenue from wireless products in the third fiscal quarter of 2012 was $20.7 million, or 43.5% of net sales, compared to $22.6 million, or 41.6% of net sales, in the third fiscal quarter of 2011, a decrease of $1.9 million, or 8.1%. Revenue from wired products was $26.9 million, or 56.5% of net sales, in the third fiscal quarter of 2012 compared to $31.7 million, or 58.4% of net sales, in the third fiscal quarter of 2011, a decrease of $4.8 million, or 15.2%.
Revenue in North America was $27.7 million in the third fiscal quarter of 2012, compared to $32.3 million in the third fiscal quarter of 2011, a decrease of $4.6 million, or 14.2%. Revenue in EMEA (Europe, Middle East and Africa) was $12.0 million in the third fiscal quarter of 2012, compared to $13.0 million in the comparable quarter a year ago, a decrease of $1.0 million, or 8.1%. Revenue in the Asian countries was $6.4 million in the third fiscal quarter of 2012 compared to $6.9 million in the third fiscal quarter of 2011, a decrease of $0.5 million, or 6.8%. Latin American revenue was $1.5 million in the third fiscal quarter of 2012 compared to $2.1 million in the comparable quarter a year ago, a decrease of $0.6 million, or 26.0%.
Gross profit was $25.3 million in the third fiscal quarter of 2012 compared to $28.8 million in the same period of the prior year, a decrease of $3.5 million, or 12.0%. The gross margin was 53.1% in the third fiscal quarter of 2012 compared to 53.0% in the third fiscal quarter of 2011.
Total operating expenses in the third fiscal quarter of 2012 were $23.2 million, or 48.7% of revenue, compared to $22.6 million, or 41.6% of revenue, in the third fiscal quarter of 2011. A restructuring charge of $1.0 million is included in total operating expenses in the third fiscal quarter of 2012, relating to changes that were implemented to focus more aggressively on Digi’s shift to end-to-end M2M solutions. The restructuring charge consisted of $0.6 million for severance in connection with a reduction in force of 30 employees and $0.4 million for facility consolidation expenses.
Digi International Reports Third Fiscal Quarter 2012 Results
Digi reported operating income of $2.1 million, or 4.4% of net sales, in the third fiscal quarter of 2012 compared to $6.2 million, or 11.4% of net sales, in the third fiscal quarter of 2011. Operating income for the third fiscal quarter of 2012 includes the aforementioned restructuring charge of $1.0 million, or 2.0% of net sales.
Net income was $2.3 million in the third fiscal quarter of 2012, or $0.09 per diluted share, compared to $3.6 million, or $0.14 per diluted share, in the third fiscal quarter of 2011. Net income in the third fiscal quarter of 2012 benefited by $1.1 million, or $0.04 per diluted share, due to additional research and development tax credits identified for fiscal years ended September 30, 2009, September 30, 2010 and September 30, 2011 resulting from a recently completed research and development tax credit study. Net income in that same quarter also decreased by $0.6 million, net of taxes, or $0.02 per diluted share, as a result of the aforementioned restructuring expenses. Non-GAAP net income for the third fiscal quarter of 2012 was $1.9 million, or $0.07 per diluted share, compared to $3.6 million, or $0.14 per diluted share, in the first three months of fiscal 2011. Please refer to the table reconciling net income and net income per diluted share to non-GAAP net income and net income per diluted share that is provided later in this earnings release.
Earnings before interest, taxes, depreciation and amortization in the third fiscal quarter of 2012 were $3.9 million, or 8.1% of revenue, compared to $8.0 million, or 14.8% of revenue, in the third fiscal quarter of 2011.
Business Results for the Nine Months Ended June 30, 2012
For the nine months ended June 30, 2012, Digi reported revenue of $143.3 million compared to revenue of $152.3 million for the nine months ended June 30, 2011, a decrease of $9.0 million, or 5.9%. Revenue from wireless products for the first nine months of fiscal 2012 was $62.4 million, or 43.5% of net sales, compared to $62.0 million, or 40.7% of net sales, in the first nine months of fiscal 2011, an increase of $0.4 million, or 0.7%. Revenue from wired products was $80.9 million, or 56.5% of net sales, in the first nine months of fiscal 2012 compared to $90.3 million, or 59.3% of net sales, in the first nine months of fiscal 2011, a decrease of $9.4 million, or 10.4%.
