Revenue of $106M, Record End of Quarter ARR
of $108M ARR Surpasses Quarterly Revenue for First
Time Cash Flow From Operations was $19 Million
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 first fiscal quarter ended December 31,
2023.
First Fiscal Quarter 2024 Results
Compared to First Fiscal Quarter 2023 Results
- Revenue was $106 million, a decrease of 3%.
- Gross profit margin was 57.6%, an increase of 130 basis
points.
- Net loss per diluted share was $0.08, driven by the $0.26
impact of the term B debt issuance cost write off, compared to net
income per diluted share of $0.16.
- Adjusted net income per diluted share was $0.48, flat year over
year.
- Adjusted EBITDA was $23 million, flat year over year.
- Annualized Recurring Revenue (ARR) was $108 million at quarter
end, an increase of 13%.
Reconciliations of GAAP and non-GAAP financial measures appear
at the end of this release.
"Double digit ARR growth propelled Digi to reach a milestone of
ARR exceeding quarterly revenue for the first time," said Ron
Konezny, President and Chief Executive Officer. "Lowered inventory
levels combined with a reduction in debt significantly improved our
balance sheet. We are committed to achieving $200 million of ARR
and $200 million of adjusted EBITDA within the next five
years."
Additional Financial
Highlights
- We retired the term loan existing under our prior credit
facility in the first quarter of fiscal 2024, incurring a one-time
expense of $10 million for the write-off of debt issuance costs. In
addition, we made payments towards our new revolving credit
facility, reducing our gross outstanding debt to $196 million at
quarter end and debt net of cash and cash equivalents to $163
million.
- We had $5.7 million of interest expense in the first quarter of
fiscal 2024, compared to $6.0 million a year ago. The decrease was
driven by reduction of our effective interest rate and decreased
debt outstanding.
- Cash flow from operations was $19 million in the first quarter
of fiscal 2024, compared to $3 million a year ago, driven primarily
by year over year changes in inventory.
- Net inventory ended the quarter at $68 million, compared to $74
million at September 30, 2023. This represents a $13 million
reduction from the balance a year ago, reflecting continued efforts
to manage inventory levels.
Segment Results
IoT Product & Services
The segment's first fiscal quarter 2024 revenue of $82 million
decreased 3% from the same period in the prior fiscal year. This
decrease was driven by decreases in sales volume in Console Server
and Cellular products, partially offset by growth in OEM products.
ARR as of the end of the first fiscal quarter was $23 million, an
increase of 64% from the prior fiscal year. This increase primarily
was due to growth in the subscription base for Console Server
services, complemented by growth in other business lines. Gross
profit margin decreased 110 basis points to 53.5% of revenue for
the first fiscal quarter of 2024, driven primarily by decreased
volume in Console Server, partially offset by increased volume and
higher margin mix in OEM. Operating income was $10 million, a
decrease of 18%, primarily due to the decrease in revenue.
IoT Solutions
The segment's first fiscal quarter 2024 revenue of $24 million
decreased 4% from the same period in the prior fiscal year. This
decrease was a result of decreased sales of Ventus offerings,
partially offset by volume growth in SmartSense. ARR as of the end
of the first fiscal quarter was $85 million, an increase of 4% from
the prior fiscal year primarily driven by growth in SmartSense.
Increased revenue and expanding margins in SmartSense drove a 950
basis points gross margin increase to 71.6% in the first fiscal
quarter of 2024. Operating income was $1.8 million, compared to an
operating loss of $0.7 million a year ago.
Capital Allocation
Strategy
We intend to continue to deleverage the company while managing
inventory appropriately as our supply chain continues to normalize.
Our inventory position remains elevated, but we believe this
investment will deliver working capital benefits for Digi in future
quarters.
Acquisitions remain a top capital priority for Digi. We will be
disciplined in our approach and act when we believe an opportunity
is appropriate to execute in the context of prevailing market
conditions. We are evolving and monitoring our acquisition
pipeline, and we intend to focus more on scale and ARR.
