Record Results and Strengthened Balance
Sheet
Digi International® Inc. (Nasdaq: DGII), a leading global
provider of business and mission critical Internet of Things
("IoT") products, services and solutions, today announced its
financial results for its second fiscal quarter ended March 31,
2020.
“Ensuring our team and company are safe and healthy are the
utmost priorities during this global pandemic,” said Ron Konezny,
Digi’s Chief Executive Officer. “Digi’s core value of automating
and enabling remote work for business and mission critical
applications helps our customers during and after the pandemic. Our
performance shows the durability of our team and our business
model.”
Second Fiscal Quarter 2020
Results
- Revenue increased to $73.4 million compared to $65.8 million
for the second fiscal quarter of 2019.
- Net income increased to $2.0 million compared to $1.3 million
for the second fiscal quarter of 2019.
- Net income per diluted share increased to $0.07 per share
compared to $0.05 for the second fiscal quarter of 2019.
- Adjusted EPS increased to $0.28 compared to $0.17 for the
second fiscal quarter of 2019.
- Adjusted EBITDA increased to $11.2 million compared to $6.5
million for the second fiscal quarter of 2019.
Reconciliations of GAAP and non-GAAP financial measures appear
at the end of this release.
Segment Results
IoT Product & Services
The segment's second fiscal quarter 2020 revenues of $66.9
million increased 19.4% from the same period in the prior fiscal
year. This increase is primarily attributed to the incremental
revenue associated with our acquisition of Opengear, Inc.
("Opengear'") on December 13, 2019. Gross profit margin increased
740 basis points to 53.0% of revenues for the second fiscal quarter
of 2020 due primarily to the acquisition of Opengear.
IoT Solutions
The segment's second fiscal quarter 2020 revenues of $6.5
million decreased 32.6% from the same period in the prior fiscal
year. This was primarily due to lower site additions in the second
fiscal quarter 2020 as well as purchases and equipment upgrades
from existing customers that did not reoccur in the second fiscal
quarter of 2020. We served approximately 68,500 sites as of March
31, 2020, compared to just over 57,000 sites a year ago. Gross
profit margin decreased 50 basis points to 48.5% of revenues due to
product mix as the prior year quarter had significant equipment
upgrades. In addition, we experienced higher installation costs in
the second fiscal quarter of 2020.
Fiscal 2020 Guidance
We are withdrawing the provision of financial guidance for
fiscal year 2020 due to the global impact of COVID-19 on business
activities.
Although our second fiscal quarter 2020 revenue and Adjusted
EBITDA performance grew, we noted disruptions in normal business
activities in the second fiscal quarter, especially for customers
whose businesses are located in restricted geographic areas or
whose facilities have been closed or otherwise restricted in their
operations.
We have implemented measures to reduce expenses while
maintaining company performance. We are unable to reasonably
estimate when markets will recover, the duration of such a recovery
and the related financial impact on our business at this time.
Second Fiscal Quarter 2020 Conference
Call Details
As announced on April 7, 2020, Digi will discuss its second
fiscal quarter 2020 results on a conference call on Thursday, May
7, 2020 after market close at 5:00 p.m. ET (4:00 p.m. CT). The call
will be hosted by Ron Konezny, President and Chief Executive
Officer and Jamie Loch, Chief Financial Officer.
Digi invites all those interested in hearing management's
discussion of its quarter to access a live webcast of the
conference call through the investor relations section of Digi's
website at www.digi.com. Participants may also join the call
directly by dialing (855) 638-5675 and entering passcode 3156179.
International participants may access the call by dialing (262)
912-4765 and entering passcode 3156179. A replay will be available
within approximately three hours after the completion of the call,
and for one week following the call, by dialing (855) 859-2056 for
domestic participants or (404) 537-3406 for international
participants and entering access code 3156179 when prompted.
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 us, please visit www.digi.com/aboutus/investorrelations.
About Digi International
Digi International (Nasdaq: DGII) is a leading global provider
of IoT connectivity products, services and solutions. We help our
customers create next-generation connected products and deploy and
manage critical communications infrastructures in demanding
environments with high levels of security and reliability. Founded
in 1985, we’ve helped our customers connect over 100 million things
and growing. For more information, visit Digi's website at
www.digi.com, or call 877–912–3444 (U.S.) or 952–912–3444
(International).