For the nine months ended June 30, 2012, Digi reported net income of $5.2 million, or $0.20 per diluted share, compared to net income for the nine months ended June 30, 2011 of $8.2 million, or $0.32 per diluted share. Non-GAAP net income for the first nine months of fiscal 2012 was $4.7 million, or $0.18 per diluted share, compared to $7.5 million, or $0.29 per diluted share, in the first nine months of fiscal 2011. Please refer to the table reconciling net income and net income per diluted share to non-GAAP net income and net income per diluted share that is provided later in this earnings release.
Digi’s cash and cash equivalents and marketable securities balance, including long-term marketable securities, was $113.7 million at June 30, 2012, an increase of $5.8 million from September 30, 2011. Please refer to the Condensed Consolidated Statements of Cash Flows that are included in this earnings release for additional cash flow details. At June 30, 2012, Digi’s current ratio was 8.9 to 1 compared to 8.3 to 1 at September 30, 2011.
Digi International Reports Third Fiscal Quarter 2012 Results
Reconciliation Tables:
| Reconciliation of Operating Income to Non-GAAP Operating Income | ||||||||||||||||||||||||||||||||
| Three months ended June 30, | Nine months ended June 30, | |||||||||||||||||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||||||||||||
| (Dollars in thousands) | % of net sales |
% of net sales |
% of net sales |
% of net sales |
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| Operating income |
$ | 2,082 | 4.4 | % | $ | 6,164 | 11.4 | % | $ | 6,327 | 4.4 | % | $ | 12,491 | 8.2 | % | ||||||||||||||||
| Restructuring reserve (reversal) |
963 | 2.0 | % | — | 0.0 | % | 1,259 | 0.9 | % | (70 | ) | 0.0 | % | |||||||||||||||||||
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| Non-GAAP operating income |
$ | 3,045 | 6.4 | % | $ | 6,164 | 11.4 | % | $ | 7,586 | 5.3 | % | $ | 12,421 | 8.2 | % | ||||||||||||||||
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| Reconciliation of Net Income and net Income per Diluted Share to Non-GAAP Net Income and Net Income per Diluted Share |
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| Three months ended June 30 | Nine months ended June 30, | |||||||||||||||||||||||||||||||
| (In thousands, except per share amounts) | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||||||||||||||
| Net income and net income per common share, diluted |
$ | 2,307 | $ | 0.09 | $ | 3,615 | $ | 0.14 | $ | 5,153 | $ | 0.20 | $ | 8,170 | $ | 0.32 | ||||||||||||||||
| Restructuring reserve (reversal), net of taxes |
626 | 0.02 | — | — | 818 | 0.03 | (46 | ) | (0.00 | ) | ||||||||||||||||||||||
| Gain on sale of investment, net of taxes |
— | — | — | — | (88 | ) | (0.00 | ) | — | — | ||||||||||||||||||||||
| Discrete tax benefits for additional research and development credits claimed for prior tax years and for extended research and development tax credit recorded in the first quarter of fiscal 2011, and reversal of tax reserves for closure of various jurisdictions’ tax matters |
(1,080 | ) | (0.04 | ) | — | — | (1,203 | ) | (0.05 | ) | (575 | ) | (0.02 | ) | ||||||||||||||||||
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| Non-GAAP net income and net income per diluted share |
$ | 1,853 | $ | 0.07 | $ | 3,615 | $ | 0.14 | $ | 4,680 | $ | 0.18 | $ | 7,549 | $ | 0.29 | ||||||||||||||||
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| * | earnings per share presented are calculated by line item and certain amounts may not add due to use of rounded numbers |
Digi International Reports Third Fiscal Quarter 2012 Results
Reconciliation of Net Income to Earnings Before Interest, Taxes, Depreciation and Amortization
(In thousands of dollars)
| For the three months ended June 30, 2012 |
% of net sales |
For the three months ended June 30, 2011 |
% of net sales |
For the nine months ended June 30, 2012 |