Second Fiscal Quarter 2024 and
Full-Year 2024 Guidance
Digi remains steadfast in achieving our new long term strategic
goals of doubling ARR and Adjusted EBITDA to $200 million within
the next five years. Digi’s resilient execution in a large and
growing Industrial Internet of Things market has stayed consistent.
Our outlook for fiscal 2024 remains unchanged, with our ARR and
Adjusted EBITDA growing 5% and our revenue projects to be flat year
over year.
For the second fiscal quarter, revenues are estimated to be $105
million to $109 million. Adjusted EBITDA is estimated to be between
$22.5 million and $24.5 million. Adjusted net income per share is
anticipated to be between $0.45 and $0.49 per diluted share,
assuming a weighted average diluted share count of 37.7 million
shares.
We provide guidance or longer-term targets for Adjusted net
income per share as well as Adjusted EBITDA targets on a non-GAAP
basis. We do not reconcile these items to their most similar U.S.
GAAP measure as it is difficult to predict without unreasonable
efforts numerous items that include but are not limited to the
impact of foreign exchange translation, restructuring, interest and
certain tax related events. Given the uncertainty, any of these
items could have a significant impact on U.S. GAAP results.
First Fiscal Quarter 2024 Conference
Call Details
As announced on January 19, 2024, Digi will discuss its first
fiscal quarter results on a conference call on Thursday, February
1, 2024 at 10:00 a.m. ET (9:00 a.m. CT). The call will be hosted by
Ron Konezny, President and Chief Executive Officer and Jamie Loch,
Chief Financial Officer.
Participants may register for the conference call at:
https://register.vevent.com/register/BI5fa5a3d6e5ca4856948123f5f6ddf85e.
Once registration is completed, participants will be provided a
dial-in number and passcode to access the call. All participants
are asked to dial-in 15 minutes prior to the start time.
Participants may access a live webcast of the conference call
through the investor relations section of Digi’s website,
https://digi.gcs-web.com/ or the
hosting website at: https://edge.media-server.com/mmc/p/tn9spd4c/.
A replay will be available within approximately two hours after
the completion of the call for approximately one year. You may
access the replay via webcast through the investor relations
section of Digi’s website.
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.
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," "assume," "believe," "continue,"
"estimate," "expect," "intend," "may," "plan," "potential,"
"project," "should," "target," or "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 Digi operates, projections of future performance,
inventory levels, perceived marketplace opportunities, interest
expense 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 ongoing and varying inflationary and
deflationary pressures around the world and the monetary policies
of governments globally as well as present concerns about a
potential recession, the ability of companies like us to operate a
global business in such conditions as well as negative effects on
product demand and the financial solvency of customers and
suppliers in such conditions, risks related to ongoing supply chain
challenges that continue to impact businesses globally, risks
related to cybersecurity, risks arising from the present wars in
Ukraine and the Middle East, 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 integrate and realize the expected benefits of
acquisitions, our ability to defend or settle satisfactorily any
litigation, 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, reorganizations or other similar business
initiatives that may impact our ability to retain important
employees or otherwise impact our operations in unintended and
adverse ways, 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, those set forth in Item
1A, Risk Factors, of our Annual Report on Form 10-K for the year
ended September 30, 2023, subsequent filings on Form 10-Q and other
filings, could cause our actual 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
Digi. 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. We believe 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,
changes in fair value of contingent consideration,
acquisition-related expenses and interest expense related to
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 changes in fair value of contingent consideration is useful to
investors to evaluate our 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.
Digi International
Inc.
Condensed Consolidated
Statements of Operations
(In thousands, except per
share amounts)
(Unaudited)
Three months ended December
31,
2023
2022
Revenue
$
106,089
$
109,306
Cost of sales
44,989
47,785
Gross profit
61,100
61,521
Operating expenses:
Sales and marketing
19,647
19,106
Research and development
14,633
14,094
General and administrative
14,687
16,358
Operating expenses
48,967
49,558
Operating income
12,133
11,963
Other expense, net
(15,409
)
(5,954
)
(Loss) income before income taxes
(3,276
)
6,009
Income tax (benefit) provision
(222
)
230
Net (loss) income
$
(3,054
)
$
5,779
Net (loss) income per common share:
Basic
$
(0.08
)
$
0.16
Diluted
$
(0.08
)
$
0.16
Weighted average common shares:
Basic
36,129
35,608
Diluted
36,129
36,859
Digi International
Inc.