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," "continue," "could,"
"may," "project," "should," "will," 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. Among others, these include risks related to the
present outbreak of the COVID-19 pandemic and efforts to mitigate
the same, economies and the ability of companies to operate
globally, 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, the
potential for significant purchase orders to be canceled or
changed, delays in product development efforts, uncertainty in user
acceptance of our products, the ability to integrate our products
and services with those of other parties in a commercially accepted
manner, 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 could
negatively impact our supply chain and customers, potential
unintended consequences associated with restructuring or other
similar business initiatives that may impact our ability to retain
important employees, the ability to achieve the anticipated
benefits and synergies associated with acquisitions or divestitures
(including, but not limited to, our recently announced acquisition
of Opengear), 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 United States Securities and Exchange
Commission, including without limitation, our annual report on Form
10-K for the year ended September 30, 2019 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.
Presentation of Non-GAAP Financial
Measures
This release includes adjusted net income, adjusted net income
per diluted share and Adjusted EBITDA, each of which is a non-GAAP
measure.
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 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 or presented by us in prior
reports. 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, Adjusted 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 historical and adjusted net income and
adjusted net income per diluted share, respectively, exclusive of
such items as reversals of tax reserves, discrete tax benefits,
restructuring charges and reversals, intangible amortization,
stock-based compensation, other non-operating income/expense,
adjustments to estimates of contingent consideration,
acquisition-related expenses, and interest expense from
acquisitions 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 these matters,
which while important, are not central to the core operations of
our business. Management believes that Adjusted EBITDA, defined as
EBITDA adjusted for stock-based compensation expense,
acquisition-related expenses, restructuring charges and reversals,
and gains from the disposition of our former corporate headquarters
is useful to investors to evaluate the Company’s core operating
results and financial performance because it excludes items that
are significant non-cash or non-recurring items reflected in the
condensed consolidated statements of operations. We believe that
the presentation of Adjusted EBITDA as a percentage of revenue is
useful 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. We believe this
information helps compare operating results and corporate
performance exclusive of the impact of our capital structure and
the method by which assets were acquired.
For more information, visit Digi's website at www.digi.com, or
call 877-912-3444 (U.S.) or 952-912-3444 (International).
Digi International
Inc.
Condensed Consolidated
Statements of Operations
(In thousands, except per
share amounts)
(Unaudited)
Three months ended March 31,
Six months ended March 31,
2020
2019
2020
2019
Revenue
$
73,447
$
65,764
$
135,764
$
128,077
Cost of sales
34,806
35,435
66,659
67,965
Gross profit
38,641
30,329
69,105
60,112
Operating expenses:
Sales and marketing
14,556
11,534
26,617
23,191
Research and development
11,532
9,569
21,863
19,087
General and administrative
8,791
8,441
17,346
11,558
Restructuring charge (reversal)
38
—
38
(67
)
Operating expenses
34,917
29,544
65,864
53,769
Operating income
3,724
785
3,241
6,343
Other (expense) income, net
(1,595
)
399
(2,032
)
563
Income before income taxes
2,129
1,184
1,209
6,906
Income tax expense (benefit)
125
(158
)
(1,003
)
882
Net income
$
2,004
$
1,342
$
2,212
$
6,024
Net income per common share:
Basic
$
0.07
$
0.05
$
0.08
$
0.22
Diluted
$
0.07
$
0.05
$
0.07
$
0.21
Weighted average common shares:
Basic
28,881
27,866
28,673
27,687
Diluted
29,486
28,438
29,585
28,289
Digi International
Inc.
Condensed Consolidated Balance
Sheets
(In thousands)
(Unaudited)
March 31, 2020
September 30, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
58,086
$
92,792
Accounts receivable, net
78,491
56,417
Inventories
43,280
39,764
Other current assets
8,510
3,574
Total current assets
188,367
192,547
Other non-current assets
366,385
206,151
Total assets
$
554,752
$
398,698
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
17,421
$
21,183
Other current liabilities
35,785
23,275
Total current liabilities
53,206
44,458
Other non-current liabilities
143,183
5,262
Total liabilities
196,389
49,720
Total stockholders’ equity
358,363
348,978
Total liabilities and stockholders’
equity
$
554,752
$
398,698
Digi International
Inc.