% of net sales |
For the nine months ended June 30, 2011 |
% of net sales |
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| Net sales |
$ | 47,632 | 100.0 | % | $ | 54,274 | 100.0 | % | $ | 143,310 | 100.0 | % | $ | 152,324 | 100.0 | % | ||||||||||||||||
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| Net income |
2,307 | 4.8 | % | 3,615 | 6.7 | % | 5,153 | 3.6 | % | 8,170 | 5.4 | % | ||||||||||||||||||||
| Interest income, net |
(71 | ) | -0.1 | % | (35 | ) | -0.1 | % | (202 | ) | -0.1 | % | (108 | ) | -0.1 | % | ||||||||||||||||
| Income tax (benefit) provision |
(346 | ) | -0.7 | % | 2,206 | 4.1 | % | 1,339 | 0.9 | % | 3,816 | 2.5 | % | |||||||||||||||||||
| Depreciation and amortization |
1,977 | 4.2 | % | 2,262 | 4.2 | % | 6,020 | 4.2 | % | 7,108 | 4.7 | % | ||||||||||||||||||||
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| Earnings before interest, taxes, depreciation, and amortization |
$ | 3,867 | 8.1 | %* | $ | 8,048 | 14.8 | %* | $ | 12,310 | 8.6 | % | $ | 18,986 | 12.5 | % | ||||||||||||||||
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| * | Percentages presented may not add due to use of rounded numbers. |
Fiscal 2012 Guidance
For the fourth fiscal quarter of 2012, Digi projects revenue in a range of $46 to $49 million. Digi projects net income per diluted share in a range of $0.06 to $0.10.
For the full fiscal year 2012, Digi projects revenue in a range of $189.3 to $192.3 million. Digi projects net income per diluted share in a range of $0.26 to $0.30. Projected net income per diluted share for fiscal 2012 includes a benefit of $1.2 million, or $0.05 per diluted share, for discrete tax items, offset partially by restructuring expenses of $0.8 million, net of taxes, or $0.03 per diluted share.
Share Repurchase Program
The Board of Directors has authorized a new program to repurchase up to $20 million of our common stock. The new repurchase authorization expires on September 30, 2013. In connection with this new repurchase authorization, the Board terminated the prior repurchase authorization, under which 135,638 shares remained available for repurchase. 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 timing of share repurchases will depend upon market conditions and other corporate considerations. We presently have approximately 25,832,755 shares of common stock outstanding.
Third Fiscal Quarter 2012 Conference Call Details
Digi invites all those interested in hearing management’s discussion of its quarter, on Thursday, July 26, 2012 after market close at 5:00 p.m. EDT (4:00 p.m. CDT), to join the call by dialing (866) 788-0542 and entering passcode 39926702. International participants may access the call by dialing (857) 350-1680 and entering passcode 39926702. A replay will be available two hours after the completion of the call, and for one week following the call, by dialing (888) 286-8010 for domestic participants or (617) 801-6888 for international
Digi International Reports Third Fiscal Quarter 2012 Results
participants and entering access code 36739221 when prompted. Participants may also access a live webcast of the conference call through the investor relations section of Digi’s website, www.digi.com. The webcast will remain on our website for one week after the live session is completed.
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.IRGnews.com/coi/DGII.
About Digi International
Digi International is making wireless M2M easy by developing reliable products and solutions to connect and securely manage local or remote electronic devices over the network or via the Web. Digi offers the highest levels of performance, flexibility and quality, and markets its products through a global network of distributors and resellers, systems integrators and original equipment manufacturers (OEMs). For more information, visit Digi’s website at www.digi.com, or call 877-912-3444.