Condensed Consolidated Balance
Sheets
(In thousands)
(Unaudited)
December 31, 2023
September 30, 2023
ASSETS
Current assets:
Cash and cash equivalents
$
31,548
$
31,693
Accounts receivable, net
61,441
55,997
Inventories
67,590
74,396
Other current assets
4,799
4,112
Total current assets
165,378
166,198
Non-current assets
663,284
669,333
Total assets
$
828,662
$
835,531
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt
$
—
$
15,523
Accounts payable
16,679
17,148
Other current liabilities
53,766
53,307
Total current liabilities
70,445
85,978
Long-term debt
194,684
188,051
Other non-current liabilities
21,458
21,014
Non-current liabilities
216,142
209,065
Total liabilities
286,587
295,043
Total stockholders’ equity
542,075
540,488
Total liabilities and stockholders’
equity
$
828,662
$
835,531
Digi International
Inc.
Condensed Consolidated
Statements of Cash Flows
(In thousands)
(Unaudited)
Three months ended December
31,
2023
2022
Net cash provided by operating
activities
$
18,672
$
2,680
Net cash used in investing activities
(292
)
(963
)
Net cash used in financing activities
(20,376
)
(5,896
)
Effect of exchange rate changes on cash
and cash equivalents
1,851
228
Net decrease in cash and cash
equivalents
(145
)
(3,951
)
Cash and cash equivalents, beginning of
period
31,693
34,900
Cash and cash equivalents, end of
period
$
31,548
$
30,949
Non-GAAP
Financial Measures
TABLE 1
Reconciliation of Net (Loss)
Income to Adjusted EBITDA
(In thousands)
Three months ended December
31,
2023
2022
% of total
revenue
% of total
revenue
Total revenue
$
106,089
100.0
%
$
109,306
100.0
%
Net (loss) income
$
(3,054
)
$
5,779
Interest expense, net
5,661
5,971
Debt issuance cost write off
9,722
—
Income tax (benefit) provision
(222
)
230
Depreciation and amortization
8,051
8,112
Stock-based compensation expense
3,106
2,868
Restructuring charge
103
23
Acquisition expense
(61
)
381
Adjusted EBITDA
$
23,306
22.0
%
$
23,364
21.4
%
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 December
31,
2023
2022
Net (loss) income and net (loss) income
per diluted share
$
(3,054
)
$
(0.08
)
$
5,779
$
0.16
Amortization
6,238
0.17
6,463
0.18
Stock-based compensation expense
3,106
0.08
2,868
0.08
Other non-operating expense (income)
26
—
(17
)
—
Acquisition expense
(61
)
—
381
0.01
Restructuring charge
103
—
23
—
Interest expense, net
5,661
0.15
5,971
0.16
Debt issuance cost write off
9,722
0.26
—
—
Tax effect from the above adjustments
(1)
(3,913
)
(0.11
)
(4,869
)
(0.14
)
Discrete tax (benefits) expenses (2)
(182
)
—
1,192
0.03
Adjusted net income and adjusted net
income per diluted share (3)
$
17,646
$
0.48
$
17,791
$
0.48
Diluted weighted average common shares
36,715
36,859
(1)
The tax effect from the above adjustments
assumes an estimated effective tax rate of 18.0% for fiscal 2024
and 2023 based on adjusted net income.
(2)
For the three and twelve months ended
December 31, 2023 and 2022 discrete tax (benefits) expenses
primarily are a result of changes in 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/20240131413042/en/
Investor Contact: Rob Bennett Investor Relations Digi
International 952-912-3524 Email: rob.bennett@digi.com
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