Condensed Consolidated
Statements of Cash Flows
(In thousands)
(Unaudited)
Six months ended March 31,
2020
2019
Net cash (used in) provided by operating
activities
$
(12,683
)
$
6,202
Net cash (used in) provided by investing
activities
(136,532
)
4,953
Net cash provided by financing
activities
112,931
908
Effect of exchange rate changes on cash
and cash equivalents
1,578
(484
)
Net (decrease) increase in cash and cash
equivalents
(34,706
)
11,579
Cash and cash equivalents, beginning of
period
92,792
58,014
Cash and cash equivalents, end of
period
$
58,086
$
69,593
Non-GAAP Financial
Measures
TABLE 1
Reconciliation of Net Income
to Adjusted EBITDA
(In thousands)
Three months ended March 31,
Six months ended March 31,
2020
2019
2020
2019
% of total revenue
% of total revenue
% of total revenue
% of total revenue
Total revenue
$
73,447
100.0
%
$
65,764
100.0
%
$
135,764
100.0
%
$
128,077
100.0
%
Net income
$
2,004
$
1,342
$
2,212
$
6,024
Interest expense (income), net
1,684
(142
)
1,885
(258
)
Income tax expense (benefit)
125
(158
)
(1,003
)
882
Depreciation and amortization
5,236
3,153
8,853
6,826
Stock-based compensation
1,841
1,293
3,441
2,707
Gain on sale of building
—
—
—
(4,396
)
Restructuring charge (reversal)
38
—
38
(67
)
Acquisition expense
249
1,060
2,155
991
Adjusted EBITDA
$
11,177
15.2
%
$
6,548
10.0
%
$
17,581
12.9
%
$
12,709
9.9
%
TABLE 2
Reconciliation of Net Income
and Net Income per Diluted Share to
Adjusted Net Income and
Adjusted Net Income per Diluted Share
(In thousands, except per share
amounts)
Three months ended March 31,
Six months ended March 31,
2020
2019
2020
2019
Net income and net income per diluted
share
$
2,004
$
0.07
$
1,342
$
0.05
$
2,212
$
0.07
$
6,024
$
0.21
Amortization
4,116
0.14
2,069
0.07
6,564
0.22
4,609
0.16
Stock-based compensation
1,841
0.06
1,293
0.05
3,441
0.12
2,707
0.10
Other non-operating (income) expense
(89
)
—
(257
)
(0.01
)
147
—
(305
)
(0.01
)
Acquisition expense
249
0.01
1,060
0.04
2,155
0.07
991
0.04
Acquisition earn-out adjustments
(388
)
(0.01
)
567
0.02
(129
)
—
810
0.03
Restructuring charge (reversal)
38
—
—
—
38
—
(67
)
—
Interest expense related to
acquisition
1,709
0.06
—
—
2,125
0.07
—
—
Gain on sale of building
—
—
—
—
—
—
(4,396
)
(0.16
)
Tax effect from the above adjustments
(1)
(1,121
)
(0.04
)
(1,110
)
(0.04
)
(2,731
)
(0.09
)
(1,020
)
(0.04
)
Discrete tax benefits (2)
(102
)
—
(202
)
(0.01
)
(1,061
)
(0.04
)
(308
)
(0.01
)
Adjusted net income and adjusted net
income per diluted share (3)
$
8,257
$
0.28
$
4,762
$
0.17
$
12,761
$
0.43
$
9,045
$
0.32
Diluted weighted average common shares
29,486
28,438
29,585
28,289
(1)
The tax effect from the above adjustments assumes an annualized
effective tax rate of 18% for both fiscal 2020 and 2019.
(2)
For the three months ended March 31, 2020, discrete tax benefits
primarily include excess tax benefits recognized on stock
compensation. For the six months ended March 31, 2020, discrete tax
benefits include excess tax benefits recognized on stock
compensation and an adjustment of our state deferred tax rate due
to the Opengear acquisition. For the three and six months ended
March 31, 2019, discrete tax benefits are a result of expiring
statute of limitations of uncertain tax benefits as well as excess
tax benefits recognized on stock compensation.
(3)
Adjusted net income per diluted share may not add due to the use
of rounded numbers.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200507005996/en/
Investor Contact: James J. Loch Senior Vice President,
Chief Financial Officer and Treasurer Digi International
952-912-3737 Email: jamie.loch@digi.com
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