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,” “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, including 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 ongoing shift of our sales efforts to focus more on the delivery of broader based solutions which can be a more complex sales process, has not been a historical sales focus of our company and can involve longer sales cycles than the sale of our legacy hardware products, 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 negatively impacted our supply chain and customers, the ability to achieve the anticipated benefits and synergies associated with acquisitions, 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 Securities and Exchange Commission, including without limitation, our annual report on Form 10-K for the year ended September 30, 2011, our quarterly report on Form 10-Q for the quarter ended March 31, 2012 and other filings, could cause the company’s future results to differ 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.
Digi International Reports Third Fiscal Quarter 2012 Results
Presentation of Non-GAAP Financial Measures
This release includes non-GAAP operating income, net income and net income per diluted share data, and earnings before interest, taxes, depreciation and amortization (EBITDA).
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 operating income or 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 EBITDA 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 operating income, net income and net income per diluted share exclusive of restructuring expenses, gain on sale of investments, and reversals of tax reserves and discrete tax benefits 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 relating to taxes and restructuring, which while important, are not central to the core operations of our business. Additionally, management believes that the presentation of EBITDA as a percentage of net sales is useful to investors 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. Management believes that such information helps investors compare operating results and corporate performance exclusive of the impact of our capital structure and the method by which assets were acquired. EBITDA 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 Contacts:
Steve Snyder
Digi International
952-912-3637
Email: steve.snyder@digi.com
Erika Moran
IRG, LLC
212-825-3210
Email: IRG, LLC
For more information, visit Digi’s Web site at www.digi.com, or call 877-912-3444 (U.S.) or 952-912-3444 (International).
Digi International Reports Third Fiscal Quarter 2012 Results
Digi International Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
| Three months ended June 30, | Nine months ended June 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Net sales |
$ | 47,632 | $ | 54,274 | $ | 143,310 | $ | 152,324 | ||||||||
| Cost of sales (exclusive of amortization of purchased and core technology shown separately below) |
21,884 | 24,877 | 66,302 | 70,909 | ||||||||||||
| Amortization of purchased and core technology |
444 | 642 | 1,491 | 2,343 | ||||||||||||
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| Gross profit |
25,304 | 28,755 | 75,517 | 79,072 | ||||||||||||
| Operating expenses: |
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| Sales and marketing |
9,920 | 10,134 | 30,359 | 29,464 | ||||||||||||
| Research and development |
7,779 | 7,860 | 23,764 | 23,517 | ||||||||||||
| General and administrative |
4,056 | 3,913 | 12,211 | 11,600 | ||||||||||||
| Intangibles amortization |
504 | 684 | 1,597 | 2,070 | ||||||||||||
| Restructuring |
963 | — | 1,259 | (70 | ) | |||||||||||
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| Total operating expenses |
23,222 | 22,591 | 69,190 | 66,581 | ||||||||||||
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| Operating income |
2,082 | 6,164 | 6,327 | 12,491 | ||||||||||||
| Other (expense) income: |
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| Interest income, net |
71 | 35 | 202 | 108 | ||||||||||||
| Other (expense) income |
(192 | ) | (378 | ) | (37 | ) | (613 | ) | ||||||||
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| Total other (expense) income, net |
(121 | ) | (343 | ) | 165 | (505 | ) | |||||||||
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| Income before income taxes |
1,961 | 5,821 | 6,492 | 11,986 | ||||||||||||
| Income tax (benefit) provision |
(346 | ) | 2,206 | 1,339 | 3,816 | |||||||||||
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| Net income |
$ | 2,307 | $ | 3,615 | $ | 5,153 | $ | 8,170 | ||||||||
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| Net income per common share, basic |
$ | 0.09 | $ | 0.14 | $ | 0.20 | $ | 0.32 | ||||||||
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| Net income per common share, diluted |
$ | 0.09 | $ | 0.14 | $ | 0.20 | $ | 0.32 | ||||||||
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| Weighted average common shares, basic |
25,770 | 25,369 | 25,705 | 25,236 | ||||||||||||
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| Weighted average common shares, diluted |
26,043 | 25,879 | 26,138 | 25,687 | ||||||||||||
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Digi International Reports Third Fiscal Quarter 2012 Results
Digi International Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
| June 30, 2012 | September 30, 2011 | |||||||
| ASSETS |
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| Current assets: |
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| Cash and cash equivalents |
$ | 42,214 | $ | 54,684 | ||||
| Marketable securities |
66,282 | 51,524 | ||||||
| Accounts receivable, net |
24,364 | 26,433 | ||||||
| Inventories |
26,302 | 23,986 | ||||||
| Deferred tax assets |
2,719 | 2,610 | ||||||
| Other |
3,341 | 2,997 | ||||||
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| Total current assets |
165,222 | 162,234 | ||||||
| Marketable securities |
5,162 | 1,603 | ||||||
| Property, equipment and improvements, net |
15,347 | 15,370 | ||||||
| Identifiable intangible assets, net |
11,192 | 14,360 | ||||||
| Goodwill |
85,544 | 86,012 | ||||||
| Deferred tax assets |
5,219 | 3,771 | ||||||
| Other |
480 | 545 | ||||||
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| Total assets |
$ | 288,166 | $ | 283,895 | ||||
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| LIABILITIES AND STOCKHOLDERS’ EQUITY |
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| Current liabilities: |
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| Accounts payable |
$ | 6,369 | $ | 6,492 | ||||
| Accrued compensation |
6,853 | 7,758 | ||||||
| Accrued warranty |
998 | 941 | ||||||
| Other |
4,337 | 4,295 | ||||||
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| Total current liabilities |
18,557 | 19,486 | ||||||
| Deferred tax liabilities |
637 | 813 | ||||||
| Income taxes payable |
3,109 | 2,620 | ||||||
| Other noncurrent liabilities |
114 | 260 | ||||||
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| Total liabilities |
22,417 | 23,179 | ||||||
| Total stockholders’ equity |
265,749 | 260,716 | ||||||
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| Total liabilities and stockholders’ equity |
$ | 288,166 | $ | 283,895 | ||||
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Digi International Reports Third Fiscal Quarter 2012 Results
Digi International Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Nine months ended June 30, | ||||||||
| 2012 | 2011 | |||||||
| Operating activities: |
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| Net income |
$ | 5,153 | $ | 8,170 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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| Depreciation of property, equipment and improvements |
2,483 | 2,234 | ||||||
| Amortization of identifiable intangible assets |
3,537 | 4,874 | ||||||
| Bad debt/product return provision, net |
521 | 45 | ||||||
| Inventory obsolescence |
1,080 | 1,439 | ||||||
| Excess tax benefits from stock-based compensation |
(133 | ) | (474 | ) | ||||
| Stock-based compensation |
2,798 | 2,562 | ||||||
| Deferred income taxes |
(1,791 | ) | (883 | ) | ||||
| Restructuring |
1,259 | (70 | ) | |||||
| Other |
(81 | ) | 125 | |||||
| Changes in operating assets and liabilities |
(5,867 | ) | (1,854 | ) | ||||
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| Net cash provided by operating activities |
8,959 | 16,168 | ||||||
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| Investing activities: |
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| Purchase of marketable securities |
(64,234 | ) | (44,517 | ) | ||||
| Proceeds from maturities of marketable securities |
45,998 | 35,888 | ||||||
| Proceeds from sale of investment |
135 | - | ||||||
| Purchase of property, equipment, improvements and certain other intangible assets |
(3,003 | ) | (2,166 | ) | ||||
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| Net cash used in investing activities |
(21,104 | ) | (10,795 | ) | ||||
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| Financing activities: |
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| Excess tax benefits from stock-based compensation |
133 | 474 | ||||||
| Proceeds from stock option plan transactions |
600 | 1,839 | ||||||
| Proceeds from employee stock purchase plan transactions |
811 | 744 | ||||||
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| Net cash provided by financing activities |
1,544 | 3,057 | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
(1,869 | ) | 569 | |||||
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| Net (decrease) increase in cash and cash equivalents |
(12,470 | ) | 8,999 | |||||
| Cash and cash equivalents, beginning of period |
54,684 | 50,943 | ||||||
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| Cash and cash equivalents, end of period |
$ | 42,214 | $ | 59,942 | ||||
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